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115th Congress }                                            { Report
                       HOUSE OF REPRESENTATIVES 
 2d Session    }                                            { 115-958
               
_______________________________________________________________________

                                     


       PROTECTING FAMILY AND SMALL BUSINESS TAX CUTS ACT OF 2018

                               __________

                              R E P O R T

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                        HOUSE OF REPRESENTATIVES

                                   on

                               H.R. 6760

                             together with

                            DISSENTING VIEWS

      [Including cost estimate of the Congressional Budget Office]
      

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 September 24, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed
            
            
                                 ________
                       
                   U.S. GOVERNMENT PUBLISHING OFFICE
                
31-578                      WASHINGTON: 2018            
            



            
            
                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. SUMMARY AND BACKGROUND..........................................18
          A. Purpose and Summary.................................    18
          B. Background and Need for Legislation.................    18
          C. Legislative History.................................    19
 II. EXPLANATION OF THE BILL.........................................19
III. VOTES OF THE COMMITTEE..........................................24
 IV. BUDGET EFFECTS OF THE BILL......................................29
          A. Committee Estimate of Budgetary Effects.............    29
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    33
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    33
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......40
          A. Committee Oversight Findings and Recommendations....    40
          B. Statement of General Performance Goals and 
              Objectives.........................................    40
          C. Information Relating to Unfunded Mandates...........    40
          D. Applicability of House Rule XXI 5(b)................    40
          E. Tax Complexity Analysis.............................    40
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    49
          G. Duplication of Federal Programs.....................    49
          H. Disclosure of Directed Rule Makings.................    49
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........49
          A. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    49
VII. DISSENTING VIEWS...............................................681





115th Congress }                                           { Report
                        HOUSE OF REPRESENTATIVES
 2d Session    }                                           { 115-958

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

 
       PROTECTING FAMILY AND SMALL BUSINESS TAX CUTS ACT OF 2018

                                _______
                                

 September 24, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6760]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6760) to amend the Internal Revenue Code of 1986 to 
make permanent certain provisions of the Tax Cuts and Jobs Act 
affecting individuals, families, and small businesses, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE, ETC.

  (a) Short Title.--This Act may be cited as the ``Protecting Family 
and Small Business Tax Cuts Act of 2018''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) References to the Tax Cuts and Jobs Act.--Title I of Public Law 
115-97 may be cited as the ``Tax Cuts and Jobs Act''.
  (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title, etc.

               TITLE I--INDIVIDUAL REFORM MADE PERMANENT

                        Subtitle A--Rate Reform

Sec. 101. Modification of rates.

   Subtitle B--Deduction for Qualified Business Income of Pass-thru 
                                Entities

Sec. 111. Deduction for qualified business income.
Sec. 112. Limitation on losses for taxpayers other than corporations.

         Subtitle C--Tax Benefits for Families and Individuals

Sec. 121. Increase in standard deduction.
Sec. 122. Increase in and modification of child tax credit.
Sec. 123. Increased limitation for certain charitable contributions.
Sec. 124. Increased contributions to ABLE accounts.
Sec. 125. Rollovers to ABLE programs from 529 programs.
Sec. 126. Treatment of certain individuals performing services in the 
Sinai Peninsula of Egypt.
Sec. 127. Extension of reduction in threshold for medical expense 
deduction.

                         Subtitle D--Education

Sec. 131. Treatment of student loans discharged on account of death or 
disability.

                 Subtitle E--Deductions and Exclusions

Sec. 141. Repeal of deduction for personal exemptions.
Sec. 142. Limitation on deduction for State and local, etc. taxes.
Sec. 143. Limitation on deduction for qualified residence interest.
Sec. 144. Modification of deduction for personal casualty losses.
Sec. 145. Termination of miscellaneous itemized deductions.
Sec. 146. Repeal of overall limitation on itemized deductions.
Sec. 147. Termination of exclusion for qualified bicycle commuting 
reimbursement.
Sec. 148. Qualified moving expense reimbursement exclusion limited to 
members of Armed Forces.
Sec. 149. Deduction for moving expenses limited to members of Armed 
Forces.
Sec. 150. Limitation on wagering losses.

         Subtitle F--Increase in Estate and Gift Tax Exemption

Sec. 151. Increase in estate and gift tax exemption.

    TITLE II--INCREASED EXEMPTION FOR ALTERNATIVE MINIMUM TAX MADE 
                               PERMANENT

Sec. 201. Increased exemption for individuals.

               TITLE I--INDIVIDUAL REFORM MADE PERMANENT

                        Subtitle A--Rate Reform

SEC. 101. MODIFICATION OF RATES.

  (a) Married Individuals Filing Joint Returns and Surviving Spouses.--
Section 1(a) is amended by striking the table contained therein and 
inserting the following:


 
       ``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) Head of Households.--Section 1(b) is amended by striking the 
table contained therein and inserting the following:


 
       ``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 
Household.--Section 1(c) is amended by striking the table contained 
therein and inserting the following:


 
       ``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.--Section 1(d) is 
amended by striking the table contained therein and inserting the 
following:


 
       ``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.--Section 1(e) is amended by striking the 
table contained therein and inserting the following:


 
       ``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) Inflation Adjustments.--Section 1(f) is amended--
          (1) by striking ``1993'' in paragraph (1) and inserting 
        ``2018'',
          (2) by amending paragraph (2)(A) to read as follows:
                  ``(A) 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 under this subsection 
                for such calendar year by substituting `2017' for 
                `2016' in paragraph (3)(A)(ii),'',
          (3) in paragraph (7)(B), by striking all that precedes 
        ``(other than with respect to'' and inserting the following:
                  ``(B) Special rule.--In the case of a table 
                prescribed in lieu of the table contained in subsection 
                (b), (c), or (d), subparagraph (A)'',
          (4) by striking paragraph (8), and
          (5) in the heading, by striking ``Phaseout of Marriage 
        Penalty in 15-percent Bracket; Adjustments'' and inserting 
        ``Adjustments''.
  (g) Special Rules for Certain Children With Unearned Income.--
          (1) In general.--Section 1(g) is amended by striking all that 
        precedes paragraph (2) and inserting the following:
  ``(g) Special Rules for Certain Children With Unearned Income.--
          ``(1) In general.--In the case of any child to whom this 
        subsection applies--
                  ``(A) Modifications to applicable rate brackets.--In 
                determining the amount of tax imposed by this section 
                for the taxable year on such child, the income tax 
                table otherwise applicable under this section to such 
                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 subsection (e) (as adjusted under 
                                subsection (f)) 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 subsection (e) (as adjusted under 
                                subsection (f)) 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 subsection (e) (as adjusted under 
                                subsection (f)) for the taxable year.
                  ``(B) Coordination with capital gains rates.--For 
                purposes of applying section 1(h)--
                          ``(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 
                                subsection (h)(13) 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 
                                subsection (h)(12)(D) for the taxable 
                                year.''.
          (2) Earned taxable income.--Section 1(g)(3) is amended to 
        read as follows:
          ``(3) Earned taxable income.--For purposes of this 
        subsection, 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 of such child.''.
          (3) Conforming amendment.--So much of paragraph (5) of 
        section 1(g) as precedes subparagraph (A) thereof is amended to 
        read as follows:
          ``(5) Special rules for determining parent eligible to make 
        election.--For purposes of paragraph (7), the parent referred 
        to in subparagraph (A)(iv) thereof is--''.
  (h) Application of Income Tax Brackets to Capital Gains Brackets.--
Section 1(h) is amended--
          (1) in paragraph (1)(B)(i), by striking ``25 percent'' and 
        inserting ``22 percent'',
          (2) in paragraph (1)(C)(ii)(I), by striking ``which would 
        (without regard to this paragraph) be taxed at a rate below 
        39.6 percent'' and inserting ``below the maximum 15-percent 
        rate amount'', and
          (3) by adding at the end the following new paragraphs:
          ``(12) Maximum 15-percent rate amount defined.--For purposes 
        of this subsection, the maximum 15-percent rate amount shall 
        be--
                  ``(A) in the case of a joint return or surviving 
                spouse (as defined in section 2(a)), $479,000 (\1/2\ 
                such amount in the case of a married individual filing 
                a separate return),
                  ``(B) in the case of an individual who is the head of 
                a household (as defined in section 2(b)), $452,400,
                  ``(C) in the case of any other individual (other than 
                an estate or trust), $425,800, and
                  ``(D) in the case of an estate or trust, $12,700.
          ``(13) Determination of 0 percent rate bracket for estates 
        and trusts.--In the case of any estate or trust, paragraph 
        (1)(B) shall be applied by treating the amount determined in 
        clause (i) thereof as being equal to $2,600.
          ``(14) Inflation adjustment.--
                  ``(A) In general.--In the case of any taxable year 
                beginning after 2018, each of the dollar amounts in 
                paragraphs (12) and (13) 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.
                  ``(B) Rounding.--If any increase under subparagraph 
                (A) is not a multiple of $50, such increase shall be 
                rounded to the next lowest multiple of $50.''.
  (i) Application of Section 15.--
          (1) In general.--Subsection (a) of section 15 is amended by 
        striking ``If any rate of tax'' and inserting ``In the case of 
        a corporation, if any rate of tax''.
          (2) Conforming amendments.--
                  (A) Section 15 is amended by striking subsections 
                (d), (e), and (f).
                  (B) Section 6013(c) is amended by striking ``sections 
                15, 443, and 7851(a)(1)(A)'' and inserting ``section 
                443''.
                  (C) The heading of section 15 is amended by inserting 
                ``on corporations'' after ``effect of changes''.
                  (D) The table of sections for part III of subchapter 
                A of chapter 1 is amended by striking the item relating 
                to section 15 and inserting the following new item:

``Sec. 15. Effect of changes on corporations.''.

  (j) Conforming Amendments.--
          (1) Section 1 is amended by striking subsections (i) and (j).
          (2) Section 3402(q)(1) is amended by striking ``third 
        lowest'' and inserting ``fourth lowest''.
  (k) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2017.
          (2) Application of section 15.--Section 15 of the Internal 
        Revenue Code of 1986 shall not apply to any change in a rate of 
        tax by reason of--
                  (A) section 1(j) of such Code (as in effect before 
                its repeal by this section), or
                  (B) any amendment made by this Act.

   Subtitle B--Deduction for Qualified Business Income of Pass-thru 
                                Entities

SEC. 111. DEDUCTION FOR QUALIFIED BUSINESS INCOME.

  (a) In General.--Section 199A is amended by striking subsection (i).
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 112. LIMITATION ON LOSSES FOR TAXPAYERS OTHER THAN CORPORATIONS.

  (a) In General.--Section 461 is amended--
          (1) by amending subsection (l)(1) to read as follows:
          ``(1) Limitation.--In the case of a taxpayer other than a 
        corporation, any excess business loss of the taxpayer for the 
        taxable year shall not be allowed.'', and
          (2) by striking subsection (j) and redesignating subsections 
        (k) and (l) (as amended) as subsections (j) and (k), 
        respectively.
  (b) Conforming Amendments.--
          (1) Section 58(a)(2)(A) is amended by striking ``461(k)'' and 
        inserting ``461(j)''.
          (2) Section 461(i)(4) is amended by striking ``subsection 
        (k)'' and inserting ``subsection (j)''.
          (3) Section 464(d)(2)(B)(iii) is amended by striking 
        ``section 461(k)(2)(E)'' and inserting ``section 
        461(j)(2)(E)''.
          (4) Subparagraphs (B) and (C) of section 1256(e)(3) are each 
        amended by striking ``section 461(k)(4)'' and inserting 
        ``section 461(j)(4)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

         Subtitle C--Tax Benefits for Families and Individuals

SEC. 121. INCREASE IN STANDARD DEDUCTION.

  (a) In General.--Section 63(c)(2) is amended--
          (1) by striking ``$4,400'' in subparagraph (B) and inserting 
        ``$18,000'', and
          (2) by striking ``$3,000'' in subparagraph (C) and inserting 
        ``$12,000''.
  (b) Inflation Adjustment.--Section 63(c)(4) is amended to read as 
follows:
          ``(4) Adjustments for inflation.--
                  ``(A) In general.--In the case of a taxable year 
                beginning after 2018, each dollar amount in paragraph 
                (2)(B), (2)(C), or (5) or subsection (f) 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 for `2016' in 
                        subparagraph (A)(ii) thereof--
                                  ``(I) in the case of the dollar 
                                amounts contained in paragraph (2)(B) 
                                or (2)(C), `2017',
                                  ``(II) in the case of the dollar 
                                amounts contained in paragraph (5)(A) 
                                or subsection (f), `1987', and
                                  ``(III) in the case of the dollar 
                                amount contained in paragraph (5)(B), 
                                `1997'.
                  ``(B) Rounding.--If any increase under subparagraph 
                (A) is not a multiple of $50, such increase shall be 
                rounded to the next lowest multiple of $50.''.
  (c) Conforming Amendments.--
          (1) Section 1(f)(7)(A) is amended by striking ``section 
        63(c)(4),''.
          (2) Section 1(f)(7)(B) is amended by striking ``sections 
        63(c)(4) and'' and inserting ``section''.
          (3) Section 63(c) is amended by striking paragraph (7).
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 122. INCREASE IN AND MODIFICATION OF CHILD TAX CREDIT.

  (a) In General.--Section 24 is amended by striking subsections (a), 
(b), and (c) and inserting the following new subsections:
  ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the sum of--
          ``(1) $2,000 for each qualifying child of the taxpayer, and
          ``(2) $500 for each qualifying dependent (other than a 
        qualifying child) of the taxpayer.
  ``(b) Limitation Based on Adjusted Gross Income.--The amount of the 
credit allowable under subsection (a) shall be reduced (but not below 
zero) by $50 for each $1,000 (or fraction thereof) by which the 
taxpayer's modified adjusted gross income exceeds $400,000 in the case 
of a joint return ($200,000 in any other case). For purposes of the 
preceding sentence, the term ``modified adjusted gross income'' means 
adjusted gross income increased by any amount excluded from gross 
income under section 911, 931, or 933.
  ``(c) Qualifying Child; Qualifying Dependent.--For purposes of this 
section--
          ``(1) Qualifying child.--The term `qualifying child' means 
        any qualifying dependent of the taxpayer--
                  ``(A) who is a qualifying child (as defined in 
                section 7706(c)) of the taxpayer,
                  ``(B) who has not attained age 17 at the close of the 
                calendar year in which the taxable year of the taxpayer 
                begins, and
                  ``(C) whose name and social security number are 
                included on the taxpayer's return of tax for the 
                taxable year.
          ``(2) Qualifying dependent.--The term `qualifying dependent' 
        means any dependent of the taxpayer (as defined in section 7706 
        without regard to all that follows `resident of the United 
        States' in section 7706(b)(3)(A)) whose name and TIN are 
        included on the taxpayer's return of tax for the taxable year.
          ``(3) Social security number defined.--For purposes of this 
        subsection, the term `social security number' means, with 
        respect to a return of tax, 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) on or before the due date of filing such 
                return.''.
  (b) Portion of Credit Refundable.--
          (1) In general.--Section 24(d)(1)(A) is amended to read as 
        follows:
                  ``(A) the credit which would be allowed under this 
                section determined--
                          ``(i) by substituting `$1,400' for `$2,000' 
                        in subsection (a)(1),
                          ``(ii) without regard to subsection (a)(2), 
                        and
                          ``(iii) without regard to this subsection and 
                        the limitation under section 26(a), or''.
          (2) Modification of limitation based on earned income.--
        Section 24(d)(1)(B)(i) is amended by striking ``$3,000'' and 
        inserting ``$2,500''.
          (3) Inflation adjustment.--Section 24(d) is amended by 
        inserting after paragraph (3) the following new paragraph:
          ``(4) Adjustment for inflation.--
                  ``(A) In general.--In the case of a taxable year 
                beginning after 2018, the $1,400 amount in paragraph 
                (1)(A)(i) 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.
                  ``(B) Rounding.--If any increase under subparagraph 
                (A) is not a multiple of $100, such increase shall be 
                rounded to the next lowest multiple of $100.
                  ``(C) Limitation.--The amount of any increase under 
                subparagraph (A) (after the application of subparagraph 
                (B)) shall not exceed $600.''.
          (4) Conforming amendments.--
                  (A) Section 24(e) is amended to read as follows:
  ``(e) Taxpayer Identification Requirement.--No credit shall be 
allowed under this section if the identifying number of the taxpayer 
was issued after the due date for filing the return of tax for the 
taxable year.''.
                  (B) Section 24 is amended by striking subsection (h).
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 123. INCREASED LIMITATION FOR CERTAIN CHARITABLE CONTRIBUTIONS.

  (a) In General.--Section 170(b)(1)(G) is amended to read as follows:
                  ``(G) Cash contributions.--
                          ``(i) In general.--Any contribution of cash 
                        to an organization described in subparagraph 
                        (A) shall be allowed to the extent that the 
                        aggregate of such contributions does not exceed 
                        60 percent of the taxpayer's contribution base 
                        for the taxable year, reduced by the aggregate 
                        amount of contributions allowable under 
                        subparagraph (A) for such taxpayer for such 
                        year.
                          ``(ii) Carryover.--If the aggregate amount of 
                        contributions described in clause (i) exceeds 
                        the limitation of clause (i), such excess shall 
                        be treated (in a manner consistent with the 
                        rules of subsection (d)(1)) as a charitable 
                        contribution to which clause (i) applies in 
                        each of the 5 succeeding years in order of 
                        time.''.
  (b) Coordination With Limitations on Other Contributions.--
          (1) Coordination with 50 percent limitation.--Section 
        170(b)(1)(A) is amended by striking ``Any charitable 
        contribution'' and inserting ``Any charitable contribution 
        other than a contribution described in subparagraph (G)''.
          (2) Coordination with 30 percent limitation.--Section 
        170(b)(1)(B) is amended--
                  (A) in the matter preceding clause (i), by striking 
                ``to which subparagraph (A) applies'' and inserting 
                ``to which subparagraph (A) or (G) applies'',
                  (B) by amending clause (ii) to read as follows:
                          ``(ii) the excess of--
                                  ``(I) the sum of 50 percent of the 
                                taxpayer's contribution base for the 
                                taxable year, plus so much of the 
                                amount of charitable contributions 
                                allowable under subparagraph (G) as 
                                does not exceed 10 percent of such 
                                contribution base, over
                                  ``(II) the amount of charitable 
                                contributions allowable under 
                                subparagraphs (A) and (G) (determined 
                                without regard to subparagraph (C)).'', 
                                and
                  (C) in the matter following clause (ii), by striking 
                ``(to which subparagraph (A) does not apply)'' and 
                inserting ``(to which neither subparagraph (A) nor (G) 
                applies)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to contributions made in taxable years beginning after December 31, 
2017.

SEC. 124. INCREASED CONTRIBUTIONS TO ABLE ACCOUNTS.

  (a) Increase in Limitation for Contributions From Compensation of 
Individuals With Disabilities.--Section 529A(b)(2)(B)(ii) is amended by 
striking ``before January 1, 2026''.
  (b) Allowance of Saver's Credit for ABLE Contributions by Account 
Holder.--Section 25B(d)(1)(D) is amended by striking ``made before 
January 1, 2026,''.
  (c)  Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 125. ROLLOVERS TO ABLE PROGRAMS FROM 529 PROGRAMS.

  (a) In General.--Section 529(c)(3)(C)(i)(III) is amended by striking 
``before January 1, 2026,''.
  (b)  Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2017.

SEC. 126. TREATMENT OF CERTAIN INDIVIDUALS PERFORMING SERVICES IN THE 
                    SINAI PENINSULA OF EGYPT.

  (a) In General.--Section 112(c)(2) is amended--
          (1) by striking ``means any area'' and inserting ``means--
                  ``(A) any area'', and
          (2) by striking the period at the end and inserting ``, and
                  ``(B) the Sinai Peninsula of Egypt.''.
  (b) Period of Treatment.--Section 112(c)(3) is amended--
          (1) by striking ``only if performed'' and inserting ``only 
        if--
                  ``(A) in the case of an area described in paragraph 
                (2)(A), such service is performed'', and
          (2) by striking the period at the end and inserting ``, and
                  ``(B) in the case of the area described in paragraph 
                (2)(B), such service is performed during any period 
                with respect to which one or more members of the Armed 
                Forces of the United States are 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 service performed in such 
                area.''.
  (c) Conforming Amendment.--The Tax Cuts and Jobs Act is amended by 
striking section 11026.
  (d) Effective Date.--The amendments made by this section shall apply 
with respect to services performed on or after the date of the 
enactment of this Act.

SEC. 127. EXTENSION OF REDUCTION IN THRESHOLD FOR MEDICAL EXPENSE 
                    DEDUCTION.

  (a) In General.--Section 213(a) is amended by inserting ``(7.5 
percent in the case of any taxable year beginning after December 31, 
2018, and ending before January 1, 2021)'' after ``10 percent''.
  (b) Conforming Amendments.--
          (1) Section 56(b)(1) is amended by striking subparagraph (B) 
        and by redesignating subparagraphs (C) through (F) as 
        subparagraphs (B) through (E), respectively.
          (2) Section 213 is amended by striking subsection (f).
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2018.

                         Subtitle D--Education

SEC. 131. TREATMENT OF STUDENT LOANS DISCHARGED ON ACCOUNT OF DEATH OR 
                    DISABILITY.

  (a) In General.--Section 108(f)(5) is amended by striking ``after 
December 31, 2017, and before January 1, 2026''.
  (b) Effective Date.--The amendment made by this section shall apply 
to discharges of indebtedness after December 31, 2017.

                 Subtitle E--Deductions and Exclusions

SEC. 141. REPEAL OF DEDUCTION FOR PERSONAL EXEMPTIONS.

  (a) In General.--Part V of subchapter B of chapter 1 is hereby 
repealed.
  (b) Definition of Dependent Retained.--Section 152, prior to the 
repeal made by subsection (a), is hereby redesignated as section 7706 
and moved to the end of chapter 79.
  (c) Application to Trusts and Estates.--Section 642(b) is amended--
          (1) in paragraph (2)(C)--
                  (A) in clause (i), by striking ``the exemption amount 
                under section 151(d)'' and all that follows through the 
                period at the end and inserting ``the dollar amount in 
                effect under section 7706(d)(1)(B).'', and
                  (B) by striking clause (iii),
          (2) by striking paragraph (3), and
          (3) by striking ``Deduction For Personal Exemption'' in the 
        heading thereof and inserting ``Basic Deduction''.
  (d) Application to Nonresident Aliens.--Section 873(b) is amended by 
striking paragraph (3).
  (e) Modification of Return Requirement.--
          (1) In general.--Section 6012(a)(1) is amended to read as 
        follows:
          ``(1) Every individual who has gross income for the taxable 
        year, except that a return shall not be required of--
                  ``(A) an individual who is not married (determined by 
                applying section 7703) and who has gross income for the 
                taxable year which does not exceed the standard 
                deduction applicable to such individual for such 
                taxable year under section 63, or
                  ``(B) an individual entitled to make a joint return 
                if--
                          ``(i) the gross income of such individual, 
                        when combined with the gross income of such 
                        individual's spouse, for the taxable year does 
                        not exceed the standard deduction which would 
                        be applicable for such taxable year under 
                        section 63 if such individual and such 
                        individual's spouse made a joint return,
                          ``(ii) such individual's spouse does not make 
                        a separate return, and
                          ``(iii) neither such individual nor such 
                        individual's spouse is an individual described 
                        in section 63(c)(4) who has income (other than 
                        earned income) in excess of the amount in 
                        effect under section 63(c)(4)(A).''.
          (2) Bankruptcy estates.--Section 6012(a)(8) is amended by 
        striking ``the sum of the exemption amount plus''.
          (3) Conforming amendment.--Section 6012 is amended by 
        striking subsection (f).
  (f) Conforming Amendments.--
          (1) Section 1(f)(7), as amended by section 121, is amended--
                  (A) by striking ``, section 68(b)(2) or section 
                151(d)(4)'' in subparagraph (A) and inserting ``or 
                section 68(b)(2)'', and
                  (B) by striking ``(other than with respect to section 
                151(d)(4)(A))'' in subparagraph (B).
          (2) Section 1(g)(5)(A) is amended by striking ``section 
        152(e)'' and inserting ``section 7706(e)''.
          (3) Section 2(a)(1)(B) is amended--
                  (A) by striking ``section 152'' and inserting 
                ``section 7706'', and
                  (B) by striking ``with respect to whom the taxpayer 
                is entitled to a deduction for the taxable year under 
                section 151'' and inserting ``whose TIN is included on 
                the taxpayer's return of tax for the taxable year''.
          (4) Section 2(b)(1)(A)(i) is amended--
                  (A) in the matter preceding subclause (I)--
                          (i) by striking ``section 152(c)'' and 
                        inserting ``section 7706(c)'', and
                          (ii) by striking ``section 152(e)'' and 
                        inserting ``section 7706(e)'', and
                  (B) in subclause (II), by striking ``section 
                152(b)(2) or 152(b)(3)'' and inserting ``section 
                7706(b)(2) or 7706(b)(3)''.
          (5) Section 2(b)(1)(A)(ii) is amended by striking ``if the 
        taxpayer is entitled to a deduction for the taxable year for 
        such person under section 151'' and inserting ``if the taxpayer 
        included such person's TIN on the return of tax for the taxable 
        year''.
          (6) Section 2(b)(1)(B) is amended by striking ``if the 
        taxpayer is entitled to a deduction for the taxable year for 
        such father or mother under section 151'' and inserting ``if 
        such father or mother is a dependent of the taxpayer and the 
        taxpayer included such father or mother's TIN on the return of 
        tax for the taxable year''.
          (7) Section 2(b)(3)(B) is amended--
                  (A) by striking ``section 152(d)(2)'' in clause (i) 
                and inserting ``section 7706(d)(2)'', and
                  (B) by striking ``section 152(d)'' in clause (ii) and 
                inserting ``section 7706(d)''.
          (8) Section 21(b)(1)(A) is amended by striking ``section 
        152(a)(1)'' and inserting ``section 7706(a)(1)''.
          (9) Section 21(b)(1)(B) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (10) Section 21(e)(5)(A) is amended by striking ``section 
        152(e)'' and inserting ``section 7706(e)''.
          (11) Section 21(e)(5) is amended by striking ``section 
        152(e)(4)(A)'' in the matter following subparagraph (B) and 
        inserting ``section 7706(e)(4)(A)''.
          (12) Section 21(e)(6)(A) is amended to read as follows:
                  ``(A) who is a dependent of either the taxpayer or 
                the taxpayer's spouse for the taxable year, or''.
          (13) Section 21(e)(6)(B) is amended by striking ``section 
        152(f)(1)'' and inserting ``section 7706(f)(1)''.
          (14) Section 25A(f)(1)(A)(iii) is amended by striking ``with 
        respect to whom the taxpayer is allowed a deduction under 
        section 151''.
          (15) Section 25A(g)(3) is amended by striking ``If a 
        deduction under section 151 with respect to an individual is 
        allowed to another taxpayer'' and inserting ``If an individual 
        is a dependent of another taxpayer''.
          (16) Section 25B(c)(2)(A) is amended by striking ``any 
        individual with respect to whom a deduction under section 151 
        is allowed to another taxpayer'' and inserting ``any individual 
        who is a dependent of another taxpayer''.
          (17) Section 25B(c)(2)(B) is amended by striking ``section 
        152(f)(2)'' and inserting ``section 7706(f)(2)''.
          (18) Section 32(c)(1)(A)(ii)(III) is amended by striking ``a 
        dependent for whom a deduction is allowable under section 151 
        to another taxpayer'' and inserting ``a dependent of another 
        taxpayer''.
          (19) Section 32(c)(3) is amended--
                  (A) in subparagraph (A)--
                          (i) by striking ``section 152(c)'' and 
                        inserting ``section 7706(c)'', and
                          (ii) by striking ``section 152(e)'' and 
                        inserting ``section 7706(e)'',
                  (B) in subparagraph (B), by striking ``unless the 
                taxpayer is entitled to a deduction under section 151 
                for such taxable year with respect to such individual 
                (or would be so entitled but for section 152(e)'' and 
                inserting ``if such individual is not treated as a 
                dependent of such taxpayer for such taxable year by 
                reason of section 7706(b)(2) (determined without regard 
                to section 7706(e))'', and
                  (C) in subparagraph (C), by striking ``section 
                152(c)(1)(B)'' and inserting ``section 7706(c)(1)(B)''.
          (20) Section 35(d)(1)(B) is amended by striking ``with 
        respect to whom the taxpayer is entitled to a deduction under 
        section 151(c)'' and inserting ``if the taxpayer included such 
        person's TIN on the return of tax for the taxable year''.
          (21) Section 35(d)(2) is amended--
                  (A) by striking ``section 152(e)'' and inserting 
                ``section 7706(e)'', and
                  (B) by striking ``section 152(e)(4)(A)'' and 
                inserting ``section 7706(e)(4)(A)''.
          (22) Section 36B(b)(2)(A) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (23) Section 36B(b)(3)(B) is amended by striking ``unless a 
        deduction is allowed under section 151 for the taxable year 
        with respect to a dependent'' in the flush matter at the end 
        and inserting ``unless the taxpayer has a dependent for the 
        taxable year (and the taxpayer included such dependent's TIN on 
        the return of tax for the taxable year)''.
          (24) Section 36B(c)(1)(D) is amended by striking ``with 
        respect to whom a deduction under section 151 is allowable to 
        another taxpayer'' and inserting ``who is a dependent of 
        another taxpayer''.
          (25) Section 36B(d)(1) is amended by striking ``equal to the 
        number of individuals for whom the taxpayer is allowed a 
        deduction under section 151 (relating to allowance of deduction 
        for personal exemptions) for the taxable year'' and inserting 
        ``the sum of 1 (2 in the case of a joint return) plus the 
        number of individuals who are dependents of the taxpayer for 
        the taxable year''.
          (26) Section 36B(e)(1) is amended by striking ``1 or more 
        individuals for whom a taxpayer is allowed a deduction under 
        section 151 (relating to allowance of deduction for personal 
        exemptions) for the taxable year (including the taxpayer or his 
        spouse)'' and inserting ``1 or more of the taxpayer, the 
        taxpayer's spouse, or any dependent of the taxpayer''.
          (27) Section 42(i)(3)(D)(ii)(I) is amended by striking 
        ``section 152'' and inserting ``section 7706''.
          (28) Section 45R(e)(1)(A)(iv) is amended--
                  (A) by striking ``section 152(d)(2)'' and inserting 
                ``section 7706(d)(2)'', and
                  (B) by striking ``section 152(d)(2)(H)'' and 
                inserting ``section 7706(d)(2)(H)''.
          (29) Section 51(i)(1) is amended--
                  (A) by striking ``section 152(d)(2)'' in 
                subparagraphs (A) and (B) and inserting ``section 
                7706(d)(2)'', and
                  (B) by striking ``section 152(d)(2)(H)'' in 
                subparagraph (C) and inserting ``section 
                7706(d)(2)(H)''.
          (30) Section 56(b)(1)(D), as amended by the preceding 
        provisions of this Act, is amended--
                  (A) by striking ``, the deduction for personal 
                exemptions under section 151,'', and
                  (B) by striking ``and deduction for personal 
                exemptions'' in the heading thereof.
          (31) Section 63(b) is amended by adding ``and'' at the end of 
        paragraph (1), by striking paragraph (2), and by redesignating 
        paragraph (3) as paragraph (2).
          (32)(A) Section 63(c), as amended by section 121, is amended 
        by striking paragraph (3) and redesignating paragraphs (4), 
        (5), and (6) as paragraphs (3), (4), and (5), respectively.
          (B) Section 1(g)(4)(A)(ii)(I) is amended by striking 
        ``section 63(c)(5)(A)'' and inserting ``section 63(c)(4)(A)''.
          (33) Section 63(c)(4), as redesignated, is amended--
                  (A) by striking ``with respect to whom a deduction 
                under section 151 is allowable to'' and inserting ``who 
                is a dependent of'', and
                  (B) by striking ``certain'' in the heading thereof.
          (34) Section 63(d) is amended by adding ``and'' at the end of 
        paragraph (1), by striking paragraph (2), and by redesignating 
        paragraph (3) as paragraph (2).
          (35) Section 63(f) is amended by striking all that precedes 
        paragraph (3) and inserting the following:
  ``(f) Additional Standard Deduction for the Aged and Blind.--
          ``(1) In general.--For purposes of subsection (c)(1), the 
        additional standard deduction is, with respect to a taxpayer 
        for a taxable year, the sum of--
                  ``(A) $600 if the taxpayer has attained age 65 before 
                the close of such taxable year, and
                  ``(B) $600 if the taxpayer is blind as of the close 
                of such taxable year.
          ``(2) Application to married individuals.--
                  ``(A) Joint returns.--In the case of a joint return, 
                paragraph (1) shall be applied separately with respect 
                to each spouse.
                  ``(B) Certain married individuals filing 
                separately.--In the case of a married individual filing 
                a separate return, if--
                          ``(i) the spouse of such individual has no 
                        gross income for the calendar year in which the 
                        taxable year of such individual begins,
                          ``(ii) such spouse is not the dependent of 
                        another taxpayer for a taxable year beginning 
                        in the calendar year in which such individual's 
                        taxable year begins, and
                          ``(iii) the TIN of such spouse is included on 
                        such individual's return of tax for the taxable 
                        year,
                the additional standard deduction shall be determined 
                in the same manner as if such individual and such 
                individual's spouse filed a joint return.''.
          (36) Section 63(f)(3) is amended by striking ``paragraphs (1) 
        and (2)'' and inserting ``subparagraphs (A) and (B) of 
        paragraph (1)''.
          (37) Section 72(t)(2)(D)(i)(III) is amended by striking 
        ``section 152'' and inserting ``section 7706''.
          (38) Section 72(t)(7)(A)(iii) is amended by striking 
        ``section 152(f)(1)'' and inserting ``section 7706(f)(1)''.
          (39) Section 105(b) is amended--
                  (A) by striking ``as defined in section 152'' and 
                inserting ``as defined in section 7706'',
                  (B) by striking ``section 152(f)(1)'' and inserting 
                ``section 7706(f)(1)'' and
                  (C) by striking ``section 152(e)'' and inserting 
                ``section 7706(e)''.
          (40) Section 105(c)(1) is amended by striking ``section 152'' 
        and inserting ``section 7706''.
          (41) Section 125(e)(1)(D) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (42) Section 129(c)(1) is amended to read as follows:
          ``(1) who is a dependent of such employee or of such 
        employee's spouse, or''.
          (43) Section 129(c)(2) is amended by striking ``section 
        152(f)(1)'' and inserting ``section 7706(f)(1)''.
          (44) Section 132(h)(2)(B) is amended--
                  (A) by striking ``section 152(f)(1)'' and inserting 
                ``section 7706(f)(1)'', and
                  (B) by striking ``section 152(e)'' and inserting 
                ``section 7706(e)''.
          (45) Section 139D(c)(5) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (46) Section 139E(c)(2) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (47) Section 162(l)(1)(D) is amended by striking ``section 
        152(f)(1)'' and inserting ``section 7706(f)(1)''.
          (48) Section 170(g)(1) is amended by striking ``section 152'' 
        and inserting ``section 7706''.
          (49) Section 170(g)(3) is amended by striking ``section 
        152(d)(2)'' and inserting ``section 7706(d)(2)''.
          (50) Section 172(d) is amended by striking paragraph (3).
          (51) Section 213(a) is amended by striking ``section 152'' 
        and inserting ``section 7706''.
          (52) Section 213(d)(5) is amended by striking ``section 
        152(e)'' and inserting ``section 7706(e)''.
          (53) Section 213(d)(11) is amended by striking ``section 
        152(d)(2)'' in the matter following subparagraph (B) and 
        inserting ``section 7706(d)(2)''.
          (54) Section 220(b)(6) is amended by striking ``with respect 
        to whom a deduction under section 151 is allowable to'' and 
        inserting ``who is a dependent of''.
          (55) Section 220(d)(2)(A) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (56) Section 221(d)(4) is amended by striking ``section 152'' 
        and inserting ``section 7706''.
          (57) Section 222(c)(3) is amended by striking ``with respect 
        to whom a deduction under section 151 is allowable to'' and 
        inserting ``who is a dependent of''.
          (58) Section 223(b)(6) is amended by striking ``with respect 
        to whom a deduction under section 151 is allowable to'' and 
        inserting ``who is a dependent of''.
          (59) Section 223(d)(2)(A) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (60) Section 401(h) is amended by striking ``section 
        152(f)(1)'' in the last sentence and inserting ``section 
        7706(f)(1)''.
          (61) Section 402(l)(4)(D) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (62) Section 409A(a)(2)(B)(ii)(I) is amended by striking 
        ``section 152(a)'' and inserting ``section 7706(a)''.
          (63) Section 441(f)(2)(B)(iii) is amended by striking ``, but 
        only the adjusted amount of the deductions for personal 
        exemptions as described in section 443(c)''.
          (64) Section 443 is amended--
                  (A) in subsection (b)--
                          (i) by striking paragraph (3), and
                          (ii) by striking ``modified taxable income'' 
                        and inserting ``taxable income'' each place 
                        such term appears,
                  (B) by striking subsection (c), and
                  (C) by redesignating subsections (d) and (e) as 
                subsections (c) and (d), respectively.
          (65) Section 501(c)(9) is amended by striking ``section 
        152(f)(1)'' and inserting ``section 7706(f)(1)''.
          (66) Section 529(e)(2)(B) is amended by striking ``section 
        152(d)(2)'' and inserting ``section 7706(d)(2)''.
          (67) Section 529A(e)(4) is amended--
                  (A) by striking ``section 152(d)(2)(B)'' and 
                inserting ``section 7706(d)(2)(B)'', and
                  (B) by striking ``section 152(f)(1)(B)'' and 
                inserting ``section 7706(f)(1)(B)''.
          (68) Section 643(a)(2) is amended--
                  (A) by striking ``(relating to deduction for personal 
                exemptions)'' and inserting ``(relating to basic 
                deduction)'', and
                  (B) by striking ``Deduction for personal exemption'' 
                in the heading thereof and inserting ``Basic 
                deduction''.
          (69) Section 703(a)(2) is amended by striking subparagraph 
        (A) and by redesignating subparagraphs (B) through (F) as 
        subparagraphs (A) through (E), respectively.
          (70) Section 874 is amended by striking subsection (b) and by 
        redesignating subsection (c) as subsection (b).
          (71) Section 891 is amended by striking ``under section 151 
        and''.
          (72) Section 904(b)(1) is amended to read as follows:
          ``(1) Deduction for estates and trusts.--For purposes of 
        subsection (a), the taxable income of an estate or trust shall 
        be computed without any deduction under section 642(b).''.
          (73) Section 931(b)(1) is amended to read as follows:
          ``(1) any deduction from gross income, or''.
          (74) Section 933 is amended--
                  (A) by striking ``as a deduction from his gross 
                income any deductions (other than the deduction under 
                section 151, relating to personal exemptions)'' in 
                paragraph (1) and inserting ``any deduction from gross 
                income'', and
                  (B) by striking ``as a deduction from his gross 
                income any deductions (other than the deduction for 
                personal exemptions under section 151)'' in paragraph 
                (2) and inserting ``any deduction from gross income''.
          (75) Section 1212(b)(2)(B)(ii) is amended to read as follows:
                          ``(ii) in the case of an estate or trust, the 
                        deduction allowed for such year under section 
                        642(b).''.
          (76) Section 1361(c)(1)(C) is amended by striking ``section 
        152(f)(1)(C)'' and inserting ``section 7706(f)(1)(C)''.
          (77) Section 1402(a) is amended by striking paragraph (7).
          (78) Section 2032A(c)(7)(D) is amended by striking ``section 
        152(f)(2)'' and inserting ``section 7706(f)(2)''.
          (79) Section 3402(m)(1) is amended by striking ``other than 
        the deductions referred to in section 151 and''.
          (80) Section 3402(r)(2) is amended by striking ``the sum of--
        '' and all that follows and inserting ``the basic standard 
        deduction (as defined in section 63(c)) for an individual to 
        whom section 63(c)(2)(C) applies.''.
          (81) Section 5000A(b)(3)(A) is amended by striking ``section 
        152'' and inserting ``section 7706''.
          (82) Section 5000A(c)(4)(A) is amended by striking ``the 
        number of individuals for whom the taxpayer is allowed a 
        deduction under section 151 (relating to allowance of deduction 
        for personal exemptions) for the taxable year'' and inserting 
        ``the sum of 1 (2 in the case of a joint return) plus the 
        number of the taxpayer's dependents for the taxable year''.
          (83) Section 6013(b)(3)(A) is amended--
                  (A) by striking ``had less than the exemption amount 
                of gross income'' in clause (ii) and inserting ``had no 
                gross income'',
                  (B) by striking ``had gross income of the exemption 
                amount or more'' in clause (iii) and inserting ``had 
                any gross income'', and
                  (C) by striking the flush language following clause 
                (iii).
          (84) Section 6014(a) is amended by striking ``section 
        6012(a)(1)(C)(i)'' and inserting ``section 
        6012(a)(1)(B)(iii)''.
          (85) Section 6014(b)(4) is amended by striking ``63(c)(5)'' 
        and inserting ``63(c)(4)''.
          (86) Section 6103(l)(21)(A)(iii) is amended to read as 
        follows:
                          ``(iii) the number of the taxpayer's 
                        dependents,''.
          (87) Section 6213(g)(2)(H) is amended by striking ``section 
        21 (relating to expenses for household and dependent care 
        services necessary for gainful employment) or section 151 
        (relating to allowance of deductions for personal exemptions)'' 
        and inserting ``subsection (a)(1)(B), (b)(1)(A)(ii), or 
        (b)(1)(B) of section 2 or section 21, 35(d)(1)(B), 
        36B(b)(3)(B), or 63(f)(2)(B)''.
          (88) Section 6334(d) is amended--
                  (A) by amending paragraph (2) to read as follows:
          ``(2) Exempt amount.--
                  ``(A) In general.--For purposes of paragraph (1), the 
                term `exempt amount' means an amount equal to--
                          ``(i) the 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--
                          ``(i) the dollar amount in effect under 
                        section 7706(d)(1)(B), multiplied by
                          ``(ii) the number of the taxpayer's 
                        dependents for the taxable year in which the 
                        levy occurs.
                  ``(C) 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.'', and
                  (B) by striking paragraph (4).
          (89) Section 7702B(f)(2)(C)(iii) is amended by striking 
        ``section 152(d)(2)'' and inserting ``section 7706(d)(2)''.
          (90) Section 7703(a) is amended by striking ``part V of 
        subchapter B of chapter 1 and''.
          (91) Section 7703(b)(1) is amended by striking ``section 
        152(f)(1))'' and all that follows and inserting ``section 
        7706(f)(1)) who is a dependent of such individual for the 
        taxable year (or would be but for section 7706(e)),''.
          (92) Section 7706(a), as redesignated by this section, is 
        amended by striking ``this subtitle'' and inserting ``subtitle 
        A''.
          (93)(A) Section 7706(d)(1)(B), as redesignated by this 
        section, is amended by striking ``the exemption amount (as 
        defined in section 151(d))'' and inserting ``$4,150''.
          (B) Section 7706(d), as redesignated by this section, is 
        amended by adding at the end the following new paragraph:
          ``(6) Inflation adjustment.--In the case of any taxable year 
        beginning in a calendar year beginning after 2018, the $4,150 
        amount in paragraph (1)(B) shall be increased by an amount 
        equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment determined under 
                section 1(c)(2)(A) for the calendar year in which such 
                taxable year begins, determined by substituting 
                `calendar year 2017' for `calendar year 2016' in clause 
                (ii) thereof.
        If any increase determined under the preceding sentence is not 
        a multiple of $50, such increase shall be rounded to the next 
        lowest multiple of $50.''.
          (94) Section 7706(e)(3), as redesignated by this section, is 
        amended by inserting ``(as in effect before its repeal)'' after 
        ``section 151''.
          (95) Section 7706(f)(6)(B), as redesignated by this section, 
        is amended by striking clause (i) and designating clauses (ii), 
        (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
          (96) The table of parts for subchapter B of chapter 1 is 
        amended by striking the item relating to part V.
          (97) The table of sections for chapter 79 is amended by 
        adding at the end the following new item:

``Sec. 7706. Dependent defined.''.

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

SEC. 142. LIMITATION ON DEDUCTION FOR STATE AND LOCAL, ETC. TAXES.

  (a) In General.--Section 164(b)(6) is amended by striking all that 
precedes ``The preceding sentence'' and inserting the following:
          ``(6) Limitation on individual deductions.--In the case of an 
        individual--
                  ``(A) no deduction shall be allowed under this 
                chapter for foreign real property taxes paid or accrued 
                during the taxable year, and
                  ``(B) the aggregate amount of the deduction allowed 
                under this chapter for taxes described in paragraphs 
                (1), (2), and (3) of subsection (a) and paragraph (5) 
                of this subsection paid or accrued by the taxpayer 
                during the taxable year shall not exceed $10,000 
                ($5,000 in the case of a married individual filing a 
                separate return).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 143. LIMITATION ON DEDUCTION FOR QUALIFIED RESIDENCE INTEREST.

  (a) Interest on Home Equity Indebtedness.--Section 163(h)(3)(A) is 
amended by striking ``during the taxable year on'' and all that follows 
through ``residence of the taxpayer.'' and inserting ``during the 
taxable year on acquisition indebtedness with respect to any qualified 
residence of the taxpayer.''.
  (b) Limitation on Acquisition Indebtedness.--Section 163(h)(3)(B)(ii) 
is amended to read as follows:
                          ``(ii) Limitation.--The aggregate amount 
                        treated as acquisition indebtedness for any 
                        period shall not exceed the excess (if any) 
                        of--
                                  ``(I) $750,00 ($375,000, in the case 
                                of a married individual filing a 
                                separate return), over
                                  ``(II) the sum of the aggregate 
                                outstanding pre-October 13, 1987, 
                                indebtedness (as defined in 
                                subparagraph (D)) plus the aggregate 
                                outstanding pre-December 15, 2017, 
                                indebtedness (as defined in 
                                subparagraph (C)).''.
  (c) Treatment of Indebtedness Incurred on or Before December 15, 
2017.--Section 163(h)(3)(C) is amended to read as follows:
                  ``(C) Treatment of indebtedness incurred on or before 
                december 15, 2017.--
                          ``(i) In general.--In the case of any pre-
                        December 15, 2017, indebtedness, subparagraph 
                        (B)(ii) shall not apply and the aggregate 
                        amount of such indebtedness treated as 
                        acquisition indebtedness for any period shall 
                        not exceed the excess (if any) of--
                                  ``(I) $1,000,000 ($500,000, in the 
                                case of a married individual filing a 
                                separate return), over
                                  ``(II) the aggregate outstanding pre-
                                October 13, 1987, indebtedness (as 
                                defined in subparagraph (D)).
                          ``(ii) Pre-december 15, 2017, indebtedness.--
                        For purposes of this subparagraph--
                                  ``(I) In general.--The term `pre-
                                December 15, 2017, indebtedness' means 
                                indebtedness (other than pre-October 
                                13, 1987, indebtedness) incurred on or 
                                before December 15, 2017.
                                  ``(II) Binding written 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, the term `pre-December 
                                15, 2017, indebtedness' shall include 
                                indebtedness secured by such residence.
                          ``(iii) Refinancing 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 this subparagraph 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).''.
  (d) Coordination With Treatment of Indebtedness Incurred on or Before 
October 13, 1987.--Section 163(h)(3)(D) is amended--
          (1) by striking clause (ii) and redesignating clauses (iii) 
        and (iv) as clauses (ii) and (iii), respectively, and
          (2) in clause (iii) (as so redesignated)--
                  (A) by striking ``clause (iii)'' in the matter 
                preceding subclause (I) and inserting ``clause (ii)'', 
                and
                  (B) by striking ``clause (iii)(I)'' in subclauses (I) 
                and (II) and inserting ``clause (ii)(I)''.
  (e) Coordination With Exclusion of Income From Discharge of 
Indebtedness.--Section 108(h)(2) is amended by striking ``$1,000,000 
($500,000'' and inserting ``$750,000 ($375,000''.
  (f) Conforming Amendment.--Section 163(h)(3) is amended by striking 
subparagraph (F).
  (g) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 144. MODIFICATION OF DEDUCTION FOR PERSONAL CASUALTY LOSSES.

  (a) In General.--Section 165(h)(5)(A) is amended by striking ``in a 
taxable year beginning after December 31, 2017, and before January 1, 
2026,''.
  (b) Conforming Amendments.--
          (1) Section 165(h)(5)(B) is amended by striking ``for any 
        taxable year to which subparagraph (A) applies''.
          (2) Section 165(h)(5) is amended by striking ``for taxable 
        years 2018 through 2025'' in the heading thereof and inserting 
        ``to losses attributable to federally declared disasters''.
  (c) Effective Date.--The amendments made by this section shall apply 
to losses sustained in taxable years beginning after December 31, 2017.

SEC. 145. TERMINATION OF MISCELLANEOUS ITEMIZED DEDUCTIONS.

  (a) In General.--Section 67 is amended--
          (1) by amending subsection (a) to read as follows:
  ``(a) In General.--In the case of an individual, miscellaneous 
itemized deductions shall not be allowed.'', and
          (2) by striking subsection (g).
  (b) Movement of Definition of Adjusted Gross Income for Estates and 
Trusts.--
          (1) Section 67 is amended by striking subsection (e).
          (2) Section 641 is amended by adding at the end the following 
        new subsection:
  ``(d) Computation of Adjusted Gross Income.--For purposes of this 
title, the adjusted gross income of an estate or trust shall be 
computed in the same manner as in the case of an individual, except 
that--
          ``(1) the deductions for costs which are paid or incurred in 
        connection with the administration of the estate or trust and 
        which would not have been incurred if the property were not 
        held in such trust or estate, and
          ``(2) the deductions allowable under sections 642(b), 651, 
        and 661,
shall be treated as allowable in arriving at adjusted gross income.''.
  (c) Conforming Amendments.--
          (1) Section 56(b)(1)(A) is amended to read as follows:
                  ``(A) Certain taxes.--No deduction (other than a 
                deduction allowable in computing adjusted gross income) 
                shall be allowed for any taxes described in paragraph 
                (1), (2), or (3) of section 164(a) or clause (ii) of 
                section 164(b)(5)(A).''.
          (2) Section 56(b)(1)(C), as amended by the preceding 
        provisions of this Act, is amended by striking ``subparagraph 
        (A)(ii)'' and inserting ``subparagraph (A)''.
          (3) Section 62(a) is amended by striking ``subtitle'' in the 
        matter preceding paragraph (1) and inserting ``title''.
          (4) Section 641(c)(2)(E) is amended to read as follows:
                  ``(E) Section 642(c) shall not apply.''.
          (5) Section 1411(a)(2) is amended by striking ``(as defined 
        in section 67(e))''.
          (6) Section 6654(d)(1)(C) is amended by striking clause 
        (iii).
          (7) Section 67 is amended in the heading, by striking ``2-
        percent floor on'' and inserting ``denial of''.
          (8) The table of sections for part 1 of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        67 and inserting the following new item:

``Sec. 67. Denial of miscellaneous itemized deductions.''.

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

SEC. 146. REPEAL OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.

  (a) In General.--Part 1 of subchapter B of chapter 1 is amended by 
striking section 68 (and the item relating to such section in the table 
of sections for such part).
  (b) Conforming Amendments.--
          (1) Section 1(f)(7)(A), as amended by sections 121 and 141, 
        is amended by striking ``or section 68(b)(2)''.
          (2) Section 56(b)(1), as amended by the preceding provisions 
        of this Act, is amended by striking subparagraph (E).
          (3) Section 164(b)(5)(H)(ii)(III) is amended by striking 
        ``(as determined under section 68(b))''.
          (4) Section 164(b)(5)(H) is amended by adding at the end the 
        following new clause:
                          ``(iii) Applicable amount defined.--For 
                        purposes of clause (ii), the term `applicable 
                        amount' means--
                                  ``(I) $300,000 in the case of a joint 
                                return or a surviving spouse,
                                  ``(II) $275,000 in the case of a head 
                                of household,
                                  ``(III) $250,000 in the case of an 
                                individual who is not married and who 
                                is not a surviving spouse or head of 
                                household, and
                                  ``(IV) \1/2\ the amount applicable 
                                under subclause (I) in the case of a 
                                married individual filing a separate 
                                return.
                        For purposes of this paragraph, marital status 
                        shall be determined under section 7703. In the 
                        case of any taxable year beginning in calendar 
                        years after 2017, each of the dollar amounts in 
                        this clause shall be increased by an amount 
                        equal to such dollar amount, multiplied by the 
                        cost-of-living adjustment determined under 
                        section 1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `2012' for `2016' in subparagraph 
                        (A)(ii) thereof. If any amount after adjustment 
                        under the preceding sentence is not a multiple 
                        of $50, such amount shall be rounded to the 
                        next lowest multiple of $50.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 147. TERMINATION OF EXCLUSION FOR QUALIFIED BICYCLE COMMUTING 
                    REIMBURSEMENT.

  (a) In General.--Section 132(f)(1) is amended by striking 
subparagraph (D).
  (b) Conforming Amendments.--
          (1) Section 132(f)(2) is amended by adding ``and'' at the end 
        of subparagraph (A), striking ``, and'' at the end of 
        subparagraph (B) and inserting a period, and striking 
        subparagraph (C).
          (2) Section 132(f)(4) is amended by striking ``(other than a 
        qualified bicycle commuting reimbursement)''.
          (3) Section 132(f) is amended by striking paragraph (8).
          (4) Section 274(l)(2) is amended by striking ``after December 
        31, 2017, and before January 1, 2026''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 148. QUALIFIED MOVING EXPENSE REIMBURSEMENT EXCLUSION LIMITED TO 
                    MEMBERS OF ARMED FORCES.

  (a) In General.--Section 132(g) is amended--
          (1) by striking ``by an individual'' in paragraph (1) and 
        inserting ``by a qualified military individual'', and
          (2) by striking paragraph (2) and inserting the following new 
        paragraph:
          ``(2) Qualified military individual.--For purposes of this 
        subsection, the term `qualified military individual' means 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.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 149. DEDUCTION FOR MOVING EXPENSES LIMITED TO MEMBERS OF ARMED 
                    FORCES.

  (a) In General.--Section 217 is amended--
          (1) by amending subsection (a) to read as follows:
  ``(a) Deduction Allowed.--There shall be allowed as a deduction 
moving expenses paid or incurred during the taxable year by 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.'',
          (2) by striking subsections (c), (d), (f), and (g) and 
        redesignating subsections (h), (i), (j), and (k) as subsections 
        (c), (d), (f) and (g), respectively, and
          (3) by inserting after subsection (d), as so redesignated, 
        the following new subsection:
  ``(e) Expenses Furnished in Kind.--Any moving and storage expenses 
which are furnished in kind (or for which reimbursement or an allowance 
is provided, but only to the extent of the expenses paid or incurred)--
          ``(1) to such member, his spouse, or his dependents, shall 
        not be includible in gross income, and no reporting with 
        respect to such expenses shall be required by the Secretary of 
        Defense or the Secretary of Transportation, as the case may be, 
        and
          ``(2) to such member's spouse and his dependents with regard 
        to moving to a location other than the one to which such member 
        moves (or from a location other than the one from which such 
        member moves), this section shall apply with respect to the 
        moving expenses of his spouse and dependents as if his spouse 
        commenced work as an employee at a new principal place of work 
        at such location.''.
  (b) Conforming Amendments.--
          (1) Subsections (d)(3)(C) and (e) of section 23 are each 
        amended by striking ``section 217(h)(3)'' and inserting 
        ``section 217(c)(3)''.
          (2) Section 7872(f) is amended by striking paragraph (11).
          (3) Section 217 is amended in the heading by striking 
        ``moving expenses'' and inserting ``certain moving expenses of 
        members of armed forces''.
          (4) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        217 and inserting the following new item:

``Sec. 217. Certain moving expenses of members of Armed Forces.''.

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

SEC. 150. LIMITATION ON WAGERING LOSSES.

  (a) In General.--Section 165(d) is amended by striking ``in the case 
of taxable years 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.

         Subtitle F--Increase in Estate and Gift Tax Exemption

SEC. 151. INCREASE IN ESTATE AND GIFT TAX EXEMPTION.

  (a) In General.--Section 2010(c)(3) is amended in subparagraph (A), 
by striking ``$5,000,000'' and inserting ``$10,000,000''.
  (b) Conforming Amendments.--
          (1) Section 2001(g) is amended to read as follows:
  ``(g) 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--
          ``(1) the tax imposed by chapter 12 with respect to such 
        gifts, and
          ``(2) the credit allowed against such tax under section 2505, 
        including in computing--
                  ``(A) the applicable credit amount under section 
                2505(a)(1), and
                  ``(B) the sum of the amounts allowed as a credit for 
                all preceding periods under section 2505(a)(2).''.
          (2) Section 2010(c)(3) is amended by striking subparagraph 
        (C).
  (c) Effective Date.--The amendments made by this section shall apply 
to estates of decedents dying and gifts made after December 31, 2017.

    TITLE II--INCREASED EXEMPTION FOR ALTERNATIVE MINIMUM TAX MADE 
                               PERMANENT

SEC. 201. INCREASED EXEMPTION FOR INDIVIDUALS.

  (a) In General.--Section 55(d)(1) is amended--
          (1) by striking ``$78,750'' in subparagraph (A) and inserting 
        ``$109,400'', and
          (2) by striking ``$50,600'' in subparagraph (B) and inserting 
        ``$70,300''.
  (b) Phase-out of Exemption Amount.--Section 55(d)(2) is amended--
          (1) by striking ``$150,000'' in subparagraph (A) and 
        inserting ``$1,000,000'', and
          (2) by striking subparagraphs (B) and (C) and by inserting 
        the following new subparagraphs:
                  ``(B) 50 percent of the dollar amount applicable 
                under subparagraph (A) in the case of a taxpayer 
                described in paragraph (1)(B) or (1)(C), and
                  ``(C) $75,000 in the case of a taxpayer described in 
                paragraph (1)(D).'',
  (c) Inflation Adjustment.--Section 55(d)(3) is amended to read as 
follows:
          ``(3) Inflation adjustment.--In the case of any taxable year 
        beginning in a calendar year after 2018, each dollar amount 
        described in clause (i) or (ii) of subparagraph (B) shall be 
        increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment determined under 
                section 1(f)(3) for the calendar year in which the 
                taxable year begins, determined by substituting--
                          ``(i) in the case of a dollar amount 
                        contained in paragraph (1)(D) or (2)(C) or in 
                        subsection (b)(1)(A), `calendar year 2011' for 
                        `calendar year 2016' in subparagraph (A)(ii) 
                        thereof, and
                          ``(ii) in the case of a dollar amount 
                        contained in paragraph (1)(A), (1)(B), or 
                        (2)(A), `calendar year 2017' for `calendar year 
                        2016' in subparagraph (A)(ii) thereof.
        Any increased amount determined under this paragraph shall be 
        rounded to the nearest multiple of $100 ($50 in the case of the 
        dollar amount contained in paragraph (2)(C)).''.
  (d) Conforming Amendment.--Section 55(d) is amended by striking 
paragraph (4).
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2017.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 6760, as reported by the Committee on Ways and Means, 
makes permanent the comprehensive reforms to the Internal 
Revenue Code of 1986 to provide tax relief and simplification 
to American families, individuals, and small businesses that 
were enacted on a temporary basis by subtitles A and B of the 
Tax Cuts and Jobs Act (Public Law 115-97).

                 B. Background and Need for Legislation

    H.R. 6760 furthers the goals of the Tax Cuts and Jobs Act 
(Public Law 115-97) in comprehensively reforming the tax code 
to reduce tax burdens and encourage growth and job creation. 
Making permanent these important reforms that lower the tax 
burden on the middle class and create a healthier economy will 
promote stability, certainty, and growth.

                         C. Legislative History


Background

    H.R. 6760 was introduced on September 10, 2018, and was 
referred to the Committee on Ways and Means.

Committee action

    The Ways and Means Committee and the Subcommittee on Tax 
Policy have held extensive hearings over many years focused on 
the benefits of tax reform and permanent tax policy, including 
hearings during the 115th Congress that addressed the 
particular aspects of tax reform that are made permanent by 
H.R. 6760:
           Tax Reform and Small Business: Growing Our 
        Economy and Creating Jobs (May 23, 2018)
           Growing Our Economy and Creating Jobs (May 
        16, 2018)
           How Tax Reform Will Help America's Small 
        Businesses Grow and Create New Jobs (July 13, 2017)
           How Tax Reform Will Simplify Our Broken Tax 
        Code and Help Individuals and Families (July 19, 2017)
           How Tax Reform Will Grow our Economy and 
        Create Jobs (May 18, 2017)
           The President's Fiscal Year 2018 Budget 
        Proposals (May 24, 2017)

                      II. EXPLANATION OF THE BILL


                              PRESENT LAW

    On December 22, 2017, Public Law 115-97\1\ (referred to 
herein as the Tax Cuts and Jobs Act or the TCJA) was enacted 
into law. The TCJA made numerous changes to the income tax 
system, many of which expire for taxable years beginning after 
December 31, 2025. These temporary provisions include the 
following:
---------------------------------------------------------------------------
    \1\31 Stat. 2054.
---------------------------------------------------------------------------
          1. The TCJA modifies the tax rates and tax bracket 
        breakpoints in order to provide tax relief to 
        individuals and pass-through businesses.\2\ For taxable 
        years beginning after December 31, 2025, the tax rates 
        and brackets revert to their inflation-adjusted levels 
        based on the law as in existence in 2017.\3\
---------------------------------------------------------------------------
    \2\Sec. 11001 of the TCJA and sec. 1 of the Internal Revenue code 
of 1986, as amended (the ``Code'').
    \3\Because the TCJA modified the method used to index dollar 
amounts in the Code, switching the measurement of inflation from the 
Consumer Price Index (``CPI'') to the Chained Consumer Price Index 
(``C-CPI-U'') the C-CPI-U, and because this switch does not expire, the 
actual tax bracket breakpoints are projected to be lower in 2026 than 
they would have been had the TCJA not been enacted.
---------------------------------------------------------------------------
          2. The TCJA modifies the tax on unearned income of a 
        minor child (known as the ``kiddie tax'') such that the 
        tax is generally imposed using the tax brackets 
        applicable to trusts and estates, rather than with 
        reference to the child's parents' tax situation.\4\
---------------------------------------------------------------------------
    \4\Sec. 11001 of the TCJA and sec. 1 of the Code.
---------------------------------------------------------------------------
          3. The TCJA creates a deduction for qualified 
        business income, generally equaling up to 20-percent of 
        non-wage income for qualified individuals.\5\
---------------------------------------------------------------------------
    \5\Sec. 11011 of the TCJA and new sec. 199A of the Code. Note that 
the treatment of income relating to cooperatives under section 199A (as 
originally enacted on December 22, 2017) was modified by the 
Consolidated Appropriations Act, 2018, Pub. L. No. 115-141, enacted on 
March 23, 2018. For a description of the modification, see Joint 
Committee on Taxation, Technical Explanation of the Revenue Provisions 
of the House Amendment to the Senate Amendment to H.R. 1625 (Rules 
Committee Print 115-66), JCX-6-18, March 22, 2018, pp. 5-27.
---------------------------------------------------------------------------
          4. The TCJA limits the deduction for business losses 
        to $500,000 for joint filers and $250,000 for other 
        individuals.\6\
---------------------------------------------------------------------------
    \6\Sec. 11012 of the TCJA and sec. 461 of the Code.
---------------------------------------------------------------------------
          5. The TCJA increases the standard deduction to 
        $24,000 for married taxpayers filing jointly and 
        surviving spouses, $18,000 for heads of household, and 
        $12,000 for all other taxpayers.\7\ These amounts are 
        indexed for inflation. For taxable years beginning 
        after December 31, 2025, the standard deduction reverts 
        to its inflation-adjusted 2017 levels.
---------------------------------------------------------------------------
    \7\Sec. 11021 of the TCJA and sec. 63 of the Code.
---------------------------------------------------------------------------
          6. The TCJA increases the child tax credit from 
        $1,000 to $2,000, and increases the phaseout thresholds 
        to $400,000 for married couples filing a joint return 
        ($200,000 for all other taxpayers).\8\ Additionally, 
        the TCJA provides for a $500 non-refundable credit for 
        non-child dependents. The refundable child tax credit 
        is modified by lowering the earned income threshold 
        from $3,000 to $2,500, and increasing the maximum value 
        of the refundable credit to $1,400 (indexed). Finally, 
        the TCJA modifies the identification requirements 
        applicable to a child on whose behalf the credit is 
        claimed, requiring that the child's taxpayer 
        identification number be a Social Security number 
        issued by the due date of the return in order to 
        qualify for the $2,000 credit.
---------------------------------------------------------------------------
    \8\Sec. 11022 of the TCJA and sec. 24 of the Code.
---------------------------------------------------------------------------
          7. The TCJA increases the charitable contribution 
        percentage limit from 50 percent to 60 percent of the 
        contribution base (generally, adjusted gross income) 
        for contributions of cash to organizations described in 
        section 170(b)(1)(A) (generally, public charities and 
        certain private foundations that are not nonoperating 
        private foundations).\9\
---------------------------------------------------------------------------
    \9\Sec. 11023 of the TCJA and sec. 170(b)(1)(G) of the Code.
---------------------------------------------------------------------------
          8. The TCJA allows ABLE account owners to make 
        contributions of earned income, but not in excess of 
        the Federal poverty line, to their ABLE accounts, in 
        addition to the limitations imposed on other 
        contributions made to such accounts.\10\ Additionally 
        the TCJA allows individuals who make such contributions 
        to be eligible for the saver's credit. These 
        modifications do not apply for contributions made to 
        ABLE accounts after December 31, 2025.
---------------------------------------------------------------------------
    \10\Sec. 11024 of the TCJA and sec. 529A of the Code.
---------------------------------------------------------------------------
          9. The TCJA allows amounts in qualified tuition 
        programs (known as 529 accounts) to be rolled over into 
        ABLE accounts, subject to the overall contribution 
        limits on ABLE accounts.\11\ This provision does not 
        apply to rollovers made after December 31, 2025.
---------------------------------------------------------------------------
    \11\Sec. 11025 of the TCJA and secs. 529 and 529A of the Code.
---------------------------------------------------------------------------
          10. The TCJA grants combat zone tax benefits to those 
        members of the Armed Forces serving in the Sinai 
        Peninsula of Egypt.\12\
---------------------------------------------------------------------------
    \12\Sec. 11026 of the TCJA, affecting various Code sections.
---------------------------------------------------------------------------
          11. The TCJA reduces the threshold above which 
        unreimbursed medical expenses may be deducted from 10 
        percent to 7.5 percent of adjusted gross income 
        (``AGI'') for taxable years beginning after December 
        31, 2016 and ending before January 1, 2019.\13\
---------------------------------------------------------------------------
    \13\Sec. 11027 of the TCJA and sec. 213 of the Code.
---------------------------------------------------------------------------
          12. The TCJA provides that certain student loans that 
        are discharged on account of the death or disability of 
        the borrower are excluded from gross income.\14\ This 
        exclusion does not apply for student loans discharged 
        after December 31, 2025.
---------------------------------------------------------------------------
    \14\Sec. 11031 of the TCJA and sec. 108 of the Code.
---------------------------------------------------------------------------
          13. The TCJA reduces the amount of the personal 
        exemption deduction to zero.\15\ For taxable years 
        beginning after December 31, 2025, the personal 
        exemption deduction reverts to its inflation-adjusted 
        2017 level.
---------------------------------------------------------------------------
    \15\Sec. 11041 of the TCJA and sec. 151 of the Code.
---------------------------------------------------------------------------
          14. The TCJA limits the itemized deduction for State 
        and local property taxes (other than paid or accrued in 
        carrying on a trade or business, or an activity 
        described in section 212) and State and local income, 
        war profits, and excess profits taxes (or sales taxes 
        in lieu of income taxes) to $10,000 for all taxpayers 
        other than married taxpayers filing separate returns, 
        for whom the limit is $5,000.\16\ The TCJA also repeals 
        the deduction for foreign real property taxes (other 
        than paid or accrued in carrying on a trade or 
        business, or an activity described in section 212).
---------------------------------------------------------------------------
    \16\Sec. 11042 of the TCJA and sec. 164 of the Code.
---------------------------------------------------------------------------
          15. The TCJA reduces the $1 million limitation of 
        acquisition indebtedness with respect to which interest 
        is deductible to $750,000 ($375,000 in the case of 
        married taxpayers filing a separate return) in the case 
        of acquisition indebtedness incurred on or after 
        December 15, 2017.\17\ Additionally, under the TCJA, 
        home equity interest is not deductible.
---------------------------------------------------------------------------
    \17\Sec. 11043 of the TCJA and sec. 163 of the Code.
---------------------------------------------------------------------------
          16. The TCJA suspends the deduction for a personal 
        casualty loss, or for theft, unless such casualty loss 
        or theft is attributable to a disaster declared by the 
        President under section 401 of the Robert T. Stafford 
        Disaster Relief and Emergency Assistance Act.\18\
---------------------------------------------------------------------------
    \18\Sec. 11044 of the TCJA and sec. 165 of the Code.
---------------------------------------------------------------------------
          17. The TCJA suspends the deduction for miscellaneous 
        itemized deductions.\19\
---------------------------------------------------------------------------
    \19\Sec. 11045 of the TCJA and sec. 67 of the Code.
---------------------------------------------------------------------------
          18. The TCJA suspends the overall limitation on 
        itemized deductions (commonly referred to as the 
        ``Pease limitation'').\20\
---------------------------------------------------------------------------
    \20\Sec. 11046 of the TCJA and sec. 68 of the Code.
---------------------------------------------------------------------------
          19. The TCJA suspends the exclusion from gross income 
        and wages for qualified bicycle commuting 
        reimbursements.\21\
---------------------------------------------------------------------------
    \21\Sec. 11047 of the TCJA and sec. 132(f) of the Code.
---------------------------------------------------------------------------
          20. The TCJA suspends the exclusion from gross income 
        and wages for qualified moving expense reimbursements 
        for all taxpayers other than members of the Armed 
        Forces of the United States on active duty who move 
        pursuant to a military order and incident to a 
        permanent change of station.\22\
---------------------------------------------------------------------------
    \22\Sec. 11048 of the TCJA and sec. 132(g) of the Code.
---------------------------------------------------------------------------
          21. The TCJA suspends the above-the-line deduction 
        for moving expenses incurred in connection with the 
        relocation of a taxpayer for a new principal place of 
        work for all taxpayers other than members of the Armed 
        Forces of the United States on active duty who move 
        pursuant to a military order and incident to a 
        permanent change of station.\23\
---------------------------------------------------------------------------
    \23\Sec. 11049 of the TCJA and sec. 217 of the Code.
---------------------------------------------------------------------------
          22. The TCJA provides that wagering losses, and the 
        limitations applicable to those losses, include 
        expenses incurred in connection with the conduct of 
        such individual's gambling activity (and not only the 
        actual costs of the wagers incurred by such 
        individual).\24\
---------------------------------------------------------------------------
    \24\Sec. 11050 of the TCJA and sec. 165(d) of the Code.
---------------------------------------------------------------------------
          23. The TCJA doubles the estate and gift tax 
        exemption amounts, such that for 2018 the exemption 
        amount is $11.2 million per individual.\25\ For estates 
        of decedents dying and gifts made after December 31, 
        2025, the exemption amount reverts to its inflation-
        adjusted 2017 amount.
---------------------------------------------------------------------------
    \25\Sec. 11061 of the TCJA and sec. 2010 of the Code.
---------------------------------------------------------------------------
          24. The TCJA increases the alternative minimum tax 
        exemption amount to $109,400 for joint returns and 
        surviving spouses (half this amount for married 
        taxpayers filing a separate return) and $70,300 for all 
        other taxpayers (other than trusts and estates). 
        Additionally the phaseout thresholds for the exemption 
        amount are increased to $1,000,000 for married 
        taxpayers filing a joint return and $500,000 for all 
        other taxpayers (other than trusts and estates).\26\
---------------------------------------------------------------------------
    \26\Sec. 12001 of the TCJA and sec. 55 of the Code.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the tax relief provided by the 
Tax Cuts and Jobs Act has spurred economic growth and created 
jobs. The Committee believes it is appropriate to permanently 
extend the individual and pass-through business provisions that 
were temporary in the TCJA, in order to provide certainty to 
individuals, families, and small businesses and continue to 
drive economic growth and job creation.

                        EXPLANATION OF PROVISION

    For the above-described provisions that expire after 
December 31, 2025, the provision repeals the expiration date, 
thereby fully and permanently integrating the policy enacted by 
the Tax Cuts and Jobs Act into the tax code.
    The provision extends the reduction of the threshold above 
which unreimbursed medical expenses may be deducted, so that 
this reduction in the threshold from 10 percent to 7.5 percent 
of AGI applies to taxable years beginning after December 31, 
2016 and ending before January 1, 2021.

Other modifications contained in the provision

    The provision makes other modifications to certain 
provisions relating to the TCJA.
            Modification to capital gains bracket breakpoints
    The provision modifies the breakpoints between the zero and 
15-percent rate on long-term capital gains and qualified 
dividends, conforming the breakpoints to the maximum ordinary 
income amounts taxed at rates below the 22-percent bracket 
breakpoint on ordinary income. This modification assures that 
taxpayers cannot have long-term capital gains income taxed at a 
higher rate of tax than ordinary income would be taxed. The 
capital gains breakpoints applicable to trusts and estates are 
not modified under this provision.
            Modification of return requirement
    The provision modifies the tax filing requirement so that a 
married taxpayer does not need to file an income tax return if 
the combined gross income of the taxpayer (individual and 
spouse) is less than the applicable standard deduction, even if 
the individual and spouse do not have the same household as 
their home at the close of the taxable year.\27\
---------------------------------------------------------------------------
    \27\Sec. 6012(a)(1)(A)(iv) of the Code.
---------------------------------------------------------------------------
            Modification to section 15
    Section 15 provides a rule for the computation of tax in 
the event of a tax rate change (or a repeal of a tax) for a 
taxable year beginning on a date other than the first date of a 
taxpayer's taxable year. This provision does not apply to 
changes due to individual inflation adjustments or to changes 
in the individual tax rates made by the various tax Acts 
enacted in recent years. The provision modifies section 15 to 
apply only to changes in corporate tax rates.

Technical and clerical modifications contained in the provision

            Modification of rules related to rounding of income tax 
                    brackets
    The provision modifies the rounding rule applicable to the 
income tax brackets applicable to heads of household, so as to 
conform those rules to those that apply to the tax brackets 
applicable to unmarried individuals (other than heads of 
household or surviving spouses). Under the provision the income 
tax brackets for heads of household, unmarried individuals, and 
married individuals filing separately all round to the next 
lowest multiple of $25.
            ITIN requirement for non-child dependents
    The provision clarifies that a taxpayer identification 
number is necessary with respect to any non-child dependent for 
whom the $500 non-refundable credit is claimed. The taxpayer 
identification number may be either a Social Security number or 
an individual taxpayer identification number.
            Gross income requirement for non-child dependent
    The provision makes a technical change to provide that, as 
under 2017 law, an individual other than a child may qualify as 
a dependent of another taxpayer if such individual has gross 
income not in excess of $4,150. This amount is indexed for 
inflation.
            Increased limitation for certain charitable contributions
    The provision provides that the 60-percent limit for cash 
contributions is applied after (and reduced by) the amount of 
noncash contributions to organizations described in section 
170(b)(1)(A). For example, assume an individual with a 
contribution base of $100,000 for the taxable year makes a 
contribution of unappreciated property with a fair market value 
of $50,000 and a contribution of $10,000 cash to a qualified 
public charity. Under the provision, the cash contribution 
limit is determined after accounting for noncash contributions. 
Thus, in the above example, the $50,000 contribution of 
unappreciated property is accounted for first, using up the 
entire 50-percent contribution limit described in section 
170(b)(1)(A), but leaving $10,000 in allowable cash 
contributions under the 60-percent limit.
            Limitation on deduction for State and local, etc. taxes
    The provision makes a technical change to clarify that the 
$10,000 limitation on the itemized deduction for State and 
local property taxes (other than paid or accrued in carrying on 
a trade or business, or an activity described in section 212) 
and State and local income, war profits and excess profits 
taxes (or sales taxes in lieu of income taxes) applies with 
respect to all such State and local taxes otherwise deducible 
under chapter 1 of the Internal Revenue Code.

                             EFFECTIVE DATE

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

                      III. VOTES OF THE COMMITTEE

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on the amendment offered by Mr. Pascrell to the 
amendment in the nature of a substitute to H.R. 6760, which 
would expand the itemized deduction for state and local taxes 
and increase the corporate tax rate, was not agreed to by a 
roll call vote of 15 yeas to 21 nays (with a quorum being 
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Nunes......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Reichert...................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Roskam.....................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Buchanan...................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Smith (NE).................  ........        X   .........  Mr. Blumenauer...        X   ........  .........
Ms. Jenkins....................  ........        X   .........  Mr. Kind.........        X   ........  .........
Mr. Paulsen....................  ........        X   .........  Mr. Pascrell.....        X   ........  .........
Mr. Marchant...................  ........        X   .........  Mr. Crowley......        X   ........  .........
Ms. Black......................  ........        X   .........  Mr. Davis........        X   ........  .........
Mr. Reed.......................  ........        X   .........  Ms. Sanchez......        X   ........  .........
Mr. Kelly......................  ........        X   .........  Mr. Higgins......  ........  ........  .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......        X   ........  .........
Ms. Noem.......................  ........        X   .........  Ms. DelBene......        X   ........  .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........        X   ........  .........
Mr. Smith (MO).................  ........        X   .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................  ........        X   .........
Ms. Walorski...................  ........        X   .........
Mr. Curbelo....................  ........        X   .........
Mr. Bishop.....................  ........        X   .........
Mr. LaHood.....................  ........        X   .........
Mr. Wenstrup...................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on the amendment offered by Mr. Neal to the 
amendment in the nature of a substitute to H.R. 6760, which 
would expand several individual tax credits and increase the 
top individual tax rate, was not agreed to by a roll call vote 
of 15 yeas to 21 nays (with a quorum being present). The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Nunes......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Reichert...................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Roskam.....................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Buchanan...................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Smith (NE).................  ........        X   .........  Mr. Blumenauer...        X   ........  .........
Ms. Jenkins....................  ........        X   .........  Mr. Kind.........        X   ........  .........
Mr. Paulsen....................  ........        X   .........  Mr. Pascrell.....        X   ........  .........
Mr. Marchant...................  ........        X   .........  Mr. Crowley......        X   ........  .........
Ms. Black......................  ........        X   .........  Mr. Davis........        X   ........  .........
Mr. Reed.......................  ........        X   .........  Ms. Sanchez......        X   ........  .........
Mr. Kelly......................  ........        X   .........  Mr. Higgins......        X   ........  .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......  ........  ........  .........
Ms. Noem.......................  ........        X   .........  Ms. DelBene......        X   ........  .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........        X   ........  .........
Mr. Smith (MO).................  ........        X   .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................  ........        X   .........
Ms. Walorski...................  ........        X   .........
Mr. Curbelo....................  ........        X   .........
Mr. Bishop.....................  ........        X   .........
Mr. LaHood.....................  ........        X   .........
Mr. Wenstrup...................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on the amendment offered by Mr. Thompson to the 
amendment in the nature of a substitute to H.R. 6760, which 
would expand the itemized deduction for casualty losses, 
include permanent provisions related to federally-declared 
disasters, and increase the corporate tax rate, was not agreed 
to by a roll call vote of 15 yeas to 21 nays (with a quorum 
being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Nunes......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Reichert...................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Roskam.....................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Buchanan...................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Smith (NE).................  ........        X   .........  Mr. Blumenauer...        X   ........  .........
Ms. Jenkins....................  ........        X   .........  Mr. Kind.........        X   ........  .........
Mr. Paulsen....................  ........        X   .........  Mr. Pascrell.....        X   ........  .........
Mr. Marchant...................  ........        X   .........  Mr. Crowley......        X   ........  .........
Ms. Black......................  ........        X   .........  Mr. Davis........        X   ........  .........
Mr. Reed.......................  ........        X   .........  Ms. Sanchez......        X   ........  .........
Mr. Kelly......................  ........        X   .........  Mr. Higgins......        X   ........  .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......  ........  ........  .........
Ms. Noem.......................  ........        X   .........  Ms. DelBene......        X   ........  .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........        X   ........  .........
Mr. Smith (MO).................  ........        X   .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................  ........        X   .........
Ms. Walorski...................  ........        X   .........
Mr. Curbelo....................  ........        X   .........
Mr. Bishop.....................  ........        X   .........
Mr. LaHood.....................  ........        X   .........
Mr. Wenstrup...................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on the amendment offered by Ms. Sanchez to the 
amendment in the nature of a substitute to H.R. 6760, which 
would make the 7.5 percent of adjusted gross income floor on 
the deduction for certain medical expenses permanent and 
increase the corporate tax rate, was not agreed to by a roll 
call vote of 15 yeas to 21 nays (with a quorum being present). 
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Nunes......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Reichert...................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Roskam.....................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Buchanan...................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Smith (NE).................  ........        X   .........  Mr. Blumenauer...        X   ........  .........
Ms. Jenkins....................  ........        X   .........  Mr. Kind.........        X   ........  .........
Mr. Paulsen....................  ........        X   .........  Mr. Pascrell.....        X   ........  .........
Mr. Marchant...................  ........        X   .........  Mr. Crowley......        X   ........  .........
Ms. Black......................  ........        X   .........  Mr. Davis........        X   ........  .........
Mr. Reed.......................  ........        X   .........  Ms. Sanchez......        X   ........  .........
Mr. Kelly......................  ........        X   .........  Mr. Higgins......        X   ........  .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......  ........  ........  .........
Ms. Noem.......................  ........        X   .........  Ms. DelBene......        X   ........  .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........        X   ........  .........
Mr. Smith (MO).................  ........        X   .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................  ........        X   .........
Ms. Walorski...................  ........        X   .........
Mr. Curbelo....................  ........        X   .........
Mr. Bishop.....................  ........        X   .........
Mr. LaHood.....................  ........        X   .........
Mr. Wenstrup...................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on Mr. Reichert's motion to table Mr. Doggett's 
appeal of the ruling of the Chair was agreed to by a roll call 
vote of 21 yeas to 15 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Smith (NE).................        X   ........  .........  Mr. Blumenauer...  ........        X   .........
Ms. Jenkins....................        X   ........  .........  Mr. Kind.........  ........        X   .........
Mr. Paulsen....................        X   ........  .........  Mr. Pascrell.....  ........        X   .........
Mr. Marchant...................        X   ........  .........  Mr. Crowley......  ........        X   .........
Ms. Black......................        X   ........  .........  Mr. Davis........  ........        X   .........
Mr. Reed.......................        X   ........  .........  Ms. Sanchez......  ........        X   .........
Mr. Kelly......................        X   ........  .........  Mr. Higgins......  ........        X   .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......  ........  ........  .........
Ms. Noem.......................        X   ........  .........  Ms. DelBene......  ........        X   .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........  ........        X   .........
Mr. Smith (MO).................        X   ........  .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................        X   ........  .........
Ms. Walorski...................        X   ........  .........
Mr. Curbelo....................        X   ........  .........
Mr. Bishop.....................        X   ........  .........
Mr. LaHood.....................        X   ........  .........
Mr. Wenstrup...................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on the amendment offered by Mr. Larson to the 
amendment in the nature of a substitute to H.R. 6760, which 
would condition the provisions of the bill on an actuarial 
certification regarding the Social Security and Medicare Trust 
Funds was not agreed to by a roll call vote of 15 yeas to 21 
nays (with a quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Nunes......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Reichert...................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Roskam.....................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Buchanan...................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Smith (NE).................  ........        X   .........  Mr. Blumenauer...  ........  ........  .........
Ms. Jenkins....................  ........        X   .........  Mr. Kind.........        X   ........  .........
Mr. Paulsen....................  ........        X   .........  Mr. Pascrell.....        X   ........  .........
Mr. Marchant...................  ........        X   .........  Mr. Crowley......        X   ........  .........
Ms. Black......................  ........        X   .........  Mr. Davis........        X   ........  .........
Mr. Reed.......................  ........        X   .........  Ms. Sanchez......        X   ........  .........
Mr. Kelly......................  ........        X   .........  Mr. Higgins......        X   ........  .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......        X   ........  .........
Ms. Noem.......................  ........        X   .........  Ms. DelBene......        X   ........  .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........        X   ........  .........
Mr. Smith (MO).................  ........        X   .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................  ........        X   .........
Ms. Walorski...................  ........        X   .........
Mr. Curbelo....................  ........        X   .........
Mr. Bishop.....................  ........        X   .........
Mr. LaHood.....................  ........        X   .........
Mr. Wenstrup...................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    The vote on Mr. Reichert's motion to table Mr. Doggett's 
appeal of the ruling of the Chair was agreed to by a roll call 
vote of 21 yeas to 15 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Smith (NE).................        X   ........  .........  Mr. Blumenauer...  ........  ........  .........
Ms. Jenkins....................        X   ........  .........  Mr. Kind.........  ........        X   .........
Mr. Paulsen....................        X   ........  .........  Mr. Pascrell.....  ........        X   .........
Mr. Marchant...................        X   ........  .........  Mr. Crowley......  ........        X   .........
Ms. Black......................        X   ........  .........  Mr. Davis........  ........        X   .........
Mr. Reed.......................        X   ........  .........  Ms. Sanchez......  ........        X   .........
Mr. Kelly......................        X   ........  .........  Mr. Higgins......  ........        X   .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......  ........        X   .........
Ms. Noem.......................        X   ........  .........  Ms. DelBene......  ........        X   .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........  ........        X   .........
Mr. Smith (MO).................        X   ........  .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................        X   ........  .........
Ms. Walorski...................        X   ........  .........
Mr. Curbelo....................        X   ........  .........
Mr. Bishop.....................        X   ........  .........
Mr. LaHood.....................        X   ........  .........
Mr. Wenstrup...................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6760, ``Protecting Family and Small 
Business Tax Cuts Act of 2018'' on September 13, 2018.
    H.R. 6760 was ordered favorably reported to the House of 
Representatives as amended by an amendment in the nature of a 
substitute offered by Chairman Brady by a roll call vote of 21 
yeas to 15 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Smith (NE).................        X   ........  .........  Mr. Blumenauer...  ........  ........  .........
Ms. Jenkins....................        X   ........  .........  Mr. Kind.........  ........        X   .........
Mr. Paulsen....................        X   ........  .........  Mr. Pascrell.....  ........        X   .........
Mr. Marchant...................        X   ........  .........  Mr. Crowley......  ........        X   .........
Ms. Black......................        X   ........  .........  Mr. Davis........  ........        X   .........
Mr. Reed.......................        X   ........  .........  Ms. Sanchez......  ........        X   .........
Mr. Kelly......................        X   ........  .........  Mr. Higgins......  ........        X   .........
Mr. Renacci....................  ........  ........  .........  Ms. Sewell.......  ........        X   .........
Ms. Noem.......................        X   ........  .........  Ms. DelBene......  ........        X   .........
Mr. Holding....................  ........  ........  .........  Ms. Chu..........  ........        X   .........
Mr. Smith (MO).................        X   ........  .........
Mr. Rice.......................  ........  ........  .........
Mr. Schweikert.................        X   ........  .........
Ms. Walorski...................        X   ........  .........
Mr. Curbelo....................        X   ........  .........
Mr. Bishop.....................        X   ........  .........
Mr. LaHood.....................        X   ........  .........
Mr. Wenstrup...................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                    III. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 6760, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal fiscal year budget receipts for the period 
2019-2028:


    Clause 8 of rule XIII of the Rules of the House of 
Representatives requires that an estimate provided by the Joint 
Committee on Taxation to the Director of the Congressional 
Budget Office under section 201(f) of the Congressional Budget 
Act of 1974 for any major legislation shall, to the extent 
practicable, incorporate the budgetary effects of changes in 
economic output, employment, capital stock, and other 
macroeconomic variables resulting from such legislation. Major 
legislation is defined as legislation having a gross budgetary 
effect (before incorporating macroeconomic effects) that is 
greater in any fiscal year than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year. The bill meets this definition of major 
legislation.
    The staff of the Joint Committee on Taxation is currently 
analyzing changes in economic output, employment, capital 
stock, and other macroeconomic variables resulting from the 
bill for purposes of determining these budgetary effects. 
However, it was not practicable to complete this analysis, 
which requires accounting for the effects of each provision in 
this bill, along with interactions between these provisions, by 
the filing of this report.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue provisions involve no 
new tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 21, 2018.
Hon. Kevin Brady,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 6760, the 
Protecting Family and Small Business Tax Cuts Act of 2018. It 
contains estimates of tax provisions prepared by the staff of 
the Joint Committee on Taxation.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Cecilia 
Pastrone.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 6760--Protecting Family and Small Business Tax Cuts Act of 2018

    Summary: H.R. 6760, the Protecting Family and Small 
Business Tax Cuts Act of 2018, would repeal the December 31, 
2025 expiration date for numerous provisions of U.S. tax law 
that were temporarily changed by the 2017 tax act (Public Law 
115-97). The bill would make permanent the individual income 
tax brackets and tax rates, standard deduction and child tax 
credit amounts, business income deduction, and exemption 
amounts for the Alternative Minimum Tax in effect under current 
law. Deductions for personal exemptions and certain itemized 
deductions would be permanently repealed.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting the bill would reduce revenues by about 
$597 billion over the 2019-2028 period, and increase outlays by 
$34 billion over the same period, leading to an increase in the 
deficit of $631 billion over the next 10 years. A portion of 
the changes in revenues would be from Social Security payroll 
taxes, which are off-budget. Excluding the estimated $687 
million increase in off-budget revenues over the next 10 years, 
JCT estimates that H.R. 6760 would increase on-budget deficits 
by about $632 billion over the period from 2019 to 2028. Pay-
as-you-go procedures apply because enacting the legislation 
would affect direct spending and revenues.
    JCT estimates that enacting H.R. 6760 would increase on-
budget deficits by more than $5 billion in at least one of the 
four 10-year periods beginning in 2029. CBO and JCT estimate 
that enacting the legislation would increase net direct 
spending by more than $2.5 billion in at least one of the four 
consecutive 10-year periods beginning in 2029.
    Because of the magnitude of the estimated budgetary 
effects, this bill is considered to be ``major legislation,'' 
as defined in section 5107 of H. Con. Res. 71, the Concurrent 
Resolution on the Budget for Fiscal Year 2018. Hence, it 
triggers the requirement that the cost estimate, to the extent 
practicable, include the budgetary impact of its macroeconomic 
effects. The staff of the Joint Committee on Taxation is 
currently analyzing changes in economic output, employment, 
capital stock, and other macroeconomic variables resulting from 
the bill for purposes of determining these budgetary effects. 
However, JCT indicates a macroeconomic analysis incorporating 
the full effects of all of the provisions in the bill, 
including interactions between these provisions, is not 
available at the time of filing of the committee report.
    JCT has determined that the tax provisions of the bill 
contain no intergovernmental or private sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 6760 is shown in the following table.
    Basis of estimate:

Revenues and direct spending

    The Congressional Budget Act of 1974, as amended, 
stipulates that revenue estimates provided by the staff of the 
Joint Committee on Taxation will be the official estimates for 
all tax legislation considered by the Congress. As such, CBO 
incorporates those estimates into its cost estimates of the 
effects of legislation. All of the estimates for the provisions 
of H.R. 6760 were provided by JCT.\1\ The date of enactment is 
generally assumed to be October 1, 2018.
---------------------------------------------------------------------------
    \1\For JCT's description of the bill and estimates of the 
provisions, which include detail beyond the summary presented below, 
see Joint Committee on Taxation, Description Of H.R. 6760, the 
``Protecting Family And Small Business Tax Cuts Act Of 2018,'' JCX-69-
18, https://www.jct.gov/publications.html?func=startdown&id;=5134, and 
Estimated Revenue Effects of H.R. 6760, the ``Protecting Family And 
Small Business Tax Cuts Act Of 2018,'' JCX-71-18, https://www.jct.gov/
publications.html?func=startdown&id;=5136.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in billions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2018       2019       2020       2021       2022       2023       2024       2025       2026       2027       2028    2019-2023  2019-2028
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES
 
Estimated Changes in Revenues....................          0       -0.4       -2.0       -1.6        0.0        0.0       -0.1       -6.1     -102.4     -233.4     -250.9       -4.0     -596.8
    On-Budget....................................          0       -0.4       -2.0       -1.6        0.0        0.0       -0.1       -6.1     -102.6     -233.6     -251.1       -4.0     -597.5
    Off-Budgeta..................................          0          0          0          0          0          0          0          0        0.2        0.2        0.3          0        0.7
 
                                                                                   CHANGES IN DIRECT SPENDING
 
Total Changes in Direct Spending:
    Estimated Budget Authority...................          0          0          0          0          0          0          0          0          0       17.0       17.1          0       34.1
    Estimated Outlays............................          0          0          0          0          0          0          0          0          0       17.0       17.1          0       34.1
 
                                                                        NET INCREASE OR DECREASE (-) IN THE DEFICIT FROM
                                                                             CHANGES IN DIRECT SPENDING AND REVENUES
 
Effect on Deficit................................          0        0.4        2.0        1.6        0.0        0.0        0.1        6.1      102.4      250.4      268.0        4.0      630.9
    On-Budget Deficit............................          0        0.4        2.0        1.6        0.0        0.0        0.1        6.1      102.6      250.6      268.2        4.0      631.6
    Off-Budget Deficit...........................          0          0          0          0          0          0          0          0       -0.2       -0.2       -0.3          0       -0.7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not add to totals due to rounding.
aOff-budget revenues result from changes in Social Security payroll tax receipts.

    Individual Reform Made Permanent. H.R. 6760 would make 
permanent numerous changes to tax law pertaining to individuals 
made by the 2017 tax act. Such provisions estimated to reduce 
revenues over the 2019 to 2028 period include the following 
changes made by the 2017 tax act, which would no longer expire 
in 2026:
           Establish seven brackets with tax rates of 
        10 percent, 12 percent, 22 percent, 24 percent, 32 
        percent, 35 percent, and 37 percent;
           Increase the standard deduction;
           Establish a deduction for qualified business 
        income;
           Repeal the overall limit on itemized 
        deductions (``Pease limitation'');
           Increase the child tax credit, and add a 
        $500 credit for non-child dependents; and
           Double the exemption amount allowed under 
        estate and gift taxes.
    Provisions estimated to increase revenues over the 2019 to 
2028 period include the following changes made by the 2017 tax 
act, which would no longer expire in 2026:
           Repeal deductions for personal exemptions; 
        and
           Repeal and limit certain itemized 
        deductions, including limiting the deduction for state 
        and local taxes to $10,000.
    The largest revenue reductions would result from the 
provision to permanently extend the current income tax rate and 
bracket structure, which JCT estimates would reduce revenues by 
$520 billion over the period from 2019 to 2028 and increase 
outlays for refundable tax credits by $2 billion over the same 
period. In addition, extending the increase in the standard 
deduction would reduce revenues by $286 billion over the period 
from 2019 to 2028 and increase outlays for refundable tax 
credits by $21 billion over the same period, according to JCT's 
estimates. Making the increased exemptions to the alternative 
minimum tax on individuals permanent would reduce revenues by 
$283 billion from 2019 to 2028.
    JCT also estimates that permanently extending the deduction 
for qualified business income would reduce revenues by $179 
billion over the period from 2019 to 2028, and that extending 
the modified child tax credit would, over the same 10-year 
period, reduce revenues by $155 billion and increase outlays 
for refundable tax credits by $53 billion. JCT estimates that 
additional revenue reductions, totaling $28 billion from 2019 
to 2028, would result from making the 2017 tax act 
modifications to estate and gift taxes permanent.
    The largest revenue increases would result from permanently 
repealing deductions for personal exemptions, which JCT 
estimates would increase revenues by $463 billion and reduce 
outlays for refundable credits by $36 billion over the 2019 to 
2028 period. In addition, JCT estimates that the permanent 
repeal and limitation of certain itemized deductions would 
increase revenues by $317 billion and reduce outlays for 
refundable credits by $828 million from 2019 to 2028.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table. Only on-budget changes to outlays or revenues 
are subject to pay-as-you-go procedures.

                             CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 6760, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 13, 2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in billions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2018       2019       2020       2021       2022       2023       2024       2025       2026       2027       2028    2019-2023  2019-2028
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              NET INCREASE IN THE ON-BUDGET DEFICIT
 
Statutory Pay-As-You-Go Effects..................          0        0.4        2.0        1.6        0.0        0.0        0.1        6.1      102.6      250.6      268.2        4.0      631.6
Memorandum:a
    Change in Outlays............................          0          0          0          0          0          0          0          0          0       17.0       17.1          0       34.1
    Change in On-Budget Revenues.................          0       -0.4       -2.0       -1.6        0.0        0.0       -0.1       -6.1     -102.6     -233.6     -251.1       -4.0     -597.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not add to totals due to rounding.
aA positive sign for outlays indicates an increase in outlays. A negative sign for revenues indicates a reduction in revenues.

    Increase in long term direct spending and deficits: JCT 
estimates that enacting H.R. 6760 would increase on-budget 
deficits by more than $5 billion in at least one of the four 
10-year periods beginning in 2029. CBO and JCT estimate that 
enacting the legislation would increase net direct spending by 
more than $2.5 billion in at least one of the four consecutive 
10-year periods beginning in 2029.
    Mandates: JCT has determined that H.R. 6760 contains no 
private-sector or intergovernmental mandates as defined by 
UMRA.
    Estimate prepared by: Staff of the Joint Committee on 
Taxation and Cecilia Pastrone.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; John McClelland, Assistant Director for Tax 
Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated into 
the description portions of this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, for each such provision identified by 
the staff of the Joint Committee on Taxation, a summary 
description of the provision is provided below along with an 
estimate of the number and type of affected taxpayers, and a 
discussion regarding the relevant complexity and administrative 
issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each provision included in the complexity analysis.

Make permanent modification of tax rates, tax brackets, standard 
        deduction and repeal of personal exemptions (secs. 101, 121, 
        and 141 of the bill)

            Summary description of the provisions
    The bill makes permanent the structure of the individual 
income tax as modified in Pub. L. No. 97-115. Under the 
permanent rate structure, the tax brackets are 10-percent, 12-
percent, 22-percent, 24-percent, 32-percent, 35-percent and 37-
percent. The bill makes permanent the increase in the size the 
standard deduction amount (for 2018 the standard deduction is 
$24,000 for joint filers, $18,000 for heads of household and 
$12,000 for other filers), and makes permanent the elimination 
of personal exemptions.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 129 million tax returns in 2026.
            Discussion
    It is not anticipated that individuals will need to keep 
additional records due to these provisions. It should not 
result in an increase in disputes with the IRS, nor will 
regulatory guidance be necessary to implement this provision.
    The provision will save the IRS from needing to re-adjust 
its wage withholding tables to reflect the expiration of these 
provisions for the taxable year 2026. Further, the IRS will no 
longer need to modify its forms and publications to reflect the 
expiration of these provisions for taxable year 2026.
    Taxpayers who, under the provisions of Pub. L. No. 115-97, 
were able to claim the standard deduction rather than 
itemizing, will now continue to be able to do so after taxable 
year 2025. According to estimates by the staff of the Joint 
Committee on Taxation, approximately 89 percent of taxpayers 
will claim the standard deduction in 2026 under the bill, up 
from approximately 70 percent in 2017. For these taxpayers, it 
will not be necessary to file Schedule A to Form 1040, allowing 
a significant number to forgo record keeping inherent in 
itemizing below-the-line deductions. Moreover, by claiming the 
standard deduction, such taxpayers may qualify to use simpler 
versions of the Form 1040 (i.e., Form 1040EZ or Form 1040A) 
that are not available to individuals who itemize their 
deductions. These forms simplify the return preparation process 
by eliminating from the Form 1040 those items that do not apply 
to particular taxpayers.
    This reduction in complexity and record keeping also may 
result in a decline in the number of individuals using a tax 
preparation service, or tax preparation software, or a decline 
in the cost of such service or software. The provision also 
should reduce the number of disputes between taxpayers and the 
IRS regarding the substantiation of itemized deductions.

Make permanent the deduction for qualified business income (sec. 111 of 
        the bill)

            Summary description of the provisions
    The bill makes permanent the provision enacted in Pub. L. 
No. 115-97 (Code section 199A), as subsequently modified by 
Pub. L. No. 115-141. Under the provision, an individual 
taxpayer generally may deduct 20 percent of qualified business 
income from a partnership, S corporation, or sole 
proprietorship, as well as 20 percent of aggregate qualified 
REIT dividends and qualified publicly traded partnership 
income. Special rules apply to specified agricultural or 
horticultural cooperatives and their patrons.
    A limitation based on the greater of 50 percent of W-2 
wages paid, or the sum of 25 percent of W-2 wages paid plus a 
capital allowance, 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 same threshold amount of taxable income. The threshold 
amount is $157,500 (twice that amount or $315,000 in the case 
of a joint return), indexed. These limitations are 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).
    Qualified business income for a taxable year generally 
means the net amount of domestic qualified items of income, 
gain, deduction, and loss with respect to the taxpayer's 
qualified businesses. 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, and to 
the extent provided in regulations, does not include any amount 
allocated or distributed by a partnership to a partner who is 
acting other than in his or her capacity as a partner for 
services. Qualified business income or loss does not include 
certain investment-related income, gain, deductions, or loss.
            Number of affected taxpayers
    It is estimated that the provision will affect over ten 
percent of small business tax returns.
            Discussion
    In the absence of making the provision permanent, the 
period of time with respect to which taxpayers could have to 
keep additional records, or might engage in disputes with the 
IRS regarding application of the provision, would end. On the 
other hand, in the absence of making the provision permanent, 
the IRS would have to revise forms and promulgate revised 
guidance relating to the end of the period in which the 
provision applies. Making the provision permanent provides more 
time for a body of law, including regulations or other 
guidance, to clarify the application of the provision generally 
as well as in particular fact situations, potentially 
facilitating taxpayer compliance with, and IRS administration 
of, the provision as it remains in effect. Over time, 
increasing familiarity of the provision may result in a decline 
in the annual number of questions that taxpayers ask the IRS, 
such as how to calculate qualified business income and how to 
apply the phaseins of the W-2 wage (or W-2 wage and capital) 
limit and of the exclusion of service business income in the 
case of taxpayers with taxable income exceeding the threshold 
amount of $157,500 (twice that amount or $315,000 in the case 
of a joint return), indexed. The possible decline in the volume 
of questions could improve efficiency of the IRS and permit the 
use of greater IRS resources for taxpayer service and 
administration of other aspects of the tax law. Making the 
provision permanent principally affects taxable years beginning 
after 2025, so the provision will have been in effect for 
several years by the end of 2025, potentially permitting tax 
advisors and tax software makers to improve aids for taxpayers' 
compliance. Consequently, making the provision permanent should 
not increase the tax preparation costs for most individuals.

Increase in child tax credit made permanent (sec. 122 of the bill)

            Summary description of the provisions
    The bill makes permanent the provision of Pub. L. No. 115-
97 that increases the value of the child tax credit to $2,000, 
and providing for a refundable child tax credit of up to $1,400 
per child. This $1,400 limitation is indexed for inflation. In 
order to qualify for the child tax credit, a Social Security 
number must be provided for the qualifying child for whom such 
credit is claimed.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 53 million tax returns in 2026.
            Discussion
    It is not anticipated that individuals will need to keep 
additional records due to these provisions. It should not 
result in an increase in disputes with the IRS, nor will 
regulatory guidance be necessary to implement this provision.
    The IRS will no longer need to modify its forms and 
publications for taxable year 2026 to reflect the expiration of 
this provision.

Make permanent the limitation on deduction for State and local income 
        taxes (sec. 142 of the bill)

            Summary description of the provisions
    The bill makes permanent the provision contained in Pub. L. 
No. 115-97 which provides that, the case of an individual, as a 
general matter, State, local, and foreign property taxes and 
State and local sales taxes are allowed as a deduction only 
when paid or accrued in carrying on a trade or business, or an 
activity described in section 212 (relating to expenses for the 
production of income).
    The bill makes permanent the exception provided by Pub. L. 
No. 115-97 to the above-stated rule. Under the provision a 
taxpayer may claim an itemized deduction of up to $10,000 
($5,000 for married taxpayer filing a separate return) for the 
aggregate of (i) State and local property taxes not paid or 
accrued in carrying on a trade or business, or an activity 
described in section 212, and (ii) State and local income, war 
profits, and excess profits taxes (or sales taxes in lieu of 
income, etc. taxes) paid or accrued in the taxable year. 
Foreign real property taxes may not be deducted under this 
exception.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 19 million tax returns in 2026.
            Discussion
    It is not anticipated that individuals will need to keep 
additional records due to this provision.
    To the extent the IRS would have needed to modify its forms 
and publications to reflect the expiration of this provision 
for taxable years beginning after 2025, it will no longer need 
to do so.


  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program, (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139, or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to section 6104 of 
title 31, United States Code.

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee advises that the bill requires no 
directed rule makings within the meaning of such section.

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


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

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed by the bill, as reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986



           *       *       *       *       *       *       *
Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 1. TAX IMPOSED.

  (a) Married individuals filing joint returns and surviving 
spouses.--There is hereby imposed on the taxable income of--
          (1) every married individual (as defined in section 
        7703) who makes a single return jointly with his spouse 
        under section 6013, and
          (2) every surviving spouse (as defined in section 
        2(a)), a tax determined in accordance with the 
        following table:


 
------------------------------------------------------------------------
        [If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $36,900                       15% of taxable income.
Over $36,900 but not over $89,150      $5,535, plus 28% of the excess
                                        over $36,900.
Over $89,150 but not over $140,000     $20,165, plus 31% of the excess
                                        over $89,150.
Over $140,000 but not over $250,000    $35,928.50, plus 36% of the
                                        excess over $140,000.
Over $250,000                          $75,528.50, plus 39.6% of the
                                        excess over $250,000.]
------------------------------------------------------------------------



 
 
        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.--There is hereby imposed on the 
taxable income of every head of a household (as defined in 
section 2(b)) a tax determined in accordance with the following 
table:


 
------------------------------------------------------------------------
        [If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $29,600                       15% of taxable income.
Over $29,600 but not over $76,400      $4,440, plus 28% of the excess
                                        over $29,600.
Over $76,400 but not over $127,500     $17,544, plus 31% of the excess
                                        over $76,400.
Over $127,500 but not over $250,000    $33,385, plus 36% of the excess
                                        over $127,500.
Over $250,000                          $77,485, plus 39.6% of the excess
                                        over $250,000.]
------------------------------------------------------------------------



 
 
        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).--There is hereby imposed on the taxable 
income of every individual (other than a surviving spouse as 
defined in section 2(a) or the head of a household as defined 
in section 2(b)) who is not a married individual (as defined in 
section 7703) a tax determined in accordance with the following 
table:


 
------------------------------------------------------------------------
        [If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $22,100                       15% of taxable income.
Over $22,100 but not over $53,500      $3,315, plus 28% of the excess
                                        over $22,100.
Over $53,500 but not over $115,000     $12,107, plus 31% of the excess
                                        over $53,500.
Over $115,000 but not over $250,000    $31,172, plus 36% of the excess
                                        over $115,000.
Over $250,000                          $79,772, plus 39.6% of the excess
                                        over $250,000.]
------------------------------------------------------------------------



 
 
        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.--There is 
hereby imposed on the taxable income of every married 
individual (as defined in section 7703) who does not make a 
single return jointly with his spouse under section 6013, a tax 
determined in accordance with the following table:


 
------------------------------------------------------------------------
        [If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $18,450                       15% of taxable income.
Over $18,450 but not over $44,575      $2,767.50, plus 28% of the excess
                                        over $18,450.
Over $44,575 but not over $70,000      $10,082.50, plus 31% of the
                                        excess over $44,575.
Over $70,000 but not over $125,000     $17,964.25, plus 36% of the
                                        excess over $70,000.
Over $125,000                          $37,764.25, plus 39.6% of the
                                        excess over $125,000.]
------------------------------------------------------------------------



 
 
        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.--There is hereby imposed on the 
taxable income of--
          (1) every estate, and
          (2) every trust, taxable under this subsection a tax 
        determined in accordance with the following table:


 
------------------------------------------------------------------------
        [If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $1,500                        15% of taxable income.
Over $1,500 but not over $3,500        $225, plus 28% of the excess over
                                        $1,500.
Over $3,500 but not over $5,500        $785, plus 31% of the excess over
                                        $3,500.
Over $5,500 but not over $7,500        $1,405, plus 36% of the excess
                                        over $5,500.
Over $7,500                            $2,125, plus 39.6% of the excess
                                        over $7,500.]
------------------------------------------------------------------------



 
 
        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)  [Phaseout of Marriage Penalty in 15-Percent Bracket; 
Adjustments] Adjustments in tax tables so that inflation will 
not result in tax increases.--
          (1) In general.--Not later than December 15 of [1993] 
        2018, and each subsequent calendar year, the Secretary 
        shall prescribe tables which shall apply in lieu of the 
        tables contained in subsections (a), (b), (c), (d), and 
        (e) with respect to taxable years beginning in the 
        succeeding calendar year.
          (2) Method of prescribing tables.--The table which 
        under paragraph (1) is to apply in lieu of the table 
        contained in subsection (a), (b), (c), (d), or (e), as 
        the case may be, with respect to taxable years 
        beginning in any calendar year shall be prescribed--
                  [(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),]
                  (A) 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 under this subsection for such 
                calendar year by substituting ``2017'' for 
                ``2016'' in paragraph (3)(A)(ii),
                  (B) by not changing the rate applicable to 
                any rate bracket as adjusted under subparagraph 
                (A), and
                  (C) by adjusting the amounts setting forth 
                the tax to the extent necessary to reflect the 
                adjustments in the rate brackets.
          (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.
          (4) CPI for any calendar year.--For purposes of 
        paragraph (3), the CPI for any calendar year is the 
        average of the Consumer Price Index as of the close of 
        the 12-month period ending on August 31 of such 
        calendar year.
          (5) Consumer Price Index.--For purposes of paragraph 
        (4), the term ``Consumer Price Index'' means the last 
        Consumer Price Index for all-urban consumers published 
        by the Department of Labor. For purposes of the 
        preceding sentence, the revision of the Consumer Price 
        Index which is most consistent with the Consumer Price 
        Index for calendar year 1986 shall be used.
          (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.
          (7) Rounding.--
                  (A) In general.--If any increase determined 
                under paragraph (2)(A) [, section 63(c)(4), 
                section 68(b)(2) or section 151(d)(4)] is not 
                multiple of $50, such increase shall be rounded 
                to the next lowest multiple of $50.
                  [(B) Table for married individuals filing 
                separately.--In the case of a married 
                individual filing a separate return, 
                subparagraph (A)]
                  (B) Special rule._In the case of a table 
                prescribed in lieu of the table contained in 
                subsection (b), (c), or (d), subparagraph (A)  
                [(other than with respect to sections 63(c)(4) 
                and 151(d)(4)(A))]shall be applied by 
                substituting ``$25'' for ``$50'' each place it 
                appears.
          [(8) Elimination of marriage penalty in 15-percent 
        bracket.--With respect to taxable years beginning after 
        December 31, 2003, in prescribing the tables under 
        paragraph (1)--
                  [(A) the maximum taxable income in the 15-
                percent rate bracket in the table contained in 
                subsection (a) (and the minimum taxable income 
                in the next higher taxable income bracket in 
                such table) shall be 200 percent of the maximum 
                taxable income in the 15-percent rate bracket 
                in the table contained in subsection (c) (after 
                any other adjustment under this subsection), 
                and
                  [(B) the comparable taxable income amounts in 
                the table contained in subsection (d) shall be 
                \1/2\ of the amounts determined under 
                subparagraph (A).]
  [(g) Certain unearned income of children taxed as if parent's 
income.--
          [(1) In general.--In the case of any child to whom 
        this subsection applies, the tax imposed by this 
        section shall be equal to the greater of--
                  [(A) the tax imposed by this section without 
                regard to this subsection, or
                  [(B) the sum of--
                          [(i) the tax which would be imposed 
                        by this section if the taxable income 
                        of such child for the taxable year were 
                        reduced by the net unearned income of 
                        such child, plus
                          [(ii) such child's share of the 
                        allocable parental tax.]
  (g) Special Rules for Certain Children with Unearned 
Income.--
          (1) In general.--In the case of any child to whom 
        this subsection applies--
                  (A) Modifications to applicable rate 
                brackets.--In determining the amount of tax 
                imposed by this section for the taxable year on 
                such child, the income tax table otherwise 
                applicable under this section to such 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 
                                subsection (e) (as adjusted 
                                under subsection (f)) 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 
                                subsection (e) (as adjusted 
                                under subsection (f)) 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 
                                subsection (e) (as adjusted 
                                under subsection (f)) for the 
                                taxable year.
                  (B) Coordination with capital gains rates.--
                For purposes of applying section 1(h)--
                          (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 subsection (h)(13) 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 subsection (h)(12)(D) for 
                                the taxable year.
          (2) Child to whom subsection applies.--This 
        subsection shall apply to any child for any taxable 
        year if--
                  (A) such child--
                          (i) has not attained age 18 before 
                        the close of the taxable year, or
                          (ii)(I) has attained age 18 before 
                        the close of the taxable year and meets 
                        the age requirements of section 
                        152(c)(3) (determined without regard to 
                        subparagraph (B) thereof), and
                                  (II) whose earned income (as 
                                defined in section 911(d)(2)) 
                                for such taxable year does not 
                                exceed one-half of the amount 
                                of the individual's support 
                                (within the meaning of section 
                                152(c)(1)(D) after the 
                                application of section 
                                152(f)(5) (without regard to 
                                subparagraph (A) thereof)) for 
                                such taxable year,
                  (B) either parent of such child is alive at 
                the close of the taxable year, and
                  (C) such child does not file a joint return 
                for the taxable year.
          [(3) Allocable parental tax.--For purposes of this 
        subsection--
                  [(A) In general.--The term ``allocable 
                parental tax'' means the excess of--
                          [(i) the tax which would be imposed 
                        by this section on the parent's taxable 
                        income if such income included the net 
                        unearned income of all children of the 
                        parent to whom this subsection applies, 
                        over
                          [(ii) the tax imposed by this section 
                        on the parent without regard to this 
                        subsection.
                For purposes of clause (i), net unearned income 
                of all children of the parent shall not be 
                taken into account in computing any exclusion, 
                deduction, or credit of the parent.
                  [(B) Child's share.--A child's share of any 
                allocable parental tax of a parent shall be 
                equal to an amount which bears the same ratio 
                to the total allocable parental tax as the 
                child's net unearned income bears to the 
                aggregate net unearned income of all children 
                of such parent to whom this subsection applies.
                  [(C) Special rule where parent has different 
                taxable year.--Except as provided in 
                regulations, if the parent does not have the 
                same taxable year as the child, the allocable 
                parental tax shall be determined on the basis 
                of the taxable year of the parent ending in the 
                child's taxable year.]
          (3) Earned taxable income.--For purposes of this 
        subsection, 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 of such child.
          (4) Net unearned income.--For purposes of this 
        subsection--
                  (A) In general.--The term ``net unearned 
                income'' means the excess of--
                          (i) the portion of the adjusted gross 
                        income for the taxable year which is 
                        not attributable to earned income (as 
                        defined in section 911(d)(2)), over
                          (ii) the sum of--
                                  (I) the amount in effect for 
                                the taxable year under section 
                                63(c)(5)(A) (relating to 
                                limitation on standard 
                                deduction in the case of 
                                certain dependents), plus
                                  (II) the greater of the 
                                amount described in subclause 
                                (I) or, if the child itemizes 
                                his deductions for the taxable 
                                year, the amount of the 
                                itemized deductions allowed by 
                                this chapter for the taxable 
                                year which are directly 
                                connected with the production 
                                of the portion of adjusted 
                                gross income referred to in 
                                clause (i).
                  (B) Limitation based on taxable income.--The 
                amount of the net unearned income for any 
                taxable year shall not exceed the individual's 
                taxable income for such taxable year.
                  (C) Treatment of distributions from qualified 
                disability trusts.--For purposes of this 
                subsection, in the case of any child who is a 
                beneficiary of a qualified disability trust (as 
                defined in section 642(b)(2)(C)(ii)), any 
                amount included in the income of such child 
                under sections 652 and 662 during a taxable 
                year shall be considered earned income of such 
                child for such taxable year.
          (5) [Special rules for determining parent to whom 
        subsection applies.--] Special rules for determining 
        parent eligible to make election._[For purposes of this 
        subsection, the parent whose taxable income shall be 
        taken into account shall be--] For purposes of 
        paragraph (7), the parent referred to in subparagraph 
        (A)(iv) thereof is--
                  (A) in the case of parents who are not 
                married (within the meaning of section 7703), 
                the custodial parent (within the meaning of 
                [section 152(e)] section 7706(e)) of the child, 
                and
                  (B) in the case of married individuals filing 
                separately, the individual with the greater 
                taxable income.
          (6) Providing of parent's TIN.--The parent of any 
        child to whom this subsection applies for any taxable 
        year shall provide the TIN of such parent to such child 
        and such child shall include such TIN on the child's 
        return of tax imposed by this section for such taxable 
        year.
          (7) Election to claim certain unearned income of 
        child on parent's return.--
                  (A) In general.--If--
                          (i) any child to whom this subsection 
                        applies has gross income for the 
                        taxable year only from interest and 
                        dividends (including Alaska Permanent 
                        Fund dividends),
                          (ii) such gross income is more than 
                        the amount described in paragraph 
                        (4)(A)(ii)(I) and less than 10 times 
                        the amount so described,
                          (iii) no estimated tax payments for 
                        such year are made in the name and TIN 
                        of such child, and no amount has been 
                        deducted and withheld under section 
                        3406, and
                          (iv) the parent of such child (as 
                        determined under paragraph (5)) elects 
                        the application of subparagraph (B),
                such child shall be treated (other than for 
                purposes of this paragraph) as having no gross 
                income for such year and shall not be required 
                to file a return under section 6012.
                  (B) Income included on parent's return.--In 
                the case of a parent making the election under 
                this paragraph--
                          (i) the gross income of each child to 
                        whom such election applies (to the 
                        extent the gross income of such child 
                        exceeds twice the amount described in 
                        paragraph (4)(A)(ii)(I)) shall be 
                        included in such parent's gross income 
                        for the taxable year,
                          (ii) the tax imposed by this section 
                        for such year with respect to such 
                        parent shall be the amount equal to the 
                        sum of--
                                  (I) the amount determined 
                                under this section after the 
                                application of clause (i), plus
                                  (II) for each such child, 10 
                                percent of the lesser of the 
                                amount described in paragraph 
                                (4)(A)(ii)(I) or the excess of 
                                the gross income of such child 
                                over the amount so described, 
                                and
                          (iii) any interest which is an item 
                        of tax preference under section 
                        57(a)(5) of the child shall be treated 
                        as an item of tax preference of such 
                        parent (and not of such child).
                  (C) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph.
  (h) Maximum capital gains rate.--
          (1) In general.--If a taxpayer has a net capital gain 
        for any taxable year, the tax imposed by this section 
        for such taxable year shall not exceed the sum of--
                  (A) a tax computed at the rates and in the 
                same manner as if this subsection had not been 
                enacted on the greater of--
                          (i) taxable income reduced by the net 
                        capital gain; or
                          (ii) the lesser of--
                                  (I) the amount of taxable 
                                income taxed at a rate below 25 
                                percent; or
                                  (II) taxable income reduced 
                                by the adjusted net capital 
                                gain;
                  (B) 0 percent of so much of the adjusted net 
                capital gain (or, if less, taxable income) as 
                does not exceed the excess (if any) of--
                          (i) the amount of taxable income 
                        which would (without regard to this 
                        paragraph) be taxed at a rate below [25 
                        percent] 22 percent, over
                          (ii) the taxable income reduced by 
                        the adjusted net capital gain;
                  (C) 15 percent of the lesser of--
                          (i) so much of the adjusted net 
                        capital gain (or, if less, taxable 
                        income) as exceeds the amount on which 
                        a tax is determined under subparagraph 
                        (B), or
                          (ii) the excess of--
                                  (I) the amount of taxable 
                                income [which would (without 
                                regard to this paragraph) be 
                                taxed at a rate below 39.6 
                                percent] below the maximum 15-
                                percent rate amount, over
                                  (II) the sum of the amounts 
                                on which a tax is determined 
                                under subparagraphs (A) and 
                                (B),
                  (D) 20 percent of the adjusted net capital 
                gain (or, if less, taxable income) in excess of 
                the sum of the amounts on which tax is 
                determined under subparagraphs (B) and (C),
                  (E) 25 percent of the excess (if any) of--
                          (i) the unrecaptured section 1250 
                        gain (or, if less, the net capital gain 
                        (determined without regard to paragraph 
                        (11))), over
                          (ii) the excess (if any) of--
                                  (I) the sum of the amount on 
                                which tax is determined under 
                                subparagraph (A) plus the net 
                                capital gain, over
                                  (II) taxable income; and
                  (F) 28 percent of the amount of taxable 
                income in excess of the sum of the amounts on 
                which tax is determined under the preceding 
                subparagraphs of this paragraph.
          (2) Net capital gain taken into account as investment 
        income.--For purposes of this subsection, the net 
        capital gain for any taxable year shall be reduced (but 
        not below zero) by the amount which the taxpayer takes 
        into account as investment income under section 
        163(d)(4)(B)(iii).
          (3) Adjusted net capital gain.--For purposes of this 
        subsection, the term ``adjusted net capital gain'' 
        means the sum of--
                  (A) net capital gain (determined without 
                regard to paragraph (11)) reduced (but not 
                below zero) by the sum of--
                          (i) unrecaptured section 1250 gain, 
                        and
                          (ii) 28-percent rate gain, plus
                  (B) qualified dividend income (as defined in 
                paragraph (11)).
          (4) 28-percent rate gain.--For purposes of this 
        subsection, the term ``28-percent rate gain'' means the 
        excess (if any) of--
                  (A) the sum of--
                          (i) collectibles gain; and
                          (ii) section 1202 gain, over
                  (B) the sum of--
                          (i) collectibles loss;
                          (ii) the net short-term capital loss; 
                        and
                          (iii) the amount of long-term capital 
                        loss carried under section 
                        1212(b)(1)(B) to the taxable year.
          (5) Collectibles gain and loss.--For purposes of this 
        subsection--
                  (A) In general.--The terms ``collectibles 
                gain'' and ``collectibles loss'' mean gain or 
                loss (respectively) from the sale or exchange 
                of a collectible (as defined in section 408(m) 
                without regard to paragraph (3) thereof) which 
                is a capital asset held for more than 1 year 
                but only to the extent such gain is taken into 
                account in computing gross income and such loss 
                is taken into account in computing taxable 
                income.
                  (B) Partnerships, etc..--For purposes of 
                subparagraph (A), any gain from the sale of an 
                interest in a partnership, S corporation, or 
                trust which is attributable to unrealized 
                appreciation in the value of collectibles shall 
                be treated as gain from the sale or exchange of 
                a collectible. Rules similar to the rules of 
                section 751 shall apply for purposes of the 
                preceding sentence.
          (6) Unrecaptured section 1250 gain.--For purposes of 
        this subsection--
                  (A) In general.--The term ``unrecaptured 
                section 1250 gain'' means the excess (if any) 
                of--
                          (i) the amount of long-term capital 
                        gain (not otherwise treated as ordinary 
                        income) which would be treated as 
                        ordinary income if section 1250(b)(1) 
                        included all depreciation and the 
                        applicable percentage under section 
                        1250(a) were 100 percent, over
                          (ii) the excess (if any) of--
                                  (I) the amount described in 
                                paragraph (4)(B); over
                                  (II) the amount described in 
                                paragraph (4)(A).
                  (B) Limitation with respect to section 1231 
                property.--The amount described in subparagraph 
                (A)(i) from sales, exchanges, and conversions 
                described in section 1231(a)(3)(A) for any 
                taxable year shall not exceed the net section 
                1231 gain (as defined in section 1231(c)(3)) 
                for such year.
          (7) Section 1202 gain.--For purposes of this 
        subsection, the term ``section 1202 gain'' means the 
        excess of--
                  (A) the gain which would be excluded from 
                gross income under section 1202 but for the 
                percentage limitation in section 1202(a), over
                  (B) the gain excluded from gross income under 
                section 1202.
          (8) Coordination with recapture of net ordinary 
        losses under section 1231.--If any amount is treated as 
        ordinary income under section 1231(c), such amount 
        shall be allocated among the separate categories of net 
        section 1231 gain (as defined in section 1231(c)(3)) in 
        such manner as the Secretary may by forms or 
        regulations prescribe.
          (9) Regulations.--The Secretary may prescribe such 
        regulations as are appropriate (including regulations 
        requiring reporting) to apply this subsection in the 
        case of sales and exchanges by pass-thru entities and 
        of interests in such entities.
          (10) Pass-thru entity defined.--For purposes of this 
        subsection, the term ``pass-thru entity'' means--
                  (A) a regulated investment company;
                  (B) a real estate investment trust;
                  (C) an S corporation;
                  (D) a partnership;
                  (E) an estate or trust;
                  (F) a common trust fund; and
                  (G) a qualified electing fund (as defined in 
                section 1295).
          (11) Dividends taxed as net capital gain.--
                  (A) In general.--For purposes of this 
                subsection, the term ``net capital gain'' means 
                net capital gain (determined without regard to 
                this paragraph) increased by qualified dividend 
                income.
                  (B) Qualified dividend income.--For purposes 
                of this paragraph--
                          (i) In general.--The term ``qualified 
                        dividend income'' means dividends 
                        received during the taxable year from--
                                  (I) domestic corporations, 
                                and
                                  (II) qualified foreign 
                                corporations.
                          (ii) Certain dividends excluded.--
                        Such term shall not include--
                                  (I) any dividend from a 
                                corporation which for the 
                                taxable year of the corporation 
                                in which the distribution is 
                                made, or the preceding taxable 
                                year, is a corporation exempt 
                                from tax under section 501 or 
                                521,
                                  (II) any amount allowed as a 
                                deduction under section 591 
                                (relating to deduction for 
                                dividends paid by mutual 
                                savings banks, etc.), and
                                  (III) any dividend described 
                                in section 404(k).
                          (iii) Coordination with section 
                        246(c).--Such term shall not include 
                        any dividend on any share of stock--
                                  (I) with respect to which the 
                                holding period requirements of 
                                section 246(c) are not met 
                                (determined by substituting in 
                                section 246(c) ``60 days'' for 
                                ``45 days'' each place it 
                                appears and by substituting 
                                ``121- day period'' for ``91-
                                day period''), or
                                  (II) to the extent that the 
                                taxpayer is under an obligation 
                                (whether pursuant to a short 
                                sale or otherwise) to make 
                                related payments with respect 
                                to positions in substantially 
                                similar or related property.
                  (C) Qualified foreign corporations.--
                          (i) In general.--Except as otherwise 
                        provided in this paragraph, the term 
                        ``qualified foreign corporation'' means 
                        any foreign corporation if--
                                  (I) such corporation is 
                                incorporated in a possession of 
                                the United States, or
                                  (II) such corporation is 
                                eligible for benefits of a 
                                comprehensive income tax treaty 
                                with the United States which 
                                the Secretary determines is 
                                satisfactory for purposes of 
                                this paragraph and which 
                                includes an exchange of 
                                information program.
                          (ii) Dividends on stock readily 
                        tradable on United States securities 
                        market.--A foreign corporation not 
                        otherwise treated as a qualified 
                        foreign corporation under clause (i) 
                        shall be so treated with respect to any 
                        dividend paid by such corporation if 
                        the stock with respect to which such 
                        dividend is paid is readily tradable on 
                        an established securities market in the 
                        United States.
                          (iii) Exclusion of dividends of 
                        certain foreign corporations.--Such 
                        term shall not include--
                                  (I) any foreign corporation 
                                which for the taxable year of 
                                the corporation in which the 
                                dividend was paid, or the 
                                preceding taxable year, is a 
                                passive foreign investment 
                                company (as defined in section 
                                1297), and
                                  (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).
                          (iv) Coordination with foreign tax 
                        credit limitation.--Rules similar to 
                        the rules of section 904(b)(2)(B) shall 
                        apply with respect to the dividend rate 
                        differential under this paragraph.
                  (D) Special rules.--
                          (i) Amounts taken into account as 
                        investment income.--Qualified dividend 
                        income shall not include any amount 
                        which the taxpayer takes into account 
                        as investment income under section 
                        163(d)(4)(B).
                          (ii) Extraordinary dividends.--If a 
                        taxpayer to whom this section applies 
                        receives, with respect to any share of 
                        stock, qualified dividend income from 1 
                        or more dividends which are 
                        extraordinary dividends (within the 
                        meaning of section 1059(c)), any loss 
                        on the sale or exchange of such share 
                        shall, to the extent of such dividends, 
                        be treated as long- term capital loss.
                          (iii) Treatment of dividends from 
                        regulated investment companies and real 
                        estate investment trusts.--A dividend 
                        received from a regulated investment 
                        company or a real estate investment 
                        trust shall be subject to the 
                        limitations prescribed in sections 854 
                        and 857.
          (12) Maximum 15-percent rate amount defined.--For 
        purposes of this subsection, the maximum 15-percent 
        rate amount shall be--
                  (A) in the case of a joint return or 
                surviving spouse (as defined in section 2(a)), 
                $479,000 (\1/2\ such amount in the case of a 
                married individual filing a separate return),
                  (B) in the case of an individual who is the 
                head of a household (as defined in section 
                2(b)), $452,400,
                  (C) in the case of any other individual 
                (other than an estate or trust), $425,800, and
                  (D) in the case of an estate or trust, 
                $12,700.
          (13) Determination of 0 percent rate bracket for 
        estates and trusts.--In the case of any estate or 
        trust, paragraph (1)(B) shall be applied by treating 
        the amount determined in clause (i) thereof as being 
        equal to $2,600.
          (14) Inflation adjustment.--
                  (A) In general.--In the case of any taxable 
                year beginning after 2018, each of the dollar 
                amounts in paragraphs (12) and (13) 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.
                  (B) Rounding.--If any increase under 
                subparagraph (A) is not a multiple of $50, such 
                increase shall be rounded to the next lowest 
                multiple of $50.
  [(i) Rate reductions after 2000.--
          [(1) 10-percent rate bracket
                  [(A) In general.--In the case of taxable 
                years beginning after December 31, 2000--
                          [(i) the rate of tax under 
                        subsections (a), (b), (c), and (d) on 
                        taxable income not over the initial 
                        bracket amount shall be 10 percent, and
                          [(ii) the 15 percent rate of tax 
                        shall apply only to taxable income over 
                        the initial bracket amount but not over 
                        the maximum dollar amount for the 15-
                        percent rate bracket.
                  [(B) Initial bracket amount.--For purposes of 
                this paragraph, the initial bracket amount is--
                          [(i) $14,000 in the case of 
                        subsection (a),
                          [(ii) $10,000 in the case of 
                        subsection (b), and
                          [(iii) 1/2 the amount applicable 
                        under clause (i) (after adjustment, if 
                        any, under subparagraph (C)) in the 
                        case of subsections (c) and (d).
                  [(C) Inflation adjustment.--In prescribing 
                the tables under subsection (f) which apply 
                with respect to taxable years beginning in 
                calendar years after 2003--
                          [(i) the cost-of-living adjustment 
                        shall be determined under subsection 
                        (f)(3) by substituting ``2002'' for 
                        ``2016'' in subparagraph (A)(ii) 
                        thereof, and
                          [(ii) the adjustments under clause 
                        (i) shall not apply to the amount 
                        referred to in subparagraph (B)(iii).
                If any amount after adjustment under the 
                preceding sentence is not a multiple of $50, 
                such amount shall be rounded to the next lowest 
                multiple of $50.
          [(2) 25-, 28-, and 33-percent rate brackets.--The 
        tables under subsections (a), (b), (c), (d), and (e) 
        shall be applied--
                  [(A) by substituting ``25%'' for ``28%'' each 
                place it appears (before the application of 
                subparagraph (B)),
                  [(B) by substituting ``28%'' for ``31%'' each 
                place it appears, and
                  [(C) by substituting ``33%'' for ``36%'' each 
                place it appears.
          [(3) Modifications to income tax brackets for high-
        income taxpayers.--
                  [(A) 35-percent rate bracket.--In the case of 
                taxable years beginning after December 31, 
                2012--
                          [(i) the rate of tax under 
                        subsections (a), (b), (c), and (d) on a 
                        taxpayer's taxable income in the 
                        highest rate bracket shall be 35 
                        percent to the extent such income does 
                        not exceed an amount equal to the 
                        excess of--
                                  [(I) the applicable 
                                threshold, over
                                  [(II) the dollar amount at 
                                which such bracket begins, and
                          [(ii) the 39.6 percent rate of tax 
                        under such subsections shall apply only 
                        to the taxpayer's taxable income in 
                        such bracket in excess of the amount to 
                        which clause (i) applies.
                  [(B) Applicable threshold.--For purposes of 
                this paragraph, the term ``applicable 
                threshold'' means--
                          [(i) $450,000 in the case of 
                        subsection (a),
                          [(ii) $425,000 in the case of 
                        subsection (b),
                          [(iii) $400,000 in the case of 
                        subsection (c), and
                          [(iv) \1/2\ the amount applicable 
                        under clause (i) (after adjustment, if 
                        any, under subparagraph (C)) in the 
                        case of subsection (d).
                  [(C) Inflation adjustment.--For purposes of 
                this paragraph, with respect to taxable years 
                beginning in calendar years after 2013, each of 
                the dollar amounts under clauses (i), (ii), and 
                (iii) of subparagraph (B) shall be adjusted in 
                the same manner as under paragraph (1)(C)(i), 
                except that subsection (f)(3)(A)(ii) shall be 
                applied by substituting ``2012'' for ``2016''.
          [(4) Adjustment of tables.--The Secretary shall 
        adjust the tables prescribed under subsection (f) to 
        carry out this 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.]

SEC. 2. DEFINITIONS AND SPECIAL RULES.

  (a) Definition of surviving spouse.--
          (1) In general.--For purposes of section 1, the term 
        ``surviving spouse'' means a taxpayer--
                  (A) whose spouse died during either of his 
                two taxable years immediately preceding the 
                taxable year, and
                  (B) who maintains as his home a household 
                which constitutes for the taxable year the 
                principal place of abode (as a member of such 
                household) of a dependent (i) who (within the 
                meaning of [section 152] section 7706, 
                determined without regard to subsections 
                (b)(1), (b)(2), and (d)(1)(B) thereof) is a 
                son, stepson, daughter, or stepdaughter of the 
                taxpayer, and (ii) [with respect to whom the 
                taxpayer is entitled to a deduction for the 
                taxable year under section 151] whose TIN is 
                included on the taxpayer's return of tax for 
                the taxable year.
        For purposes of this paragraph, an individual shall be 
        considered as maintaining a household only if over half 
        of the cost of maintaining the household during the 
        taxable year is furnished by such individual.
          (2) Limitations.--Notwithstanding paragraph (1), for 
        purposes of section 1 a taxpayer shall not be 
        considered to be a surviving spouse--
                  (A) if the taxpayer has remarried at any time 
                before the close of the taxable year, or
                  (B) unless, for the taxpayer's taxable year 
                during which his spouse died, a joint return 
                could have been made under the provisions of 
                section 6013 (without regard to subsection 
                (a)(3) thereof).
          (3) Special rule where deceased spouse was in missing 
        status.--If an individual was in a missing status 
        (within the meaning of section 6013(f)(3)) as a result 
        of service in a combat zone (as determined for purposes 
        of section 112) and if such individual remains in such 
        status until the date referred to in subparagraph (A) 
        or (B), then, for purposes of paragraph (1)(A), the 
        date on which such individual died shall be treated as 
        the earlier of the date determined under subparagraph 
        (A) or the date determined under subparagraph (B):
                  (A) the date on which the determination is 
                made under section 556 of title 37 of the 
                United States Code or under section 5566 of 
                title 5 of such Code (whichever is applicable) 
                that such individual died while in such missing 
                status, or
                  (B) except in the case of the combat zone 
                designated for purposes of the Vietnam 
                conflict, the date which is 2 years after the 
                date designated under section 112 as the date 
                of termination of combatant activities in that 
                zone.
  (b) Definition of head of household.--
          (1) In general.--For purposes of this subtitle, an 
        individual shall be considered a head of a household 
        if, and only if, such individual is not married at the 
        close of his taxable year, is not a surviving spouse 
        (as defined in subsection (a)), and either--
                  (A) maintains as his home a household which 
                constitutes for more than one-half of such 
                taxable year the principal place of abode, as a 
                member of such household, of--
                          (i) a qualifying child of the 
                        individual (as defined in [section 
                        152(c)] section 7706(c), determined 
                        without regard to [section 152(e)] 
                        section 7706(e)), but not if such 
                        child--
                                  (I) is married at the close 
                                of the taxpayer's taxable year, 
                                and
                                  (II) is not a dependent of 
                                such individual by reason of 
                                [section 152(b)(2) or 
                                152(b)(3)] section 7706(b)(2) 
                                or 7706(b)(3), or both, or
                          (ii) any other person who is a 
                        dependent of the taxpayer, [if the 
                        taxpayer is entitled to a deduction for 
                        the taxable year for such person under 
                        section 151] if the taxpayer included 
                        such person's TIN on the return of tax 
                        for the taxable year, or
                  (B) maintains a household which constitutes 
                for such taxable year the principal place of 
                abode of the father or mother of the taxpayer, 
                [if the taxpayer is entitled to a deduction for 
                the taxable year for such father or mother 
                under section 151] if such father or mother is 
                a dependent of the taxpayer and the taxpayer 
                included such father or mother's TIN on the 
                return of tax for the taxable year.
        For purposes of this paragraph, an individual shall be 
        considered as maintaining a household only if over half 
        of the cost of maintaining the household during the 
        taxable year is furnished by such individual.
          (2) Determination of status.--For purposes of this 
        subsection--
                  (A) an individual who is legally separated 
                from his spouse under a decree of divorce or of 
                separate maintenance shall not be considered as 
                married;
                  (B) a taxpayer shall be considered as not 
                married at the close of his taxable year if at 
                any time during the taxable year his spouse is 
                a nonresident alien; and
                  (C) a taxpayer shall be considered as married 
                at the close of his taxable year if his spouse 
                (other than a spouse described in subparagraph 
                (B)) died during the taxable year.
          (3) Limitations.--Notwithstanding paragraph (1), for 
        purposes of this subtitle a taxpayer shall not be 
        considered to be a head of a household--
                  (A) if at any time during the taxable year he 
                is a nonresident alien; or
                  (B) by reason of an individual who would not 
                be a dependent for the taxable year but for--
                          (i) subparagraph (H) of [section 
                        152(d)(2)] section 7706(d)(2), or
                          (ii) paragraph (3) of [section 
                        152(d)] section 7706(d).
  (c) Certain married individuals living apart.--For purposes 
of this part, an individual shall be treated as not married at 
the close of the taxable year if such individual is so treated 
under the provisions of section 7703(b).
  (d) Nonresident aliens.--In the case of a nonresident alien 
individual, the taxes imposed by sections 1 and 55 shall apply 
only as provided by section 871 or 877.
  (e) Cross reference.--For definition of taxable income, see 
section 63.

           *       *       *       *       *       *       *


            PART III--CHANGES IN RATES DURING A TAXABLE YEAR

[Sec. 15. Effect of changes.]
Sec. 15. Effect of changes on corporations.

SEC. 15. EFFECT OF CHANGES  ON CORPORATIONS.

  (a) General rule.--[If any rate of tax] In the case of a 
corporation, if any rate of tax imposed by this chapter 
changes, and if the taxable year includes the effective date of 
the change (unless that date is the first day of the taxable 
year), then--
          (1) tentative taxes shall be computed by applying the 
        rate for the period before the effective date of the 
        change, and the rate for the period on and after such 
        date, to the taxable income for the entire taxable 
        year; and
          (2) the tax for such taxable year shall be the sum of 
        that proportion of each tentative tax which the number 
        of days in each period bears to the number of days in 
        the entire taxable year.
  (b) Repeal of tax.--For purposes of subsection (a)--
          (1) if a tax is repealed, the repeal shall be 
        considered a change of rate; and
          (2) the rate for the period after the repeal shall be 
        zero.
  (c) Effective date of change.--For purposes of subsections 
(a) and (b)--
          (1) if the rate changes for taxable years ``beginning 
        after'' or ``ending after'' a certain date, the 
        following day shall be considered the effective date of 
        the change; and
          (2) if a rate changes for taxable years ``beginning 
        on or after'' a certain date, that date shall be 
        considered the effective date of the change.
  [(d) Section not to apply to inflation adjustments.--This 
section shall not apply to any change in rates under subsection 
(f) of section 1 (relating to adjustments in tax tables so that 
inflation will not result in tax increases).
  [(e) References to highest rate.--If the change referred to 
in subsection (a) involves a change in the highest rate of tax 
imposed by section 1 or 11(b), any reference in this chapter to 
such highest rate (other than in a provision imposing a tax by 
reference to such rate) shall be treated as a reference to the 
weighted average of the highest rates before and after the 
change determined on the basis of the respective portions of 
the taxable year before the date of the change and on or after 
the date of the change.
  [(f) Rate reductions enacted by Economic Growth and Tax 
Relief Reconciliation Act of 2001.--This section shall not 
apply to any change in rates under subsection (i) of section 1 
(relating to rate reductions after 2000).]

PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 21. EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERVICES NECESSARY 
                    FOR GAINFUL EMPLOYMENT.

  (a) Allowance of credit.--
          (1) In general.--In the case of an individual for 
        which there are 1 or more qualifying individuals (as 
        defined in subsection (b)(1)) with respect to such 
        individual, there shall be allowed as a credit against 
        the tax imposed by this chapter for the taxable year an 
        amount equal to the applicable percentage of the 
        employment-related expenses (as defined in subsection 
        (b)(2)) paid by such individual during the taxable 
        year.
          (2) Applicable percentage defined.--For purposes of 
        paragraph (1), the term ``applicable percentage'' means 
        35 percent reduced (but not below 20 percent) by 1 
        percentage point for each $2,000 (or fraction thereof) 
        by which the taxpayer's adjusted gross income for the 
        taxable year exceeds $15,000.
  (b) Definitions of qualifying individual and employment-
related expenses.--For purposes of this section--
          (1) Qualifying individual.--The term ``qualifying 
        individual'' means--
                  (A) a dependent of the taxpayer (as defined 
                in [section 152(a)(1)] section 7706(a)(1)) who 
                has not attained age 13,
                  (B) a dependent of the taxpayer (as defined 
                in [section 152] section 7706, determined 
                without regard to subsections (b)(1), (b)(2), 
                and (d)(1)(B)) who is physically or mentally 
                incapable of caring for himself or herself and 
                who has the same principal place of abode as 
                the taxpayer for more than one-half of such 
                taxable year, or
                  (C) the spouse of the taxpayer, if the spouse 
                is physically or mentally incapable of caring 
                for himself or herself and who has the same 
                principal place of abode as the taxpayer for 
                more than one-half of such taxable year.
          (2) Employment-related expenses.--
                  (A) In general.--The term ``employment-
                related expenses'' means amounts paid for the 
                following expenses, but only if such expenses 
                are incurred to enable the taxpayer to be 
                gainfully employed for any period for which 
                there are 1 or more qualifying individuals with 
                respect to the taxpayer:
                          (i) expenses for household services, 
                        and
                          (ii) expenses for the care of a 
                        qualifying individual.
                Such term shall not include any amount paid for 
                services outside the taxpayer's household at a 
                camp where the qualifying individual stays 
                overnight.
                  (B) Exception.--Employment-related expenses 
                described in subparagraph (A) which are 
                incurred for services outside the taxpayer's 
                household shall be taken into account only if 
                incurred for the care of--
                          (i) a qualifying individual described 
                        in paragraph (1)(A), or
                          (ii) a qualifying individual (not 
                        described in paragraph (1)(A)) who 
                        regularly spends at least 8 hours each 
                        day in the taxpayer's household.
                  (C) Dependent care centers.--Employment-
                related expenses described in subparagraph (A) 
                which are incurred for services provided 
                outside the taxpayer's household by a dependent 
                care center (as defined in subparagraph (D)) 
                shall be taken into account only if--
                          (i) such center complies with all 
                        applicable laws and regulations of a 
                        State or unit of local government, and
                          (ii) the requirements of subparagraph 
                        (B) are met.
                  (D) Dependent care center defined.--For 
                purposes of this paragraph, the term 
                ``dependent care center'' means any facility 
                which--
                          (i) provides care for more than six 
                        individuals (other than individuals who 
                        reside at the facility), and
                          (ii) receives a fee, payment, or 
                        grant for providing services for any of 
                        the individuals (regardless of whether 
                        such facility is operated for profit).
  (c) Dollar limit on amount creditable.--The amount of the 
employment-related expenses incurred during any taxable year 
which may be taken into account under subsection (a) shall not 
exceed--
          (1) $3,000 if there is 1 qualifying individual with 
        respect to the taxpayer for such taxable year, or
          (2) $6,000 if there are 2 or more qualifying 
        individuals with respect to the taxpayer for such 
        taxable year.
The amount determined under paragraph (1) or (2) (whichever is 
applicable) shall be reduced by the aggregate amount excludable 
from gross income under section 129 for the taxable year.
  (d) Earned income limitation.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amount of the employment-related 
        expenses incurred during any taxable year which may be 
        taken into account under subsection (a) shall not 
        exceed--
                  (A) in the case of an individual who is not 
                married at the close of such year, such 
                individual's earned income for such year, or
                  (B) in the case of an individual who is 
                married at the close of such year, the lesser 
                of such individual's earned income or the 
                earned income of his spouse for such year.
          (2) Special rule for spouse who is a student or 
        incapable of caring for himself.--In the case of a 
        spouse who is a student or a qualifying individual 
        described in subsection (b)(1)(C), for purposes of 
        paragraph (1), such spouse shall be deemed for each 
        month during which such spouse is a full-time student 
        at an educational institution, or is such a qualifying 
        individual, to be gainfully employed and to have earned 
        income of not less than--
                  (A) $250 if subsection (c)(1) applies for the 
                taxable year, or
                  (B) $500 if subsection (c)(2) applies for the 
                taxable year.
        In the case of any husband and wife, this paragraph 
        shall apply with respect to only one spouse for any one 
        month.
  (e) Special rules.--For purposes of this section--
          (1) Place of abode.--An individual shall not be 
        treated as having the same principal place of abode of 
        the taxpayer if at any time during the taxable year of 
        the taxpayer the relationship between the individual 
        and the taxpayer is in violation of local law.
          (2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, 
        the credit shall be allowed under subsection (a) only 
        if the taxpayer and his spouse file a joint return for 
        the taxable year.
          (3) Marital status.--An individual legally separated 
        from his spouse under a decree of divorce or of 
        separate maintenance shall not be considered as 
        married.
          (4) Certain married individuals living apart.--If--
                  (A) an individual who is married and who 
                files a separate return--
                          (i) maintains as his home a household 
                        which constitutes for more than one-
                        half of the taxable year the principal 
                        place of abode of a qualifying 
                        individual, and
                          (ii) furnishes over half of the cost 
                        of maintaining such household during 
                        the taxable year, and
                  (B) during the last 6 months of such taxable 
                year such individual's spouse is not a member 
                of such household,
        such individual shall not be considered as married.
          (5) Special dependency test in case of divorced 
        parents, etc..--If--
                  (A) [section 152(e)] section 7706(e) applies 
                to any child with respect to any calendar year, 
                and
                  (B) such child is under the age of 13 or is 
                physically or mentally incapable of caring for 
                himself,
        in the case of any taxable year beginning in such 
        calendar year, such child shall be treated as a 
        qualifying individual described in subparagraph (A) or 
        (B) of subsection (b)(1) (whichever is appropriate) 
        with respect to the custodial parent (as defined in 
        [section 152(e)(4)(A)] section 7706(e)(4)(A)), and 
        shall not be treated as a qualifying individual with 
        respect to the noncustodial parent.
          (6) Payments to related individuals.--No credit shall 
        be allowed under subsection (a) for any amount paid by 
        the taxpayer to an individual--
                  [(A) with respect to whom, for the taxable 
                year, a deduction under section 151(c) 
                (relating to deduction for personal exemptions 
                for dependents) is allowable either to the 
                taxpayer or his spouse, or]
                  (A) who is a dependent of either the taxpayer 
                or the taxpayer's spouse for the taxable year, 
                or
                  (B) who is a child of the taxpayer (within 
                the meaning of [section 152(f)(1)] section 
                7706(f)(1)) who has not attained the age of 19 
                at the close of the taxable year.
        For purposes of this paragraph, the term ``taxable 
        year'' means the taxable year of the taxpayer in which 
        the service is performed.
          (7) Student.--The term ``student'' means an 
        individual who during each of 5 calendar months during 
        the taxable year is a full-time student at an 
        educational organization.
          (8) Educational organization.--The term ``educational 
        organization'' means an educational organization 
        described in section 170(b)(1)(A)(ii).
          (9) Identifying information required with respect to 
        service provider.--No credit shall be allowed under 
        subsection (a) for any amount paid to any person 
        unless--
                  (A) the name, address, and taxpayer 
                identification number of such person are 
                included on the return claiming the credit, or
                  (B) if such person is an organization 
                described in section 501(c)(3) and exempt from 
                tax under section 501(a), the name and address 
                of such person are included on the return 
                claiming the credit.
        In the case of a failure to provide the information 
        required under the preceding sentence, the preceding 
        sentence shall not apply if it is shown that the 
        taxpayer exercised due diligence in attempting to 
        provide the information so required.
          (10) Identifying information required with respect to 
        qualifying individuals..--No credit shall be allowed 
        under this section with respect to any qualifying 
        individual unless the TIN of such individual is 
        included on the return claiming the credit.
  (f) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes of 
this section.

           *       *       *       *       *       *       *


SEC. 23. ADOPTION EXPENSES.

  (a) Allowance of credit.--
          (1) In general.--In the case of an individual, there 
        shall be allowed as a credit against the tax imposed by 
        this chapter the amount of the qualified adoption 
        expenses paid or incurred by the taxpayer.
          (2) Year credit allowed.--The credit under paragraph 
        (1) with respect to any expense shall be allowed--
                  (A) in the case of any expense paid or 
                incurred before the taxable year in which such 
                adoption becomes final, for the taxable year 
                following the taxable year during which such 
                expense is paid or incurred, and
                  (B) in the case of an expense paid or 
                incurred during or after the taxable year in 
                which such adoption becomes final, for the 
                taxable year in which such expense is paid or 
                incurred.
          (3) $10,000 credit for adoption of child with special 
        needs regardless of expenses.--In the case of an 
        adoption of a child with special needs which becomes 
        final during a taxable year, the taxpayer shall be 
        treated as having paid during such year qualified 
        adoption expenses with respect to such adoption in an 
        amount equal to the excess (if any) of $10,000 over the 
        aggregate qualified adoption expenses actually paid or 
        incurred by the taxpayer with respect to such adoption 
        during such taxable year and all prior taxable years.
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate amount of 
        qualified adoption expenses which may be taken into 
        account under subsection (a) for all taxable years with 
        respect to the adoption of a child by the taxpayer 
        shall not exceed $10,000.
          (2) Income limitation.--
                  (A) In general.--The amount allowable as a 
                credit under subsection (a) for any taxable 
                year (determined without regard to subsection 
                (c)) shall be reduced (but not below zero) by 
                an amount which bears the same ratio to the 
                amount so allowable (determined without regard 
                to this paragraph but with regard to paragraph 
                (1)) as--
                          (i) the amount (if any) by which the 
                        taxpayer's adjusted gross income 
                        exceeds $150,000, bears to
                          (ii) $40,000.
                  (B) Determination of adjusted gross income.--
                For purposes of subparagraph (A), adjusted 
                gross income shall be determined without regard 
                to sections 911, 931, and 933.
          (3) Denial of double benefit.--
                  (A) In general.--No credit shall be allowed 
                under subsection (a) for any expense for which 
                a deduction or credit is allowed under any 
                other provision of this chapter.
                  (B) Grants.--No credit shall be allowed under 
                subsection (a) for any expense to the extent 
                that funds for such expense are received under 
                any Federal, State, or local program.
  (c) Carryforwards of unused credit.--
          (1) In general.--If the credit allowable under 
        subsection (a) for any taxable year exceeds the 
        limitation imposed by section 26(a) for such taxable 
        year reduced by the sum of the credits allowable under 
        this subpart (other than this section and section 25D), 
        such excess shall be carried to the succeeding taxable 
        year and added to the credit allowable under subsection 
        (a) for such taxable year.
          (2) Limitation.--No credit may be carried forward 
        under this subsection to any taxable year following the 
        fifth taxable year after the taxable year in which the 
        credit arose. For purposes of the preceding sentence, 
        credits shall be treated as used on a first-in first-
        out basis.
  (d) Definitions.--For purposes of this section--
          (1) Qualified adoption expenses.--The term 
        ``qualified adoption expenses'' means reasonable and 
        necessary adoption fees, court costs, attorney fees, 
        and other expenses--
                  (A) which are directly related to, and the 
                principal purpose of which is for, the legal 
                adoption of an eligible child by the taxpayer,
                  (B) which are not incurred in violation of 
                State or Federal law or in carrying out any 
                surrogate parenting arrangement,
                  (C) which are not expenses in connection with 
                the adoption by an individual of a child who is 
                the child of such individual's spouse, and
                  (D) which are not reimbursed under an 
                employer program or otherwise.
          (2) Eligible child.--The term ``eligible child'' 
        means any individual who--
                  (A) has not attained age 18, or
                  (B) is physically or mentally incapable of 
                caring for himself.
          (3) Child with special needs.--The term ``child with 
        special needs'' means any child if--
                  (A) a State has determined that the child 
                cannot or should not be returned to the home of 
                his parents,
                  (B) such State has determined that there 
                exists with respect to the child a specific 
                factor or condition (such as his ethnic 
                background, age, or membership in a minority or 
                sibling group, or the presence of factors such 
                as medical conditions or physical, mental, or 
                emotional handicaps) because of which it is 
                reasonable to conclude that such child cannot 
                be placed with adoptive parents without 
                providing adoption assistance, and
                  (C) such child is a citizen or resident of 
                the United States (as defined in [section 
                217(h)(3)] section 217(c)(3)).
  (e) Special rules for foreign adoptions.--In the case of an 
adoption of a child who is not a citizen or resident of the 
United States (as defined in [section 217(h)(3)] section 
217(c)(3))--
          (1) subsection (a) shall not apply to any qualified 
        adoption expense with respect to such adoption unless 
        such adoption becomes final, and
          (2) any such expense which is paid or incurred before 
        the taxable year in which such adoption becomes final 
        shall be taken into account under this section as if 
        such expense were paid or incurred during such year.
  (f) Filing requirements.--
          (1) Married couples must file joint returns.--Rules 
        similar to the rules of paragraphs (2), (3), and (4) of 
        section 21(e) shall apply for purposes of this section.
          (2) Taxpayer must include TIN.--
                  (A) In general.--No credit shall be allowed 
                under this section with respect to any eligible 
                child unless the taxpayer includes (if known) 
                the name, age, and TIN of such child on the 
                return of tax for the taxable year.
                  (B) Other methods.--The Secretary may, in 
                lieu of the information referred to in 
                subparagraph (A), require other information 
                meeting the purposes of subparagraph (A), 
                including identification of an agent assisting 
                with the adoption.
  (g) Basis adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with 
respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so 
allowed.
  (h) Adjustments for inflation.--In the case of a taxable year 
beginning after December 31, 2002, each of the dollar amounts 
in subsection (a)(3) and paragraphs (1) and (2)(A)(i) of 
subsection (b) shall be increased by an amount equal to--
          (1) such dollar amount, multiplied by
          (2) 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 2001'' for ``calendar year 2016'' in 
        subparagraph (A)(ii) thereof.
If any amount as increased under the preceding sentence is not 
a multiple of $10, such amount shall be rounded to the nearest 
multiple of $10.
  (i) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section and 
section 137, including regulations which treat unmarried 
individuals who pay or incur qualified adoption expenses with 
respect to the same child as 1 taxpayer for purposes of 
applying the dollar amounts in subsections (a)(3) and (b)(1) of 
this section and in section 137(b)(1).

SEC. 24. CHILD TAX CREDIT.

  [(a) Allowance of credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year 
with respect to each qualifying child of the taxpayer for which 
the taxpayer is allowed a deduction under section 151 an amount 
equal to $1,000.
  [(b) Limitations.--
          [(1) Limitation based on adjusted gross income.--The 
        amount of the credit allowable under subsection (a) 
        shall be reduced (but not below zero) by $50 for each 
        $1,000 (or fraction thereof) by which the taxpayer's 
        modified adjusted gross income exceeds the threshold 
        amount. For purposes of the preceding sentence, the 
        term ``modified adjusted gross income'' means adjusted 
        gross income increased by any amount excluded from 
        gross income under section 911, 931, or 933.
          [(2) Threshold amount.--For purposes of paragraph 
        (1), the term ``threshold amount'' means--
                  [(A) $110,000 in the case of a joint return,
                  [(B) $75,000 in the case of an individual who 
                is not married, and
                  [(C) $55,000 in the case of a married 
                individual filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
  [(c) Qualifying child.--For purposes of this section--
          [(1) In general.--The term ``qualifying child'' means 
        a qualifying child of the taxpayer (as defined in 
        section 152(c)) who has not attained age 17.
          [(2) Exception for certain noncitizens.--The term 
        ``qualifying child'' shall not include 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''.]
  (a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an 
amount equal to the sum of--
          (1) $2,000 for each qualifying child of the taxpayer, 
        and
          (2) $500 for each qualifying dependent (other than a 
        qualifying child) of the taxpayer.
  (b) Limitation Based on Adjusted Gross Income.--The amount of 
the credit allowable under subsection (a) shall be reduced (but 
not below zero) by $50 for each $1,000 (or fraction thereof) by 
which the taxpayer's modified adjusted gross income exceeds 
$400,000 in the case of a joint return ($200,000 in any other 
case). For purposes of the preceding sentence, the term 
``modified adjusted gross income'' means adjusted gross income 
increased by any amount excluded from gross income under 
section 911, 931, or 933.
  (c) Qualifying Child; Qualifying Dependent.--For purposes of 
this section--
          (1) Qualifying child.--The term ``qualifying child'' 
        means any qualifying dependent of the taxpayer--
                  (A) who is a qualifying child (as defined in 
                section 7706(c)) of the taxpayer,
                  (B) who has not attained age 17 at the close 
                of the calendar year in which the taxable year 
                of the taxpayer begins, and
                  (C) whose name and social security number are 
                included on the taxpayer's return of tax for 
                the taxable year.
          (2) Qualifying dependent.--The term ``qualifying 
        dependent'' means any dependent of the taxpayer (as 
        defined in section 7706 without regard to all that 
        follows ``resident of the United States'' in section 
        7706(b)(3)(A)) whose name and TIN are included on the 
        taxpayer's return of tax for the taxable year.
          (3) Social security number defined.--For purposes of 
        this subsection, the term ``social security number'' 
        means, with respect to a return of tax, 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) on or before the due date of filing such 
                return.
  (d) Portion of credit refundable.--
          (1) In general.--The aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the 
        lesser of--
                  [(A) the credit which would be allowed under 
                this section without regard to this subsection 
                and the limitation under section 26(a) or]
                  (A) the credit which would be allowed under 
                this section determined--
                          (i) by substituting ``$1,400'' for 
                        ``$2,000'' in subsection (a)(1),
                          (ii) without regard to subsection 
                        (a)(2), and
                          (iii) without regard to this 
                        subsection and the limitation under 
                        section 26(a), or
                  (B) the amount by which the aggregate amount 
                of credits allowed by this subpart (determined 
                without regard to this subsection) would 
                increase if the limitation imposed by section 
                26(a) were increased by the greater of--
                          (i) 15 percent of so much of the 
                        taxpayer's earned income (within the 
                        meaning of section 32) which is taken 
                        into account in computing taxable 
                        income for the taxable year as exceeds 
                        [$3,000] $2,500, or
                          (ii) in the case of a taxpayer with 3 
                        or more qualifying children, the excess 
                        (if any) of--
                                  (I) the taxpayer's social 
                                security taxes for the taxable 
                                year, over
                                  (II) the credit allowed under 
                                section 32 for the taxable 
                                year.
        The amount of the credit allowed under this subsection 
        shall not be treated as a credit allowed under this 
        subpart and shall reduce the amount of credit otherwise 
        allowable under subsection (a) without regard to 
        section 26(a). For purposes of subparagraph (B), any 
        amount excluded from gross income by reason of section 
        112 shall be treated as earned income which is taken 
        into account in computing taxable income for the 
        taxable year.
          (2) Social security taxes.--For purposes of paragraph 
        (1)--
                  (A) In general.--The term ``social security 
                taxes'' means, with respect to any taxpayer for 
                any taxable year--
                          (i) the amount of the taxes imposed 
                        by sections 3101 and 3201(a) on amounts 
                        received by the taxpayer during the 
                        calendar year in which the taxable year 
                        begins,
                          (ii) 50 percent of the taxes imposed 
                        by section 1401 on the self-employment 
                        income of the taxpayer for the taxable 
                        year, and
                          (iii) 50 percent of the taxes imposed 
                        by section 3211(a) on amounts received 
                        by the taxpayer during the calendar 
                        year in which the taxable year begins.
                  (B) Coordination with special refund of 
                social security taxes.--The term ``social 
                security taxes'' shall not include any taxes to 
                the extent the taxpayer is entitled to a 
                special refund of such taxes under section 
                6413(c).
                  (C) Special rule.--Any amounts paid pursuant 
                to an agreement under section 3121(l) (relating 
                to agreements entered into by American 
                employers with respect to foreign affiliates) 
                which are equivalent to the taxes referred to 
                in subparagraph (A)(i) shall be treated as 
                taxes referred to in such subparagraph.
          (3) Exception for taxpayers excluding foreign earned 
        income.--Paragraph (1) shall not apply to any taxpayer 
        for any taxable year if such taxpayer elects to exclude 
        any amount from gross income under section 911 for such 
        taxable year.
          (4) Adjustment for inflation.--
                  (A) In general.--In the case of a taxable 
                year beginning after 2018, the $1,400 amount in 
                paragraph (1)(A)(i) 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.
                  (B) Rounding.--If any increase under 
                subparagraph (A) is not a multiple of $100, 
                such increase shall be rounded to the next 
                lowest multiple of $100.
                  (C) Limitation.--The amount of any increase 
                under subparagraph (A) (after the application 
                of subparagraph (B)) shall not exceed $600.
  [(e) Identification requirements.--
          [(1) Qualifying child identification requirement.--No 
        credit shall be allowed under this section to a 
        taxpayer with respect to any qualifying child unless 
        the taxpayer includes the name and taxpayer 
        identification number of such qualifying child on the 
        return of tax for the taxable year and such taxpayer 
        identification number was issued on or before the due 
        date for filing such return.
          [(2) Taxpayer identification requirement.--No credit 
        shall be allowed under this section if the taxpayer 
        identification number of the taxpayer was issued after 
        the due date for filing the return for the taxable 
        year.]
  (e) Taxpayer Identification Requirement.--No credit shall be 
allowed under this section if the identifying number of the 
taxpayer was issued after the due date for filing the return of 
tax for the taxable year.
  (f) Taxable year must be full taxable year.--Except in the 
case of a taxable year closed by reason of the death of the 
taxpayer, no credit shall be allowable under this section in 
the case of a taxable year covering a period of less than 12 
months.
  (g) Restrictions on taxpayers who improperly claimed credit 
in prior year.--
          (1) Taxpayers making prior fraudulent or reckless 
        claims.--
                  (A) In general.--No credit shall be allowed 
                under this section for any taxable year in the 
                disallowance period.
                  (B) Disallowance period.--For purposes of 
                subparagraph (A), the disallowance period is--
                          (i) the period of 10 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to fraud, 
                        and
                          (ii) the period of 2 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to reckless 
                        or intentional disregard of rules and 
                        regulations (but not due to fraud).
          (2) Taxpayers making improper prior claims.--In the 
        case of a taxpayer who is denied credit under this 
        section for any taxable year as a result of the 
        deficiency procedures under subchapter B of chapter 63, 
        no credit shall be allowed under this section for any 
        subsequent taxable year unless the taxpayer provides 
        such information as the Secretary may require to 
        demonstrate eligibility for such credit.
  [(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.]

           *       *       *       *       *       *       *


SEC. 25A. AMERICAN OPPORTUNITY AND LIFETIME LEARNING CREDITS.

  (a) Allowance of credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this 
chapter for the taxable year the amount equal to the sum of--
          (1) the American Opportunity Tax Credit, plus
          (2) the Lifetime Learning Credit.
  (b) American Opportunity Tax Credit.--
          (1) Per student credit.--In the case of any eligible 
        student for whom an election is in effect under this 
        section for any taxable year, the American Opportunity 
        Tax Credit is an amount equal to the sum of--
                  (A) 100 percent of so much of the qualified 
                tuition and related expenses paid by the 
                taxpayer during the taxable year (for education 
                furnished to the eligible student during any 
                academic period beginning in such taxable year) 
                as does not exceed $2,000, plus
                  (B) 25 percent of such expenses so paid as 
                exceeds $2,000 but does not exceed $4,000.
          (2) Limitations applicable to American Opportunity 
        Tax Credit.--
                  (A) Credit allowed only for 4 taxable 
                years.--An election to have this section apply 
                with respect to any eligible student for 
                purposes of the American Opportunity Tax Credit 
                under subsection (a)(1) may not be made for any 
                taxable year if such an election (by the 
                taxpayer or any other individual) is in effect 
                with respect to such student for any 4 prior 
                taxable years.
                  (B) Credit allowed for year only if 
                individual is at least 1/2 time student for 
                portion of year.--The American Opportunity Tax 
                Credit under subsection (a)(1) shall not be 
                allowed for a taxable year with respect to the 
                qualified tuition and related expenses of an 
                individual unless such individual is an 
                eligible student for at least one academic 
                period which begins during such year.
                  (C) Credit allowed only for first 4 years of 
                post-secondary education.--The American 
                Opportunity Tax Credit under subsection (a)(1) 
                shall not be allowed for a taxable year with 
                respect to the qualified tuition and related 
                expenses of an eligible student if the student 
                has completed (before the beginning of such 
                taxable year) the first 4 years of 
                postsecondary education at an eligible 
                educational institution.
                  (D) Denial of credit if student convicted of 
                a felony drug offense.--The American 
                Opportunity Tax Credit under subsection (a)(1) 
                shall not be allowed for qualified tuition and 
                related expenses for the enrollment or 
                attendance of a student for any academic period 
                if such student has been convicted of a Federal 
                or State felony offense consisting of the 
                possession or distribution of a controlled 
                substance before the end of the taxable year 
                with or within which such period ends.
          (3) Eligible student.--For purposes of this 
        subsection, the term ``eligible student'' means, with 
        respect to any academic period, a student who--
                  (A) meets the requirements of section 
                484(a)(1) of the Higher Education Act of 1965 
                (20 U.S.C. 1091(a)(1)), as in effect on the 
                date of the enactment of this section, and
                  (B) is carrying at least 1/2 the normal full-
                time work load for the course of study the 
                student is pursuing.
          (4) Restrictions on taxpayers who improperly claimed 
        American Opportunity Tax credit in prior years.--
                  (A) Taxpayers making prior fraudulent or 
                reckless claims.--
                          (i) In general.--No American 
                        Opportunity Tax Credit shall be allowed 
                        under this section for any taxable year 
                        in the disallowance period.
                          (ii) Disallowance period.--For 
                        purposes of subparagraph (A), the 
                        disallowance period is--
                                  (I) the period of 10 taxable 
                                years after the most recent 
                                taxable year for which there 
                                was a final determination that 
                                the taxpayer's claim of the 
                                American Opportunity Tax Credit 
                                under this section was due to 
                                fraud, and
                                  (II) the period of 2 taxable 
                                years after the most recent 
                                taxable year for which there 
                                was a final determination that 
                                the taxpayer's claim of the 
                                American Opportunity Tax Credit 
                                under this section was due to 
                                reckless or intentional 
                                disregard of rules and 
                                regulations (but not due to 
                                fraud).
                  (B) Taxpayers making improper prior claims.--
                In the case of a taxpayer who is denied the 
                American Opportunity Tax Credit under this 
                section for any taxable year as a result of the 
                deficiency procedures under subchapter B of 
                chapter 63, no American Opportunity Tax Credit 
                shall be allowed under this section for any 
                subsequent taxable year unless the taxpayer 
                provides such information as the Secretary may 
                require to demonstrate eligibility for such 
                credit.
  (c) Lifetime Learning Credit.--
          (1) Per taxpayer credit.--The Lifetime Learning 
        Credit for any taxpayer for any taxable year is an 
        amount equal to 20 percent of so much of the qualified 
        tuition and related expenses paid by the taxpayer 
        during the taxable year (for education furnished during 
        any academic period beginning in such taxable year) as 
        does not exceed $10,000.
          (2) Special rules for determining expenses.--
                  (A) Coordination with American Opportunity 
                Tax Credit.--The qualified tuition and related 
                expenses with respect to an individual who is 
                an eligible student for whom a American 
                Opportunity Tax Credit under subsection (a)(1) 
                is allowed for the taxable year shall not be 
                taken into account under this subsection.
                  (B) Expenses eligible for lifetime learning 
                credit.--For purposes of paragraph (1), 
                qualified tuition and related expenses shall 
                include expenses described in subsection (f)(1) 
                with respect to any course of instruction at an 
                eligible educational institution to acquire or 
                improve job skills of the individual.
  (d) Limitations based on modified adjusted gross income.--
          (1) American opportunity tax credit.--The American 
        Opportunity Tax Credit (determined without regard to 
        this paragraph) shall be reduced (but not below zero) 
        by the amount which bears the same ratio to such credit 
        (as so determined) as--
                  (A) the excess of--
                          (i) the taxpayer's modified adjusted 
                        gross income for such taxable year, 
                        over
                          (ii) $80,000 ($160,000 in the case of 
                        a joint return), bears to (B) $10,000 
                        ($20,000 in the case of a joint 
                        return).
          (2) Lifetime learning credit.--The Lifetime Learning 
        Credit (determined without regard to this paragraph) 
        shall be reduced (but not below zero) by the amount 
        which bears the same ratio to such credit (as so 
        determined) as--
                  (A) the excess of--
                          (i) the taxpayer's modified adjusted 
                        gross income for such taxable year, 
                        over
                          (ii) $40,000 ($80,000 in the case of 
                        a joint return), bears to (B) $10,000 
                        ($20,000 in the case of a joint 
                        return).
          (3) Modified adjusted gross income.--For purposes of 
        this subsection, the term ``modified adjusted gross 
        income'' means the adjusted gross income of the 
        taxpayer for the taxable year increased by any amount 
        excluded from gross income under section 911, 931, or 
        933.
  (e) Election not to have section apply.--A taxpayer may elect 
not to have this section apply with respect to the qualified 
tuition and related expenses of an individual for any taxable 
year.
  (f) Definitions.--For purposes of this section--
          (1) Qualified tuition and related expenses.--
                  (A) In general.--The term ``qualified tuition 
                and related expenses'' means tuition and fees 
                required for the enrollment or attendance of--
                          (i) the taxpayer,
                          (ii) the taxpayer's spouse, or
                          (iii) any dependent of the taxpayer 
                        [with respect to whom the taxpayer is 
                        allowed a deduction under section 151],
                at an eligible educational institution for 
                courses of instruction of such individual at 
                such institution.
                  (B) Exception for education involving sports, 
                etc.--Such term does not include expenses with 
                respect to any course or other education 
                involving sports, games, or hobbies, unless 
                such course or other education is part of the 
                individual's degree program.
                  (C) Exception for nonacademic fees.--Such 
                term does not include student activity fees, 
                athletic fees, insurance expenses, or other 
                expenses unrelated to an individual's academic 
                course of instruction.
                  (D) Required course materials taken into 
                account for American Opportunity Tax Credit.--
                For purposes of determining the American 
                Opportunity Tax Credit, subparagraph (A) shall 
                be applied by substituting ``tuition, fees, and 
                course materials'' for ``tuition and fees''.
          (2) Eligible educational institution.--The term 
        ``eligible educational institution'' means an 
        institution--
                  (A) which is described in section 481 of the 
                Higher Education Act of 1965 (20 U.S.C. 1088), 
                as in effect on the date of the enactment of 
                this section, and
                  (B) which is eligible to participate in a 
                program under title IV of such Act.
  (g) Special rules.--
          (1) Identification requirement.--
                  (A) In general.--No credit shall be allowed 
                under subsection (a) to a taxpayer with respect 
                to the qualified tuition and related expenses 
                of an individual unless the taxpayer includes 
                the name and taxpayer identification number of 
                such individual on the return of tax for the 
                taxable year.
                  (B) Additional identification requirements 
                with respect to American Opportunity Tax 
                Credit.--
                          (i) Student.--The requirements of 
                        subparagraph (A) shall not be treated 
                        as met with respect to the American 
                        Opportunity Tax Credit unless the 
                        individual's taxpayer identification 
                        number was issued on or before the due 
                        date for filing the return of tax for 
                        the taxable year.
                          (ii) Taxpayer.--No American 
                        Opportunity Tax Credit shall be allowed 
                        under this section if the taxpayer 
                        identification number of the taxpayer 
                        was issued after the due date for 
                        filing the return for the taxable year.
                          (iii) Institution.--No American 
                        Opportunity Tax Credit shall be allowed 
                        under this section unless the taxpayer 
                        includes the employer identification 
                        number of any institution to which 
                        qualified tuition and related expenses 
                        were paid with respect to the 
                        individual.
          (2) Adjustment for certain scholarships, etc..--The 
        amount of qualified tuition and related expenses 
        otherwise taken into account under subsection (a) with 
        respect to an individual for an academic period shall 
        be reduced (before the application of subsections (b), 
        (c), and (d)) by the sum of any amounts paid for the 
        benefit of such individual which are allocable to such 
        period as--
                  (A) a qualified scholarship which is 
                excludable from gross income under section 117,
                  (B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, 
                United States Code, or under chapter 1606 of 
                title 10, United States Code, and
                  (C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of 
                section 102(a)) for such individual's 
                educational expenses, or attributable to such 
                individual's enrollment at an eligible 
                educational institution, which is excludable 
                from gross income under any law of the United 
                States.
          (3) Treatment of expenses paid by dependent.--[If a 
        deduction under section 151 with respect to an 
        individual is allowed to another taxpayer] If an 
        individual is a dependent of another taxpayer for a 
        taxable year beginning in the calendar year in which 
        such individual's taxable year begins--
                  (A) no credit shall be allowed under 
                subsection (a) to such individual for such 
                individual's taxable year,
                  (B) qualified tuition and related expenses 
                paid by such individual during such 
                individual's taxable year shall be treated for 
                purposes of this section as paid by such other 
                taxpayer, and
                  (C) a statement described in paragraph (8) 
                and received by such individual shall be 
                treated as received by the taxpayer.
          (4) Treatment of certain prepayments.--If qualified 
        tuition and related expenses are paid by the taxpayer 
        during a taxable year for an academic period which 
        begins during the first 3 months following such taxable 
        year, such academic period shall be treated for 
        purposes of this section as beginning during such 
        taxable year.
          (5) Denial of double benefit.--No credit shall be 
        allowed under this section for any expense for which a 
        deduction is allowed under any other provision of this 
        chapter.
          (6) No credit for married individuals filing separate 
        returns.--If the taxpayer is a married individual 
        (within the meaning of section 7703), this section 
        shall apply only if the taxpayer and the taxpayer's 
        spouse file a joint return for the taxable year.
          (7) Nonresident aliens.--If the taxpayer is a 
        nonresident alien individual for any portion of the 
        taxable year, this section shall apply only if such 
        individual is treated as a resident alien of the United 
        States for purposes of this chapter by reason of an 
        election under subsection (g) or (h) of section 6013.
          (8) Payee statement requirement.--Except as otherwise 
        provided by the Secretary, no credit shall be allowed 
        under this section unless the taxpayer receives a 
        statement furnished under section 6050S(d) which 
        contains all of the information required by paragraph 
        (2) thereof.
  (h) Inflation adjustment.--
          (1) In general.--In the case of a taxable year 
        beginning after 2001, the $40,000 and $80,000 amounts 
        in subsection (d)(2) shall each be increased by an 
        amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year 2000'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
          (2) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $1,000, such amount 
        shall be rounded to the next lowest multiple of $1,000.
  (i) Portion of American Opportunity Tax Credit made 
refundable.--Forty percent of so much of the credit allowed 
under subsection (a) as is attributable to the American 
Opportunity Tax Credit (determined after application of 
subsection (d) and without regard to this paragraph and section 
26(a)) shall be treated as a credit allowable under subpart C 
(and not allowed under subsection (a)). The preceding sentence 
shall not apply to any taxpayer for any taxable year if such 
taxpayer is a child to whom subsection (g) of section 1 applies 
for such taxable year.
  (j) Regulations.--The Secretary may prescribe such 
regulations as may be necessary or appropriate to carry out 
this section, including regulations providing for a recapture 
of the credit allowed under this section in cases where there 
is a refund in a subsequent taxable year of any amount which 
was taken into account in determining the amount of such 
credit.

SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
                    INDIVIDUALS.

  (a) Allowance of credit.--In the case of an eligible 
individual, there shall be allowed as a credit against the tax 
imposed by this subtitle for the taxable year an amount equal 
to the applicable percentage of so much of the qualified 
retirement savings contributions of the eligible individual for 
the taxable year as do not exceed $2,000.
  (b) Applicable percentage.--For purposes of this section--
          (1) Joint returns.--In the case of a joint return, 
        the applicable percentage is--
                  (A) if the adjusted gross income of the 
                taxpayer is not over $30,000, 50 percent,
                  (B) if the adjusted gross income of the 
                taxpayer is over $30,000 but not over $32,500, 
                20 percent,
                  (C) if the adjusted gross income of the 
                taxpayer is over $32,500 but not over $50,000, 
                10 percent, and
                  (D) if the adjusted gross income of the 
                taxpayer is over $50,000, zero percent.
          (2) Other returns.--In the case of--
                  (A) a head of household, the applicable 
                percentage shall be determined under paragraph 
                (1) except that such paragraph shall be applied 
                by substituting for each dollar amount therein 
                (as adjusted under paragraph (3)) a dollar 
                amount equal to 75 percent of such dollar 
                amount, and
                  (B) any taxpayer not described in paragraph 
                (1) or subparagraph (A), the applicable 
                percentage shall be determined under paragraph 
                (1) except that such paragraph shall be applied 
                by substituting for each dollar amount therein 
                (as adjusted under paragraph (3)) a dollar 
                amount equal to 50 percent of such dollar 
                amount.
          (3) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2006, each of 
        the dollar amounts 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, determined by 
                substituting ``calendar year 2005'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        Any increase determined under the preceding sentence 
        shall be rounded to the nearest multiple of $500.
  (c) Eligible individual.--For purposes of this section--
          (1) In general.--The term ``eligible individual'' 
        means any individual if such individual has attained 
        the age of 18 as of the close of the taxable year.
          (2) Dependents and full-time students not eligible.--
        The term ``eligible individual'' shall not include--
                  (A) [any individual with respect to whom a 
                deduction under section 151 is allowed to 
                another taxpayer] any individual who is a 
                dependent of another taxpayer for a taxable 
                year beginning in the calendar year in which 
                such individual's taxable year begins, and
                  (B) any individual who is a student (as 
                defined in [section 152(f)(2)] section 
                7706(f)(2)).
  (d) Qualified retirement savings contributions.--For purposes 
of this section--
          (1) In general.--The term ``qualified retirement 
        savings contributions'' means, with respect to any 
        taxable year, the sum of--
                  (A) the amount of the qualified retirement 
                contributions (as defined in section 219(e)) 
                made by the eligible individual,
                  (B) the amount of--
                          (i) any elective deferrals (as 
                        defined in section 402(g)(3)) of such 
                        individual, and
                          (ii) any elective deferral of 
                        compensation by such individual under 
                        an eligible deferred compensation plan 
                        (as defined in section 457(b)) of an 
                        eligible employer described in section 
                        457(e)(1)(A),
                  (C) the amount of voluntary employee 
                contributions by such individual to any 
                qualified retirement plan (as defined in 
                section 4974(c)), and
                  (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.
          (2) Reduction for certain distributions.--
                  (A) In general.--The qualified retirement 
                savings contributions determined under 
                paragraph (1) shall be reduced (but not below 
                zero) by the aggregate distributions received 
                by the individual during the testing period 
                from any entity of a type to which 
                contributions under paragraph (1) may be made. 
                The preceding sentence shall not apply to the 
                portion of any distribution which is not 
                includible in gross income by reason of a 
                trustee-to-trustee transfer or a rollover 
                distribution.
                  (B) Testing period.--For purposes of 
                subparagraph (A), the testing period, with 
                respect to a taxable year, is the period which 
                includes--
                          (i) such taxable year,
                          (ii) the 2 preceding taxable years, 
                        and
                          (iii) the period after such taxable 
                        year and before the due date (including 
                        extensions) for filing the return of 
                        tax for such taxable year.
                  (C) Excepted distributions.--There shall not 
                be taken into account under subparagraph (A)--
                          (i) any distribution referred to in 
                        section 72(p), 401(k)(8), 401(m)(6), 
                        402(g)(2), 404(k), or 408(d)(4), and
                          (ii) any distribution to which 
                        section 408A(d)(3) applies.
                  (D) Treatment of distributions received by 
                spouse of individual.--For purposes of 
                determining distributions received by an 
                individual under subparagraph (A) for any 
                taxable year, any distribution received by the 
                spouse of such individual shall be treated as 
                received by such individual if such individual 
                and spouse file a joint return for such taxable 
                year and for the taxable year during which the 
                spouse receives the distribution.
  (e) Adjusted gross income.--For purposes of this section, 
adjusted gross income shall be determined without regard to 
sections 911, 931, and 933.
  (f) Investment in the contract.--Notwithstanding any other 
provision of law, a qualified retirement savings contribution 
shall not fail to be included in determining the investment in 
the contract for purposes of section 72 by reason of the credit 
under this section.

           *       *       *       *       *       *       *


Subpart C--Refundable Credits

           *       *       *       *       *       *       *


SEC. 32. EARNED INCOME.

  (a) Allowance of credit.--
          (1) In general.--In the case of an eligible 
        individual, there shall be allowed as a credit against 
        the tax imposed by this subtitle for the taxable year 
        an amount equal to the credit percentage of so much of 
        the taxpayer's earned income for the taxable year as 
        does not exceed the earned income amount.
          (2) Limitation.--The amount of the credit allowable 
        to a taxpayer under paragraph (1) for any taxable year 
        shall not exceed the excess (if any) of--
                  (A) the credit percentage of the earned 
                income amount, over
                  (B) the phaseout percentage of so much of the 
                adjusted gross income (or, if greater, the 
                earned income) of the taxpayer for the taxable 
                year as exceeds the phaseout amount.
  (b) Percentages and amounts.--For purposes of subsection 
(a)--
          (1) Percentages.--The credit percentage and the 
        phaseout percentage shall be determined as follows:


 
------------------------------------------------------------------------
   In the case of an
  eligible individual     The credit percentage        The phaseout
         with:                     is:                percentage is:
------------------------------------------------------------------------
1 qualifying child       34                       15.98
2 qualifying children    40                       21.06
3 or more qualifying     45                       21.06
 children
No qualifying children   7.65                     7.65
------------------------------------------------------------------------

          (2) Amounts.--
                  (A) In general.--Subject to subparagraph (B), 
                the earned income amount and the phaseout 
                amount shall be determined as follows:


 
------------------------------------------------------------------------
    In the case of an        The earned income      The phaseout amount
eligible individual with:        amount is:                 is:
------------------------------------------------------------------------
1 qualifying child         $6,330                 $11,610
2 or more qualifying       $8,890                 $11,610
 children
No qualifying children     $4,220                 $ 5,280
------------------------------------------------------------------------

                  (B) Joint returns.--In the case of a joint 
                return filed by an eligible individual and such 
                individual's spouse, the phaseout amount 
                determined under subparagraph (A) shall be 
                increased by $5,000.
  (c) Definitions and special rules.--For purposes of this 
section--
          (1) Eligible individual.--
                  (A) In general.--The term ``eligible 
                individual'' means--
                          (i) any individual who has a 
                        qualifying child for the taxable year, 
                        or
                          (ii) any other individual who does 
                        not have a qualifying child for the 
                        taxable year, if--
                                  (I) such individual's 
                                principal place of abode is in 
                                the United States for more than 
                                one-half of such taxable year,
                                  (II) such individual (or, if 
                                the individual is married, 
                                either the individual or the 
                                individual's spouse) has 
                                attained age 25 but not 
                                attained age 65 before the 
                                close of the taxable year, and
                                  (III) such individual is not 
                                [a dependent for whom a 
                                deduction is allowable under 
                                section 151 to another 
                                taxpayer] a dependent of 
                                another taxpayer for any 
                                taxable year beginning in the 
                                same calendar year as such 
                                taxable year.
                For purposes of the preceding sentence, marital 
                status shall be determined under section 7703.
                  (B) Qualifying child ineligible.--If an 
                individual is the qualifying child of a 
                taxpayer for any taxable year of such taxpayer 
                beginning in a calendar year, such individual 
                shall not be treated as an eligible individual 
                for any taxable year of such individual 
                beginning in such calendar year.
                  (C) Exception for individual claiming 
                benefits under section 911.--The term 
                ``eligible individual'' does not include any 
                individual who claims the benefits of section 
                911 (relating to citizens or residents living 
                abroad) for the taxable year.
                  (D) Limitation on eligibility of nonresident 
                aliens.--The term ``eligible individual'' shall 
                not include any individual who is a nonresident 
                alien individual for any portion of the taxable 
                year unless such individual is treated for such 
                taxable year as a resident of the United States 
                for purposes of this chapter by reason of an 
                election under subsection (g) or (h) of section 
                6013.
                  (E) Identification number requirement.--No 
                credit shall be allowed under this section to 
                an eligible individual who does not include on 
                the return of tax for the taxable year--
                          (i) such individual's taxpayer 
                        identification number, and
                          (ii) if the individual is married 
                        (within the meaning of section 
                        7703),the taxpayer identification 
                        number of such individual's spouse.
                  (G) Individuals who do not include TIN, etc., 
                of any qualifying child.--No credit shall be 
                allowed under this section to any eligible 
                individual who has one or more qualifying 
                children if no qualifying child of such 
                individual is taken into account under 
                subsection (b) by reason of paragraph (3)(D).
          (2) Earned income.--
                  (A) The term ``earned income'' means--
                          (i) wages, salaries, tips, and other 
                        employee compensation, but only if such 
                        amounts are includible in gross income 
                        for the taxable year, plus
                          (ii) the amount of the taxpayer's net 
                        earnings from self-employment for the 
                        taxable year (within the meaning of 
                        section 1402(a)), but such net earnings 
                        shall be determined with regard to the 
                        deduction allowed to the taxpayer by 
                        section 164(f).
                  (B) For purposes of subparagraph (A)--
                          (i) the earned income of an 
                        individual shall be computed without 
                        regard to any community property laws,
                          (ii) no amount received as a pension 
                        or annuity shall be taken into account,
                          (iii) no amount to which section 
                        871(a) applies (relating to income of 
                        nonresident alien individuals not 
                        connected with United States business) 
                        shall be taken into account,
                          (iv) no amount received for services 
                        provided by an individual while the 
                        individual is an inmate at a penal 
                        institution shall be taken into 
                        account,
                          (v) no amount described in 
                        subparagraph (A) received for service 
                        performed in work activities as defined 
                        in paragraph (4) or (7) of section 
                        407(d) of the Social Security Act to 
                        which the taxpayer is assigned under 
                        any State program under part A of title 
                        IV of such Act shall be taken into 
                        account, but only to the extent such 
                        amount is subsidized under such State 
                        program, and
                          (vi) a taxpayer may elect to treat 
                        amounts excluded from gross income by 
                        reason of section 112 as earned income.
          (3) Qualifying child.--
                  (A) In general.--The term ``qualifying 
                child'' means a qualifying child of the 
                taxpayer (as defined in [section 152(c)] 
                section 7706(c), determined without regard to 
                paragraph (1)(D) thereof and [section 152(e)] 
                section 7706(e)).
                  (B) Married individual.--The term 
                ``qualifying child'' shall not include an 
                individual who is married as of the close of 
                the taxpayer's taxable year [unless the 
                taxpayer is entitled to a deduction under 
                section 151 for such taxable year with respect 
                to such individual (or would be so entitled but 
                for section 152(e)] if such individual is not 
                treated as a dependent of such taxpayer for 
                such taxable year by reason of section 
                7706(b)(2) (determined without regard to 
                section 7706(e))).
                  (C) Place of abode.--For purposes of 
                subparagraph (A), the requirements of [section 
                152(c)(1)(B)] section 7706(c)(1)(B) shall be 
                met only if the principal place of abode is in 
                the United States.
                  (D) Identification requirements.--
                          (i) In general.--A qualifying child 
                        shall not be taken into account under 
                        subsection (b) unless the taxpayer 
                        includes the name, age, and TIN of the 
                        qualifying child on the return of tax 
                        for the taxable year.
                          (ii) Other methods.--The Secretary 
                        may prescribe other methods for 
                        providing the information described in 
                        clause (i).
          (4) Treatment of military personnel stationed outside 
        the United States.--For purposes of paragraphs 
        (1)(A)(ii)(I) and (3)(C), the principal place of abode 
        of a member of the Armed Forces of the United States 
        shall be treated as in the United States during any 
        period during which such member is stationed outside 
        the United States while serving on extended active duty 
        with the Armed Forces of the United States. For 
        purposes of the preceding sentence, the term ``extended 
        active duty'' means any period of active duty pursuant 
        to a call or order to such duty for a period in excess 
        of 90 days or for an indefinite period.
  (d) Married individuals.--In the case of an individual who is 
married (within the meaning of section 7703), this section 
shall apply only if a joint return is filed for the taxable 
year under section 6013.
  (e) Taxable year must be full taxable year.--Except in the 
case of a taxable year closed by reason of the death of the 
taxpayer, no credit shall be allowable under this section in 
the case of a taxable year covering a period of less than 12 
months.
  (f) Amount of credit to be determined under tables.--
          (1) In general.--The amount of the credit allowed by 
        this section shall be determined under tables 
        prescribed by the Secretary.
          (2) Requirements for tables.--The tables prescribed 
        under paragraph (1) shall reflect the provisions of 
        subsections (a) and (b) and shall have income brackets 
        of not greater than $50 each--
                  (A) for earned income between $0 and the 
                amount of earned income at which the credit is 
                phased out under subsection (b), and
                  (B) for adjusted gross income between the 
                dollar amount at which the phaseout begins 
                under subsection (b) and the amount of adjusted 
                gross income at which the credit is phased out 
                under subsection (b).
  (i) Denial of credit for individuals having excessive 
investment income.--
          (1) In general.--No credit shall be allowed under 
        subsection (a) for the taxable year if the aggregate 
        amount of disqualified income of the taxpayer for the 
        taxable year exceeds $2,200.
          (2) Disqualified income.--For purposes of paragraph 
        (1), the term ``disqualified income'' means--
                  (A) interest or dividends to the extent 
                includible in gross income for the taxable 
                year,
                  (B) interest received or accrued during the 
                taxable year which is exempt from tax imposed 
                by this chapter,
                  (C) the excess (if any) of--
                          (i) gross income from rents or 
                        royalties not derived in the ordinary 
                        course of a trade or business, over
                          (ii) the sum of--
                                  (I) the deductions (other 
                                than interest) which are 
                                clearly and directly allocable 
                                to such gross income, plus
                                  (II) interest deductions 
                                properly allocable to such 
                                gross income,
                  (D) the capital gain net income (as defined 
                in section 1222) of the taxpayer for such 
                taxable year, and
                  (E) the excess (if any) of--
                          (i) the aggregate income from all 
                        passive activities for the taxable year 
                        (determined without regard to any 
                        amount included in earned income under 
                        subsection (c)(2) or described in a 
                        preceding subparagraph), over
                          (ii) the aggregate losses from all 
                        passive activities for the taxable year 
                        (as so determined).
                For purposes of subparagraph (E), the term 
                ``passive activity'' has the meaning given such 
                term by section 469.
  (j) Inflation adjustments.--
          (1) In general.--In the case of any taxable year 
        beginning after 2015, each of the dollar amounts in 
        subsections (b)(2) and (i)(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, determined by 
                substituting in subparagraph (A)(ii) thereof--
                          (i) in the case of amounts in 
                        subsections (b)(2)(A) and (i)(1), 
                        "calendar year 1995" for "calendar year 
                        2016, and
                          (ii) in the case of the $5,000 amount 
                        in subsection (b)(2)(B), ``calendar 
                        year 2008'' for ``calendar year 2016''.
          (2) Rounding.--
                  (A) In general.--If any dollar amount in 
                subsection (b)(2)(A) (after being increased 
                under subparagraph (B) thereof), after being 
                increased under paragraph (1), is not a 
                multiple of $10, such dollar amount shall be 
                rounded to the nearest multiple of $10.
                  (B) Disqualified income threshold amount.--If 
                the dollar amount in subsection (i)(1), after 
                being increased under paragraph (1), is not a 
                multiple of $50, such amount shall be rounded 
                to the next lowest multiple of $50.
  (k) Restrictions on taxpayers who improperly claimed credit 
in prior year.--
          (1) Taxpayers making prior fraudulent or reckless 
        claims.--
                  (A) In general.--No credit shall be allowed 
                under this section for any taxable year in the 
                disallowance period.
                  (B) Disallowance period.--For purposes of 
                paragraph (1), the disallowance period is--
                          (i) the period of 10 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to fraud, 
                        and
                          (ii) the period of 2 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to reckless 
                        or intentional disregard of rules and 
                        regulations (but not due to fraud).
          (2) Taxpayers making improper prior claims.--In the 
        case of a taxpayer who is denied credit under this 
        section for any taxable year as a result of the 
        deficiency procedures under subchapter B of chapter 63, 
        no credit shall be allowed under this section for any 
        subsequent taxable year unless the taxpayer provides 
        such information as the Secretary may require to 
        demonstrate eligibility for such credit.
  (l) Coordination with certain means-tested programs.--For 
purposes of--
          (1) the United States Housing Act of 1937,
          (2) title V of the Housing Act of 1949,
          (3) section 101 of the Housing and Urban Development 
        Act of 1965,
          (4) sections 221(d)(3), 235, and 236 of the National 
        Housing Act, and
          (5) the Food and Nutrition Act of 2008, any refund 
        made to an individual (or the spouse of an individual) 
        by reason of this section shall not be treated as 
        income (and shall not be taken into account in 
        determining resources for the month of its receipt and 
        the following month).
  (m) Identification numbers.--Solely for purposes of 
subsections (c)(1)(E) and (c)(3)(D), a taxpayer identification 
number means a social security number issued to an individual 
by the Social Security Administration (other than a social 
security number issued pursuant to clause (II) (or that portion 
of clause (III) that relates to clause (II)) of section 
205(c)(2)(B)(i) of the Social Security Act) on or before the 
due date for filing the return for the taxable year.

           *       *       *       *       *       *       *


SEC. 35. HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.

  (a) In general.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by subtitle A an 
amount equal to 72.5 percent of the amount paid by the taxpayer 
for coverage of the taxpayer and qualifying family members 
under qualified health insurance for eligible coverage months 
beginning in the taxable year.
  (b) Eligible coverage month.--For purposes of this section--
          (1) In general.--The term ``eligible coverage month'' 
        means any month if--
                  (A) as of the first day of such month, the 
                taxpayer--
                          (i) is an eligible individual,
                          (ii) is covered by qualified health 
                        insurance, the premium for which is 
                        paid by the taxpayer,
                          (iii) does not have other specified 
                        coverage, and
                          (iv) is not imprisoned under Federal, 
                        State, or local authority, and
                  (B) such month begins more than 90 days after 
                the date of the enactment of the Trade Act of 
                2002, and before January 1, 2020.
          (2) Joint returns.--In the case of a joint return, 
        the requirements of paragraph (1)(A) shall be treated 
        as met with respect to any month if at least 1 spouse 
        satisfies such requirements.
  (c) Eligible individual.--For purposes of this section--
          (1) In general.--The term ``eligible individual'' 
        means--
                  (A) an eligible TAA recipient,
                  (B) an eligible alternative TAA recipient, 
                and
                  (C) an eligible PBGC pension recipient.
          (2) Eligible TAA recipient.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the term ``eligible TAA 
                recipient'' means, with respect to any month, 
                any individual who is receiving for any day of 
                such month a trade readjustment allowance under 
                chapter 2 of title II of the Trade Act of 1974 
                or who would be eligible to receive such 
                allowance if section 231 of such Act were 
                applied without regard to subsection (a)(3)(B) 
                of such section. An individual shall continue 
                to be treated as an eligible TAA recipient 
                during the first month that such individual 
                would otherwise cease to be an eligible TAA 
                recipient by reason of the preceding sentence.
                  (B) Special rule.--In the case of any 
                eligible coverage month beginning after the 
                date of the enactment of this paragraph, the 
                term ``eligible TAA recipient'' means, with 
                respect to any month, any individual who--
                          (i) is receiving for any day of such 
                        month a trade readjustment allowance 
                        under chapter 2 of title II of the 
                        Trade Act of 1974,
                          (ii) would be eligible to receive 
                        such allowance except that such 
                        individual is in a break in training 
                        provided under a training program 
                        approved under section 236 of such Act 
                        that exceeds the period specified in 
                        section 233(e) of such Act, but is 
                        within the period for receiving such 
                        allowances provided under section 
                        233(a) of such Act, or
                          (iii) is receiving unemployment 
                        compensation (as defined in section 
                        85(b)) for any day of such month and 
                        who would be eligible to receive such 
                        allowance for such month if section 231 
                        of such Act were applied without regard 
                        to subsections (a)(3)(B) and (a)(5) 
                        thereof.
                An individual shall continue to be treated as 
                an eligible TAA recipient during the first 
                month that such individual would otherwise 
                cease to be an eligible TAA recipient by reason 
                of the preceding sentence.
          (3) Eligible alternative TAA recipient.--The term 
        ``eligible alternative TAA recipient'' means, with 
        respect to any month, any individual who--
                  (A) is a worker described in section 
                246(a)(3)(B) of the Trade Act of 1974 who is 
                participating in the program established under 
                section 246(a)(1) of such Act, and
                  (B) is receiving a benefit for such month 
                under section 246(a)(2) of such Act.
        An individual shall continue to be treated as an 
        eligible alternative TAA recipient during the first 
        month that such individual would otherwise cease to be 
        an eligible alternative TAA recipient by reason of the 
        preceding sentence.
          (4) Eligible PBGC pension recipient.--The term 
        ``eligible PBGC pension recipient'' means, with respect 
        to any month, any individual who--
                  (A) has attained age 55 as of the first day 
                of such month, and
                  (B) is receiving a benefit for such month any 
                portion of which is paid by the Pension Benefit 
                Guaranty Corporation under title IV of the 
                Employee Retirement Income Security Act of 
                1974.
  (d) Qualifying family member.--For purposes of this section--
          (1) In general.--The term ``qualifying family 
        member'' means--
                  (A) the taxpayer's spouse, and
                  (B) any dependent of the taxpayer [with 
                respect to whom the taxpayer is entitled to a 
                deduction under section 151(c)] if the taxpayer 
                included such person's TIN on the return of tax 
                for the taxable year.
        Such term does not include any individual who has other 
        specified coverage.
          (2) Special dependency test in case of divorced 
        parents, etc..--If [section 152(e)] section 7706(e) 
        applies to any child with respect to any calendar year, 
        in the case of any taxable year beginning in such 
        calendar year, such child shall be treated as described 
        in paragraph (1)(B) with respect to the custodial 
        parent (as defined in [section 152(e)(4)(A)] section 
        7706(e)(4)(A)) and not with respect to the noncustodial 
        parent.
  (e) Qualified health insurance.--For purposes of this 
section--
          (1) In general.--The term ``qualified health 
        insurance'' means any of the following:
                  (A) Coverage under a COBRA continuation 
                provision (as defined in section 9832(d)(1)).
                  (B) State-based continuation coverage 
                provided by the State under a State law that 
                requires such coverage.
                  (C) Coverage offered through a qualified 
                State high risk pool (as defined in section 
                2744(c)(2) of the Public Health Service Act).
                  (D) Coverage under a health insurance program 
                offered for State employees.
                  (E) Coverage under a State-based health 
                insurance program that is comparable to the 
                health insurance program offered for State 
                employees.
                  (F) Coverage through an arrangement entered 
                into by a State and--
                          (i) a group health plan (including 
                        such a plan which is a multiemployer 
                        plan as defined in section 3(37) of the 
                        Employee Retirement Income Security Act 
                        of 1974),
                          (ii) an issuer of health insurance 
                        coverage,
                          (iii) an administrator, or
                          (iv) an employer.
                  (G) Coverage offered through a State 
                arrangement with a private sector health care 
                coverage purchasing pool.
                  (H) Coverage under a State-operated health 
                plan that does not receive any Federal 
                financial participation.
                  (I) Coverage under a group health plan that 
                is available through the employment of the 
                eligible individual's spouse.
                  (J) In the case of any eligible individual 
                and such individual's qualifying family 
                members, coverage under individual health 
                insurance (other than coverage enrolled in 
                through an Exchange established under the 
                Patient Protection and Affordable Care Act). 
                For purposes of this subparagraph, the term 
                ``individual health insurance'' means any 
                insurance which constitutes medical care 
                offered to individuals other than in connection 
                with a group health plan and does not include 
                Federal- or State-based health insurance 
                coverage.
                  (K) Coverage under an employee benefit plan 
                funded by a voluntary employees' beneficiary 
                association (as defined in section 501(c)(9)) 
                established pursuant to an order of a 
                bankruptcy court, or by agreement with an 
                authorized representative, as provided in 
                section 1114 of title 11, United States Code.
          (2) Requirements for State-based coverage.--
                  (A) In general.--The term ``qualified health 
                insurance'' does not include any coverage 
                described in subparagraphs (B) through (H) of 
                paragraph (1) unless the State involved has 
                elected to have such coverage treated as 
                qualified health insurance under this section 
                and such coverage meets the following 
                requirements:
                          (i) Guaranteed issue.--Each 
                        qualifying individual is guaranteed 
                        enrollment if the individual pays the 
                        premium for enrollment or provides a 
                        qualified health insurance costs credit 
                        eligibility certificate described in 
                        section 7527 and pays the remainder of 
                        such premium.
                          (ii) No imposition of preexisting 
                        condition exclusion.--No pre-existing 
                        condition limitations are imposed with 
                        respect to any qualifying individual.
                          (iii) Nondiscriminatory premium.--The 
                        total premium (as determined without 
                        regard to any subsidies) with respect 
                        to a qualifying individual may not be 
                        greater than the total premium (as so 
                        determined) for a similarly situated 
                        individual who is not a qualifying 
                        individual.
                          (iv) Same benefits.--Benefits under 
                        the coverage are the same as (or 
                        substantially similar to) the benefits 
                        provided to similarly situated 
                        individuals who are not qualifying 
                        individuals.
                  (B) Qualifying individual.--For purposes of 
                this paragraph, the term ``qualifying 
                individual'' means--
                          (i) an eligible individual for whom, 
                        as of the date on which the individual 
                        seeks to enroll in the coverage 
                        described in subparagraphs (B) through 
                        (H) of paragraph (1), the aggregate of 
                        the periods of creditable coverage (as 
                        defined in section 9801(c)) is 3 months 
                        or longer and who, with respect to any 
                        month, meets the requirements of 
                        clauses (iii) and (iv) of subsection 
                        (b)(1)(A); and
                          (ii) the qualifying family members of 
                        such eligible individual.
          (3) Exception.--The term ``qualified health 
        insurance'' shall not include--
                  (A) a flexible spending or similar 
                arrangement, and
                  (B) any insurance if substantially all of its 
                coverage is of excepted benefits described in 
                section 9832(c).
  (f) Other specified coverage.--For purposes of this section, 
an individual has other specified coverage for any month if, as 
of the first day of such month--
          (1) Subsidized coverage.--
                  (A) In general.--Such individual is covered 
                under any insurance which constitutes medical 
                care (except insurance substantially all of the 
                coverage of which is of excepted benefits 
                described in section 9832(c)) under any health 
                plan maintained by any employer (or former 
                employer) of the taxpayer or the taxpayer's 
                spouse and at least 50 percent of the cost of 
                such coverage (determined under section 4980B) 
                is paid or incurred by the employer.
                  (B) Eligible alternative TAA recipients.--In 
                the case of an eligible alternative TAA 
                recipient, such individual is either--
                          (i) eligible for coverage under any 
                        qualified health insurance (other than 
                        insurance described in subparagraph 
                        (A), (B), or (F) of subsection (e)(1)) 
                        under which at least 50 percent of the 
                        cost of coverage (determined under 
                        section 4980B(f)(4)) is paid or 
                        incurred by an employer (or former 
                        employer) of the taxpayer or the 
                        taxpayer's spouse, or
                          (ii) covered under any such qualified 
                        health insurance under which any 
                        portion of the cost of coverage (as so 
                        determined) is paid or incurred by an 
                        employer (or former employer) of the 
                        taxpayer or the taxpayer's spouse.
                  (C) Treatment of cafeteria plans.--For 
                purposes of subparagraphs (A) and (B), the cost 
                of coverage shall be treated as paid or 
                incurred by an employer to the extent the 
                coverage is in lieu of a right to receive cash 
                or other qualified benefits under a cafeteria 
                plan (as defined in section 125(d)).
          (2) Coverage under medicare, medicaid, or SCHIP.--
        Such individual--
                  (A) is entitled to benefits under part A of 
                title XVIII of the Social Security Act or is 
                enrolled under part B of such title, or
                  (B) is enrolled in the program under title 
                XIX or XXI of such Act (other than under 
                section 1928 of such Act).
          (3) Certain other coverage.--Such individual--
                  (A) is enrolled in a health benefits plan 
                under chapter 89 of title 5, United States 
                Code, or
                  (B) is entitled to receive benefits under 
                chapter 55 of title 10, United States Code.
  (g) Special rules.--
          (1) Coordination with advance payments of credit.--
        With respect to any taxable year, the amount which 
        would (but for this subsection) be allowed as a credit 
        to the taxpayer under subsection (a) shall be reduced 
        (but not below zero) by the aggregate amount paid on 
        behalf of such taxpayer under section 7527 for months 
        beginning in such taxable year.
          (2) Coordination with other deductions.--Amounts 
        taken into account under subsection (a) shall not be 
        taken into account in determining any deduction allowed 
        under section 162(l) or 213.
          (3) Medical and health savings accounts.--Amounts 
        distributed from an Archer MSA (as defined in section 
        220(d)) or from a health savings account (as defined in 
        section 223(d)) shall not be taken into account under 
        subsection (a).
          (4) Denial of credit to dependents.--No credit shall 
        be allowed under this section to any individual with 
        respect to whom a deduction under section 151 is 
        allowable to another taxpayer for a taxable year 
        beginning in the calendar year in which such 
        individual's taxable year begins.
          (5) Both spouses eligible individuals.--The spouse of 
        the taxpayer shall not be treated as a qualifying 
        family member for purposes of subsection (a), if--
                  (A) the taxpayer is married at the close of 
                the taxable year,
                  (B) the taxpayer and the taxpayer's spouse 
                are both eligible individuals during the 
                taxable year, and
                  (C) the taxpayer files a separate return for 
                the taxable year.
          (6) Marital status; certain married individuals 
        living apart.--Rules similar to the rules of paragraphs 
        (3) and (4) of section 21(e) shall apply for purposes 
        of this section.
          (7) Insurance which covers other individuals.--For 
        purposes of this section, rules similar to the rules of 
        section 213(d)(6) shall apply with respect to any 
        contract for qualified health insurance under which 
        amounts are payable for coverage of an individual other 
        than the taxpayer and qualifying family members.
          (8) Treatment of payments.--For purposes of this 
        section--
                  (A) Payments by Secretary.--Payments made by 
                the Secretary on behalf of any individual under 
                section 7527 (relating to advance payment of 
                credit for health insurance costs of eligible 
                individuals) shall be treated as having been 
                made by the taxpayer on the first day of the 
                month for which such payment was made.
                  (B) Payments by taxpayer.--Payments made by 
                the taxpayer for eligible coverage months shall 
                be treated as having been made by the taxpayer 
                on the first day of the month for which such 
                payment was made.
          (9) COBRA premium assistance.--In the case of an 
        assistance eligible individual who receives premium 
        reduction for COBRA continuation coverage under section 
        3001(a) of title III of division B of the American 
        Recovery and Reinvestment Act of 2009 for any month 
        during the taxable year, such individual shall not be 
        treated as an eligible individual, a certified 
        individual, or a qualifying family member for purposes 
        of this section or section 7527 with respect to such 
        month.
          (10) Continued qualification of family members after 
        certain events.--
                  (A) Medicare eligibility.--In the case of any 
                month which would be an eligible coverage month 
                with respect to an eligible individual but for 
                subsection (f)(2)(A), such month shall be 
                treated as an eligible coverage month with 
                respect to such eligible individual solely for 
                purposes of determining the amount of the 
                credit under this section with respect to any 
                qualifying family members of such individual 
                (and any advance payment of such credit under 
                section 7527). This subparagraph shall only 
                apply with respect to the first 24 months after 
                such eligible individual is first entitled to 
                the benefits described in subsection (f)(2)(A).
                  (B) Divorce.--In the case of the finalization 
                of a divorce between an eligible individual and 
                such individual's spouse, such spouse shall be 
                treated as an eligible individual for purposes 
                of this section and section 7527 for a period 
                of 24 months beginning with the date of such 
                finalization, except that the only qualifying 
                family members who may be taken into account 
                with respect to such spouse are those 
                individuals who were qualifying family members 
                immediately before such finalization.
                  (C) Death.--In the case of the death of an 
                eligible individual--
                          (i) any spouse of such individual 
                        (determined at the time of such death) 
                        shall be treated as an eligible 
                        individual for purposes of this section 
                        and section 7527 for a period of 24 
                        months beginning with the date of such 
                        death, except that the only qualifying 
                        family members who may be taken into 
                        account with respect to such spouse are 
                        those individuals who were qualifying 
                        family members immediately before such 
                        death, and
                          (ii) any individual who was a 
                        qualifying family member of the 
                        decedent immediately before such death 
                        (or, in the case of an individual to 
                        whom paragraph (4) applies, the 
                        taxpayer to whom the deduction under 
                        section 151 is allowable) shall be 
                        treated as an eligible individual for 
                        purposes of this section and section 
                        7527 for a period of 24 months 
                        beginning with the date of such death, 
                        except that in determining the amount 
                        of such credit only such qualifying 
                        family member may be taken into 
                        account.
          (11) Election.--
                  (A) In general.--This section shall not apply 
                to any taxpayer for any eligible coverage month 
                unless such taxpayer elects the application of 
                this section for such month.
                  (B) Timing and applicability of election.--
                Except as the Secretary may provide--
                          (i) an election to have this section 
                        apply for any eligible coverage month 
                        in a taxable year shall be made not 
                        later than the due date (including 
                        extensions) for the return of tax for 
                        the taxable year; and
                          (ii) any election for this section to 
                        apply for an eligible coverage month 
                        shall apply for all subsequent eligible 
                        coverage months in the taxable year 
                        and, once made, shall be irrevocable 
                        with respect to such months.
          (12) Coordination with premium tax credit.--
                  (A) In general.--An eligible coverage month 
                to which the election under paragraph (11) 
                applies shall not be treated as a coverage 
                month (as defined in section 36B(c)(2)) for 
                purposes of section 36B with respect to the 
                taxpayer.
                  (B) Coordination with advance payments of 
                premium tax credit.--In the case of a taxpayer 
                who makes the election under paragraph (11) 
                with respect to any eligible coverage month in 
                a taxable year or on behalf of whom any advance 
                payment is made under section 7527 with respect 
                to any month in such taxable year--
                          (i) the tax imposed by this chapter 
                        for the taxable year shall be increased 
                        by the excess, if any, of--
                                  (I) the sum of any advance 
                                payments made on behalf of the 
                                taxpayer under section 1412 of 
                                the Patient Protection and 
                                Affordable Care Act and section 
                                7527 for months during such 
                                taxable year, over
                                  (II) the sum of the credits 
                                allowed under this section 
                                (determined without regard to 
                                paragraph (1)) and section 36B 
                                (determined without regard to 
                                subsection (f)(1) thereof) for 
                                such taxable year; and
                          (ii) section 36B(f)(2) shall not 
                        apply with respect to such taxpayer for 
                        such taxable year, except that if such 
                        taxpayer received any advance payments 
                        under section 7527 for any month in 
                        such taxable year and is later allowed 
                        a credit under section 36B for such 
                        taxable year, then section 36B(f)(2)(B) 
                        shall be applied by substituting the 
                        amount determined under clause (i) for 
                        the amount determined under section 
                        36B(f)(2)(A).
          (13) Regulations.--The Secretary may prescribe such 
        regulations and other guidance as may be necessary or 
        appropriate to carry out this section, section 6050T, 
        and section 7527.

           *       *       *       *       *       *       *


SEC. 36B. REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN.

  (a) In general.--In the case of an applicable taxpayer, there 
shall be allowed as a credit against the tax imposed by this 
subtitle for any taxable year an amount equal to the premium 
assistance credit amount of the taxpayer for the taxable year.
  (b) Premium assistance credit amount.--For purposes of this 
section--
          (1) In general.--The term ``premium assistance credit 
        amount'' means, with respect to any taxable year, the 
        sum of the premium assistance amounts determined under 
        paragraph (2) with respect to all coverage months of 
        the taxpayer occurring during the taxable year.
          (2) Premium assistance amount.--The premium 
        assistance amount determined under this subsection with 
        respect to any coverage month is the amount equal to 
        the lesser of--
                  (A) the monthly premiums for such month for 1 
                or more qualified health plans offered in the 
                individual market within a State which cover 
                the taxpayer, the taxpayer's spouse, or any 
                dependent (as defined in [section 152] section 
                7706) of the taxpayer and which were enrolled 
                in through an Exchange established by the State 
                under 1311 of the Patient Protection and 
                Affordable Care Act, or
                  (B) the excess (if any) of--
                          (i) the adjusted monthly premium for 
                        such month for the applicable second 
                        lowest cost silver plan with respect to 
                        the taxpayer, over
                          (ii) an amount equal to 1/12 of the 
                        product of the applicable percentage 
                        and the taxpayer's household income for 
                        the taxable year.
          (3) Other terms and rules relating to premium 
        assistance amounts.--For purposes of paragraph (2)--
                  (A) Applicable percentage.--
                          (i) In general.--Except as provided 
                        in clause (ii), the applicable 
                        percentage for any taxable year shall 
                        be the percentage such that the 
                        applicable percentage for any taxpayer 
                        whose household income is within an 
                        income tier specified in the following 
                        table shall increase, on a sliding 
                        scale in a linear manner, from the 
                        initial premium percentage to the final 
                        premium percentage specified in such 
                        table for such income tier:


 
------------------------------------------------------------------------
     In the case of
    household income
(expressed as a percent    The initial premium       The final premium
of poverty line) within      percentage is--          percentage is--
  the following income
         tier:
------------------------------------------------------------------------
Up to 133%               2.0%                     2.0%
133% up to 150%          3.0%                     4.0%
150% up to 200%          4.0%                     6.3%
200% up to 250%          6.3%                     8.05%
250% up to 300%          8.05%                    9.5%
300% up to 400%          9.5%                     9.5%
------------------------------------------------------------------------

                          (ii) Indexing.--
                                  (I) In general.--Subject to 
                                subclause (II), in the case of 
                                taxable years beginning in any 
                                calendar year after 2014, the 
                                initial and final applicable 
                                percentages under clause (i) 
                                (as in effect for the preceding 
                                calendar year after application 
                                of this clause) shall be 
                                adjusted to reflect the excess 
                                of the rate of premium growth 
                                for the preceding calendar year 
                                over the rate of income growth 
                                for the preceding calendar 
                                year.
                                  (II) Additional adjustment.--
                                Except as provided in subclause 
                                (III), in the case of any 
                                calendar year after 2018, the 
                                percentages described in 
                                subclause (I) shall, in 
                                addition to the adjustment 
                                under subclause (I), be 
                                adjusted to reflect the excess 
                                (if any) of the rate of premium 
                                growth estimated under 
                                subclause (I) for the preceding 
                                calendar year over the rate of 
                                growth in the consumer price 
                                index for the preceding 
                                calendar year.
                                  (III) Failsafe.--Subclause 
                                (II) shall apply for any 
                                calendar year only if the 
                                aggregate amount of premium tax 
                                credits under this section and 
                                cost-sharing reductions under 
                                section 1402 of the Patient 
                                Protection and Affordable Care 
                                Act for the preceding calendar 
                                year exceeds an amount equal to 
                                0.504 percent of the gross 
                                domestic product for the 
                                preceding calendar year.
                  (B) Applicable second lowest cost silver 
                plan.--The applicable second lowest cost silver 
                plan with respect to any applicable taxpayer is 
                the second lowest cost silver plan of the 
                individual market in the rating area in which 
                the taxpayer resides which--
                          (i) is offered through the same 
                        Exchange through which the qualified 
                        health plans taken into account under 
                        paragraph (2)(A) were offered, and
                          (ii) provides--
                                  (I) self-only coverage in the 
                                case of an applicable 
                                taxpayer--
                                          (aa) whose tax for 
                                        the taxable year is 
                                        determined under 
                                        section 1(c) (relating 
                                        to unmarried 
                                        individuals other than 
                                        surviving spouses and 
                                        heads of households) 
                                        and who is not allowed 
                                        a deduction under 
                                        section 151 for the 
                                        taxable year with 
                                        respect to a dependent, 
                                        or
                                          (bb) who is not 
                                        described in item (aa) 
                                        but who purchases only 
                                        self-only coverage, and
                                  (II) family coverage in the 
                                case of any other applicable 
                                taxpayer.
                If a taxpayer files a joint return and no 
                credit is allowed under this section with 
                respect to 1 of the spouses by reason of 
                subsection (e), the taxpayer shall be treated 
                as described in clause (ii)(I) [unless a 
                deduction is allowed under section 151 for the 
                taxable year with respect to a dependent] 
                unless the taxpayer has a dependent for the 
                taxable year (and the taxpayer included such 
                dependent's TIN on the return of tax for the 
                taxable year) other than either spouse and 
                subsection (e) does not apply to the dependent.
                  (C) Adjusted monthly premium.--The adjusted 
                monthly premium for an applicable second lowest 
                cost silver plan is the monthly premium which 
                would have been charged (for the rating area 
                with respect to which the premiums under 
                paragraph (2)(A) were determined) for the plan 
                if each individual covered under a qualified 
                health plan taken into account under paragraph 
                (2)(A) were covered by such silver plan and the 
                premium was adjusted only for the age of each 
                such individual in the manner allowed under 
                section 2701 of the Public Health Service Act. 
                In the case of a State participating in the 
                wellness discount demonstration project under 
                section 2705(d) of the Public Health Service 
                Act, the adjusted monthly premium shall be 
                determined without regard to any premium 
                discount or rebate under such project.
                  (D) Additional benefits.--If--
                          (i) a qualified health plan under 
                        section 1302(b)(5) of the Patient 
                        Protection and Affordable Care Act 
                        offers benefits in addition to the 
                        essential health benefits required to 
                        be provided by the plan, or
                          (ii) a State requires a qualified 
                        health plan under section 1311(d)(3)(B) 
                        of such Act to cover benefits in 
                        addition to the essential health 
                        benefits required to be provided by the 
                        plan,
                the portion of the premium for the plan 
                properly allocable (under rules prescribed by 
                the Secretary of Health and Human Services) to 
                such additional benefits shall not be taken 
                into account in determining either the monthly 
                premium or the adjusted monthly premium under 
                paragraph (2).
                  (E) Special rule for pediatric dental 
                coverage.--For purposes of determining the 
                amount of any monthly premium, if an individual 
                enrolls in both a qualified health plan and a 
                plan described in section 1311(d)(2)(B)(ii) (I) 
                of the Patient Protection and Affordable Care 
                Act for any plan year, the portion of the 
                premium for the plan described in such section 
                that (under regulations prescribed by the 
                Secretary) is properly allocable to pediatric 
                dental benefits which are included in the 
                essential health benefits required to be 
                provided by a qualified health plan under 
                section 1302(b)(1)(J) of such Act shall be 
                treated as a premium payable for a qualified 
                health plan.
  (c) Definition and rules relating to applicable taxpayers, 
coverage months, and qualified health plan.--For purposes of 
this section--
          (1) Applicable taxpayer.--
                  (A) In general.--The term ``applicable 
                taxpayer'' means, with respect to any taxable 
                year, a taxpayer whose household income for the 
                taxable year equals or exceeds 100 percent but 
                does not exceed 400 percent of an amount equal 
                to the poverty line for a family of the size 
                involved.
                  (B) Special rule for certain individuals 
                lawfully present in the United States.--If--
                          (i) a taxpayer has a household income 
                        which is not greater than 100 percent 
                        of an amount equal to the poverty line 
                        for a family of the size involved, and
                          (ii) the taxpayer is an alien 
                        lawfully present in the United States, 
                        but is not eligible for the medicaid 
                        program under title XIX of the Social 
                        Security Act by reason of such alien 
                        status,
                the taxpayer shall, for purposes of the credit 
                under this section, be treated as an applicable 
                taxpayer with a household income which is equal 
                to 100 percent of the poverty line for a family 
                of the size involved.
                  (C) Married couples must file joint return.--
                If the taxpayer is married (within the meaning 
                of section 7703) at the close of the taxable 
                year, the taxpayer shall be treated as an 
                applicable taxpayer only if the taxpayer and 
                the taxpayer's spouse file a joint return for 
                the taxable year.
                  (D) Denial of credit to dependents.--No 
                credit shall be allowed under this section to 
                any individual [with respect to whom a 
                deduction under section 151 is allowable to 
                another taxpayer] who is a dependent of another 
                taxpayer for a taxable year beginning in the 
                calendar year in which such individual's 
                taxable year begins.
          (2) Coverage month.--For purposes of this 
        subsection--
                  (A) In general.--The term ``coverage month'' 
                means, with respect to an applicable taxpayer, 
                any month if--
                          (i) as of the first day of such month 
                        the taxpayer, the taxpayer's spouse, or 
                        any dependent of the taxpayer is 
                        covered by a qualified health plan 
                        described in subsection (b)(2)(A) that 
                        was enrolled in through an Exchange 
                        established by the State under section 
                        1311 of the Patient Protection and 
                        Affordable Care Act, and
                          (ii) the premium for coverage under 
                        such plan for such month is paid by the 
                        taxpayer (or through advance payment of 
                        the credit under subsection (a) under 
                        section 1412 of the Patient Protection 
                        and Affordable Care Act).
                  (B) Exception for minimum essential 
                coverage.--
                          (i) In general.--The term ``coverage 
                        month'' shall not include any month 
                        with respect to an individual if for 
                        such month the individual is eligible 
                        for minimum essential coverage other 
                        than eligibility for coverage described 
                        in section 5000A(f)(1)(C) (relating to 
                        coverage in the individual market).
                          (ii) Minimum essential coverage.--The 
                        term ``minimum essential coverage'' has 
                        the meaning given such term by section 
                        5000A(f).
                  (C) Special rule for employer-sponsored 
                minimum essential coverage.--For purposes of 
                subparagraph (B)--
                          (i) Coverage must be affordable.--
                        Except as provided in clause (iii), an 
                        employee shall not be treated as 
                        eligible for minimum essential coverage 
                        if such coverage--
                                  (I) consists of an eligible 
                                employer-sponsored plan (as 
                                defined in section 
                                5000A(f)(2)), and
                                  (II) the employee's required 
                                contribution (within the 
                                meaning of section 
                                5000A(e)(1)(B)) with respect to 
                                the plan exceeds 9.5 percent of 
                                the applicable taxpayer's 
                                household income.
                        This clause shall also apply to an 
                        individual who is eligible to enroll in 
                        the plan by reason of a relationship 
                        the individual bears to the employee.
                          (ii) Coverage must provide minimum 
                        value.--Except as provided in clause 
                        (iii), an employee shall not be treated 
                        as eligible for minimum essential 
                        coverage if such coverage consists of 
                        an eligible employer-sponsored plan (as 
                        defined in section 5000A(f)(2)) and the 
                        plan's share of the total allowed costs 
                        of benefits provided under the plan is 
                        less than 60 percent of such costs.
                          (iii) Employee or family must not be 
                        covered under employer plan.--Clauses 
                        (i) and (ii) shall not apply if the 
                        employee (or any individual described 
                        in the last sentence of clause (i)) is 
                        covered under the eligible employer-
                        sponsored plan or the grandfathered 
                        health plan.
                          (iv) Indexing.--In the case of plan 
                        years beginning in any calendar year 
                        after 2014, the Secretary shall adjust 
                        the 9.5 percent under clause (i)(II) in 
                        the same manner as the percentages are 
                        adjusted under subsection 
                        (b)(3)(A)(ii).
          (3) Definitions and other rules.--
                  (A) Qualified health plan.--The term 
                ``qualified health plan'' has the meaning given 
                such term by section 1301(a) of the Patient 
                Protection and Affordable Care Act, except that 
                such term shall not include a qualified health 
                plan which is a catastrophic plan described in 
                section 1302(e) of such Act.
                  (B) Grandfathered health plan.--The term 
                ``grandfathered health plan'' has the meaning 
                given such term by section 1251 of the Patient 
                Protection and Affordable Care Act.
          (4) Special rules for qualified small employer health 
        reimbursement arrangements.--
                  (A) In general.--The term ``coverage month'' 
                shall not include any month with respect to an 
                employee (or any spouse or dependent of such 
                employee) if for such month the employee is 
                provided a qualified small employer health 
                reimbursement arrangement which constitutes 
                affordable coverage.
                  (B) Denial of double benefit.--In the case of 
                any employee who is provided a qualified small 
                employer health reimbursement arrangement for 
                any coverage month (determined without regard 
                to subparagraph (A)), the credit otherwise 
                allowable under subsection (a) to the taxpayer 
                for such month shall be reduced (but not below 
                zero) by the amount described in subparagraph 
                (C)(i)(II) for such month.
                  (C) Affordable coverage.--For purposes of 
                subparagraph (A), a qualified small employer 
                health reimbursement arrangement shall be 
                treated as constituting affordable coverage for 
                a month if--
                          (i) the excess of--
                                  (I) the amount that would be 
                                paid by the employee as the 
                                premium for such month for 
                                self-only coverage under the 
                                second lowest cost silver plan 
                                offered in the relevant 
                                individual health insurance 
                                market, over
                                  (II) \1/12\ of the employee's 
                                permitted benefit (as defined 
                                in section 9831(d)(3)(C)) under 
                                such arrangement, does not 
                                exceed--
                          (ii) \1/12\ of 9.5 percent of the 
                        employee's household income.
                  (D) Qualified small employer health 
                reimbursement arrangement.--For purposes of 
                this paragraph, the term ``qualified small 
                employer health reimbursement arrangement'' has 
                the meaning given such term by section 
                9831(d)(2).
                  (E) Coverage for less than entire year.--In 
                the case of an employee who is provided a 
                qualified small employer health reimbursement 
                arrangement for less than an entire year, 
                subparagraph (C)(i)(II) shall be applied by 
                substituting "the number of months during the 
                year for which such arrangement was provided" 
                for "12'.
                  (F) Indexing.--In the case of plan years 
                beginning in any calendar year after 2014, the 
                Secretary shall adjust the 9.5 percent amount 
                under subparagraph (C)(ii) in the same manner 
                as the percentages are adjusted under 
                subsection (b)(3)(A)(ii).
  (d) Terms relating to income and families.--For purposes of 
this section--
          (1) Family size.--The family size involved with 
        respect to any taxpayer shall be [equal to the number 
        of individuals for whom the taxpayer is allowed a 
        deduction under section 151 (relating to allowance of 
        deduction for personal exemptions) for the taxable 
        year] the sum of 1 (2 in the case of a joint return) 
        plus the number of individuals who are dependents of 
        the taxpayer for the taxable year.
          (2) Household income.--
                  (A) Household income.--The term ``household 
                income'' means, with respect to any taxpayer, 
                an amount equal to the sum of--
                          (i) the modified adjusted gross 
                        income of the taxpayer, plus
                          (ii) the aggregate modified adjusted 
                        gross incomes of all other individuals 
                        who--
                                  (I) were taken into account 
                                in determining the taxpayer's 
                                family size under paragraph 
                                (1), and
                                  (II) were required to file a 
                                return of tax imposed by 
                                section 1 for the taxable year.
                  (B) Modified adjusted gross income.--The term 
                ``modified adjusted gross income'' means 
                adjusted gross income increased by--
                          (i) any amount excluded from gross 
                        income under section 911,
                          (ii) any amount of interest received 
                        or accrued by the taxpayer during the 
                        taxable year which is exempt from tax, 
                        and
                          (iii) an amount equal to the portion 
                        of the taxpayer's social security 
                        benefits (as defined in section 86(d)) 
                        which is not included in gross income 
                        under section 86 for the taxable year.
          (3) Poverty line.--
                  (A) In general.--The term ``poverty line'' 
                has the meaning given that term in section 
                2110(c)(5) of the Social Security Act (42 
                U.S.C. 1397jj(c)(5)).
                  (B) Poverty line used.--In the case of any 
                qualified health plan offered through an 
                Exchange for coverage during a taxable year 
                beginning in a calendar year, the poverty line 
                used shall be the most recently published 
                poverty line as of the 1st day of the regular 
                enrollment period for coverage during such 
                calendar year.
  (e) Rules for individuals not lawfully present.--
          (1) In general.--If [1 or more individuals for whom a 
        taxpayer is allowed a deduction under section 151 
        (relating to allowance of deduction for personal 
        exemptions) for the taxable year (including the 
        taxpayer or his spouse)] 1 or more of the taxpayer, the 
        taxpayer's spouse, or any dependent of the taxpayer are 
        individuals who are not lawfully present--
                  (A) the aggregate amount of premiums 
                otherwise taken into account under clauses (i) 
                and (ii) of subsection (b)(2)(A) shall be 
                reduced by the portion (if any) of such 
                premiums which is attributable to such 
                individuals, and
                  (B) for purposes of applying this section, 
                the determination as to what percentage a 
                taxpayer's household income bears to the 
                poverty level for a family of the size involved 
                shall be made under one of the following 
                methods:
                          (i) A method under which--
                                  (I) the taxpayer's family 
                                size is determined by not 
                                taking such individuals into 
                                account, and
                                  (II) the taxpayer's household 
                                income is equal to the product 
                                of the taxpayer's household 
                                income (determined without 
                                regard to this subsection) and 
                                a fraction--
                                          (aa) the numerator of 
                                        which is the poverty 
                                        line for the taxpayer's 
                                        family size determined 
                                        after application of 
                                        subclause (I), and
                                          (bb) the denominator 
                                        of which is the poverty 
                                        line for the taxpayer's 
                                        family size determined 
                                        without regard to 
                                        subclause (I).
                          (ii) A comparable method reaching the 
                        same result as the method under clause 
                        (i).
          (2) Lawfully present.--For purposes of this section, 
        an individual shall be treated as lawfully present only 
        if the individual is, and is reasonably expected to be 
        for the entire period of enrollment for which the 
        credit under this section is being claimed, a citizen 
        or national of the United States or an alien lawfully 
        present in the United States.
          (3) Secretarial authority.--The Secretary of Health 
        and Human Services, in consultation with the Secretary, 
        shall prescribe rules setting forth the methods by 
        which calculations of family size and household income 
        are made for purposes of this subsection. Such rules 
        shall be designed to ensure that the least burden is 
        placed on individuals enrolling in qualified health 
        plans through an Exchange and taxpayers eligible for 
        the credit allowable under this section.
  (f) Reconciliation of credit and advance credit.--
          (1) In general.--The amount of the credit allowed 
        under this section for any taxable year shall be 
        reduced (but not below zero) by the amount of any 
        advance payment of such credit under section 1412 of 
        the Patient Protection and Affordable Care Act.
          (2) Excess advance payments.--
                  (A) In general.--If the advance payments to a 
                taxpayer under section 1412 of the Patient 
                Protection and Affordable Care Act for a 
                taxable year exceed the credit allowed by this 
                section (determined without regard to paragraph 
                (1)), the tax imposed by this chapter for the 
                taxable year shall be increased by the amount 
                of such excess.
                  (B) Limitation on increase.--
                          (i) In general.--In the case of a 
                        taxpayer whose household income is less 
                        than 400 percent of the poverty line 
                        for the size of the family involved for 
                        the taxable year, the amount of the 
                        increase under subparagraph (A) shall 
                        in no event exceed the applicable 
                        dollar amount determined in accordance 
                        with the following table (one-half of 
                        such amount in the case of a taxpayer 
                        whose tax is determined under section 
                        1(c) for the taxable year):


 
------------------------------------------------------------------------
 If the household income (expressed
 as a percent of poverty line) is:     The applicable dollar amount is:
------------------------------------------------------------------------
Less than 200%                       $600
At least 200% but less than 300%     $1,500
At least 300% but less than 400%     $2,500
------------------------------------------------------------------------

                          (ii) Indexing of amount.--In the case 
                        of any calendar year beginning after 
                        2014, each of the dollar amounts in the 
                        table contained under clause (i) 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, determined by 
                                substituting ``calendar year 
                                2013'' for ``calendar year 
                                2016'' in subparagraph (A)(ii) 
                                thereof.
                        If the amount of any increase under 
                        clause (i) is not a multiple of $50, 
                        such increase shall be rounded to the 
                        next lowest multiple of $50.
          (3) Information requirement.--Each Exchange (or any 
        person carrying out 1 or more responsibilities of an 
        Exchange under section 1311(f)(3) or 1321(c) of the 
        Patient Protection and Affordable Care Act) shall 
        provide the following information to the Secretary and 
        to the taxpayer with respect to any health plan 
        provided through the Exchange:
                  (A) The level of coverage described in 
                section 1302(d) of the Patient Protection and 
                Affordable Care Act and the period such 
                coverage was in effect.
                  (B) The total premium for the coverage 
                without regard to the credit under this section 
                or cost-sharing reductions under section 1402 
                of such Act.
                  (C) The aggregate amount of any advance 
                payment of such credit or reductions under 
                section 1412 of such Act.
                  (D) The name, address, and TIN of the primary 
                insured and the name and TIN of each other 
                individual obtaining coverage under the policy.
                  (E) Any information provided to the Exchange, 
                including any change of circumstances, 
                necessary to determine eligibility for, and the 
                amount of, such credit.
                  (F) Information necessary to determine 
                whether a taxpayer has received excess advance 
                payments.
  (g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this section, including regulations which provide for--
          (1) the coordination of the credit allowed under this 
        section with the program for advance payment of the 
        credit under section 1412 of the Patient Protection and 
        Affordable Care Act, and
          (2) the application of subsection (f) where the 
        filing status of the taxpayer for a taxable year is 
        different from such status used for determining the 
        advance payment of the credit.

           *       *       *       *       *       *       *


Subpart D--Business Related Credits

           *       *       *       *       *       *       *


SEC. 42. LOW-INCOME HOUSING CREDIT.

  (a) In general.--For purposes of section 38, the amount of 
the low-income housing credit determined under this section for 
any taxable year in the credit period shall be an amount equal 
to--
          (1) the applicable percentage of
          (2) the qualified basis of each qualified low-income 
        building.
  (b) Applicable percentage: 70 percent present value credit 
for certain new buildings; 30 percent present value credit for 
certain other buildings.--
          (1) Determination of applicable percentage.--For 
        purposes of this section--
                  (A) In general.--The term ``applicable 
                percentage'' means, with respect to any 
                building, the appropriate percentage prescribed 
                by the Secretary for the earlier of--
                          (i) the month in which such building 
                        is placed in service, or
                          (ii) at the election of the 
                        taxpayer--
                                  (I) the month in which the 
                                taxpayer and the housing credit 
                                agency enter into an agreement 
                                with respect to such building 
                                (which is binding on such 
                                agency, the taxpayer, and all 
                                successors in interest) as to 
                                the housing credit dollar 
                                amount to be allocated to such 
                                building, or
                                  (II) in the case of any 
                                building to which subsection 
                                (h)(4)(B) applies, the month in 
                                which the tax-exempt 
                                obligations are issued.
                A month may be elected under clause (ii) only 
                if the election is made not later than the 5th 
                day after the close of such month. Such an 
                election, once made, shall be irrevocable.
                  (B) Method of prescribing percentages.--The 
                percentages prescribed by the Secretary for any 
                month shall be percentages which will yield 
                over a 10-year period amounts of credit under 
                subsection (a) which have a present value equal 
                to--
                          (i) 70 percent of the qualified basis 
                        of a new building which is not 
                        federally subsidized for the taxable 
                        year, and
                          (ii) 30 percent of the qualified 
                        basis of a building not described in 
                        clause (i).
                  (C) Method of discounting.--The present value 
                under subparagraph (B) shall be determined--
                          (i) as of the last day of the 1st 
                        year of the 10-year period referred to 
                        in subparagraph (B),
                          (ii) by using a discount rate equal 
                        to 72 percent of the average of the 
                        annual Federal mid-term rate and the 
                        annual Federal long-term rate 
                        applicable under section 1274(d)(1) to 
                        the month applicable under clause (i) 
                        or (ii) of subparagraph (A) and 
                        compounded annually, and
                          (iii) by assuming that the credit 
                        allowable under this section for any 
                        year is received on the last day of 
                        such year.
          (2) Minimum credit rate for non-federally subsidized 
        new buildings.--In the case of any new building--
                  (A) which is placed in service by the 
                taxpayer after the date of the enactment of 
                this paragraph, and
                  (B) which is not federally subsidized for the 
                taxable year,
        the applicable percentage shall not be less than 9 
        percent.
          (3) Cross references.--
                  (A) For treatment of certain rehabilitation 
                expenditures as separate new buildings, see 
                subsection (e).
                  (B) For determination of applicable 
                percentage for increases in qualified basis 
                after the 1st year of the credit period, see 
                subsection (f)(3).
                  (C) For authority of housing credit agency to 
                limit applicable percentage and qualified basis 
                which may be taken into account under this 
                section with respect to any building, see 
                subsection (h)(7).
  (c) Qualified basis; qualified low-income building.--For 
purposes of this section--
          (1) Qualified basis.--
                  (A) Determination.--The qualified basis of 
                any qualified low-income building for any 
                taxable year is an amount equal to--
                          (i) the applicable fraction 
                        (determined as of the close of such 
                        taxable year) of
                          (ii) the eligible basis of such 
                        building (determined under subsection 
                        (d)(5)).
                  (B) Applicable fraction.--For purposes of 
                subparagraph (A), the term ``applicable 
                fraction'' means the smaller of the unit 
                fraction or the floor space fraction.
                  (C) Unit fraction.--For purposes of 
                subparagraph (B), the term ``unit fraction'' 
                means the fraction--
                          (i) the numerator of which is the 
                        number of low-income units in the 
                        building, and
                          (ii) the denominator of which is the 
                        number of residential rental units 
                        (whether or not occupied) in such 
                        building.
                  (D) Floor space fraction.--For purposes of 
                subparagraph (B), the term ``floor space 
                fraction'' means the fraction--
                          (i) the numerator of which is the 
                        total floor space of the low-income 
                        units in such building, and
                          (ii) the denominator of which is the 
                        total floor space of the residential 
                        rental units (whether or not occupied) 
                        in such building.
                  (E) Qualified basis to include portion of 
                building used to provide supportive services 
                for homeless.--In the case of a qualified low-
                income building described in subsection 
                (i)(3)(B)(iii), the qualified basis of such 
                building for any taxable year shall be 
                increased by the lesser of--
                          (i) so much of the eligible basis of 
                        such building as is used throughout the 
                        year to provide supportive services 
                        designed to assist tenants in locating 
                        and retaining permanent housing, or
                          (ii) 20 percent of the qualified 
                        basis of such building (determined 
                        without regard to this subparagraph).
          (2) Qualified low-income building.--The term 
        ``qualified low-income building'' means any building--
                  (A) which is part of a qualified low-income 
                housing project at all times during the 
                period--
                          (i) beginning on the 1st day in the 
                        compliance period on which such 
                        building is part of such a project, and
                          (ii) ending on the last day of the 
                        compliance period with respect to such 
                        building, and
                  (B) to which the amendments made by section 
                201(a) of the Tax Reform Act of 1986 apply.
  (d) Eligible basis.--For purposes of this section--
          (1) New buildings.--The eligible basis of a new 
        building is its adjusted basis as of the close of the 
        1st taxable year of the credit period.
          (2) Existing buildings.--
                  (A) In general.--The eligible basis of an 
                existing building is--
                          (i) in the case of a building which 
                        meets the requirements of subparagraph 
                        (B), its adjusted basis as of the close 
                        of the 1st taxable year of the credit 
                        period, and
                          (ii) zero in any other case.
                  (B) Requirements.--A building meets the 
                requirements of this subparagraph if--
                          (i) the building is acquired by 
                        purchase (as defined in section 
                        179(d)(2)),
                          (ii) there is a period of at least 10 
                        years between the date of its 
                        acquisition by the taxpayer and the 
                        date the building was last placed in 
                        service,
                          (iii) the building was not previously 
                        placed in service by the taxpayer or by 
                        any person who was a related person 
                        with respect to the taxpayer as of the 
                        time previously placed in service, and
                          (iv) except as provided in subsection 
                        (f)(5), a credit is allowable under 
                        subsection (a) by reason of subsection 
                        (e) with respect to the building.
                  (C) Adjusted basis.--For purposes of 
                subparagraph (A), the adjusted basis of any 
                building shall not include so much of the basis 
                of such building as is determined by reference 
                to the basis of other property held at any time 
                by the person acquiring the building.
                  (D) Special rules for subparagraph (B)
                          (i) Special rules for certain 
                        transfers.--For purposes of determining 
                        under subparagraph (B)(ii) when a 
                        building was last placed in service, 
                        there shall not be taken into account 
                        any placement in service--
                                  (I) in connection with the 
                                acquisition of the building in 
                                a transaction in which the 
                                basis of the building in the 
                                hands of the person acquiring 
                                it is determined in whole or in 
                                part by reference to the 
                                adjusted basis of such building 
                                in the hands of the person from 
                                whom acquired,
                                  (II) by a person whose basis 
                                in such building is determined 
                                under section 1014(a) (relating 
                                to property acquired from a 
                                decedent),
                                  (III) by any governmental 
                                unit or qualified nonprofit 
                                organization (as defined in 
                                subsection (h)(5)) if the 
                                requirements of subparagraph 
                                (B)(ii) are met with respect to 
                                the placement in service by 
                                such unit or organization and 
                                all the income from such 
                                property is exempt from Federal 
                                income taxation,
                                  (IV) by any person who 
                                acquired such building by 
                                foreclosure (or by instrument 
                                in lieu of foreclosure) of any 
                                purchase-money security 
                                interest held by such person if 
                                the requirements of 
                                subparagraph (B)(ii) are met 
                                with respect to the placement 
                                in service by such person and 
                                such building is resold within 
                                12 months after the date such 
                                building is placed in service 
                                by such person after such 
                                foreclosure, or
                                  (V) of a single-family 
                                residence by any individual who 
                                owned and used such residence 
                                for no other purpose than as 
                                his principal residence.
                          (ii) Related person.--For purposes of 
                        subparagraph (B)(iii), a person 
                        (hereinafter in this subclause referred 
                        to as the ``related person'') is 
                        related to any person if the related 
                        person bears a relationship to such 
                        person specified in section 267(b) or 
                        707(b)(1), or the related person and 
                        such person are engaged in trades or 
                        businesses under common control (within 
                        the meaning of subsections (a) and (b) 
                        of section 52).
          (3) Eligible basis reduced where disproportionate 
        standards for units.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the eligible basis of any 
                building shall be reduced by an amount equal to 
                the portion of the adjusted basis of the 
                building which is attributable to residential 
                rental units in the building which are not low-
                income units and which are above the average 
                quality standard of the low-income units in the 
                building.
                  (B) Exception where taxpayer elects to 
                exclude excess costs.--
                          (i) In general.--Subparagraph (A) 
                        shall not apply with respect to a 
                        residential rental unit in a building 
                        which is not a low-income unit if--
                                  (I) the excess described in 
                                clause (ii) with respect to 
                                such unit is not greater than 
                                15 percent of the cost 
                                described in clause (ii)(II), 
                                and
                                  (II) the taxpayer elects to 
                                exclude from the eligible basis 
                                of such building the excess 
                                described in clause (ii) with 
                                respect to such unit.
                          (ii) Excess.--The excess described in 
                        this clause with respect to any unit is 
                        the excess of--
                                  (I) the cost of such unit, 
                                over
                                  (II) the amount which would 
                                be the cost of such unit if the 
                                average cost per square foot of 
                                low-income units in the 
                                building were substituted for 
                                the cost per square foot of 
                                such unit.
                        The Secretary may by regulation provide 
                        for the determination of the excess 
                        under this clause on a basis other than 
                        square foot costs.
          (4) Special rules relating to determination of 
        adjusted basis.--For purposes of this subsection--
                  (A) In general.--Except as provided in 
                subparagraphs (B) and (C), the adjusted basis 
                of any building shall be determined without 
                regard to the adjusted basis of any property 
                which is not residential rental property.
                  (B) Basis of property in common areas, etc., 
                included.--The adjusted basis of any building 
                shall be determined by taking into account the 
                adjusted basis of property (of a character 
                subject to the allowance for depreciation) used 
                in common areas or provided as comparable 
                amenities to all residential rental units in 
                such building.
                  (C) Inclusion of basis of property used to 
                provide services for certain nontenants.--
                          (i) In general.--The adjusted basis 
                        of any building located in a qualified 
                        census tract (as defined in paragraph 
                        (5)(B)(ii)) shall be determined by 
                        taking into account the adjusted basis 
                        of property (of a character subject to 
                        the allowance for depreciation and not 
                        otherwise taken into account) used 
                        throughout the taxable year in 
                        providing any community service 
                        facility.
                          (ii) Limitation.--The increase in the 
                        adjusted basis of any building which is 
                        taken into account by reason of clause 
                        (i) shall not exceed the sum of--
                                  (I) 25 percent of so much of 
                                the eligible basis of the 
                                qualified low-income housing 
                                project of which it is a part 
                                as does not exceed $15,000,000, 
                                plus
                                  (II) 10 percent of so much of 
                                the eligible basis of such 
                                project as is not taken into 
                                account under subclause (I).
                        For purposes of the preceding sentence, 
                        all community service facilities which 
                        are part of the same qualified low-
                        income housing project shall be treated 
                        as one facility.
                          (iii) Community service facility.--
                        For purposes of this subparagraph, the 
                        term ``community service facility'' 
                        means any facility designed to serve 
                        primarily individuals whose income is 
                        60 percent or less of area median 
                        income (within the meaning of 
                        subsection (g)(1)(B)).
                  (D) No reduction for depreciation.--The 
                adjusted basis of any building shall be 
                determined without regard to paragraphs (2) and 
                (3) of section 1016(a).
          (5) Special rules for determining eligible basis.--
                  (A) Federal grants not taken into account in 
                determining eligible basis.--The eligible basis 
                of a building shall not include any costs 
                financed with the proceeds of a federally 
                funded grant.
                  (B) Increase in credit for buildings in high 
                cost areas.--
                          (i) In general.--In the case of any 
                        building located in a qualified census 
                        tract or difficult development area 
                        which is designated for purposes of 
                        this subparagraph--
                                  (I) in the case of a new 
                                building, the eligible basis of 
                                such building shall be 130 
                                percent of such basis 
                                determined without regard to 
                                this subparagraph, and
                                  (II) in the case of an 
                                existing building, the 
                                rehabilitation expenditures 
                                taken into account under 
                                subsection (e) shall be 130 
                                percent of such expenditures 
                                determined without regard to 
                                this subparagraph.
                          (ii) Qualified census tract.--
                                  (I) In general.--The term 
                                ``qualified census tract'' 
                                means any census tract which is 
                                designated by the Secretary of 
                                Housing and Urban Development 
                                and, for the most recent year 
                                for which census data are 
                                available on household income 
                                in such tract, either in which 
                                50 percent or more of the 
                                households have an income which 
                                is less than 60 percent of the 
                                area median gross income for 
                                such year or which has a 
                                poverty rate of at least 25 
                                percent. If the Secretary of 
                                Housing and Urban Development 
                                determines that sufficient data 
                                for any period are not 
                                available to apply this clause 
                                on the basis of census tracts, 
                                such Secretary shall apply this 
                                clause for such period on the 
                                basis of enumeration districts.
                                  (II) Limit on MSA's 
                                designated.--The portion of a 
                                metropolitan statistical area 
                                which may be designated for 
                                purposes of this subparagraph 
                                shall not exceed an area having 
                                20 percent of the population of 
                                such metropolitan statistical 
                                area.
                                  (III) Determination of 
                                areas.--For purposes of this 
                                clause, each metropolitan 
                                statistical area shall be 
                                treated as a separate area and 
                                all nonmetropolitan areas in a 
                                State shall be treated as 1 
                                area.
                          (iii) Difficult development areas.--
                                  (I) In general.--The term 
                                ``difficult development areas'' 
                                means any area designated by 
                                the Secretary of Housing and 
                                Urban Development as an area 
                                which has high construction, 
                                land, and utility costs 
                                relative to area median gross 
                                income.
                                  (II) Limit on areas 
                                designated.--The portions of 
                                metropolitan statistical areas 
                                which may be designated for 
                                purposes of this subparagraph 
                                shall not exceed an aggregate 
                                area having 20 percent of the 
                                population of such metropolitan 
                                statistical areas. A comparable 
                                rule shall apply to 
                                nonmetropolitan areas.
                          (iv) Special rules and definitions.--
                        For purposes of this subparagraph--
                                  (I) population shall be 
                                determined on the basis of the 
                                most recent decennial census 
                                for which data are available,
                                  (II) area median gross income 
                                shall be determined in 
                                accordance with subsection 
                                (g)(4),
                                  (III) the term ``metropolitan 
                                statistical area'' has the same 
                                meaning as when used in section 
                                143(k)(2)(B), and
                                  (IV) the term 
                                ``nonmetropolitan area'' means 
                                any county (or portion thereof) 
                                which is not within a 
                                metropolitan statistical area.
                          (v) Buildings designated by State 
                        housing credit agency.--Any building 
                        which is designated by the State 
                        housing credit agency as requiring the 
                        increase in credit under this 
                        subparagraph in order for such building 
                        to be financially feasible as part of a 
                        qualified low-income housing project 
                        shall be treated for purposes of this 
                        subparagraph as located in a difficult 
                        development area which is designated 
                        for purposes of this subparagraph. The 
                        preceding sentence shall not apply to 
                        any building if paragraph (1) of 
                        subsection (h) does not apply to any 
                        portion of the eligible basis of such 
                        building by reason of paragraph (4) of 
                        such subsection.
          (6) Credit allowable for certain buildings acquired 
        during 10-year period described in paragraph (2)(B)(ii)
                  (A) In general.--Paragraph (2)(B)(ii) shall 
                not apply to any federally- or State-assisted 
                building.
                  (B) Buildings acquired from insured 
                depository institutions in default.--On 
                application by the taxpayer, the Secretary may 
                waive paragraph (2)(B)(ii) with respect to any 
                building acquired from an insured depository 
                institution in default (as defined in section 3 
                of the Federal Deposit Insurance Act) or from a 
                receiver or conservator of such an institution.
                  (C) Federally- or State-assisted building.--
                For purposes of this paragraph--
                          (i) Federally-assisted building.--The 
                        term ``federally-assisted building'' 
                        means any building which is 
                        substantially assisted, financed, or 
                        operated under section 8 of the United 
                        States Housing Act of 1937, section 
                        221(d)(3), 221(d)(4), or 236 of the 
                        National Housing Act, section 515 of 
                        the Housing Act of 1949, or any other 
                        housing program administered by the 
                        Department of Housing and Urban 
                        Development or by the Rural Housing 
                        Service of the Department of 
                        Agriculture.
                          (ii) State-assisted building.--The 
                        term ``State- assisted building'' means 
                        any building which is substantially 
                        assisted, financed, or operated under 
                        any State law similar in purposes to 
                        any of the laws referred to in clause 
                        (i).
          (7) Acquisition of building before end of prior 
        compliance period.--
                  (A) In general.--Under regulations prescribed 
                by the Secretary, in the case of a building 
                described in subparagraph (B) (or interest 
                therein) which is acquired by the taxpayer--
                          (i) paragraph (2)(B) shall not apply, 
                        but
                          (ii) the credit allowable by reason 
                        of subsection (a) to the taxpayer for 
                        any period after such acquisition shall 
                        be equal to the amount of credit which 
                        would have been allowable under 
                        subsection (a) for such period to the 
                        prior owner referred to in subparagraph 
                        (B) had such owner not disposed of the 
                        building.
                  (B) Description of building.--A building is 
                described in this subparagraph if--
                          (i) a credit was allowed by reason of 
                        subsection (a) to any prior owner of 
                        such building, and
                          (ii) the taxpayer acquired such 
                        building before the end of the 
                        compliance period for such building 
                        with respect to such prior owner 
                        (determined without regard to any 
                        disposition by such prior owner).
  (e) Rehabilitation expenditures treated as separate new 
building.--
          (1) In general.--Rehabilitation expenditures paid or 
        incurred by the taxpayer with respect to any building 
        shall be treated for purposes of this section as a 
        separate new building.
          (2) Rehabilitation expenditures.--For purposes of 
        paragraph (1)--
                  (A) In general.--The term ``rehabilitation 
                expenditures'' means amounts chargeable to 
                capital account and incurred for property (or 
                additions or improvements to property) of a 
                character subject to the allowance for 
                depreciation in connection with the 
                rehabilitation of a building.
                  (B) Cost of acquisition, etc., not 
                included.--Such term does not include the cost 
                of acquiring any building (or interest therein) 
                or any amount not permitted to be taken into 
                account under paragraph (3) or (4) of 
                subsection (d).
          (3) Minimum expenditures to qualify.--
                  (A) In general.--Paragraph (1) shall apply to 
                rehabilitation expenditures with respect to any 
                building only if--
                          (i) the expenditures are allocable to 
                        1 or more low-income units or 
                        substantially benefit such units, and
                          (ii) the amount of such expenditures 
                        during any 24-month period meets the 
                        requirements of whichever of the 
                        following subclauses requires the 
                        greater amount of such expenditures:
                                  (I) The requirement of this 
                                subclause is met if such amount 
                                is not less than 20 percent of 
                                the adjusted basis of the 
                                building (determined as of the 
                                1st day of such period and 
                                without regard to paragraphs 
                                (2) and (3) of section 
                                1016(a)).
                                  (II) The requirement of this 
                                subclause is met if the 
                                qualified basis attributable to 
                                such amount, when divided by 
                                the number of low-income units 
                                in the building, is $6,000 or 
                                more.
                  (B) Exception from 10 percent 
                rehabilitation.--In the case of a building 
                acquired by the taxpayer from a governmental 
                unit, at the election of the taxpayer, 
                subparagraph (A)(ii)(I) shall not apply and the 
                credit under this section for such 
                rehabilitation expenditures shall be determined 
                using the percentage applicable under 
                subsection (b)(2)(B)(ii).
                  (C) Date of determination.--The determination 
                under subparagraph (A) shall be made as of the 
                close of the 1st taxable year in the credit 
                period with respect to such expenditures.
                  (D) Inflation adjustment.--In the case of any 
                expenditures which are treated under paragraph 
                (4) as placed in service during any calendar 
                year after 2009, the $6,000 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 
                        such calendar year by substituting 
                        ``calendar year 2008'' for ``calendar 
                        year 2016'' in subparagraph (A)(ii) 
                        thereof.
                Any increase under the preceding sentence which 
                is not a multiple of $100 shall be rounded to 
                the nearest multiple of $100.
          (4) Special rules.--For purposes of applying this 
        section with respect to expenditures which are treated 
        as a separate building by reason of this subsection--
                  (A) such expenditures shall be treated as 
                placed in service at the close of the 24-month 
                period referred to in paragraph (3)(A), and
                  (B) the applicable fraction under subsection 
                (c)(1) shall be the applicable fraction for the 
                building (without regard to paragraph (1)) with 
                respect to which the expenditures were 
                incurred.
        Nothing in subsection (d)(2) shall prevent a credit 
        from being allowed by reason of this subsection.
          (5) No double counting.--Rehabilitation expenditures 
        may, at the election of the taxpayer, be taken into 
        account under this subsection or subsection 
        (d)(2)(A)(i) but not under both such subsections.
          (6) Regulations to apply subsection with respect to 
        group of units in building.--The Secretary may 
        prescribe regulations, consistent with the purposes of 
        this subsection, treating a group of units with respect 
        to which rehabilitation expenditures are incurred as a 
        separate new building.
  (f) Definition and special rules relating to credit period.--
          (1) Credit period defined.--For purposes of this 
        section, the term ``credit period'' means, with respect 
        to any building, the period of 10 taxable years 
        beginning with--
                  (A) the taxable year in which the building is 
                placed in service, or
                  (B) at the election of the taxpayer, the 
                succeeding taxable year,
        but only if the building is a qualified low-income 
        building as of the close of the 1st year of such 
        period. The election under subparagraph (B), once made, 
        shall be irrevocable.
          (2) Special rule for 1st year of credit period.--
                  (A) In general.--The credit allowable under 
                subsection (a) with respect to any building for 
                the 1st taxable year of the credit period shall 
                be determined by substituting for the 
                applicable fraction under subsection (c)(1) the 
                fraction--
                          (i) the numerator of which is the sum 
                        of the applicable fractions determined 
                        under subsection (c)(1) as of the close 
                        of each full month of such year during 
                        which such building was in service, and
                          (ii) the denominator of which is 12.
                  (B) Disallowed 1st year credit allowed in 
                11th year.--Any reduction by reason of 
                subparagraph (A) in the credit allowable 
                (without regard to subparagraph (A)) for the 
                1st taxable year of the credit period shall be 
                allowable under subsection (a) for the 1st 
                taxable year following the credit period.
          (3) Determination of applicable percentage with 
        respect to increases in qualified basis after 1st year 
        of credit period.--
                  (A) In general.--In the case of any building 
                which was a qualified low-income building as of 
                the close of the 1st year of the credit period, 
                if--
                          (i) as of the close of any taxable 
                        year in the compliance period (after 
                        the 1st year of the credit period) the 
                        qualified basis of such building 
                        exceeds
                          (ii) the qualified basis of such 
                        building as of the close of the 1st 
                        year of the credit period,
                the applicable percentage which shall apply 
                under subsection (a) for the taxable year to 
                such excess shall be the percentage equal to 2/
                3 of the applicable percentage which (after the 
                application of subsection (h)) would but for 
                this paragraph apply to such basis.
                  (B) 1st year computation applies.--A rule 
                similar to the rule of paragraph (2)(A) shall 
                apply to any increase in qualified basis to 
                which subparagraph (A) applies for the 1st year 
                of such increase.
          (4) Dispositions of property.--If a building (or an 
        interest therein) is disposed of during any year for 
        which credit is allowable under subsection (a), such 
        credit shall be allocated between the parties on the 
        basis of the number of days during such year the 
        building (or interest) was held by each. In any such 
        case, proper adjustments shall be made in the 
        application of subsection (j).
          (5) Credit period for existing buildings not to begin 
        before rehabilitation credit allowed.--
                  (A) In general.--The credit period for an 
                existing building shall not begin before the 
                1st taxable year of the credit period for 
                rehabilitation expenditures with respect to the 
                building.
                  (B) Acquisition credit allowed for certain 
                buildings not allowed a rehabilitation 
                credit.--
                          (i) In general.--In the case of a 
                        building described in clause (ii)--
                                  (I) subsection (d)(2)(B)(iv) 
                                shall not apply, and
                                  (II) the credit period for 
                                such building shall not begin 
                                before the taxable year which 
                                would be the 1st taxable year 
                                of the credit period for 
                                rehabilitation expenditures 
                                with respect to the building 
                                under the modifications 
                                described in clause (ii)(II).
                          (ii) Building described.--A building 
                        is described in this clause if--
                                  (I) a waiver is granted under 
                                subsection (d)(6)(B) with 
                                respect to the acquisition of 
                                the building, and
                                  (II) a credit would be 
                                allowed for rehabilitation 
                                expenditures with respect to 
                                such building if subsection 
                                (e)(3)(A)(ii)(I) did not apply 
                                and if the dollar amount in 
                                effect under subsection 
                                (e)(3)(A)(ii)(II) were two-
                                thirds of such amount.
  (g) Qualified low-income housing project.--For purposes of 
this section--
          (1) In general.--The term ``qualified low-income 
        housing project'' means any project for residential 
        rental property if the project meets the requirements 
        of subparagraph (A), (B), or (C) whichever is elected 
        by the taxpayer:
                  (A) 20-50 test.--The project meets the 
                requirements of this subparagraph if 20 percent 
                or more of the residential units in such 
                project are both rent-restricted and occupied 
                by individuals whose income is 50 percent or 
                less of area median gross income.
                  (B) 40-60 test.--The project meets the 
                requirements of this subparagraph if 40 percent 
                or more of the residential units in such 
                project are both rent-restricted and occupied 
                by individuals whose income is 60 percent or 
                less of area median gross income.
                  (C) Average income test.--
                          (i) In general.--The project meets 
                        the minimum requirements of this 
                        subparagraph if 40 percent or more (25 
                        percent or more in the case of a 
                        project described in section 142(d)(6)) 
                        of the residential units in such 
                        project are both rent-restricted and 
                        occupied by individuals whose income 
                        does not exceed the imputed income 
                        limitation designated by the taxpayer 
                        with respect to the respective unit.
                          (ii) Special rules relating to income 
                        limitation.--For purposes of clause 
                        (i)--
                                  (I) Designation.--The 
                                taxpayer shall designate the 
                                imputed income limitation of 
                                each unit taken into account 
                                under such clause.
                                  (II) Average test.--The 
                                average of the imputed income 
                                limitations designated under 
                                subclause (I) shall not exceed 
                                60 percent of area median gross 
                                income.
                                  (III) 10-percent 
                                increments.--The designated 
                                imputed income limitation of 
                                any unit under subclause (I) 
                                shall be 20 percent, 30 
                                percent, 40 percent, 50 
                                percent, 60 percent, 70 
                                percent, or 80 percent of area 
                                median gross income.
                Any election under this paragraph, once made, 
                shall be irrevocable. For purposes of this 
                paragraph, any property shall not be treated as 
                failing to be residential rental property 
                merely because part of the building in which 
                such property is located is used for purposes 
                other than residential rental purposes.
          (2) Rent-restricted units.--
                  (A) In general.--For purposes of paragraph 
                (1), a residential unit is rent-restricted if 
                the gross rent with respect to such unit does 
                not exceed 30 percent of the imputed income 
                limitation applicable to such unit. For 
                purposes of the preceding sentence, the amount 
                of the income limitation under paragraph (1) 
                applicable for any period shall not be less 
                than such limitation applicable for the 
                earliest period the building (which contains 
                the unit) was included in the determination of 
                whether the project is a qualified low-income 
                housing project.
                  (B) Gross rent.--For purposes of subparagraph 
                (A), gross rent--
                          (i) does not include any payment 
                        under section 8 of the United States 
                        Housing Act of 1937 or any comparable 
                        rental assistance program (with respect 
                        to such unit or occupants thereof),
                          (ii) includes any utility allowance 
                        determined by the Secretary after 
                        taking into account such determinations 
                        under section 8 of the United States 
                        Housing Act of 1937,
                          (iii) does not include any fee for a 
                        supportive service which is paid to the 
                        owner of the unit (on the basis of the 
                        low-income status of the tenant of the 
                        unit) by any governmental program of 
                        assistance (or by an organization 
                        described in section 501(c)(3) and 
                        exempt from tax under section 501(a)) 
                        if such program (or organization) 
                        provides assistance for rent and the 
                        amount of assistance provided for rent 
                        is not separable from the amount of 
                        assistance provided for supportive 
                        services, and
                          (iv) does not include any rental 
                        payment to the owner of the unit to the 
                        extent such owner pays an equivalent 
                        amount to the Farmers' Home 
                        Administration under section 515 of the 
                        Housing Act of 1949.
                For purposes of clause (iii), the term 
                ``supportive service'' means any service 
                provided under a planned program of services 
                designed to enable residents of a residential 
                rental property to remain independent and avoid 
                placement in a hospital, nursing home, or 
                intermediate care facility for the mentally or 
                physically handicapped. In the case of a 
                single-room occupancy unit or a building 
                described in subsection (i)(3)(B)(iii), such 
                term includes any service provided to assist 
                tenants in locating and retaining permanent 
                housing.
                  (C) Imputed income limitation applicable to 
                unit.--For purposes of this paragraph, the 
                imputed income limitation applicable to a unit 
                is the income limitation which would apply 
                under paragraph (1) to individuals occupying 
                the unit if the number of individuals occupying 
                the unit were as follows:
                          (i) In the case of a unit which does 
                        not have a separate bedroom, 1 
                        individual.
                          (ii) In the case of a unit which has 
                        1 or more separate bedrooms, 1.5 
                        individuals for each separate bedroom.
                In the case of a project with respect to which 
                a credit is allowable by reason of this section 
                and for which financing is provided by a bond 
                described in section 142(a)(7), the imputed 
                income limitation shall apply in lieu of the 
                otherwise applicable income limitation for 
                purposes of applying section 142(d)(4)(B)(ii).
                  (D) Treatment of units occupied by 
                individuals whose incomes rise above limit.--
                          (i) In general.--Except as provided 
                        in clauses (ii), (iii), and (iv), 
                        notwithstanding an increase in the 
                        income of the occupants of a low-income 
                        unit above the income limitation 
                        applicable under paragraph (1), such 
                        unit shall continue to be treated as a 
                        low-income unit if the income of such 
                        occupants initially met such income 
                        limitation and such unit continues to 
                        be rent-restricted.
                          (ii) Rental of next available unit in 
                        case of 20-50 or 40-60 test.--In the 
                        case of a project with respect to which 
                        the taxpayer elects the requirements of 
                        subparagraph (A) or (B) of paragraph 
                        (1), if the income of the occupants of 
                        the unit increases above 140 percent of 
                        the income limitation applicable under 
                        paragraph (1), clause (i) shall cease 
                        to apply to such unit if any 
                        residential rental unit in the building 
                        (of a size comparable to, or smaller 
                        than, such unit) is occupied by a new 
                        resident whose income exceeds such 
                        income limitation.
                          (iii) Rental of next available unit 
                        in case of average income test
                          In the case of a project with respect 
                        to which the taxpayer elects the 
                        requirements of subparagraph (C) of 
                        paragraph (1), if the income of the 
                        occupants of the unit increases above 
                        140 percent of the greater of--
                                  (I) 60 percent of area median 
                                gross income, or
                                  (II) the imputed income 
                                limitation designated with 
                                respect to the unit under 
                                paragraph (1)(C)(ii)(I),
                        clause (i) shall cease to apply to any 
                        such unit if any residential rental 
                        unit in the building (of a size 
                        comparable to, or smaller than, such 
                        unit) is occupied by a new resident 
                        whose income exceeds the limitation 
                        described in clause (v).
                          (iv) Deep rent skewed projects.--In 
                        the case of a project described in 
                        section 142(d)(4)(B), clause (ii) or 
                        (iii), whichever is applicable, shall 
                        be applied by substituting ``170 
                        percent'' for ``140 percent'', and--
                                  (I) in the case of clause 
                                (ii), by substituting ``any 
                                low-income unit in the building 
                                is occupied by a new resident 
                                whose income exceeds 40 percent 
                                of area median gross income'' 
                                for ``any residential rental 
                                unit'' and all that follows in 
                                such clause, and
                                  (II) in the case of clause 
                                (iii), by substituting ``any 
                                low-income unit in the building 
                                is occupied by a new resident 
                                whose income exceeds the lesser 
                                of 40 percent of area median 
                                gross income or the imputed 
                                income limitation designated 
                                with respect to such unit under 
                                paragraph (1)(C)(ii)(I)'' for 
                                ``any residential rental unit'' 
                                and all that follows in such 
                                clause.
                          (v) Limitation described.--For 
                        purposes of clause (iii), the 
                        limitation described in this clause 
                        with respect to any unit is--
                                  (I) the imputed income 
                                limitation designated with 
                                respect to such unit under 
                                paragraph (1)(C)(ii)(I), in the 
                                case of a unit which was taken 
                                into account as a low-income 
                                unit prior to becoming vacant, 
                                and
                                  (II) the imputed income 
                                limitation which would have to 
                                be designated with respect to 
                                such unit under such paragraph 
                                in order for the project to 
                                continue to meet the 
                                requirements of paragraph 
                                (1)(C)(ii)(II), in the case of 
                                any other unit.
                  (E) Units where Federal rental assistance is 
                reduced as tenant's income increases.--If the 
                gross rent with respect to a residential unit 
                exceeds the limitation under subparagraph (A) 
                by reason of the fact that the income of the 
                occupants thereof exceeds the income limitation 
                applicable under paragraph (1), such unit 
                shall, nevertheless, be treated as a rent-
                restricted unit for purposes of paragraph (1) 
                if--
                          (i) a Federal rental assistance 
                        payment described in subparagraph 
                        (B)(i) is made with respect to such 
                        unit or its occupants, and
                          (ii) the sum of such payment and the 
                        gross rent with respect to such unit 
                        does not exceed the sum of the amount 
                        of such payment which would be made and 
                        the gross rent which would be payable 
                        with respect to such unit if--
                                  (I) the income of the 
                                occupants thereof did not 
                                exceed the income limitation 
                                applicable under paragraph (1), 
                                and
                                  (II) such units were rent-
                                restricted within the meaning 
                                of subparagraph (A).
                The preceding sentence shall apply to any unit 
                only if the result described in clause (ii) is 
                required by Federal statute as of the date of 
                the enactment of this subparagraph and as of 
                the date the Federal rental assistance payment 
                is made.
          (3) Date for meeting requirements.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, a building shall be treated 
                as a qualified low-income building only if the 
                project (of which such building is a part) 
                meets the requirements of paragraph (1) not 
                later than the close of the 1st year of the 
                credit period for such building.
                  (B) Buildings which rely on later buildings 
                for qualification.--
                          (i) In general.--In determining 
                        whether a building (hereinafter in this 
                        subparagraph referred to as the ``prior 
                        building'') is a qualified low-income 
                        building, the taxpayer may take into 
                        account 1 or more additional buildings 
                        placed in service during the 12-month 
                        period described in subparagraph (A) 
                        with respect to the prior building only 
                        if the taxpayer elects to apply clause 
                        (ii) with respect to each additional 
                        building taken into account.
                          (ii) Treatment of elected 
                        buildings.--In the case of a building 
                        which the taxpayer elects to take into 
                        account under clause (i), the period 
                        under subparagraph (A) for such 
                        building shall end at the close of the 
                        12-month period applicable to the prior 
                        building.
                          (iii) Date prior building is treated 
                        as placed in service.--For purposes of 
                        determining the credit period and the 
                        compliance period for the prior 
                        building, the prior building shall be 
                        treated for purposes of this section as 
                        placed in service on the most recent 
                        date any additional building elected by 
                        the taxpayer (with respect to such 
                        prior building) was placed in service.
                  (C) Special rule.--A building--
                          (i) other than the 1st building 
                        placed in service as part of a project, 
                        and
                          (ii) other than a building which is 
                        placed in service during the 12-month 
                        period described in subparagraph (A) 
                        with respect to a prior building which 
                        becomes a qualified low-income 
                        building,
                shall in no event be treated as a qualified 
                low-income building unless the project is a 
                qualified low-income housing project (without 
                regard to such building) on the date such 
                building is placed in service.
                  (D) Projects with more than 1 building must 
                be identified.--For purposes of this section, a 
                project shall be treated as consisting of only 
                1 building unless, before the close of the 1st 
                calendar year in the project period (as defined 
                in subsection (h)(1)(F)(ii)), each building 
                which is (or will be) part of such project is 
                identified in such form and manner as the 
                Secretary may provide.
          (4) Certain rules made applicable.--Paragraphs (2) 
        (other than subparagraph (A) thereof), (3), (4), (5), 
        (6), and (7) of section 142(d), and section 6652(j), 
        shall apply for purposes of determining whether any 
        project is a qualified low-income housing project and 
        whether any unit is a low-income unit; except that, in 
        applying such provisions for such purposes, the term 
        ``gross rent'' shall have the meaning given such term 
        by paragraph (2)(B) of this subsection.
          (5) Election to treat building after compliance 
        period as not part of a project.--For purposes of this 
        section, the taxpayer may elect to treat any building 
        as not part of a qualified low-income housing project 
        for any period beginning after the compliance period 
        for such building.
          (6) Special rule where de minimis equity 
        contribution.--Property shall not be treated as failing 
        to be residential rental property for purposes of this 
        section merely because the occupant of a residential 
        unit in the project pays (on a voluntary basis) to the 
        lessor a de minimis amount to be held toward the 
        purchase by such occupant of a residential unit in such 
        project if--
                  (A) all amounts so paid are refunded to the 
                occupant on the cessation of his occupancy of a 
                unit in the project, and
                  (B) the purchase of the unit is not permitted 
                until after the close of the compliance period 
                with respect to the building in which the unit 
                is located.
        Any amount paid to the lessor as described in the 
        preceding sentence shall be included in gross rent 
        under paragraph (2) for purposes of determining whether 
        the unit is rent- restricted.
          (7) Scattered site projects.--Buildings which would 
        (but for their lack of proximity) be treated as a 
        project for purposes of this section shall be so 
        treated if all of the dwelling units in each of the 
        buildings are rent-restricted (within the meaning of 
        paragraph (2)) residential rental units.
          (8) Waiver of certain de minimis errors and 
        recertifications.--On application by the taxpayer, the 
        Secretary may waive--
                  (A) any recapture under subsection (j) in the 
                case of any de minimis error in complying with 
                paragraph (1), or
                  (B) any annual recertification of tenant 
                income for purposes of this subsection, if the 
                entire building is occupied by low-income 
                tenants.
          (9) Clarification of general public use 
        requirement.--A project does not fail to meet the 
        general public use requirement solely because of 
        occupancy restrictions or preferences that favor 
        tenants--
                  (A) with special needs,
                  (B) who are members of a specified group 
                under a Federal program or State program or 
                policy that supports housing for such a 
                specified group, or
                  (C) who are involved in artistic or literary 
                activities.
  (h) Limitation on aggregate credit allowable with respect to 
projects located in a State.--
          (1) Credit may not exceed credit amount allocated to 
        building.--
                  (A) In general.--The amount of the credit 
                determined under this section for any taxable 
                year with respect to any building shall not 
                exceed the housing credit dollar amount 
                allocated to such building under this 
                subsection.
                  (B) Time for making allocation.--Except in 
                the case of an allocation which meets the 
                requirements of subparagraph (C), (D), (E), or 
                (F), an allocation shall be taken into account 
                under subparagraph (A) only if it is made not 
                later than the close of the calendar year in 
                which the building is placed in service.
                  (C) Exception where binding commitment.--An 
                allocation meets the requirements of this 
                subparagraph if there is a binding commitment 
                (not later than the close of the calendar year 
                in which the building is placed in service) by 
                the housing credit agency to allocate a 
                specified housing credit dollar amount to such 
                building beginning in a specified later taxable 
                year.
                  (D) Exception where increase in qualified 
                basis.--
                          (i) In general.--An allocation meets 
                        the requirements of this subparagraph 
                        if such allocation is made not later 
                        than the close of the calendar year in 
                        which ends the taxable year to which it 
                        will 1st apply but only to the extent 
                        the amount of such allocation does not 
                        exceed the limitation under clause 
                        (ii).
                          (ii) Limitation.--The limitation 
                        under this clause is the amount of 
                        credit allowable under this section 
                        (without regard to this subsection) for 
                        a taxable year with respect to an 
                        increase in the qualified basis of the 
                        building equal to the excess of--
                                  (I) the qualified basis of 
                                such building as of the close 
                                of the 1st taxable year to 
                                which such allocation will 
                                apply, over
                                  (II) the qualified basis of 
                                such building as of the close 
                                of the 1st taxable year to 
                                which the most recent prior 
                                housing credit allocation with 
                                respect to such building 
                                applied.
                          (iii) Housing credit dollar amount 
                        reduced by full allocation.--
                        Notwithstanding clause (i), the full 
                        amount of the allocation shall be taken 
                        into account under paragraph (2).
                  (E) Exception where 10 percent of cost 
                incurred.--
                          (i) In general.--An allocation meets 
                        the requirements of this subparagraph 
                        if such allocation is made with respect 
                        to a qualified building which is placed 
                        in service not later than the close of 
                        the second calendar year following the 
                        calendar year in which the allocation 
                        is made.
                          (ii) Qualified building.--For 
                        purposes of clause (i), the term 
                        ``qualified building'' means any 
                        building which is part of a project if 
                        the taxpayer's basis in such project 
                        (as of the date which is 1 year after 
                        the date that the allocation was made) 
                        is more than 10 percent of the 
                        taxpayer's reasonably expected basis in 
                        such project (as of the close of the 
                        second calendar year referred to in 
                        clause (i)). Such term does not include 
                        any existing building unless a credit 
                        is allowable under subsection (e) for 
                        rehabilitation expenditures paid or 
                        incurred by the taxpayer with respect 
                        to such building for a taxable year 
                        ending during the second calendar year 
                        referred to in clause (i) or the prior 
                        taxable year.
                  (F) Allocation of credit on a project 
                basis.--
                          (i) In general.--In the case of a 
                        project which includes (or will 
                        include) more than 1 building, an 
                        allocation meets the requirements of 
                        this subparagraph if--
                                  (I) the allocation is made to 
                                the project for a calendar year 
                                during the project period,
                                  (II) the allocation only 
                                applies to buildings placed in 
                                service during or after the 
                                calendar year for which the 
                                allocation is made, and
                                  (III) the portion of such 
                                allocation which is allocated 
                                to any building in such project 
                                is specified not later than the 
                                close of the calendar year in 
                                which the building is placed in 
                                service.
                          (ii) Project period.--For purposes of 
                        clause (i), the term ``project period'' 
                        means the period--
                                  (I) beginning with the 1st 
                                calendar year for which an 
                                allocation may be made for the 
                                1st building placed in service 
                                as part of such project, and
                                  (II) ending with the calendar 
                                year the last building is 
                                placed in service as part of 
                                such project.
          (2) Allocated credit amount to apply to all taxable 
        years ending during or after credit allocation year.--
        Any housing credit dollar amount allocated to any 
        building for any calendar year--
                  (A) shall apply to such building for all 
                taxable years in the compliance period ending 
                during or after such calendar year, and
                  (B) shall reduce the aggregate housing credit 
                dollar amount of the allocating agency only for 
                such calendar year.
          (3) Housing credit dollar amount for agencies.--
                  (A) In general.--The aggregate housing credit 
                dollar amount which a housing credit agency may 
                allocate for any calendar year is the portion 
                of the State housing credit ceiling allocated 
                under this paragraph for such calendar year to 
                such agency.
                  (B) State ceiling initially allocated to 
                State housing credit agencies.--Except as 
                provided in subparagraphs (D) and (E), the 
                State housing credit ceiling for each calendar 
                year shall be allocated to the housing credit 
                agency of such State. If there is more than 1 
                housing credit agency of a State, all such 
                agencies shall be treated as a single agency.
                  (C) State housing credit ceiling.--The State 
                housing credit ceiling applicable to any State 
                for any calendar year shall be an amount equal 
                to the sum of--
                          (i) the unused State housing credit 
                        ceiling (if any) of such State for the 
                        preceding calendar year,
                          (ii) the greater of--
                                  (I) $1.75 multiplied by the 
                                State population, or
                                  (II) $2,000,000,
                          (iii) the amount of State housing 
                        credit ceiling returned in the calendar 
                        year, plus
                          (iv) the amount (if any) allocated 
                        under subparagraph (D) to such State by 
                        the Secretary.
                For purposes of clause (i), the unused State 
                housing credit ceiling for any calendar year is 
                the excess (if any) of the sum of the amounts 
                described in clauses (ii) through (iv) over the 
                aggregate housing credit dollar amount 
                allocated for such year. For purposes of clause 
                (iii), the amount of State housing credit 
                ceiling returned in the calendar year equals 
                the housing credit dollar amount previously 
                allocated within the State to any project which 
                fails to meet the 10 percent test under 
                paragraph (1)(E)(ii) on a date after the close 
                of the calendar year in which the allocation 
                was made or which does not become a qualified 
                low-income housing project within the period 
                required by this section or the terms of the 
                allocation or to any project with respect to 
                which an allocation is cancelled by mutual 
                consent of the housing credit agency and the 
                allocation recipient.
                  (D) Unused housing credit carryovers 
                allocated among certain States.--
                          (i) In general.--The unused housing 
                        credit carryover of a State for any 
                        calendar year shall be assigned to the 
                        Secretary for allocation among 
                        qualified States for the succeeding 
                        calendar year.
                          (ii) Unused housing credit 
                        carryover.--For purposes of this 
                        subparagraph, the unused housing credit 
                        carryover of a State for any calendar 
                        year is the excess (if any) of--
                                  (I) the unused State housing 
                                credit ceiling for the year 
                                preceding such year, over
                                  (II) the aggregate housing 
                                credit dollar amount allocated 
                                for such year.
                          (iii) Formula for allocation of 
                        unused housing credit carryovers among 
                        qualified States.--The amount allocated 
                        under this subparagraph to a qualified 
                        State for any calendar year shall be 
                        the amount determined by the Secretary 
                        to bear the same ratio to the aggregate 
                        unused housing credit carryovers of all 
                        States for the preceding calendar year 
                        as such State's population for the 
                        calendar year bears to the population 
                        of all qualified States for the 
                        calendar year. For purposes of the 
                        preceding sentence, population shall be 
                        determined in accordance with section 
                        146(j).
                          (iv) Qualified State.--For purposes 
                        of this subparagraph, the term 
                        ``qualified State'' means, with respect 
                        to a calendar year, any State--
                                  (I) which allocated its 
                                entire State housing credit 
                                ceiling for the preceding 
                                calendar year, and
                                  (II) for which a request is 
                                made (not later than May 1 of 
                                the calendar year) to receive 
                                an allocation under clause 
                                (iii).
                  (E) Special rule for States with 
                constitutional home rule cities.--For purposes 
                of this subsection--
                          (i) In general.--The aggregate 
                        housing credit dollar amount for any 
                        constitutional home rule city for any 
                        calendar year shall be an amount which 
                        bears the same ratio to the State 
                        housing credit ceiling for such 
                        calendar year as--
                                  (I) the population of such 
                                city, bears to
                                  (II) the population of the 
                                entire State.
                          (ii) Coordination with other 
                        allocations.--In the case of any State 
                        which contains 1 or more constitutional 
                        home rule cities, for purposes of 
                        applying this paragraph with respect to 
                        housing credit agencies in such State 
                        other than constitutional home rule 
                        cities, the State housing credit 
                        ceiling for any calendar year shall be 
                        reduced by the aggregate housing credit 
                        dollar amounts determined for such year 
                        for all constitutional home rule cities 
                        in such State.
                          (iii) Constitutional home rule 
                        city.--For purposes of this paragraph, 
                        the term ``constitutional home rule 
                        city'' has the meaning given such term 
                        by section 146(d)(3)(C).
                  (F) State may provide for different 
                allocation.--Rules similar to the rules of 
                section 146(e) (other than paragraph (2)(B) 
                thereof) shall apply for purposes of this 
                paragraph.
                  (G) Population.--For purposes of this 
                paragraph, population shall be determined in 
                accordance with section 146(j).
                  (H) Cost-of-living adjustment.--
                          (i) In general.--In the case of a 
                        calendar year after 2002, the 
                        $2,000,000 and $1.75 amounts in 
                        subparagraph (C) 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 such 
                                calendar year by substituting 
                                ``calendar year 2001'' for 
                                ``calendar year 2016'' in 
                                subparagraph (A)(ii) thereof.
                          (ii) Rounding.--
                                  (I) In the case of the 
                                $2,000,000 amount, any increase 
                                under clause (i) which is not a 
                                multiple of $5,000 shall be 
                                rounded to the next lowest 
                                multiple of $5,000.
                                  (II) In the case of the $1.75 
                                amount, any increase under 
                                clause (i) which is not a 
                                multiple of 5 cents shall be 
                                rounded to the next lowest 
                                multiple of 5 cents.
                  (I) Increase in State housing credit ceiling 
                for 2018, 2019, 2020, and 2021.--In the case of 
                calendar years 2018, 2019, 2020, and 2021, each 
                of the dollar amounts in effect under clauses 
                (I) and (II) of subparagraph (C)(ii) for any 
                calendar year (after any increase under 
                subparagraph (H)) shall be increased by 
                multiplying such dollar amount by 1.125.
          (4) Credit for buildings financed by tax-exempt bonds 
        subject to volume cap not taken into account.--
                  (A) In general.--Paragraph (1) shall not 
                apply to the portion of any credit allowable 
                under subsection (a) which is attributable to 
                eligible basis financed by any obligation the 
                interest on which is exempt from tax under 
                section 103 if--
                          (i) such obligation is taken into 
                        account under section 146, and
                          (ii) principal payments on such 
                        financing are applied within a 
                        reasonable period to redeem obligations 
                        the proceeds of which were used to 
                        provide such financing or such 
                        financing is refunded as described in 
                        section 146(i)(6).
                  (B) Special rule where 50 percent or more of 
                building is financed with tax-exempt bonds 
                subject to volume cap.--For purposes of 
                subparagraph (A), if 50 percent or more of the 
                aggregate basis of any building and the land on 
                which the building is located is financed by 
                any obligation described in subparagraph (A), 
                paragraph (1) shall not apply to any portion of 
                the credit allowable under subsection (a) with 
                respect to such building.
          (5) Portion of State ceiling set-aside for certain 
        projects involving qualified nonprofit organizations.--
                  (A) In general.--Not more than 90 percent of 
                the State housing credit ceiling for any State 
                for any calendar year shall be allocated to 
                projects other than qualified low-income 
                housing projects described in subparagraph (B).
                  (B) Projects involving qualified nonprofit 
                organizations.--For purposes of subparagraph 
                (A), a qualified low-income housing project is 
                described in this subparagraph if a qualified 
                nonprofit organization is to own an interest in 
                the project (directly or through a partnership) 
                and materially participate (within the meaning 
                of section 469(h)) in the development and 
                operation of the project throughout the 
                compliance period.
                  (C) Qualified nonprofit organization.--For 
                purposes of this paragraph, the term 
                ``qualified nonprofit organization'' means any 
                organization if--
                          (i) such organization is described in 
                        paragraph (3) or (4) of section 501(c) 
                        and is exempt from tax under section 
                        501(a),
                          (ii) such organization is determined 
                        by the State housing credit agency not 
                        to be affiliated with or controlled by 
                        a for-profit organization, and
                          (iii) 1 of the exempt purposes of 
                        such organization includes the 
                        fostering of low-income housing.
                  (D) Treatment of certain subsidiaries.--
                          (i) In general.--For purposes of this 
                        paragraph, a qualified nonprofit 
                        organization shall be treated as 
                        satisfying the ownership and material 
                        participation test of subparagraph (B) 
                        if any qualified corporation in which 
                        such organization holds stock satisfies 
                        such test.
                          (ii) Qualified corporation.--For 
                        purposes of clause (i), the term 
                        ``qualified corporation'' means any 
                        corporation if 100 percent of the stock 
                        of such corporation is held by 1 or 
                        more qualified nonprofit organizations 
                        at all times during the period such 
                        corporation is in existence.
                  (E) State may not override set-aside.--
                Nothing in subparagraph (F) of paragraph (3) 
                shall be construed to permit a State not to 
                comply with subparagraph (A) of this paragraph.
          (6) Buildings eligible for credit only if minimum 
        long-term commitment to low-income housing.--
                  (A) In general.--No credit shall be allowed 
                by reason of this section with respect to any 
                building for the taxable year unless an 
                extended low-income housing commitment is in 
                effect as of the end of such taxable year.
                  (B) Extended low-income housing commitment.--
                For purposes of this paragraph, the term 
                ``extended low-income housing commitment'' 
                means any agreement between the taxpayer and 
                the housing credit agency--
                          (i) which requires that the 
                        applicable fraction (as defined in 
                        subsection (c)(1)) for the building for 
                        each taxable year in the extended use 
                        period will not be less than the 
                        applicable fraction specified in such 
                        agreement and which prohibits the 
                        actions described in subclauses (I) and 
                        (II) of subparagraph (E)(ii),
                          (ii) which allows individuals who 
                        meet the income limitation applicable 
                        to the building under subsection (g) 
                        (whether prospective, present, or 
                        former occupants of the building) the 
                        right to enforce in any State court the 
                        requirement and prohibitions of clause 
                        (i),
                          (iii) which prohibits the disposition 
                        to any person of any portion of the 
                        building to which such agreement 
                        applies unless all of the building to 
                        which such agreement applies is 
                        disposed of to such person,
                          (iv) which prohibits the refusal to 
                        lease to a holder of a voucher or 
                        certificate of eligibility under 
                        section 8 of the United States Housing 
                        Act of 1937 because of the status of 
                        the prospective tenant as such a 
                        holder,
                          (v) which is binding on all 
                        successors of the taxpayer, and
                          (vi) which, with respect to the 
                        property, is recorded pursuant to State 
                        law as a restrictive covenant.
                  (C) Allocation of credit may not exceed 
                amount necessary to support commitment.--
                          (i) In general.--The housing credit 
                        dollar amount allocated to any building 
                        may not exceed the amount necessary to 
                        support the applicable fraction 
                        specified in the extended low-income 
                        housing commitment for such building, 
                        including any increase in such fraction 
                        pursuant to the application of 
                        subsection (f)(3) if such increase is 
                        reflected in an amended low-income 
                        housing commitment.
                          (ii) Buildings financed by tax-exempt 
                        bonds.--If paragraph (4) applies to any 
                        building the amount of credit allowed 
                        in any taxable year may not exceed the 
                        amount necessary to support the 
                        applicable fraction specified in the 
                        extended low-income housing commitment 
                        for such building. Such commitment may 
                        be amended to increase such fraction.
                  (D) Extended use period.--For purposes of 
                this paragraph, the term ``extended use 
                period'' means the period--
                          (i) beginning on the 1st day in the 
                        compliance period on which such 
                        building is part of a qualified low-
                        income housing project, and
                          (ii) ending on the later of--
                                  (I) the date specified by 
                                such agency in such agreement, 
                                or
                                  (II) the date which is 15 
                                years after the close of the 
                                compliance period.
                  (E) Exceptions if foreclosure or if no buyer 
                willing to maintain low-income status.--
                          (i) In general.--The extended use 
                        period for any building shall 
                        terminate--
                                  (I) on the date the building 
                                is acquired by foreclosure (or 
                                instrument in lieu of 
                                foreclosure) unless the 
                                Secretary determines that such 
                                acquisition is part of an 
                                arrangement with the taxpayer a 
                                purpose of which is to 
                                terminate such period, or
                                  (II) on the last day of the 
                                period specified in 
                                subparagraph (I) if the housing 
                                credit agency is unable to 
                                present during such period a 
                                qualified contract for the 
                                acquisition of the low-income 
                                portion of the building by any 
                                person who will continue to 
                                operate such portion as a 
                                qualified low-income building.
                        Subclause (II) shall not apply to the 
                        extent more stringent requirements are 
                        provided in the agreement or in State 
                        law.
                          (ii) Eviction, etc. of existing low-
                        income tenants not permitted.--The 
                        termination of an extended use period 
                        under clause (i) shall not be construed 
                        to permit before the close of the 3-
                        year period following such 
                        termination--
                                  (I) the eviction or the 
                                termination of tenancy (other 
                                than for good cause) of an 
                                existing tenant of any low-
                                income unit, or
                                  (II) any increase in the 
                                gross rent with respect to such 
                                unit not otherwise permitted 
                                under this section.
                  (F) Qualified contract.--For purposes of 
                subparagraph (E), the term ``qualified 
                contract'' means a bona fide contract to 
                acquire (within a reasonable period after the 
                contract is entered into) the nonlow-income 
                portion of the building for fair market value 
                and the low-income portion of the building for 
                an amount not less than the applicable fraction 
                (specified in the extended low-income housing 
                commitment) of--
                          (i) the sum of--
                                  (I) the outstanding 
                                indebtedness secured by, or 
                                with respect to, the building,
                                  (II) the adjusted investor 
                                equity in the building, plus
                                  (III) other capital 
                                contributions not reflected in 
                                the amounts described in 
                                subclause (I) or (II), reduced 
                                by (ii) cash distributions from 
                                (or available for distribution 
                                from) the project.
                The Secretary shall prescribe such regulations 
                as may be necessary or appropriate to carry out 
                this paragraph, including regulations to 
                prevent the manipulation of the amount 
                determined under the preceding sentence.
                  (G) Adjusted investor equity.--
                          (i) In general.--For purposes of 
                        subparagraph (E), the term ``adjusted 
                        investor equity'' means, with respect 
                        to any calendar year, the aggregate 
                        amount of cash taxpayers invested with 
                        respect to the project increased by the 
                        amount equal to--
                                  (I) such amount, multiplied 
                                by
                                  (II) the cost-of-living 
                                adjustment for such calendar 
                                year, determined under section 
                                1(f)(3) by substituting the 
                                base calendar year for 
                                ``calendar year 2016'' in 
                                subparagraph (A)(ii) thereof.
                        An amount shall be taken into account 
                        as an investment in the project only to 
                        the extent there was an obligation to 
                        invest such amount as of the beginning 
                        of the credit period and to the extent 
                        such amount is reflected in the 
                        adjusted basis of the project.
                          (ii) Cost-of-living increases in 
                        excess of 5 percent not taken into 
                        account.--Under regulations prescribed 
                        by the Secretary, 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).
                          (iii) Base calendar year.--For 
                        purposes of this subparagraph, the term 
                        ``base calendar year'' means the 
                        calendar year with or within which the 
                        1st taxable year of the credit period 
                        ends.
                  (H) Low-income portion.--For purposes of this 
                paragraph, the low-income portion of a building 
                is the portion of such building equal to the 
                applicable fraction specified in the extended 
                low-income housing commitment for the building.
                  (I) Period for finding buyer.--The period 
                referred to in this subparagraph is the 1-year 
                period beginning on the date (after the 14th 
                year of the compliance period) the taxpayer 
                submits a written request to the housing credit 
                agency to find a person to acquire the 
                taxpayer's interest in the low-income portion 
                of the building.
                  (J) Effect of noncompliance.--If, during a 
                taxable year, there is a determination that an 
                extended low-income housing agreement was not 
                in effect as of the beginning of such year, 
                such determination shall not apply to any 
                period before such year and subparagraph (A) 
                shall be applied without regard to such 
                determination if the failure is corrected 
                within 1 year from the date of the 
                determination.
                  (K) Projects which consist of more than 1 
                building.--The application of this paragraph to 
                projects which consist of more than 1 building 
                shall be made under regulations prescribed by 
                the Secretary.
          (7) Special rules.--
                  (A) Building must be located within 
                jurisdiction of credit agency.--A housing 
                credit agency may allocate its aggregate 
                housing credit dollar amount only to buildings 
                located in the jurisdiction of the governmental 
                unit of which such agency is a part.
                  (B) Agency allocations in excess of limit.--
                If the aggregate housing credit dollar amounts 
                allocated by a housing credit agency for any 
                calendar year exceed the portion of the State 
                housing credit ceiling allocated to such agency 
                for such calendar year, the housing credit 
                dollar amounts so allocated shall be reduced 
                (to the extent of such excess) for buildings in 
                the reverse of the order in which the 
                allocations of such amounts were made.
                  (C) Credit reduced if allocated credit dollar 
                amount is less than credit which would be 
                allowable without regard to placed in service 
                convention, etc.
                          (i) In general.--The amount of the 
                        credit determined under this section 
                        with respect to any building shall not 
                        exceed the clause (ii) percentage of 
                        the amount of the credit which would 
                        (but for this subparagraph) be 
                        determined under this section with 
                        respect to such building.
                          (ii) Determination of percentage.--
                        For purposes of clause (i), the clause 
                        (ii) percentage with respect to any 
                        building is the percentage which--
                                  (I) the housing credit dollar 
                                amount allocated to such 
                                building bears to
                                  (II) the credit amount 
                                determined in accordance with 
                                clause (iii).
                          (iii) Determination of credit 
                        amount.--The credit amount determined 
                        in accordance with this clause is the 
                        amount of the credit which would (but 
                        for this subparagraph) be determined 
                        under this section with respect to the 
                        building if--
                                  (I) this section were applied 
                                without regard to paragraphs 
                                (2)(A) and (3)(B) of subsection 
                                (f), and
                                  (II) subsection (f)(3)(A) 
                                were applied without regard to 
                                ``the percentage equal to 2/3 
                                of''.
                  (D) Housing credit agency to specify 
                applicable percentage and maximum qualified 
                basis.--In allocating a housing credit dollar 
                amount to any building, the housing credit 
                agency shall specify the applicable percentage 
                and the maximum qualified basis which may be 
                taken into account under this section with 
                respect to such building. The applicable 
                percentage and maximum qualified basis so 
                specified shall not exceed the applicable 
                percentage and qualified basis determined under 
                this section without regard to this subsection.
          (8) Other definitions.--For purposes of this 
        subsection--
                  (A) Housing credit agency.--The term 
                ``housing credit agency'' means any agency 
                authorized to carry out this subsection.
                  (B) Possessions treated as States.--The term 
                ``State'' includes a possession of the United 
                States.
  (i) Definitions and special rules.--For purposes of this 
section--
          (1) Compliance period.--The term ``compliance 
        period'' means, with respect to any building, the 
        period of 15 taxable years beginning with the 1st 
        taxable year of the credit period with respect thereto.
          (2) Determination of whether building is federally 
        subsidized.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, for purposes of subsection 
                (b)(1), a new building shall be treated as 
                federally subsidized for any taxable year if, 
                at any time during such taxable year or any 
                prior taxable year, there is or was outstanding 
                any obligation the interest on which is exempt 
                from tax under section 103 the proceeds of 
                which are or were used (directly or indirectly) 
                with respect to such building or the operation 
                thereof.
                  (B) Election to reduce eligible basis by 
                proceeds of obligations.--A tax-exempt 
                obligation shall not be taken into account 
                under subparagraph (A) if the taxpayer elects 
                to exclude from the eligible basis of the 
                building for purposes of subsection (d) the 
                proceeds of such obligation.
                  (C) Special rule for subsidized construction 
                financing.--Subparagraph (A) shall not apply to 
                any tax-exempt obligation used to provide 
                construction financing for any building if--
                          (i) such obligation (when issued) 
                        identified the building for which the 
                        proceeds of such obligation would be 
                        used, and
                          (ii) such obligation is redeemed 
                        before such building is placed in 
                        service.
          (3) Low-income unit.--
                  (A) In general.--The term ``low-income unit'' 
                means any unit in a building if--
                          (i) such unit is rent-restricted (as 
                        defined in subsection (g)(2)), and
                          (ii) the individuals occupying such 
                        unit meet the income limitation 
                        applicable under subsection (g)(1) to 
                        the project of which such building is a 
                        part.
                  (B) Exceptions.--
                          (i) In general.--A unit shall not be 
                        treated as a low-income unit unless the 
                        unit is suitable for occupancy and used 
                        other than on a transient basis.
                          (ii) Suitability for occupancy.--For 
                        purposes of clause (i), the suitability 
                        of a unit for occupancy shall be 
                        determined under regulations prescribed 
                        by the Secretary taking into account 
                        local health, safety, and building 
                        codes.
                          (iii) Transitional housing for 
                        homeless.--For purposes of clause (i), 
                        a unit shall be considered to be used 
                        other than on a transient basis if the 
                        unit contains sleeping accommodations 
                        and kitchen and bathroom facilities and 
                        is located in a building--
                                  (I) which is used exclusively 
                                to facilitate the transition of 
                                homeless individuals (within 
                                the meaning of section 103 of 
                                the McKinney-Vento Homeless 
                                Assistance Act (42 U.S.C. 
                                11302), as in effect on the 
                                date of the enactment of this 
                                clause) to independent living 
                                within 24 months, and
                                  (II) in which a governmental 
                                entity or qualified nonprofit 
                                organization (as defined in 
                                subsection (h)(5)) provides 
                                such individuals with temporary 
                                housing and supportive services 
                                designed to assist such 
                                individuals in locating and 
                                retaining permanent housing.
                          (iv) Single-room occupancy units.--
                        For purposes of clause (i), a single-
                        room occupancy unit shall not be 
                        treated as used on a transient basis 
                        merely because it is rented on a month-
                        by-month basis.
                  (C) Special rule for buildings having 4 or 
                fewer units.--In the case of any building which 
                has 4 or fewer residential rental units, no 
                unit in such building shall be treated as a 
                low-income unit if the units in such building 
                are owned by--
                          (i) any individual who occupies a 
                        residential unit in such building, or
                          (ii) any person who is related (as 
                        defined in subsection (d)(2)(D)(iii)) 
                        to such individual.
                  (D) Certain students not to disqualify 
                unit.--A unit shall not fail to be treated as a 
                low-income unit merely because it is occupied--
                          (i) by an individual who is--
                                  (I) a student and receiving 
                                assistance under title IV of 
                                the Social Security Act,
                                  (II) a student who was 
                                previously under the care and 
                                placement responsibility of the 
                                State agency responsible for 
                                administering a plan under part 
                                B or part E of title IV of the 
                                Social Security Act, or
                                  (III) enrolled in a job 
                                training program receiving 
                                assistance under the Job 
                                Training Partnership Act or 
                                under other similar Federal, 
                                State, or local laws, or
                          (ii) entirely by full-time students 
                        if such students are--
                                  (I) single parents and their 
                                children and such parents are 
                                not dependents (as defined in 
                                [section 152] section 7706, 
                                determined without regard to 
                                subsections (b)(1), (b)(2), and 
                                (d)(1)(B) thereof) of another 
                                individual and such children 
                                are not dependents (as so 
                                defined) of another individual 
                                other than a parent of such 
                                children, or
                                  (II) married and file a joint 
                                return.
                  (E) Owner-occupied buildings having 4 or 
                fewer units eligible for credit where 
                development plan.--
                          (i) In general.--Subparagraph (C) 
                        shall not apply to the acquisition or 
                        rehabilitation of a building pursuant 
                        to a development plan of action 
                        sponsored by a State or local 
                        government or a qualified nonprofit 
                        organization (as defined in subsection 
                        (h)(5)(C)).
                          (ii) Limitation on credit.--In the 
                        case of a building to which clause (i) 
                        applies, the applicable fraction shall 
                        not exceed 80 percent of the unit 
                        fraction.
                          (iii) Certain unrented units treated 
                        as owner-occupied.--In the case of a 
                        building to which clause (i) applies, 
                        any unit which is not rented for 90 
                        days or more shall be treated as 
                        occupied by the owner of the building 
                        as of the 1st day it is not rented.
          (4) New building.--The term ``new building'' means a 
        building the original use of which begins with the 
        taxpayer.
          (5) Existing building.--The term ``existing 
        building'' means any building which is not a new 
        building.
          (6) Application to estates and trusts.--In the case 
        of an estate or trust, the amount of the credit 
        determined under subsection (a) and any increase in tax 
        under subsection (j) shall be apportioned between the 
        estate or trust and the beneficiaries on the basis of 
        the income of the estate or trust allocable to each.
          (7) Impact of tenant's right of 1st refusal to 
        acquire property.--
                  (A) In general.--No Federal income tax 
                benefit shall fail to be allowable to the 
                taxpayer with respect to any qualified low-
                income building merely by reason of a right of 
                1st refusal held by the tenants (in cooperative 
                form or otherwise) or resident management 
                corporation of such building or by a qualified 
                nonprofit organization (as defined in 
                subsection (h)(5)(C)) or government agency to 
                purchase the property after the close of the 
                compliance period for a price which is not less 
                than the minimum purchase price determined 
                under subparagraph (B).
                  (B) Minimum purchase price.--For purposes of 
                subparagraph (A), the minimum purchase price 
                under this subparagraph is an amount equal to 
                the sum of--
                          (i) the principal amount of 
                        outstanding indebtedness secured by the 
                        building (other than indebtedness 
                        incurred within the 5-year period 
                        ending on the date of the sale to the 
                        tenants), and
                          (ii) all Federal, State, and local 
                        taxes attributable to such sale.
                Except in the case of Federal income taxes, 
                there shall not be taken into account under 
                clause (ii) any additional tax attributable to 
                the application of clause (ii).
          (8) Treatment of rural projects.--For purposes of 
        this section, in the case of any project for 
        residential rental property located in a rural area (as 
        defined in section 520 of the Housing Act of 1949), any 
        income limitation measured by reference to area median 
        gross income shall be measured by reference to the 
        greater of area median gross income or national non-
        metropolitan median income. The preceding sentence 
        shall not apply with respect to any building if 
        paragraph (1) of section 42(h) does not apply by reason 
        of paragraph (4) thereof to any portion of the credit 
        determined under this section with respect to such 
        building.
          (9) Coordination with low-income housing grants.--
                  (A) Reduction in State housing credit ceiling 
                for low-income housing grants received in 
                2009.--For purposes of this section, the 
                amounts described in clauses (i) through (iv) 
                of subsection (h)(3)(C) with respect to any 
                State for 2009 shall each be reduced by so much 
                of such amount as is taken into account in 
                determining the amount of any grant to such 
                State under section 1602 of the American 
                Recovery and Reinvestment Tax Act of 2009.
                  (B) Special rule for basis.--Basis of a 
                qualified low-income building shall not be 
                reduced by the amount of any grant described in 
                subparagraph (A).
  (j) Recapture of credit.--
          (1) In general.--If--
                  (A) as of the close of any taxable year in 
                the compliance period, the amount of the 
                qualified basis of any building with respect to 
                the taxpayer is less than
                  (B) the amount of such basis as of the close 
                of the preceding taxable year,
        then the taxpayer's tax under this chapter for the 
        taxable year shall be increased by the credit recapture 
        amount.
          (2) Credit recapture amount.--For purposes of 
        paragraph (1), the credit recapture amount is an amount 
        equal to the sum of--
                  (A) the aggregate decrease in the credits 
                allowed to the taxpayer under section 38 for 
                all prior taxable years which would have 
                resulted if the accelerated portion of the 
                credit allowable by reason of this section were 
                not allowed for all prior taxable years with 
                respect to the excess of the amount described 
                in paragraph (1)(B) over the amount described 
                in paragraph (1)(A), plus
                  (B) interest at the overpayment rate 
                established under section 6621 on the amount 
                determined under subparagraph (A) for each 
                prior taxable year for the period beginning on 
                the due date for filing the return for the 
                prior taxable year involved.
        No deduction shall be allowed under this chapter for 
        interest described in subparagraph (B).
          (3) Accelerated portion of credit.--For purposes of 
        paragraph (2), the accelerated portion of the credit 
        for the prior taxable years with respect to any amount 
        of basis is the excess of--
                  (A) the aggregate credit allowed by reason of 
                this section (without regard to this 
                subsection) for such years with respect to such 
                basis, over
                  (B) the aggregate credit which would be 
                allowable by reason of this section for such 
                years with respect to such basis if the 
                aggregate credit which would (but for this 
                subsection) have been allowable for the entire 
                compliance period were allowable ratably over 
                15 years.
          (4) Special rules.--
                  (A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (1) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                  (B) Only basis for which credit allowed taken 
                into account.--Qualified basis shall be taken 
                into account under paragraph (1)(B) only to the 
                extent such basis was taken into account in 
                determining the credit under subsection (a) for 
                the preceding taxable year referred to in such 
                paragraph.
                  (C) No recapture of additional credit 
                allowable by reason of subsection (f)(3).--
                Paragraph (1) shall apply to a decrease in 
                qualified basis only to the extent such 
                decrease exceeds the amount of qualified basis 
                with respect to which a credit was allowable 
                for the taxable year referred to in paragraph 
                (1)(B) by reason of subsection (f)(3).
                  (D) No credits against tax.--Any increase in 
                tax under this subsection shall not be treated 
                as a tax imposed by this chapter for purposes 
                of determining the amount of any credit under 
                this chapter.
                  (E) No recapture by reason of casualty 
                loss.--The increase in tax under this 
                subsection shall not apply to a reduction in 
                qualified basis by reason of a casualty loss to 
                the extent such loss is restored by 
                reconstruction or replacement within a 
                reasonable period established by the Secretary.
                  (F) No recapture where de minimis changes in 
                floor space.--The Secretary may provide that 
                the increase in tax under this subsection shall 
                not apply with respect to any building if--
                          (i) such increase results from a de 
                        minimis change in the floor space 
                        fraction under subsection (c)(1), and
                          (ii) the building is a qualified low-
                        income building after such change.
          (5) Certain partnerships treated as the taxpayer.--
                  (A) In general.--For purposes of applying 
                this subsection to a partnership to which this 
                paragraph applies--
                          (i) such partnership shall be treated 
                        as the taxpayer to which the credit 
                        allowable under subsection (a) was 
                        allowed,
                          (ii) the amount of such credit 
                        allowed shall be treated as the amount 
                        which would have been allowed to the 
                        partnership were such credit allowable 
                        to such partnership,
                          (iii) paragraph (4)(A) shall not 
                        apply, and
                          (iv) the amount of the increase in 
                        tax under this subsection for any 
                        taxable year shall be allocated among 
                        the partners of such partnership in the 
                        same manner as such partnership's 
                        taxable income for such year is 
                        allocated among such partners.
                  (B) Partnerships to which paragraph 
                applies.--This paragraph shall apply to any 
                partnership which has 35 or more partners 
                unless the partnership elects not to have this 
                paragraph apply.
                  (C) Special rules.--
                          (i) Husband and wife treated as 1 
                        partner.--For purposes of subparagraph 
                        (B)(i), a husband and wife (and their 
                        estates) shall be treated as 1 partner.
                          (ii) Election irrevocable.--Any 
                        election under subparagraph (B), once 
                        made, shall be irrevocable.
          (6) No recapture on disposition of building which 
        continues in qualified use.--
                  (A) In general.--The increase in tax under 
                this subsection shall not apply solely by 
                reason of the disposition of a building (or an 
                interest therein) if it is reasonably expected 
                that such building will continue to be operated 
                as a qualified low-income building for the 
                remaining compliance period with respect to 
                such building.
                  (B) Statute of limitations.--If a building 
                (or an interest therein) is disposed of during 
                any taxable year and there is any reduction in 
                the qualified basis of such building which 
                results in an increase in tax under this 
                subsection for such taxable or any subsequent 
                taxable year, then--
                          (i) the statutory period for the 
                        assessment of any deficiency with 
                        respect to such increase in tax shall 
                        not expire before the expiration of 3 
                        years from the date the Secretary is 
                        notified by the taxpayer (in such 
                        manner as the Secretary may prescribe) 
                        of such reduction in qualified basis, 
                        and
                          (ii) such deficiency may be assessed 
                        before the expiration of such 3-year 
                        period notwithstanding the provisions 
                        of any other law or rule of law which 
                        would otherwise prevent such 
                        assessment.
  (k) Application of at-risk rules.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        subsection, rules similar to the rules of section 
        49(a)(1) (other than subparagraphs (D)(ii)(II) and 
        (D)(iv)(I) thereof), section 49(a)(2), and section 
        49(b)(1) shall apply in determining the qualified basis 
        of any building in the same manner as such sections 
        apply in determining the credit base of property.
          (2) Special rules for determining qualified person.--
        For purposes of paragraph (1)--
                  (A) In general.--If the requirements of 
                subparagraphs (B), (C), and (D) are met with 
                respect to any financing borrowed from a 
                qualified nonprofit organization (as defined in 
                subsection (h)(5)), the determination of 
                whether such financing is qualified commercial 
                financing with respect to any qualified low-
                income building shall be made without regard to 
                whether such organization--
                          (i) is actively and regularly engaged 
                        in the business of lending money, or
                          (ii) is a person described in section 
                        49(a)(1)(D)(iv)(II).
                  (B) Financing secured by property.--The 
                requirements of this subparagraph are met with 
                respect to any financing if such financing is 
                secured by the qualified low-income building, 
                except that this subparagraph shall not apply 
                in the case of a federally assisted building 
                described in subsection (d)(6)(C) if--
                          (i) a security interest in such 
                        building is not permitted by a Federal 
                        agency holding or insuring the mortgage 
                        secured by such building, and
                          (ii) the proceeds from the financing 
                        (if any) are applied to acquire or 
                        improve such building.
                  (C) Portion of building attributable to 
                financing.--The requirements of this 
                subparagraph are met with respect to any 
                financing for any taxable year in the 
                compliance period if, as of the close of such 
                taxable year, not more than 60 percent of the 
                eligible basis of the qualified low-income 
                building is attributable to such financing 
                (reduced by the principal and interest of any 
                governmental financing which is part of a wrap-
                around mortgage involving such financing).
                  (D) Repayment of principal and interest.--The 
                requirements of this subparagraph are met with 
                respect to any financing if such financing is 
                fully repaid on or before the earliest of--
                          (i) the date on which such financing 
                        matures,
                          (ii) the 90th day after the close of 
                        the compliance period with respect to 
                        the qualified low-income building, or
                          (iii) the date of its refinancing or 
                        the sale of the building to which such 
                        financing relates.
                In the case of a qualified nonprofit 
                organization which is not described in section 
                49(a)(1)(D)(iv)(II) with respect to a building, 
                clause (ii) of this subparagraph shall be 
                applied as if the date described therein were 
                the 90th day after the earlier of the date the 
                building ceases to be a qualified low-income 
                building or the date which is 15 years after 
                the close of a compliance period with respect 
                thereto.
          (3) Present value of financing.--If the rate of 
        interest on any financing described in paragraph (2)(A) 
        is less than the rate which is 1 percentage point below 
        the applicable Federal rate as of the time such 
        financing is incurred, then the qualified basis (to 
        which such financing relates) of the qualified low-
        income building shall be the present value of the 
        amount of such financing, using as the discount rate 
        such applicable Federal rate. For purposes of the 
        preceding sentence, the rate of interest on any 
        financing shall be determined by treating interest to 
        the extent of government subsidies as not payable.
          (4) Failure to fully repay.--
                  (A) In general.--To the extent that the 
                requirements of paragraph (2)(D) are not met, 
                then the taxpayer's tax under this chapter for 
                the taxable year in which such failure occurs 
                shall be increased by an amount equal to the 
                applicable portion of the credit under this 
                section with respect to such building, 
                increased by an amount of interest for the 
                period--
                          (i) beginning with the due date for 
                        the filing of the return of tax imposed 
                        by chapter 1 for the 1st taxable year 
                        for which such credit was allowable, 
                        and
                          (ii) ending with the due date for the 
                        taxable year in which such failure 
                        occurs,
                determined by using the underpayment rate and 
                method under section 6621.
                  (B) Applicable portion.--For purposes of 
                subparagraph (A), the term ``applicable 
                portion'' means the aggregate decrease in the 
                credits allowed to a taxpayer under section 38 
                for all prior taxable years which would have 
                resulted if the eligible basis of the building 
                were reduced by the amount of financing which 
                does not meet requirements of paragraph (2)(D).
                  (C) Certain rules to apply.--Rules similar to 
                the rules of subparagraphs (A) and (D) of 
                subsection (j)(4) shall apply for purposes of 
                this subsection.
  (l) Certifications and other reports to Secretary.--
          (1) Certification with respect to 1st year of credit 
        period.--Following the close of the 1st taxable year in 
        the credit period with respect to any qualified low-
        income building, the taxpayer shall certify to the 
        Secretary (at such time and in such form and in such 
        manner as the Secretary prescribes)--
                  (A) the taxable year, and calendar year, in 
                which such building was placed in service,
                  (B) the adjusted basis and eligible basis of 
                such building as of the close of the 1st year 
                of the credit period,
                  (C) the maximum applicable percentage and 
                qualified basis permitted to be taken into 
                account by the appropriate housing credit 
                agency under subsection (h),
                  (D) the election made under subsection (g) 
                with respect to the qualified low-income 
                housing project of which such building is a 
                part, and
                  (E) such other information as the Secretary 
                may require.
        In the case of a failure to make the certification 
        required by the preceding sentence on the date 
        prescribed therefor, unless it is shown that such 
        failure is due to reasonable cause and not to willful 
        neglect, no credit shall be allowable by reason of 
        subsection (a) with respect to such building for any 
        taxable year ending before such certification is made.
          (2) Annual reports to the Secretary.--The Secretary 
        may require taxpayers to submit an information return 
        (at such time and in such form and manner as the 
        Secretary prescribes) for each taxable year setting 
        forth--
                  (A) the qualified basis for the taxable year 
                of each qualified low-income building of the 
                taxpayer,
                  (B) the information described in paragraph 
                (1)(C) for the taxable year, and
                  (C) such other information as the Secretary 
                may require.
        The penalty under section 6652(j) shall apply to any 
        failure to submit the return required by the Secretary 
        under the preceding sentence on the date prescribed 
        therefor.
          (3) Annual reports from housing credit agencies.--
        Each agency which allocates any housing credit amount 
        to any building for any calendar year shall submit to 
        the Secretary (at such time and in such manner as the 
        Secretary shall prescribe) an annual report 
        specifying--
                  (A) the amount of housing credit amount 
                allocated to each building for such year,
                  (B) sufficient information to identify each 
                such building and the taxpayer with respect 
                thereto, and
                  (C) such other information as the Secretary 
                may require.
        The penalty under section 6652(j) shall apply to any 
        failure to submit the report required by the preceding 
        sentence on the date prescribed therefor.
  (m) Responsibilities of housing credit agencies.--
          (1) Plans for allocation of credit among projects.--
                  (A) In general.--Notwithstanding any other 
                provision of this section, the housing credit 
                dollar amount with respect to any building 
                shall be zero unless--
                          (i) such amount was allocated 
                        pursuant to a qualified allocation plan 
                        of the housing credit agency which is 
                        approved by the governmental unit (in 
                        accordance with rules similar to the 
                        rules of section 147(f)(2) (other than 
                        subparagraph (B)(ii) thereof)) of which 
                        such agency is a part,
                          (ii) such agency notifies the chief 
                        executive officer (or the equivalent) 
                        of the local jurisdiction within which 
                        the building is located of such project 
                        and provides such individual a 
                        reasonable opportunity to comment on 
                        the project,
                          (iii) a comprehensive market study of 
                        the housing needs of low-income 
                        individuals in the area to be served by 
                        the project is conducted before the 
                        credit allocation is made and at the 
                        developer's expense by a disinterested 
                        party who is approved by such agency, 
                        and
                          (iv) a written explanation is 
                        available to the general public for any 
                        allocation of a housing credit dollar 
                        amount which is not made in accordance 
                        with established priorities and 
                        selection criteria of the housing 
                        credit agency.
                  (B) Qualified allocation plan.--For purposes 
                of this paragraph, the term ``qualified 
                allocation plan'' means any plan--
                          (i) which sets forth selection 
                        criteria to be used to determine 
                        housing priorities of the housing 
                        credit agency which are appropriate to 
                        local conditions,
                          (ii) which also gives preference in 
                        allocating housing credit dollar 
                        amounts among selected projects to--
                                  (I) projects serving the 
                                lowest income tenants,
                                  (II) projects obligated to 
                                serve qualified tenants for the 
                                longest periods, and
                                  (III) projects which are 
                                located in qualified census 
                                tracts (as defined in 
                                subsection (d)(5)(B)(ii)) and 
                                the development of which 
                                contributes to a concerted 
                                community revitalization plan, 
                                and
                          (iii) which provides a procedure that 
                        the agency (or an agent or other 
                        private contractor of such agency) will 
                        follow in monitoring for noncompliance 
                        with the provisions of this section and 
                        in notifying the Internal Revenue 
                        Service of such noncompliance which 
                        such agency becomes aware of and in 
                        monitoring for noncompliance with 
                        habitability standards through regular 
                        site visits.
                  (C) Certain selection criteria must be 
                used.--The selection criteria set forth in a 
                qualified allocation plan must include
                          (i) project location,
                          (ii) housing needs characteristics,
                          (iii) project characteristics, 
                        including whether the project includes 
                        the use of existing housing as part of 
                        a community revitalization plan,
                          (iv) sponsor characteristics,
                          (v) tenant populations with special 
                        housing needs,
                          (vi) public housing waiting lists,
                          (vii) tenant populations of 
                        individuals with children,
                          (viii) projects intended for eventual 
                        tenant ownership,
                          (ix) the energy efficiency of the 
                        project, and
                          (x) the historic nature of the 
                        project.
                  (D) Application to bond financed projects.--
                Subsection (h)(4) shall not apply to any 
                project unless the project satisfies the 
                requirements for allocation of a housing credit 
                dollar amount under the qualified allocation 
                plan applicable to the area in which the 
                project is located.
          (2) Credit allocated to building not to exceed amount 
        necessary to assure project feasibility.--
                  (A) In general.--The housing credit dollar 
                amount allocated to a project shall not exceed 
                the amount the housing credit agency determines 
                is necessary for the financial feasibility of 
                the project and its viability as a qualified 
                low-income housing project throughout the 
                credit period.
                  (B) Agency evaluation.--In making the 
                determination under subparagraph (A), the 
                housing credit agency shall consider--
                          (i) the sources and uses of funds and 
                        the total financing planned for the 
                        project,
                          (ii) any proceeds or receipts 
                        expected to be generated by reason of 
                        tax benefits,
                          (iii) the percentage of the housing 
                        credit dollar amount used for project 
                        costs other than the cost of 
                        intermediaries, and
                          (iv) the reasonableness of the 
                        developmental and operational costs of 
                        the project.
                Clause (iii) shall not be applied so as to 
                impede the development of projects in hard-to-
                develop areas. Such a determination shall not 
                be construed to be a representation or warranty 
                as to the feasibility or viability of the 
                project.
                  (C) Determination made when credit amount 
                applied for and when building placed in 
                service.--
                          (i) In general.--A determination 
                        under subparagraph (A) shall be made as 
                        of each of the following times:
                                  (I) The application for the 
                                housing credit dollar amount.
                                  (II) The allocation of the 
                                housing credit dollar amount.
                                  (III) The date the building 
                                is placed in service.
                          (ii) Certification as to amount of 
                        other subsidies.--Prior to each 
                        determination under clause (i), the 
                        taxpayer shall certify to the housing 
                        credit agency the full extent of all 
                        Federal, State, and local subsidies 
                        which apply (or which the taxpayer 
                        expects to apply) with respect to the 
                        building.
                  (D) Application to bond financed projects.--
                Subsection (h)(4) shall not apply to any 
                project unless the governmental unit which 
                issued the bonds (or on behalf of which the 
                bonds were issued) makes a determination under 
                rules similar to the rules of subparagraphs (A) 
                and (B).
  (n) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations--
          (1) dealing with--
                  (A) projects which include more than 1 
                building or only a portion of a building,
                  (B) buildings which are placed in service in 
                portions,
          (2) providing for the application of this section to 
        short taxable years,
          (3) preventing the avoidance of the rules of this 
        section, and
          (4) providing the opportunity for housing credit 
        agencies to correct administrative errors and omissions 
        with respect to allocations and record keeping within a 
        reasonable period after their discovery, taking into 
        account the availability of regulations and other 
        administrative guidance from the Secretary.

           *       *       *       *       *       *       *


SEC. 45R. EMPLOYEE HEALTH INSURANCE EXPENSES OF SMALL EMPLOYERS.

  (a) General rule.--For purposes of section 38, in the case of 
an eligible small employer, the small employer health insurance 
credit determined under this section for any taxable year in 
the credit period is the amount determined under subsection 
(b).
  (b) Health insurance credit amount.--Subject to subsection 
(c), the amount determined under this subsection with respect 
to any eligible small employer is equal to 50 percent (35 
percent in the case of a tax-exempt eligible small employer) of 
the lesser of--
          (1) the aggregate amount of nonelective contributions 
        the employer made on behalf of its employees during the 
        taxable year under the arrangement described in 
        subsection (d)(4) for premiums for qualified health 
        plans offered by the employer to its employees through 
        an Exchange, or
          (2) the aggregate amount of nonelective contributions 
        which the employer would have made during the taxable 
        year under the arrangement if each employee taken into 
        account under paragraph (1) had enrolled in a qualified 
        health plan which had a premium equal to the average 
        premium (as determined by the Secretary of Health and 
        Human Services) for the small group market in the 
        rating area in which the employee enrolls for coverage.
  (c) Phaseout of credit amount based on number of employees 
and average wages.--The amount of the credit determined under 
subsection (b) without regard to this subsection shall be 
reduced (but not below zero) by the sum of the following 
amounts:
          (1) Such amount multiplied by a fraction the 
        numerator of which is the total number of full-time 
        equivalent employees of the employer in excess of 10 
        and the denominator of which is 15.
          (2) Such amount multiplied by a fraction the 
        numerator of which is the average annual wages of the 
        employer in excess of the dollar amount in effect under 
        subsection (d)(3)(B) and the denominator of which is 
        such dollar amount.
  (d) Eligible small employer.--For purposes of this section--
          (1) In general.--The term ``eligible small employer'' 
        means, with respect to any taxable year, an employer--
                  (A) which has no more than 25 full-time 
                equivalent employees for the taxable year,
                  (B) the average annual wages of which do not 
                exceed an amount equal to twice the dollar 
                amount in effect under paragraph (3)(B) for the 
                taxable year, and
                  (C) which has in effect an arrangement 
                described in paragraph (4).
          (2) Full-time equivalent employees.--
                  (A) In general.--The term ``full-time 
                equivalent employees'' means a number of 
                employees equal to the number determined by 
                dividing--
                          (i) the total number of hours of 
                        service for which wages were paid by 
                        the employer to employees during the 
                        taxable year, by
                          (ii) 2,080.
                Such number shall be rounded to the next lowest 
                whole number if not otherwise a whole number.
                  (B) Excess hours not counted.--If an employee 
                works in excess of 2,080 hours of service 
                during any taxable year, such excess shall not 
                be taken into account under subparagraph (A).
                  (C) Hours of service.--The Secretary, in 
                consultation with the Secretary of Labor, shall 
                prescribe such regulations, rules, and guidance 
                as may be necessary to determine the hours of 
                service of an employee, including rules for the 
                application of this paragraph to employees who 
                are not compensated on an hourly basis.
          (3) Average annual wages.--
                  (A) In general.--The average annual wages of 
                an eligible small employer for any taxable year 
                is the amount determined by dividing--
                          (i) the aggregate amount of wages 
                        which were paid by the employer to 
                        employees during the taxable year, by
                          (ii) the number of full-time 
                        equivalent employees of the employee 
                        determined under paragraph (2) for the 
                        taxable year.
                Such amount shall be rounded to the next lowest 
                multiple of $1,000 if not otherwise such a 
                multiple.
                  (B) Dollar amount.--For purposes of paragraph 
                (1)(B) and subsection (c)(2)--
                          (i) 2010, 2011, 2012, and 2013.--The 
                        dollar amount in effect under this 
                        paragraph for taxable years beginning 
                        in 2010, 2011, 2012, or 2013 is 
                        $25,000.
                          (ii) Subsequent years.--In the case 
                        of a taxable year beginning in a 
                        calendar year after 2013, the dollar 
                        amount in effect under this paragraph 
                        shall be equal to $25,000, multiplied 
                        by the cost-of-living adjustment under 
                        section 1(f)(3) for the calendar year, 
                        determined by substituting ``calendar 
                        year 2012'' for ``calendar year 2016'' 
                        in subparagraph (A)(ii) thereof.
          (4) Contribution arrangement.--An arrangement is 
        described in this paragraph if it requires an eligible 
        small employer to make a nonelective contribution on 
        behalf of each employee who enrolls in a qualified 
        health plan offered to employees by the employer 
        through an exchange in an amount equal to a uniform 
        percentage (not less than 50 percent) of the premium 
        cost of the qualified health plan.
          (5) Seasonal worker hours and wages not counted.--For 
        purposes of this subsection--
                  (A) In general.--The number of hours of 
                service worked by, and wages paid to, a 
                seasonal worker of an employer shall not be 
                taken into account in determining the full-time 
                equivalent employees and average annual wages 
                of the employer unless the worker works for the 
                employer on more than 120 days during the 
                taxable year.
                  (B) Definition of seasonal worker.--The term 
                ``seasonal worker'' means a worker who performs 
                labor or services on a seasonal basis as 
                defined by the Secretary of Labor, including 
                workers covered by section 500.20(s)(1) of 
                title 29, Code of Federal Regulations and 
                retail workers employed exclusively during 
                holiday seasons.
  (e) Other rules and definitions.--For purposes of this 
section--
          (1) Employee.--
                  (A) Certain employees excluded.--The term 
                ``employee'' shall not include--
                          (i) an employee within the meaning of 
                        section 401(c)(1),
                          (ii) any 2-percent shareholder (as 
                        defined in section 1372(b)) of an 
                        eligible small business which is an S 
                        corporation,
                          (iii) any 5-percent owner (as defined 
                        in section 416(i)(1)(B)(i)) of an 
                        eligible small business, or
                          (iv) any individual who bears any of 
                        the relationships described in 
                        subparagraphs (A) through (G) of 
                        [section 152(d)(2)] section 7706(d)(2) 
                        to, or is a dependent described in 
                        [section 152(d)(2)(H)] section 
                        7706(d)(2)(H) of, an individual 
                        described in clause (i), (ii), or 
                        (iii).
                  (B) Leased employees.--The term ``employee'' 
                shall include a leased employee within the 
                meaning of section 414(n).
          (2) Credit period.--The term ``credit period'' means, 
        with respect to any eligible small employer, the 2-
        consecutive-taxable year period beginning with the 1st 
        taxable year in which the employer (or any predecessor) 
        offers 1 or more qualified health plans to its 
        employees through an Exchange.
          (3) Nonelective contribution.--The term ``nonelective 
        contribution'' means an employer contribution other 
        than an employer contribution pursuant to a salary 
        reduction arrangement.
          (4) Wages.--The term ``wages'' has the meaning given 
        such term by section 3121(a) (determined without regard 
        to any dollar limitation contained in such section).
          (5) Aggregation and other rules made applicable.--
                  (A) Aggregation rules.--All employers treated 
                as a single employer under subsection (b), (c), 
                (m), or (o) of section 414 shall be treated as 
                a single employer for purposes of this section.
                  (B) Other rules.--Rules similar to the rules 
                of subsections (c), (d), and (e) of section 52 
                shall apply.
  (f) Credit made available to tax-exempt eligible small 
employers.--
          (1) In general.--In the case of a tax-exempt eligible 
        small employer, there shall be treated as a credit 
        allowable under subpart C (and not allowable under this 
        subpart) the lesser of--
                  (A) the amount of the credit determined under 
                this section with respect to such employer, or
                  (B) the amount of the payroll taxes of the 
                employer during the calendar year in which the 
                taxable year begins.
          (2) Tax-exempt eligible small employer.--For purposes 
        of this section, the term ``tax-exempt eligible small 
        employer'' means an eligible small employer which is 
        any organization described in section 501(c) which is 
        exempt from taxation under section 501(a).
          (3) Payroll taxes.--For purposes of this subsection--
                  (A) In general.--The term ``payroll taxes'' 
                means--
                          (i) amounts required to be withheld 
                        from the employees of the tax-exempt 
                        eligible small employer under section 
                        3401(a),
                          (ii) amounts required to be withheld 
                        from such employees under section 
                        3101(b), and
                          (iii) amounts of the taxes imposed on 
                        the tax-exempt eligible small employer 
                        under section 3111(b).
                  (B) Special rule.--A rule similar to the rule 
                of section 24(d)(2)(C) shall apply for purposes 
                of subparagraph (A).
  (g) Application of section for calendar years 2010, 2011, 
2012, and 2013.--In the case of any taxable year beginning in 
2010, 2011, 2012, or 2013, the following modifications to this 
section shall apply in determining the amount of the credit 
under subsection (a):
          (1) No credit period required.--The credit shall be 
        determined without regard to whether the taxable year 
        is in a credit period and for purposes of applying this 
        section to taxable years beginning after 2013, no 
        credit period shall be treated as beginning with a 
        taxable year beginning before 2014.
          (2) Amount of credit.--The amount of the credit 
        determined under subsection (b) shall be determined--
                  (A) by substituting ``35 percent (25 percent 
                in the case of a tax-exempt eligible small 
                employer)'' for ``50 percent (35 percent in the 
                case of a tax-exempt eligible small 
                employer)'',
                  (B) by reference to an eligible small 
                employer's nonelective contributions for 
                premiums paid for health insurance coverage 
                (within the meaning of section 9832(b)(1)) of 
                an employee, and
                  (C) by substituting for the average premium 
                determined under subsection (b)(2) the amount 
                the Secretary of Health and Human Services 
                determines is the average premium for the small 
                group market in the State in which the employer 
                is offering health insurance coverage (or for 
                such area within the State as is specified by 
                the Secretary).
          (3) Contribution arrangement.--An arrangement shall 
        not fail to meet the requirements of subsection (d)(4) 
        solely because it provides for the offering of 
        insurance outside of an Exchange.
  (h) Insurance definitions.--Any term used in this section 
which is also used in the Public Health Service Act or subtitle 
A of title I of the Patient Protection and Affordable Care Act 
shall have the meaning given such term by such Act or subtitle.
  (i) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this section, including regulations to prevent the avoidance of 
the 2-year limit on the credit period through the use of 
successor entities and the avoidance of the limitations under 
subsection (c) through the use of multiple entities.

           *       *       *       *       *       *       *


Subpart F--Rules for Computing Work Opportunity Credit

           *       *       *       *       *       *       *


SEC. 51. AMOUNT OF CREDIT.

  (a) Determination of amount.--For purposes of section 38, the 
amount of the work opportunity credit determined under this 
section for the taxable year shall be equal to 40 percent of 
the qualified first-year wages for such year.
  (b) Qualified wages defined.--For purposes of this subpart--
          (1) In general.--The term ``qualified wages'' means 
        the wages paid or incurred by the employer during the 
        taxable year to individuals who are members of a 
        targeted group.
          (2) Qualified first-year wages.--The term ``qualified 
        first-year wages'' means, with respect to any 
        individual, qualified wages attributable to service 
        rendered during the 1-year period beginning with the 
        day the individual begins work for the employer.
          (3) Limitation on wages per year taken into 
        account.--The amount of the qualified first-year wages 
        which may be taken into account with respect to any 
        individual shall not exceed $6,000 per year ($12,000 
        per year in the case of any individual who is a 
        qualified veteran by reason of subsection 
        (d)(3)(A)(ii)(I), $14,000 per year in the case of any 
        individual who is a qualified veteran by reason of 
        subsection (d)(3)(A)(iv), and $24,000 per year in the 
        case of any individual who is a qualified veteran by 
        reason of subsection (d)(3)(A)(ii)(II)).
  (c) Wages defined.--For purposes of this subpart--
          (1) In general.--Except as otherwise provided in this 
        subsection and subsection (h)(2), the term ``wages'' 
        has the meaning given to such term by subsection (b) of 
        section 3306 (determined without regard to any dollar 
        limitation contained in such section).
          (2) On-the-job training and work supplementation 
        payments.--
                  (A) Exclusion for employers receiving on-the-
                job training payments.--The term ``wages'' 
                shall not include any amounts paid or incurred 
                by an employer for any period to any individual 
                for whom the employer receives federally funded 
                payments for on-the-job training of such 
                individual for such period.
                  (B) Reduction for work supplementation 
                payments to employers.--The amount of wages 
                which would (but for this subparagraph) be 
                qualified wages under this section for an 
                employer with respect to an individual for a 
                taxable year shall be reduced by an amount 
                equal to the amount of the payments made to 
                such employer (however utilized by such 
                employer) with respect to such individual for 
                such taxable year under a program established 
                under section 482(e) of the Social Security 
                Act.
          (3) Payments for services during labor disputes.--
        If--
                  (A) the principal place of employment of an 
                individual with the employer is at a plant or 
                facility, and
                  (B) there is a strike or lockout involving 
                employees at such plant or facility,
        the term ``wages'' shall not include any amount paid or 
        incurred by the employer to such individual for 
        services which are the same as, or substantially 
        similar to, those services performed by employees 
        participating in, or affected by, the strike or lockout 
        during the period of such strike or lockout.
          (4) Termination.--The term ``wages'' shall not 
        include any amount paid or incurred to an individual 
        who begins work for the employer after December 31, 
        2019.
          (5) Coordination with payroll tax forgiveness.--The 
        term ``wages'' shall not include any amount paid or 
        incurred to a qualified individual (as defined in 
        section 3111(d)(3)) during the 1-year period beginning 
        on the hiring date of such individual by a qualified 
        employer (as defined in section 3111(d)) unless such 
        qualified employer makes an election not to have 
        section 3111(d) apply.
  (d) Members of targeted groups.--For purposes of this 
subpart--
          (1) In general.--An individual is a member of a 
        targeted group if such individual is--
                  (A) a qualified IV-A recipient,
                  (B) a qualified veteran,
                  (C) a qualified ex-felon,
                  (D) a designated community resident,
                  (E) a vocational rehabilitation referral,
                  (F) a qualified summer youth employee,
                  (G) a qualified supplemental nutrition 
                assistance program benefits recipient,
                  (H) a qualified SSI recipient,
                  (I) a long-term family assistance recipient, 
                or
                  (J) a qualified long-term unemployment 
                recipient.
          (2) Qualified IV-A recipient.--
                  (A) In general.--The term ``qualified IV-A 
                recipient'' means any individual who is 
                certified by the designated local agency as 
                being a member of a family receiving assistance 
                under a IV-A program for any 9 months during 
                the 18-month period ending on the hiring date.
                  (B) IV-A program.--For purposes of this 
                paragraph, the term ``IV-A program'' means any 
                program providing assistance under a State 
                program funded under part A of title IV of the 
                Social Security Act and any successor of such 
                program.
          (3) Qualified veteran.--
                  (A) In general.--The term ``qualified 
                veteran'' means any veteran who is certified by 
                the designated local agency as--
                          (i) being a member of a family 
                        receiving assistance under a 
                        supplemental nutrition assistance 
                        program under the Food and Nutrition 
                        Act of 2008 for at least a 3-month 
                        period ending during the 12-month 
                        period ending on the hiring date,
                          (ii) entitled to compensation for a 
                        service-connected disability, and--
                                  (I) having a hiring date 
                                which is not more that 1 year 
                                after having been discharged or 
                                released from active duty in 
                                the Armed Forces of the United 
                                States, or
                                  (II) having aggregate periods 
                                of unemployment during the 1-
                                year period ending on the 
                                hiring date which equal or 
                                exceed 6 months,
                          (iii) having aggregate periods of 
                        unemployment during the 1-year period 
                        ending on the hiring date which equal 
                        or exceed 4 weeks (but less than 6 
                        months), or
                          (iv) having aggregate periods of 
                        unemployment during the 1-year period 
                        ending on the hiring date which equal 
                        or exceed 6 months.
                  (B) Veteran.--For purposes of subparagraph 
                (A), the term ``veteran'' means any individual 
                who is certified by the designated local agency 
                as--
                          (i)
                                  (I) having served on active 
                                duty (other than active duty 
                                for training) in the Armed 
                                Forces of the United States for 
                                a period of more than 180 days, 
                                or
                                  (II) having been discharged 
                                or released from active duty in 
                                the Armed Forces of the United 
                                States for a service-connected 
                                disability, and
                          (ii) not having any day during the 
                        60-day period ending on the hiring date 
                        which was a day of extended active duty 
                        in the Armed Forces of the United 
                        States.
                For purposes of clause (ii), the term 
                ``extended active duty'' means a period of more 
                than 90 days during which the individual was on 
                active duty (other than active duty for 
                training).
                  (C) Other definitions.--For purposes of 
                subparagraph (A), the terms ``compensation'' 
                and ``service-connected'' have the meanings 
                given such terms under section 101 of title 38, 
                United States Code.
          (4) Qualified ex-felon.--The term ``qualified ex-
        felon'' means any individual who is certified by the 
        designated local agency--
                  (A) as having been convicted of a felony 
                under any statute of the United States or any 
                State, and
                  (B) as having a hiring date which is not more 
                than 1 year after the last date on which such 
                individual was so convicted or was released 
                from prison.
          (5) Designated community residents.--
                  (A) In general.--The term ``designated 
                community resident'' means any individual who 
                is certified by the designated local agency--
                          (i) as having attained age 18 but not 
                        age 40 on the hiring date, and
                          (ii) as having his principal place of 
                        abode within an empowerment zone, 
                        enterprise community, renewal 
                        community, or rural renewal county.
                  (B) Individual must continue to reside in 
                zone, community, or county.--In the case of a 
                designated community resident, the term 
                ``qualified wages'' shall not include wages 
                paid or incurred for services performed while 
                the individual's principal place of abode is 
                outside an empowerment zone, enterprise 
                community, renewal community, or rural renewal 
                county.
                  (C) Rural renewal county.--For purposes of 
                this paragraph, the term ``rural renewal 
                county'' means any county which--
                          (i) is outside a metropolitan 
                        statistical area (defined as such by 
                        the Office of Management and Budget), 
                        and
                          (ii) during the 5-year periods 1990 
                        through 1994 and 1995 through 1999 had 
                        a net population loss.
          (6) Vocational rehabilitation referral.--The term 
        ``vocational rehabilitation referral'' means any 
        individual who is certified by the designated local 
        agency as--
                  (A) having a physical or mental disability 
                which, for such individual, constitutes or 
                results in a substantial handicap to 
                employment, and
                  (B) having been referred to the employer upon 
                completion of (or while receiving) 
                rehabilitative services pursuant to--
                          (i) an individualized written plan 
                        for employment under a State plan for 
                        vocational rehabilitation services 
                        approved under the Rehabilitation Act 
                        of 1973,
                          (ii) a program of vocational 
                        rehabilitation carried out under 
                        chapter 31 of title 38, United States 
                        Code, or
                          (iii) an individual work plan 
                        developed and implemented by an 
                        employment network pursuant to 
                        subsection (g) of section 1148 of the 
                        Social Security Act with respect to 
                        which the requirements of such 
                        subsection are met.
          (7) Qualified summer youth employee.--
                  (A) In general.--The term ``qualified summer 
                youth employee'' means any individual--
                          (i) who performs services for the 
                        employer between May 1 and September 
                        15,
                          (ii) who is certified by the 
                        designated local agency as having 
                        attained age 16 but not 18 on the 
                        hiring date (or if later, on May 1 of 
                        the calendar year involved),
                          (iii) who has not been an employee of 
                        the employer during any period prior to 
                        the 90-day period described in 
                        subparagraph (B)(i), and
                          (iv) who is certified by the 
                        designated local agency as having his 
                        principal place of abode within an 
                        empowerment zone, enterprise community, 
                        or renewal community.
                  (B) Special rules for determining amount of 
                credit.--For purposes of applying this subpart 
                to wages paid or incurred to any qualified 
                summer youth employee--
                          (i) subsection (b)(2) shall be 
                        applied by substituting ``any 90-day 
                        period between May 1 and September 15'' 
                        for ``the 1-year period beginning with 
                        the day the individual begins work for 
                        the employer'', and
                          (ii) subsection (b)(3) shall be 
                        applied by substituting ``$3,000'' for 
                        ``$6,000''.
                The preceding sentence shall not apply to an 
                individual who, with respect to the same 
                employer, is certified as a member of another 
                targeted group after such individual has been a 
                qualified summer youth employee.
                  (C) Youth must continue to reside in zone or 
                community.--Paragraph (5)(B) shall apply for 
                purposes of subparagraph (A)(iv).
          (8) Qualified supplemental nutrition assistance 
        program benefits recipient.--
                  (A) In general.--The term ``qualified 
                supplemental nutrition assistance program 
                benefits recipient'' means any individual who 
                is certified by the designated local agency--
                          (i) as having attained age 18 but not 
                        age 40 on the hiring date, and
                          (ii) as being a member of a family--
                                  (I) receiving assistance 
                                under a supplemental nutrition 
                                assistance program under the 
                                Food and Nutrition Act of 2008 
                                for the 6-month period ending 
                                on the hiring date, or
                                  (II) receiving such 
                                assistance for at least 3 
                                months of the 5-month period 
                                ending on the hiring date, in 
                                the case of a member of a 
                                family who ceases to be 
                                eligible for such assistance 
                                under section 6(o) of the Food 
                                and Nutrition Act of 2008.
                  (B) Participation information.--
                Notwithstanding any other provision of law, the 
                Secretary of the Treasury and the Secretary of 
                Agriculture shall enter into an agreement to 
                provide information to designated local 
                agencies with respect to participation in the 
                supplemental nutrition assistance program.
          (9) Qualified SSI recipient.--The term ``qualified 
        SSI recipient'' means any individual who is certified 
        by the designated local agency as receiving 
        supplemental security income benefits under title XVI 
        of the Social Security Act (including supplemental 
        security income benefits of the type described in 
        section 1616 of such Act or section 212 of Public Law 
        93-66) for any month ending within the 60-day period 
        ending on the hiring date.
          (10) Long-term family assistance recipient.--The term 
        ``long-term family assistance recipient'' means any 
        individual who is certified by the designated local 
        agency--
                  (A) as being a member of a family receiving 
                assistance under a IV-A program (as defined in 
                paragraph (2)(B)) for at least the 18-month 
                period ending on the hiring date,
                  (B)(i) as being a member of a family 
                receiving such assistance for 18 months 
                beginning after August 5, 1997, and
                  (ii) as having a hiring date which is not 
                more than 2 years after the end of the earliest 
                such 18-month period, or
                  (C)(i) as being a member of a family which 
                ceased to be eligible for such assistance by 
                reason of any limitation imposed by Federal or 
                State law on the maximum period such assistance 
                is payable to a family, and
                  (ii) as having a hiring date which is not 
                more than 2 years after the date of such 
                cessation.
          (11) Hiring date.--The term ``hiring date'' means the 
        day the individual is hired by the employer.
          (12) Designated local agency.--The term ``designated 
        local agency'' means a State employment security agency 
        established in accordance with the Act of June 6, 1933, 
        as amended (29 U.S.C. 49-49n).
          (13) Special rules for certifications.--
                  (A) In general.--An individual shall not be 
                treated as a member of a targeted group 
                unless--
                          (i) on or before the day on which 
                        such individual begins work for the 
                        employer, the employer has received a 
                        certification from a designated local 
                        agency that such individual is a member 
                        of a targeted group, or
                          (ii)(I) on or before the day the 
                        individual is offered employment with 
                        the employer, a pre-screening notice is 
                        completed by the employer with respect 
                        to such individual, and
                          (II) not later than the 28th day 
                        after the individual begins work for 
                        the employer, the employer submits such 
                        notice, signed by the employer and the 
                        individual under penalties of perjury, 
                        to the designated local agency as part 
                        of a written request for such a 
                        certification from such agency.
        For purposes of this paragraph, the term ``pre-
        screening notice'' means a document (in such form as 
        the Secretary shall prescribe) which contains 
        information provided by the individual on the basis of 
        which the employer believes that the individual is a 
        member of a targeted group.
                  (B) Incorrect certifications.--If--
                          (i) an individual has been certified 
                        by a designated local agency as a 
                        member of a targeted group, and
                          (ii) such certification is incorrect 
                        because it was based on false 
                        information provided by such 
                        individual, the certification shall be 
                        revoked and wages paid by the employer 
                        after the date on which notice of 
                        revocation is received by the employer 
                        shall not be treated as qualified 
                        wages.
                  (C) Explanation of denial of request.--If a 
                designated local agency denies a request for 
                certification of membership in a targeted 
                group, such agency shall provide to the person 
                making such request a written explanation of 
                the reasons for such denial.
                  (D) Credit for unemployed veterans.--
                          (i) In general.--Notwithstanding 
                        subparagraph (A), for purposes of 
                        paragraph (3)(A)--
                                  (I) a veteran will be treated 
                                as certified by the designated 
                                local agency as having 
                                aggregate periods of 
                                unemployment meeting the 
                                requirements of clause (ii)(II) 
                                or (iv) of such paragraph 
                                (whichever is applicable) if 
                                such veteran is certified by 
                                such agency as being in receipt 
                                of unemployment compensation 
                                under State or Federal law for 
                                not less than 6 months during 
                                the 1-year period ending on the 
                                hiring date, and
                                  (II) a veteran will be 
                                treated as certified by the 
                                designated local agency as 
                                having aggregate periods of 
                                unemployment meeting the 
                                requirements of clause (iii) of 
                                such paragraph if such veteran 
                                is certified by such agency as 
                                being in receipt of 
                                unemployment compensation under 
                                State or Federal law for not 
                                less than 4 weeks (but less 
                                than 6 months) during the 1-
                                year period ending on the 
                                hiring date.
                          (ii) Regulatory authority.--The 
                        Secretary may provide alternative 
                        methods for certification of a veteran 
                        as a qualified veteran described in 
                        clause (ii)(II), (iii), or (iv) of 
                        paragraph (3)(A), at the Secretary's 
                        discretion.
          (14) Credit allowed for unemployed veterans and 
        disconnected youth hired in 2009 or 2010.--
                  (A) In general.--Any unemployed veteran or 
                disconnected youth who begins work for the 
                employer during 2009 or 2010 shall be treated 
                as a member of a targeted group for purposes of 
                this subpart.
                  (B) Definitions.--For purposes of this 
                paragraph--
                          (i) Unemployed veteran.--The term 
                        ``unemployed veteran'' means any 
                        veteran (as defined in paragraph 
                        (3)(B), determined without regard to 
                        clause (ii) thereof) who is certified 
                        by the designated local agency as--
                                  (I) having been discharged or 
                                released from active duty in 
                                the Armed Forces at any time 
                                during the 5-year period ending 
                                on the hiring date, and
                                  (II) being in receipt of 
                                unemployment compensation under 
                                State or Federal law for not 
                                less than 4 weeks during the 1-
                                year period ending on the 
                                hiring date.
                          (ii) Disconnected youth.--The term 
                        ``disconnected youth'' means any 
                        individual who is certified by the 
                        designated local agency--
                                  (I) as having attained age 16 
                                but not age 25 on the hiring 
                                date,
                                  (II) as not regularly 
                                attending any secondary, 
                                technical, or post-secondary 
                                school during the 6-month 
                                period preceding the hiring 
                                date,
                                  (III) as not regularly 
                                employed during such 6- month 
                                period, and
                                  (IV) as not readily 
                                employable by reason of lacking 
                                a sufficient number of basic 
                                skills.
          (15) Qualified long-term unemployment recipient.--The 
        term ``qualified long-term unemployment recipient'' 
        means any individual who is certified by the designated 
        local agency as being in a period of unemployment 
        which--
                  (A) is not less than 27 consecutive weeks, 
                and
                  (B) includes a period in which the individual 
                was receiving unemployment compensation under 
                State or Federal law.
  (e) Credit for second-year wages for employment of long-term 
family assistance recipients.--
          (1) In general.--With respect to the employment of a 
        long- term family assistance recipient--
                  (A) the amount of the work opportunity credit 
                determined under this section for the taxable 
                year shall include 50 percent of the qualified 
                second-year wages for such year, and
                  (B) in lieu of applying subsection (b)(3), 
                the amount of the qualified first-year wages, 
                and the amount of qualified second-year wages, 
                which may be taken into account with respect to 
                such a recipient shall not exceed $10,000 per 
                year.
          (2) Qualified second-year wages.--For purposes of 
        this subsection, the term ``qualified second-year 
        wages'' means qualified wages--
                  (A) which are paid to a long-term family 
                assistance recipient, and
                  (B) which are attributable to service 
                rendered during the 1-year period beginning on 
                the day after the last day of the 1-year period 
                with respect to such recipient determined under 
                subsection (b)(2).
          (3) Special rules for agricultural and railway 
        labor.--If such recipient is an employee to whom 
        subparagraph (A) or (B) of subsection (h)(1) applies, 
        rules similar to the rules of such subparagraphs shall 
        apply except that--
                  (A) such subparagraph (A) shall be applied by 
                substituting ``$10,000'' for ``$6,000'', and
                  (B) such subparagraph (B) shall be applied by 
                substituting ``$833.33'' for ``$500''.
  (f) Remuneration must be for trade or business employment.--
          (1) In general.--For purposes of this subpart, 
        remuneration paid by an employer to an employee during 
        any taxable year shall be taken into account only if 
        more than one-half of the remuneration so paid is for 
        services performed in a trade or business of the 
        employer.
          (2) Special rule for certain determination.--Any 
        determination as to whether paragraph (1), or 
        subparagraph (A) or (B) of subsection (h)(1), applies 
        with respect to any employee for any taxable year shall 
        be made without regard to subsections (a) and (b) of 
        section 52.
  (g) United States Employment Service to notify employers of 
availability of credit.--The United States Employment Service, 
in consultation with the Internal Revenue Service, shall take 
such steps as may be necessary or appropriate to keep employers 
apprised of the availability of the work opportunity credit 
determined under this subpart.
  (h) Special rules for agricultural labor and railway labor.--
For purposes of this subpart--
          (1) Unemployment insurance wages.--
                  (A) Agricultural labor.--If the services 
                performed by any employee for an employer 
                during more than one-half of any pay period 
                (within the meaning of section 3306(d)) taken 
                into account with respect to any year 
                constitute agricultural labor (within the 
                meaning of section 3306(k)), the term 
                ``unemployment insurance wages'' means, with 
                respect to the remuneration paid by the 
                employer to such employee for such year, an 
                amount equal to so much of such remuneration as 
                constitutes ``wages'' within the meaning of 
                section 3121(a), except that the contribution 
                and benefit base for each calendar year shall 
                be deemed to be $6,000.
                  (B) Railway labor.--If more than one-half of 
                remuneration paid by an employer to an employee 
                during any year is remuneration for service 
                described in section 3306(c)(9), the term 
                ``unemployment insurance wages'' means, with 
                respect to such employee for such year, an 
                amount equal to so much of the remuneration 
                paid to such employee during such year which 
                would be subject to contributions under section 
                8(a) of the Railroad Unemployment Insurance Act 
                (45 USC Sec. 358(a)) if the maximum amount 
                subject to such contributions were $500 per 
                month.
          (2) Wages.--In any case to which subparagraph (A) or 
        (B) of paragraph (1) applies, the term ``wages'' means 
        unemployment insurance wages (determined without regard 
        to any dollar limitation).
  (i) Certain individuals ineligible.--
          (1) Related individuals.--No wages shall be taken 
        into account under subsection (a) with respect to an 
        individual who--
                  (A) bears any of the relationships described 
                in subparagraphs (A) through (G) of [section 
                152(d)(2)] section 7706(d)(2) to the taxpayer, 
                or, if the taxpayer is a corporation, to an 
                individual who owns, directly or indirectly, 
                more than 50 percent in value of the 
                outstanding stock of the corporation, or, if 
                the taxpayer is an entity other than a 
                corporation, to any individual who owns, 
                directly or indirectly, more than 50 percent of 
                the capital and profits interests in the entity 
                (determined with the application of section 
                267(c)),
                  (B) if the taxpayer is an estate or trust, is 
                a grantor, beneficiary, or fiduciary of the 
                estate or trust, or is an individual who bears 
                any of the relationships described in 
                subparagraphs (A) through (G) of [section 
                152(d)(2)] section 7706(d)(2) to a grantor, 
                beneficiary, or fiduciary of the estate or 
                trust, or
                  (C) is a dependent (described in [section 
                152(d)(2)(H)] section 7706(d)(2)(H)) of the 
                taxpayer, or, if the taxpayer is a corporation, 
                of an individual described in subparagraph (A), 
                or, if the taxpayer is an estate or trust, of a 
                grantor, beneficiary, or fiduciary of the 
                estate or trust.
          (2) Nonqualifying rehires.--No wages shall be taken 
        into account under subsection (a) with respect to any 
        individual if, prior to the hiring date of such 
        individual, such individual had been employed by the 
        employer at any time.
          (3) Individuals not meeting minimum employment 
        period.--
                  (A) Reduction of credit for individuals 
                performing fewer than 400 hours of service.--In 
                the case of an individual who has performed at 
                least 120 hours, but less than 400 hours, of 
                service for the employer, subsection (a) shall 
                be applied by substituting ``25 percent'' for 
                ``40 percent''.
                  (B) Denial of credit for individuals 
                performing fewer than 120 hours of service.--No 
                wages shall be taken into account under 
                subsection (a) with respect to any individual 
                unless such individual has performed at least 
                120 hours of service for the employer.
  (j) Election to have work opportunity credit not apply.--
          (1) In general.--A taxpayer may elect to have this 
        section not apply for any taxable year.
          (2) Time for making election.--An election under 
        paragraph (1) for any taxable year may be made (or 
        revoked) at any time before the expiration of the 3-
        year period beginning on the last date prescribed by 
        law for filing the return for such taxable year 
        (determined without regard to extensions)
          (3) Manner of making election.--An election under 
        paragraph (1) (or revocation thereof) shall be made in 
        such manner as the Secretary may by regulations 
        prescribe.
  (k) Treatment of successor employers; treatment of employees 
performing services for other persons.--
          (1) Treatment of successor employers.--Under 
        regulations prescribed by the Secretary, in the case of 
        a successor employer referred to in section 3306(b)(1), 
        the determination of the amount of the credit under 
        this section with respect to wages paid by such 
        successor employer shall be made in the same manner as 
        if such wages were paid by the predecessor employer 
        referred to in such section.
          (2) Treatment of employees performing services for 
        other persons.--No credit shall be determined under 
        this section with respect to remuneration paid by an 
        employer to an employee for services performed by such 
        employee for another person unless the amount 
        reasonably expected to be received by the employer for 
        such services from such other person exceeds the 
        remuneration paid by the employer to such employee for 
        such services.

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) General rule.--In the case of a taxpayer other than a 
corporation, there is hereby imposed (in addition to any other 
tax imposed by this subtitle) a tax equal to the excess (if 
any) of--
          (1) the tentative minimum tax for the taxable year, 
        over
          (2) the regular tax for the taxable year.
  (b) Tentative minimum tax.--For purposes of this part--
          (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.
          (2) Alternative minimum taxable income.--The term 
        ``alternative minimum taxable income'' means the 
        taxable income of the taxpayer for the taxable year--
                  (A) determined with the adjustments provided 
                in section 56 and section 58, and
                  (B) increased by the amount of the items of 
                tax preference described in section 57.
        If a taxpayer is subject to the regular tax, such 
        taxpayer shall be subject to the tax imposed by this 
        section (and, if the regular tax is determined by 
        reference to an amount other than taxable income, such 
        amount shall be treated as the taxable income of such 
        taxpayer for purposes of the preceding sentence).
          (3) Maximum rate of tax on net capital gain of 
        noncorporate taxpayers.--The amount determined under 
        the first sentence of paragraph (1)(A) shall not exceed 
        the sum of--
                  (A) the amount determined under such first 
                sentence computed at the rates and in the same 
                manner as if this paragraph had not been 
                enacted on the taxable excess reduced by the 
                lesser of--
                          (i) the net capital gain; or
                          (ii) the sum of--
                                  (I) the adjusted net capital 
                                gain, plus
                                  (II) the unrecaptured section 
                                1250 gain, plus
                  (B) 0 percent of so much of the adjusted net 
                capital gain (or, if less, taxable excess) as 
                does not exceed an amount equal to the excess 
                described in section 1(h)(1)(B), plus
                  (C) 15 percent of the lesser of--
                          (i) so much of the adjusted net 
                        capital gain (or, if less, taxable 
                        excess) as exceeds the amount on which 
                        tax is determined under subparagraph 
                        (B), or
                          (ii) the excess described in section 
                        1(h)(1)(C)(ii), plus
                  (D) 20 percent of the adjusted net capital 
                gain (or, if less, taxable excess) in excess of 
                the sum of the amounts on which tax is 
                determined under subparagraphs (B) and (C), 
                plus
                  (E) 25 percent of the amount of taxable 
                excess in excess of the sum of the amounts on 
                which tax is determined under the preceding 
                subparagraphs of this paragraph.
        Terms used in this paragraph which are also used in 
        section 1(h) shall have the respective meanings given 
        such terms by section 1(h) but computed with the 
        adjustments under this part.
  (c) Regular tax.--
          (1) In general.--For purposes of this section, the 
        term ``regular tax'' means the regular tax liability 
        for the taxable year (as defined in section 26(b)) 
        reduced by the foreign tax credit allowable under 
        section 27(a). Such term shall not include any increase 
        in tax under section 45(e)(11)(C), 49(b) or 50(a) or 
        subsection (j) or (k) of section 42.
          (2) Coordination with income averaging for farmers 
        and fishermen.--Solely for purposes of this section, 
        section 1301 (relating to averaging of farm and fishing 
        income) shall not apply in computing the regular tax 
        liability.
          (3) Cross references.--For provisions providing that 
        certain credits are not allowable against the tax 
        imposed by this section, see sections 30C(d)(2) and 
        38(c).
  (d) Exemption amount.--For purposes of this section--
          (1) Exemption amount for taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation, the term ``exemption amount'' means--
                  (A) [$78,750] $109,400 in the case of--
                          (i) a joint return, or
                          (ii) a surviving spouse,
                  (B) [$50,600] $70,300 in the case of an 
                individual who--
                          (i) is not a married individual, and
                          (ii) is not a surviving spouse,
                  (C) 50 percent of the dollar amount 
                applicable under subparagraph (A) in the case 
                of a married individual who files a separate 
                return, and
                  (D) $22,500 in the case of an estate or 
                trust.
        For purposes of this paragraph, the term ``surviving 
        spouse'' has the meaning given to such term by section 
        2(a), and marital status shall be determined under 
        section 7703.
          (2) Phase-out of exemption amount.--The exemption 
        amount of any taxpayer shall be reduced (but not below 
        zero) by an amount equal to 25 percent of the amount by 
        which the alternative minimum taxable income of the 
        taxpayer exceeds--
                  (A) [$150,000] $1,000,000 in the case of a 
                taxpayer described in paragraph (1)(A),
                  [(B) $112,500 in the case of a taxpayer 
                described in paragraph (1)(B), and
                  [(C) 50 percent of the dollar amount 
                applicable under subparagraph (A) in the case 
                of a taxpayer described in subparagraph (C) or 
                (D) of paragraph (1).]
                  (B) 50 percent of the dollar amount 
                applicable under subparagraph (A) in the case 
                of a taxpayer described in paragraph (1)(B) or 
                (1)(C), and
                  (C) $75,000 in the case of a taxpayer 
                described in paragraph (1)(D).
        In the case of a taxpayer described in paragraph 
        (1)(C), alternative minimum taxable income shall be 
        increased by the lesser of (i) 25 percent of the excess 
        of alternative minimum taxable income (determined 
        without regard to this sentence) over the minimum 
        amount of such income (as so determined) for which the 
        exemption amount under paragraph (1)(C) is zero, or 
        (ii) such exemption amount (determined without regard 
        to this paragraph).
          [(3) Inflation adjustment.--
                  [(A) In general.--In the case of any taxable 
                year beginning in a calendar year after 2012, 
                the amounts described in subparagraph (B) 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 2011'' for ``calendar 
                        year 2016'' in subparagraph (A)(ii) 
                        thereof.
                  [(B) Amounts described.--The amounts 
                described in this subparagraph are--
                          [(i) each of the dollar amounts 
                        contained in subsection (b)(1)(A),
                          [(ii) each of the dollar amounts 
                        contained in subparagraphs (A), (B), 
                        and (D) of paragraph (1), and
                          [(iii) each of the dollar amounts in 
                        subparagraphs (A) and (B) of paragraph 
                        (2).
                  [(C) Rounding.--Any increased amount 
                determined under subparagraph (A) shall be 
                rounded to the nearest multiple of $100.
          [(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.]
          (3) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2018, each 
        dollar amount described in clause (i) or (ii) of 
        subparagraph (B) shall be increased by an amount equal 
        to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting--
                          (i) in the case of a dollar amount 
                        contained in paragraph (1)(D) or (2)(C) 
                        or in subsection (b)(1)(A), ``calendar 
                        year 2011'' for ``calendar year 2016'' 
                        in subparagraph (A)(ii) thereof, and
                          (ii) in the case of a dollar amount 
                        contained in paragraph (1)(A), (1)(B), 
                        or (2)(A), ``calendar year 2017'' for 
                        ``calendar year 2016'' in subparagraph 
                        (A)(ii) thereof.
        Any increased amount determined under this paragraph 
        shall be rounded to the nearest multiple of $100 ($50 
        in the case of the dollar amount contained in paragraph 
        (2)(C)).

SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

  (a) Adjustments applicable to all taxpayers.--In determining 
the amount of the alternative minimum taxable income for any 
taxable year the following treatment shall apply (in lieu of 
the treatment applicable for purposes of computing the regular 
tax):
          (1) Depreciation.--
                  (A) In general.--
                          (i) Property other than certain 
                        personal property.--Except as provided 
                        in clause (ii), the depreciation 
                        deduction allowable under section 167 
                        with respect to any tangible property 
                        placed in service after December 31, 
                        1986, shall be determined under the 
                        alternative system of section 168(g). 
                        In the case of property placed in 
                        service after December 31, 1998, the 
                        preceding sentence shall not apply but 
                        clause (ii) shall continue to apply.
                          (ii) 150-percent declining balance 
                        method for certain property.--The 
                        method of depreciation used shall be--
                                  (I) the 150 percent declining 
                                balance method,
                                  (II) switching to the 
                                straight line method for the 
                                1st taxable year for which 
                                using the straight line method 
                                with respect to the adjusted 
                                basis as of the beginning of 
                                the year will yield a higher 
                                allowance.
                        The preceding sentence shall not apply 
                        to any section 1250 property (as 
                        defined in section 1250(c)) (and the 
                        straight line method shall be used for 
                        such section 1250 property)or to any 
                        other property if the depreciation 
                        deduction determined under section 168 
                        with respect to such other property for 
                        purposes of the regular tax is 
                        determined by using the straight line 
                        method.
                  (B) Exception for certain property.--This 
                paragraph shall not apply to property described 
                in paragraph (1), (2), (3), or (4) of section 
                168(f), or in section 168(e)(3)(C)(iv).
                  (C) Coordination with transitional rules.--
                          (i) In general.--This paragraph shall 
                        not apply to property placed in service 
                        after December 31, 1986, to which the 
                        amendments made by section 201 of the 
                        Tax Reform Act of 1986 do not apply by 
                        reason of section 203, 204, or 251(d) 
                        of such Act.
                          (ii) Treatment of certain property 
                        placed in service before 1987.--This 
                        paragraph shall apply to any property 
                        to which the amendments made by section 
                        201 of the Tax Reform Act of 1986 apply 
                        by reason of an election under section 
                        203(a)(1)(B) of such Act without regard 
                        to the requirement of subparagraph (A) 
                        that the property be placed in service 
                        after December 31, 1986.
                  (D) Normalization rules.--With respect to 
                public utility property described in section 
                168(i)(10), the Secretary shall prescribe the 
                requirements of a normalization method of 
                accounting for this section.
          (2) Mining exploration and development costs.--
                  (A) In general.--With respect to each mine or 
                other natural deposit (other than an oil, gas, 
                or geothermal well) of the taxpayer, the amount 
                allowable as a deduction under section 616(a) 
                or 617(a) (determined without regard to section 
                291(b)) in computing the regular tax for costs 
                paid or incurred after December 31, 1986, shall 
                be capitalized and amortized ratably over the 
                10-year period beginning with the taxable year 
                in which the expenditures were made.
                  (B) Loss allowed.--If a loss is sustained 
                with respect to any property described in 
                subparagraph (A), a deduction shall be allowed 
                for the expenditures described in subparagraph 
                (A) for the taxable year in which such loss is 
                sustained in an amount equal to the lesser of--
                          (i) the amount allowable under 
                        section 165(a) for the expenditures if 
                        they had remained capitalized, or
                          (ii) the amount of such expenditures 
                        which have not previously been 
                        amortized under subparagraph (A).
          (3) Treatment of certain long-term contracts.--In the 
        case of any long-term contract entered into by the 
        taxpayer on or after March 1, 1986, the taxable income 
        from such contract shall be determined under the 
        percentage of completion method of accounting (as 
        modified by section 460(b)). For purposes of the 
        preceding sentence, in the case of a contract described 
        in section 460(e)(1), the percentage of the contract 
        completed shall be determined under section 460(b)(1) 
        by using the simplified procedures for allocation of 
        costs prescribed under section 460(b)(3). The first 
        sentence of this paragraph shall not apply to any home 
        construction contract (as defined in section 
        460(e)(6)).
          (4) Alternative tax net operating loss deduction.--
        The alternative tax net operating loss deduction shall 
        be allowed in lieu of the net operating loss deduction 
        allowed under section 172.
          (5) Pollution control facilities.--In the case of any 
        certified pollution control facility placed in service 
        after December 31, 1986, the deduction allowable under 
        section 169 (without regard to section 291) shall be 
        determined under the alternative system of section 
        168(g). In the case of such a facility placed in 
        service after December 31, 1998, such deduction shall 
        be determined under section 168 using the straight line 
        method.
          (6) Adjusted basis.--The adjusted basis of any 
        property to which paragraph (1) or (5) applies (or with 
        respect to which there are any expenditures to which 
        paragraph (2) or subsection (b)(2) applies) shall be 
        determined on the basis of the treatment prescribed in 
        paragraph (1), (2), or (5), or subsection (b)(2), 
        whichever applies.
          (7) Section 87 not applicable.--Section 87 (relating 
        to alcohol fuel credit) shall not apply.
  (b) Adjustments applicable to individuals.--In determining 
the amount of the alternative minimum taxable income of any 
taxpayer (other than a corporation), the following treatment 
shall apply (in lieu of the treatment applicable for purposes 
of computing the regular tax):
          (1) Limitation on deductions.--
                  [(A) In general.--No deduction shall be 
                allowed--
                          [(i) for any miscellaneous itemized 
                        deduction (as defined in section 
                        67(b)), or
                          [(ii) for any taxes described in 
                        paragraph (1), (2), or (3) of section 
                        164(a) or clause (ii) of section 
                        164(b)(5)(A).
                Clause (ii) shall not apply to any amount 
                allowable in computing adjusted gross income.
                  [(B) Medical expenses.--In determining the 
                amount allowable as a deduction under section 
                213, subsection (a) of section 213 shall be 
                applied without regard to subsection (f) of 
                such section. This subparagraph shall not apply 
                to taxable years beginning after December 31, 
                2016, and ending before January 1, 2019]
                  (A) Certain taxes.--No deduction (other than 
                a deduction allowable in computing adjusted 
                gross income) shall be allowed for any taxes 
                described in paragraph (1), (2), or (3) of 
                section 164(a) or clause (ii) of section 
                164(b)(5)(A).
                  [(C)] (B) Interest.--In determining the 
                amount allowable as a deduction for interest, 
                subsections (d) and (h) of section 163 shall 
                apply, except that--
                          (i) in lieu of the exception under 
                        section 163(h)(2)(D), the term 
                        ``personal interest'' shall not include 
                        any qualified housing interest (as 
                        defined in subsection (e)),
                          (ii) interest on any specified 
                        private activity bond (and any amount 
                        treated as interest on a specified 
                        private activity bond under section 
                        57(a)(5)(B)), and any deduction 
                        referred to in section 57(a)(5)(A), 
                        shall be treated as includible in gross 
                        income (or as deductible) for purposes 
                        of applying section 163(d),
                          (iii) in lieu of the exception under 
                        section 163(d)(3)(B)(i), the term 
                        ``investment interest'' shall not 
                        include any qualified housing interest 
                        (as defined in subsection (e)), and
                          (iv) the adjustments of this section 
                        and sections 57 and 58 shall apply in 
                        determining net investment income under 
                        section 163(d).
                  [(D)] (C) Treatment of certain recoveries.--
                No recovery of any tax to which [subparagraph 
                (A)(ii)] subparagraph (A) applied shall be 
                included in gross income for purposes of 
                determining alternative minimum taxable income.
                  [(E)] (D) Standard deduction [and deduction 
                for personal exemptions] not allowed.--The 
                standard deduction under section 63(c)[, the 
                deduction for personal exemptions under section 
                151,] and the deduction under section 642(b) 
                shall not be allowed.
                  [(F) Section 68 not applicable.--Section 68 
                shall not apply.]
          (2) Circulation and research and experimental 
        expenditures.--
                  (A) In general.--The amount allowable as a 
                deduction under section 173 or 174(a) in 
                computing the regular tax for amounts paid or 
                incurred after December 31, 1986, shall be 
                capitalized and--
                          (i) in the case of circulation 
                        expenditures described in section 173, 
                        shall be amortized ratably over the 3-
                        year period beginning with the taxable 
                        year in which the expenditures were 
                        made, or
                          (ii) in the case of research and 
                        experimental expenditures described in 
                        section 174(a), shall be amortized 
                        ratably over the 10-year period 
                        beginning with the taxable year in 
                        which the expenditures were made.
                  (B) Loss allowed.--If a loss is sustained 
                with respect to any property described in 
                subparagraph (A), a deduction shall be allowed 
                for the expenditures described in subparagraph 
                (A) for the taxable year in which such loss is 
                sustained in an amount equal to the lesser of--
                          (i) the amount allowable under 
                        section 165(a) for the expenditures if 
                        they had remained capitalized, or
                          (ii) the amount of such expenditures 
                        which have not previously been 
                        amortized under subparagraph (A).
                  (C) Exception for certain research and 
                experimental expenditures.--If the taxpayer 
                materially participates (within the meaning of 
                section 469(h)) in an activity, this paragraph 
                shall not apply to any amount allowable as a 
                deduction under section 174(a) for expenditures 
                paid or incurred in connection with such 
                activity.
          (3) Treatment of incentive stock options.--Section 
        421 shall not apply to the transfer of stock acquired 
        pursuant to the exercise of an incentive stock option 
        (as defined in section 422). Section 422(c)(2) shall 
        apply in any case where the disposition and the 
        inclusion for purposes of this part are within the same 
        taxable year and such section shall not apply in any 
        other case. The adjusted basis of any stock so acquired 
        shall be determined on the basis of the treatment 
        prescribed by this paragraph.
  (d) Alternative tax net operating loss deduction defined.--
          (1) In general.--For purposes of subsection (a)(4), 
        the term ``alternative tax net operating loss 
        deduction'' means the net operating loss deduction 
        allowable for the taxable year under section 172, 
        except that--
                  (A) the amount of such deduction shall not 
                exceed the sum of--
                          (i) the lesser of--
                                  (I) the amount of such 
                                deduction attributable to net 
                                operating losses (other than 
                                the deduction described in 
                                clause (ii)(I)), or
                                  (II) 90 percent of 
                                alternative minimum taxable 
                                income determined without 
                                regard to such deduction and 
                                the deduction under section 
                                199, plus
                          (ii) the lesser of--
                                  (I) the amount of such 
                                deduction attributable to an 
                                applicable net operating loss 
                                with respect to which an 
                                election is made under section 
                                172(b)(1)(H) (as in effect 
                                before its repeal by the Tax 
                                Increase Prevention Act of 
                                2014), or
                                  (II) alternative minimum 
                                taxable income determined 
                                without regard to such 
                                deduction and the deduction 
                                under section 199 reduced by 
                                the amount determined under 
                                clause (i), and
                  (B) in determining the amount of such 
                deduction--
                          (i) the net operating loss (within 
                        the meaning of section 172(c)) for any 
                        loss year shall be adjusted as provided 
                        in paragraph (2), and
                          (ii) appropriate adjustments in the 
                        application of section 172(b)(2) shall 
                        be made to take into account the 
                        limitation of subparagraph (A).
          (2) Adjustments to net operating loss computation.--
                  (A) Post-1986 loss years.--In the case of a 
                loss year beginning after December 31, 1986, 
                the net operating loss for such year under 
                section 172(c) shall--
                          (i) be determined with the 
                        adjustments provided in this section 
                        and section 58, and
                          (ii) be reduced by the items of tax 
                        preference determined under section 57 
                        for such year.
                An item of tax preference shall be taken into 
                account under clause (ii) only to the extent 
                such item increased the amount of the net 
                operating loss for the taxable year under 
                section 172(c).
                  (B) Pre-1987 years.--In the case of loss 
                years beginning before January 1, 1987, the 
                amount of the net operating loss which may be 
                carried over to taxable years beginning after 
                December 31, 1986, for purposes of paragraph 
                (2), shall be equal to the amount which may be 
                carried from the loss year to the first taxable 
                year of the taxpayer beginning after December 
                31, 1986.
  (e) Qualified housing interest.--For purposes of this part--
          (1) In general.--The term ``qualified housing 
        interest'' means interest which is qualified residence 
        interest (as defined in section 163(h)(3)) and is paid 
        or accrued during the taxable year on indebtedness 
        which is incurred in acquiring, constructing, or 
        substantially improving any property which--
                  (A) is the principal residence (within the 
                meaning of section 121) of the taxpayer at the 
                time such interest accrues, or
                  (B) is a qualified dwelling which is a 
                qualified residence (within the meaning of 
                section 163(h)(4)).
        Such term also includes interest on any indebtedness 
        resulting from the refinancing of indebtedness meeting 
        the requirements of the preceding sentence; but only to 
        the extent that the amount of the indebtedness 
        resulting from such refinancing does not exceed the 
        amount of the refinanced indebtedness immediately 
        before the refinancing.
          (2) Qualified dwelling.--The term ``qualified 
        dwelling'' means any--
                  (A) house,
                  (B) apartment,
                  (C) condominium, or
                  (D) mobile home not used on a transient basis 
                (within the meaning of section 
                7701(a)(19)(C)(v)),
        including all structures or other property appurtenant 
        thereto.
          (3) Special rule for indebtedness incurred before 
        July 1, 1982.--The term ``qualified housing interest'' 
        includes interest which is qualified residence interest 
        (as defined in section 163(h)(3)) and is paid or 
        accrued on indebtedness which--
                  (A) was incurred by the taxpayer before July 
                1, 1982, and
                  (B) is secured by property which, at the time 
                such indebtedness was incurred, was--
                          (i) the principal residence (within 
                        the meaning of section 121) of the 
                        taxpayer, or
                          (ii) a qualified dwelling used by the 
                        taxpayer (or any member of his family 
                        (within the meaning of section 
                        267(c)(4))).

           *       *       *       *       *       *       *


SEC. 58. DENIAL OF CERTAIN LOSSES.

  (a) Denial of farm loss.--
          (1) In general.--For purposes of computing the amount 
        of the alternative minimum taxable income for any 
        taxable year of a taxpayer other than a corporation--
                  (A) Disallowance of farm loss.--No loss of 
                the taxpayer for such taxable year from any tax 
                shelter farm activity shall be allowed.
                  (B) Deduction in succeeding taxable year.--
                Any loss from a tax shelter farm activity 
                disallowed under subparagraph (A) shall be 
                treated as a deduction allocable to such 
                activity in the 1st succeeding taxable year.
          (2) Tax shelter farm activity.--For purposes of this 
        subsection, the term ``tax shelter farm activity'' 
        means--
                  (A) any farming syndicate as defined in 
                section [461(k)] 461(j), and
                  (B) any other activity consisting of farming 
                which is a passive activity (within the meaning 
                of section 469(c)).
          (3) Determination of loss.--In determining the amount 
        of the loss from any tax shelter farm activity, the 
        adjustments of sections 56 and 57 shall apply.
  (b) Disallowance of passive activity loss.--In computing the 
alternative minimum taxable income of the taxpayer for any 
taxable year, section 469 shall apply, except that in applying 
section 469 -
          (1) the adjustments of sections 56 and 57 shall 
        apply, and
          (2) in lieu of applying section 469(j)(7), the 
        passive activity loss of a taxpayer shall be computed 
        without regard to qualified housing interest (as 
        defined in section 56(e)).
  (c) Special rules.--For purposes of this section--
          (1) Special rule for insolvent taxpayers.--
                  (A) In general.--The amount of losses to 
                which subsection (a) or (b) applies shall be 
                reduced by the amount (if any) by which the 
                taxpayer is insolvent as of the close of the 
                taxable year.
                  (B) Insolvent.--For purposes of this 
                paragraph, the term ``insolvent'' means the 
                excess of liabilities over the fair market 
                value of assets.
          (2) Loss allowed for year of disposition of farm 
        shelter activity.--If the taxpayer disposes of his 
        entire interest in any tax shelter farm activity during 
        any taxable year, the amount of the loss attributable 
        to such activity (determined after carryovers under 
        subsection (a)(1)(B)) shall (to the extent otherwise 
        allowable) be allowed for such taxable year in 
        computing alternative minimum taxable income and not 
        treated as a loss from a tax shelter farm activity.

           *       *       *       *       *       *       *


              Subchapter B--Computation of Taxable Income

PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
          INCOME, ETC
     * * * * * * *
[PART V--DEDUCTIONS FOR PERSONAL EXEMPTIONS

           *       *       *       *       *       *       *


  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
                              INCOME, ETC

Sec. 61. Gross income defined.
     * * * * * * *
[Sec. 67. 2-percent floor on miscellaneous itemized deductions.]
Sec. 67. Denial of miscellaneous itemized deductions.
[Sec. 68. Overall limitation on itemized deductions.]

           *       *       *       *       *       *       *


SEC. 62. ADJUSTED GROSS INCOME DEFINED.

  (a) General rule.--For purposes of this [subtitle] title, the 
term ``adjusted gross income'' means, in the case of an 
individual, gross income minus the following deductions:
          (1) Trade and business deductions.--The deductions 
        allowed by this chapter (other than by part VII of this 
        subchapter) which are attributable to a trade or 
        business carried on by the taxpayer, if such trade or 
        business does not consist of the performance of 
        services by the taxpayer as an employee.
          (2) Certain trade and business deductions of 
        employees.--
                  (A) Reimbursed expenses of employees.--The 
                deductions allowed by part VI (section 161 and 
                following) which consist of expenses paid or 
                incurred by the taxpayer, in connection with 
                the performance by him of services as an 
                employee, under a reimbursement or other 
                expense allowance arrangement with his 
                employer. The fact that the reimbursement may 
                be provided by a third party shall not be 
                determinative of whether or not the preceding 
                sentence applies.
                  (B) Certain expenses of performing artists.--
                The deductions allowed by section 162 which 
                consist of expenses paid or incurred by a 
                qualified performing artist in connection with 
                the performances by him of services in the 
                performing arts as an employee.
                  (C) Certain expenses of officials.--The 
                deductions allowed by section 162 which consist 
                of expenses paid or incurred with respect to 
                services performed by an official as an 
                employee of a State or a political subdivision 
                thereof in a position compensated in whole or 
                in part on a fee basis.
                  (D) Certain expenses of elementary and 
                secondary school teachers.--The deductions 
                allowed by section 162 which consist of 
                expenses, not in excess of $250, paid or 
                incurred by an eligible educator--
                          (i) by reason of the participation of 
                        the educator in professional 
                        development courses related to the 
                        curriculum in which the educator 
                        provides instruction or to the students 
                        for which the educator provides 
                        instruction, and
                          (ii) in connection with books, 
                        supplies (other than nonathletic 
                        supplies for courses of instruction in 
                        health or physical education), computer 
                        equipment (including related software 
                        and services) and other equipment, and 
                        supplementary materials used by the 
                        eligible educator in the classroom.
                  (E) Certain expenses of members of reserve 
                components of the Armed Forces of the United 
                States.--The deductions allowed by section 162 
                which consist of expenses, determined at a rate 
                not in excess of the rates for travel expenses 
                (including per diem in lieu of subsistence) 
                authorized for employees of agencies under 
                subchapter I of chapter 57 of title 5, United 
                States Code, paid or incurred by the taxpayer 
                in connection with the performance of services 
                by such taxpayer as a member of a reserve 
                component of the Armed Forces of the United 
                States for any period during which such 
                individual is more than 100 miles away from 
                home in connection with such services.
          (3) Losses from sale or exchange of property.--The 
        deductions allowed by part VI (sec. 161 and following) 
        as losses from the sale or exchange of property.
          (4) Deductions attributable to rents and royalties.--
        The deductions allowed by part VI (sec. 161 and 
        following), by section 212 (relating to expenses for 
        production of income), and by section 611 (relating to 
        depletion) which are attributable to property held for 
        the production of rents or royalties.
          (5) Certain deductions of life tenants and income 
        beneficiaries of property.--In the case of a life 
        tenant of property, or an income beneficiary of 
        property held in trust, or an heir, legatee, or devisee 
        of an estate, the deduction for depreciation allowed by 
        section 167 and the deduction allowed by section 611.
          (6) Pension, profit-sharing, and annuity plans of 
        self-employed individuals.--In the case of an 
        individual who is an employee within the meaning of 
        section 401(c)(1), the deduction allowed by section 
        404.
          (7) Retirement savings.--The deduction allowed by 
        section 219 (relating to deduction of certain 
        retirement savings).
          (9) Penalties forfeited because of premature 
        withdrawal of funds from time savings accounts or 
        deposits.--The deductions allowed by section 165 for 
        losses incurred in any transaction entered into for 
        profit, though not connected with a trade or business, 
        to the extent that such losses include amounts 
        forfeited to a bank, mutual savings bank, savings and 
        loan association, building and loan association, 
        cooperative bank or homestead association as a penalty 
        for premature withdrawal of funds from a time savings 
        account, certificate of deposit, or similar class of 
        deposit.
          (11) Reforestation expenses.--The deduction allowed 
        by section 194.
          (12) Certain required repayments of supplemental 
        unemployment compensation benefits.--The deduction 
        allowed by section 165 for the repayment to a trust 
        described in paragraph (9) or (17) of section 501(c) of 
        supplemental unemployment compensation benefits 
        received from such trust if such repayment is required 
        because of the receipt of trade readjustment allowances 
        under section 231 or 232 of the Trade Act of 1974 (19 
        U.S.C. Sec. 2291 and 2292).
          (13) Jury duty pay remitted to employer.--Any 
        deduction allowable under this chapter by reason of an 
        individual remitting any portion of any jury pay to 
        such individual's employer in exchange for payment by 
        the employer of compensation for the period such 
        individual was performing jury duty. For purposes of 
        the preceding sentence, the term ``jury pay'' means any 
        payment received by the individual for the discharge of 
        jury duty.
          (15) Moving expenses.--The deduction allowed by 
        section 217.
          (16) Archer MSAs.--The deduction allowed by section 
        220.
          (17) Interest on education loans.--The deduction 
        allowed by section 221.
          (18) Higher education expenses.--The deduction 
        allowed by section 222.
          (19) Health savings accounts.--The deduction allowed 
        by section 223.
          (20) Costs involving discrimination suits, etc..--Any 
        deduction allowable under this chapter for attorney 
        fees and court costs paid by, or on behalf of, the 
        taxpayer in connection with any action involving a 
        claim of unlawful discrimination (as defined in 
        subsection (e)) or a claim of a violation of subchapter 
        III of chapter 37 of title 31, United States Code or a 
        claim made under section 1862(b)(3)(A) of the Social 
        Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding 
        sentence shall not apply to any deduction in excess of 
        the amount includible in the taxpayer's gross income 
        for the taxable year on account of a judgment or 
        settlement (whether by suit or agreement and whether as 
        lump sum or periodic payments) resulting from such 
        claim.
          (21) Attorneys' fees relating to awards to 
        whistleblowers.--
                  (A) In general.--Any deduction allowable 
                under this chapter for attorney fees and court 
                costs paid by, or on behalf of, the taxpayer in 
                connection with any award under--
                          (i) section 7623(b), or
                          (ii) in the case of taxable years 
                        beginning after December 31, 2017, any 
                        action brought under--
                                  (I) section 21F of the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78u-6),
                                  (II) a State false claims 
                                act, including a State false 
                                claims act with qui tam 
                                provisions, or
                                  (III) section 23 of the 
                                Commodity Exchange Act (7 
                                U.S.C. 26).
                  (B) May not exceed award.--Subparagraph (A) 
                shall not apply to any deduction in excess of 
                the amount includible in the taxpayer's gross 
                income for the taxable year on account of such 
                award.
        Nothing in this section shall permit the same item to 
        be deducted more than once. Any deduction allowed by 
        section 199A shall not be treated as a deduction 
        described in any of the preceding paragraphs of this 
        subsection.
  (b) Qualified performing artist.--
          (1) In general.--For purposes of subsection 
        (a)(2)(B), the term ``qualified performing artist'' 
        means, with respect to any taxable year, any individual 
        if--
                  (A) such individual performed services in the 
                performing arts as an employee during the 
                taxable year for at least 2 employers,
                  (B) the aggregate amount allowable as a 
                deduction under section 162 in connection with 
                the performance of such services exceeds 10 
                percent of such individual's gross income 
                attributable to the performance of such 
                services, and
                  (C) the adjusted gross income of such 
                individual for the taxable year (determined 
                without regard to subsection (a)(2)(B)) does 
                not exceed $16,000.
          (2) Nominal employer not taken into account.--An 
        individual shall not be treated as performing services 
        in the performing arts as an employee for any employer 
        during any taxable year unless the amount received by 
        such individual from such employer for the performance 
        of such services during the taxable year equals or 
        exceeds $200.
          (3) Special rules for married couples.--
                  (A) In general.--Except in the case of a 
                husband and wife who lived apart at all times 
                during the taxable year, if the taxpayer is 
                married at the close of the taxable year, 
                subsection (a)(2)(B) shall apply only if the 
                taxpayer and his spouse file a joint return for 
                the taxable year.
                  (B) Application of paragraph (1).--In the 
                case of a joint return--
                          (i) paragraph (1) (other than 
                        subparagraph (C) thereof) shall be 
                        applied separately with respect to each 
                        spouse, but
                          (ii) paragraph (1)(C) shall be 
                        applied with respect to their combined 
                        adjusted gross income.
                  (C) Determination of marital status.--For 
                purposes of this subsection, marital status 
                shall be determined under section 7703(a).
                  (D) Joint return.--For purposes of this 
                subsection, the term ``joint return'' means the 
                joint return of a husband and wife made under 
                section 6013.
  (c) Certain arrangements not treated as reimbursement 
arrangements.--For purposes of subsection (a)(2)(A), an 
arrangement shall in no event be treated as a reimbursement or 
other expense allowance arrangement if--
          (1) such arrangement does not require the employee to 
        substantiate the expenses covered by the arrangement to 
        the person providing the reimbursement, or
          (2) such arrangement provides the employee the right 
        to retain any amount in excess of the substantiated 
        expenses covered under the arrangement.
The substantiation requirements of the preceding sentence shall 
not apply to any expense to the extent that substantiation is 
not required under section 274(d) for such expense by reason of 
the regulations prescribed under the 2nd sentence thereof.
  (d) Definition; special rules.--
          (1) Eligible educator.--
                  (A) In general.--For purposes of subsection 
                (a)(2)(D), the term ``eligible educator'' 
                means, with respect to any taxable year, an 
                individual who is a kindergarten through grade 
                12 teacher, instructor, counselor, principal, 
                or aide in a school for at least 900 hours 
                during a school year.
                  (B) School.--The term ``school'' means any 
                school which provides elementary education or 
                secondary education (kindergarten through grade 
                12), as determined under State law.
          (2) Coordination with exclusions.--A deduction shall 
        be allowed under subsection (a)(2)(D) for expenses only 
        to the extent the amount of such expenses exceeds the 
        amount excludable under section 135, 529(c)(1), or 
        530(d)(2) for the taxable year.
          (3) Inflation adjustment.--In the case of any taxable 
        year beginning after 2015, the $250 amount in 
        subsection (a)(2)(D) 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, determined by 
                substituting ``calendar year 2014'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        Any increase determined under the preceding sentence 
        shall be rounded to the nearest multiple of $50.
  (e) Unlawful discrimination defined.--For purposes of 
subsection (a)(20), the term ``unlawful discrimination'' means 
an act that is unlawful under any of the following:
          (1) Section 302 of the Civil Rights Act of 1991 (42 
        U.S.C. 2000e-16b).
          (2) Section 201, 202, 203, 204, 205, 206, or 207 of 
        the Congressional Accountability Act of 1995 (2 U.S.C. 
        1311, 1312, 1313, 1314, 1315, 1316, or 1317).
          (3) The National Labor Relations Act (29 U.S.C. 151 
        et seq.).
          (4) The Fair Labor Standards Act of 1938 (29 U.S.C. 
        201 et seq.).
          (5) Section 4 or 15 of the Age Discrimination in 
        Employment Act of 1967 (29 U.S.C. 623 or 633a).
          (6) Section 501 or 504 of the Rehabilitation Act of 
        1973 (29 U.S.C. 791 or 794).
          (7) Section 510 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1140).
          (8) Title IX of the Education Amendments of 1972 (20 
        U.S.C. 1681 et seq.).
          (9) The Employee Polygraph Protection Act of 1988 (29 
        U.S.C. 2001 et seq.).
          (10) The Worker Adjustment and Retraining 
        Notification Act (29 U.S.C. 2102 et seq.).
          (11) Section 105 of the Family and Medical Leave Act 
        of 1993 (29 U.S.C. 2615).
          (12) Chapter 43 of title 38, United States Code 
        (relating to employment and reemployment rights of 
        members of the uniformed services).
          (13) Section 1977, 1979, or 1980 of the Revised 
        Statutes (42 U.S.C. 1981, 1983, or 1985).
          (14) Section 703, 704, or 717 of the Civil Rights Act 
        of 1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
          (15) Section 804, 805, 806, 808, or 818 of the Fair 
        Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 
        3617).
          (16) Section 102, 202, 302, or 503 of the Americans 
        with Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 
        12182, or 12203).
          (17) Any provision of Federal law (popularly known as 
        whistleblower protection provisions) prohibiting the 
        discharge of an employee, the discrimination against an 
        employee, or any other form of retaliation or reprisal 
        against an employee for asserting rights or taking 
        other actions permitted under Federal law.
          (18) Any provision of Federal, State, or local law, 
        or common law claims permitted under Federal, State, or 
        local law--
                  (i) providing for the enforcement of civil 
                rights, or
                  (ii) regulating any aspect of the employment 
                relationship, including claims for wages, 
                compensation, or benefits, or prohibiting the 
                discharge of an employee, the discrimination 
                against an employee, or any other form of 
                retaliation or reprisal against an employee for 
                asserting rights or taking other actions 
                permitted by law.

SEC. 63. TAXABLE INCOME DEFINED.

  (a) In general.--Except as provided in subsection (b), for 
purposes of this subtitle, the term ``taxable income'' means 
gross income minus the deductions allowed by this chapter 
(other than the standard deduction).
  (b) Individuals who do not itemize their deductions.--In the 
case of an individual who does not elect to itemize his 
deductions for the taxable year, for purposes of this subtitle, 
the term ``taxable income'' means adjusted gross income, 
minus--
          (1) the standard deduction, and
          [(2) the deduction for personal exemptions provided 
        in section 151, and.
          [(3)] (2) any deduction provided in section 199A.
  (c) Standard deduction.--For purposes of this subtitle--
          (1) In general.--Except as otherwise provided in this 
        subsection, the term ``standard deduction'' means the 
        sum of--
                  (A) the basic standard deduction, and
                  (B) the additional standard deduction.
          (2) Basic standard deduction.--For purposes of 
        paragraph (1), the basic standard deduction is--
                  (A) 200 percent of the dollar amount in 
                effect under subparagraph (C) for the taxable 
                year in the case of--
                          (i) a joint return, or
                          (ii) a surviving spouse (as defined 
                        in section 2(a)),
                  (B) [$4,400] $18,000 in the case of a head of 
                household (as defined in section 2(b)), or
                  (C) [$3,000] $12,000 in any other case.
          [(3) Additional standard deduction for aged and 
        blind.--For purposes of paragraph (1), the additional 
        standard deduction is the sum of each additional amount 
        to which the taxpayer is entitled under subsection (f).
          [(4) Adjustments for inflation.--In the case of any 
        taxable year beginning in a calendar year after 1988, 
        each dollar amount contained in paragraph (2)(B), 
        (2)(C), or (5) or subsection (f) 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 
                for ``calendar year 2016'' in subparagraph 
                (A)(ii) thereof--
                          [(i) ``calendar year 1987'' in the 
                        case of the dollar amounts contained in 
                        paragraph (2)(B), (2)(C), or (5)(A) or 
                        subsection (f), and
                          [(ii) ``calendar year 1997'' in the 
                        case of the dollar amount contained in 
                        paragraph (5)(B).]
           (3) Adjustments for inflation.--
                  (A) In general.--In the case of a taxable 
                year beginning after 2018, each dollar amount 
                in paragraph (2)(B), (2)(C), or (5) or 
                subsection (f) 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 
                        for ``2016'' in subparagraph (A)(ii) 
                        thereof--
                                  (I) in the case of the dollar 
                                amounts contained in paragraph 
                                (2)(B) or (2)(C), ``2017'',
                                  (II) in the case of the 
                                dollar amounts contained in 
                                paragraph (5)(A) or subsection 
                                (f), ``1987'', and
                                  (III) in the case of the 
                                dollar amount contained in 
                                paragraph (5)(B), ``1997''.
                  (B) Rounding.--If any increase under 
                subparagraph (A) is not a multiple of $50, such 
                increase shall be rounded to the next lowest 
                multiple of $50.
          [(5)] (4) Limitation on basic standard deduction in 
        the case of [certain] dependents.--In the case of an 
        individual [with respect to whom a deduction under 
        section 151 is allowable to] who is a dependent of 
        another taxpayer for a taxable year beginning in the 
        calendar year in which the individual's taxable year 
        begins, the basic standard deduction applicable to such 
        individual for such individual's taxable year shall not 
        exceed the greater of--
                  (A) $500, or
                  (B) the sum of $250 and such individual's 
                earned income.
          [(6)] (5) Certain individuals, etc., not eligible for 
        standard deduction.--In the case of--
                  (A) a married individual filing a separate 
                return where either spouse itemizes deductions,
                  (B) a nonresident alien individual,
                  (C) an individual making a return under 
                section 443(a)(1) for a period of less than 12 
                months on account of a change in his annual 
                accounting period, or
                  (D) an estate or trust, common trust fund, or 
                partnership, the standard deduction shall be 
                zero.
          [(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.]
  (d) Itemized deductions.--For purposes of this subtitle, the 
term ``itemized deductions'' means the deductions allowable 
under this chapter other than--
          (1) the deductions allowable in arriving at adjusted 
        gross income, and
          [(2) the deduction for personal exemptions provided 
        by section 151, and
          [(3)] (2) any deduction provided in section 199A.
  (e) Election to itemize.--
          (1) In general.--Unless an individual makes an 
        election under this subsection for the taxable year, no 
        itemized deduction shall be allowed for the taxable 
        year. For purposes of this subtitle, the determination 
        of whether a deduction is allowable under this chapter 
        shall be made without regard to the preceding sentence.
          (2) Time and manner of election.--Any election under 
        this subsection shall be made on the taxpayer's return, 
        and the Secretary shall prescribe the manner of 
        signifying such election on the return.
          (3) Change of election.--Under regulations prescribed 
        by the Secretary, a change of election with respect to 
        itemized deductions for any taxable year may be made 
        after the filing of the return for such year. If the 
        spouse of the taxpayer filed a separate return for any 
        taxable year corresponding to the taxable year of the 
        taxpayer, the change shall not be allowed unless, in 
        accordance with such regulations--
                  (A) the spouse makes a change of election 
                with respect to itemized deductions, for the 
                taxable year covered in such separate return, 
                consistent with the change of treatment sought 
                by the taxpayer, and
                  (B) the taxpayer and his spouse consent in 
                writing to the assessment (within such period 
                as may be agreed on with the Secretary) of any 
                deficiency, to the extent attributable to such 
                change of election, even though at the time of 
                the filing of such consent the assessment of 
                such deficiency would otherwise be prevented by 
                the operation of any law or rule of law.
        This paragraph shall not apply if the tax liability of 
        the taxpayer's spouse for the taxable year 
        corresponding to the taxable year of the taxpayer has 
        been compromised under section 7122.
  [(f) Aged or blind additional amounts.--
          [(1) Additional amounts for the aged.--The taxpayer 
        shall be entitled to an additional amount of $600--
                  [(A) for himself if he has attained age 65 
                before the close of his taxable year, and
                  [(B) for the spouse of the taxpayer if the 
                spouse has attained age 65 before the close of 
                the taxable year and an additional exemption is 
                allowable to the taxpayer for such spouse under 
                section 151(b).
          [(2) Additional amount for blind.--The taxpayer shall 
        be entitled to an additional amount of $600--
                  [(A) for himself if he is blind at the close 
                of the taxable year, and
                  [(B) for the spouse of the taxpayer if the 
                spouse is blind as of the close of the taxable 
                year and an additional exemption is allowable 
                to the taxpayer for such spouse under section 
                151(b).
        For purposes of subparagraph (B), if the spouse dies 
        during the taxable year the determination of whether 
        such spouse is blind shall be made as of the time of 
        such death.]
  (f) Additional Standard Deduction for the Aged and Blind.--
          (1) In general.--For purposes of subsection (c)(1), 
        the additional standard deduction is, with respect to a 
        taxpayer for a taxable year, the sum of--
                  (A) $600 if the taxpayer has attained age 65 
                before the close of such taxable year, and
                  (B) $600 if the taxpayer is blind as of the 
                close of such taxable year.
          (2) Application to married individuals.--
                  (A) Joint returns.--In the case of a joint 
                return, paragraph (1) shall be applied 
                separately with respect to each spouse.
                  (B) Certain married individuals filing 
                separately.--In the case of a married 
                individual filing a separate return, if--
                          (i) the spouse of such individual has 
                        no gross income for the calendar year 
                        in which the taxable year of such 
                        individual begins,
                          (ii) such spouse is not the dependent 
                        of another taxpayer for a taxable year 
                        beginning in the calendar year in which 
                        such individual's taxable year begins, 
                        and
                          (iii) the TIN of such spouse is 
                        included on such individual's return of 
                        tax for the taxable year,
                the additional standard deduction shall be 
                determined in the same manner as if such 
                individual and such individual's spouse filed a 
                joint return.
          (3) Higher amount for certain unmarried 
        individuals.--In the case of an individual who is not 
        married and is not a surviving spouse, [paragraphs (1) 
        and (2)] subparagraphs (A) and (B) of paragraph (1) 
        shall be applied by substituting ``$750'' for ``$600''.
          (4) Blindness defined.--For purposes of this 
        subsection, an individual is blind only if his central 
        visual acuity does not exceed 20/200 in the better eye 
        with correcting lenses, or if his visual acuity is 
        greater than 20/200 but is accompanied by a limitation 
        in the fields of vision such that the widest diameter 
        of the visual field subtends an angle no greater than 
        20 degrees.
  (g) Marital status.--For purposes of this section, marital 
status shall be determined under section 7703.

           *       *       *       *       *       *       *


SEC. 67. [2-PERCENT FLOOR ON]  DENIAL OF MISCELLANEOUS ITEMIZED 
                    DEDUCTIONS.

  [(a) General rule.--In the case of an individual, the 
miscellaneous itemized deductions for any taxable year shall be 
allowed only to the extent that the aggregate of such 
deductions exceeds 2 percent of adjusted gross income.]
  (a) In General.--In the case of an individual, miscellaneous 
itemized deductions shall not be allowed.
  (b) Miscellaneous itemized deductions.--For purposes of this 
section, the term ``miscellaneous itemized deductions'' means 
the itemized deductions other than--
          (1) the deduction under section 163 (relating to 
        interest),
          (2) the deduction under section 164 (relating to 
        taxes),
          (3) the deduction under section 165(a) for casualty 
        or theft losses described in paragraph (2) or (3) of 
        section 165(c) or for losses described in section 
        165(d),
          (4) the deductions under section 170 (relating to 
        charitable, etc., contributions and gifts) and section 
        642(c) (relating to deduction for amounts paid or 
        permanently set aside for a charitable purpose),
          (5) the deduction under section 213 (relating to 
        medical, dental, etc., expenses),
          (6) any deduction allowable for impairment-related 
        work expenses,
          (7) the deduction under section 691(c) (relating to 
        deduction for estate tax in case of income in respect 
        of the decedent),
          (8) any deduction allowable in connection with 
        personal property used in a short sale,
          (9) the deduction under section 1341 (relating to 
        computation of tax where taxpayer restores substantial 
        amount held under claim of right),
          (10) the deduction under section 72(b)(3) (relating 
        to deduction where annuity payments cease before 
        investment recovered),
          (11) the deduction under section 171 (relating to 
        deduction for amortizable bond premium), and
          (12) the deduction under section 216 (relating to 
        deductions in connection with cooperative housing 
        corporations).
  (c) Disallowance of indirect deduction through pass-thru 
entity.--
          (1) In general.--The Secretary shall prescribe 
        regulations which prohibit the indirect deduction 
        through pass-thru entities of amounts which are not 
        allowable as a deduction if paid or incurred directly 
        by an individual and which contain such reporting 
        requirements as may be necessary to carry out the 
        purposes of this subsection.
          (2) Treatment of publicly offered regulated 
        investment companies.--
                  (A) In general.--Paragraph (1) shall not 
                apply with respect to any publicly offered 
                regulated investment company.
                  (B) Publicly offered regulated investment 
                companies.--For purposes of this subsection--
                          (i) In general.--The term ``publicly 
                        offered regulated investment company'' 
                        means a regulated investment company 
                        the shares of which are--
                                  (I) continuously offered 
                                pursuant to a public offering 
                                (within the meaning of section 
                                4 of the Securities Act of 
                                1933, as amended (15 U.S.C. 77a 
                                to 77aa)),
                                  (II) regularly traded on an 
                                established securities market, 
                                or
                                  (III) held by or for no fewer 
                                than 500 persons at all times 
                                during the taxable year.
                          (ii) Secretary may reduce 500 person 
                        requirement.--The Secretary may by 
                        regulation decrease the minimum 
                        shareholder requirement of clause 
                        (i)(III) in the case of regulated 
                        investment companies which experience a 
                        loss of shareholders through net 
                        redemptions of their shares.
          (3) Treatment of certain other entities.--Paragraph 
        (1) shall not apply--
                  (A) with respect to cooperatives and real 
                estate investment trusts, and
                  (B) except as provided in regulations, with 
                respect to estates and trusts.
  (d) Impairment-related work expenses.--For purposes of this 
section, the term ``impairment-related work expenses'' means 
expenses--
          (1) of a handicapped individual (as defined in 
        section 190(b)(3)) for attendant care services at the 
        individual's place of employment and other expenses in 
        connection with such place of employment which are 
        necessary for such individual to be able to work, and
          (2) with respect to which a deduction is allowable 
        under section 162 (determined without regard to this 
        section).
  [(e) Determination of adjusted gross income in case of 
estates and trusts.--For purposes of this section, the adjusted 
gross income of an estate or trust shall be computed in the 
same manner as in the case of an individual, except that--
          [(1) the deductions for costs which are paid or 
        incurred in connection with the administration of the 
        estate or trust and which would not have been incurred 
        if the property were not held in such trust or estate, 
        and
          [(2) the deductions allowable under sections 642(b), 
        651, and 661, shall be treated as
allowable in arriving at adjusted gross income. Under 
regulations, appropriate adjustments shall be made in the 
application of part I of subchapter J of this chapter to take 
into account the provisions of this section.]
  (f) Coordination with other limitation.--This section shall 
be applied before the application of the dollar limitation of 
the second sentence of section 162(a) (relating to trade or 
business expenses).
  [(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.]

[SEC. 68. OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.

  [(a) General rule.--In the case of an individual whose 
adjusted gross income exceeds the applicable amount, the amount 
of the itemized deductions otherwise allowable for the taxable 
year shall be reduced by the lesser of--
          [(1) 3 percent of the excess of adjusted gross income 
        over the applicable amount, or
          [(2) 80 percent of the amount of the itemized 
        deductions otherwise allowable for such taxable year.
  [(b) Applicable amount.--
          [(1) In general.--For purposes of this section, the 
        term ``applicable amount'' means--
                  [(A) $300,000 in the case of a joint return 
                or a surviving spouse (as defined in section 
                2(a)),
                  [(B) $275,000 in the case of a head of 
                household (as defined in section 2(b)),
                  [(C) $250,000 in the case of an individual 
                who is not married and who is not a surviving 
                spouse or head of household, and
                  [(D) \1/2\ the amount applicable under 
                subparagraph (A) (after adjustment, if any, 
                under paragraph (2)) in the case of a married 
                individual filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
          [(2) Inflation adjustment.--In the case of any 
        taxable year beginning in calendar years after 2013, 
        each of the dollar amounts under subparagraphs (A), 
        (B), and (C) of 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, except that 
                section 1(f)(3)(A)(ii) shall be applied by 
                substituting ``2012'' for ``2016''.
        If any amount after adjustment under the preceding 
        sentence is not a multiple of $50, such amount shall be 
        rounded to the next lowest multiple of $50.
  [(c) Exception for certain itemized deductions.--For purposes 
of this section, the term ``itemized deductions'' does not 
include--
          [(1) the deduction under section 213 (relating to 
        medical, etc. expenses),
          [(2) any deduction for investment interest (as 
        defined in section 163(d)), and
          [(3) the deduction under section 165(a) for casualty 
        or theft losses described in paragraph (2) or (3) of 
        section 165(c) or for losses described in section 
        165(d).
  [(d) Coordination with other limitations.--This section shall 
be applied after the application of any other limitation on the 
allowance of any itemized deduction.
  [(e) Exception for estates and trusts.--This section shall 
not apply to any estate or trust.
  [(f) Section not to apply.--This section shall not apply to 
any taxable year beginning after December 31, 2017, and before 
January 1, 2026.]

PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a) General rules for annuities.--
          (1) Income inclusion.--Except as otherwise provided 
        in this chapter, gross income includes any amount 
        received as an annuity (whether for a period certain or 
        during one or more lives) under an annuity, endowment, 
        or life insurance contract.
          (2) Partial annuitization.--If any amount is received 
        as an annuity for a period of 10 years or more or 
        during one or more lives under any portion of an 
        annuity, endowment, or life insurance contract--
                  (A) such portion shall be treated as a 
                separate contract for purposes of this section,
                  (B) for purposes of applying subsections (b), 
                (c), and (e), the investment in the contract 
                shall be allocated pro rata between each 
                portion of the contract from which amounts are 
                received as an annuity and the portion of the 
                contract from which amounts are not received as 
                an annuity, and
                  (C) a separate annuity starting date under 
                subsection (c)(4) shall be determined with 
                respect to each portion of the contract from 
                which amounts are received as an annuity.
  (b) Exclusion ratio.--
          (1) In general.--Gross income does not include that 
        part of any amount received as an annuity under an 
        annuity, endowment, or life insurance contract which 
        bears the same ratio to such amount as the investment 
        in the contract (as of the annuity starting date) bears 
        to the expected return under the contract (as of such 
        date).
          (2) Exclusion limited to investment.--The portion of 
        any amount received as an annuity which is excluded 
        from gross income under paragraph (1) shall not exceed 
        the unrecovered investment in the contract immediately 
        before the receipt of such amount.
          (3) Deduction where annuity payments cease before 
        entire investment recovered.--
                  (A) In general.--If--
                          (i) after the annuity starting date, 
                        payments as an annuity under the 
                        contract cease by reason of the death 
                        of an annuitant, and
                          (ii) as of the date of such 
                        cessation, there is unrecovered 
                        investment in the contract,
                the amount of such unrecovered investment (in 
                excess of any amount specified in subsection 
                (e)(5) which was not included in gross income) 
                shall be allowed as a deduction to the 
                annuitant for his last taxable year.
                  (B) Payments to other persons.--In the case 
                of any contract which provides for payments 
                meeting the requirements of subparagraphs (B) 
                and (C) of subsection (c)(2), the deduction 
                under subparagraph (A) shall be allowed to the 
                person entitled to such payments for the 
                taxable year in which such payments are 
                received.
                  (C) Net operating loss deductions provided.--
                For purposes of section 172, a deduction 
                allowed under this paragraph shall be treated 
                as if it were attributable to a trade or 
                business of the taxpayer.
          (4) Unrecovered investment.--For purposes of this 
        subsection, the unrecovered investment in the contract 
        as of any date is--
                  (A) the investment in the contract 
                (determined without regard to subsection 
                (c)(2)) as of the annuity starting date, 
                reduced by
                  (B) the aggregate amount received under the 
                contract on or after such annuity starting date 
                and before the date as of which the 
                determination is being made, to the extent such 
                amount was excludable from gross income under 
                this subtitle.
  (c) Definitions.--
          (1) Investment in the contract.--For purposes of 
        subsection (b), the investment in the contract as of 
        the annuity starting date is--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract, minus
                  (B) the aggregate amount received under the 
                contract before such date, to the extent that 
                such amount was excludable from gross income 
                under this subtitle or prior income tax laws.
          (2) Adjustment in investment where there is refund 
        feature.--If--
                  (A) the expected return under the contract 
                depends in whole or in part on the life 
                expectancy of one or more individuals;
                  (B) the contract provides for payments to be 
                made to a beneficiary (or to the estate of an 
                annuitant) on or after the death of the 
                annuitant or annuitants; and
                  (C) such payments are in the nature of a 
                refund of the consideration paid,
        then the value (computed without discount for interest) 
        of such payments on the annuity starting date shall be 
        subtracted from the amount determined under paragraph 
        (1). Such value shall be computed in accordance with 
        actuarial tables prescribed by the Secretary. For 
        purposes of this paragraph and of subsection (e)(2)(A), 
        the term ``refund of the consideration paid'' includes 
        amounts payable after the death of an annuitant by 
        reason of a provision in the contract for a life 
        annuity with minimum period of payments certain, but 
        (if part of the consideration was contributed by an 
        employer) does not include that part of any payment to 
        a beneficiary (or to the estate of the annuitant) which 
        is not attributable to the consideration paid by the 
        employee for the contract as determined under paragraph 
        (1)(A).
          (3) Expected return.--For purposes of subsection (b), 
        the expected return under the contract shall be 
        determined as follows:
                  (A) Life expectancy.--If the expected return 
                under the contract, for the period on and after 
                the annuity starting date, depends in whole or 
                in part on the life expectancy of one or more 
                individuals, the expected return shall be 
                computed with reference to actuarial tables 
                prescribed by the Secretary.
                  (B) Installment payments.--If subparagraph 
                (A) does not apply, the expected return is the 
                aggregate of the amounts receivable under the 
                contract as an annuity.
          (4) Annuity starting date.--For purposes of this 
        section, the annuity starting date in the case of any 
        contract is the first day of the first period for which 
        an amount is received as an annuity under the contract.
  (d) Special rules for qualified employer retirement plans.--
          (1) Simplified method of taxing annuity payments.--
                  (A) In general.--In the case of any amount 
                received as an annuity under a qualified 
                employer retirement plan--
                          (i) subsection (b) shall not apply, 
                        and
                          (ii) the investment in the contract 
                        shall be recovered as provided in this 
                        paragraph.
                  (B) Method of recovering investment in 
                contract.--
                          (i) In general.--Gross income shall 
                        not include so much of any monthly 
                        annuity payment under a qualified 
                        employer retirement plan as does not 
                        exceed the amount obtained by 
                        dividing--
                                  (I) the investment in the 
                                contract (as of the annuity 
                                starting date), by
                                  (II) the number of 
                                anticipated payments determined 
                                under the table contained in 
                                clause (iii) (or, in the case 
                                of a contract to which 
                                subsection (c)(3)(B) applies, 
                                the number of monthly annuity 
                                payments under such contract).
                          (ii) Certain rules made applicable.--
                        Rules similar to the rules of 
                        paragraphs (2) and (3) of subsection 
                        (b) shall apply for purposes of this 
                        paragraph.
                          (iii) Number of anticipated 
                        payments.--If the annuity is payable 
                        over the life of a single individual, 
                        the number of anticipated payments 
                        shall be determined as follows:


 
------------------------------------------------------------------------
If the age of the annuitant on the   The number of anticipated payments
     annuity starting date is:                       is:
------------------------------------------------------------------------
Not more than 55...............     360
More than 55 but not more than 60   310
More than 60 but not more than 65   260
More than 65 but not more than 70   210
More than 70...................     160.
------------------------------------------------------------------------

                          (iv) Number of anticipated payments 
                        where more than one life.--If the 
                        annuity is payable over the lives of 
                        more than 1 individual, the number of 
                        anticipated payments shall be 
                        determined as follows:


 
------------------------------------------------------------------------
  If the combined ages of annuitants
                 are:                            The number is:
------------------------------------------------------------------------
Not more than 110                      410
 ................................
More than 110 but not more than 120    360
 ..............
More than 120 but not more than 130    310
 ..............
More than 130 but not more than 140    260
 ..............
More than 140                          210.
 ....................................
------------------------------------------------------------------------

                  (C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, 
                investment in the contract shall be determined 
                under subsection (c)(1) without regard to 
                subsection (c)(2).
                  (D) Special rule where lump sum paid in 
                connection with commencement of annuity 
                payments.--If, in connection with the 
                commencement of annuity payments under any 
                qualified employer retirement plan, the 
                taxpayer receives a lump-sum payment--
                          (i) such payment shall be taxable 
                        under subsection (e) as if received 
                        before the annuity starting date, and
                          (ii) the investment in the contract 
                        for purposes of this paragraph shall be 
                        determined as if such payment had been 
                        so received.
                  (E) Exception.--This paragraph shall not 
                apply in any case where the primary annuitant 
                has attained age 75 on the annuity starting 
                date unless there are fewer than 5 years of 
                guaranteed payments under the annuity.
                  (F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity 
                payments are not made on a monthly basis, 
                appropriate adjustments in the application of 
                this paragraph shall be made to take into 
                account the period on the basis of which such 
                payments are made.
                  (G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term 
                ``qualified employer retirement plan'' means 
                any plan or contract described in paragraph 
                (1), (2), or (3) of section 4974(c).
          (2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, 
        employee contributions (and any income allocable 
        thereto) under a defined contribution plan may be 
        treated as a separate contract.
  (e) Amounts not received as annuities.--
          (1) Application of subsection.--
                  (A) In general.--This subsection shall apply 
                to any amount which--
                          (i) is received under an annuity, 
                        endowment, or life insurance contract, 
                        and
                          (ii) is not received as an annuity, 
                        if no provision of this subtitle (other 
                        than this subsection) applies with 
                        respect to such amount.
                  (B) Dividends.--For purposes of this section, 
                any amount received which is in the nature of a 
                dividend or similar distribution shall be 
                treated as an amount not received as an 
                annuity.
          (2) General rule.--Any amount to which this 
        subsection applies--
                  (A) if received on or after the annuity 
                starting date, shall be included in gross 
                income, or
                  (B) if received before the annuity starting 
                date--
                          (i) shall be included in gross income 
                        to the extent allocable to income on 
                        the contract, and
                          (ii) shall not be included in gross 
                        income to the extent allocable to the 
                        investment in the contract.
          (3) Allocation of amounts to income and investment.--
        For purposes of paragraph (2)(B)--
                  (A) Allocation to income.--Any amount to 
                which this subsection applies shall be treated 
                as allocable to income on the contract to the 
                extent that such amount does not exceed the 
                excess (if any) of--
                          (i) the cash value of the contract 
                        (determined without regard to any 
                        surrender charge) immediately before 
                        the amount is received, over
                          (ii) the investment in the contract 
                        at such time.
                  (B) Allocation to investment.--Any amount to 
                which this subsection applies shall be treated 
                as allocable to investment in the contract to 
                the extent that such amount is not allocated to 
                income under subparagraph (A).
          (4) Special rules for application of paragraph 
        (2)(B).--For purposes of paragraph (2)(B)--
                  (A) Loans treated as distributions.--If, 
                during any taxable year, an individual--
                          (i) receives (directly or indirectly) 
                        any amount as a loan under any contract 
                        to which this subsection applies, or
                          (ii) assigns or pledges (or agrees to 
                        assign or pledge) any portion of the 
                        value of any such contract,
                such amount or portion shall be treated as 
                received under the contract as an amount not 
                received as an annuity. The preceding sentence 
                shall not apply for purposes of determining 
                investment in the contract, except that the 
                investment in the contract shall be increased 
                by any amount included in gross income by 
                reason of the amount treated as received under 
                the preceding sentence.
                  (B) Treatment of policyholder dividends.--Any 
                amount described in paragraph (1)(B) shall not 
                be included in gross income under paragraph 
                (2)(B)(i) to the extent such amount is retained 
                by the insurer as a premium or other 
                consideration paid for the contract.
                  (C) Treatment of transfers without adequate 
                consideration.--
                          (i) In general.--If an individual who 
                        holds an annuity contract transfers it 
                        without full and adequate 
                        consideration, such individual shall be 
                        treated as receiving an amount equal to 
                        the excess of--
                                  (I) the cash surrender value 
                                of such contract at the time of 
                                transfer, over
                                  (II) the investment in such 
                                contract at such time,
                        under the contract as an amount not 
                        received as an annuity.
                          (ii) Exception for certain transfers 
                        between spouses or former spouses.--
                        Clause (i) shall not apply to any 
                        transfer to which section 1041(a) 
                        (relating to transfers of property 
                        between spouses or incident to divorce) 
                        applies.
                          (iii) Adjustment to investment in 
                        contract of transferee.--If under 
                        clause (i) an amount is included in the 
                        gross income of the transferor of an 
                        annuity contract, the investment in the 
                        contract of the transferee in such 
                        contract shall be increased by the 
                        amount so included.
          (5) Retention of existing rules in certain cases.--
                  (A) In general.--In any case to which this 
                paragraph applies--
                          (i) paragraphs (2)(B) and (4)(A) 
                        shall not apply, and
                          (ii) if paragraph (2)(A) does not 
                        apply, the amount shall be included in 
                        gross income, but only to the extent it 
                        exceeds the investment in the contract.
                  (B) Existing contracts.--This paragraph shall 
                apply to contracts entered into before August 
                14, 1982. Any amount allocable to investment in 
                the contract after August 13, 1982, shall be 
                treated as from a contract entered into after 
                such date.
                  (C) Certain life insurance and endowment 
                contracts.--Except as provided in paragraph 
                (10) and except to the extent prescribed by the 
                Secretary by regulations, this paragraph shall 
                apply to any amount not received as an annuity 
                which is received under a life insurance or 
                endowment contract.
                  (D) Contracts under qualified plans.--Except 
                as provided in paragraph (8), this paragraph 
                shall apply to any amount received--
                          (i) from a trust described in section 
                        401(a)which is exempt from tax under 
                        section 501(a),
                          (ii) from a contract--
                                  (I) purchased by a trust 
                                described in clause (i),
                                  (II) purchased as part of a 
                                plan described in section 
                                403(a),
                                  (III) described in section 
                                403(b), or
                                  (IV) provided for employees 
                                of a life insurance company 
                                under a plan described in 
                                section 818(a)(3), or
                          (iii) from an individual retirement 
                        account or an individual retirement 
                        annuity.
                Any dividend described in section 404(k) which 
                is received by a participant or beneficiary 
                shall, for purposes of this subparagraph, be 
                treated as paid under a separate contract to 
                which clause (ii)(I) applies.
                  (E) Full refunds, surrenders, redemptions, 
                and maturities.--This paragraph shall apply 
                to--
                          (i) any amount received, whether in a 
                        single sum or otherwise, under a 
                        contract in full discharge of the 
                        obligation under the contract which is 
                        in the nature of a refund of the 
                        consideration paid for the contract, 
                        and
                          (ii) any amount received under a 
                        contract on its complete surrender, 
                        redemption, or maturity.
                In the case of any amount to which the 
                preceding sentence applies, the rule of 
                paragraph (2)(A) shall not apply.
          (6) Investment in the contract.--For purposes of this 
        subsection, the investment in the contract as of any 
        date is--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract before such 
                date, minus
                  (B) the aggregate amount received under the 
                contract before such date, to the extent that 
                such amount was excludable from gross income 
                under this subtitle or prior income tax laws.
          (8) Extension of paragraph (2)(b) to qualified plans
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, in the case of 
                any amount received before the annuity starting 
                date from a trust or contract described in 
                paragraph (5)(D), paragraph (2)(B) shall apply 
                to such amounts.
                  (B) Allocation of amount received.--For 
                purposes of paragraph (2)(B), the amount 
                allocated to the investment in the contract 
                shall be the portion of the amount described in 
                subparagraph (A) which bears the same ratio to 
                such amount as the investment in the contract 
                bears to the account balance. The determination 
                under the preceding sentence shall be made as 
                of the time of the distribution or at such 
                other time as the Secretary may prescribe.
                  (C) Treatment of forfeitable rights.--If an 
                employee does not have a nonforfeitable right 
                to any amount under any trust or contract to 
                which subparagraph (A) applies, such amount 
                shall not be treated as part of the account 
                balance.
                  (D) Investment in the contract before 1987.--
                In the case of a plan which on May 5, 1986, 
                permitted withdrawal of any employee 
                contributions before separation from service, 
                subparagraph (A) shall apply only to the extent 
                that amounts received before the annuity 
                starting date (when increased by amounts 
                previously received under the contract after 
                December 31, 1986) exceed the investment in the 
                contract as of December 31, 1986.
          (9) Extension of paragraph (2)(b) to qualified 
        tuition programs and Coverdell education savings 
        accounts.--Notwithstanding any other provision of this 
        subsection, paragraph (2)(B) shall apply to amounts 
        received under a qualified tuition program (as defined 
        in section 529(b)) or under a Coverdell education 
        savings account (as defined in section 530(b)). The 
        rule of paragraph (8)(B) shall apply for purposes of 
        this paragraph.
          (10) Treatment of modified endowment contracts.--
                  (A) In general.--Notwithstanding paragraph 
                (5)(C), in the case of any modified endowment 
                contract (as defined in section 7702A)--
                          (i) paragraphs (2)(B) and (4)(A) 
                        shall apply, and
                          (ii) in applying paragraph (4)(A), 
                        ``any person'' shall be substituted for 
                        ``an individual''.
                  (B) Treatment of certain burial contracts.--
                Notwithstanding subparagraph (A), paragraph 
                (4)(A) shall not apply to any assignment (or 
                pledge) of a modified endowment contract if 
                such assignment (or pledge) is solely to cover 
                the payment of expenses referred to in section 
                7702(e)(2)(C)(iii) and if the maximum death 
                benefit under such contract does not exceed 
                $25,000.
          (11) Special rules for certain combination contracts 
        providing long-term care insurance.--Notwithstanding 
        paragraphs (2), (5)(C), and (10), in the case of any 
        charge against the cash value of an annuity contract or 
        the cash surrender value of a life insurance contract 
        made as payment for coverage under a qualified long-
        term care insurance contract which is part of or a 
        rider on such annuity or life insurance contract--
                  (A) the investment in the contract shall be 
                reduced (but not below zero) by such charge, 
                and
                  (B) such charge shall not be includible in 
                gross income.
          (12) Anti-abuse rules.--
                  (A) In general.--For purposes of determining 
                the amount includible in gross income under 
                this subsection--
                          (i) all modified endowment contracts 
                        issued by the same company to the same 
                        policyholder during any calendar year 
                        shall be treated as 1 modified 
                        endowment contract, and
                          (ii) all annuity contracts issued by 
                        the same company to the same 
                        policyholder during any calendar year 
                        shall be treated as 1 annuity contract.
                The preceding sentence shall not apply to any 
                contract described in paragraph (5)(D).
                  (B) Regulatory authority.--The Secretary may 
                by regulations prescribe such additional rules 
                as may be necessary or appropriate to prevent 
                avoidance of the purposes of this subsection 
                through serial purchases of contracts or 
                otherwise.
  (f) Special rules for computing employees' contributions.--In 
computing, for purposes of subsection (c)(1)(A), the aggregate 
amount of premiums or other consideration paid for the 
contract, and for purposes of subsection (e)(6), the aggregate 
premiums or other consideration paid, amounts contributed by 
the employer shall be included, but only to the extent that--
          (1) such amounts were includible in the gross income 
        of the employee under this subtitle or prior income tax 
        laws; or
          (2) if such amounts had been paid directly to the 
        employee at the time they were contributed, they would 
        not have been includible in the gross income of the 
        employee under the law applicable at the time of such 
        contribution.
Paragraph (2) shall not apply to amounts which were contributed 
by the employer after December 31, 1962, and which would not 
have been includible in the gross income of the employee by 
reason of the application of section 911 if such amounts had 
been paid directly to the employee at the time of contribution. 
The preceding sentence shall not apply to amounts which were 
contributed by the employer, as determined under regulations 
prescribed by the Secretary, to provide pension or annuity 
credits, to the extent such credits are attributable to 
services performed before January 1, 1963, and are provided 
pursuant to pension or annuity plan provisions in existence on 
March 12, 1962, and on that date applicable to such services, 
or to the extent such credits are attributable to services 
performed as a foreign missionary (within the meaning of 
section 403(b)(2)(D)(iii), as in effect before the enactment of 
the Economic Growth and Tax Relief Reconciliation Act of 2001).
  (g) Rules for transferee where transfer was for value.--Where 
any contract (or any interest therein) is transferred (by 
assignment or otherwise) for a valuable consideration, to the 
extent that the contract (or interest therein) does not, in the 
hands of the transferee, have a basis which is determined by 
reference to the basis in the hands of the transferor, then--
          (1) for purposes of this section, only the actual 
        value of such consideration, plus the amount of the 
        premiums and other consideration paid by the transferee 
        after the transfer, shall be taken into account in 
        computing the aggregate amount of the premiums or other 
        consideration paid for the contract;
          (2) for purposes of subsection (c)(1)(B), there shall 
        be taken into account only the aggregate amount 
        received under the contract by the transferee before 
        the annuity starting date, to the extent that such 
        amount was excludable from gross income under this 
        subtitle or prior income tax laws; and
          (3) the annuity starting date is the first day of the 
        first period for which the transferee received an 
        amount under the contract as an annuity.
For purposes of this subsection, the term ``transferee'' 
includes a beneficiary of, or the estate of, the transferee.
  (h) Option to receive annuity in lieu of lump sum.--If--
          (1) a contract provides for payment of a lump sum in 
        full discharge of an obligation under the contract, 
        subject to an option to receive an annuity in lieu of 
        such lump sum;
          (2) the option is exercised within 60 days after the 
        day on which such lump sum first became payable; and
          (3) part or all of such lump sum would (but for this 
        subsection) be includible in gross income by reason of 
        subsection (e)(1), then, for purposes of this subtitle, 
        no part of such lump sum shall be considered as 
        includible in gross income at the time such lump sum 
        first became payable.
  (j) Interest.--Notwithstanding any other provision of this 
section, if any amount is held under an agreement to pay 
interest thereon, the interest payments shall be included in 
gross income.
  (l) Face-amount certificates.--For purposes of this section, 
the term ``endowment contract'' includes a face-amount 
certificate, as defined in section 2(a)(15) of the Investment 
Company Act of 1940 (15 U.S.C., sec. 80a-2), issued after 
December 31, 1954.
  (m) Special rules applicable to employee annuities and 
distributions under employee plans.--
          (2) Computation of consideration paid by the 
        employee.--In computing--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract for 
                purposes of subsection (c)(1)(A) (relating to 
                the investment in the contract), and
                  (B) the aggregate premiums or other 
                consideration paid for purposes of subsection 
                (e)(6) (relating to certain amounts not 
                received as an annuity),
        any amount allowed as a deduction with respect to the 
        contract under section 404 which was paid while the 
        employee was an employee within the meaning of section 
        401(c)(1) shall be treated as consideration contributed 
        by the employer, and there shall not be taken into 
        account any portion of the premiums or other 
        consideration for the contract paid while the employee 
        was an owner-employee which is properly allocable (as 
        determined under regulations prescribed by the 
        Secretary) to the cost of life, accident, health, or 
        other insurance.
          (3) Life insurance contracts.--
                  (A) This paragraph shall apply to any life 
                insurance contract--
                          (i) purchased as a part of a plan 
                        described in section 403(a), or
                          (ii) purchased by a trust described 
                        in section 401(a) which is exempt from 
                        tax under section 501(a) if the 
                        proceeds of such contract are payable 
                        directly or indirectly to a participant 
                        in such trust or to a beneficiary of 
                        such participant.
                  (B) Any contribution to a plan described in 
                subparagraph (A)(i) or a trust described in 
                subparagraph (A)(ii) which is allowed as a 
                deduction under section 404, and any income of 
                a trust described in subparagraph (A)(ii), 
                which is determined in accordance with 
                regulations prescribed by the Secretary to have 
                been applied to purchase the life insurance 
                protection under a contract described in 
                subparagraph (A), is includible in the gross 
                income of the participant for the taxable year 
                when so applied.
                  (C) In the case of the death of an individual 
                insured under a contract described in 
                subparagraph (A), an amount equal to the cash 
                surrender value of the contract immediately 
                before the death of the insured shall be 
                treated as a payment under such plan or a 
                distribution by such trust, and the excess of 
                the amount payable by reason of the death of 
                the insured over such cash surrender value 
                shall not be includible in gross income under 
                this section and shall be treated as provided 
                in section 101.
          (5) Penalties applicable to certain amounts received 
        by 5-percent owners (A) This paragraph applies to 
        amounts which are received from a qualified trust 
        described in section 401(a) or under a plan described 
        in section 403(a) at any time by an individual who is, 
        or has been, a 5-percent owner, or by a successor of 
        such an individual, but only to the extent such amounts 
        are determined, under regulations prescribed by the 
        Secretary, to exceed the benefits provided for such 
        individual under the plan formula.
                  (B) If a person receives an amount to which 
                this paragraph applies, his tax under this 
                chapter for the taxable year in which such 
                amount is received shall be increased by an 
                amount equal to 10 percent of the portion of 
                the amount so received which is includible in 
                his gross income for such taxable year.
                  (C) For purposes of this paragraph, the term 
                ``5-percent owner'' means any individual who, 
                at any time during the 5 plan years preceding 
                the plan year ending in the taxable year in 
                which the amount is received, is a 5-percent 
                owner (as defined in section 416(i)(1)(B)).
          (6) Owner-employee defined.--For purposes of this 
        subsection, the term ``owner-employee'' has the meaning 
        assigned to it by section 401(c)(3) and includes an 
        individual for whose benefit an individual retirement 
        account or annuity described in section 408(a) or (b) 
        is maintained. For purposes of the preceding sentence, 
        the term ``owner-employee'' shall include an employee 
        within the meaning of section 401(c)(1).
          (7) Meaning of disabled.--For purposes of this 
        section, an individual shall be considered to be 
        disabled if he is unable to engage in any substantial 
        gainful activity by reason of any medically 
        determinable physical or mental impairment which can be 
        expected to result in death or to be of long-continued 
        and indefinite duration. An individual shall not be 
        considered to be disabled unless he furnishes proof of 
        the existence thereof in such form and manner as the 
        Secretary may require.
          (10) Determination of investment in the contract in 
        the case of qualified domestic relations orders.--Under 
        regulations prescribed by the Secretary, in the case of 
        a distribution or payment made to an alternate payee 
        who is the spouse or former spouse of the participant 
        pursuant to a qualified domestic relations order (as 
        defined in section 414(p)), the investment in the 
        contract as of the date prescribed in such regulations 
        shall be allocated on a pro rata basis between the 
        present value of such distribution or payment and the 
        present value of all other benefits payable with 
        respect to the participant to which such order relates.
  (n) Annuities under retired serviceman's family protection 
plan or survivor benefit plan.--Subsection (b) shall not apply 
in the case of amounts received after December 31, 1965, as an 
annuity under chapter 73 of title 10 of the United States Code, 
but all such amounts shall be excluded from gross income until 
there has been so excluded (under section 122(b)(1) or this 
section, including amounts excluded before January 1, 1966) an 
amount equal to the consideration for the contract (as defined 
by section 122(b)(2)), plus any amount treated pursuant to 
section 101 (b)(2)(D) (as in effect on the day before the date 
of the enactment of the Small Business Job Protection Act of 
1996) as additional consideration paid by the employee. 
Thereafter all amounts so received shall be included in gross 
income.
  (o) Special rules for distributions from qualified plans to 
which employee made deductible contributions.--
          (1) Treatment of contributions.--For purposes of this 
        section and sections 402 and 403, notwithstanding 
        section 414(h), any deductible employee contribution 
        made to a qualified employer plan or government plan 
        shall be treated as an amount contributed by the 
        employer which is not includible in the gross income of 
        the employee.
          (3) Amounts constructively received.--
                  (A) In general.--For purposes of this 
                subsection, rules similar to the rules provided 
                by subsection (p) (other than the exception 
                contained in paragraph (2) thereof) shall 
                apply.
                  (B) Purchase of life insurance.--To the 
                extent any amount of accumulated deductible 
                employee contributions of an employee are 
                applied to the purchase of life insurance 
                contracts, such amount shall be treated as 
                distributed to the employee in the year so 
                applied.
          (4) Special rule for treatment of rollover amounts.--
        For purposes of sections 402(c), 403(a)(4), 403(b)(8), 
        408(d)(3), and 457(e)(16), the Secretary shall 
        prescribe regulations providing for such allocations of 
        amounts attributable to accumulated deductible employee 
        contributions, and for such other rules, as may be 
        necessary to insure that such accumulated deductible 
        employee contributions do not become eligible for 
        additional tax benefits (or freed from limitations) 
        through the use of rollovers.
          (5) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) Deductible employee contributions.--The 
                term ``deductible employee contributions'' 
                means any qualified voluntary employee 
                contribution (as defined in section 219(e)(2)) 
                made after December 31, 1981, in a taxable year 
                beginning after such date and made for a 
                taxable year beginning before January 1, 1987, 
                and allowable as a deduction under section 
                219(a) for such taxable year.
                  (B) Accumulated deductible employee 
                contributions.--The term ``accumulated 
                deductible employee contributions'' means the 
                deductible employee contributions--
                          (i) increased by the amount of income 
                        and gain allocable to such 
                        contributions, and
                          (ii) reduced by the sum of the amount 
                        of loss and expense allocable to such 
                        contributions and the amounts 
                        distributed with respect to the 
                        employee which are attributable to such 
                        contributions (or income or gain 
                        allocable to such contributions).
                  (C) Qualified employer plan.--The term 
                ``qualified employer plan'' has the meaning 
                given to such term by subsection (p)(3)(A)(i).
                  (D) Government plan.--The term ``government 
                plan'' has the meaning given such term by 
                subsection (p)(3)(B).
          (6) Ordering rules.--Unless the plan specifies 
        otherwise, any distribution from such plan shall not be 
        treated as being made from the accumulated deductible 
        employee contributions, until all other amounts to the 
        credit of the employee have been distributed.
  (p) Loans treated as distributions.--For purposes of this 
section--
          (1) Treatment as distributions.--
                  (A) Loans.--If during any taxable year a 
                participant or beneficiary receives (directly 
                or indirectly) any amount as a loan from a 
                qualified employer plan, such amount shall be 
                treated as having been received by such 
                individual as a distribution under such plan.
                  (B) Assignments or pledges.--If during any 
                taxable year a participant or beneficiary 
                assigns (or agrees to assign) or pledges (or 
                agrees to pledge) any portion of his interest 
                in a qualified employer plan, such portion 
                shall be treated as having been received by 
                such individual as a loan from such plan.
          (2) Exception for certain loans.--
                  (A) General rule.--Paragraph (1) shall not 
                apply to any loan to the extent that such loan 
                (when added to the outstanding balance of all 
                other loans from such plan whether made on, 
                before, or after August 13, 1982), does not 
                exceed the lesser of--
                          (i) $50,000, reduced by the excess 
                        (if any) of--
                                  (I) the highest outstanding 
                                balance of loans from the plan 
                                during the 1-year period ending 
                                on the day before the date on 
                                which such loan was made, over
                                  (II) the outstanding balance 
                                of loans from the plan on the 
                                date on which such loan was 
                                made, or
                          (ii) the greater of (I) one-half of 
                        the present value of the nonforfeitable 
                        accrued benefit of the employee under 
                        the plan, or (II) $10,000.
                For purposes of clause (ii), the present value 
                of the nonforfeitable accrued benefit shall be 
                determined without regard to any accumulated 
                deductible employee contributions (as defined 
                in subsection (o)(5)(B)).
                  (B) Requirement that loan be repayable within 
                5 years.--
                          (i) In general.--Subparagraph (A) 
                        shall not apply to any loan unless such 
                        loan, by its terms, is required to be 
                        repaid within 5 years.
                          (ii) Exception for home loans.--
                        Clause (i) shall not apply to any loan 
                        used to acquire any dwelling unit which 
                        within a reasonable time is to be used 
                        (determined at the time the loan is 
                        made) as the principal residence of the 
                        participant.
                  (C) Requirement of level amortization.--
                Except as provided in regulations, this 
                paragraph shall not apply to any loan unless 
                substantially level amortization of such loan 
                (with payments not less frequently than 
                quarterly) is required over the term of the 
                loan.
                  (D) Related employers and related plans.--For 
                purposes of this paragraph--
                          (i) the rules of subsections (b), 
                        (c), and (m) of section 414 shall 
                        apply, and
                          (ii) all plans of an employer 
                        (determined after the application of 
                        such subsections) shall be treated as 1 
                        plan.
          (3) Denial of interest deductions in certain cases.--
                  (A) In general.--No deduction otherwise 
                allowable under this chapter shall be allowed 
                under this chapter for any interest paid or 
                accrued on any loan to which paragraph (1) does 
                not apply by reason of paragraph (2) during the 
                period described in subparagraph (B).
                  (B) Period to which subparagraph (A) 
                applies.--For purposes of subparagraph (A), the 
                period described in this subparagraph is the 
                period--
                          (i) on or after the 1st day on which 
                        the individual to whom the loan is made 
                        is a key employee (as defined in 
                        section 416(i)), or
                          (ii) such loan is secured by amounts 
                        attributable to elective deferrals 
                        described in subparagraph (A) or (C) of 
                        section 402(g)(3).
          (4) Qualified employer plan, etc..--For purposes of 
        this subsection--
                  (A) Qualified employer plan.--
                          (i) In general.--The term ``qualified 
                        employer plan'' means--
                                  (I) a plan described in 
                                section 401(a) which includes a 
                                trust exempt from tax under 
                                section 501(a),
                                  (II) an annuity plan 
                                described in section 403(a), 
                                and
                                  (III) a plan under which 
                                amounts are contributed by an 
                                individual's employer for an 
                                annuity contract described in 
                                section 403(b).
                          (ii) Special rule.--The term 
                        ``qualified employer plan'' shall 
                        include any plan which was (or was 
                        determined to be) a qualified employer 
                        plan or a government plan.
                  (B) Government plan.--The term ``government 
                plan'' means any plan, whether or not 
                qualified, established and maintained for its 
                employees by the United States, by a State or 
                political subdivision thereof, or by an agency 
                or instrumentality of any of the foregoing.
          (5) Special rules for loans, etc., from certain 
        contracts.--For purposes of this subsection, any amount 
        received as a loan under a contract purchased under a 
        qualified employer plan (and any assignment or pledge 
        with respect to such a contract) shall be treated as a 
        loan under such employer plan.
  (q) 10-percent penalty for premature distributions from 
annuity contracts.--
          (1) Imposition of penalty.--If any taxpayer receives 
        any amount under an annuity contract, the taxpayer's 
        tax under this chapter for the taxable year in which 
        such amount is received shall be increased by an amount 
        equal to 10 percent of the portion of such amount which 
        is includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Paragraph 1 shall not apply to any 
        distribution--
                  (A) made on or after the date on which the 
                taxpayer attains age 59 1/2,
                  (B) made on or after the death of the holder 
                (or, where the holder is not an individual, the 
                death of the primary annuitant (as defined in 
                subsection (s)(6)(B))),
                  (C) attributable to the taxpayer's becoming 
                disabled within the meaning of subsection 
                (m)(7),
                  (D) which is a part of a series of 
                substantially equal periodic payments (not less 
                frequently than annually) made for the life (or 
                life expectancy) of the taxpayer or the joint 
                lives (or joint life expectancies) of such 
                taxpayer and his designated beneficiary,
                  (E) from a plan, contract, account, trust, or 
                annuity described in subsection (e)(5)(D),
                  (F) allocable to investment in the contract 
                before August 14, 1982, or
                  (G) under a qualified funding asset (within 
                the meaning of section 130(d), but without 
                regard to whether there is a qualified 
                assignment),
                  (H) to which subsection (t) applies (without 
                regard to paragraph (2) thereof),
                  (I) under an immediate annuity contract 
                (within the meaning of section 72(u)(4)), or
                  (J) which is purchased by an employer upon 
                the termination of a plan described in section 
                401(a) or 403(a) and which is held by the 
                employer until such time as the employee 
                separates from service.
          (3) Change in substantially equal payments.--If--
                  (A) paragraph (1) does not apply to a 
                distribution by reason of paragraph (2)(D), and
                  (B) the series of payments under such 
                paragraph are subsequently modified (other than 
                by reason of death or disability)--
                          (i) before the close of the 5-year 
                        period beginning on the date of the 
                        first payment and after the taxpayer 
                        attains age 59 1/2, or
                          (ii) before the taxpayer attains age 
                        59 1/2, the taxpayer's tax for the 1st 
                        taxable year in which such modification 
                        occurs shall be increased by an amount, 
                        determined under regulations, equal to 
                        the tax which (but for paragraph 
                        (2)(D)) would have been imposed, plus 
                        interest for the deferral period 
                        (within the meaning of subsection 
                        (t)(4)(B)).
  (r) Certain railroad retirement benefits treated as received 
under employer plans.--
          (1) In general.--Notwithstanding any other provision 
        of law, any benefit provided under the Railroad 
        Retirement Act of 1974 (other than a tier 1 railroad 
        retirement benefit) shall be treated for purposes of 
        this title as a benefit provided under an employer plan 
        which meets the requirements of section 401(a).
          (2) Tier 2 taxes treated as contributions.--
                  (A) In general.--For purposes of paragraph 
                (1)--
                          (i) the tier 2 portion of the tax 
                        imposed by section 3201 (relating to 
                        tax on employees) shall be treated as 
                        an employee contribution,
                          (ii) the tier 2 portion of the tax 
                        imposed by section 3211 (relating to 
                        tax on employee representatives) shall 
                        be treated as an employee contribution, 
                        and
                          (iii) the tier 2 portion of the tax 
                        imposed by section 3221 (relating to 
                        tax on employers) shall be treated as 
                        an employer contribution.
                  (B) Tier 2 portion.--For purposes of 
                subparagraph (A)--
                          (i) After 1984.--With respect to 
                        compensation paid after 1984, the tier 
                        2 portion shall be the taxes imposed by 
                        sections 3201(b), 3211(b), and 3221(b).
                          (ii) After September 30, 1981, and 
                        before 1985.--With respect to 
                        compensation paid before 1985 for 
                        services rendered after September 30, 
                        1981, the tier 2 portion shall be--
                                  (I) so much of the tax 
                                imposed by section 3201 as is 
                                determined at the 2 percent 
                                rate, and
                                  (II) so much of the taxes 
                                imposed by sections 3211 and 
                                3221 as is determined at the 
                                11.75 percent rate.
                With respect to compensation paid for services 
                rendered after December 31, 1983, and before 
                1985, subclause (I) shall be applied by 
                substituting ``2.75 percent'' for ``2 
                percent'', and subclause (II) shall be applied 
                by substituting ``12.75 percent'' for ``11.75 
                percent''.
                          (iii) Before October 1, 1981.--With 
                        respect to compensation paid for 
                        services rendered during any period 
                        before October 1, 1981, the tier 2 
                        portion shall be the excess (if any) 
                        of--
                                  (I) the tax imposed for such 
                                period by section 3201, 3211, 
                                or 3221, as the case may be 
                                (other than any tax imposed 
                                with respect to man-hours), 
                                over
                                  (II) the tax which would have 
                                been imposed by such section 
                                for such period had the rates 
                                of the comparable taxes imposed 
                                by chapter 21 for such period 
                                applied under such section.
                  (C) Contributions not allocable to 
                supplemental annuity or windfall benefits.--For 
                purposes of paragraph (1), no amount treated as 
                an employee contribution under this paragraph 
                shall be allocated to--
                          (i) any supplemental annuity paid 
                        under section 2(b) of the Railroad 
                        Retirement Act of 1974, or
                          (ii) any benefit paid under section 
                        3(h), 4(e), or 4(h) of such Act.
          (3) Tier 1 railroad retirement benefit.--For purposes 
        of paragraph (1), the term ``tier 1 railroad retirement 
        benefit'' has the meaning given such term by section 
        86(d)(4).
  (s) Required distributions where holder dies before entire 
interest is distributed.--
          (1) In general.--A contract shall not be treated as 
        an annuity contract for purposes of this title unless 
        it provides that--
                  (A) if any holder of such contract dies on or 
                after the annuity starting date and before the 
                entire interest in such contract has been 
                distributed, the remaining portion of such 
                interest will be distributed at least as 
                rapidly as under the method of distributions 
                being used as of the date of his death, and
                  (B) if any holder of such contract dies 
                before the annuity starting date, the entire 
                interest in such contract will be distributed 
                within 5 years after the death of such holder.
          (2) Exception for certain amounts payable over life 
        of beneficiary.--If--
                  (A) any portion of the holder's interest is 
                payable to (or for the benefit of) a designated 
                beneficiary,
                  (B) such portion will be distributed (in 
                accordance with regulations) over the life of 
                such designated beneficiary (or over a period 
                not extending beyond the life expectancy of 
                such beneficiary), and
                  (C) such distributions begin not later than 1 
                year after the date of the holder's death or 
                such later date as the Secretary may by 
                regulations prescribe,
        then for purposes of paragraph (1), the portion 
        referred to in subparagraph (A) shall be treated as 
        distributed on the day on which such distributions 
        begin.
          (3) Special rule where surviving spouse 
        beneficiary.--If the designated beneficiary referred to 
        in paragraph (2)(A) is the surviving spouse of the 
        holder of the contract, paragraphs (1) and (2) shall be 
        applied by treating such spouse as the holder of such 
        contract.
          (4) Designated beneficiary.--For purposes of this 
        subsection, the term ``designated beneficiary'' means 
        any individual designated a beneficiary by the holder 
        of the contract.
          (5) Exception for certain annuity contracts.--This 
        subsection shall not apply to any annuity contract--
                  (A) which is provided--
                          (i) under a plan described in section 
                        401(a) which includes a trust exempt 
                        from tax under section 501, or
                          (ii) under a plan described in 
                        section 403(a),
                  (B) which is described in section 403(b),
                  (C) which is an individual retirement annuity 
                or provided under an individual retirement 
                account or annuity, or
                  (D) which is a qualified funding asset (as 
                defined in section 130(d), but without regard 
                to whether there is a qualified assignment).
          (6) Special rule where holder is corporation or other 
        non-individual.--
                  (A) In general.--For purposes of this 
                subsection, if the holder of the contract is 
                not an individual, the primary annuitant shall 
                be treated as the holder of the contract.
                  (B) Primary annuitant.--For purposes of 
                subparagraph (A), the term ``primary 
                annuitant'' means the individual, the events in 
                the life of whom are of primary importance in 
                affecting the timing or amount of the payout 
                under the contract.
          (7) Treatment of changes in primary annuitant where 
        holder of contract is not an individual.--For purposes 
        of this subsection, in the case of a holder of an 
        annuity contract which is not an individual, if there 
        is a change in a primary annuitant (as defined in 
        paragraph (6)(B)), such change shall be treated as the 
        death of the holder.
  (t) 10-percent additional tax on early distributions from 
qualified retirement plans.--
          (1) Imposition of additional tax.--If any taxpayer 
        receives any amount from a qualified retirement plan 
        (as defined in section 4974(c)), the taxpayer's tax 
        under this chapter for the taxable year in which such 
        amount is received shall be increased by an amount 
        equal to 10 percent of the portion of such amount which 
        is includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Except as provided in paragraphs (3) 
        and (4), paragraph (1) shall not apply to any of the 
        following distributions:
                  (A) In general.--Distributions which are--
                          (i) made on or after the date on 
                        which the employee attains age 59 1/2,
                          (ii) made to a beneficiary (or to the 
                        estate of the employee) on or after the 
                        death of the employee,
                          (iii) attributable to the employee's 
                        being disabled within the meaning of 
                        subsection (m)(7),
                          (iv) part of a series of 
                        substantially equal periodic payments 
                        (not less frequently than annually) 
                        made for the life (or life expectancy) 
                        of the employee or the joint lives (or 
                        joint life expectancies) of such 
                        employee and his designated 
                        beneficiary,
                          (v) made to an employee after 
                        separation from service after 
                        attainment of age 55,
                          (vi) dividends paid with respect to 
                        stock of a corporation which are 
                        described in section 404(k),
                          (vii) made on account of a levy under 
                        section 6331 on the qualified 
                        retirement plan, or
                          (viii) payments under a phased 
                        retirement annuity under section 
                        8366a(a)(5) or 8412a(a)(5) of title 5, 
                        United States Code, or a composite 
                        retirement annuity under section 
                        8366a(a)(1) or 8412a(a)(1) of such 
                        title.
                  (B) Medical expenses.--Distributions made to 
                the employee (other than distributions 
                described in subparagraph (A), (C), or (D)) to 
                the extent such distributions do not exceed the 
                amount allowable as a deduction under section 
                213 to the employee for amounts paid during the 
                taxable year for medical care (determined 
                without regard to whether the employee itemizes 
                deductions for such taxable year).
                  (C) Payments to alternate payees pursuant to 
                qualified domestic relations orders.--Any 
                distribution to an alternate payee pursuant to 
                a qualified domestic relations order (within 
                the meaning of section 414(p)(1)).
                  (D) Distributions to unemployed individuals 
                for health insurance premiums.--
                          (i) In general.--Distributions from 
                        an individual retirement plan to an 
                        individual after separation from 
                        employment--
                                  (I) if such individual has 
                                received unemployment 
                                compensation for 12 consecutive 
                                weeks under any Federal or 
                                State unemployment compensation 
                                law by reason of such 
                                separation,
                                  (II) if such distributions 
                                are made during any taxable 
                                year during which such 
                                unemployment compensation is 
                                paid or the succeeding taxable 
                                year, and
                                  (III) to the extent such 
                                distributions do not exceed the 
                                amount paid during the taxable 
                                year for insurance described in 
                                section 213(d)(1)(D) with 
                                respect to the individual and 
                                the individual's spouse and 
                                dependents (as defined in 
                                [section 152] section 7706, 
                                determined without regard to 
                                subsections (b)(1), (b)(2), and 
                                (d)(1)(B) thereof).
                          (ii) Distributions after 
                        reemployment.--Clause (i) shall not 
                        apply to any distribution made after 
                        the individual has been employed for at 
                        least 60 days after the separation from 
                        employment to which clause (i) applies.
                          (iii) Self-employed individuals.--To 
                        the extent provided in regulations, a 
                        self-employed individual shall be 
                        treated as meeting the requirements of 
                        clause (i)(I) if, under Federal or 
                        State law, the individual would have 
                        received unemployment compensation but 
                        for the fact the individual was self- 
                        employed.
                  (E) Distributions from individual retirement 
                plans for higher education expenses.--
                Distributions to an individual from an 
                individual retirement plan to the extent such 
                distributions do not exceed the qualified 
                higher education expenses (as defined in 
                paragraph (7)) of the taxpayer for the taxable 
                year. Distributions shall not be taken into 
                account under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), or (D) or to the extent paragraph (1) 
                does not apply to such distributions by reason 
                of subparagraph (B).
                  (F) Distributions from certain plans for 
                first home purchases.--Distributions to an 
                individual from an individual retirement plan 
                which are qualified first-time homebuyer 
                distributions (as defined in paragraph (8)). 
                Distributions shall not be taken into account 
                under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), (D), or (E) or to the extent 
                paragraph (1) does not apply to such 
                distributions by reason of subparagraph (B).
                  (G) Distributions from retirement plans to 
                individuals called to active duty.--
                          (i) In general.--Any qualified 
                        reservist distribution.
                          (ii) Amount distributed may be 
                        repaid.--Any individual who receives a 
                        qualified reservist distribution may, 
                        at any time during the 2-year period 
                        beginning on the day after the end of 
                        the active duty period, make one or 
                        more contributions to an individual 
                        retirement plan of such individual in 
                        an aggregate amount not to exceed the 
                        amount of such distribution. The dollar 
                        limitations otherwise applicable to 
                        contributions to individual retirement 
                        plans shall not apply to any 
                        contribution made pursuant to the 
                        preceding sentence. No deduction shall 
                        be allowed for any contribution 
                        pursuant to this clause.
                          (iii) Qualified reservist 
                        distribution.--For purposes of this 
                        subparagraph, the term ``qualified 
                        reservist distribution'' means any 
                        distribution to an individual if--
                                  (I) such distribution is from 
                                an individual retirement plan, 
                                or from amounts attributable to 
                                employer contributions made 
                                pursuant to elective deferrals 
                                described in subparagraph (A) 
                                or (C) of section 402(g)(3) or 
                                section 501(c)(18)(D)(iii),
                                  (II) such individual was (by 
                                reason of being a member of a 
                                reserve component (as defined 
                                in section 101 of title 37, 
                                United States Code)) ordered or 
                                called to active duty for a 
                                period in excess of 179 days or 
                                for an indefinite period, and
                                  (III) such distribution is 
                                made during the period 
                                beginning on the date of such 
                                order or call and ending at the 
                                close of the active duty 
                                period.
                          (iv) Application of subparagraph.--
                        This subparagraph applies to 
                        individuals ordered or called to active 
                        duty after September 11, 2001. In no 
                        event shall the 2-year period referred 
                        to in clause (ii) end before the date 
                        which is 2 years after the date of the 
                        enactment of this subparagraph.
          (3) Limitations.--
                  (A) Certain exceptions not to apply to 
                individual retirement plans.--Subparagraphs 
                (A)(v) and (C) of paragraph (2) shall not apply 
                to distributions from an individual retirement 
                plan.
                  (B) Periodic payments under qualified plans 
                must begin after separation.--Paragraph 
                (2)(A)(iv) shall not apply to any amount paid 
                from a trust described in section 401(a) which 
                is exempt from tax under section 501(a) or from 
                a contract described in section 72(e)(5)(D)(ii) 
                unless the series of payments begins after the 
                employee separates from service.
          (4) Change in substantially equal payments.--
                  (A) In general.--If--
                          (i) paragraph (1) does not apply to a 
                        distribution by reason of paragraph 
                        (2)(A)(iv), and
                          (ii) the series of payments under 
                        such paragraph are subsequently 
                        modified (other than by reason of death 
                        or disability or a distribution to 
                        which paragraph (10) applies)--
                                  (I) before the close of the 
                                5-year period beginning with 
                                the date of the first payment 
                                and after the employee attains 
                                age 59 1/2, or
                                  (II) before the employee 
                                attains age 59 1/2, the 
                                taxpayer's tax for the 1st 
                                taxable year in which such 
                                modification occurs shall be 
                                increased by an amount, 
                                determined under regulations, 
                                equal to the tax which (but for 
                                paragraph (2)(A)(iv)) would 
                                have been imposed, plus 
                                interest for the deferral 
                                period.
                  (B) Deferral period.--For purposes of this 
                paragraph, the term ``deferral period'' means 
                the period beginning with the taxable year in 
                which (without regard to paragraph (2)(A)(iv)) 
                the distribution would have been includible in 
                gross income and ending with the taxable year 
                in which the modification described in 
                subparagraph (A) occurs.
          (5) Employee.--For purposes of this subsection, the 
        term ``employee'' includes any participant, and in the 
        case of an individual retirement plan, the individual 
        for whose benefit such plan was established.
          (6) Special rules for simple retirement accounts.--In 
        the case of any amount received from a simple 
        retirement account (within the meaning of section 
        408(p)) during the 2-year period beginning on the date 
        such individual first participated in any qualified 
        salary reduction arrangement maintained by the 
        individual's employer under section 408(p)(2), 
        paragraph (1) shall be applied by substituting ``25 
        percent'' for ``10 percent''.
          (7) Qualified higher education expenses.--For 
        purposes of paragraph (2)(E)--
                  (A) In general.--The term ``qualified higher 
                education expenses'' means qualified higher 
                education expenses (as defined in section 
                529(e)(3)) for education furnished to--
                          (i) the taxpayer,
                          (ii) the taxpayer's spouse, or
                          (iii) any child (as defined in 
                        [section 152(f)(1)] section 7706(f)(1)) 
                        or grandchild of the taxpayer or the 
                        taxpayer's spouse,
                at an eligible educational institution (as 
                defined in section 529(e)(5)).
                  (B) Coordination with other benefits.--The 
                amount of qualified higher education expenses 
                for any taxable year shall be reduced as 
                provided in section 25A(g)(2).
          (8) Qualified first-time homebuyer distributions.--
        For purposes of paragraph (2)(F)--
                  (A) In general.--The term ``qualified first-
                time homebuyer distribution'' means any payment 
                or distribution received by an individual to 
                the extent such payment or distribution is used 
                by the individual before the close of the 120th 
                day after the day on which such payment or 
                distribution is received to pay qualified 
                acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual, the spouse of such individual, or 
                any child, grandchild, or ancestor of such 
                individual or the individual's spouse.
                  (B) Lifetime dollar limitation.--The 
                aggregate amount of payments or distributions 
                received by an individual which may be treated 
                as qualified first-time homebuyer distributions 
                for any taxable year shall not exceed the 
                excess (if any) of--
                          (i) $10,000, over
                          (ii) the aggregate amounts treated as 
                        qualified first-time homebuyer 
                        distributions with respect to such 
                        individual for all prior taxable years.
                  (C) Qualified acquisition costs.--For 
                purposes of this paragraph, the term 
                ``qualified acquisition costs'' means the costs 
                of acquiring, constructing, or reconstructing a 
                residence. Such term includes any usual or 
                reasonable settlement, financing, or other 
                closing costs.
                  (D) First-time homebuyer; other 
                definitions.--For purposes of this paragraph--
                          (i) First-time homebuyer.--The term 
                        ``first-time homebuyer'' means any 
                        individual if--
                                  (I) such individual (and if 
                                married, such individual's 
                                spouse) had no present 
                                ownership interest in a 
                                principal residence during the 
                                2-year period ending on the 
                                date of acquisition of the 
                                principal residence to which 
                                this paragraph applies, and
                                  (II) subsection (h) or (k) of 
                                section 1034 (as in effect on 
                                the day before the date of the 
                                enactment of this paragraph) 
                                did not suspend the running of 
                                any period of time specified in 
                                section 1034 (as so in effect) 
                                with respect to such individual 
                                on the day before the date the 
                                distribution is applied 
                                pursuant to subparagraph (A).
                          (ii) Principal residence.--The term 
                        ``principal residence'' has the same 
                        meaning as when used in section 121.
                          (iii) Date of acquisition.--The term 
                        ``date of acquisition'' means the 
                        date--
                                  (I) on which a binding 
                                contract to acquire the 
                                principal residence to which 
                                subparagraph (A) applies is 
                                entered into, or
                                  (II) on which construction or 
                                reconstruction of such a 
                                principal residence is 
                                commenced.
                  (E) Special rule where delay in 
                acquisition.--If any distribution from any 
                individual retirement plan fails to meet the 
                requirements of subparagraph (A) solely by 
                reason of a delay or cancellation of the 
                purchase or construction of the residence, the 
                amount of the distribution may be contributed 
                to an individual retirement plan as provided in 
                section 408(d)(3)(A)(i) (determined by 
                substituting ``120th day'' for ``60th day'' in 
                such section), except that--
                          (i) section 408(d)(3)(B) shall not be 
                        applied to such contribution, and
                          (ii) such amount shall not be taken 
                        into account in determining whether 
                        section 408(d)(3)(B) applies to any 
                        other amount.
          (9) Special rule for rollovers to section 457 
        plans.--For purposes of this subsection, a distribution 
        from an eligible deferred compensation plan (as defined 
        in section 457(b)) of an eligible employer described in 
        section 457(e)(1)(A) shall be treated as a distribution 
        from a qualified retirement plan described in 
        4974(c)(1) to the extent that such distribution is 
        attributable to an amount transferred to an eligible 
        deferred compensation plan from a qualified retirement 
        plan (as defined in section 4974(c)).
          (10) Distributions to qualified public safety 
        employees in governmental plans.--
                  (A) In general.--In the case of a 
                distribution to a qualified public safety 
                employee from a governmental plan (within the 
                meaning of section 414(d)), paragraph (2)(A)(v) 
                shall be applied by substituting ``age 50'' for 
                ``age 55''.
                  (B) Qualified public safety employee.--For 
                purposes of this paragraph, the term 
                ``qualified public safety employee'' means--
                          (i) any employee of a State or 
                        political subdivision of a State who 
                        provides police protection, 
                        firefighting services, or emergency 
                        medical services for any area within 
                        the jurisdiction of such State or 
                        political subdivision, or
                          (ii) any Federal law enforcement 
                        officer described in section 8331(20) 
                        or 8401(17) of title 5, United States 
                        Code, any Federal customs and border 
                        protection officer described in section 
                        8331(31) or 8401(36) of such title, any 
                        Federal firefighter described in 
                        section 8331(21) or 8401(14) of such 
                        title, any air traffic controller 
                        described in 8331(30) or 8401(35) of 
                        such title, any nuclear materials 
                        courier described in section 8331(27) 
                        or 8401(33) of such title, any member 
                        of the United States Capitol Police, 
                        any member of the Supreme Court Police, 
                        or any diplomatic security special 
                        agent of the Department of State.
  (u) Treatment of annuity contracts not held by natural 
persons.--
          (1) In general.--If any annuity contract is held by a 
        person who is not a natural person--
                  (A) such contract shall not be treated as an 
                annuity contract for purposes of this subtitle 
                (other than subchapter L), and
                  (B) the income on the contract for any 
                taxable year of the policyholder shall be 
                treated as ordinary income received or accrued 
                by the owner during such taxable year.
        For purposes of this paragraph, holding by a trust or 
        other entity as an agent for a natural person shall not 
        be taken into account.
          (2) Income on the contract.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``income on the contract'' means, 
                with respect to any taxable year of the 
                policyholder, the excess of--
                          (i) the sum of the net surrender 
                        value of the contract as of the close 
                        of the taxable year plus all 
                        distributions under the contract 
                        received during the taxable year or any 
                        prior taxable year, reduced by
                          (ii) the sum of the amount of net 
                        premiums under the contract for the 
                        taxable year and prior taxable years 
                        and amounts includible in gross income 
                        for prior taxable years with respect to 
                        such contract under this subsection.
                Where necessary to prevent the avoidance of 
                this subsection, the Secretary may substitute 
                ``fair market value of the contract'' for ``net 
                surrender value of the contract'' each place it 
                appears in the preceding sentence.
                  (B) Net premiums.--For purposes of this 
                paragraph, the term ``net premiums'' means the 
                amount of premiums paid under the contract 
                reduced by any policyholder dividends.
          (3) Exceptions.--This subsection shall not apply to 
        any annuity contract which--
                  (A) is acquired by the estate of a decedent 
                by reason of the death of the decedent,
                  (B) is held under a plan described in section 
                401(a) or 403(a), under a program described in 
                section 403(b), or under an individual 
                retirement plan,
                  (C) is a qualified funding asset (as defined 
                in section 130(d), but without regard to 
                whether there is a qualified assignment),
                  (D) is purchased by an employer upon the 
                termination of a plan described in section 
                401(a) or 403(a) and is held by the employer 
                until all amounts under such contract are 
                distributed to the employee for whom such 
                contract was purchased or the employee's 
                beneficiary, or
                  (E) is an immediate annuity.
          (4) Immediate annuity.--For purposes of this 
        subsection, the term ``immediate annuity'' means an 
        annuity--
                  (A) which is purchased with a single premium 
                or annuity consideration,
                  (B) the annuity starting date (as defined in 
                subsection (c)(4)) of which commences no later 
                than 1 year from the date of the purchase of 
                the annuity, and
                  (C) which provides for a series of 
                substantially equal periodic payments (to be 
                made not less frequently than annually) during 
                the annuity period.
  (v) 10-percent additional tax for taxable distributions from 
modified endowment contracts.--
          (1) Imposition of additional tax.--If any taxpayer 
        receives any amount under a modified endowment contract 
        (as defined in section 7702A), the taxpayer's tax under 
        this chapter for the taxable year in which such amount 
        is received shall be increased by an amount equal to 10 
        percent of the portion of such amount which is 
        includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Paragraph (1) shall not apply to any 
        distribution--
                  (A) made on or after the date on which the 
                taxpayer attains age 59 1/2,
                  (B) which is attributable to the taxpayer's 
                becoming disabled (within the meaning of 
                subsection (m)(7)), or
                  (C) which is part of a series of 
                substantially equal periodic payments (not less 
                frequently than annually) made for the life (or 
                life expectancy) of the taxpayer or the joint 
                lives (or joint life expectancies) of such 
                taxpayer and his beneficiary.
  (w) Application of basis rules to nonresident aliens.--
          (1) In general.--Notwithstanding any other provision 
        of this section, for purposes of determining the 
        portion of any distribution which is includible in 
        gross income of a distributee who is a citizen or 
        resident of the United States, the investment in the 
        contract shall not include any applicable nontaxable 
        contributions or applicable nontaxable earnings.
          (2) Applicable nontaxable contribution.--For purposes 
        of this subsection, the term ``applicable nontaxable 
        contribution'' means any employer or employee 
        contribution--
                  (A) which was made with respect to 
                compensation--
                          (i) for labor or personal services 
                        performed by an employee who, at the 
                        time the labor or services were 
                        performed, was a nonresident alien for 
                        purposes of the laws of the United 
                        States in effect at such time, and
                          (ii) which is treated as from sources 
                        without the United States, and
                  (B) which was not subject to income tax (and 
                would have been subject to income tax if paid 
                as cash compensation when the services were 
                rendered) under the laws of the United States 
                or any foreign country.
          (3) Applicable nontaxable earnings.--For purposes of 
        this subsection, the term ``applicable nontaxable 
        earnings'' means earnings--
                  (A) which are paid or accrued with respect to 
                any employer or employee contribution which was 
                made with respect to compensation for labor or 
                personal services performed by an employee,
                  (B) with respect to which the employee was at 
                the time the earnings were paid or accrued a 
                nonresident alien for purposes of the laws of 
                the United States, and
                  (C) which were not subject to income tax 
                under the laws of the United States or any 
                foreign country.
          (4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        provisions of this subsection, including regulations 
        treating contributions and earnings as not subject to 
        tax under the laws of any foreign country where 
        appropriate to carry out the purposes of this 
        subsection.
  (x) Cross reference.--For limitation on adjustments to basis 
of annuity contracts sold, see section 1021.

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PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 105. AMOUNTS RECEIVED UNDER ACCIDENT AND HEALTH PLANS.

  (a) Amounts attributable to employer contributions.--Except 
as otherwise provided in this section, amounts received by an 
employee through accident or health insurance for personal 
injuries or sickness shall be included in gross income to the 
extent such amounts (1) are attributable to contributions by 
the employer which were not includible in the gross income of 
the employee, or (2) are paid by the employer.
  (b) Amounts expended for medical care.--Except in the case of 
amounts attributable to (and not in excess of) deductions 
allowed under section 213 (relating to medical, etc., expenses) 
for any prior taxable year, gross income does not include 
amounts referred to in subsection (a) if such amounts are paid, 
directly or indirectly, to the taxpayer to reimburse the 
taxpayer for expenses incurred by him for the medical care (as 
defined in section 213(d)) of the taxpayer, his spouse, his 
dependents ([as defined in section 152] as defined in section 
7706, determined without regard to subsections (b)(1), (b)(2), 
and (d)(1)(B) thereof), and any child (as defined in [section 
152(f)(1)] section 7706(f)(1)) of the taxpayer who as of the 
end of the taxable year has not attained age 27. Any child to 
whom [section 152(e)] section 7706(e) applies shall be treated 
as a dependent of both parents for purposes of this subsection.
  (c) Payments unrelated to absence from work.--Gross income 
does not include amounts referred to in subsection (a) to the 
extent such amounts--
          (1) constitute payment for the permanent loss or loss 
        of use of a member or function of the body, or the 
        permanent disfigurement, of the taxpayer, his spouse, 
        or a dependent (as defined in [section 152] section 
        7706, determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof), and
          (2) are computed with reference to the nature of the 
        injury without regard to the period the employee is 
        absent from work.
  (e) Accident and health plans.--For purposes of this section 
and section 104--
          (1) amounts received under an accident or health plan 
        for employees, and
          (2) amounts received from a sickness and disability 
        fund for employees maintained under the law of a State 
        or the District of Columbia,
shall be treated as amounts received through accident or health 
insurance.
  (f) Rules for application of section 213.--For purposes of 
section 213(a) (relating to medical, dental, etc., expenses) 
amounts excluded from gross income under subsection (c) shall 
not be considered as compensation (by insurance or otherwise) 
for expenses paid for medical care.
  (g) Self-employed individual not considered an employee.--For 
purposes of this section, the term ``employee'' does not 
include an individual who is an employee within the meaning of 
section 401(c)(1) (relating to self-employed individuals).
  (h) Amount paid to highly compensated individuals under a 
discriminatory self-insured medical expense reimbursement 
plan.--
          (1) In general.--In the case of amounts paid to a 
        highly compensated individual under a self-insured 
        medical reimbursement plan which does not satisfy the 
        requirements of paragraph (2) for a plan year, 
        subsection (b) shall not apply to such amounts to the 
        extent they constitute an excess reimbursement of such 
        highly compensated individual.
          (2) Prohibition of discrimination.--A self-insured 
        medical reimbursement plan satisfies the requirements 
        of this paragraph only if--
                  (A) the plan does not discriminate in favor 
                of highly compensated individuals as to 
                eligibility to participate; and
                  (B) the benefits provided under the plan do 
                not discriminate in favor of participants who 
                are highly compensated individuals.
          (3) Nondiscriminatory eligibility classifications.--
                  (A) In general.--A self-insured medical 
                reimbursement plan does not satisfy the 
                requirements of subparagraph (A) of paragraph 
                (2) unless such plan benefits--
                          (i) 70 percent or more of all 
                        employees, or 80 percent or more of all 
                        the employees who are eligible to 
                        benefit under the plan if 70 percent or 
                        more of all employees are eligible to 
                        benefit under the plan; or
                          (ii) such employees as qualify under 
                        a classification set up by the employer 
                        and found by the Secretary not to be 
                        discriminatory in favor of highly 
                        compensated individuals.
                  (B) Exclusion of certain employees.--For 
                purposes of subparagraph (A), there may be 
                excluded from consideration--
                          (i) employees who have not completed 
                        3 years of service;
                          (ii) employees who have not attained 
                        age 25;
                          (iii) part-time or seasonal 
                        employees;
                          (iv) employees not included in the 
                        plan who are included in a unit of 
                        employees covered by an agreement 
                        between employee representatives and 
                        one or more employers which the 
                        Secretary finds to be a collective 
                        bargaining agreement, if accident and 
                        health benefits were the subject of 
                        good faith bargaining between such 
                        employee representatives and such 
                        employer or employers; and
                          (v) employees who are nonresident 
                        aliens and who receive no earned income 
                        (within the meaning of section 
                        911(d)(2)) from the employer which 
                        constitutes income from sources within 
                        the United States (within the meaning 
                        of section 861(a)(3)).
          (4) Nondiscriminatory benefits.--A self-insured 
        medical reimbursement plan does not meet the 
        requirements of subparagraph (B) of paragraph (2) 
        unless all benefits provided for participants who are 
        highly compensated individuals are provided for all 
        other participants.
          (5) Highly compensated individual defined.--For 
        purposes of this subsection, the term ``highly 
        compensated individual'' means an individual who is--
                  (A) one of the 5 highest paid officers,
                  (B) a shareholder who owns (with the 
                application of section 318) more than 10 
                percent in value of the stock of the employer, 
                or
                  (C) among the highest paid 25 percent of all 
                employees (other than employees described in 
                paragraph (3)(B) who are not participants).
          (6) Self-insured medical reimbursement plan.--The 
        term ``self-insured medical reimbursement plan'' means 
        a plan of an employer to reimburse employees for 
        expenses referred to in subsection (b) for which 
        reimbursement is not provided under a policy of 
        accident and health insurance.
          (7) Excess reimbursement of highly compensated 
        individual.--For purposes of this section, the excess 
        reimbursement of a highly compensated individual which 
        is attributable to a self-insured medical reimbursement 
        plan is--
                  (A) in the case of a benefit available to 
                highly compensated individuals but not to all 
                other participants (or which otherwise fails to 
                satisfy the requirements of paragraph (2)(B)), 
                the amount reimbursed under the plan to the 
                employee with respect to such benefit, and
                  (B) in the case of benefits (other than 
                benefits described in subparagraph (A)) paid to 
                a highly compensated individual by a plan which 
                fails to satisfy the requirements of paragraph 
                (2), the total amount reimbursed to the highly 
                compensated individual for the plan year 
                multiplied by a fraction--
                          (i) the numerator of which is the 
                        total amount reimbursed to all 
                        participants who are highly compensated 
                        individuals under the plan for the plan 
                        year, and
                          (ii) the denominator of which is the 
                        total amount reimbursed to all 
                        employees under the plan for such plan 
                        year.
        In determining the fraction under subparagraph (B), 
        there shall not be taken into account any reimbursement 
        which is attributable to a benefit described in 
        subparagraph (A).
          (8) Certain controlled groups, etc..--All employees 
        who are treated as employed by a single employer under 
        subsection (b), (c), or (m) of section 414 shall be 
        treated as employed by a single employer for purposes 
        of this section.
          (9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        provisions of this section.
          (10) Time of inclusion.--Any amount paid for a plan 
        year that is included in income by reason of this 
        subsection shall be treated as received or accrued in 
        the taxable year of the participant in which the plan 
        year ends.
  (i) Sick pay under Railroad Unemployment Insurance Act.--
Notwithstanding any other provision of law, gross income 
includes benefits paid under section 2(a) of the Railroad 
Unemployment Insurance Act for days of sickness; except to the 
extent such sickness (as determined in accordance with 
standards prescribed by the Railroad Retirement Board) is the 
result of on-the-job injury.
  (j) Special rule for certain governmental plans.--
          (1) In general.--For purposes of subsection (b), 
        amounts paid (directly or indirectly) to a qualified 
        taxpayer from an accident or health plan described in 
        paragraph (2) shall not fail to be excluded from gross 
        income solely because such plan, on or before January 
        1, 2008, provides for reimbursements of health care 
        expenses of a deceased employee's beneficiary (other 
        than an individual described in paragraph (3)(B)).
          (2) Plan described.--An accident or health plan is 
        described in this paragraph if such plan is funded by a 
        medical trust that is established in connection with a 
        public retirement system or established by or on behalf 
        of a State or political subdivision thereof and that--
                  (A) has been authorized by a State 
                legislature, or
                  (B) has received a favorable ruling from the 
                Internal Revenue Service that the trust's 
                income is not includible in gross income under 
                section 115 or 501(c)(9).
          (3) Qualified taxpayer.--For purposes of paragraph 
        (1), with respect to an accident or health plan 
        described in paragraph (2), the term ``qualified 
        taxpayer'' means a taxpayer who is--
                  (A) an employee, or
                  (B) the spouse, dependent (as defined for 
                purposes of subsection (b)), or child (as 
                defined for purposes of such subsection) of an 
                employee.

           *       *       *       *       *       *       *


SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.

  (a) Exclusion from gross income.--
          (1) In general.--Gross income does not include any 
        amount which (but for this subsection) would be 
        includible in gross income by reason of the discharge 
        (in whole or in part) of indebtedness of the taxpayer 
        if--
                  (A) the discharge occurs in a title 11 case,
                  (B) the discharge occurs when the taxpayer is 
                insolvent,
                  (C) the indebtedness discharged is qualified 
                farm indebtedness,
                  (D) in the case of a taxpayer other than a C 
                corporation, the indebtedness discharged is 
                qualified real property business indebtedness, 
                or
                  (E) the indebtedness discharged is qualified 
                principal residence indebtedness which is 
                discharged--
                          (i) before January 1, 2018, or ii) 
                        subject to an arrangement that is 
                        entered into and evidenced in writing 
                        before January 1, 2018.
          (2) Coordination of exclusions.--
                  (A) Title 11 exclusion takes precedence.--
                Subparagraphs (B), (C), (D), and (E) of 
                paragraph (1) shall not apply to a discharge 
                which occurs in a title 11 case.
                  (B) Insolvency exclusion takes precedence 
                over qualified farm exclusion and qualified 
                real property business exclusion.--
                Subparagraphs (C) and (D) of paragraph (1) 
                shall not apply to a discharge to the extent 
                the taxpayer is insolvent.
                  (C) Principal residence exclusion takes 
                precedence over insolvency exclusion unless 
                elected otherwise.--Paragraph (1)(B) shall not 
                apply to a discharge to which paragraph (1)(E) 
                applies unless the taxpayer elects to apply 
                paragraph (1)(B) in lieu of paragraph (1)(E).
          (3) Insolvency exclusion limited to amount of 
        insolvency.--In the case of a discharge to which 
        paragraph (1)(B) applies, the amount excluded under 
        paragraph (1)(B) shall not exceed the amount by which 
        the taxpayer is insolvent.
  (b) Reduction of tax attributes.--
          (1) In general.--The amount excluded from gross 
        income under subparagraph (A), (B), or (C) of 
        subsection (a)(1) shall be applied to reduce the tax 
        attributes of the taxpayer as provided in paragraph 
        (2).
          (2) Tax attributes affected; order of reduction.--
        Except as provided in paragraph (5), the reduction 
        referred to in paragraph (1) shall be made in the 
        following tax attributes in the following order:
                  (A) NOL.--Any net operating loss for the 
                taxable year of the discharge, and any net 
                operating loss carryover to such taxable year.
                  (B) General business credit.--Any carryover 
                to or from the taxable year of a discharge of 
                an amount for purposes for determining the 
                amount allowable as a credit under section 38 
                (relating to general business credit).
                  (C) Minimum tax credit.--The amount of the 
                minimum tax credit available under section 
                53(b) as of the beginning of the taxable year 
                immediately following the taxable year of the 
                discharge.
                  (D) Capital loss carryovers.--Any net capital 
                loss for the taxable year of the discharge, and 
                any capital loss carryover to such taxable year 
                under section 1212.
                  (E) Basis reduction.--
                          (i) In general.--The basis of the 
                        property of the taxpayer.
                          (ii) Cross reference.--For provisions 
                        for making the reduction described in 
                        clause (i), see section 1017.
                  (F) Passive activity loss and credit 
                carryovers.--Any passive activity loss or 
                credit carryover of the taxpayer under section 
                469(b) from the taxable year of the discharge.
                  (G) Foreign tax credit carryovers.--Any 
                carryover to or from the taxable year of the 
                discharge for purposes of determining the 
                amount of the credit allowable under section 
                27.
          (3) Amount of reduction.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the reductions described in 
                paragraph (2) shall be one dollar for each 
                dollar excluded by subsection (a).
                  (B) Credit carryover reduction.--The 
                reductions described in subparagraphs (B), (C), 
                and (G) shall be 33 1/3 cents for each dollar 
                excluded by subsection (a). The reduction 
                described in subparagraph (F) in any passive 
                activity credit carryover shall be 33 1/3 cents 
                for each dollar excluded by subsection (a).
          (4) Ordering rules.--
                  (A) Reductions made after determination of 
                tax for year.--The reductions described in 
                paragraph (2) shall be made after the 
                determination of the tax imposed by this 
                chapter for the taxable year of the discharge.
                  (B) Reductions under subparagraph (A) or (D) 
                of paragraph (2).--The reductions described in 
                subparagraph (A) or (D) of paragraph (2) (as 
                the case may be) shall be made first in the 
                loss for the taxable year of the discharge and 
                then in the carryovers to such taxable year in 
                the order of the taxable years from which each 
                such carryover arose.
                  (C) Reductions under subparagraphs (B) and 
                (G) of paragraph (2).--The reductions described 
                in subparagraphs (B) and (G) of paragraph (2) 
                shall be made in the order in which carryovers 
                are taken into account under this chapter for 
                the taxable year of the discharge.
          (5) Election to apply reduction first against 
        depreciable property.--
                  (A) In general.--The taxpayer may elect to 
                apply any portion of the reduction referred to 
                in paragraph (1) to the reduction under section 
                1017 of the basis of the depreciable property 
                of the taxpayer.
                  (B) Limitation.--The amount to which an 
                election under subparagraph (A) applies shall 
                not exceed the aggregate adjusted bases of the 
                depreciable property held by the taxpayer as of 
                the beginning of the taxable year following the 
                taxable year in which the discharge occurs.
                  (C) Other tax attributes not reduced.--
                Paragraph (2) shall not apply to any amount to 
                which an election under this paragraph applies.
  (c) Treatment of discharge of qualified real property 
business indebtedness.--
          (1) Basis reduction.--
                  (A) In general.--The amount excluded from 
                gross income under subparagraph (D) of 
                subsection (a)(1) shall be applied to reduce 
                the basis of the depreciable real property of 
                the taxpayer.
                  (B) Cross reference.--For provisions making 
                the reduction described in subparagraph (A), 
                see section 1017.
          (2) Limitations.--
                  (A) Indebtedness in excess of value.--The 
                amount excluded under subparagraph (D) of 
                subsection (a)(1) with respect to any qualified 
                real property business indebtedness shall not 
                exceed the excess (if any) of--
                          (i) the outstanding principal amount 
                        of such indebtedness (immediately 
                        before the discharge), over
                          (ii) the fair market value of the 
                        real property described in paragraph 
                        (3)(A) (as of such time), reduced by 
                        the outstanding principal amount of any 
                        other qualified real property business 
                        indebtedness secured by such property 
                        (as of such time).
                  (B) Overall limitation.--The amount excluded 
                under subparagraph (D) of subsection (a)(1) 
                shall not exceed the aggregate adjusted bases 
                of depreciable real property (determined after 
                any reductions under subsections (b) and (g)) 
                held by the taxpayer immediately before the 
                discharge (other than depreciable real property 
                acquired in contemplation of such discharge).
          (3) Qualified real property business indebtedness.--
        The term ``qualified real property business 
        indebtedness'' means indebtedness which--
                  (A) was incurred or assumed by the taxpayer 
                in connection with real property used in a 
                trade or business and is secured by such real 
                property,
                  (B) was incurred or assumed before January 1, 
                1993, or if incurred or assumed on or after 
                such date, is qualified acquisition 
                indebtedness, and
                  (C) with respect to which such taxpayer makes 
                an election to have this paragraph apply.
        Such term shall not include qualified farm 
        indebtedness. Indebtedness under subparagraph (B) shall 
        include indebtedness resulting from the refinancing of 
        indebtedness under subparagraph (B) (or this sentence), 
        but only to the extent it does not exceed the amount of 
        the indebtedness being refinanced.
          (4) Qualified acquisition indebtedness.--For purposes 
        of paragraph (3)(B), the term ``qualified acquisition 
        indebtedness'' means, with respect to any real property 
        described in paragraph (3)(A), indebtedness incurred or 
        assumed to acquire, construct, reconstruct, or 
        substantially improve such property.
          (5) Regulations.--The Secretary shall issue such 
        regulations as are necessary to carry out this 
        subsection, including regulations preventing the abuse 
        of this subsection through cross-collateralization or 
        other means.
  (d) Meaning of terms; special rules relating to certain 
provisions.--
          (1) Indebtedness of taxpayer.--For purposes of this 
        section, the term ``indebtedness of the taxpayer'' 
        means any indebtedness--
                  (A) for which the taxpayer is liable, or
                  (B) subject to which the taxpayer holds 
                property.
          (2) Title 11 case.--For purposes of this section, the 
        term ``title 11 case'' means a case under title 11 of 
        the United States Code (relating to bankruptcy), but 
        only if the taxpayer is under the jurisdiction of the 
        court in such case and the discharge of indebtedness is 
        granted by the court or is pursuant to a plan approved 
        by the court.
          (3) Insolvent.--For purposes of this section, the 
        term ``insolvent'' means the excess of liabilities over 
        the fair market value of assets. With respect to any 
        discharge, whether or not the taxpayer is insolvent, 
        and the amount by which the taxpayer is insolvent, 
        shall be determined on the basis of the taxpayer's 
        assets and liabilities immediately before the 
        discharge.
          (4) Repealed. Pub. L. 99-514, title VIII, Sec. 
        822(b)(3)(A), Oct. 22, 1986, 100 Stat. 2373
          (5) Depreciable property.--The term ``depreciable 
        property'' has the same meaning as when used in section 
        1017.
          (6) Certain provisions to be applied at partner 
        level.--In the case of a partnership, subsections (a), 
        (b), (c), and (g) shall be applied at the partner 
        level.
          (7) Special rules for S corporation.--
                  (A) Certain provisions to be applied at 
                corporate level.--In the case of an S 
                corporation, subsections (a), (b), (c), and (g) 
                shall be applied at the corporate level, 
                including by not taking into account under 
                section 1366(a) any amount excluded under 
                subsection (a) of this section.
                  (B) Reduction in carryover of disallowed 
                losses and deductions.--In the case of an S 
                corporation, for purposes of subparagraph (A) 
                of subsection (b)(2), any loss or deduction 
                which is disallowed for the taxable year of the 
                discharge under section 1366(d)(1) shall be 
                treated as a net operating loss for such 
                taxable year. The preceding sentence shall not 
                apply to any discharge to the extent that 
                subsection (a)(1)(D) applies to such discharge.
                  (C) Coordination with basis adjustments under 
                section 1367(b)(2).--For purposes of subsection 
                (e)(6), a shareholder's adjusted basis in 
                indebtedness of an S corporation shall be 
                determined without regard to any adjustments 
                made under section 1367(b)(2).
          (8) Reductions of tax attributes in title 11 cases of 
        individuals to be made by estate.--In any case under 
        chapter 7 or 11 of title 11 of the United States Code 
        to which section 1398 applies, for purposes of 
        paragraphs (1) and (5) of subsection (b) the estate 
        (and not the individual) shall be treated as the 
        taxpayer. The preceding sentence shall not apply for 
        purposes of applying section 1017 to property 
        transferred by the estate to the individual.
          (9) Time for making election, etc..--
                  (A) Time.--An election under paragraph (5) of 
                subsection (b) or under paragraph (3)(C) of 
                subsection (c) shall be made on the taxpayer's 
                return for the taxable year in which the 
                discharge occurs or at such other time as may 
                be permitted in regulations prescribed by the 
                Secretary.
                  (B) Revocation only with consent.--An 
                election referred to in subparagraph (A), once 
                made, may be revoked only with the consent of 
                the Secretary.
                  (C) Manner.--An election referred to in 
                subparagraph (A) shall be made in such manner 
                as the Secretary may by regulations prescribe.
          (10) Cross reference.--For provision that no 
        reduction is to be made in the basis of exempt property 
        of an individual debtor, see section 1017(c)(1).
  (e) General rules for discharge of indebtedness (including 
discharges not in title 11 cases or insolvency).--For purposes 
of this title--
          (1) No other insolvency exception.--Except as 
        otherwise provided in this section, there shall be no 
        insolvency exception from the general rule that gross 
        income includes income from the discharge of 
        indebtedness.
          (2) Income not realized to extent of lost 
        deductions.--No income shall be realized from the 
        discharge of indebtedness to the extent that payment of 
        the liability would have given rise to a deduction.
          (3) Adjustments for unamortized premium and 
        discount.--The amount taken into account with respect 
        to any discharge shall be properly adjusted for 
        unamortized premium and unamortized discount with 
        respect to the indebtedness discharged.
          (4) Acquisition of indebtedness by person related to 
        debtor.--
                  (A) Treated as acquisition by debtor.--For 
                purposes of determining income of the debtor 
                from discharge of indebtedness, to the extent 
                provided in regulations prescribed by the 
                Secretary, the acquisition of outstanding 
                indebtedness by a person bearing a relationship 
                to the debtor specified in section 267(b) or 
                707(b)(1) from a person who does not bear such 
                a relationship to the debtor shall be treated 
                as the acquisition of such indebtedness by the 
                debtor. Such regulations shall provide for such 
                adjustments in the treatment of any subsequent 
                transactions involving the indebtedness as may 
                be appropriate by reason of the application of 
                the preceding sentence.
                  (B) Members of family.--For purposes of this 
                paragraph, sections 267(b) and 707(b)(1) shall 
                be applied as if section 267(c)(4) provided 
                that the family of an individual consists of 
                the individual's spouse, the individual's 
                children, grandchildren, and parents, and any 
                spouse of the individual's children or 
                grandchildren.
                  (C) Entities under common control treated as 
                related.--For purposes of this paragraph, two 
                entities which are treated as a single employer 
                under subsection (b) or (c) of section 414 
                shall be treated as bearing a relationship to 
                each other which is described in section 
                267(b).
          (5) Purchase-money debt reduction for solvent debtor 
        treated as price reduction.--If--
                  (A) the debt of a purchaser of property to 
                the seller of such property which arose out of 
                the purchase of such property is reduced,
                  (B) such reduction does not occur--
                          (i) in a title 11 case, or
                          (ii) when the purchaser is insolvent, 
                        and
                  (C) but for this paragraph, such reduction 
                would be treated as income to the purchaser 
                from the discharge of indebtedness,
        then such reduction shall be treated as a purchase 
        price adjustment.
          (6) Indebtedness contributed to capital.--Except as 
        provided in regulations, for purposes of determining 
        income of the debtor from discharge of indebtedness, if 
        a debtor corporation acquires its indebtedness from a 
        shareholder as a contribution to capital--
                  (A) section 118 shall not apply, but
                  (B) such corporation shall be treated as 
                having satisfied the indebtedness with an 
                amount of money equal to the shareholder's 
                adjusted basis in the indebtedness.
          (7) Recapture of gain on subsequent sale of stock.--
                  (A) In general.--If a creditor acquires stock 
                of a debtor corporation in satisfaction of such 
                corporation's indebtedness, for purposes of 
                section 1245--
                          (i) such stock (and any other 
                        property the basis of which is 
                        determined in whole or in part by 
                        reference to the adjusted basis of such 
                        stock) shall be treated as section 1245 
                        property,
                          (ii) the aggregate amount allowed to 
                        the creditor--
                                  (I) as deductions under 
                                subsection (a) or (b) of 
                                section 166 (by reason of the 
                                worthlessness or partial 
                                worthlessness of the 
                                indebtedness), or
                                  (II) as an ordinary loss on 
                                the exchange, shall be treated 
                                as an amount allowed as a 
                                deduction for depreciation, and
                          (iii) an exchange of such stock 
                        qualifying under section 354(a), 
                        355(a), or 356(a) shall be treated as 
                        an exchange to which section 1245(b)(3) 
                        applies.
                The amount determined under clause (ii) shall 
                be reduced by the amount (if any) included in 
                the creditor's gross income on the exchange.
                  (B) Special rule for cash basis taxpayers.--
                In the case of any creditor who computes his 
                taxable income under the cash receipts and 
                disbursements method, proper adjustment shall 
                be made in the amount taken into account under 
                clause (ii) of subparagraph (A) for any amount 
                which was not included in the creditor's gross 
                income but which would have been included in 
                such gross income if such indebtedness had been 
                satisfied in full.
                  (C) Stock of parent corporation.--For 
                purposes of this paragraph, stock of a 
                corporation in control (within the meaning of 
                section 368(c)) of the debtor corporation shall 
                be treated as stock of the debtor corporation.
                  (D) Treatment of successor corporation.--For 
                purposes of this paragraph, the term ``debtor 
                corporation'' includes a successor corporation.
                  (E) Partnership rule.--Under regulations 
                prescribed by the Secretary, rules similar to 
                the rules of the foregoing subparagraphs of 
                this paragraph shall apply with respect to the 
                indebtedness of a partnership.
          (8) Indebtedness satisfied by corporate stock or 
        partnership interest.--For purposes of determining 
        income of a debtor from discharge of indebtedness, if--
                  (A) a debtor corporation transfers stock, or
                  (B) a debtor partnership transfers a capital 
                or profits interest in such partnership,
        to a creditor in satisfaction of its recourse or 
        nonrecourse indebtedness, such corporation or 
        partnership shall be treated as having satisfied the 
        indebtedness with an amount of money equal to the fair 
        market value of the stock or interest. In the case of 
        any partnership, any discharge of indebtedness income 
        recognized under this paragraph shall be included in 
        the distributive shares of taxpayers which were the 
        partners in the partnership immediately before such 
        discharge.
          (9) Discharge of indebtedness income not taken into 
        account in determining whether entity meets REIT 
        qualifications.--Any amount included in gross income by 
        reason of the discharge of indebtedness shall not be 
        taken into account for purposes of paragraphs (2) and 
        (3) of section 856(c).
          (10) Indebtedness satisfied by issuance of debt 
        instrument.--
                  (A) In general.--For purposes of determining 
                income of a debtor from discharge of 
                indebtedness, if a debtor issues a debt 
                instrument in satisfaction of indebtedness, 
                such debtor shall be treated as having 
                satisfied the indebtedness with an amount of 
                money equal to the issue price of such debt 
                instrument.
                  (B) Issue price.--For purposes of 
                subparagraph (A), the issue price of any debt 
                instrument shall be determined under sections 
                1273 and 1274. For purposes of the preceding 
                sentence, section 1273(b)(4) shall be applied 
                by reducing the stated redemption price of any 
                instrument by the portion of such stated 
                redemption price which is treated as interest 
                for purposes of this chapter.
  (f) Student loans.--
          (1) In general.--In the case of an individual, gross 
        income does not include any amount which (but for this 
        subsection) would be includible in gross income by 
        reason of the discharge (in whole or in part) of any 
        student loan if such discharge was pursuant to a 
        provision of such loan under which all or part of the 
        indebtedness of the individual would be discharged if 
        the individual worked for a certain period of time in 
        certain professions for any of a broad class of 
        employers.
          (2) Student loan.--For purposes of this subsection, 
        the term ``student loan'' means any loan to an 
        individual to assist the individual in attending an 
        educational organization described in section 
        170(b)(1)(A)(ii) made by--
                  (A) the United States, or an instrumentality 
                or agency thereof,
                  (B) a State, territory, or possession of the 
                United States, or the District of Columbia, or 
                any political subdivision thereof,
                  (C) a public benefit corporation--
                          (i) which is exempt from taxation 
                        under section 501(c)(3),
                          (ii) which has assumed control over a 
                        State, county, or municipal hospital, 
                        and
                          (iii) whose employees have been 
                        deemed to be public employees under 
                        State law, or
                  (D) any educational organization described in 
                section 170(b)(1)(A)(ii) if such loan is made--
                          (i) pursuant to an agreement with any 
                        entity described in subparagraph (A), 
                        (B), or (C) under which the funds from 
                        which the loan was made were provided 
                        to such educational organization, or
                          (ii) pursuant to a program of such 
                        educational organization which is 
                        designed to encourage its students to 
                        serve in occupations with unmet needs 
                        or in areas with unmet needs and under 
                        which the services provided by the 
                        students (or former students) are for 
                        or under the direction of a 
                        governmental unit or an organization 
                        described in section 501(c)(3) and 
                        exempt from tax under section 501(a).
        The term ``student loan'' includes any loan made by an 
        educational organization described in section 
        170(b)(1)(A)(ii) or by an organization exempt from tax 
        under section 501(a) to refinance a loan to an 
        individual to assist the individual in attending any 
        such educational organization but only if the 
        refinancing loan is pursuant to a program of the 
        refinancing organization which is designed as described 
        in subparagraph (D)(ii).
          (3) Exception for discharges on account of services 
        performed for certain lenders.--Paragraph (1) shall not 
        apply to the discharge of a loan made by an 
        organization described in paragraph (2)(D) if the 
        discharge is on account of services performed for 
        either such organization.
          (4) Payments under National Health Service Corps loan 
        repayment program and certain state loan repayment 
        programs.--In the case of an individual, gross income 
        shall not include any amount received under section 
        338B(g) of the Public Health Service Act, under a State 
        program described in section 338I of such Act, or under 
        any other State loan repayment or loan forgiveness 
        program that is intended to provide for the increased 
        availability of health care services in underserved or 
        health professional shortage areas (as determined by 
        such State).
          (5) Discharges on account of death or disability.--
                  (A) In general.--In the case of an 
                individual, gross income does not include any 
                amount which (but for this subsection) would be 
                includible in gross income 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))).
  (g) Special rules for discharge of qualified farm 
indebtedness.--
          (1) Discharge must be by qualified person.--
                  (A) In general.--Subparagraph (C) of 
                subsection (a)(1) shall apply only if the 
                discharge is by a qualified person.
                  (B) Qualified person.--For purposes of 
                subparagraph (A), the term ``qualified person'' 
                has the meaning given to such term by section 
                49(a)(1)(D)(iv); except that such term shall 
                include any Federal, State, or local government 
                or agency or instrumentality thereof.
          (2) Qualified farm indebtedness.--For purposes of 
        this section, indebtedness of a taxpayer shall be 
        treated as qualified farm indebtedness if--
                  (A) such indebtedness was incurred directly 
                in connection with the operation by the 
                taxpayer of the trade or business of farming, 
                and
                  (B) 50 percent or more of the aggregate gross 
                receipts of the taxpayer for the 3 taxable 
                years preceding the taxable year in which the 
                discharge of such indebtedness occurs is 
                attributable to the trade or business of 
                farming.
          (3) Amount excluded cannot exceed sum of tax 
        attributes and business and investment assets.--
                  (A) In general.--The amount excluded under 
                subparagraph (C) of subsection (a)(1) shall not 
                exceed the sum of--
                          (i) the adjusted tax attributes of 
                        the taxpayer, and
                          (ii) the aggregate adjusted bases of 
                        qualified property held by the taxpayer 
                        as of the beginning of the taxable year 
                        following the taxable year in which the 
                        discharge occurs.
                  (B) Adjusted tax attributes.--For purposes of 
                subparagraph (A), the term ``adjusted tax 
                attributes'' means the sum of the tax 
                attributes described in subparagraphs (A), (B), 
                (C), (D), (F), and (G) of subsection (b)(2) 
                determined by taking into account $3 for each 
                $1 of the attributes described in subparagraphs 
                (B), (C), and (G) of subsection (b)(2) and the 
                attribute described in subparagraph (F) of 
                subsection (b)(2) to the extent attributable to 
                any passive activity credit carryover.
                  (C) Qualified property.--For purposes of this 
                paragraph, the term ``qualified property'' 
                means any property which is used or is held for 
                use in a trade or business or for the 
                production of income.
                  (D) Coordination with insolvency exclusion.--
                For purposes of this paragraph, the adjusted 
                basis of any qualified property and the amount 
                of the adjusted tax attributes shall be 
                determined after any reduction under subsection 
                (b) by reason of amounts excluded from gross 
                income under subsection (a)(1)(B).
  (h) Special rules relating to qualified principal residence 
indebtedness.--
          (1) Basis reduction.--The amount excluded from gross 
        income by reason of subsection (a)(1)(E) shall be 
        applied to reduce (but not below zero) the basis of the 
        principal residence of the taxpayer.
          (2) Qualified principal residence indebtedness.--For 
        purposes of this section, the term ``qualified 
        principal residence indebtedness'' means acquisition 
        indebtedness (within the meaning of section 
        163(h)(3)(B), applied by substituting ``$2,000,000 
        ($1,000,000'' for ``[$1,000,000 ($500,000] $750,000 
        ($375,000'' in clause (ii) thereof) with respect to the 
        principal residence of the taxpayer.
          (3) Exception for certain discharges not related to 
        taxpayer's financial condition.--Subsection (a)(1)(E) 
        shall not apply to the discharge of a loan if the 
        discharge is on account of services performed for the 
        lender or any other factor not directly related to a 
        decline in the value of the residence or to the 
        financial condition of the taxpayer.
          (4) Ordering rule.--If any loan is discharged, in 
        whole or in part, and only a portion of such loan is 
        qualified principal residence indebtedness, subsection 
        (a)(1)(E) shall apply only to so much of the amount 
        discharged as exceeds the amount of the loan (as 
        determined immediately before such discharge) which is 
        not qualified principal residence indebtedness.
          (5) Principal residence.--For purposes of this 
        subsection, the term ``principal residence'' has the 
        same meaning as when used in section 121.
  (i) Deferral and ratable inclusion of income arising from 
business indebtedness discharged by the reacquisition of a debt 
instrument.--
          (1) In general.--At the election of the taxpayer, 
        income from the discharge of indebtedness in connection 
        with the reacquisition after December 31, 2008, and 
        before January 1, 2011, of an applicable debt 
        instrument shall be includible in gross income ratably 
        over the 5-taxable-year period beginning with--
                  (A) in the case of a reacquisition occurring 
                in 2009, the fifth taxable year following the 
                taxable year in which the reacquisition occurs, 
                and
                  (B) in the case of a reacquisition occurring 
                in 2010, the fourth taxable year following the 
                taxable year in which the reacquisition occurs.
          (2) Deferral of deduction for original issue discount 
        in debt for debt exchanges.--
                  (A) In general.--If, as part of a 
                reacquisition to which paragraph (1) applies, 
                any debt instrument is issued for the 
                applicable debt instrument being reacquired (or 
                is treated as so issued under subsection (e)(4) 
                and the regulations thereunder) and there is 
                any original issue discount determined under 
                subpart A of part V of subchapter P of this 
                chapter with respect to the debt instrument so 
                issued--
                          (i) except as provided in clause 
                        (ii), no deduction otherwise allowable 
                        under this chapter shall be allowed to 
                        the issuer of such debt instrument with 
                        respect to the portion of such original 
                        issue discount which--
                                  (I) accrues before the 1st 
                                taxable year in the 5-taxable-
                                year period in which income 
                                from the discharge of 
                                indebtedness attributable to 
                                the reacquisition of the debt 
                                instrument is includible under 
                                paragraph (1), and
                                  (II) does not exceed the 
                                income from the discharge of 
                                indebtedness with respect to 
                                the debt instrument being 
                                reacquired, and
                          (ii) the aggregate amount of 
                        deductions disallowed under clause (i) 
                        shall be allowed as a deduction ratably 
                        over the 5-taxable-year period 
                        described in clause (i)(I).
                If the amount of the original issue discount 
                accruing before such 1st taxable year exceeds 
                the income from the discharge of indebtedness 
                with respect to the applicable debt instrument 
                being reacquired, the deductions shall be 
                disallowed in the order in which the original 
                issue discount is accrued.
                  (B) Deemed debt for debt exchanges.--For 
                purposes of subparagraph (A), if any debt 
                instrument is issued by an issuer and the 
                proceeds of such debt instrument are used 
                directly or indirectly by the issuer to 
                reacquire an applicable debt instrument of the 
                issuer, the debt instrument so issued shall be 
                treated as issued for the debt instrument being 
                reacquired. If only a portion of the proceeds 
                from a debt instrument are so used, the rules 
                of subparagraph (A) shall apply to the portion 
                of any original issue discount on the newly 
                issued debt instrument which is equal to the 
                portion of the proceeds from such instrument 
                used to reacquire the outstanding instrument.
          (3) Applicable debt instrument.--For purposes of this 
        subsection--
                  (A) Applicable debt instrument.--The term 
                ``applicable debt instrument'' means any debt 
                instrument which was issued by--
                          (i) a C corporation, or
                          (ii) any other person in connection 
                        with the conduct of a trade or business 
                        by such person.
                  (B) Debt instrument.--The term ``debt 
                instrument'' means a bond, debenture, note, 
                certificate, or any other instrument or 
                contractual arrangement constituting 
                indebtedness (within the meaning of section 
                1275(a)(1)).
          (4) Reacquisition.--For purposes of this subsection--
                  (A) In general.--The term ``reacquisition'' 
                means, with respect to any applicable debt 
                instrument, any acquisition of the debt 
                instrument by--
                          (i) the debtor which issued (or is 
                        otherwise the obligor under) the debt 
                        instrument, or
                          (ii) a related person to such debtor.
                  (B) Acquisition.--The term ``acquisition'' 
                shall, with respect to any applicable debt 
                instrument, include an acquisition of the debt 
                instrument for cash, the exchange of the debt 
                instrument for another debt instrument 
                (including an exchange resulting from a 
                modification of the debt instrument), the 
                exchange of the debt instrument for corporate 
                stock or a partnership interest, and the 
                contribution of the debt instrument to capital. 
                Such term shall also include the complete 
                forgiveness of the indebtedness by the holder 
                of the debt instrument.
          (5) Other definitions and rules.--For purposes of 
        this subsection--
                  (A) Related person.--The determination of 
                whether a person is related to another person 
                shall be made in the same manner as under 
                subsection (e)(4).
                  (B) Election.--
                          (i) In general.--An election under 
                        this subsection with respect to any 
                        applicable debt instrument shall be 
                        made by including with the return of 
                        tax imposed by chapter 1 for the 
                        taxable year in which the reacquisition 
                        of the debt instrument occurs a 
                        statement which--
                                  (I) clearly identifies such 
                                instrument, and
                                  (II) includes the amount of 
                                income to which paragraph (1) 
                                applies and such other 
                                information as the Secretary 
                                may prescribe.
                          (ii) Election irrevocable.--Such 
                        election, once made, is irrevocable.
                          (iii) Pass-thru entities.--In the 
                        case of a partnership, S corporation, 
                        or other pass-thru entity, the election 
                        under this subsection shall be made by 
                        the partnership, the S corporation, or 
                        other entity involved.
                  (C) Coordination with other exclusions.--If a 
                taxpayer elects to have this subsection apply 
                to an applicable debt instrument, subparagraphs 
                (A), (B), (C), and (D) of subsection (a)(1) 
                shall not apply to the income from the 
                discharge of such indebtedness for the taxable 
                year of the election or any subsequent taxable 
                year.
                  (D) Acceleration of deferred items.--
                          (i) In general.--In the case of the 
                        death of the taxpayer, the liquidation 
                        or sale of substantially all the assets 
                        of the taxpayer (including in a title 
                        11 or similar case), the cessation of 
                        business by the taxpayer, or similar 
                        circumstances, any item of income or 
                        deduction which is deferred under this 
                        subsection (and has not previously been 
                        taken into account) shall be taken into 
                        account in the taxable year in which 
                        such event occurs (or in the case of a 
                        title 11 or similar case, the day 
                        before the petition is filed).
                          (ii) Special rule for pass-thru 
                        entities.--The rule of clause (i) shall 
                        also apply in the case of the sale or 
                        exchange or redemption of an interest 
                        in a partnership, S corporation, or 
                        other pass- thru entity by a partner, 
                        shareholder, or other person holding an 
                        ownership interest in such entity.
          (6) Special rule for partnerships.--In the case of a 
        partnership, any income deferred under this subsection 
        shall be allocated to the partners in the partnership 
        immediately before the discharge in the manner such 
        amounts would have been included in the distributive 
        shares of such partners under section 704 if such 
        income were recognized at such time. Any decrease in a 
        partner's share of partnership liabilities as a result 
        of such discharge shall not be taken into account for 
        purposes of section 752 at the time of the discharge to 
        the extent it would cause the partner to recognize gain 
        under section 731. Any decrease in partnership 
        liabilities deferred under the preceding sentence shall 
        be taken into account by such partner at the same time, 
        and to the extent remaining in the same amount, as 
        income deferred under this subsection is recognized.
          (7) Secretarial authority.--The Secretary may 
        prescribe such regulations, rules, or other guidance as 
        may be necessary or appropriate for purposes of 
        applying this subsection, including--
                  (A) extending the application of the rules of 
                paragraph (5)(D) to other circumstances where 
                appropriate,
                  (B) requiring reporting of the election (and 
                such other information as the Secretary may 
                require) on returns of tax for subsequent 
                taxable years, and
                  (C) rules for the application of this 
                subsection to partnerships, S corporations, and 
                other pass-thru entities, including for the 
                allocation of deferred deductions.

           *       *       *       *       *       *       *


SEC. 112. CERTAIN COMBAT ZONE COMPENSATION OF MEMBERS OF THE ARMED 
                    FORCES.

  (a) Enlisted personnel.--Gross income does not include 
compensation received for active service as a member below the 
grade of commissioned officer in the Armed Forces of the United 
States for any month during any part of which such member--
          (1) served in a combat zone, or
          (2) was hospitalized as a result of wounds, disease, 
        or injury incurred while serving in a combat zone; but 
        this paragraph shall not apply for any month beginning 
        more than 2 years after the date of the termination of 
        combatant activities in such zone.
With respect to service in the combat zone designated for 
purposes of the Vietnam conflict, paragraph (2) shall not apply 
to any month after January 1978.
  (b) Commissioned officers.--Gross income does not include so 
much of the compensation as does not exceed the maximum 
enlisted amount received for active service as a commissioned 
officer in the Armed Forces of the United States for any month 
during any part of which such officer--
          (1) served in a combat zone, or
          (2) was hospitalized as a result of wounds, disease, 
        or injury incurred while serving in a combat zone; but 
        this paragraph shall not apply for any month beginning 
        more than 2 years after the date of the termination of 
        combatant activities in such zone.
With respect to service in the combat zone designated for 
purposes of the Vietnam conflict, paragraph (2) shall not apply 
to any month after January 1978.
  (c) Definitions.--For purposes of this section--
          (1) The term ``commissioned officer'' does not 
        include a commissioned warrant officer.
          (2) The term ``combat zone'' [means any area] means--
                  (A) any area  which the President of the 
                United States by Executive Order designates, 
                for purposes of this section or corresponding 
                provisions of prior income tax laws, as an area 
                in which Armed Forces of the United States are 
                or have engaged in combat[.] , and
                  (B) the Sinai Peninsula of Egypt. 
          (3) Service is performed in a combat zone [only if 
        performed] only if--
                  (A) in the case of an area described in 
                paragraph (2)(A), such service is performed  on 
                or after the date designated by the President 
                by Executive Order as the date of the 
                commencing of combatant activities in such 
                zone, and on or before the date designated by 
                the President by Executive Order as the date of 
                the termination of combatant activities in such 
                zone[.] , and
                  (B) in the case of the area described in 
                paragraph (2)(B), such service is performed 
                during any period with respect to which one or 
                more members of the Armed Forces of the United 
                States are 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 service 
                performed in such area. 
          (4) The term ``compensation'' does not include 
        pensions and retirement pay.
          (5) The term ``maximum enlisted amount'' means, for 
        any month, the sum of--
                  (A) the highest rate of basic pay payable for 
                such month to any enlisted member of the Armed 
                Forces of the United States at the highest pay 
                grade applicable to enlisted members, and
                  (B) in the case of an officer entitled to 
                special pay under section 310, or paragraph (1) 
                or (3) of section 351(a), of title 37, United 
                States Code, for such month, the amount of such 
                special pay payable to such officer for such 
                month.
  (d) Prisoners of war, etc..--
          (1) Members of the Armed Forces.--Gross income does 
        not include compensation received for active service as 
        a member of the Armed Forces of the United States for 
        any month during any part of which such member is in a 
        missing status (as defined in section 551(2) of title 
        37, United States Code) during the Vietnam conflict as 
        a result of such conflict, other than a period with 
        respect to which it is officially determined under 
        section 552(c) of such title 37 that he is officially 
        absent from his post of duty without authority.
          (2) Civilian employees.--Gross income does not 
        include compensation received for active service as an 
        employee for any month during any part of which such 
        employee is in a missing status during the Vietnam 
        conflict as a result of such conflict. For purposes of 
        this paragraph, the terms ``active service'', 
        ``employee'', and ``missing status'' have the 
        respective meanings given to such terms by section 5561 
        of title 5 of the United States Code.
          (3) Period of conflict.--For purposes of this 
        subsection, the Vietnam conflict began February 28, 
        1961, and ends on the date designated by the President 
        by Executive order as the date of the termination of 
        combatant activities in Vietnam. For purposes of this 
        subsection, an individual is in a missing status as a 
        result of the Vietnam conflict if immediately before 
        such status began he was performing service in Vietnam 
        or was performing service in Southeast Asia in direct 
        support of military operations in Vietnam.

           *       *       *       *       *       *       *


SEC. 125. CAFETERIA PLANS.

  (a) General rule.--Except as provided in subsection (b), no 
amount shall be included in the gross income of a participant 
in a cafeteria plan solely because, under the plan, the 
participant may choose among the benefits of the plan.
  (b) Exception for highly compensated participants and key 
employees.--
          (1) Highly compensated participants.--In the case of 
        a highly compensated participant, subsection (a) shall 
        not apply to any benefit attributable to a plan year 
        for which the plan discriminates in favor of--
                  (A) highly compensated individuals as to 
                eligibility to participate, or
                  (B) highly compensated participants as to 
                contributions and benefits.
          (2) Key employees.--In the case of a key employee 
        (within the meaning of section 416(i)(1)), subsection 
        (a) shall not apply to any benefit attributable to a 
        plan for which the qualified benefits provided to key 
        employees exceed 25 percent of the aggregate of such 
        benefits provided for all employees under the plan. For 
        purposes of the preceding sentence, qualified benefits 
        shall be determined without regard to the second 
        sentence of subsection (f).
          (3) Year of inclusion.--For purposes of determining 
        the taxable year of inclusion, any benefit described in 
        paragraph (1) or (2) shall be treated as received or 
        accrued in the taxable year of the participant or key 
        employee in which the plan year ends.
  (c) Discrimination as to benefits or contributions.--For 
purposes of subparagraph (B) of subsection (b)(1), a cafeteria 
plan does not discriminate where qualified benefits and total 
benefits (or employer contributions allocable to qualified 
benefits and employer contributions for total benefits) do not 
discriminate in favor of highly compensated participants.
  (d) Cafeteria plan defined.--For purposes of this section--
          (1) In general.--The term ``cafeteria plan'' means a 
        written plan under which--
                  (A) all participants are employees, and
                  (B) the participants may choose among 2 or 
                more benefits consisting of cash and qualified 
                benefits.
          (2) Deferred compensation plans excluded.--
                  (A) In general.--The term ``cafeteria plan'' 
                does not include any plan which provides for 
                deferred compensation.
                  (B) Exception for cash and deferred 
                arrangements.--Subparagraph (A) shall not apply 
                to a profit-sharing or stock bonus plan or 
                rural cooperative plan (within the meaning of 
                section 401(k)(7)) which includes a qualified 
                cash or deferred arrangement (as defined in 
                section 401(k)(2)) to the extent of amounts 
                which a covered employee may elect to have the 
                employer pay as contributions to a trust under 
                such plan on behalf of the employee.
                  (C) Exception for certain plans maintained by 
                educational institutions.--Subparagraph (A) 
                shall not apply to a plan maintained by an 
                educational organization described in section 
                170(b)(1)(A)(ii) to the extent of amounts which 
                a covered employee may elect to have the 
                employer pay as contributions for post-
                retirement group life insurance if--
                          (i) all contributions for such 
                        insurance must be made before 
                        retirement, and
                          (ii) such life insurance does not 
                        have a cash surrender value at any 
                        time.
                For purposes of section 79, any life insurance 
                described in the preceding sentence shall be 
                treated as group-term life insurance.
                  (D) Exception for health savings accounts.--
                Subparagraph (A) shall not apply to a plan to 
                the extent of amounts which a covered employee 
                may elect to have the employer pay as 
                contributions to a health savings account 
                established on behalf of the employee.
  (e) Highly compensated participant and individual defined.--
For purposes of this section--
          (1) Highly compensated participant.--The term 
        ``highly compensated participant'' means a participant 
        who is--
                  (A) an officer,
                  (B) a shareholder owning more than 5 percent 
                of the voting power or value of all classes of 
                stock of the employer,
                  (C) highly compensated, or
                  (D) a spouse or dependent (within the meaning 
                of [section 152] section 7706, determined 
                without regard to subsections (b)(1), (b)(2), 
                and (d)(1)(B) thereof) of an individual 
                described in subparagraph (A), (B), or (C).
          (2) Highly compensated individual.--The term ``highly 
        compensated individual'' means an individual who is 
        described in subparagraph (A), (B), (C), or (D) of 
        paragraph (1).
  (f) Qualified benefits defined.--For purposes of this 
section--
          (1) In general.--The term ``qualified benefit'' means 
        any benefit which, with the application of subsection 
        (a), is not includible in the gross income of the 
        employee by reason of an express provision of this 
        chapter (other than section 106(b), 117, 127, or 132). 
        Such term includes any group term life insurance which 
        is includible in gross income only because it exceeds 
        the dollar limitation of section 79 and such term 
        includes any other benefit permitted under regulations.
          (2) Long-term care insurance not qualified.--The term 
        ``qualified benefit'' shall not include any product 
        which is advertised, marketed, or offered as long-term 
        care insurance.
          (3) Certain exchange-participating qualified health 
        plans not qualified.--
                  (A) In general.--The term ``qualified 
                benefit'' shall not include any qualified 
                health plan (as defined in section 1301(a) of 
                the Patient Protection and Affordable Care Act) 
                offered through an Exchange established under 
                section 1311 of such Act.
                  (B) Exception for exchange-eligible 
                employers.--Subparagraph (A) shall not apply 
                with respect to any employee if such employee's 
                employer is a qualified employer (as defined in 
                section 1312(f)(2) of the Patient Protection 
                and Affordable Care Act) offering the employee 
                the opportunity to en