TAX CUTS AND JOBS ACT ______, 2017.—Ordered to be printed

115TH CONGRESS

HOUSE OF REPRESENTATIVES

REPORT

1st Session

115—___

TAX CUTS AND JOBS ACT

________, 2017.—Ordered to be printed

Mr. Brady of Texas, from the committee of conference,

submitted the following

CONFERENCE REPORT

[To accompany H.R. 1]

The committee of conference on the disagreeing votes of the two

Houses on the amendment of the Senate to the bill (H.R. 1), to provide

for reconciliation pursuant to titles II and V of the concurrent resolution

on the budget for fiscal year 2018, having met, after full and free

conference, have agreed to recommend and do recommend to their

respective Houses as follows:

That the House recede from its disagreement to the amendment of

the Senate and agree to the same with an amendment as follows:

In lieu of the matter proposed to be inserted by the Senate

amendment, insert the following:

And the Senate agree to the same.

TITLE I 1

SEC. 11000. SHORT TITLE, ETC. 2

(a) S

HORT

ITLE

.—This title may be cited as the 3

‘‘Tax Cuts and Jobs Act’’. 4

(b) A

MENDMENT OF

1986 C

ODE

.—Except as other-5

wise expressly provided, whenever in this title an amend-6

ment or repeal is expressed in terms of an amendment 7

to, or repeal of, a section or other provision, the reference 8

shall be considered to be made to a section or other provi-9

sion of the Internal Revenue Code of 1986. 10

Subtitle A—Individual Tax Reform 11

PART I—TAX RATE REFORM 12

SEC. 11001. MODIFICATION OF RATES. 13

(a) I

ENERAL

.—Section 1 is amended by adding 14

at the end the following new subsection: 15

‘‘(j) M

ODIFICATIONS FOR

AXABLE

EARS

2018 16

HROUGH

2025.— 17

‘‘(1) I

N GENERAL

.—In the case of a taxable 18

year beginning after December 31, 2017, and before 19

January 1, 2026— 20

‘‘(A) subsection (i) shall not apply, and 21

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‘‘(B) this section (other than subsection 1

(i)) shall be applied as provided in paragraphs 2

(2) through (6). 3

‘‘(2) R

ATE TABLES

.— 4

‘‘(A) M

ARRIED INDIVIDUALS FILING JOINT

RETURNS AND SURVIVING SPOUSES

.—The fol-6

lowing table shall be applied in lieu of the table 7

contained in subsection (a): 8

‘‘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) H

EADS OF HOUSEHOLDS

.—The fol-9

lowing table shall be applied in lieu of the table 10

contained in subsection (b): 11

‘‘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.

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‘‘If taxable income is: The tax is:

Over $500,000 ........................................... $149,298, plus 37% of the excess

over $500,000.

‘‘(C) U

NMARRIED INDIVIDUALS OTHER

THAN SURVIVING SPOUSES AND HEADS OF

HOUSEHOLDS

.—The following table shall be ap-3

plied in lieu of the table contained in subsection 4

(c): 5

‘‘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 ex-

cess over $500,000.

‘‘(D) M

ARRIED INDIVIDUALS FILING SEPA

-6

RATE RETURNS

.—The following table shall be 7

applied in lieu of the table contained in sub-8

section (d): 9

‘‘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.

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‘‘If taxable income is: The tax is:

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) E

STATES AND TRUSTS

.—The fol-1

lowing table shall be applied in lieu of the table 2

contained in subsection (e): 3

‘‘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) R

EFERENCES TO RATE TABLES

.— 4

Any reference in this title to a rate of tax under 5

subsection (c) shall be treated as a reference to 6

the corresponding rate bracket under subpara-7

graph (C) of this paragraph, except that the 8

reference in section 3402(q)(1) to the third low-9

est rate of tax applicable under subsection (c) 10

shall be treated as a reference to the fourth 11

lowest rate of tax under subparagraph (C). 12

‘‘(3) A

DJUSTMENTS

.— 13

‘‘(A) N

O ADJUSTMENT IN 2018

.—The ta-14

bles contained in paragraph (2) shall apply 15

without adjustment for taxable years beginning 16

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after December 31, 2017, and before January 1

1, 2019. 2

‘‘(B) S

UBSEQUENT YEARS

.—For taxable 3

years beginning after December 31, 2018, the 4

Secretary shall prescribe tables which shall 5

apply in lieu of the tables contained in para-6

graph (2) in the same manner as under para-7

graphs (1) and (2) of subsection (f) (applied 8

without regard to clauses (i) and (ii) of sub-9

section (f)(2)(A)), except that in prescribing 10

such tables— 11

‘‘(i) subsection (f)(3) shall be applied 12

by substituting ‘calendar year 2017’ for 13

‘calendar year 2016’ in subparagraph 14

(A)(ii) thereof, 15

‘‘(ii) subsection (f)(7)(B) shall apply 16

to any unmarried individual other than a 17

surviving spouse or head of household, and 18

‘‘(iii) subsection (f)(8) shall not apply. 19

‘‘(4) S

PECIAL RULES FOR CERTAIN CHILDREN

WITH UNEARNED INCOME

.— 21

‘‘(A) I

N GENERAL

.—In the case of a child 22

to whom subsection (g) applies for the taxable 23

year, the rules of subparagraphs (B) and (C) 24

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shall apply in lieu of the rule under subsection 1

(g)(1). 2

‘‘(B) M

ODIFICATIONS TO APPLICABLE

RATE BRACKETS

.—In determining the amount 4

of tax imposed by this section for the taxable 5

year on a child described in subparagraph (A), 6

the income tax table otherwise applicable under 7

this subsection to the child shall be applied with 8

the following modifications: 9

‘‘(i) 24-

PERCENT BRACKET

.—The 10

maximum taxable income which is taxed at 11

a rate below 24 percent shall not be more 12

than the sum of— 13

‘‘(I) the earned taxable income of 14

such child, plus 15

‘‘(II) the minimum taxable in-16

come for the 24-percent bracket in the 17

table under paragraph (2)(E) (as ad-18

justed under paragraph (3)) for the 19

taxable year. 20

‘‘(ii) 35-

PERCENT BRACKET

.—The 21

maximum taxable income which is taxed at 22

a rate below 35 percent shall not be more 23

than the sum of— 24

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‘‘(I) the earned taxable income of 1

such child, plus 2

‘‘(II) the minimum taxable in-3

come for the 35-percent bracket in the 4

table under paragraph (2)(E) (as ad-5

justed under paragraph (3)) for the 6

taxable year. 7

‘‘(iii) 37-

PERCENT BRACKET

.—The 8

maximum taxable income which is taxed at 9

a rate below 37 percent shall not be more 10

than the sum of— 11

‘‘(I) the earned taxable income of 12

such child, plus 13

‘‘(II) the minimum taxable in-14

come for the 37-percent bracket in the 15

table under paragraph (2)(E) (as ad-16

justed under paragraph (3)) for the 17

taxable year. 18

‘‘(C) C

OORDINATION WITH CAPITAL GAINS

RATES

.—For purposes of applying section 1(h) 20

(after the modifications under paragraph 21

(5)(A))— 22

‘‘(i) the maximum zero rate amount 23

shall not be more than the sum of— 24

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‘‘(I) the earned taxable income of 1

such child, plus 2

‘‘(II) the amount in effect under 3

paragraph (5)(B)(i)(IV) for the tax-4

able year, and 5

‘‘(ii) the maximum 15-percent rate 6

amount shall not be more than the sum 7

of— 8

‘‘(I) the earned taxable income of 9

such child, plus 10

‘‘(II) the amount in effect under 11

paragraph (5)(B)(ii)(IV) for the tax-12

able year. 13

‘‘(D) E

ARNED TAXABLE INCOME

.—For 14

purposes of this paragraph, the term ‘earned 15

taxable income’ means, with respect to any 16

child for any taxable year, the taxable income 17

of such child reduced (but not below zero) by 18

the net unearned income (as defined in sub-19

section (g)(4)) of such child. 20

‘‘(5) A

PPLICATION OF CURRENT INCOME TAX

BRACKETS TO CAPITAL GAINS BRACKETS

.— 22

‘‘(A) I

N GENERAL

.—Section 1(h)(1) shall 23

be applied— 24

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‘‘(i) by substituting ‘below the max-1

imum zero rate amount’ for ‘which would 2

(without regard to this paragraph) be 3

taxed at a rate below 25 percent’ in sub-4

paragraph (B)(i), and 5

‘‘(ii) by substituting ‘below the max-6

imum 15-percent rate amount’ for ‘which 7

would (without regard to this paragraph) 8

be taxed at a rate below 39.6 percent’ in 9

subparagraph (C)(ii)(I). 10

‘‘(B) M

AXIMUM AMOUNTS DEFINED

.—For 11

purposes of applying section 1(h) with the 12

modifications described in subparagraph (A)— 13

‘‘(i) M

AXIMUM ZERO RATE

AMOUNT

.—The maximum zero rate 15

amount shall be— 16

‘‘(I) in the case of a joint return 17

or surviving spouse, $77,200, 18

‘‘(II) in the case of an individual 19

who is a head of household (as de-20

fined in section 2(b)), $51,700, 21

‘‘(III) in the case of any other in-22

dividual (other than an estate or 23

trust), an amount equal to

⁄

of the 24

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amount in effect for the taxable year 1

under subclause (I), and 2

‘‘(IV) in the case of an estate or 3

trust, $2,600. 4

‘‘(ii) M

AXIMUM 15

PERCENT RATE

AMOUNT

.—The maximum 15-percent rate 6

amount shall be— 7

‘‘(I) in the case of a joint return 8

or surviving spouse, $479,000 (

⁄

such amount in the case of a married 10

individual filing a separate return), 11

‘‘(II) in the case of an individual 12

who is the head of a household (as de-13

fined in section 2(b)), $452,400, 14

‘‘(III) in the case of any other in-15

dividual (other than an estate or 16

trust), $425,800, and 17

‘‘(IV) in the case of an estate or 18

trust, $12,700. 19

‘‘(C) I

NFLATION ADJUSTMENT

.—In the 20

case of any taxable year beginning after 2018, 21

each of the dollar amounts in clauses (i) and 22

(ii) of subparagraph (B) shall be increased by 23

an amount equal to— 24

‘‘(i) such dollar amount, multiplied by 25

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‘‘(ii) the cost-of-living adjustment de-1

termined under subsection (f)(3) for the 2

calendar year in which the taxable year be-3

gins, determined by substituting ‘calendar 4

year 2017’ for ‘calendar year 2016’ in sub-5

paragraph (A)(ii) thereof. 6

If any increase under this subparagraph is not 7

a multiple of $50, such increase shall be round-8

ed to the next lowest multiple of $50. 9

‘‘(6) S

ECTION 15 NOT TO APPLY

.—Section 15 10

shall not apply to any change in a rate of tax by rea-11

son of this subsection.’’. 12

(b) D

ILIGENCE

REPARER

EQUIREMENT

ITH

ESPECT TO

EAD OF

OUSEHOLD

ILING

-14

TUS

.—Subsection (g) of section 6695 is amended to read 15

as follows: 16

‘‘(g) F

AILURE TO

ILIGENT IN

ETERMINING

LIGIBILITY FOR

ERTAIN

ENEFITS

.—Any person 18

who is a tax return preparer with respect to any return 19

or claim for refund who fails to comply with due diligence 20

requirements imposed by the Secretary by regulations with 21

respect to determining— 22

‘‘(1) eligibility to file as a head of household (as 23

defined in section 2(b)) on the return, or 24

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‘‘(2) eligibility for, or the amount of, the credit 1

allowable by section 24, 25A(a)(1), or 32, 2

shall pay a penalty of $500 for each such failure.’’. 3

FFECTIVE

ATE

.—The amendments made by 4

this section shall apply to taxable years beginning after 5

December 31, 2017. 6

SEC. 11002. INFLATION ADJUSTMENTS BASED ON CHAINED 7

CPI. 8

(a) I

ENERAL

.—Subsection (f) of section 1 is 9

amended by striking paragraph (3) and by inserting after 10

paragraph (2) the following new paragraph: 11

‘‘(3) C

OST

LIVING ADJUSTMENT

.—For pur-12

poses of this subsection— 13

‘‘(A) I

N GENERAL

.—The cost-of-living ad-14

justment for any calendar year is the percent-15

age (if any) by which— 16

‘‘(i) the C-CPI-U for the preceding 17

calendar year, exceeds 18

‘‘(ii) the CPI for calendar year 2016, 19

multiplied by the amount determined 20

under subparagraph (B). 21

‘‘(B) A

MOUNT DETERMINED

.—The 22

amount determined under this clause is the 23

amount obtained by dividing— 24

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‘‘(i) the C-CPI-U for calendar year 1

2016, by 2

‘‘(ii) the CPI for calendar year 2016. 3

‘‘(C) S

PECIAL RULE FOR ADJUSTMENTS

WITH A BASE YEAR AFTER 2016

.—For purposes 5

of any provision of this title which provides for 6

the substitution of a year after 2016 for ‘2016’ 7

in subparagraph (A)(ii), subparagraph (A) shall 8

be applied by substituting ‘the C-CPI-U for cal-9

endar year 2016’ for ‘the CPI for calendar year 10

2016’ and all that follows in clause (ii) there-11

of.’’. 12

(b) C-CPI-U.—Subsection (f) of section 1 is amended 13

by striking paragraph (7), by redesignating paragraph (6) 14

as paragraph (7), and by inserting after paragraph (5) 15

the following new paragraph: 16

‘‘(6) C-CPI-U.—For purposes of this sub-17

section— 18

‘‘(A) I

N GENERAL

.—The term ‘C-CPI-U’ 19

means the Chained Consumer Price Index for 20

All Urban Consumers (as published by the Bu-21

reau of Labor Statistics of the Department of 22

Labor). The values of the Chained Consumer 23

Price Index for All Urban Consumers taken 24

into account for purposes of determining the 25

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cost-of-living adjustment for any calendar year 1

under this subsection shall be the latest values 2

so published as of the date on which such Bu-3

reau publishes the initial value of the Chained 4

Consumer Price Index for All Urban Con-5

sumers for the month of August for the pre-6

ceding calendar year. 7

‘‘(B) D

ETERMINATION FOR CALENDAR

YEAR

.—The C-CPI-U for any calendar year is 9

the average of the C-CPI-U as of the close of 10

the 12-month period ending on August 31 of 11

such calendar year.’’. 12

PPLICATION TO

ERMANENT

ABLES

.— 13

(1) I

N GENERAL

.—Section 1(f)(2)(A) is amend-14

ed to read as follows: 15

‘‘(A) except as provided in paragraph (8), 16

by increasing the minimum and maximum dol-17

lar amounts for each bracket for which a tax is 18

imposed under such table by the cost-of-living 19

adjustment for such calendar year, deter-20

mined— 21

‘‘(i) except as provided in clause (ii), 22

by substituting ‘1992’ for ‘2016’ in para-23

graph (3)(A)(ii), and 24

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‘‘(ii) in the case of adjustments to the 1

dollar amounts at which the 36 percent 2

rate bracket begins or at which the 39.6 3

percent rate bracket begins, by sub-4

stituting ‘1993’ for ‘2016’ in paragraph 5

(3)(A)(ii),’’. 6

(2) C

ONFORMING AMENDMENTS

.—Section 1(i) 7

is amended— 8

(A) by striking ‘‘for ‘1992’ in subpara-9

graph (B)’’ in paragraph (1)(C) and inserting 10

‘‘for ‘2016’ in subparagraph (A)(ii)’’, and 11

(B) by striking ‘‘subsection (f)(3)(B) shall 12

be applied by substituting ‘2012’ for ‘1992’ ’’ in 13

paragraph (3)(C) and inserting ‘‘subsection 14

(f)(3)(A)(ii) shall be applied by substituting 15

‘2012’ for ‘2016’ ’’. 16

(d) A

PPLICATION TO

THER

NTERNAL

EVENUE

ODE OF

1986 P

ROVISIONS

.— 18

(1) The following sections are each amended by 19

striking ‘‘for ‘calendar year 1992’ in subparagraph 20

(B)’’ and inserting ‘‘for ‘calendar year 2016’ in sub-21

paragraph (A)(ii)’’: 22

(A) Section 23(h)(2). 23

(B) Paragraphs (1)(A)(ii) and (2)(A)(ii) of 24

section 25A(h). 25

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(D) Subsection (b)(2)(B)(ii)(II), and 2

clauses (i) and (ii) of subsection (j)(1)(B), of 3

section 32. 4

(E) Section 36B(f)(2)(B)(ii)(II). 5

(F) Section 41(e)(5)(C)(i). 6

(G) Subsections (e)(3)(D)(ii) and 7

(h)(3)(H)(i)(II) of section 42. 8

(H) Section 45R(d)(3)(B)(ii). 9

(I) Section 55(d)(4)(A)(ii). 10

(J) Section 62(d)(3)(B). 11

(K) Section 63(c)(4)(B). 12

(L) Section 125(i)(2)(B). 13

(M) Section 135(b)(2)(B)(ii). 14

(N) Section 137(f)(2). 15

(O) Section 146(d)(2)(B). 16

(P) Section 147(c)(2)(H)(ii). 17

(Q) Section 151(d)(4)(B). 18

(R) Section 179(b)(6)(A)(ii). 19

(S) Subsections (b)(5)(C)(i)(II) and 20

(g)(8)(B) of section 219. 21

(T) Section 220(g)(2). 22

(U) Section 221(f)(1)(B). 23

(V) Section 223(g)(1)(B). 24

(W) Section 408A(c)(3)(D)(ii). 25

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(X) Section 430(c)(7)(D)(vii)(II). 1

(Y) Section 512(d)(2)(B). 2

(Z) Section 513(h)(2)(C)(ii). 3

(AA) Section 831(b)(2)(D)(ii). 4

(BB) Section 877A(a)(3)(B)(i)(II). 5

(CC) Section 2010(c)(3)(B)(ii). 6

(DD) Section 2032A(a)(3)(B). 7

(EE) Section 2503(b)(2)(B). 8

(FF) Section 4261(e)(4)(A)(ii). 9

(GG) Section 5000A(c)(3)(D)(ii). 10

(HH) Section 6323(i)(4)(B). 11

(II) Section 6334(g)(1)(B). 12

(JJ) Section 6601(j)(3)(B). 13

(KK) Section 6651(i)(1). 14

(LL) Section 6652(c)(7)(A). 15

(MM) Section 6695(h)(1). 16

(NN) Section 6698(e)(1). 17

(OO) Section 6699(e)(1). 18

(PP) Section 6721(f)(1). 19

(QQ) Section 6722(f)(1). 20

(RR) Section 7345(f)(2). 21

(SS) Section 7430(c)(1). 22

(TT) Section 9831(d)(2)(D)(ii)(II). 23

(2) Sections 41(e)(5)(C)(ii) and 68(b)(2)(B) are 24

each amended— 25

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(A) by striking ‘‘1(f)(3)(B)’’ and inserting 1

‘‘1(f)(3)(A)(ii)’’, and 2

(B) by striking ‘‘1992’’ and inserting 3

‘‘2016’’. 4

(3) Section 42(h)(6)(G) is amended— 5

(A) by striking ‘‘for ‘calendar year 1987’ ’’ 6

in clause (i)(II) and inserting ‘‘for ‘calendar 7

year 2016’ in subparagraph (A)(ii) thereof’’, 8

and 9

(B) by striking ‘‘if the CPI for any cal-10

endar year’’ and all that follows in clause (ii) 11

and inserting ‘‘if the C-CPI-U for any calendar 12

year (as defined in section 1(f)(6)) exceeds the 13

C-CPI-U for the preceding calendar year by 14

more than 5 percent, the C-CPI-U for the base 15

calendar year shall be increased such that such 16

excess shall never be taken into account under 17

clause (i). In the case of a base calendar year 18

before 2017, the C-CPI-U for such year shall 19

be determined by multiplying the CPI for such 20

year by the amount determined under section 21

1(f)(3)(B).’’. 22

(4) Section 59(j)(2)(B) is amended by striking 23

‘‘for ‘1992’ in subparagraph (B)’’ and inserting ‘‘for 24

‘2016’ in subparagraph (A)(ii)’’. 25

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(5) Section 132(f)(6)(A)(ii) is amended by 1

striking ‘‘for ‘calendar year 1992’ ’’ and inserting 2

‘‘for ‘calendar year 2016’ in subparagraph (A)(ii) 3

thereof’’. 4

(6) Section 162(o)(3) is amended by striking 5

‘‘adjusted for changes in the Consumer Price Index 6

(as defined in section 1(f)(5)) since 1991’’ and in-7

serting ‘‘adjusted by increasing any such amount 8

under the 1991 agreement by an amount equal to— 9

‘‘(A) such amount, multiplied by 10

‘‘(B) the cost-of-living adjustment deter-11

mined under section 1(f)(3) for the calendar 12

year in which the taxable year begins, by sub-13

stituting ‘calendar year 1990’ for ‘calendar year 14

2016’ in subparagraph (A)(ii) thereof’’. 15

(7) So much of clause (ii) of section 16

213(d)(10)(B) as precedes the last sentence is 17

amended to read as follows: 18

‘‘(ii) M

EDICAL CARE COST ADJUST

-19

MENT

.—For purposes of clause (i), the 20

medical care cost adjustment for any cal-21

endar year is the percentage (if any) by 22

which— 23

‘‘(I) the medical care component 24

of the C-CPI-U (as defined in section 25

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1(f)(6)) for August of the preceding 1

calendar year, exceeds 2

‘‘(II) such component of the CPI 3

(as defined in section 1(f)(4)) for Au-4

gust of 1996, multiplied by the 5

amount determined under section 6

1(f)(3)(B).’’. 7

(8) Subparagraph (B) of section 280F(d)(7) is 8

amended to read as follows: 9

‘‘(B) A

UTOMOBILE PRICE INFLATION AD

-10

JUSTMENT

.—For purposes of this paragraph— 11

‘‘(i) I

N GENERAL

.—The automobile 12

price inflation adjustment for any calendar 13

year is the percentage (if any) by which— 14

‘‘(I) the C-CPI-U automobile 15

component for October of the pre-16

ceding calendar year, exceeds 17

‘‘(II) the automobile component 18

of the CPI (as defined in section 19

1(f)(4)) for October of 1987, multi-20

plied by the amount determined under 21

1(f)(3)(B). 22

‘‘(ii) C-CPI-U

AUTOMOBILE COMPO

-23

NENT

.—The term ‘C-CPI-U automobile 24

component’ means the automobile compo-25

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nent of the Chained Consumer Price Index 1

for All Urban Consumers (as described in 2

section 1(f)(6)).’’. 3

(9) Section 911(b)(2)(D)(ii)(II) is amended by 4

striking ‘‘for ‘1992’ in subparagraph (B)’’ and in-5

serting ‘‘for ‘2016’ in subparagraph (A)(ii)’’. 6

(10) Paragraph (2) of section 1274A(d) is 7

amended to read as follows: 8

‘‘(2) A

DJUSTMENT FOR INFLATION

.—In the 9

case of any debt instrument arising out of a sale or 10

exchange during any calendar year after 1989, each 11

dollar amount contained in the preceding provisions 12

of this section shall be increased by an amount equal 13

to— 14

‘‘(A) such amount, multiplied by 15

‘‘(B) the cost-of-living adjustment deter-16

mined under section 1(f)(3) for the calendar 17

year in which the taxable year begins, by sub-18

stituting ‘calendar year 1988’ for ‘calendar year 19

2016’ in subparagraph (A)(ii) thereof. 20

Any increase under the preceding sentence shall be 21

rounded to the nearest multiple of $100 (or, if such 22

increase is a multiple of $50, such increase shall be 23

increased to the nearest multiple of $100).’’. 24

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(11) Section 4161(b)(2)(C)(i)(II) is amended by 1

striking ‘‘for ‘1992’ in subparagraph (B)’’ and in-2

serting ‘‘for ‘2016’ in subparagraph (A)(ii)’’. 3

(12) Section 4980I(b)(3)(C)(v)(II) is amended 4

by striking ‘‘for ‘1992’ in subparagraph (B)’’ and 5

inserting ‘‘for ‘2016’ in subparagraph (A)(ii)’’. 6

(13) Section 6039F(d) is amended by striking 7

‘‘subparagraph (B) thereof shall be applied by sub-8

stituting ‘1995’ for ‘1992’ ’’ and inserting ‘‘subpara-9

graph (A)(ii) thereof shall be applied by substituting 10

‘1995’ for ‘2016’ ’’. 11

(14) Section 7872(g)(5) is amended to read as 12

follows: 13

‘‘(5) A

DJUSTMENT OF LIMIT FOR INFLATION

.— 14

In the case of any loan made during any calendar 15

year after 1986, the dollar amount in paragraph (2) 16

shall be increased by an amount equal to— 17

‘‘(A) such amount, multiplied by 18

‘‘(B) the cost-of-living adjustment deter-19

mined under section 1(f)(3) for the calendar 20

year in which the taxable year begins, by sub-21

stituting ‘calendar year 1985’ for ‘calendar year 22

2016’ in subparagraph (A)(ii) thereof. 23

Any increase under the preceding sentence shall be 24

rounded to the nearest multiple of $100 (or, if such 25

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increase is a multiple of $50, such increase shall be 1

increased to the nearest multiple of $100).’’. 2

(e) E

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

PART II—DEDUCTION FOR QUALIFIED BUSINESS 6

INCOME OF PASS-THRU ENTITIES 7

SEC. 11011. DEDUCTION FOR QUALIFIED BUSINESS IN-8

COME. 9

(a) I

ENERAL

.—Part VI of subchapter B of chap-10

ter 1 is amended by adding at the end the following new 11

section: 12

‘‘SEC. 199A. QUALIFIED BUSINESS INCOME. 13

‘‘(a) I

ENERAL

.—In the case of a taxpayer other 14

than a corporation, there shall be allowed as a deduction 15

for any taxable year an amount equal to the sum of— 16

‘‘(1) the lesser of— 17

‘‘(A) the combined qualified business in-18

come amount of the taxpayer, or 19

‘‘(B) an amount equal to 20 percent of the 20

excess (if any) of— 21

‘‘(i) the taxable income of the tax-22

payer for the taxable year, over 23

‘‘(ii) the sum of any net capital gain 24

(as defined in section 1(h)), plus the ag-25

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gregate amount of the qualified cooperative 1

dividends, of the taxpayer for the taxable 2

year, plus 3

‘‘(2) the lesser of— 4

‘‘(A) 20 percent of the aggregate amount 5

of the qualified cooperative dividends of the tax-6

payer for the taxable year, or 7

‘‘(B) taxable income (reduced by the net 8

capital gain (as so defined)) of the taxpayer for 9

the taxable year. 10

The amount determined under the preceding sentence 11

shall not exceed the taxable income (reduced by the net 12

capital gain (as so defined)) of the taxpayer for the taxable 13

year. 14

‘‘(b) C

OMBINED

UALIFIED

USINESS

NCOME

MOUNT

.—For purposes of this section— 16

‘‘(1) I

N GENERAL

.—The term ‘combined quali-17

fied business income amount’ means, with respect to 18

any taxable year, an amount equal to— 19

‘‘(A) the sum of the amounts determined 20

under paragraph (2) for each qualified trade or 21

business carried on by the taxpayer, plus 22

‘‘(B) 20 percent of the aggregate amount 23

of the qualified REIT dividends and qualified 24

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publicly traded partnership income of the tax-1

payer for the taxable year. 2

‘‘(2) D

ETERMINATION OF DEDUCTIBLE

AMOUNT FOR EACH TRADE OR BUSINESS

.—The 4

amount determined under this paragraph with re-5

spect to any qualified trade or business is the lesser 6

of— 7

‘‘(A) 20 percent of the taxpayer’s qualified 8

business income with respect to the qualified 9

trade or business, or 10

‘‘(B) the greater of— 11

‘‘(i) 50 percent of the W–2 wages 12

with respect to the qualified trade or busi-13

ness, or 14

‘‘(ii) the sum of 25 percent of the W– 15

2 wages with respect to the qualified trade 16

or business, plus 2.5 percent of the 17

unadjusted basis immediately after acquisi-18

tion of all qualified property. 19

‘‘(3) M

ODIFICATIONS TO LIMIT BASED ON TAX

-20

ABLE INCOME

.— 21

‘‘(A) E

XCEPTION FROM LIMIT

.—In the 22

case of any taxpayer whose taxable income for 23

the taxable year does not exceed the threshold 24

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amount, paragraph (2) shall be applied without 1

regard to subparagraph (B). 2

‘‘(B) P

HASE

IN OF LIMIT FOR CERTAIN

TAXPAYERS

.— 4

‘‘(i) I

N GENERAL

.—If— 5

‘‘(I) the taxable income of a tax-6

payer for any taxable year exceeds the 7

threshold amount, but does not exceed 8

the sum of the threshold amount plus 9

$50,000 ($100,000 in the case of a 10

joint return), and 11

‘‘(II) the amount determined 12

under paragraph (2)(B) (determined 13

without regard to this subparagraph) 14

with respect to any qualified trade or 15

business carried on by the taxpayer is 16

less than the amount determined 17

under paragraph (2)(A) with respect 18

such trade or business, 19

then paragraph (2) shall be applied with 20

respect to such trade or business without 21

regard to subparagraph (B) thereof and by 22

reducing the amount determined under 23

subparagraph (A) thereof by the amount 24

determined under clause (ii). 25

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‘‘(ii) A

MOUNT OF REDUCTION

.—The 1

amount determined under this subpara-2

graph is the amount which bears the same 3

ratio to the excess amount as— 4

‘‘(I) the amount by which the 5

taxpayer’s taxable income for the tax-6

able year exceeds the threshold 7

amount, bears to 8

‘‘(II) $50,000 ($100,000 in the 9

case of a joint return). 10

‘‘(iii) E

XCESS AMOUNT

.—For pur-11

poses of clause (ii), the excess amount is 12

the excess of— 13

‘‘(I) the amount determined 14

under paragraph (2)(A) (determined 15

without regard to this paragraph), 16

over 17

‘‘(II) the amount determined 18

under paragraph (2)(B) (determined 19

without regard to this paragraph). 20

‘‘(4) W

AGES

ETC

.— 21

‘‘(A) I

N GENERAL

.—The term ‘W–2 22

wages’ means, with respect to any person for 23

any taxable year of such person, the amounts 24

described in paragraphs (3) and (8) of section 25

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6051(a) paid by such person with respect to 1

employment of employees by such person during 2

the calendar year ending during such taxable 3

year. 4

‘‘(B) L

IMITATION TO WAGES ATTRIB

-5

UTABLE TO QUALIFIED BUSINESS INCOME

.— 6

Such term shall not include any amount which 7

is not properly allocable to qualified business 8

income for purposes of subsection (c)(1). 9

‘‘(C) R

ETURN REQUIREMENT

.—Such term 10

shall not include any amount which is not prop-11

erly included in a return filed with the Social 12

Security Administration on or before the 60th 13

day after the due date (including extensions) 14

for such return. 15

‘‘(5) A

CQUISITIONS

DISPOSITIONS

AND SHORT

TAXABLE YEARS

.—The Secretary shall provide for 17

the application of this subsection in cases of a short 18

taxable year or where the taxpayer acquires, or dis-19

poses of, the major portion of a trade or business or 20

the major portion of a separate unit of a trade or 21

business during the taxable year. 22

‘‘(6) Q

UALIFIED PROPERTY

.—For purposes of 23

this section: 24

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‘‘(A) I

N GENERAL

.—The term ‘qualified 1

property’ means, with respect to any qualified 2

trade or business for a taxable year, tangible 3

property of a character subject to the allowance 4

for depreciation under section 167— 5

‘‘(i) which is held by, and available for 6

use in, the qualified trade or business at 7

the close of the taxable year, 8

‘‘(ii) which is used at any point during 9

the taxable year in the production of quali-10

fied business income, and 11

‘‘(iii) the depreciable period for which 12

has not ended before the close of the tax-13

able year. 14

‘‘(B) D

EPRECIABLE PERIOD

.—The term 15

‘depreciable period’ means, with respect to 16

qualified property of a taxpayer, the period be-17

ginning on the date the property was first 18

placed in service by the taxpayer and ending on 19

the later of— 20

‘‘(i) the date that is 10 years after 21

such date, or 22

‘‘(ii) the last day of the last full year 23

in the applicable recovery period that 24

would apply to the property under section 25

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168 (determined without regard to sub-1

section (g) thereof). 2

‘‘(c) Q

UALIFIED

USINESS

NCOME

.—For purposes 3

of this section— 4

‘‘(1) I

N GENERAL

.—The term ‘qualified busi-5

ness income’ means, for any taxable year, the net 6

amount of qualified items of income, gain, deduc-7

tion, and loss with respect to any qualified trade or 8

business of the taxpayer. Such term shall not include 9

any qualified REIT dividends, qualified cooperative 10

dividends, or qualified publicly traded partnership 11

income. 12

‘‘(2) C

ARRYOVER OF LOSSES

.—If the net 13

amount of qualified income, gain, deduction, and 14

loss with respect to qualified trades or businesses of 15

the taxpayer for any taxable year is less than zero, 16

such amount shall be treated as a loss from a quali-17

fied trade or business in the succeeding taxable year. 18

‘‘(3) Q

UALIFIED ITEMS OF INCOME

GAIN

-19

DUCTION

AND LOSS

.—For purposes of this sub-20

section— 21

‘‘(A) I

N GENERAL

.—The term ‘qualified 22

items of income, gain, deduction, and loss’ 23

means items of income, gain, deduction, and 24

loss to the extent such items are— 25

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‘‘(i) effectively connected with the con-1

duct of a trade or business within the 2

United States (within the meaning of sec-3

tion 864(c), determined by substituting 4

‘qualified trade or business (within the 5

meaning of section 199A)’ for ‘nonresident 6

alien individual or a foreign corporation’ or 7

for ‘a foreign corporation’ each place it ap-8

pears), and 9

‘‘(ii) included or allowed in deter-10

mining taxable income for the taxable year. 11

‘‘(B) E

XCEPTIONS

.—The following invest-12

ment items shall not be taken into account as 13

a qualified item of income, gain, deduction, or 14

loss: 15

‘‘(i) Any item of short-term capital 16

gain, short-term capital loss, long-term 17

capital gain, or long-term capital loss. 18

‘‘(ii) Any dividend, income equivalent 19

to a dividend, or payment in lieu of divi-20

dends described in section 954(c)(1)(G). 21

‘‘(iii) Any interest income other than 22

interest income which is properly allocable 23

to a trade or business. 24

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‘‘(iv) Any item of gain or loss de-1

scribed in subparagraph (C) or (D) of sec-2

tion 954(c)(1) (applied by substituting 3

‘qualified trade or business’ for ‘controlled 4

foreign corporation’). 5

‘‘(v) Any item of income, gain, deduc-6

tion, or loss taken into account under sec-7

tion 954(c)(1)(F) (determined without re-8

gard to clause (ii) thereof and other than 9

items attributable to notional principal 10

contracts entered into in transactions 11

qualifying under section 1221(a)(7)). 12

‘‘(vi) Any amount received from an 13

annuity which is not received in connection 14

with the trade or business. 15

‘‘(vii) Any item of deduction or loss 16

properly allocable to an amount described 17

in any of the preceding clauses. 18

‘‘(4) T

REATMENT OF REASONABLE COMPENSA

-19

TION AND GUARANTEED PAYMENTS

.—Qualified busi-20

ness income shall not include— 21

‘‘(A) reasonable compensation paid to the 22

taxpayer by any qualified trade or business of 23

the taxpayer for services rendered with respect 24

to the trade or business, 25

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‘‘(B) any guaranteed payment described in 1

section 707(c) paid to a partner for services 2

rendered with respect to the trade or business, 3

and 4

‘‘(C) to the extent provided in regulations, 5

any payment described in section 707(a) to a 6

partner for services rendered with respect to the 7

trade or business. 8

‘‘(d) Q

UALIFIED

RADE OR

USINESS

.—For pur-9

poses of this section— 10

‘‘(1) I

N GENERAL

.—The term ‘qualified trade 11

or business’ means any trade or business other 12

than— 13

‘‘(A) a specified service trade or business, 14

or 15

‘‘(B) the trade or business of performing 16

services as an employee. 17

‘‘(2) S

PECIFIED SERVICE TRADE OR BUSI

-18

NESS

.—The term ‘specified service trade or busi-19

ness’ means any trade or business— 20

‘‘(A) which is described in section 21

1202(e)(3)(A) (applied without regard to the 22

words ‘engineering, architecture,’) or which 23

would be so described if the term ‘employees or 24

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owners’ were substituted for ‘employees’ there-1

in, or 2

‘‘(B) which involves the performance of 3

services that consist of investing and investment 4

management, trading, or dealing in securities 5

(as defined in section 475(c)(2)), partnership 6

interests, or commodities (as defined in section 7

475(e)(2)). 8

‘‘(3) E

XCEPTION FOR SPECIFIED SERVICE BUSI

-9

NESSES BASED ON TAXPAYER

’

S INCOME

.— 10

‘‘(A) I

N GENERAL

.—If, for any taxable 11

year, the taxable income of any taxpayer is less 12

than the sum of the threshold amount plus 13

$50,000 ($100,000 in the case of a joint re-14

turn), then— 15

‘‘(i) any specified service trade or 16

business of the taxpayer shall not fail to be 17

treated as a qualified trade or business due 18

to paragraph (1)(A), but 19

‘‘(ii) only the applicable percentage of 20

qualified items of income, gain, deduction, 21

or loss, and the W–2 wages and the 22

unadjusted basis immediately after acquisi-23

tion of qualified property, of the taxpayer 24

allocable to such specified service trade or 25

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business shall be taken into account in 1

computing the qualified business income, 2

W–2 wages, and the unadjusted basis im-3

mediately after acquisition of qualified 4

property of the taxpayer for the taxable 5

year for purposes of applying this section. 6

‘‘(B) A

PPLICABLE PERCENTAGE

.—For 7

purposes of subparagraph (A), the term ‘appli-8

cable percentage’ means, with respect to any 9

taxable year, 100 percent reduced (not below 10

zero) by the percentage equal to the ratio of— 11

‘‘(i) the taxable income of the tax-12

payer for the taxable year in excess of the 13

threshold amount, bears to 14

‘‘(ii) $50,000 ($100,000 in the case of 15

a joint return). 16

‘‘(e) O

THER

EFINITIONS

.—For purposes of this 17

section— 18

‘‘(1) T

AXABLE INCOME

.—Taxable income shall 19

be computed without regard to the deduction allow-20

able under this section. 21

‘‘(2) T

HRESHOLD AMOUNT

.— 22

‘‘(A) I

N GENERAL

.—The term ‘threshold 23

amount’ means $157,500 (200 percent of such 24

amount in the case of a joint return). 25

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‘‘(B) I

NFLATION ADJUSTMENT

.—In the 1

case of any taxable year beginning after 2018, 2

the dollar amount in subparagraph (A) shall be 3

increased by an amount equal to— 4

‘‘(i) such dollar amount, multiplied by 5

‘‘(ii) the cost-of-living adjustment de-6

termined under section 1(f)(3) for the cal-7

endar year in which the taxable year be-8

gins, determined by substituting ‘calendar 9

year 2017’ for ‘calendar year 2016’ in sub-10

paragraph (A)(ii) thereof. 11

The amount of any increase under the pre-12

ceding sentence shall be rounded as provided in 13

section 1(f)(7). 14

‘‘(3) Q

UALIFIED REIT DIVIDEND

.—The term 15

‘qualified REIT dividend’ means any dividend from 16

a real estate investment trust received during the 17

taxable year which— 18

‘‘(A) is not a capital gain dividend, as de-19

fined in section 857(b)(3), and 20

‘‘(B) is not qualified dividend income, as 21

defined in section 1(h)(11). 22

‘‘(4) Q

UALIFIED COOPERATIVE DIVIDEND

.— 23

The term ‘qualified cooperative dividend’ means any 24

patronage dividend (as defined in section 1388(a)), 25

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any per-unit retain allocation (as defined in section 1

1388(f)), and any qualified written notice of alloca-2

tion (as defined in section 1388(c)), or any similar 3

amount received from an organization described in 4

subparagraph (B)(ii), which— 5

‘‘(A) is includible in gross income, and 6

‘‘(B) is received from— 7

‘‘(i) an organization or corporation de-8

scribed in section 501(c)(12) or 1381(a), 9

or 10

‘‘(ii) an organization which is gov-11

erned under this title by the rules applica-12

ble to cooperatives under this title before 13

the enactment of subchapter T. 14

‘‘(5) Q

UALIFIED PUBLICLY TRADED PARTNER

-15

SHIP INCOME

.—The term ‘qualified publicly traded 16

partnership income’ means, with respect to any 17

qualified trade or business of a taxpayer, the sum 18

of— 19

‘‘(A) the net amount of such taxpayer’s al-20

locable share of each qualified item of income, 21

gain, deduction, and loss (as defined in sub-22

section (c)(3) and determined after the applica-23

tion of subsection (c)(4)) from a publicly traded 24

partnership (as defined in section 7704(a)) 25

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which is not treated as a corporation under sec-1

tion 7704(c), plus 2

‘‘(B) any gain recognized by such taxpayer 3

upon disposition of its interest in such partner-4

ship to the extent such gain is treated as an 5

amount realized from the sale or exchange of 6

property other than a capital asset under sec-7

tion 751(a). 8

‘‘(f) S

PECIAL

ULES

.— 9

‘‘(1) A

PPLICATION TO PARTNERSHIPS AND S

CORPORATIONS

.— 11

‘‘(A) I

N GENERAL

.—In the case of a part-12

nership or S corporation— 13

‘‘(i) this section shall be applied at the 14

partner or shareholder level, 15

‘‘(ii) each partner or shareholder shall 16

take into account such person’s allocable 17

share of each qualified item of income, 18

gain, deduction, and loss, and 19

‘‘(iii) each partner or shareholder 20

shall be treated for purposes of subsection 21

(b) as having W–2 wages and unadjusted 22

basis immediately after acquisition of 23

qualified property for the taxable year in 24

an amount equal to such person’s allocable 25

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share of the W–2 wages and the 1

unadjusted basis immediately after acquisi-2

tion of qualified property of the partner-3

ship or S corporation for the taxable year 4

(as determined under regulations pre-5

scribed by the Secretary). 6

For purposes of clause (iii), a partner’s or 7

shareholder’s allocable share of W–2 wages 8

shall be determined in the same manner as the 9

partner’s or shareholder’s allocable share of 10

wage expenses. For purposes of such clause, 11

partner’s or shareholder’s allocable share of the 12

unadjusted basis immediately after acquisition 13

of qualified property shall be determined in the 14

same manner as the partner’s or shareholder’s 15

allocable share of depreciation. For purposes of 16

this subparagraph, in the case of an S corpora-17

tion, an allocable share shall be the share-18

holder’s pro rata share of an item. 19

‘‘(B) A

PPLICATION TO TRUSTS AND ES

-20

TATES

.—Rules similar to the rules under sec-21

tion 199(d)(1)(B)(i) (as in effect on December 22

1, 2017) for the apportionment of W–2 wages 23

shall apply to the apportionment of W–2 wages 24

and the apportionment of unadjusted basis im-25

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mediately after acquisition of qualified property 1

under this section. 2

‘‘(C) T

REATMENT OF TRADES OR BUSI

-3

NESS IN PUERTO RICO

.— 4

‘‘(i) I

N GENERAL

.—In the case of any 5

taxpayer with qualified business income 6

from sources within the commonwealth of 7

Puerto Rico, if all such income is taxable 8

under section 1 for such taxable year, then 9

for purposes of determining the qualified 10

business income of such taxpayer for such 11

taxable year, the term ‘United States’ shall 12

include the Commonwealth of Puerto Rico. 13

‘‘(ii) S

PECIAL RULE FOR APPLYING

LIMIT

.—In the case of any taxpayer de-15

scribed in clause (i), the determination of 16

W–2 wages of such taxpayer with respect 17

to any qualified trade or business con-18

ducted in Puerto Rico shall be made with-19

out regard to any exclusion under section 20

3401(a)(8) for remuneration paid for serv-21

ices in Puerto Rico. 22

‘‘(2) C

OORDINATION WITH MINIMUM TAX

.—For 23

purposes of determining alternative minimum tax-24

able income under section 55, qualified business in-25

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come shall be determined without regard to any ad-1

justments under sections 56 through 59. 2

‘‘(3) D

EDUCTION LIMITED TO INCOME

TAXES

.—The deduction under subsection (a) shall 4

only be allowed for purposes of this chapter. 5

‘‘(4) R

EGULATIONS

.—The Secretary shall pre-6

scribe such regulations as are necessary to carry out 7

the purposes of this section, including regulations— 8

‘‘(A) for requiring or restricting the alloca-9

tion of items and wages under this section and 10

such reporting requirements as the Secretary 11

determines appropriate, and 12

‘‘(B) for the application of this section in 13

the case of tiered entities. 14

‘‘(g) D

EDUCTION

LLOWED TO

PECIFIED

GRICUL

-15

TURAL OR

ORTICULTURAL

OOPERATIVES

.— 16

‘‘(1) I

N GENERAL

.—In the case of any taxable 17

year of a specified agricultural or horticultural coop-18

erative beginning after December 31, 2017, there 19

shall be allowed a deduction in an amount equal to 20

the lesser of— 21

‘‘(A) 20 percent of the excess (if any) of— 22

‘‘(i) the gross income of a specified 23

agricultural or horticultural cooperative, 24

over 25

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‘‘(ii) the qualified cooperative divi-1

dends (as defined in subsection (e)(4)) 2

paid during the taxable year for the tax-3

able year, or 4

‘‘(B) the greater of— 5

‘‘(i) 50 percent of the W–2 wages of 6

the cooperative with respect to its trade or 7

business, or 8

‘‘(ii) the sum of 25 percent of the W– 9

2 wages of the cooperative with respect to 10

its trade or business, plus 2.5 percent of 11

the unadjusted basis immediately after ac-12

quisition of all qualified property of the co-13

operative. 14

‘‘(2) L

IMITATION

.—The amount determined 15

under paragraph (1) shall not exceed the taxable in-16

come of the specified agricultural or horticultural for 17

the taxable year. 18

‘‘(3) S

PECIFIED AGRICULTURAL OR HORTI

-19

CULTURAL COOPERATIVE

.—For purposes of this 20

subsection, the term ‘specified agricultural or horti-21

cultural cooperative’ means an organization to which 22

part I of subchapter T applies which is engaged in— 23

‘‘(A) the manufacturing, production, 24

growth, or extraction in whole or significant 25

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part of any agricultural or horticultural prod-1

uct, 2

‘‘(B) the marketing of agricultural or hor-3

ticultural products which its patrons have so 4

manufactured, produced, grown, or extracted, 5

or 6

‘‘(C) the provision of supplies, equipment, 7

or services to farmers or to organizations de-8

scribed in subparagraph (A) or (B). 9

‘‘(h) A

NTI

ABUSE

ULES

.—The Secretary shall— 10

‘‘(1) apply rules similar to the rules under sec-11

tion 179(d)(2) in order to prevent the manipulation 12

of the depreciable period of qualified property using 13

transactions between related parties, and 14

‘‘(2) prescribe rules for determining the 15

unadjusted basis immediately after acquisition of 16

qualified property acquired in like-kind exchanges or 17

involuntary conversions. 18

‘‘(i) T

ERMINATION

.—This section shall not apply to 19

taxable years beginning after December 31, 2025.’’. 20

(b) T

REATMENT OF

EDUCTION IN

OMPUTING

-21

JUSTED

ROSS AND

AXABLE

NCOME

.— 22

(1) D

EDUCTION NOT ALLOWED IN COMPUTING

ADJUSTED GROSS INCOME

.—Section 62(a) is amend-24

ed by adding at the end the following new sentence: 25

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‘‘The deduction allowed by section 199A shall not be 1

treated as a deduction described in any of the pre-2

ceding paragraphs of this subsection.’’. 3

(2) D

EDUCTION ALLOWED TO NON

-4

ITEMIZERS

.—Section 63(b) is amended by striking 5

‘‘and’’ at the end of paragraph (1), by striking the 6

period at the end of paragraph (2) and inserting ‘‘, 7

and’’, and by adding at the end the following new 8

paragraph: 9

‘‘(3) the deduction provided in section 199A.’’. 10

(3) D

EDUCTION ALLOWED TO ITEMIZERS WITH

-11

OUT LIMITS ON ITEMIZED DEDUCTIONS

.—Section 12

63(d) is amended by striking ‘‘and’’ at the end of 13

paragraph (1), by striking the period at the end of 14

paragraph (2) and inserting ‘‘, and’’, and by adding 15

at the end the following new paragraph: 16

‘‘(3) the deduction provided in section 199A.’’. 17

(4) C

ONFORMING AMENDMENT

.—Section 18

3402(m)(1) is amended by inserting ‘‘and the esti-19

mated deduction allowed under section 199A’’ after 20

‘‘chapter 1’’. 21

CCURACY

ENALTY ON

ETERMINA

-22

TION OF

PPLICABLE

ERCENTAGE

.—Section 6662(d)(1) 23

is amended by inserting at the end the following new sub-24

paragraph: 25

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‘‘(C) S

PECIAL RULE FOR TAXPAYERS

CLAIMING SECTION 199A DEDUCTION

.—In the 2

case of any taxpayer who claims the deduction 3

allowed under section 199A for the taxable 4

year, subparagraph (A) shall be applied by sub-5

stituting ‘5 percent’ for ‘10 percent’.’’. 6

(d) C

ONFORMING

MENDMENTS

.— 7

(1) Section 172(d) is amended by adding at the 8

end the following new paragraph: 9

‘‘(8) Q

UALIFIED BUSINESS INCOME DEDUC

-10

TION

.—The deduction under section 199A shall not 11

be allowed.’’. 12

(2) Section 246(b)(1) is amended by inserting 13

‘‘199A,’’ before ‘‘243(a)(1)’’. 14

(3) Section 613(a) is amended by inserting 15

‘‘and without the deduction under section 199A’’ 16

after ‘‘and without the deduction under section 17

199’’. 18

(4) Section 613A(d)(1) is amended by redesig-19

nating subparagraphs (C), (D), and (E) as subpara-20

graphs (D), (E), and (F), respectively, and by in-21

serting after subparagraph (B), the following new 22

subparagraph: 23

‘‘(C) any deduction allowable under section 24

199A,’’. 25

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(5) Section 170(b)(2)(D) is amended by strik-1

ing ‘‘and’’ in clause (iv), by striking the period at 2

the end of clause (v), and by adding at the end the 3

following new clause: 4

‘‘(vi) section 199A(g).’’. 5

(6) The table of sections for part VI of sub-6

chapter B of chapter 1 is amended by inserting at 7

the end the following new item: 8

‘‘Sec. 199A. Qualified business income.’’.

(e) E

FFECTIVE

ATE

.—The amendments made by 9

this section shall apply to taxable years beginning after 10

December 31, 2017. 11

SEC. 11012. LIMITATION ON LOSSES FOR TAXPAYERS 12

OTHER THAN CORPORATIONS. 13

(a) I

ENERAL

.—Section 461 is amended by adding 14

at the end the following new subsection: 15

‘‘(l) L

IMITATION ON

XCESS

USINESS

OSSES OF

ONCORPORATE

AXPAYERS

.— 17

‘‘(1) L

IMITATION

.—In the case of taxable year 18

of a taxpayer other than a corporation beginning 19

after December 31, 2017, and before January 1, 20

2026— 21

‘‘(A) subsection (j) (relating to limitation 22

on excess farm losses of certain taxpayers) shall 23

not apply, and 24

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‘‘(B) any excess business loss of the tax-1

payer for the taxable year shall not be allowed. 2

‘‘(2) D

ISALLOWED LOSS CARRYOVER

.—Any loss 3

which is disallowed under paragraph (1) shall be 4

treated as a net operating loss carryover to the fol-5

lowing taxable year under section 172. 6

‘‘(3) E

XCESS BUSINESS LOSS

.—For purposes of 7

this subsection— 8

‘‘(A) I

N GENERAL

.—The term ‘excess busi-9

ness loss’ means the excess (if any) of— 10

‘‘(i) the aggregate deductions of the 11

taxpayer for the taxable year which are at-12

tributable to trades or businesses of such 13

taxpayer (determined without regard to 14

whether or not such deductions are dis-15

allowed for such taxable year under para-16

graph (1)), over 17

‘‘(ii) the sum of— 18

‘‘(I) the aggregate gross income 19

or gain of such taxpayer for the tax-20

able year which is attributable to such 21

trades or businesses, plus 22

‘‘(II) $250,000 (200 percent of 23

such amount in the case of a joint re-24

turn). 25

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‘‘(B) A

DJUSTMENT FOR INFLATION

.—In 1

the case of any taxable year beginning after De-2

cember 31, 2018, the $250,000 amount in sub-3

paragraph (A)(ii)(II) shall be increased by an 4

amount equal to— 5

‘‘(i) such dollar amount, multiplied by 6

‘‘(ii) the cost-of-living adjustment de-7

termined under section 1(f)(3) for the cal-8

endar year in which the taxable year be-9

gins, determined by substituting ‘2017’ for 10

‘2016’ in subparagraph (A)(ii) thereof. 11

If any amount as increased under the pre-12

ceding sentence is not a multiple of 13

$1,000, such amount shall be rounded to 14

the nearest multiple of $1,000. 15

‘‘(4) A

PPLICATION OF SUBSECTION IN CASE OF

PARTNERSHIPS AND S CORPORATIONS

.—In the case 17

of a partnership or S corporation— 18

‘‘(A) this subsection shall be applied at the 19

partner or shareholder level, and 20

‘‘(B) each partner’s or shareholder’s allo-21

cable share of the items of income, gain, deduc-22

tion, or loss of the partnership or S corporation 23

for any taxable year from trades or businesses 24

attributable to the partnership or S corporation 25

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shall be taken into account by the partner or 1

shareholder in applying this subsection to the 2

taxable year of such partner or shareholder 3

with or within which the taxable year of the 4

partnership or S corporation ends. 5

For purposes of this paragraph, in the case of an S 6

corporation, an allocable share shall be the share-7

holder’s pro rata share of an item. 8

‘‘(5) A

DDITIONAL REPORTING

.—The Secretary 9

shall prescribe such additional reporting require-10

ments as the Secretary determines necessary to 11

carry out the purposes of this subsection. 12

‘‘(6) C

OORDINATION WITH SECTION 469

.—This 13

subsection shall be applied after the application of 14

section 469.’’. 15

(b) E

FFECTIVE

ATE

.—The amendments made by 16

this section shall apply to taxable years beginning after 17

December 31, 2017. 18

PART III—TAX BENEFITS FOR FAMILIES AND 19

INDIVIDUALS 20

SEC. 11021. INCREASE IN STANDARD DEDUCTION. 21

(a) I

ENERAL

.—Subsection (c) of section 63 is 22

amended by adding at the end the following new para-23

graph: 24

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‘‘(7) S

PECIAL RULES FOR TAXABLE YEARS 2018

THROUGH 2025

.—In the case of a taxable year begin-2

ning after December 31, 2017, and before January 3

1, 2026— 4

‘‘(A) I

NCREASE IN STANDARD DEDUC

-5

TION

.—Paragraph (2) shall be applied— 6

‘‘(i) by substituting ‘$18,000’ for 7

‘$4,400’ in subparagraph (B), and 8

‘‘(ii) by substituting ‘$12,000’ for 9

‘$3,000’ in subparagraph (C). 10

‘‘(B) A

DJUSTMENT FOR INFLATION

.— 11

‘‘(i) I

N GENERAL

.—Paragraph (4) 12

shall not apply to the dollar amounts con-13

tained in paragraphs (2)(B) and (2)(C). 14

‘‘(ii) A

DJUSTMENT OF INCREASED

AMOUNTS

.—In the case of a taxable year 16

beginning after 2018, the $18,000 and 17

$12,000 amounts in subparagraph (A) 18

shall each be increased by an amount equal 19

to— 20

‘‘(I) such dollar amount, multi-21

plied by 22

‘‘(II) the cost-of-living adjust-23

ment determined under section 1(f)(3) 24

for the calendar year in which the tax-25

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able year begins, determined by sub-1

stituting ‘2017’ for ‘2016’ in subpara-2

graph (A)(ii) thereof. 3

If any increase under this clause is not a 4

multiple of $50, such increase shall be 5

rounded to the next lowest multiple of 6

$50.’’. 7

(b) E

FFECTIVE

ATE

.—The amendment made by 8

this section shall apply to taxable years beginning after 9

December 31, 2017. 10

SEC. 11022. INCREASE IN AND MODIFICATION OF CHILD 11

TAX CREDIT. 12

(a) I

ENERAL

.—Section 24 is amended by adding 13

at the end the following new subsection: 14

‘‘(h) S

PECIAL

ULES FOR

AXABLE

EARS

2018 15

HROUGH

2025.— 16

‘‘(1) I

N GENERAL

.—In the case of a taxable 17

year beginning after December 31, 2017, and before 18

January 1, 2026, this section shall be applied as 19

provided in paragraphs (2) through (7). 20

‘‘(2) C

REDIT AMOUNT

.—Subsection (a) shall be 21

applied by substituting ‘$2,000’ for ‘$1,000’. 22

‘‘(3) L

IMITATION

.—In lieu of the amount deter-23

mined under subsection (b)(2), the threshold amount 24

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shall be $400,000 in the case of a joint return 1

($200,000 in any other case). 2

‘‘(4) P

ARTIAL CREDIT ALLOWED FOR CERTAIN

OTHER DEPENDENTS

.— 4

‘‘(A) I

N GENERAL

.—The credit determined 5

under subsection (a) (after the application of 6

paragraph (2)) shall be increased by $500 for 7

each dependent of the taxpayer (as defined in 8

section 152) other than a qualifying child de-9

scribed in subsection (c). 10

‘‘(B) E

XCEPTION FOR CERTAIN NONCITI

-11

ZENS

.—Subparagraph (A) shall not apply with 12

respect to any individual who would not be a 13

dependent if subparagraph (A) of section 14

152(b)(3) were applied without regard to all 15

that follows ‘resident of the United States’. 16

‘‘(C) C

ERTAIN QUALIFYING CHILDREN

.— 17

In the case of any qualifying child with respect 18

to whom a credit is not allowed under this sec-19

tion by reason of paragraph (7), such child 20

shall be treated as a dependent to whom sub-21

paragraph (A) applies. 22

‘‘(5) M

AXIMUM AMOUNT OF REFUNDABLE

CREDIT

.— 24

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‘‘(A) I

N GENERAL

.—The amount deter-1

mined under subsection (d)(1)(A) with respect 2

to any qualifying child shall not exceed $1,400, 3

and such subsection shall be applied without re-4

gard to paragraph (4) of this subsection. 5

‘‘(B) A

DJUSTMENT FOR INFLATION

.—In 6

the case of a taxable year beginning after 2018, 7

the $1,400 amount in subparagraph (A) shall 8

be increased by an amount equal to— 9

‘‘(i) such dollar amount, multiplied by 10

‘‘(ii) the cost-of-living adjustment de-11

termined under section 1(f)(3) for the cal-12

endar year in which the taxable year be-13

gins, determined by substituting ‘2017’ for 14

‘2016’ in subparagraph (A)(ii) thereof. 15

If any increase under this clause is not a mul-16

tiple of $100, such increase shall be rounded to 17

the next lowest multiple of $100. 18

‘‘(6) E

ARNED INCOME THRESHOLD FOR RE

-19

FUNDABLE CREDIT

.—Subsection (d)(1)(B)(i) shall 20

be applied by substituting ‘$2,500’ for ‘$3,000’. 21

‘‘(7) S

OCIAL SECURITY NUMBER REQUIRED

.— 22

No credit shall be allowed under this section to a 23

taxpayer with respect to any qualifying child unless 24

the taxpayer includes the social security number of 25

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such child on the return of tax for the taxable year. 1

For purposes of the preceding sentence, the term 2

‘social security number’ means a social security 3

number issued to an individual by the Social Secu-4

rity Administration, but only if the social security 5

number is issued— 6

‘‘(A) to a citizen of the United States or 7

pursuant to subclause (I) (or that portion of 8

subclause (III) that relates to subclause (I)) of 9

section 205(c)(2)(B)(i) of the Social Security 10

Act, and 11

‘‘(B) before the due date for such return.’’. 12

(b) E

FFECTIVE

ATE

.—The amendment made by 13

this section shall apply to taxable years beginning after 14

December 31, 2017. 15

SEC. 11023. INCREASED LIMITATION FOR CERTAIN CHARI-16

TABLE CONTRIBUTIONS. 17

(a) I

ENERAL

.—Section 170(b)(1) is amended by 18

redesignating subparagraph (G) as subparagraph (H) and 19

by inserting after subparagraph (F) the following new 20

subparagraph: 21

‘‘(G) I

NCREASED LIMITATION FOR CASH

CONTRIBUTIONS

.— 23

‘‘(i) I

N GENERAL

.—In the case of any 24

contribution of cash to an organization de-25

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scribed in subparagraph (A), the total 1

amount of such contributions which may 2

be taken into account under subsection (a) 3

for any taxable year beginning after De-4

cember 31, 2017, and before January 1, 5

2026, shall not exceed 60 percent of the 6

taxpayer’s contribution base for such year. 7

‘‘(ii) C

ARRYOVER

.—If the aggregate 8

amount of contributions described in clause 9

(i) exceeds the applicable limitation under 10

clause (i) for any taxable year described in 11

such clause, such excess shall be treated 12

(in a manner consistent with the rules of 13

subsection (d)(1)) as a charitable contribu-14

tion to which clause (i) applies in each of 15

the 5 succeeding years in order of time. 16

‘‘(iii) C

OORDINATION WITH SUBPARA

-17

GRAPHS (A) AND (B)

.— 18

‘‘(I) I

N GENERAL

.—Contribu-19

tions taken into account under this 20

subparagraph shall not be taken into 21

account under subparagraph (A). 22

‘‘(II) L

IMITATION REDUCTION

.— 23

For each taxable year described in 24

clause (i), and each taxable year to 25

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which any contribution under this 1

subparagraph is carried over under 2

clause (ii), subparagraph (A) shall be 3

applied by reducing (but not below 4

zero) the contribution limitation al-5

lowed for the taxable year under such 6

subparagraph by the aggregate con-7

tributions allowed under this subpara-8

graph for such taxable year, and sub-9

paragraph (B) shall be applied by 10

treating any reference to subpara-11

graph (A) as a reference to both sub-12

paragraph (A) and this subpara-13

graph.’’. 14

(b) E

FFECTIVE

ATE

.—The amendment made by 15

this section shall apply to contributions in taxable years 16

beginning after December 31, 2017. 17

SEC. 11024. INCREASED CONTRIBUTIONS TO ABLE AC-18

COUNTS. 19

(a) I

NCREASE IN

IMITATION FOR

ONTRIBUTIONS

ROM

OMPENSATION OF

NDIVIDUALS

ITH

ISABIL

-21

ITIES

.— 22

(1) I

N GENERAL

.—Section 529A(b)(2)(B) is 23

amended to read as follows: 24

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‘‘(B) except in the case of contributions 1

under subsection (c)(1)(C), if such contribution 2

to an ABLE account would result in aggregate 3

contributions from all contributors to the 4

ABLE account for the taxable year exceeding 5

the sum of— 6

‘‘(i) the amount in effect under sec-7

tion 2503(b) for the calendar year in which 8

the taxable year begins, plus 9

‘‘(ii) in the case of any contribution 10

by a designated beneficiary described in 11

paragraph (7) before January 1, 2026, the 12

lesser of— 13

‘‘(I) compensation (as defined by 14

section 219(f)(1)) includible in the 15

designated beneficiary’s gross income 16

for the taxable year, or 17

‘‘(II) an amount equal to the 18

poverty line for a one-person house-19

hold, as determined for the calendar 20

year preceding the calendar year in 21

which the taxable year begins.’’. 22

(2) R

ESPONSIBILITY FOR CONTRIBUTION LIMI

-23

TATION

.—Paragraph (2) of section 529A(b) is 24

amended by adding at the end the following: ‘‘A des-25

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ignated beneficiary (or a person acting on behalf of 1

such beneficiary) shall maintain adequate records for 2

purposes of ensuring, and shall be responsible for 3

ensuring, that the requirements of subparagraph 4

(B)(ii) are met.’’ 5

(3) E

LIGIBLE DESIGNATED BENEFICIARY

.— 6

Section 529A(b) is amended by adding at the end 7

the following: 8

‘‘(7) S

PECIAL RULES RELATED TO CONTRIBU

-9

TION LIMIT

.—For purposes of paragraph 10

(2)(B)(ii)— 11

‘‘(A) D

ESIGNATED BENEFICIARY

.—A des-12

ignated beneficiary described in this paragraph 13

is an employee (including an employee within 14

the meaning of section 401(c)) with respect to 15

whom— 16

‘‘(i) no contribution is made for the 17

taxable year to a defined contribution plan 18

(within the meaning of section 414(i)) with 19

respect to which the requirements of sec-20

tion 401(a) or 403(a) are met, 21

‘‘(ii) no contribution is made for the 22

taxable year to an annuity contract de-23

scribed in section 403(b), and 24

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‘‘(iii) no contribution is made for the 1

taxable year to an eligible deferred com-2

pensation plan described in section 457(b). 3

‘‘(B) P

OVERTY LINE

.—The term ‘poverty 4

line’ has the meaning given such term by sec-5

tion 673 of the Community Services Block 6

Grant Act (42 U.S.C. 9902).’’. 7

(b) A

LLOWANCE OF

AVER

’

REDIT FOR

ABLE 8

ONTRIBUTIONS BY

CCOUNT

OLDER

.—Section 9

25B(d)(1) is amended by striking ‘‘and’’ at the end of sub-10

paragraph (B)(ii), by striking the period at the end of sub-11

paragraph (C) and inserting ‘‘, and’’, and by inserting at 12

the end the following: 13

‘‘(D) the amount of contributions made be-14

fore January 1, 2026, by such individual to the 15

ABLE account (within the meaning of section 16

529A) of which such individual is the des-17

ignated beneficiary.’’. 18

FFECTIVE

ATE

.—The amendments made by 19

this section shall apply to taxable years beginning after 20

the date of the enactment of this Act. 21

SEC. 11025. ROLLOVERS TO ABLE PROGRAMS FROM 529 22

PROGRAMS. 23

(a) I

ENERAL

.—Clause (i) of section 529(c)(3)(C) 24

is amended by striking ‘‘or’’ at the end of subclause (I), 25

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by striking the period at the end of subclause (II) and 1

inserting ‘‘, or’’, and by adding at the end the following: 2

‘‘(III) before January 1, 2026, to 3

an ABLE account (as defined in sec-4

tion 529A(e)(6)) of the designated 5

beneficiary or a member of the family 6

of the designated beneficiary. 7

Subclause (III) shall not apply to so much 8

of a distribution which, when added to all 9

other contributions made to the ABLE ac-10

count for the taxable year, exceeds the lim-11

itation under section 529A(b)(2)(B)(i).’’. 12

(b) E

FFECTIVE

ATE

.—The amendments made by 13

this section shall apply to distributions after the date of 14

the enactment of this Act. 15

SEC. 11026. TREATMENT OF CERTAIN INDIVIDUALS PER-16

FORMING SERVICES IN THE SINAI PENIN-17

SULA OF EGYPT. 18

(a) I

ENERAL

.—For purposes of the following pro-19

visions of the Internal Revenue Code of 1986, with respect 20

to the applicable period, a qualified hazardous duty area 21

shall be treated in the same manner as if it were a combat 22

zone (as determined under section 112 of such Code): 23

(1) Section 2(a)(3) (relating to special rule 24

where deceased spouse was in missing status). 25

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(2) Section 112 (relating to the exclusion of 1

certain combat pay of members of the Armed 2

Forces). 3

(3) Section 692 (relating to income taxes of 4

members of Armed Forces on death). 5

(4) Section 2201 (relating to members of the 6

Armed Forces dying in combat zone or by reason of 7

combat-zone-incurred wounds, etc.). 8

(5) Section 3401(a)(1) (defining wages relating 9

to combat pay for members of the Armed Forces). 10

(6) Section 4253(d) (relating to the taxation of 11

phone service originating from a combat zone from 12

members of the Armed Forces). 13

(7) Section 6013(f)(1) (relating to joint return 14

where individual is in missing status). 15

(8) Section 7508 (relating to time for per-16

forming certain acts postponed by reason of service 17

in combat zone). 18

(b) Q

UALIFIED

AZARDOUS

UTY

REA

.—For pur-19

poses of this section, the term ‘‘qualified hazardous duty 20

area’’ means the Sinai Peninsula of Egypt, if as of the 21

date of the enactment of this section any member of the 22

Armed Forces of the United States is entitled to special 23

pay under section 310 of title 37, United States Code (re-24

lating to special pay; duty subject to hostile fire or immi-25

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nent danger), for services performed in such location. 1

Such term includes such location only during the period 2

such entitlement is in effect. 3

PPLICABLE

ERIOD

.— 4

(1) I

N GENERAL

.—Except as provided in para-5

graph (2), the applicable period is— 6

(A) the portion of the first taxable year 7

ending after June 9, 2015, which begins on 8

such date, and 9

(B) any subsequent taxable year beginning 10

before January 1, 2026. 11

(2) W

ITHHOLDING

.—In the case of subsection 12

(a)(5), the applicable period is— 13

(A) the portion of the first taxable year 14

ending after the date of the enactment of this 15

Act which begins on such date, and 16

(B) any subsequent taxable year beginning 17

before January 1, 2026. 18

(d) E

FFECTIVE

ATE

.— 19

(1) I

N GENERAL

.—Except as provided in para-20

graph (2), the provisions of this section shall take 21

effect on June 9, 2015. 22

(2) W

ITHHOLDING

.—Subsection (a)(5) shall 23

apply to remuneration paid after the date of the en-24

actment of this Act. 25

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SEC. 11027. TEMPORARY REDUCTION IN MEDICAL EXPENSE 1

DEDUCTION FLOOR. 2

(a) I

ENERAL

.—Subsection (f) of section 213 is 3

amended to read as follows: 4

‘‘(f) S

PECIAL

ULES FOR

2013 T

HROUGH

2018.— 5

In the case of any taxable year— 6

‘‘(1) beginning after December 31, 2012, and 7

ending before January 1, 2017, in the case of a tax-8

payer if such taxpayer or such taxpayer’s spouse has 9

attained age 65 before the close of such taxable 10

year, and 11

‘‘(2) beginning after December 31, 2016, and 12

ending before January 1, 2019, in the case of any 13

taxpayer, 14

subsection (a) shall be applied with respect to a taxpayer 15

by substituting ‘7.5 percent’ for ‘10 percent’.’’. 16

(b) M

INIMUM

REFERENCE

OT TO

PPLY

.— 17

Section 56(b)(1)(B) is amended by adding at the end the 18

following new sentence:‘‘This subparagraph shall not 19

apply to taxable years beginning after December 31, 2016, 20

and ending before January 1, 2019’’. 21

FFECTIVE

ATE

.—The amendment made by 22

this section shall apply to taxable years beginning after 23

December 31, 2016. 24

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SEC. 11028. RELIEF FOR 2016 DISASTER AREAS. 1

(a) I

ENERAL

.—For purposes of this section, the 2

term ‘‘2016 disaster area’’ means any area with respect 3

to which a major disaster has been declared by the Presi-4

dent under section 401 of the Robert T. Stafford Disaster 5

Relief and Emergency Assistance Act during calendar year 6

2016. 7

(b) S

PECIAL

ULES FOR

SE OF

ETIREMENT

UNDS

ITH

ESPECT TO

REAS

AMAGED BY

2016 9

ISASTERS

.— 10

(1) T

FAVORED WITHDRAWALS FROM RE

-11

TIREMENT PLANS

.— 12

(A) I

N GENERAL

.—Section 72(t) of the In-13

ternal Revenue Code of 1986 shall not apply to 14

any qualified 2016 disaster distribution. 15

(B) A

GGREGATE DOLLAR LIMITATION

.— 16

(i) I

N GENERAL

.—For purposes of 17

this subsection, the aggregate amount of 18

distributions received by an individual 19

which may be treated as qualified 2016 20

disaster distributions for any taxable year 21

shall not exceed the excess (if any) of— 22

(I) $100,000, over 23

(II) the aggregate amounts treat-24

ed as qualified 2016 disaster distribu-25

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tions received by such individual for 1

all prior taxable years. 2

(ii) T

REATMENT OF PLAN DISTRIBU

-3

TIONS

.—If a distribution to an individual 4

would (without regard to clause (i)) be a 5

qualified 2016 disaster distribution, a plan 6

shall not be treated as violating any re-7

quirement of this title merely because the 8

plan treats such distribution as a qualified 9

2016 disaster distribution, unless the ag-10

gregate amount of such distributions from 11

all plans maintained by the employer (and 12

any member of any controlled group which 13

includes the employer) to such individual 14

exceeds $100,000. 15

(iii) C

ONTROLLED GROUP

.—For pur-16

poses of clause (ii), the term ‘‘controlled 17

group’’ means any group treated as a sin-18

gle employer under subsection (b), (c), 19

(m), or (o) of section 414 of the Internal 20

Revenue Code of 1986. 21

MOUNT DISTRIBUTED MAY BE RE

-22

PAID

.— 23

(i) I

N GENERAL

.—Any individual who 24

receives a qualified 2016 disaster distribu-25

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tion may, at any time during the 3-year 1

period beginning on the day after the date 2

on which such distribution was received, 3

make one or more contributions in an ag-4

gregate amount not to exceed the amount 5

of such distribution to an eligible retire-6

ment plan of which such individual is a 7

beneficiary and to which a rollover con-8

tribution of such distribution could be 9

made under section 402(c), 403(a)(4), 10

403(b)(8), 408(d)(3), or 457(e)(16) of the 11

Internal Revenue Code of 1986, as the 12

case may be. 13

(ii) T

REATMENT OF REPAYMENTS OF

DISTRIBUTIONS FROM ELIGIBLE RETIRE

-15

MENT PLANS OTHER THAN IRAS

.—For 16

purposes of the Internal Revenue Code of 17

1986, if a contribution is made pursuant 18

to clause (i) with respect to a qualified 19

2016 disaster distribution from an eligible 20

retirement plan other than an individual 21

retirement plan, then the taxpayer shall, to 22

the extent of the amount of the contribu-23

tion, be treated as having received the 24

qualified 2016 disaster distribution in an 25

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eligible rollover distribution (as defined in 1

section 402(c)(4) of the Internal Revenue 2

Code of 1986) and as having transferred 3

the amount to the eligible retirement plan 4

in a direct trustee to trustee transfer with-5

in 60 days of the distribution. 6

(iii) T

REATMENT OF REPAYMENTS

FOR DISTRIBUTIONS FROM IRAS

.—For 8

purposes of the Internal Revenue Code of 9

1986, if a contribution is made pursuant 10

to clause (i) with respect to a qualified 11

2016 disaster distribution from an indi-12

vidual retirement plan (as defined by sec-13

tion 7701(a)(37) of the Internal Revenue 14

Code of 1986), then, to the extent of the 15

amount of the contribution, the qualified 16

2016 disaster distribution shall be treated 17

as a distribution described in section 18

408(d)(3) of such Code and as having been 19

transferred to the eligible retirement plan 20

in a direct trustee to trustee transfer with-21

in 60 days of the distribution. 22

(D) D

EFINITIONS

.—For purposes of this 23

paragraph— 24

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(i) Q

UALIFIED 2016 DISASTER DIS

-1

TRIBUTION

.—Except as provided in sub-2

paragraph (B), the term ‘‘qualified 2016 3

disaster distribution’’ means any distribu-4

tion from an eligible retirement plan made 5

on or after January 1, 2016, and before 6

January 1, 2018, to an individual whose 7

principal place of abode at any time during 8

calendar year 2016 was located in a dis-9

aster area described in subsection (a) and 10

who has sustained an economic loss by rea-11

son of the events giving rise to the Presi-12

dential declaration described in subsection 13

(a) which was applicable to such area. 14

(ii) E

LIGIBLE RETIREMENT PLAN

.— 15

The term ‘‘eligible retirement plan’’ shall 16

have the meaning given such term by sec-17

tion 402(c)(8)(B) of the Internal Revenue 18

Code of 1986. 19

(E) I

NCOME INCLUSION SPREAD OVER 3

- 20

YEAR PERIOD

.— 21

(i) I

N GENERAL

.—In the case of any 22

qualified 2016 disaster distribution, unless 23

the taxpayer elects not to have this sub-24

paragraph apply for any taxable year, any 25

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amount required to be included in gross in-1

come for such taxable year shall be so in-2

cluded ratably over the 3-taxable-year pe-3

riod beginning with such taxable year. 4

(ii) S

PECIAL RULE

.—For purposes of 5

clause (i), rules similar to the rules of sub-6

paragraph (E) of section 408A(d)(3) of the 7

Internal Revenue Code of 1986 shall apply. 8

(F) S

PECIAL RULES

.— 9

(i) E

XEMPTION OF DISTRIBUTIONS

FROM TRUSTEE TO TRUSTEE TRANSFER

AND WITHHOLDING RULES

.—For purposes 12

of sections 401(a)(31), 402(f), and 3405 of 13

the Internal Revenue Code of 1986, quali-14

fied 2016 disaster distribution shall not be 15

treated as eligible rollover distributions. 16

(ii) Q

UALIFIED 2016 DISASTER DIS

-17

TRIBUTIONS TREATED AS MEETING PLAN

DISTRIBUTION REQUIREMENTS

.—For pur-19

poses of the Internal Revenue Code of 20

1986, a qualified 2016 disaster distribu-21

tion shall be treated as meeting the re-22

quirements of sections 401(k)(2)(B)(i), 23

403(b)(7)(A)(ii), 403(b)(11), and 24

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457(d)(1)(A) of the Internal Revenue Code 1

of 1986. 2

(2) P

ROVISIONS RELATING TO PLAN AMEND

-3

MENTS

.— 4

(A) I

N GENERAL

.—If this paragraph ap-5

plies to any amendment to any plan or annuity 6

contract, such plan or contract shall be treated 7

as being operated in accordance with the terms 8

of the plan during the period described in sub-9

paragraph (B)(ii)(I). 10

(B) A

MENDMENTS TO WHICH SUBSECTION

APPLIES

.— 12

(i) I

N GENERAL

.—This paragraph 13

shall apply to any amendment to any plan 14

or annuity contract which is made— 15

(I) pursuant to any provision of 16

this section, or pursuant to any regu-17

lation under any provision of this sec-18

tion, and 19

(II) on or before the last day of 20

the first plan year beginning on or 21

after January 1, 2018, or such later 22

date as the Secretary prescribes. 23

In the case of a governmental plan (as de-24

fined in section 414(d) of the Internal Rev-25

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enue Code of 1986), subclause (II) shall be 1

applied by substituting the date which is 2 2

years after the date otherwise applied 3

under subclause (II). 4

(ii) C

ONDITIONS

.—This paragraph 5

shall not apply to any amendment to a 6

plan or contract unless such amendment 7

applies retroactively for such period, and 8

shall not apply to any such amendment un-9

less the plan or contract is operated as if 10

such amendment were in effect during the 11

period— 12

(I) beginning on the date that 13

this section or the regulation de-14

scribed in clause (i)(I) takes effect (or 15

in the case of a plan or contract 16

amendment not required by this sec-17

tion or such regulation, the effective 18

date specified by the plan), and 19

(II) ending on the date described 20

in clause (i)(II) (or, if earlier, the 21

date the plan or contract amendment 22

is adopted). 23

PECIAL

ULES FOR

ERSONAL

ASUALTY

OSSES

ELATED TO

2016 M

AJOR

ISASTER

.— 25

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(1) I

N GENERAL

.—If an individual has a net 1

disaster loss for any taxable year beginning after 2

December 31, 2015, and before January 1, 2018— 3

(A) the amount determined under section 4

165(h)(2)(A)(ii) of the Internal Revenue Code 5

of 1986 shall be equal to the sum of— 6

(i) such net disaster loss, and 7

(ii) so much of the excess referred to 8

in the matter preceding clause (i) of sec-9

tion 165(h)(2)(A) of such Code (reduced 10

by the amount in clause (i) of this sub-11

paragraph) as exceeds 10 percent of the 12

adjusted gross income of the individual, 13

(B) section 165(h)(1) of such Code shall 14

be applied by substituting ‘‘$500’’ for ‘‘$500 15

($100 for taxable years beginning after Decem-16

ber 31, 2009)’’, 17

under section 63(c) of such Code shall be in-19

creased by the net disaster loss, and 20

(D) section 56(b)(1)(E) of such Code shall 21

not apply to so much of the standard deduction 22

as is attributable to the increase under sub-23

paragraph (C) of this paragraph. 24

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(2) N

ET DISASTER LOSS

.—For purposes of this 1

subsection, the term ‘‘net disaster loss’’ means the 2

excess of qualified disaster-related personal casualty 3

losses over personal casualty gains (as defined in 4

section 165(h)(3)(A) of the Internal Revenue Code 5

of 1986). 6

(3) Q

UALIFIED DISASTER

RELATED PERSONAL

CASUALTY LOSSES

.—For purposes of this para-8

graph, the term ‘‘qualified disaster-related personal 9

casualty losses’’ means losses described in section 10

165(c)(3) of the Internal Revenue Code of 1986 11

which arise in a disaster area described in subsection 12

(a) on or after January 1, 2016, and which are at-13

tributable to the events giving rise to the Presi-14

dential declaration described in subsection (a) which 15

was applicable to such area. 16

PART IV—EDUCATION 17

SEC. 11031. TREATMENT OF STUDENT LOANS DISCHARGED 18

ON ACCOUNT OF DEATH OR DISABILITY. 19

(a) I

ENERAL

.—Section 108(f) is amended by 20

adding at the end the following new paragraph: 21

‘‘(5) D

ISCHARGES ON ACCOUNT OF DEATH OR

DISABILITY

.— 23

‘‘(A) I

N GENERAL

.—In the case of an indi-24

vidual, gross income does not include any 25

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amount which (but for this subsection) would 1

be includible in gross income for such taxable 2

year by reasons of the discharge (in whole or in 3

part) of any loan described in subparagraph 4

(B) after December 31, 2017, and before Janu-5

ary 1, 2026, if such discharge was— 6

‘‘(i) pursuant to subsection (a) or (d) 7

of section 437 of the Higher Education 8

Act of 1965 or the parallel benefit under 9

part D of title IV of such Act (relating to 10

the repayment of loan liability), 11

‘‘(ii) pursuant to section 464(c)(1)(F) 12

of such Act, or 13

‘‘(iii) otherwise discharged on account 14

of the death or total and permanent dis-15

ability of the student. 16

‘‘(B) L

OANS DESCRIBED

.—A loan is de-17

scribed in this subparagraph if such loan is— 18

‘‘(i) a student loan (as defined in 19

paragraph (2)), or 20

‘‘(ii) a private education loan (as de-21

fined in section 140(7) of the Consumer 22

Credit Protection Act (15 U.S.C. 23

1650(7))).’’. 24

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(b) E

FFECTIVE

ATE

.—The amendment made by 1

this section shall apply to discharges of indebtedness after 2

December 31, 2017. 3

SEC. 11032. 529 ACCOUNT FUNDING FOR ELEMENTARY AND 4

SECONDARY EDUCATION. 5

(a) I

ENERAL

.— 6

(1) I

N GENERAL

.—Section 529(c) is amended 7

by adding at the end the following new paragraph: 8

‘‘(7) T

REATMENT OF ELEMENTARY AND SEC

-9

ONDARY TUITION

.—Any reference in this subsection 10

to the term ‘qualified higher education expense’ shall 11

include a reference to— 12

‘‘(A) expenses for tuition in connection 13

with enrollment or attendance at an elementary 14

or secondary public, private, or religious school, 15

and 16

‘‘(B) expenses for— 17

‘‘(i) curriculum and curricular mate-18

rials, 19

‘‘(ii) books or other instructional ma-20

terials, 21

‘‘(iii) online educational materials, 22

‘‘(iv) tuition for tutoring or edu-23

cational classes outside of the home (but 24

only if the tutor or instructor is not related 25

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(within the meaning of section 152(d)(2)) 1

to the student), 2

‘‘(v) dual enrollment in an institution 3

of higher education, and 4

‘‘(vi) educational therapies for stu-5

dents with disabilities, 6

in connection with a homeschool (whether treat-7

ed as a homeschool or a private school for pur-8

poses of applicable State law).’’. 9

(2) L

IMITATION

.—Section 529(e)(3)(A) is 10

amended by adding at the end the following: ‘‘The 11

amount of cash distributions from all qualified tui-12

tion programs described in subsection (b)(1)(A)(ii) 13

with respect to a beneficiary during any taxable year 14

shall, in the aggregate, include not more than 15

$10,000 in expenses described in subsection (c)(7) 16

incurred during the taxable year.’’. 17

(b) E

FFECTIVE

ATE

.—The amendments made by 18

this section shall apply to distributions made after Decem-19

ber 31, 2017. 20

PART V—DEDUCTIONS AND EXCLUSIONS 21

SEC. 11041. SUSPENSION OF DEDUCTION FOR PERSONAL 22

EXEMPTIONS. 23

(a) I

ENERAL

.—Subsection (d) of section 151 is 24

amended— 25

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(1) by striking ‘‘In the case of’’ in paragraph 1

(4) and inserting ‘‘Except as provided in paragraph 2

(5), in the case of’’, and 3

(2) by adding at the end the following new 4

paragraph: 5

‘‘(5) S

PECIAL RULES FOR TAXABLE YEARS 2018

THROUGH 2025

.—In the case of a taxable year begin-7

ning after December 31, 2017, and before January 8

1, 2026— 9

‘‘(A) E

XEMPTION AMOUNT

.—The term ‘ex-10

emption amount’ means zero. 11

‘‘(B) R

EFERENCES

.—For purposes of any 12

other provision of this title, the reduction of the 13

exemption amount to zero under subparagraph 14

(A) shall not be taken into account in deter-15

mining whether a deduction is allowed or allow-16

able, or whether a taxpayer is entitled to a de-17

duction, under this section.’’. 18

(b) A

PPLICATION TO

STATES AND

RUSTS

.—Sec-19

tion 642(b)(2)(C) is amended by adding at the end the 20

following new clause: 21

‘‘(iii) Y

EARS WHEN PERSONAL EX

-22

EMPTION AMOUNT IS ZERO

.— 23

‘‘(I) I

N GENERAL

.—In the case 24

of any taxable year in which the ex-25

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emption amount under section 151(d) 1

is zero, clause (i) shall be applied by 2

substituting ‘$4,150’ for ‘the exemp-3

tion amount under section 151(d)’. 4

‘‘(II) I

NFLATION ADJUST

-5

MENT

.—In the case of any taxable 6

year beginning in a calendar year 7

after 2018, the $4,150 amount in 8

subparagraph (A) shall be increased 9

in the same manner as provided in 10

section 6334(d)(4)(C).’’. 11

ODIFICATION OF

AGE

ITHHOLDING

ULES

.— 13

(1) I

N GENERAL

.—Section 3402(a)(2) is 14

amended by striking ‘‘means the amount’’ and all 15

that follows and inserting ‘‘means the amount by 16

which the wages exceed the taxpayer’s withholding 17

allowance, prorated to the payroll period.’’. 18

(2) C

ONFORMING AMENDMENTS

.— 19

(A) Section 3401 is amended by striking 20

subsection (e). 21

(B) Paragraphs (1) and (2) of section 22

3402(f) are amended to read as follows: 23

‘‘(1) I

N GENERAL

.—Under rules determined by 24

the Secretary, an employee receiving wages shall on 25

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any day be entitled to a withholding allowance deter-1

mined based on— 2

‘‘(A) whether the employee is an individual 3

for whom a deduction is allowable with respect 4

to another taxpayer under section 151; 5

‘‘(B) if the employee is married, whether 6

the employee’s spouse is entitled to an allow-7

ance, or would be so entitled if such spouse 8

were an employee receiving wages, under sub-9

paragraph (A) or (D), but only if such spouse 10

does not have in effect a withholding allowance 11

certificate claiming such allowance; 12

‘‘(C) the number of individuals with re-13

spect to whom, on the basis of facts existing at 14

the beginning of such day, there may reason-15

ably be expected to be allowable a credit under 16

section 24(a) for the taxable year under subtitle 17

A in respect of which amounts deducted and 18

withheld under this chapter in the calendar year 19

in which such day falls are allowed as a credit; 20

‘‘(D) any additional amounts to which the 21

employee elects to take into account under sub-22

section (m), but only if the employee’s spouse 23

does not have in effect a withholding allowance 24

certificate making such an election; 25

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‘‘(E) the standard deduction allowable to 1

such employee (one-half of such standard de-2

duction in the case of an employee who is mar-3

ried (as determined under section 7703) and 4

whose spouse is an employee receiving wages 5

subject to withholding); and 6

‘‘(F) whether the employee has withholding 7

allowance certificates in effect with respect to 8

more than 1 employer. 9

‘‘(2) A

LLOWANCE CERTIFICATES

.— 10

‘‘(A) O

N COMMENCEMENT OF EMPLOY

-11

MENT

.—On or before the date of the com-12

mencement of employment with an employer, 13

the employee shall furnish the employer with a 14

signed withholding allowance certificate relating 15

to the withholding allowance claimed by the em-16

ployee, which shall in no event exceed the 17

amount to which the employee is entitled. 18

‘‘(B) C

HANGE OF STATUS

.—If, on any day 19

during the calendar year, an employee’s with-20

holding allowance is in excess of the with-21

holding allowance to which the employee would 22

be entitled had the employee submitted a true 23

and accurate withholding allowance certificate 24

to the employer on that day, the employee shall 25

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within 10 days thereafter furnish the employer 1

with a new withholding allowance certificate. If, 2

on any day during the calendar year, an em-3

ployee’s withholding allowance is greater than 4

the withholding allowance claimed, the employee 5

may furnish the employer with a new with-6

holding allowance certificate relating to the 7

withholding allowance to which the employee is 8

so entitled, which shall in no event exceed the 9

amount to which the employee is entitled on 10

such day. 11

‘‘(C) C

HANGE OF STATUS WHICH AFFECTS

NEXT CALENDAR YEAR

.—If on any day during 13

the calendar year the withholding allowance to 14

which the employee will be, or may reasonably 15

be expected to be, entitled at the beginning of 16

the employee’s next taxable year under subtitle 17

A is different from the allowance to which the 18

employee is entitled on such day, the employee 19

shall, in such cases and at such times as the 20

Secretary shall by regulations prescribe, furnish 21

the employer with a withholding allowance cer-22

tificate relating to the withholding allowance 23

which the employee claims with respect to such 24

next taxable year, which shall in no event ex-25

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ceed the withholding allowance to which the em-1

ployee will be, or may reasonably be expected to 2

be, so entitled.’’. 3

(f)(4), (f)(5), (f)(7) (including the heading 5

thereof), (g)(4), (l)(1), (l)(2), and (n) of section 6

3402 are each amended by striking ‘‘exemp-7

tion’’ each place it appears and inserting ‘‘al-8

lowance’’. 9

(D) The heading of section 3402(f) is 10

amended by striking ‘‘E

XEMPTIONS

’’ and in-11

serting ‘‘A

LLOWANCE

’’. 12

(E) Section 3402(m) is amended by strik-13

ing ‘‘additional withholding allowances or addi-14

tional reductions in withholding under this sub-15

section. In determining the number of addi-16

tional withholding allowances’’ and inserting 17

‘‘an additional withholding allowance or addi-18

tional reductions in withholding under this sub-19

section. In determining the additional with-20

holding allowance’’. 21

(F) Paragraphs (3) and (4) of section 22

3405(a) (and the heading for such paragraph 23

(4)) are each amended by striking ‘‘exemption’’ 24

each place it appears and inserting ‘‘allowance’’. 25

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(G) Section 3405(a)(4) is amended by 1

striking ‘‘shall be determined’’ and all that fol-2

lows through ‘‘3 withholding exemptions’’ and 3

inserting ‘‘shall be determined under rules pre-4

scribed by the Secretary’’. 5

(d) E

XCEPTION FOR

ETERMINING

ROPERTY

-6

EMPT

ROM

EVY

.—Section 6334(d) is amended by add-7

ing at the end the following new paragraph: 8

‘‘(4) Y

EARS WHEN PERSONAL EXEMPTION

AMOUNT IS ZERO

.— 10

‘‘(A) I

N GENERAL

.—In the case of any 11

taxable year in which the exemption amount 12

under section 151(d) is zero, paragraph (2) 13

shall not apply and for purposes of paragraph 14

(1) the term ‘exempt amount’ means an amount 15

equal to— 16

‘‘(i) the sum of the amount deter-17

mined under subparagraph (B) and the 18

standard deduction, divided by 19

‘‘(ii) 52. 20

‘‘(B) A

MOUNT DETERMINED

.—For pur-21

poses of subparagraph (A), the amount deter-22

mined under this subparagraph is $4,150 multi-23

plied by the number of the taxpayer’s depend-24

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ents for the taxable year in which the levy oc-1

curs. 2

‘‘(C) I

NFLATION ADJUSTMENT

.—In the 3

case of any taxable year beginning in a calendar 4

year after 2018, the $4,150 amount in subpara-5

graph (B) shall be increased by an amount 6

equal to— 7

‘‘(i) such dollar amount, multiplied by 8

‘‘(ii) the cost-of-living adjustment de-9

termined under section 1(f)(3) for the cal-10

endar year in which the taxable year be-11

gins, determined by substituting ‘2017’ for 12

‘2016’ in subparagraph (A)(ii) thereof. 13

If any increase determined under the preceding 14

sentence is not a multiple of $100, such in-15

crease shall be rounded to the next lowest mul-16

tiple of $100. 17

‘‘(D) V

ERIFIED STATEMENT

.—Unless the 18

taxpayer submits to the Secretary a written and 19

properly verified statement specifying the facts 20

necessary to determine the proper amount 21

under subparagraph (A), subparagraph (A) 22

shall be applied as if the taxpayer were a mar-23

ried individual filing a separate return with no 24

dependents.’’. 25

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(e) P

ERSONS

EQUIRED TO

AKE

ETURNS OF

-1

COME

.—Section 6012 is amended by adding at the end 2

the following new subsection: 3

‘‘(f) S

PECIAL

ULE FOR

AXABLE

EARS

2018 4

HROUGH

2025.—In the case of a taxable year beginning 5

after December 31, 2017, and before January 1, 2026, 6

subsection (a)(1) shall not apply, and every individual who 7

has gross income for the taxable year shall be required 8

to make returns with respect to income taxes under sub-9

title A, except that a return shall not be required of— 10

‘‘(1) an individual who is not married (deter-11

mined by applying section 7703) and who has gross 12

income for the taxable year which does not exceed 13

the standard deduction applicable to such individual 14

for such taxable year under section 63, or 15

‘‘(2) an individual entitled to make a joint re-16

turn if— 17

‘‘(A) the gross income of such individual, 18

when combined with the gross income of such 19

individual’s spouse, for the taxable year does 20

not exceed the standard deduction which would 21

be applicable to the taxpayer for such taxable 22

year under section 63 if such individual and 23

such individual’s spouse made a joint return, 24

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‘‘(B) such individual and such individual’s 1

spouse have the same household as their home 2

at the close of the taxable year, 3

‘‘(C) such individual’s spouse does not 4

make a separate return, and 5

‘‘(D) neither such individual nor such indi-6

vidual’s spouse is an individual described in sec-7

tion 63(c)(5) who has income (other than 8

earned income) in excess of the amount in ef-9

fect under section 63(c)(5)(A).’’. 10

(f) E

FFECTIVE

ATE

.— 11

(1) I

N GENERAL

.—Except as provided in para-12

graph (2), the amendments made by this section 13

shall apply to taxable years beginning after Decem-14

ber 31, 2017. 15

(2) W

AGE WITHHOLDING

.—The Secretary of 16

the Treasury may administer section 3402 for tax-17

able years beginning before January 1, 2019, with-18

out regard to the amendments made by subsections 19

(a) and (c). 20

SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND 21

LOCAL, ETC. TAXES. 22

(a) I

ENERAL

.—Subsection (b) of section 164 is 23

amended by adding at the end the following new para-24

graph: 25

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‘‘(6) L

IMITATION ON INDIVIDUAL DEDUCTIONS

FOR TAXABLE YEARS 2018 THROUGH 2025

.—In the 2

case of an individual and a taxable year beginning 3

after December 31, 2017, and before January 1, 4

2026— 5

‘‘(A) foreign real property taxes shall not 6

be taken into account under subsection (a)(1), 7

and 8

‘‘(B) the aggregate amount of taxes taken 9

into account under paragraphs (1), (2), and (3) 10

of subsection (a) and paragraph (5) of this sub-11

section for any taxable year shall not exceed 12

$10,000 ($5,000 in the case of a married indi-13

vidual filing a separate return). 14

The preceding sentence shall not apply to any for-15

eign taxes described in subsection (a)(3) or to any 16

taxes described in paragraph (1) and (2) of sub-17

section (a) which are paid or accrued in carrying on 18

a trade or business or an activity described in sec-19

tion 212. For purposes of subparagraph (B), an 20

amount paid in a taxable year beginning before Jan-21

uary 1, 2018, with respect to a State or local income 22

tax imposed for a taxable year beginning after De-23

cember 31, 2017, shall be treated as paid on the last 24

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day of the taxable year for which such tax is so im-1

posed.’’. 2

(b) E

FFECTIVE

ATE

.—The amendment made by 3

this section shall apply to taxable years beginning after 4

December 31, 2016. 5

SEC. 11043. LIMITATION ON DEDUCTION FOR QUALIFIED 6

RESIDENCE INTEREST. 7

(a) I

ENERAL

.—Section 163(h)(3) is amended by 8

adding at the end the following new subparagraph: 9

‘‘(F) S

PECIAL RULES FOR TAXABLE YEARS

2018 THROUGH 2025

.— 11

‘‘(i) I

N GENERAL

.—In the case of tax-12

able years beginning after December 31, 13

2017, and before January 1, 2026— 14

‘‘(I) D

ISALLOWANCE OF HOME

EQUITY INDEBTEDNESS INTEREST

.— 16

Subparagraph (A)(ii) shall not apply. 17

‘‘(II) L

IMITATION ON ACQUISI

-18

TION INDEBTEDNESS

.—Subparagraph 19

(B)(ii) shall be applied by substituting 20

‘$750,000 ($375,000’ for ‘$1,000,000 21

($500,000’. 22

‘‘(III) T

REATMENT OF INDEBT

-23

EDNESS INCURRED ON OR BEFORE

DECEMBER 15

2017

.—Subclause (II) 25

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shall not apply to any indebtedness in-1

curred on or before December 15, 2

2017, and, in applying such subclause 3

to any indebtedness incurred after 4

such date, the limitation under such 5

subclause shall be reduced (but not 6

below zero) by the amount of any in-7

debtedness incurred on or before De-8

cember 15, 2017, which is treated as 9

acquisition indebtedness for purposes 10

of this subsection for the taxable year. 11

‘‘(IV) B

INDING CONTRACT EX

-12

CEPTION

.—In the case of a taxpayer 13

who enters into a written binding con-14

tract before December 15, 2017, to 15

close on the purchase of a principal 16

residence before January 1, 2018, and 17

who purchases such residence before 18

April 1, 2018, subclause (III) shall be 19

applied by substituting ‘April 1, 2018’ 20

for ‘December 15, 2017’. 21

‘‘(ii) T

REATMENT OF LIMITATION IN

TAXABLE YEARS AFTER DECEMBER 31

, 23

2025

.—In the case of taxable years begin-24

ning after December 31, 2025, the limita-25

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tion under subparagraph (B)(ii) shall be 1

applied to the aggregate amount of indebt-2

edness of the taxpayer described in sub-3

paragraph (B)(i) without regard to the 4

taxable year in which the indebtedness was 5

incurred. 6

‘‘(iii) T

REATMENT OF REFINANCINGS

OF INDEBTEDNESS

.— 8

‘‘(I) I

N GENERAL

.—In the case 9

of any indebtedness which is incurred 10

to refinance indebtedness, such refi-11

nanced indebtedness shall be treated 12

for purposes of clause (i)(III) as in-13

curred on the date that the original 14

indebtedness was incurred to the ex-15

tent the amount of the indebtedness 16

resulting from such refinancing does 17

not exceed the amount of the refi-18

nanced indebtedness. 19

‘‘(II) L

IMITATION ON PERIOD OF

REFINANCING

.—Subclause (I) shall 21

not apply to any indebtedness after 22

the expiration of the term of the origi-23

nal indebtedness or, if the principal of 24

such original indebtedness is not am-25

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ortized over its term, the expiration of 1

the term of the 1st refinancing of 2

such indebtedness (or if earlier, the 3

date which is 30 years after the date 4

of such 1st refinancing). 5

‘‘(iv) C

OORDINATION WITH EXCLU

-6

SION OF INCOME FROM DISCHARGE OF IN

-7

DEBTEDNESS

.—Section 108(h)(2) shall be 8

applied without regard to this subpara-9

graph.’’. 10

(b) E

FFECTIVE

ATE

.—The amendments made by 11

this section shall apply to taxable years beginning after 12

December 31, 2017. 13

SEC. 11044. MODIFICATION OF DEDUCTION FOR PERSONAL 14

CASUALTY LOSSES. 15

(a) I

ENERAL

.—Subsection (h) of section 165 is 16

amended by adding at the end the following new para-17

graph: 18

‘‘(5) L

IMITATION FOR TAXABLE YEARS 2018

THROUGH 2025

.— 20

‘‘(A) I

N GENERAL

.—In the case of an indi-21

vidual, except as provided in subparagraph (B), 22

any personal casualty loss which (but for this 23

paragraph) would be deductible in a taxable 24

year beginning after December 31, 2017, and 25

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before January 1, 2026, shall be allowed as a 1

deduction under subsection (a) only to the ex-2

tent it is attributable to a Federally declared 3

disaster (as defined in subsection (i)(5)). 4

‘‘(B) E

XCEPTION RELATED TO PERSONAL

CASUALTY GAINS

.—If a taxpayer has personal 6

casualty gains for any taxable year to which 7

subparagraph (A) applies— 8

‘‘(i) subparagraph (A) shall not apply 9

to the portion of the personal casualty loss 10

not attributable to a Federally declared 11

disaster (as so defined) to the extent such 12

loss does not exceed such gains, and 13

‘‘(ii) in applying paragraph (2) for 14

purposes of subparagraph (A) to the por-15

tion of personal casualty loss which is so 16

attributable to such a disaster, the amount 17

of personal casualty gains taken into ac-18

count under paragraph (2)(A) shall be re-19

duced by the portion of such gains taken 20

into account under clause (i).’’. 21

(b) E

FFECTIVE

ATE

.—The amendment made by 22

this section shall apply to losses incurred in taxable years 23

beginning after December 31, 2017. 24

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SEC. 11045. SUSPENSION OF MISCELLANEOUS ITEMIZED 1

DEDUCTIONS. 2

(a) I

ENERAL

.—Section 67 is amended by adding 3

at the end the following new subsection: 4

‘‘(g) S

USPENSION FOR

AXABLE

EARS

2018 5

HROUGH

2025.—Notwithstanding subsection (a), no 6

miscellaneous itemized deduction shall be allowed for any 7

taxable year beginning after December 31, 2017, and be-8

fore January 1, 2026.’’. 9

(b) E

FFECTIVE

ATE

.—The amendment made by 10

this section shall apply to taxable years beginning after 11

December 31, 2017. 12

SEC. 11046. SUSPENSION OF OVERALL LIMITATION ON 13

ITEMIZED DEDUCTIONS. 14

(a) I

ENERAL

.—Section 68 is amended by adding 15

at the end the following new subsection: 16

‘‘(f) S

ECTION

OT TO

PPLY

.—This section shall not 17

apply to any taxable year beginning after December 31, 18

2017, and before January 1, 2026.’’. 19

(b) E

FFECTIVE

ATE

.—The amendments made by 20

this section shall apply to taxable years beginning after 21

December 31, 2017. 22

SEC. 11047. SUSPENSION OF EXCLUSION FOR QUALIFIED 23

BICYCLE COMMUTING REIMBURSEMENT. 24

(a) I

ENERAL

.—Section 132(f) is amended by 25

adding at the end the following new paragraph: 26

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‘‘(8) S

USPENSION OF QUALIFIED BICYCLE COM

-1

MUTING REIMBURSEMENT EXCLUSION

.—Paragraph 2

(1)(D) shall not apply to any taxable year beginning 3

after December 31, 2017, and before January 1, 4

2026.’’. 5

(b) E

FFECTIVE

ATE

.—The amendment made by 6

this section shall apply to taxable years beginning after 7

December 31, 2017. 8

SEC. 11048. SUSPENSION OF EXCLUSION FOR QUALIFIED 9

MOVING EXPENSE REIMBURSEMENT. 10

(a) I

ENERAL

.—Section 132(g) is amended— 11

(1) by striking ‘‘For purposes of this section, 12

the term’’ and inserting ‘‘For purposes of this sec-13

tion— 14

‘‘(1) I

N GENERAL

.—The term’’, and 15

(2) by adding at the end the following new 16

paragraph: 17

‘‘(2) S

USPENSION FOR TAXABLE YEARS 2018

THROUGH 2025

.—Except in the case of a member of 19

the Armed Forces of the United States on active 20

duty who moves pursuant to a military order and in-21

cident to a permanent change of station, subsection 22

(a)(6) shall not apply to any taxable year beginning 23

after December 31, 2017, and before January 1, 24

2026.’’. 25

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(b) E

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to taxable years beginning after 2

December 31, 2017. 3

SEC. 11049. SUSPENSION OF DEDUCTION FOR MOVING EX-4

PENSES. 5

(a) I

ENERAL

.—Section 217 is amended by adding 6

at the end the following new subsection: 7

‘‘(k) S

USPENSION OF

EDUCTION FOR

AXABLE

EARS

2018 T

HROUGH

2025.—Except in the case of an 9

individual to whom subsection (g) applies, this section 10

shall not apply to any taxable year beginning after Decem-11

ber 31, 2017, and before January 1, 2026.’’. 12

(b) E

FFECTIVE

ATE

.—The amendment made by 13

this section shall apply to taxable years beginning after 14

December 31, 2017. 15

SEC. 11050. LIMITATION ON WAGERING LOSSES. 16

(a) I

ENERAL

.—Section 165(d) is amended by 17

adding at the end the following: ‘‘For purposes of the pre-18

ceding sentence, in the case of taxable years beginning 19

after December 31, 2017, and before January 1, 2026, 20

the term ‘losses from wagering transactions’ includes any 21

deduction otherwise allowable under this chapter incurred 22

in carrying on any wagering transaction.’’. 23

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(b) E

FFECTIVE

ATE

.—The amendment made by 1

this section shall apply to taxable years beginning after 2

December 31, 2017. 3

SEC. 11051. REPEAL OF DEDUCTION FOR ALIMONY PAY-4

MENTS. 5

(a) I

ENERAL

.—Part VII of subchapter B is 6

amended by striking by striking section 215 (and by strik-7

ing the item relating to such section in the table of sec-8

tions for such subpart). 9

(b) C

ONFORMING

MENDMENTS

.— 10

(1) C

ORRESPONDING REPEAL OF PROVISIONS

PROVIDING FOR INCLUSION OF ALIMONY IN GROSS

INCOME

.— 13

(A) Subsection (a) of section 61 is amend-14

ed by striking paragraph (8) and by redesig-15

nating paragraphs (9) through (15) as para-16

graphs (8) through (14), respectively. 17

(B) Part II of subchapter B of chapter 1 18

is amended by striking section 71 (and by strik-19

ing the item relating to such section in the 20

table of sections for such part). 21

of chapter 1 is amended by striking section 682 23

(and by striking the item relating to such sec-24

tion in the table of sections for such subpart). 25

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(2) R

ELATED TO REPEAL OF SECTION

215.— 1

(A) Section 62(a) is amended by striking 2

paragraph (10). 3

(B) Section 3402(m)(1) is amended by 4

striking ‘‘(other than paragraph (10) thereof)’’. 5

striking subparagraph (C) and by redesignating 7

subparagraph (D) as subparagraph (C). 8

(3) R

ELATED TO REPEAL OF SECTION

71.— 9

(A) Section 121(d)(3) is amended— 10

(i) by striking ‘‘(as defined in section 11

71(b)(2))’’ in subparagraph (B), and 12

(ii) by adding at the end the following 13

new subparagraph: 14

‘‘(C) D

IVORCE OR SEPARATION INSTRU

-15

MENT

.—For purposes of this paragraph, the 16

term ‘divorce or separation instrument’ 17

means— 18

‘‘(i) a decree of divorce or separate 19

maintenance or a written instrument inci-20

dent to such a decree, 21

‘‘(ii) a written separation agreement, 22

or 23

‘‘(iii) a decree (not described in clause 24

(i)) requiring a spouse to make payments 25

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for the support or maintenance of the 1

other spouse.’’. 2

(B) Section 152(d)(5) is amended to read 3

as follows: 4

‘‘(5) S

PECIAL RULES FOR SUPPORT

.— 5

‘‘(A) I

N GENERAL

.—For purposes of this 6

subsection— 7

‘‘(i) payments to a spouse of alimony 8

or separate maintenance payments shall 9

not be treated as a payment by the payor 10

spouse for the support of any dependent, 11

and 12

‘‘(ii) in the case of the remarriage of 13

a parent, support of a child received from 14

the parent’s spouse shall be treated as re-15

ceived from the parent. 16

‘‘(B) A

LIMONY OR SEPARATE MAINTE

-17

NANCE PAYMENT

.—For purposes of subpara-18

graph (A), the term ‘alimony or separate main-19

tenance payment’ means any payment in cash 20

if— 21

‘‘(i) such payment is received by (or 22

on behalf of) a spouse under a divorce or 23

separation instrument (as defined in sec-24

tion 121(d)(3)(C)), 25

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‘‘(ii) in the case of an individual le-1

gally separated from the individual’s 2

spouse under a decree of divorce or of sep-3

arate maintenance, the payee spouse and 4

the payor spouse are not members of the 5

same household at the time such payment 6

is made, and 7

‘‘(iii) there is no liability to make any 8

such payment for any period after the 9

death of the payee spouse and there is no 10

liability to make any payment (in cash or 11

property) as a substitute for such pay-12

ments after the death of the payee 13

spouse.’’. 14

ing the third sentence. 16

(D) Section 220(f)(7) is amended by strik-17

ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 18

inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 19

(E) Section 223(f)(7) is amended by strik-20

ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 21

inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 22

(F) Section 382(l)(3)(B)(iii) is amended by 23

striking ‘‘section 71(b)(2)’’ and inserting ‘‘sec-24

tion 121(d)(3)(C)’’. 25

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100

(G) Section 408(d)(6) is amended by strik-1

ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 2

inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 3

(4) A

DDITIONAL CONFORMING AMENDMENTS

.— 4

Section 7701(a)(17) is amended— 5

(A) by striking ‘‘sections 682 and 2516’’ 6

and inserting ‘‘section 2516’’, and 7

(B) by striking ‘‘such sections’’ each place 8

it appears and inserting ‘‘such section’’. 9

FFECTIVE

ATE

.—The amendments made by 10

this section shall apply to— 11

(1) any divorce or separation instrument (as de-12

fined in section 71(b)(2) of the Internal Revenue 13

Code of 1986 as in effect before the date of the en-14

actment of this Act) executed after December 31, 15

2018, and 16

(2) any divorce or separation instrument (as so 17

defined) executed on or before such date and modi-18

fied after such date if the modification expressly 19

provides that the amendments made by this section 20

apply to such modification. 21

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101

PART VI—INCREASE IN ESTATE AND GIFT TAX 1

EXEMPTION 2

SEC. 11061. INCREASE IN ESTATE AND GIFT TAX EXEMP-3

TION. 4

(a) I

ENERAL

.—Section 2010(c)(3) is amended by 5

adding at the end the following new subparagraph: 6

‘‘(C) I

NCREASE IN BASIC EXCLUSION

AMOUNT

.—In the case of estates of decedents 8

dying or gifts made after December 31, 2017, 9

and before January 1, 2026, subparagraph (A) 10

shall be applied by substituting ‘$10,000,000’ 11

for ‘$5,000,000’.’’. 12

(b) C

ONFORMING

MENDMENT

.—Subsection (g) of 13

section 2001 is amended to read as follows: 14

‘‘(g) M

ODIFICATIONS TO

AYABLE

.— 15

‘‘(1) M

ODIFICATIONS TO GIFT TAX PAYABLE TO

REFLECT DIFFERENT TAX RATES

.—For purposes of 17

applying subsection (b)(2) with respect to 1 or more 18

gifts, the rates of tax under subsection (c) in effect 19

at the decedent’s death shall, in lieu of the rates of 20

tax in effect at the time of such gifts, be used both 21

to compute— 22

‘‘(A) the tax imposed by chapter 12 with 23

respect to such gifts, and 24

‘‘(B) the credit allowed against such tax 25

under section 2505, including in computing— 26

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102

‘‘(i) the applicable credit amount 1

under section 2505(a)(1), and 2

‘‘(ii) the sum of the amounts allowed 3

as a credit for all preceding periods under 4

section 2505(a)(2). 5

‘‘(2) M

ODIFICATIONS TO ESTATE TAX PAYABLE

TO REFLECT DIFFERENT BASIC EXCLUSION

AMOUNTS

.—The Secretary shall prescribe such regu-8

lations as may be necessary or appropriate to carry 9

out this section with respect to any difference be-10

tween— 11

‘‘(A) the basic exclusion amount under sec-12

tion 2010(c)(3) applicable at the time of the de-13

cedent’s death, and 14

‘‘(B) the basic exclusion amount under 15

such section applicable with respect to any gifts 16

made by the decedent.’’. 17

FFECTIVE

ATE

.—The amendments made by 18

this section shall apply to estates of decedents dying and 19

gifts made after December 31, 2017. 20

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PART VII—EXTENSION OF TIME LIMIT FOR 1

CONTESTING IRS LEVY 2

SEC. 11071. EXTENSION OF TIME LIMIT FOR CONTESTING 3

IRS LEVY. 4

(a) E

XTENSION OF

IME FOR

ETURN OF

ROPERTY

UBJECT TO

EVY

.—Subsection (b) of section 6343 is 6

amended by striking ‘‘9 months’’ and inserting ‘‘2 years’’. 7

(b) P

ERIOD OF

IMITATION ON

UITS

.—Subsection 8

(1) by striking ‘‘9 months’’ in paragraph (1) 10

and inserting ‘‘2 years’’, and 11

(2) by striking ‘‘9-month’’ in paragraph (2) and 12

inserting ‘‘2-year’’. 13

FFECTIVE

ATE

.—The amendments made by 14

this section shall apply to— 15

(1) levies made after the date of the enactment 16

of this Act, and 17

(2) levies made on or before such date if the 9- 18

month period has not expired under section 6343(b) 19

of the Internal Revenue Code of 1986 (without re-20

gard to this section) as of such date. 21

PART VIII—INDIVIDUAL MANDATE 22

SEC. 11081. ELIMINATION OF SHARED RESPONSIBILITY 23

PAYMENT FOR INDIVIDUALS FAILING TO 24

MAINTAIN MINIMUM ESSENTIAL COVERAGE. 25

(a) I

ENERAL

.—Section 5000A(c) is amended— 26

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104

(1) in paragraph (2)(B)(iii), by striking ‘‘2.5 1

percent’’ and inserting ‘‘Zero percent’’, and 2

(2) in paragraph (3)— 3

(A) by striking ‘‘$695’’ in subparagraph 4

(A) and inserting ‘‘$0’’, and 5

(B) by striking subparagraph (D). 6

(b) E

FFECTIVE

ATE

.—The amendments made by 7

this section shall apply to months beginning after Decem-8

ber 31, 2018. 9

Subtitle B—Alternative Minimum 10

Tax 11

SEC. 12001. REPEAL OF TAX FOR CORPORATIONS. 12

(a) I

ENERAL

.—Section 55(a) is amended by 13

striking ‘‘There’’ and inserting ‘‘In the case of a taxpayer 14

other than a corporation, there’’. 15

(b) C

ONFORMING

MENDMENTS

.— 16

(1) Section 38(c)(6) is amended by adding at 17

the end the following new subparagraph: 18

‘‘(E) C

ORPORATIONS

.—In the case of a 19

corporation, this subsection shall be applied by 20

treating the corporation as having a tentative 21

minimum tax of zero.’’. 22

(2) Section 53(d)(2) is amended by inserting ‘‘, 23

except that in the case of a corporation, the ten-24

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105

tative minimum tax shall be treated as zero’’ before 1

the period at the end. 2

(3)(A) Section 55(b)(1) is amended to read as 3

follows: 4

‘‘(1) A

MOUNT OF TENTATIVE TAX

.— 5

‘‘(A) I

N GENERAL

.—The tentative min-6

imum tax for the taxable year is the sum of— 7

‘‘(i) 26 percent of so much of the tax-8

able excess as does not exceed $175,000, 9

plus 10

‘‘(ii) 28 percent of so much of the tax-11

able excess as exceeds $175,000. 12

The amount determined under the preceding 13

sentence shall be reduced by the alternative 14

minimum tax foreign tax credit for the taxable 15

year. 16

‘‘(B) T

AXABLE EXCESS

.—For purposes of 17

this subsection, the term ‘taxable excess’ means 18

so much of the alternative minimum taxable in-19

come for the taxable year as exceeds the exemp-20

tion amount. 21

‘‘(C) M

ARRIED INDIVIDUAL FILING SEPA

-22

RATE RETURN

.—In the case of a married indi-23

vidual filing a separate return, subparagraph 24

(A) shall be applied by substituting 50 percent 25

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106

of the dollar amount otherwise applicable under 1

clause (i) and clause (ii) thereof. For purposes 2

of the preceding sentence, marital status shall 3

be determined under section 7703.’’. 4

(B) Section 55(b)(3) is amended by striking 5

‘‘paragraph (1)(A)(i)’’ and inserting ‘‘paragraph 6

(1)(A)’’. 7

(i) by striking ‘‘subparagraph (A)(i) or 9

(B)(i) of section 55(b)(1) (whichever applies) in 10

lieu of the highest rate of tax specified in sec-11

tion 1 or 11 (whichever applies)’’ in paragraph 12

(1)(C) and inserting ‘‘section 55(b)(1) in lieu of 13

the highest rate of tax specified in section 1’’, 14

and 15

(ii) in paragraph (2), by striking ‘‘means’’ 16

and all that follows and inserting ‘‘means the 17

amount determined under the first sentence of 18

section 55(b)(1)(A).’’. 19

(D) Section 897(a)(2)(A) is amended by strik-20

ing ‘‘section 55(b)(1)(A)’’ and inserting ‘‘section 21

55(b)(1)’’. 22

(E) Section 911(f) is amended— 23

(i) in paragraph (1)(B)— 24

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107

(I) by striking ‘‘section 1

55(b)(1)(A)(ii)’’ and inserting ‘‘section 2

55(b)(1)(B)’’, and 3

(II) by striking ‘‘section 4

55(b)(1)(A)(i)’’ and inserting ‘‘section 5

55(b)(1)(A)’’, and 6

(ii) in paragraph (2)(B), by striking ‘‘sec-7

tion 55(b)(1)(A)(ii)’’ each place it appears and 8

inserting ‘‘section 55(b)(1)(B)’’. 9

(4) Section 55(c)(1) is amended by striking ‘‘, 10

the section 936 credit allowable under section 27(b), 11

and the Puerto Rico economic activity credit under 12

section 30A’’. 13

(5) Section 55(d), as amended by section 14

11002, is amended— 15

(A) by striking paragraph (2) and redesig-16

nating paragraphs (3) and (4) as paragraphs 17

(2) and (3), respectively, 18

(B) in paragraph (2) (as so redesignated), 19

by inserting ‘‘and’’ at the end of subparagraph 20

(B), by striking ‘‘, and’’ at the end of subpara-21

graph (C) and inserting a period, and by strik-22

ing subparagraph (D), and 23

nated)— 25

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108

(i) by striking ‘‘(b)(1)(A)(i)’’ in sub-1

paragraph (B)(i) and inserting 2

‘‘(b)(1)(A)’’, and 3

(ii) by striking ‘‘paragraph (3)’’ in 4

subparagraph (B)(iii) and inserting ‘‘para-5

graph (2)’’. 6

(6) Section 55 is amended by striking sub-7

section (e). 8

(7) Section 56(b)(2) is amended by striking 9

subparagraph (C) and by redesignating subpara-10

graph (D) as subparagraph (C). 11

(8)(A) Section 56 is amended by striking sub-12

sections (c) and (g). 13

(B) Section 847 is amended by striking the last 14

sentence of paragraph (9). 15

section (i). 17

(9) Section 58(a) is amended by striking para-18

graph (3) and redesignating paragraph (4) as para-19

graph (3). 20

(10) Section 59 is amended by striking sub-21

sections (b) and (f). 22

(11) Section 11(d) is amended by striking ‘‘the 23

taxes imposed by subsection (a) and section 55’’ and 24

inserting ‘‘the tax imposed by subsection (a)’’. 25

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109

(12) Section 12 is amended by striking para-1

graph (7). 2

(13) Section 168(k) is amended by striking 3

paragraph (4). 4

(14) Section 882(a)(1) is amended by striking 5

‘‘, 55,’’. 6

(15) Section 962(a)(1) is amended by striking 7

‘‘sections 11 and 55’’ and inserting ‘‘section 11’’. 8

(16) Section 1561(a) is amended— 9

(A) by inserting ‘‘and’’ at the end of para-10

graph (1), by striking ‘‘, and’’ at the end of 11

paragraph (2) and inserting a period, and by 12

striking paragraph (3), and 13

(B) by striking the last sentence. 14

(17) Section 6425(c)(1)(A) is amended to read 15

as follows: 16

‘‘(A) the tax imposed by section 11 or 17

1201(a), or subchapter L of chapter 1, which-18

ever is applicable, over’’. 19

(18) Section 6655(e)(2) is amended by striking 20

‘‘and alternative minimum taxable income’’ each 21

place it appears in subparagraphs (A) and (B)(i). 22

(19) Section 6655(g)(1)(A) is amended by in-23

serting ‘‘plus’’ at the end of clause (i), by striking 24

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110

clause (ii), and by redesignating clause (iii) as clause 1

(ii). 2

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

SEC. 12002. CREDIT FOR PRIOR YEAR MINIMUM TAX LI-6

ABILITY OF CORPORATIONS. 7

(a) C

REDITS

REATED AS

EFUNDABLE

.—Section 8

53 is amended by adding at the end the following new 9

subsection: 10

‘‘(e) P

ORTION OF

REDIT

REATED AS

EFUND

-11

ABLE

.— 12

‘‘(1) I

N GENERAL

.—In the case of any taxable 13

year of a corporation beginning in 2018, 2019, 14

2020, or 2021, the limitation under subsection (c) 15

shall be increased by the AMT refundable credit 16

amount for such year. 17

‘‘(2) AMT

REFUNDABLE CREDIT AMOUNT

.— 18

For purposes of paragraph (1), the AMT refundable 19

credit amount is an amount equal to 50 percent 20

(100 percent in the case of a taxable year beginning 21

in 2021) of the excess (if any) of— 22

‘‘(A) the minimum tax credit determined 23

under subsection (b) for the taxable year, over 24

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111

‘‘(B) the minimum tax credit allowed 1

under subsection (a) for such year (before the 2

application of this subsection for such year). 3

‘‘(3) C

REDIT REFUNDABLE

.—For purposes of 4

this title (other than this section), the credit allowed 5

by reason of this subsection shall be treated as a 6

credit allowed under subpart C (and not this sub-7

part). 8

‘‘(4) S

HORT TAXABLE YEARS

.—In the case of 9

any taxable year of less than 365 days, the AMT re-10

fundable credit amount determined under paragraph 11

(2) with respect to such taxable year shall be the 12

amount which bears the same ratio to such amount 13

determined without regard to this paragraph as the 14

number of days in such taxable year bears to 365.’’. 15

(b) T

REATMENT OF

EFERENCES

.—Section 53(d) is 16

amended by adding at the end the following new para-17

graph: 18

‘‘(3) AMT

TERM REFERENCES

.—In the case of 19

a corporation, any references in this subsection to 20

section 55, 56, or 57 shall be treated as a reference 21

to such section as in effect before the amendments 22

made by Tax Cuts and Jobs Act.’’. 23

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ONFORMING

MENDMENT

.—Section 1

1374(b)(3)(B) is amended by striking the last sentence 2

thereof. 3

(d) E

FFECTIVE

ATE

.— 4

(1) I

N GENERAL

.—The amendments made by 5

this section shall apply to taxable years beginning 6

after December 31, 2017. 7

(2) C

ONFORMING AMENDMENT

.—The amend-8

ment made by subsection (c) shall apply to taxable 9

years beginning after December 31, 2021. 10

SEC. 12003. INCREASED EXEMPTION FOR INDIVIDUALS. 11

(a) I

ENERAL

.—Section 55(d), as amended by the 12

preceding provisions of this Act, is amended by adding at 13

the end the following new paragraph: 14

‘‘(4) S

PECIAL RULE FOR TAXABLE YEARS BE

-15

GINNING AFTER 2017 AND BEFORE 2026

.— 16

‘‘(A) I

N GENERAL

.—In the case of any 17

taxable year beginning after December 31, 18

2017, and before January 1, 2026— 19

‘‘(i) paragraph (1) shall be applied— 20

‘‘(I) by substituting ‘$109,400’ 21

for ‘$78,750’ in subparagraph (A), 22

and 23

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113

‘‘(II) by substituting ‘$70,300’ 1

for ‘$50,600’ in subparagraph (B), 2

and 3

‘‘(ii) paragraph (2) shall be applied— 4

‘‘(I) by substituting ‘$1,000,000’ 5

for ‘$150,000’ in subparagraph (A), 6

‘‘(II) by substituting ‘50 percent 7

of the dollar amount applicable under 8

subparagraph (A)’ for ‘$112,500’ in 9

subparagraph (B), and 10

‘‘(III) in the case of a taxpayer 11

described in paragraph (1)(D), with-12

out regard to the substitution under 13

subclause (I). 14

‘‘(B) I

NFLATION ADJUSTMENT

.— 15

‘‘(i) I

N GENERAL

.—In the case of any 16

taxable year beginning in a calendar year 17

after 2018, the amounts described in 18

clause (ii) shall each be increased by an 19

amount equal to— 20

‘‘(I) such dollar amount, multi-21

plied by 22

‘‘(II) the cost-of-living adjust-23

ment determined under section 1(f)(3) 24

for the calendar year in which the tax-25

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114

able year begins, determined by sub-1

stituting ‘calendar year 2017’ for ‘cal-2

endar year 2016’ in subparagraph 3

(A)(ii) thereof. 4

‘‘(ii) A

MOUNTS DESCRIBED

.—The 5

amounts described in this clause are the 6

$109,400 amount in subparagraph 7

(A)(i)(I), the $70,300 amount in subpara-8

graph (A)(i)(II), and the $1,000,000 9

amount in subparagraph (A)(ii)(I). 10

‘‘(iii) R

OUNDING

.—Any increased 11

amount determined under clause (i) shall 12

be rounded to the nearest multiple of 13

$100. 14

‘‘(iv) C

OORDINATION WITH CURRENT

ADJUSTMENTS

.—In the case of any taxable 16

year to which subparagraph (A) applies, no 17

adjustment shall be made under paragraph 18

(3) to any of the numbers which are sub-19

stituted under subparagraph (A) and ad-20

justed under this subparagraph.’’. 21

(b) E

FFECTIVE

ATE

.—The amendments made by 22

this section shall apply to taxable years beginning after 23

December 31, 2017. 24

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115

Subtitle C—Business-related 1

Provisions 2

PART I—CORPORATE PROVISIONS 3

SEC. 13001. 21-PERCENT CORPORATE TAX RATE. 4

(a) I

ENERAL

.—Subsection (b) of section 11 is 5

amended to read as follows: 6

‘‘(b) A

MOUNT OF

.—The amount of the tax im-7

posed by subsection (a) shall be 21 percent of taxable in-8

come.’’. 9

(b) C

ONFORMING

MENDMENTS

.— 10

(1) The following sections are each amended by 11

striking ‘‘section 11(b)(1)’’ and inserting ‘‘section 12

11(b)’’: 13

(A) Section 280C(c)(3)(B)(ii)(II). 14

(B) Paragraphs (2)(B) and (6)(A)(ii) of 15

section 860E(e). 16

(2)(A) Part I of subchapter P of chapter 1 is 18

amended by striking section 1201 (and by striking 19

the item relating to such section in the table of sec-20

tions for such part). 21

(B) Section 12 is amended by striking para-22

graphs (4) and (6), and by redesignating paragraph 23

(5) as paragraph (4). 24

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116

‘‘or 1201 (whichever is appropriate)’’. 2

(D) Section 527(b) is amended— 3

(i) by striking paragraph (2), and 4

(ii) by striking all that precedes ‘‘is hereby 5

imposed’’ and inserting: 6

‘‘(b) T

MPOSED

.—A tax’’. 7

(E) Sections 594(a) is amended by striking 8

‘‘taxes imposed by section 11 or 1201(a)’’ and in-9

serting ‘‘tax imposed by section 11’’. 10

(F) Section 691(c)(4) is amended by striking 11

‘‘1201,’’. 12

(G) Section 801(a) is amended— 13

(i) by striking paragraph (2), and 14

(ii) by striking all that precedes ‘‘is hereby 15

imposed’’ and inserting: 16

‘‘(a) T

MPOSED

.—A tax’’. 17

(H) Section 831(e) is amended by striking 18

paragraph (1) and by redesignating paragraphs (2) 19

and (3) as paragraphs (1) and (2), respectively. 20

(I) Sections 832(c)(5) and 834(b)(1)(D) are 21

each amended by striking ‘‘sec. 1201 and fol-22

lowing,’’. 23

(J) Section 852(b)(3)(A) is amended by strik-24

ing ‘‘section 1201(a)’’ and inserting ‘‘section 11(b)’’. 25

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(K) Section 857(b)(3) is amended— 1

(i) by striking subparagraph (A) and re-2

designating subparagraphs (B) through (F) as 3

subparagraphs (A) through (E), respectively, 4

(ii) in subparagraph (C), as so redesig-5

nated— 6

(I) by striking ‘‘subparagraph (A)(ii)’’ 7

in clause (i) thereof and inserting ‘‘para-8

graph (1)’’, 9

(II) by striking ‘‘the tax imposed by 10

subparagraph (A)(ii)’’ in clauses (ii) and 11

(iv) thereof and inserting ‘‘the tax imposed 12

by paragraph (1) on undistributed capital 13

gain’’, 14

(iii) in subparagraph (E), as so redesig-15

nated, by striking ‘‘subparagraph (B) or (D)’’ 16

and inserting ‘‘subparagraph (A) or (C)’’, and 17

(iv) by adding at the end the following new 18

subparagraph: 19

‘‘(F) U

NDISTRIBUTED CAPITAL GAIN

.— 20

For purposes of this paragraph, the term ‘un-21

distributed capital gain’ means the excess of the 22

net capital gain over the deduction for divi-23

dends paid (as defined in section 561) deter-24

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118

mined with reference to capital gain dividends 1

only.’’. 2

(L) Section 882(a)(1), as amended by section 3

12001, is further amended by striking ‘‘or 1201(a)’’. 4

(M) Section 904(b) is amended— 5

(i) by striking ‘‘or 1201(a)’’ in paragraph 6

(2)(C), 7

(ii) by striking paragraph (3)(D) and in-8

serting the following: 9

‘‘(D) C

APITAL GAIN RATE DIFFEREN

-10

TIAL

.—There is a capital gain rate differential 11

for any year if subsection (h) of section 1 ap-12

plies to such taxable year.’’, and 13

(iii) by striking paragraph (3)(E) and in-14

serting the following: 15

‘‘(E) R

ATE DIFFERENTIAL PORTION

.—The 16

rate differential portion of foreign source net 17

capital gain, net capital gain, or the excess of 18

net capital gain from sources within the United 19

States over net capital gain, as the case may 20

be, is the same proportion of such amount as— 21

‘‘(i) the excess of— 22

‘‘(I) the highest rate of tax set 23

forth in subsection (a), (b), (c), (d), or 24

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119

(e) of section 1 (whichever applies), 1

over 2

‘‘(II) the alternative rate of tax 3

determined under section 1(h), bears 4

to 5

‘‘(ii) that rate referred to in subclause 6

(I).’’. 7

(N) Section 1374(b) is amended by striking 8

paragraph (4). 9

(O) Section 1381(b) is amended by striking 10

‘‘taxes imposed by section 11 or 1201’’ and inserting 11

‘‘tax imposed by section 11’’. 12

(P) Sections 6425(c)(1)(A), as amended by sec-13

tion 12001, and 6655(g)(1)(A)(i) are each amended 14

by striking ‘‘or 1201(a),’’. 15

(Q) Section 7518(g)(6)(A) is amended by strik-16

ing ‘‘or 1201(a)’’. 17

(3)(A) Section 1445(e)(1) is amended— 18

(i) by striking ‘‘35 percent’’ and inserting 19

‘‘the highest rate of tax in effect for the taxable 20

year under section 11(b)’’, and 21

(ii) by striking ‘‘of the gain’’ and inserting 22

‘‘multiplied by the gain’’. 23

(B) Section 1445(e)(2) is amended by striking 24

‘‘35 percent of the amount’’ and inserting ‘‘the high-25

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120

est rate of tax in effect for the taxable year under 1

section 11(b) multiplied by the amount’’. 2

(i) by striking ‘‘35 percent’’ and inserting 4

‘‘the highest rate of tax in effect for the taxable 5

year under section 11(b)’’, and 6

(ii) by striking ‘‘of the amount’’ and in-7

serting ‘‘multiplied by the amount’’. 8

(D) Section 1446(b)(2)(B) is amended by strik-9

ing ‘‘section 11(b)(1)’’ and inserting ‘‘section 10

11(b)’’. 11

(4) Section 852(b)(1) is amended by striking 12

the last sentence. 13

(5)(A) Part I of subchapter B of chapter 5 is 14

amended by striking section 1551 (and by striking 15

the item relating to such section in the table of sec-16

tions for such part). 17

(B) Section 535(c)(5) is amended to read as 18

follows: 19

‘‘(5) C

ROSS REFERENCE

.—For limitation on 20

credit provided in paragraph (2) or (3) in the case 21

of certain controlled corporations, see section 22

1561.’’. 23

(6)(A) Section 1561, as amended by section 24

12001, is amended to read as follows: 25

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‘‘SEC. 1561. LIMITATION ON ACCUMULATED EARNINGS 1

CREDIT IN THE CASE OF CERTAIN CON-2

TROLLED CORPORATIONS. 3

‘‘(a) I

ENERAL

.—The component members of a 4

controlled group of corporations on a December 31 shall, 5

for their taxable years which include such December 31, 6

be limited for purposes of this subtitle to one $250,000 7

($150,000 if any component member is a corporation de-8

scribed in section 535(c)(2)(B)) amount for purposes of 9

computing the accumulated earnings credit under section 10

535(c)(2) and (3). Such amount shall be divided equally 11

among the component members of such group on such De-12

cember 31 unless the Secretary prescribes regulations per-13

mitting an unequal allocation of such amount. 14

‘‘(b) C

ERTAIN

HORT

AXABLE

EARS

.—If a cor-15

poration has a short taxable year which does not include 16

a December 31 and is a component member of a controlled 17

group of corporations with respect to such taxable year, 18

then for purposes of this subtitle, the amount to be used 19

in computing the accumulated earnings credit under sec-20

tion 535(c)(2) and (3) of such corporation for such taxable 21

year shall be the amount specified in subsection (a) with 22

respect to such group, divided by the number of corpora-23

tions which are component members of such group on the 24

last day of such taxable year. For purposes of the pre-25

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122

ceding sentence, section 1563(b) shall be applied as if such 1

last day were substituted for December 31.’’. 2

(B) The table of sections for part II of 3

subchapter B of chapter 5 is amended by strik-4

ing the item relating to section 1561 and in-5

serting the following new item: 6

‘‘Sec. 1561. Limitation on accumulated earnings credit in the case of certain

controlled corporations.’’.

(7) Section 7518(g)(6)(A) is amended— 7

(A) by striking ‘‘With respect to the por-8

tion’’ and inserting ‘‘In the case of a taxpayer 9

other than a corporation, with respect to the 10

portion’’, and 11

(B) by striking ‘‘(34 percent in the case of 12

a corporation)’’. 13

FFECTIVE

ATE

.— 14

(1) I

N GENERAL

.—Except as otherwise pro-15

vided in this subsection, the amendments made by 16

subsections (a) and (b) shall apply to taxable years 17

beginning after December 31, 2017. 18

(2) W

ITHHOLDING

.—The amendments made by 19

subsection (b)(3) shall apply to distributions made 20

after December 31, 2017. 21

(3) C

ERTAIN TRANSFERS

.—The amendments 22

made by subsection (b)(6) shall apply to transfers 23

made after December 31, 2017. 24

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123

(d) N

ORMALIZATION

EQUIREMENTS

.— 1

(1) I

N GENERAL

.—A normalization method of 2

accounting shall not be treated as being used with 3

respect to any public utility property for purposes of 4

section 167 or 168 of the Internal Revenue Code of 5

1986 if the taxpayer, in computing its cost of service 6

for ratemaking purposes and reflecting operating re-7

sults in its regulated books of account, reduces the 8

excess tax reserve more rapidly or to a greater ex-9

tent than such reserve would be reduced under the 10

average rate assumption method. 11

(2) A

LTERNATIVE METHOD FOR CERTAIN TAX

-12

PAYERS

.—If, as of the first day of the taxable year 13

that includes the date of enactment of this Act— 14

(A) the taxpayer was required by a regu-15

latory agency to compute depreciation for public 16

utility property on the basis of an average life 17

or composite rate method, and 18

(B) the taxpayer’s books and underlying 19

records did not contain the vintage account 20

data necessary to apply the average rate as-21

sumption method, 22

the taxpayer will be treated as using a normalization 23

method of accounting if, with respect to such juris-24

diction, the taxpayer uses the alternative method for 25

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124

public utility property that is subject to the regu-1

latory authority of that jurisdiction. 2

(3) D

EFINITIONS

.—For purposes of this sub-3

section— 4

(A) E

XCESS TAX RESERVE

.—The term 5

‘‘excess tax reserve’’ means the excess of— 6

(i) the reserve for deferred taxes (as 7

described in section 168(i)(9)(A)(ii) of the 8

Internal Revenue Code of 1986) as of the 9

day before the corporate rate reductions 10

provided in the amendments made by this 11

section take effect, over 12

(ii) the amount which would be the 13

balance in such reserve if the amount of 14

such reserve were determined by assuming 15

that the corporate rate reductions provided 16

in this Act were in effect for all prior peri-17

ods. 18

(B) A

VERAGE RATE ASSUMPTION METH

-19

.—The average rate assumption method is 20

the method under which the excess in the re-21

serve for deferred taxes is reduced over the re-22

maining lives of the property as used in its reg-23

ulated books of account which gave rise to the 24

reserve for deferred taxes. Under such method, 25

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125

during the time period in which the timing dif-1

ferences for the property reverse, the amount of 2

the adjustment to the reserve for the deferred 3

taxes is calculated by multiplying— 4

(i) the ratio of the aggregate deferred 5

taxes for the property to the aggregate 6

timing differences for the property as of 7

the beginning of the period in question, by 8

(ii) the amount of the timing dif-9

ferences which reverse during such period. 10

LTERNATIVE METHOD

.—The ‘‘alter-11

native method’’ is the method in which the tax-12

payer— 13

(i) computes the excess tax reserve on 14

all public utility property included in the 15

plant account on the basis of the weighted 16

average life or composite rate used to com-17

pute depreciation for regulatory purposes, 18

and 19

(ii) reduces the excess tax reserve rat-20

ably over the remaining regulatory life of 21

the property. 22

(4) T

AX INCREASED FOR NORMALIZATION VIO

-23

LATION

.—If, for any taxable year ending after the 24

date of the enactment of this Act, the taxpayer does 25

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126

not use a normalization method of accounting for 1

the corporate rate reductions provided in the amend-2

ments made by this section— 3

(A) the taxpayer’s tax for the taxable year 4

shall be increased by the amount by which it re-5

duces its excess tax reserve more rapidly than 6

permitted under a normalization method of ac-7

counting, and 8

(B) such taxpayer shall not be treated as 9

using a normalization method of accounting for 10

purposes of subsections (f)(2) and (i)(9)(C) of 11

section 168 of the Internal Revenue Code of 12

1986. 13

SEC. 13002. REDUCTION IN DIVIDEND RECEIVED DEDUC-14

TIONS TO REFLECT LOWER CORPORATE IN-15

COME TAX RATES. 16

(a) D

IVIDENDS

ECEIVED BY

ORPORATIONS

.— 17

(1) I

N GENERAL

.—Section 243(a)(1) is amend-18

ed by striking ‘‘70 percent’’ and inserting ‘‘50 per-19

cent’’. 20

(2) D

IVIDENDS FROM 20

PERCENT OWNED COR

-21

PORATIONS

.—Section 243(c)(1) is amended— 22

(A) by striking ‘‘80 percent’’ and inserting 23

‘‘65 percent’’, and 24

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127

(B) by striking ‘‘70 percent’’ and inserting 1

‘‘50 percent’’. 2

(3) C

ONFORMING AMENDMENT

.—The heading 3

for section 243(c) is amended by striking ‘‘R

ETEN

-4

TION OF

80-

PERCENT

IVIDEND

ECEIVED

EDUC

-5

TION

’’ and inserting ‘‘I

NCREASED

ERCENTAGE

’’. 6

(b) D

IVIDENDS

ECEIVED

ROM

FSC.—Section 7

245(c)(1)(B) is amended— 8

(1) by striking ‘‘70 percent’’ and inserting ‘‘50 9

percent’’, and 10

(2) by striking ‘‘80 percent’’ and inserting ‘‘65 11

percent’’. 12

IMITATION ON

GGREGATE

MOUNT OF

EDUC

-13

TIONS

.—Section 246(b)(3) is amended— 14

(1) by striking ‘‘80 percent’’ in subparagraph 15

(A) and inserting ‘‘65 percent’’, and 16

(2) by striking ‘‘70 percent’’ in subparagraph 17

(B) and inserting ‘‘50 percent’’. 18

(d) R

EDUCTION IN

EDUCTION

HERE

ORTFOLIO

TOCK

EBT

FINANCED

.—Section 246A(a)(1) is 20

amended— 21

(1) by striking ‘‘70 percent’’ and inserting ‘‘50 22

percent’’, and 23

(2) by striking ‘‘80 percent’’ and inserting ‘‘65 24

percent’’. 25

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128

(e) I

NCOME

ROM

OURCES

ITHIN THE

NITED

TATES

.—Section 861(a)(2) is amended— 2

(1) by striking ‘‘100/70th’’ and inserting ‘‘100/ 3

50th’’ in subparagraph (B), and 4

(2) in the flush sentence at the end— 5

(A) by striking ‘‘100/80th’’ and inserting 6

‘‘100/65th’’, and 7

(B) by striking ‘‘100/70th’’ and inserting 8

‘‘100/50th’’. 9

(f) E

FFECTIVE

ATE

.—The amendments made by 10

this section shall apply to taxable years beginning after 11

December 31, 2017. 12

PART II—SMALL BUSINESS REFORMS 13

SEC. 13101. MODIFICATIONS OF RULES FOR EXPENSING DE-14

PRECIABLE BUSINESS ASSETS. 15

(a) I

NCREASE IN

IMITATION

.— 16

(1) D

OLLAR LIMITATION

.—Section 179(b)(1) is 17

amended by striking ‘‘$500,000’’ and inserting 18

‘‘$1,000,000’’. 19

(2) R

EDUCTION IN LIMITATION

.—Section 20

179(b)(2) is amended by striking ‘‘$2,000,000’’ and 21

inserting ‘‘$2,500,000’’. 22

(3) I

NFLATION ADJUSTMENTS

.— 23

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129

(A) I

N GENERAL

.—Subparagraph (A) of 1

section 179(b)(6), as amended by section 2

11002(d), is amended— 3

(i) by striking ‘‘2015’’ and inserting 4

‘‘2018’’, and 5

(ii) in clause (ii), by striking ‘‘cal-6

endar year 2014’’ and inserting ‘‘calendar 7

year 2017’’. 8

(B) S

PORT UTILITY VEHICLES

.—Section 9

179(b)(6) is amended— 10

(i) in subparagraph (A), by striking 11

‘‘paragraphs (1) and (2)’’ and inserting 12

‘‘paragraphs (1), (2), and (5)(A)’’, and 13

(ii) in subparagraph (B), by inserting 14

‘‘($100 in the case of any increase in the 15

amount under paragraph (5)(A))’’ after 16

‘‘$10,000’’. 17

(b) Section 179 Property To Include Qualified Real 18

Property.— 19

(1) I

N GENERAL

.—Subparagraph (B) of section 20

179(d)(1) is amended to read as follows: 21

‘‘(B) which is— 22

‘‘(i) section 1245 property (as defined 23

in section 1245(a)(3)), or 24

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130

‘‘(ii) at the election of the taxpayer, 1

qualified real property (as defined in sub-2

section (f)), and’’. 3

(2) Q

UALIFIED REAL PROPERTY DEFINED

.— 4

Subsection (f) of section 179 is amended to read as 5

follows: 6

‘‘(f) Q

UALIFIED

EAL

ROPERTY

.—For purposes of 7

this section, the term ‘qualified real property’ means— 8

‘‘(1) any qualified improvement property de-9

scribed in section 168(e)(6), and 10

‘‘(2) any of the following improvements to non-11

residential real property placed in service after the 12

date such property was first placed in service: 13

‘‘(A) Roofs. 14

‘‘(B) Heating, ventilation, and air-condi-15

tioning property. 16

‘‘(C) Fire protection and alarm systems. 17

‘‘(D) Security systems.’’. 18

EPEAL OF

XCLUSION FOR

ERTAIN

ROP

-19

ERTY

.—The last sentence of section 179(d)(1) is amended 20

by inserting ‘‘(other than paragraph (2) thereof)’’ after 21

‘‘section 50(b)’’. 22

(d) E

FFECTIVE

ATE

.—The amendments made by 23

this section shall apply to property placed in service in 24

taxable years beginning after December 31, 2017. 25

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SEC. 13102. SMALL BUSINESS ACCOUNTING METHOD RE-1

FORM AND SIMPLIFICATION. 2

(a) M

ODIFICATION OF

IMITATION ON

ASH

ETH

-3

OD OF

CCOUNTING

.— 4

(1) I

NCREASED LIMITATION

.—So much of sec-5

tion 448(c) as precedes paragraph (2) is amended to 6

read as follows: 7

‘‘(c) G

ROSS

ECEIPTS

EST

.—For purposes of this 8

section— 9

‘‘(1) I

N GENERAL

.—A corporation or partner-10

ship meets the gross receipts test of this subsection 11

for any taxable year if the average annual gross re-12

ceipts of such entity for the 3-taxable-year period 13

ending with the taxable year which precedes such 14

taxable year does not exceed $25,000,000.’’. 15

(2) A

PPLICATION OF EXCEPTION ON ANNUAL

BASIS

.—Section 448(b)(3) is amended to read as fol-17

lows: 18

‘‘(3) E

NTITIES WHICH MEET GROSS RECEIPTS

TEST

.—Paragraphs (1) and (2) of subsection (a) 20

shall not apply to any corporation or partnership for 21

any taxable year if such entity (or any predecessor) 22

meets the gross receipts test of subsection (c) for 23

such taxable year.’’. 24

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(3) I

NFLATION ADJUSTMENT

.—Section 448(c) 1

is amended by adding at the end the following new 2

paragraph: 3

‘‘(4) A

DJUSTMENT FOR INFLATION

.—In the 4

case of any taxable year beginning after December 5

31, 2018, the dollar amount in paragraph (1) shall 6

be increased by an amount equal to— 7

‘‘(A) such dollar amount, multiplied by 8

‘‘(B) the cost-of-living adjustment deter-9

mined under section 1(f)(3) for the calendar 10

year in which the taxable year begins, by sub-11

stituting ‘calendar year 2017’ for ‘calendar year 12

2016’ in subparagraph (A)(ii) thereof. 13

If any amount as increased under the preceding sen-14

tence is not a multiple of $1,000,000, such amount 15

shall be rounded to the nearest multiple of 16

$1,000,000.’’. 17

(4) C

OORDINATION WITH SECTION 481

.—Sec-18

tion 448(d)(7) is amended to read as follows: 19

‘‘(7) C

OORDINATION WITH SECTION 481

.—Any 20

change in method of accounting made pursuant to 21

this section shall be treated for purposes of section 22

481 as initiated by the taxpayer and made with the 23

consent of the Secretary.’’. 24

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133

(5) A

PPLICATION OF EXCEPTION TO CORPORA

-1

TIONS ENGAGED IN FARMING

.— 2

(A) I

N GENERAL

.—Section 447(c) is 3

amended— 4

(i) by inserting ‘‘for any taxable year’’ 5

after ‘‘not being a corporation’’ in the mat-6

ter preceding paragraph (1), and 7

(ii) by amending paragraph (2) to 8

read as follows: 9

‘‘(2) a corporation which meets the gross re-10

ceipts test of section 448(c) for such taxable year.’’. 11

(B) C

OORDINATION WITH SECTION 481

.— 12

Section 447(f) is amended to read as follows: 13

‘‘(f) C

OORDINATION

ITH

ECTION

481.—Any 14

change in method of accounting made pursuant to this 15

section shall be treated for purposes of section 481 as ini-16

tiated by the taxpayer and made with the consent of the 17

Secretary.’’. 18

ONFORMING AMENDMENTS

.—Section 19

447 is amended— 20

(i) by striking subsections (d), (e), 21

(h), and (i), and 22

(ii) by redesignating subsections (f) 23

and (g) (as amended by subparagraph (B)) 24

as subsections (d) and (e), respectively. 25

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134

(b) E

XEMPTION

ROM

UNICAP R

EQUIREMENTS

.— 1

(1) I

N GENERAL

.—Section 263A is amended by 2

redesignating subsection (i) as subsection (j) and by 3

inserting after subsection (h) the following new sub-4

section: 5

‘‘(i) E

XEMPTION FOR

ERTAIN

MALL

USI

-6

NESSES

.— 7

‘‘(1) I

N GENERAL

.—In the case of any taxpayer 8

(other than a tax shelter prohibited from using the 9

cash receipts and disbursements method of account-10

ing under section 448(a)(3)) which meets the gross 11

receipts test of section 448(c) for any taxable year, 12

this section shall not apply with respect to such tax-13

payer for such taxable year. 14

‘‘(2) A

PPLICATION OF GROSS RECEIPTS TEST

TO INDIVIDUALS

ETC

.— In the case of any taxpayer 16

which is not a corporation or a partnership, the 17

gross receipts test of section 448(c) shall be applied 18

in the same manner as if each trade or business of 19

such taxpayer were a corporation or partnership. 20

‘‘(3) C

OORDINATION WITH SECTION 481

.—Any 21

change in method of accounting made pursuant to 22

this subsection shall be treated for purposes of sec-23

tion 481 as initiated by the taxpayer and made with 24

the consent of the Secretary.’’. 25

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135

(2) C

ONFORMING AMENDMENT

.—Section 1

263A(b)(2) is amended to read as follows: 2

‘‘(2) P

ROPERTY ACQUIRED FOR RESALE

.—Real 3

or personal property described in section 1221(a)(1) 4

which is acquired by the taxpayer for resale.’’. 5

XEMPTION

ROM

NVENTORIES

.—Section 471 6

is amended by redesignating subsection (c) as subsection 7

(d) and by inserting after subsection (b) the following new 8

subsection: 9

‘‘(c) E

XEMPTION FOR

ERTAIN

MALL

USI

-10

NESSES

.— 11

‘‘(1) I

N GENERAL

.—In the case of any taxpayer 12

(other than a tax shelter prohibited from using the 13

cash receipts and disbursements method of account-14

ing under section 448(a)(3)) which meets the gross 15

receipts test of section 448(c) for any taxable year— 16

‘‘(A) subsection (a) shall not apply with re-17

spect to such taxpayer for such taxable year, 18

and 19

‘‘(B) the taxpayer’s method of accounting 20

for inventory for such taxable year shall not be 21

treated as failing to clearly reflect income if 22

such method either— 23

‘‘(i) treats inventory as non-incidental 24

materials and supplies, or 25

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136

‘‘(ii) conforms to such taxpayer’s 1

method of accounting reflected in an appli-2

cable financial statement of the taxpayer 3

with respect to such taxable year or, if the 4

taxpayer does not have any applicable fi-5

nancial statement with respect to such tax-6

able year, the books and records of the 7

taxpayer prepared in accordance with the 8

taxpayer’s accounting procedures. 9

‘‘(2) A

PPLICABLE FINANCIAL STATEMENT

.— 10

For purposes of this subsection, the term ‘applicable 11

financial statement’ has the meaning given the term 12

in section 451(b)(3). 13

‘‘(3) A

PPLICATION OF GROSS RECEIPTS TEST

TO INDIVIDUALS

ETC

.—In the case of any taxpayer 15

which is not a corporation or a partnership, the 16

gross receipts test of section 448(c) shall be applied 17

in the same manner as if each trade or business of 18

such taxpayer were a corporation or partnership. 19

‘‘(4) C

OORDINATION WITH SECTION 481

.—Any 20

change in method of accounting made pursuant to 21

this subsection shall be treated for purposes of sec-22

tion 481 as initiated by the taxpayer and made with 23

the consent of the Secretary.’’. 24

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137

(d) E

XEMPTION

ROM

ERCENTAGE

OMPLETION

FOR

ONG

TERM

ONTRACTS

.— 2

(1) I

N GENERAL

.—Section 460(e)(1)(B) is 3

amended— 4

(A) by inserting ‘‘(other than a tax shelter 5

prohibited from using the cash receipts and dis-6

bursements method of accounting under section 7

448(a)(3))’’ after ‘‘taxpayer’’ in the matter pre-8

ceding clause (i), and 9

(B) by amending clause (ii) to read as fol-10

lows: 11

‘‘(ii) who meets the gross receipts test 12

of section 448(c) for the taxable year in 13

which such contract is entered into.’’. 14

(2) C

ONFORMING AMENDMENTS

.—Section 15

460(e) is amended by striking paragraphs (2) and 16

(3), by redesignating paragraphs (4), (5), and (6) as 17

paragraphs (3), (4), and (5), respectively, and by in-18

serting after paragraph (1) the following new para-19

graph: 20

‘‘(2) R

ULES RELATED TO GROSS RECEIPTS

TEST

.— 22

‘‘(A) A

PPLICATION OF GROSS RECEIPTS

TEST TO INDIVIDUALS

ETC

.— For purposes of 24

paragraph (1)(B)(ii), in the case of any tax-25

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138

payer which is not a corporation or a partner-1

ship, the gross receipts test of section 448(c) 2

shall be applied in the same manner as if each 3

trade or business of such taxpayer were a cor-4

poration or partnership. 5

‘‘(B) C

OORDINATION WITH SECTION 481

.— 6

Any change in method of accounting made pur-7

suant to paragraph (1)(B)(ii) shall be treated 8

as initiated by the taxpayer and made with the 9

consent of the Secretary. Such change shall be 10

effected on a cut-off basis for all similarly clas-11

sified contracts entered into on or after the 12

year of change.’’. 13

(e) E

FFECTIVE

ATE

.— 14

(1) I

N GENERAL

.—Except as otherwise pro-15

vided in this subsection, the amendments made by 16

this section shall apply to taxable years beginning 17

after December 31, 2017. 18

(2) P

RESERVATION OF SUSPENSE ACCOUNT

RULES WITH RESPECT TO ANY EXISTING SUSPENSE

ACCOUNTS

.—So much of the amendments made by 21

subsection (a)(5)(C) as relate to section 447(i) of 22

the Internal Revenue Code of 1986 shall not apply 23

with respect to any suspense account established 24

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139

under such section before the date of the enactment 1

of this Act. 2

(3) E

XEMPTION FROM PERCENTAGE COMPLE

-3

TION FOR LONG

TERM CONTRACTS

.—The amend-4

ments made by subsection (d) shall apply to con-5

tracts entered into after December 31, 2017, in tax-6

able years ending after such date. 7

PART III—COST RECOVERY AND ACCOUNTING 8

METHODS 9

Subpart A—Cost Recovery 10

SEC. 13201. TEMPORARY 100-PERCENT EXPENSING FOR 11

CERTAIN BUSINESS ASSETS. 12

(a) I

NCREASED

XPENSING

.— 13

(1) I

N GENERAL

.—Section 168(k) is amend-14

ed— 15

(A) in paragraph (1)(A), by striking ‘‘50 16

percent’’ and inserting ‘‘the applicable percent-17

age’’, and 18

(B) in paragraph (5)(A)(i), by striking ‘‘50 19

percent’’ and inserting ‘‘the applicable percent-20

age’’. 21

(2) A

PPLICABLE PERCENTAGE

.—Paragraph (6) 22

of section 168(k) is amended to read as follows: 23

‘‘(6) A

PPLICABLE PERCENTAGE

.—For purposes 24

of this subsection— 25

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140

‘‘(A) I

N GENERAL

.—Except as otherwise 1

provided in this paragraph, the term ‘applicable 2

percentage’ means— 3

‘‘(i) in the case of property placed in 4

service after September 27, 2017, and be-5

fore January 1, 2023, 100 percent, 6

‘‘(ii) in the case of property placed in 7

service after December 31, 2022, and be-8

fore January 1, 2024, 80 percent, 9

‘‘(iii) in the case of property placed in 10

service after December 31, 2023, and be-11

fore January 1, 2025, 60 percent, 12

‘‘(iv) in the case of property placed in 13

service after December 31, 2024, and be-14

fore January 1, 2026, 40 percent, and 15

‘‘(v) in the case of property placed in 16

service after December 31, 2025, and be-17

fore January 1, 2027, 20 percent. 18

‘‘(B) R

ULE FOR PROPERTY WITH LONGER

PRODUCTION PERIODS

.—In the case of property 20

described in subparagraph (B) or (C) of para-21

graph (2), the term ‘applicable percentage’ 22

means— 23

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141

‘‘(i) in the case of property placed in 1

service after September 27, 2017, and be-2

fore January 1, 2024, 100 percent, 3

‘‘(ii) in the case of property placed in 4

service after December 31, 2023, and be-5

fore January 1, 2025, 80 percent, 6

‘‘(iii) in the case of property placed in 7

service after December 31, 2024, and be-8

fore January 1, 2026, 60 percent, 9

‘‘(iv) in the case of property placed in 10

service after December 31, 2025, and be-11

fore January 1, 2027, 40 percent, and 12

‘‘(v) in the case of property placed in 13

service after December 31, 2026, and be-14

fore January 1, 2028, 20 percent. 15

‘‘(C) R

ULE FOR PLANTS BEARING FRUITS

AND NUTS

.—In the case of a specified plant de-17

scribed in paragraph (5), the term ‘applicable 18

percentage’ means— 19

‘‘(i) in the case of a plant which is 20

planted or grafted after September 27, 21

2017, and before January 1, 2023, 100 22

percent, 23

‘‘(ii) in the case of a plant which is 24

planted or grafted after December 31, 25

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142

2022, and before January 1, 2024, 80 per-1

cent, 2

‘‘(iii) in the case of a plant which is 3

planted or grafted after December 31, 4

2023, and before January 1, 2025, 60 per-5

cent, 6

‘‘(iv) in the case of a plant which is 7

planted or grafted after December 31, 8

2024, and before January 1, 2026, 40 per-9

cent, and 10

‘‘(v) in the case of a plant which is 11

planted or grafted after December 31, 12

2025, and before January 1, 2027, 20 per-13

cent.’’. 14

(3) C

ONFORMING AMENDMENT

.— 15

(A) Paragraph (5) of section 168(k) is 16

amended by striking subparagraph (F). 17

(B) Section 168(k) is amended by adding 18

at the end the following new paragraph: 19

‘‘(8) P

HASE DOWN

.—In the case of qualified 20

property acquired by the taxpayer before September 21

28, 2017, and placed in service by the taxpayer after 22

September 27, 2017, paragraph (6) shall be applied 23

by substituting for each percentage therein— 24

‘‘(A) ‘50 percent’ in the case of— 25

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143

‘‘(i) property placed in service before 1

January 1, 2018, and 2

‘‘(ii) property described in subpara-3

graph (B) or (C) of paragraph (2) which 4

is placed in service in 2018, 5

‘‘(B) ‘40 percent’ in the case of— 6

‘‘(i) property placed in service in 2018 7

(other than property described in subpara-8

graph (B) or (C) of paragraph (2)), and 9

‘‘(ii) property described in subpara-10

graph (B) or (C) of paragraph (2) which 11

is placed in service in 2019, 12

‘‘(C) ‘30 percent’ in the case of— 13

‘‘(i) property placed in service in 2019 14

(other than property described in subpara-15

graph (B) or (C) of paragraph (2)), and 16

‘‘(ii) property described in subpara-17

graph (B) or (C) of paragraph (2) which 18

is placed in service in 2020, and 19

‘‘(D) ‘0 percent’ in the case of— 20

‘‘(i) property placed in service after 21

2019 (other than property described in 22

subparagraph (B) or (C) of paragraph 23

(2)), and 24

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144

‘‘(ii) property described in subpara-1

graph (B) or (C) of paragraph (2) which 2

is placed in service after 2020.’’. 3

(b) E

XTENSION

.— 4

(1) I

N GENERAL

.—Section 168(k) is amend-5

ed— 6

(A) in paragraph (2)— 7

(i) in subparagraph (A)(iii), clauses 8

(i)(III) and (ii) of subparagraph (B), and 9

subparagraph (E)(i), by striking ‘‘January 10

1, 2020’’ each place it appears and insert-11

ing ‘‘January 1, 2027’’, and 12

(ii) in subparagraph (B)— 13

(I) in clause (i)(II), by striking 14

‘‘January 1, 2021’’ and inserting 15

‘‘January 1, 2028’’, and 16

(II) in the heading of clause (ii), 17

by striking ‘‘

PRE

JANUARY 1

2020

’’ 18

and inserting ‘‘

PRE

JANUARY 1

2027

’’, 19

and 20

(B) in paragraph (5)(A), by striking ‘‘Jan-21

uary 1, 2020’’ and inserting ‘‘January 1, 22

2027’’. 23

(2) C

ONFORMING AMENDMENTS

.— 24

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145

(A) Clause (ii) of section 460(c)(6)(B) is 1

amended by striking ‘‘January 1, 2020 (Janu-2

ary 1, 2021’’ and inserting ‘‘January 1, 2027 3

(January 1, 2028’’. 4

(B) The heading of section 168(k) is 5

amended by striking ‘‘A

CQUIRED

FTER

-6

CEMBER

31, 2007,

AND

EFORE

ANUARY

1, 7

2020’’. 8

PPLICATION TO

SED

ROPERTY

.— 9

(1) I

N GENERAL

.—Section 168(k)(2)(A)(ii) is 10

amended to read as follows: 11

‘‘(ii) the original use of which begins 12

with the taxpayer or the acquisition of 13

which by the taxpayer meets the require-14

ments of clause (ii) of subparagraph (E), 15

and’’. 16

(2) A

CQUISITION REQUIREMENTS

.—Section 17

168(k)(2)(E)(ii) is amended to read as follows: 18

‘‘(ii) A

CQUISITION REQUIREMENTS

.— 19

An acquisition of property meets the re-20

quirements of this clause if— 21

‘‘(I) such property was not used 22

by the taxpayer at any time prior to 23

such acquisition, and 24

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146

‘‘(II) the acquisition of such 1

property meets the requirements of 2

paragraphs (2)(A), (2)(B), (2)(C), 3

and (3) of section 179(d).’’, 4

(3) A

NTI

ABUSE RULES

.—Section 168(k)(2)(E) 5

is further amended by amending clause (iii)(I) to 6

read as follows: 7

‘‘(I) property is used by a lessor 8

of such property and such use is the 9

lessor’s first use of such property,’’. 10

(d) E

XCEPTION FOR

ERTAIN

ROPERTY

.—Section 11

168(k), as amended by this section, is amended by adding 12

at the end the following new paragraph: 13

‘‘(9) E

XCEPTION FOR CERTAIN PROPERTY

.— 14

The term ‘qualified property’ shall not include— 15

‘‘(A) any property which is primarily used 16

in a trade or business described in clause (iv) 17

of section 163(j)(7)(A), or 18

‘‘(B) any property used in a trade or busi-19

ness that has had floor plan financing indebted-20

ness (as defined in paragraph (9) of section 21

163(j)), if the floor plan financing interest re-22

lated to such indebtedness was taken into ac-23

count under paragraph (1)(C) of such section.’’. 24

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147

(e) S

PECIAL

ULE

.—Section 168(k), as amended by 1

this section, is amended by adding at the end the following 2

new paragraph: 3

‘‘(10) S

PECIAL RULE FOR PROPERTY PLACED

IN SERVICE DURING CERTAIN PERIODS

.— 5

‘‘(A) I

N GENERAL

.—In the case of quali-6

fied property placed in service by the taxpayer 7

during the first taxable year ending after Sep-8

tember 27, 2017, if the taxpayer elects to have 9

this paragraph apply for such taxable year, 10

paragraphs (1)(A) and (5)(A)(i) shall be ap-11

plied by substituting ‘50 percent’ for ‘the appli-12

cable percentage’. 13

‘‘(B) F

ORM OF ELECTION

.—Any election 14

under this paragraph shall be made at such 15

time and in such form and manner as the Sec-16

retary may prescribe.’’. 17

(f) C

OORDINATION

ITH

ECTION

280F.—Clause 18

(iii) of section 168(k)(2)(F) is amended by striking 19

‘‘placed in service by the taxpayer after December 31, 20

2017’’ and inserting ‘‘acquired by the taxpayer before Sep-21

tember 28, 2017, and placed in service by the taxpayer 22

after September 27, 2017’’. 23

(g) Q

UALIFIED

ILM AND

ELEVISION AND

IVE

HEATRICAL

RODUCTIONS

.— 25

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148

(1) I

N GENERAL

.—Clause (i) of section 1

168(k)(2)(A), as amended by section 13204, is 2

amended— 3

(A) in subclause (II), by striking ‘‘or’’, 4

(B) in subclause (III), by adding ‘‘or’’ 5

after the comma, and 6

‘‘(IV) which is a qualified film or tele-8

vision production (as defined in subsection 9

(d) of section 181) for which a deduction 10

would have been allowable under section 11

181 without regard to subsections (a)(2) 12

and (g) of such section or this subsection, 13

or 14

‘‘(V) which is a qualified live theat-15

rical production (as defined in subsection 16

(e) of section 181) for which a deduction 17

would have been allowable under section 18

181 without regard to subsections (a)(2) 19

and (g) of such section or this sub-20

section,’’. 21

(2) P

RODUCTION PLACED IN SERVICE

.—Para-22

graph (2) of section 168(k) is amended by adding at 23

the end the following: 24

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149

‘‘(H) P

RODUCTION PLACED IN SERVICE

.— 1

For purposes of subparagraph (A)— 2

‘‘(i) a qualified film or television pro-3

duction shall be considered to be placed in 4

service at the time of initial release or 5

broadcast, and 6

‘‘(ii) a qualified live theatrical produc-7

tion shall be considered to be placed in 8

service at the time of the initial live staged 9

performance.’’. 10

(h) E

FFECTIVE

ATE

.— 11

(1) I

N GENERAL

.—Except as provided by para-12

graph (2), the amendments made by this section 13

shall apply to property which— 14

(A) is acquired after September 27, 2017, 15

and 16

(B) is placed in service after such date. 17

For purposes of the preceding sentence, property 18

shall not be treated as acquired after the date on 19

which a written binding contract is entered into for 20

such acquisition. 21

(2) S

PECIFIED PLANTS

.—The amendments 22

made by this section shall apply to specified plants 23

planted or grafted after September 27, 2017. 24

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150

SEC. 13202. MODIFICATIONS TO DEPRECIATION LIMITA-1

TIONS ON LUXURY AUTOMOBILES AND PER-2

SONAL USE PROPERTY. 3

(a) L

UXURY

UTOMOBILES

.— 4

(1) I

N GENERAL

.—280F(a)(1)(A) is amended— 5

(A) in clause (i), by striking ‘‘$2,560’’ and 6

inserting ‘‘$10,000’’, 7

(B) in clause (ii), by striking ‘‘$4,100’’ 8

and inserting ‘‘$16,000’’, 9

and inserting ‘‘$9,600’’, and 11

(D) in clause (iv), by striking ‘‘$1,475’’ 12

and inserting ‘‘$5,760’’. 13

(2) C

ONFORMING AMENDMENTS

.— 14

(A) Clause (ii) of section 280F(a)(1)(B) is 15

amended by striking ‘‘$1,475’’ in the text and 16

heading and inserting ‘‘$5,760’’. 17

(B) Paragraph (7) of section 280F(d) is 18

amended— 19

(i) in subparagraph (A), by striking 20

‘‘1988’’ and inserting ‘‘2018’’, and 21

(ii) in subparagraph (B)(i)(II), by 22

striking ‘‘1987’’ and inserting ‘‘2017’’. 23

(b) R

EMOVAL OF

OMPUTER

QUIPMENT

ROM

ISTED

ROPERTY

.— 25

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151

(1) I

N GENERAL

.—Section 280F(d)(4)(A) is 1

amended— 2

(A) by inserting ‘‘and’’ at the end of clause 3

(iii), 4

(B) by striking clause (iv), and 5

(iv). 7

(2) C

ONFORMING AMENDMENT

.—Section 8

280F(d)(4) is amended by striking subparagraph 9

(B) and by redesignating subparagraph (C) as sub-10

paragraph (B). 11

FFECTIVE

ATE

.—The amendments made by 12

this section shall apply to property placed in service after 13

December 31, 2017, in taxable years ending after such 14

date. 15

SEC. 13203. MODIFICATIONS OF TREATMENT OF CERTAIN 16

FARM PROPERTY. 17

(a) T

REATMENT OF

ERTAIN

ARM

ROPERTY AS

5- 18

EAR

ROPERTY

.—Clause (vii) of section 168(e)(3)(B) is 19

amended by striking ‘‘after December 31, 2008, and which 20

is placed in service before January 1, 2010’’ and inserting 21

‘‘after December 31, 2017’’. 22

(b) R

EPEAL OF

EQUIRED

SE OF

150-P

ERCENT

ECLINING

ALANCE

ETHOD

.—Section 168(b)(2) is 24

amended by striking subparagraph (B) and by redesig-25

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152

nating subparagraphs (C) and (D) as subparagraphs (B) 1

and (C), respectively. 2

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to property placed in service after 4

December 31, 2017, in taxable years ending after such 5

date. 6

SEC. 13204. APPLICABLE RECOVERY PERIOD FOR REAL 7

PROPERTY. 8

(a) I

MPROVEMENTS TO

EAL

ROPERTY

.— 9

(1) E

LIMINATION OF QUALIFIED LEASEHOLD

IMPROVEMENT

QUALIFIED RESTAURANT

AND

QUALIFIED RETAIL IMPROVEMENT PROPERTY

.—Sub-12

section (e) of section 168 is amended— 13

(A) in subparagraph (E) of paragraph 14

(3)— 15

(i) by striking clauses (iv), (v), and 16

(ix), 17

(ii) in clause (vii), by inserting ‘‘and’’ 18

at the end, 19

(iii) in clause (viii), by striking ‘‘, 20

and’’ and inserting a period, and 21

(iv) by redesignating clauses (vi), 22

(vii), and (viii), as so amended, as clauses 23

(iv), (v), and (vi), respectively, and 24

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153

(B) by striking paragraphs (6), (7), and 1

(8). 2

(2) A

PPLICATION OF STRAIGHT LINE METHOD

TO QUALIFIED IMPROVEMENT PROPERTY

.—Para-4

graph (3) of section 168(b) is amended— 5

(A) by striking subparagraphs (G), (H), 6

and (I), and 7

(B) by inserting after subparagraph (F) 8

the following new subparagraph: 9

‘‘(G) Qualified improvement property de-10

scribed in subsection (e)(6).’’. 11

(3) A

LTERNATIVE DEPRECIATION SYSTEM

.— 12

(A) E

LECTING REAL PROPERTY TRADE OR

BUSINESS

.—Subsection (g) of section 168 is 14

amended— 15

(i) in paragraph (1)— 16

(I) in subparagraph (D), by 17

striking ‘‘and’’ at the end, 18

(II) in subparagraph (E), by in-19

serting ‘‘and’’ at the end, and 20

(III) by inserting after subpara-21

graph (E) the following new subpara-22

graph: 23

‘‘(F) any property described in paragraph 24

(8),’’, and 25

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154

(ii) by adding at the end the following 1

new paragraph: 2

‘‘(8) E

LECTING REAL PROPERTY TRADE OR

BUSINESS

.—The property described in this para-4

graph shall consist of any nonresidential real prop-5

erty, residential rental property, and qualified im-6

provement property held by an electing real property 7

trade or business (as defined in 163(j)(7)(B)).’’. 8

(B) Q

UALIFIED IMPROVEMENT PROP

-9

ERTY

.—The table contained in subparagraph 10

(B) of section 168(g)(3) is amended— 11

(i) by inserting after the item relating 12

to subparagraph (D)(ii) the following new 13

item: 14

‘‘(D)(v) ......................................................................................... 20’’

, and 15

(ii) by striking the item relating to 16

subparagraph (E)(iv) and all that follows 17

through the item relating to subparagraph 18

(E)(ix) and inserting the following: 19

‘‘(E)(iv) ........................................................................................ 20

(E)(v) ........................................................................................... 30

(E)(vi) .......................................................................................... 35’’.

PPLICABLE RECOVERY PERIOD FOR

RESIDENTIAL RENTAL PROPERTY

.—The table 21

contained in subparagraph (C) of section 22

168(g)(2) is amended by striking clauses (iii) 23

and (iv) and inserting the following: 24

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155

‘‘(iii) Residential rental property ................................................. 30 years

(iv) Nonresidential real property ................................................. 40 years

(v) Any railroad grading or tunnel bore or water utility prop-

erty ........................................................................................... 50 years’’.

(4) C

ONFORMING AMENDMENTS

.— 1

(A) Clause (i) of section 168(k)(2)(A) is 2

amended— 3

(i) in subclause (II), by inserting ‘‘or’’ 4

after the comma, 5

(ii) in subclause (III), by striking 6

‘‘or’’ at the end, and 7

(iii) by striking subclause (IV). 8

(B) Section 168 is amended— 9

(i) in subsection (e), as amended by 10

paragraph (1)(B), by adding at the end 11

the following: 12

‘‘(6) Q

UALIFIED IMPROVEMENT PROPERTY

.— 13

‘‘(A) I

N GENERAL

.—The term ‘qualified 14

improvement property’ means any improvement 15

to an interior portion of a building which is 16

nonresidential real property if such improve-17

ment is placed in service after the date such 18

building was first placed in service. 19

‘‘(B) C

ERTAIN IMPROVEMENTS NOT IN

-20

CLUDED

.—Such term shall not include any im-21

provement for which the expenditure is attrib-22

utable to— 23

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156

‘‘(i) the enlargement of the building, 1

‘‘(ii) any elevator or escalator, or 2

‘‘(iii) the internal structural frame-3

work of the building.’’, and 4

(ii) in subsection (k), by striking 5

paragraph (3). 6

(b) E

FFECTIVE

ATE

.— 7

(1) I

N GENERAL

.—Except as provided in para-8

graph (2), the amendments made by this section 9

shall apply to property placed in service after De-10

cember 31, 2017. 11

(2) A

MENDMENTS RELATED TO ELECTING

REAL PROPERTY TRADE OR BUSINESS

.—The amend-13

ments made by subsection (a)(3)(A) shall apply to 14

taxable years beginning after December 31, 2017. 15

SEC. 13205. USE OF ALTERNATIVE DEPRECIATION SYSTEM 16

FOR ELECTING FARMING BUSINESSES. 17

(a) I

ENERAL

.—Section 168(g)(1), as amended by 18

section 13204, is amended by striking ‘‘and’’ at the end 19

of subparagraph (E), by inserting ‘‘and’’ at the end of 20

subparagraph (F), and by inserting after subparagraph 21

(F) the following new subparagraph: 22

‘‘(G) any property with a recovery period 23

of 10 years or more which is held by an electing 24

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157

farming business (as defined in section 1

163(j)(7)(C)),’’. 2

(b) E

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

SEC. 13206. AMORTIZATION OF RESEARCH AND EXPERI-6

MENTAL EXPENDITURES. 7

(a) I

ENERAL

.—Section 174 is amended to read 8

as follows: 9

‘‘SEC. 174. AMORTIZATION OF RESEARCH AND EXPERI-10

MENTAL EXPENDITURES. 11

‘‘(a) I

ENERAL

.—In the case of a taxpayer’s speci-12

fied research or experimental expenditures for any taxable 13

year— 14

‘‘(1) except as provided in paragraph (2), no 15

deduction shall be allowed for such expenditures, 16

and 17

‘‘(2) the taxpayer shall— 18

‘‘(A) charge such expenditures to capital 19

account, and 20

‘‘(B) be allowed an amortization deduction 21

of such expenditures ratably over the 5-year pe-22

riod (15-year period in the case of any specified 23

research or experimental expenditures which are 24

attributable to foreign research (within the 25

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158

meaning of section 41(d)(4)(F))) beginning 1

with the midpoint of the taxable year in which 2

such expenditures are paid or incurred. 3

‘‘(b) S

PECIFIED

ESEARCH OR

XPERIMENTAL

-4

PENDITURES

.—For purposes of this section, the term 5

‘specified research or experimental expenditures’ means, 6

with respect to any taxable year, research or experimental 7

expenditures which are paid or incurred by the taxpayer 8

during such taxable year in connection with the taxpayer’s 9

trade or business. 10

‘‘(c) S

PECIAL

ULES

.— 11

‘‘(1) L

AND AND OTHER PROPERTY

.—This sec-12

tion shall not apply to any expenditure for the acqui-13

sition or improvement of land, or for the acquisition 14

or improvement of property to be used in connection 15

with the research or experimentation and of a char-16

acter which is subject to the allowance under section 17

167 (relating to allowance for depreciation, etc.) or 18

section 611 (relating to allowance for depletion); but 19

for purposes of this section allowances under section 20

167, and allowances under section 611, shall be con-21

sidered as expenditures. 22

‘‘(2) E

XPLORATION EXPENDITURES

.—This sec-23

tion shall not apply to any expenditure paid or in-24

curred for the purpose of ascertaining the existence, 25

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159

location, extent, or quality of any deposit of ore or 1

other mineral (including oil and gas). 2

‘‘(3) S

OFTWARE DEVELOPMENT

.—For purposes 3

of this section, any amount paid or incurred in con-4

nection with the development of any software shall 5

be treated as a research or experimental expendi-6

ture. 7

‘‘(d) T

REATMENT

PON

ISPOSITION

, R

ETIREMENT

, 8

BANDONMENT

.—If any property with respect to 9

which specified research or experimental expenditures are 10

paid or incurred is disposed, retired, or abandoned during 11

the period during which such expenditures are allowed as 12

an amortization deduction under this section, no deduction 13

shall be allowed with respect to such expenditures on ac-14

count of such disposition, retirement, or abandonment and 15

such amortization deduction shall continue with respect to 16

such expenditures.’’. 17

(b) C

HANGE IN

ETHOD OF

CCOUNTING

.—The 18

amendments made by subsection (a) shall be treated as 19

a change in method of accounting for purposes of section 20

481 of the Internal Revenue Code of 1986 and— 21

(1) such change shall be treated as initiated by 22

the taxpayer, 23

(2) such change shall be treated as made with 24

the consent of the Secretary, and 25

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160

(3) such change shall be applied only on a cut- 1

off basis for any research or experimental expendi-2

tures paid or incurred in taxable years beginning 3

after December 31, 2021, and no adjustments under 4

section 481(a) shall be made. 5

LERICAL

MENDMENT

.—The table of sections 6

for part VI of subchapter B of chapter 1 is amended by 7

striking the item relating to section 174 and inserting the 8

following new item: 9

‘‘Sec. 174. Amortization of research and experimental expenditures.’’.

(d) C

ONFORMING

MENDMENTS

.— 10

(1) Section 41(d)(1)(A) is amended by striking 11

‘‘expenses under section 174’’ and inserting ‘‘speci-12

fied research or experimental expenditures under 13

section 174’’. 14

(2) Subsection (c) of section 280C is amend-15

ed— 16

(A) by striking paragraph (1) and insert-17

ing the following: 18

‘‘(1) I

N GENERAL

.—If— 19

‘‘(A) the amount of the credit determined 20

for the taxable year under section 41(a)(1), ex-21

ceeds 22

‘‘(B) the amount allowable as a deduction 23

for such taxable year for qualified research ex-24

penses or basic research expenses, 25

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161

the amount chargeable to capital account for the 1

taxable year for such expenses shall be reduced by 2

the amount of such excess.’’, 3

(B) by striking paragraph (2), 4

amended by this Act) and (4) as paragraphs (2) 6

and (3), respectively, and 7

(D) in paragraph (2), as redesignated by 8

subparagraph (C), by striking ‘‘paragraphs (1) 9

and (2)’’ and inserting ‘‘paragraph (1)’’. 10

(e) E

FFECTIVE

ATE

.—The amendments made by 11

this section shall apply to amounts paid or incurred in tax-12

able years beginning after December 31, 2021. 13

SEC. 13207. EXPENSING OF CERTAIN COSTS OF REPLANT-14

ING CITRUS PLANTS LOST BY REASON OF 15

CASUALTY. 16

(a) I

ENERAL

.—Section 263A(d)(2) is amended 17

by adding at the end the following new subparagraph: 18

‘‘(C) S

PECIAL TEMPORARY RULE FOR CIT

-19

RUS PLANTS LOST BY REASON OF CASUALTY

.— 20

‘‘(i) I

N GENERAL

.—In the case of the 21

replanting of citrus plants, subparagraph 22

(A) shall apply to amounts paid or in-23

curred by a person (other than the tax-24

payer described in subparagraph (A)) if— 25

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162

‘‘(I) the taxpayer described in 1

subparagraph (A) has an equity inter-2

est of not less than 50 percent in the 3

replanted citrus plants at all times 4

during the taxable year in which such 5

amounts were paid or incurred and 6

such other person holds any part of 7

the remaining equity interest, or 8

‘‘(II) such other person acquired 9

the entirety of such taxpayer’s equity 10

interest in the land on which the lost 11

or damaged citrus plants were located 12

at the time of such loss or damage, 13

and the replanting is on such land. 14

‘‘(ii) T

ERMINATION

.—Clause (i) shall 15

not apply to any cost paid or incurred 16

after the date which is 10 years after the 17

date of the enactment of the Tax Cuts and 18

Jobs Act.’’. 19

(b) E

FFECTIVE

ATE

.—The amendment made by 20

this section shall apply to costs paid or incurred after the 21

date of the enactment of this Act. 22

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163

Subpart B—Accounting Methods 1

SEC. 13221. CERTAIN SPECIAL RULES FOR TAXABLE YEAR 2

OF INCLUSION. 3

(a) I

NCLUSION

ATER

HAN FOR

INANCIAL

CCOUNTING

URPOSES

.—Section 451 is amended by re-5

designating subsections (b) through (i) as subsections (c) 6

through (j), respectively, and by inserting after subsection 7

(a) the following new subsection: 8

‘‘(b) I

NCLUSION

ATER

HAN FOR

INANCIAL

CCOUNTING

URPOSES

.— 10

‘‘(1) I

NCOME TAKEN INTO ACCOUNT IN FINAN

-11

CIAL STATEMENT

.— 12

‘‘(A) I

N GENERAL

.—In the case of a tax-13

payer the taxable income of which is computed 14

under an accrual method of accounting, the all 15

events test with respect to any item of gross in-16

come (or portion thereof) shall not be treated as 17

met any later than when such item (or portion 18

thereof) is taken into account as revenue in— 19

‘‘(i) an applicable financial statement 20

of the taxpayer, or 21

‘‘(ii) such other financial statement as 22

the Secretary may specify for purposes of 23

this subsection. 24

‘‘(B) E

XCEPTION

.—This paragraph shall 25

not apply to— 26

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164

‘‘(i) a taxpayer which does not have a 1

financial statement described in clause (i) 2

or (ii) of subparagraph (A) for a taxable 3

year, or 4

‘‘(ii) any item of gross income in con-5

nection with a mortgage servicing contract. 6

‘‘(C) A

LL EVENTS TEST

.—For purposes of 7

this section, the all events test is met with re-8

spect to any item of gross income if all the 9

events have occurred which fix the right to re-10

ceive such income and the amount of such in-11

come can be determined with reasonable accu-12

racy. 13

‘‘(2) C

OORDINATION WITH SPECIAL METHODS

OF ACCOUNTING

.—Paragraph (1) shall not apply 15

with respect to any item of gross income for which 16

the taxpayer uses a special method of accounting 17

provided under any other provision of this chapter, 18

other than any provision of part V of subchapter P 19

(except as provided in clause (ii) of paragraph 20

(1)(B)). 21

‘‘(3) A

PPLICABLE FINANCIAL STATEMENT

.— 22

For purposes of this subsection, the term ‘applicable 23

financial statement’ means— 24

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165

‘‘(A) a financial statement which is cer-1

tified as being prepared in accordance with gen-2

erally accepted accounting principles and which 3

is— 4

‘‘(i) a 10–K (or successor form), or 5

annual statement to shareholders, required 6

to be filed by the taxpayer with the United 7

States Securities and Exchange Commis-8

sion, 9

‘‘(ii) an audited financial statement of 10

the taxpayer which is used for— 11

‘‘(I) credit purposes, 12

‘‘(II) reporting to shareholders, 13

partners, or other proprietors, or to 14

beneficiaries, or 15

‘‘(III) any other substantial 16

nontax purpose, 17

but only if there is no statement of the 18

taxpayer described in clause (i), or 19

‘‘(iii) filed by the taxpayer with any 20

other Federal agency for purposes other 21

than Federal tax purposes, but only if 22

there is no statement of the taxpayer de-23

scribed in clause (i) or (ii), 24

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166

‘‘(B) a financial statement which is made 1

on the basis of international financial reporting 2

standards and is filed by the taxpayer with an 3

agency of a foreign government which is equiva-4

lent to the United States Securities and Ex-5

change Commission and which has reporting 6

standards not less stringent than the standards 7

required by such Commission, but only if there 8

is no statement of the taxpayer described in 9

subparagraph (A), or 10

‘‘(C) a financial statement filed by the tax-11

payer with any other regulatory or govern-12

mental body specified by the Secretary, but only 13

if there is no statement of the taxpayer de-14

scribed in subparagraph (A) or (B). 15

‘‘(4) A

LLOCATION OF TRANSACTION PRICE

.— 16

For purposes of this subsection, in the case of a con-17

tract which contains multiple performance obliga-18

tions, the allocation of the transaction price to each 19

performance obligation shall be equal to the amount 20

allocated to each performance obligation for pur-21

poses of including such item in revenue in the appli-22

cable financial statement of the taxpayer. 23

‘‘(5) G

ROUP OF ENTITIES

.—For purposes of 24

paragraph (1), if the financial results of a taxpayer 25

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167

are reported on the applicable financial statement 1

(as defined in paragraph (3)) for a group of entities, 2

such statement shall be treated as the applicable fi-3

nancial statement of the taxpayer.’’. 4

(b) T

REATMENT OF

DVANCE

AYMENTS

.—Section 5

451, as amended by subsection (a), is amended by redesig-6

nating subsections (c) through (j) as subsections (d) 7

through (k), respectively, and by inserting after subsection 8

(b) the following new subsection: 9

‘‘(c) T

REATMENT OF

DVANCE

AYMENTS

.— 10

‘‘(1) I

N GENERAL

.—A taxpayer which computes 11

taxable income under the accrual method of account-12

ing, and receives any advance payment during the 13

taxable year, shall— 14

‘‘(A) except as provided in subparagraph 15

(B), include such advance payment in gross in-16

come for such taxable year, or 17

‘‘(B) if the taxpayer elects the application 18

of this subparagraph with respect to the cat-19

egory of advance payments to which such ad-20

vance payment belongs, the taxpayer shall— 21

‘‘(i) to the extent that any portion of 22

such advance payment is required under 23

subsection (b) to be included in gross in-24

come in the taxable year in which such 25

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168

payment is received, so include such por-1

tion, and 2

‘‘(ii) include the remaining portion of 3

such advance payment in gross income in 4

the taxable year following the taxable year 5

in which such payment is received. 6

‘‘(2) E

LECTION

.— 7

‘‘(A) I

N GENERAL

.—Except as otherwise 8

provided in this paragraph, the election under 9

paragraph (1)(B) shall be made at such time, 10

in such form and manner, and with respect to 11

such categories of advance payments, as the 12

Secretary may provide. 13

‘‘(B) P

ERIOD TO WHICH ELECTION AP

-14

PLIES

.—An election under paragraph (1)(B) 15

shall be effective for the taxable year with re-16

spect to which it is first made and for all subse-17

quent taxable years, unless the taxpayer secures 18

the consent of the Secretary to revoke such 19

election. For purposes of this title, the com-20

putation of taxable income under an election 21

made under paragraph (1)(B) shall be treated 22

as a method of accounting. 23

‘‘(3) T

AXPAYERS CEASING TO EXIST

.—Except 24

as otherwise provided by the Secretary, the election 25

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169

under paragraph (1)(B) shall not apply with respect 1

to advance payments received by the taxpayer during 2

a taxable year if such taxpayer ceases to exist during 3

(or with the close of) such taxable year. 4

‘‘(4) A

DVANCE PAYMENT

.—For purposes of this 5

subsection— 6

‘‘(A) I

N GENERAL

.—The term ‘advance 7

payment’ means any payment— 8

‘‘(i) the full inclusion of which in the 9

gross income of the taxpayer for the tax-10

able year of receipt is a permissible method 11

of accounting under this section (deter-12

mined without regard to this subsection), 13

‘‘(ii) any portion of which is included 14

in revenue by the taxpayer in a financial 15

statement described in clause (i) or (ii) of 16

subsection (b)(1)(A) for a subsequent tax-17

able year, and 18

‘‘(iii) which is for goods, services, or 19

such other items as may be identified by 20

the Secretary for purposes of this clause. 21

‘‘(B) E

XCLUSIONS

.—Except as otherwise 22

provided by the Secretary, such term shall not 23

include— 24

‘‘(i) rent, 25

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170

‘‘(ii) insurance premiums governed by 1

subchapter L, 2

‘‘(iii) payments with respect to finan-3

cial instruments, 4

‘‘(iv) payments with respect to war-5

ranty or guarantee contracts under which 6

a third party is the primary obligor, 7

‘‘(v) payments subject to section 8

871(a), 881, 1441, or 1442, 9

‘‘(vi) payments in property to which 10

section 83 applies, and 11

‘‘(vii) any other payment identified by 12

the Secretary for purposes of this subpara-13

graph. 14

‘‘(C) R

ECEIPT

.—For purposes of this sub-15

section, an item of gross income is received by 16

the taxpayer if it is actually or constructively 17

received, or if it is due and payable to the tax-18

payer. 19

‘‘(D) A

LLOCATION OF TRANSACTION

PRICE

.—For purposes of this subsection, rules 21

similar to subsection (b)(4) shall apply.’’. 22

FFECTIVE

ATE

.—The amendments made by 23

this section shall apply to taxable years beginning after 24

December 31, 2017. 25

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171

(d) C

OORDINATION

ITH

ECTION

481.— 1

(1) I

N GENERAL

.—In the case of any qualified 2

change in method of accounting for the taxpayer’s 3

first taxable year beginning after December 31, 4

2017— 5

(A) such change shall be treated as initi-6

ated by the taxpayer, and 7

(B) such change shall be treated as made 8

with the consent of the Secretary of the Treas-9

ury. 10

(2) Q

UALIFIED CHANGE IN METHOD OF AC

-11

COUNTING

.—For purposes of this subsection, the 12

term ‘‘qualified change in method of accounting’’ 13

means any change in method of accounting which— 14

(A) is required by the amendments made 15

by this section, or 16

(B) was prohibited under the Internal Rev-17

enue Code of 1986 prior to such amendments 18

and is permitted under such Code after such 19

amendments. 20

(e) S

PECIAL

ULES FOR

RIGINAL

SSUE

-21

COUNT

.—Notwithstanding subsection (c), in the case of 22

income from a debt instrument having original issue dis-23

count— 24

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172

(1) the amendments made by this section shall 1

apply to taxable years beginning after December 31, 2

2018, and 3

(2) the period for taking into account any ad-4

justments under section 481 by reason of a qualified 5

change in method of accounting (as defined in sub-6

section (d)) shall be 6 years. 7

PART IV—BUSINESS-RELATED EXCLUSIONS AND 8

DEDUCTIONS 9

SEC. 13301. LIMITATION ON DEDUCTION FOR INTEREST. 10

(a) I

ENERAL

.—Section 163(j) is amended to read 11

as follows: 12

‘‘(j) L

IMITATION ON

USINESS

NTEREST

.— 13

‘‘(1) I

N GENERAL

.—The amount allowed as a 14

deduction under this chapter for any taxable year 15

for business interest shall not exceed the sum of— 16

‘‘(A) the business interest income of such 17

taxpayer for such taxable year, 18

‘‘(B) 30 percent of the adjusted taxable in-19

come of such taxpayer for such taxable year, 20

plus 21

‘‘(C) the floor plan financing interest of 22

such taxpayer for such taxable year. 23

The amount determined under subparagraph (B) 24

shall not be less than zero. 25

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173

‘‘(2) C

ARRYFORWARD OF DISALLOWED BUSI

-1

NESS INTEREST

.—The amount of any business in-2

terest not allowed as a deduction for any taxable 3

year by reason of paragraph (1) shall be treated as 4

business interest paid or accrued in the succeeding 5

taxable year. 6

‘‘(3) E

XEMPTION FOR CERTAIN SMALL BUSI

-7

NESSES

.—In the case of any taxpayer (other than a 8

tax shelter prohibited from using the cash receipts 9

and disbursements method of accounting under sec-10

tion 448(a)(3)) which meets the gross receipts test 11

of section 448(c) for any taxable year, paragraph (1) 12

shall not apply to such taxpayer for such taxable 13

year. In the case of any taxpayer which is not a cor-14

poration or a partnership, the gross receipts test of 15

section 448(c) shall be applied in the same manner 16

as if such taxpayer were a corporation or partner-17

ship. 18

‘‘(4) A

PPLICATION TO PARTNERSHIPS

ETC

.— 19

‘‘(A) I

N GENERAL

.—In the case of any 20

partnership— 21

‘‘(i) this subsection shall be applied at 22

the partnership level and any deduction for 23

business interest shall be taken into ac-24

count in determining the non-separately 25

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174

stated taxable income or loss of the part-1

nership, and 2

‘‘(ii) the adjusted taxable income of 3

each partner of such partnership— 4

‘‘(I) shall be determined without 5

regard to such partner’s distributive 6

share of any items of income, gain, 7

deduction, or loss of such partnership, 8

and 9

‘‘(II) shall be increased by such 10

partner’s distributive share of such 11

partnership’s excess taxable income. 12

For purposes of clause (ii)(II), a partner’s 13

distributive share of partnership excess 14

taxable income shall be determined in the 15

same manner as the partner’s distributive 16

share of nonseparately stated taxable in-17

come or loss of the partnership. 18

‘‘(B) S

PECIAL RULES FOR

CARRYFORWARDS

.— 20

‘‘(i) I

N GENERAL

.—The amount of 21

any business interest not allowed as a de-22

duction to a partnership for any taxable 23

year by reason of paragraph (1) for any 24

taxable year— 25

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175

‘‘(I) shall not be treated under 1

paragraph (2) as business interest 2

paid or accrued by the partnership in 3

the succeeding taxable year, and 4

‘‘(II) shall, subject to clause (ii), 5

be treated as excess business interest 6

which is allocated to each partner in 7

the same manner as the non-sepa-8

rately stated taxable income or loss of 9

the partnership. 10

‘‘(ii) T

REATMENT OF EXCESS BUSI

-11

NESS INTEREST ALLOCATED TO PART

-12

NERS

.—If a partner is allocated any excess 13

business interest from a partnership under 14

clause (i) for any taxable year— 15

‘‘(I) such excess business interest 16

shall be treated as business interest 17

paid or accrued by the partner in the 18

next succeeding taxable year in which 19

the partner is allocated excess taxable 20

income from such partnership, but 21

only to the extent of such excess tax-22

able income, and 23

‘‘(II) any portion of such excess 24

business interest remaining after the 25

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176

application of subclause (I) shall, sub-1

ject to the limitations of subclause (I), 2

be treated as business interest paid or 3

accrued in succeeding taxable years. 4

For purposes of applying this paragraph, 5

excess taxable income allocated to a part-6

ner from a partnership for any taxable 7

year shall not be taken into account under 8

paragraph (1)(A) with respect to any busi-9

ness interest other than excess business in-10

terest from the partnership until all such 11

excess business interest for such taxable 12

year and all preceding taxable years has 13

been treated as paid or accrued under 14

clause (ii). 15

‘‘(iii) B

ASIS ADJUSTMENTS

.— 16

‘‘(I) I

N GENERAL

.—The adjusted 17

basis of a partner in a partnership in-18

terest shall be reduced (but not below 19

zero) by the amount of excess busi-20

ness interest allocated to the partner 21

under clause (i)(II). 22

‘‘(II) S

PECIAL RULE FOR DIS

-23

POSITIONS

.—If a partner disposes of 24

a partnership interest, the adjusted 25

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177

basis of the partner in the partnership 1

interest shall be increased immediately 2

before the disposition by the amount 3

of the excess (if any) of the amount of 4

the basis reduction under subclause 5

(I) over the portion of any excess 6

business interest allocated to the part-7

ner under clause (i)(II) which has pre-8

viously been treated under clause (ii) 9

as business interest paid or accrued 10

by the partner. The preceding sen-11

tence shall also apply to transfers of 12

the partnership interest (including by 13

reason of death) in a transaction in 14

which gain is not recognized in whole 15

or in part. No deduction shall be al-16

lowed to the transferor or transferee 17

under this chapter for any excess 18

business interest resulting in a basis 19

increase under this subclause. 20

‘‘(C) E

XCESS TAXABLE INCOME

.—The 21

term ‘excess taxable income’ means, with re-22

spect to any partnership, the amount which 23

bears the same ratio to the partnership’s ad-24

justed taxable income as— 25

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178

‘‘(i) the excess (if any) of— 1

‘‘(I) the amount determined for 2

the partnership under paragraph 3

(1)(B), over 4

‘‘(II) the amount (if any) by 5

which the business interest of the 6

partnership, reduced by the floor plan 7

financing interest, exceeds the busi-8

ness interest income of the partner-9

ship, bears to 10

‘‘(ii) the amount determined for the 11

partnership under paragraph (1)(B). 12

‘‘(D) A

PPLICATION TO S CORPORATIONS

.— 13

Rules similar to the rules of subparagraphs (A) 14

and (C) shall apply with respect to any S cor-15

poration and its shareholders. 16

‘‘(5) B

USINESS INTEREST

.—For purposes of 17

this subsection, the term ‘business interest’ means 18

any interest paid or accrued on indebtedness prop-19

erly allocable to a trade or business. Such term shall 20

not include investment interest (within the meaning 21

of subsection (d)). 22

‘‘(6) B

USINESS INTEREST INCOME

.—For pur-23

poses of this subsection, the term ‘business interest 24

income’ means the amount of interest includible in 25

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179

the gross income of the taxpayer for the taxable year 1

which is properly allocable to a trade or business. 2

Such term shall not include investment income 3

(within the meaning of subsection (d)). 4

‘‘(7) T

RADE OR BUSINESS

.—For purposes of 5

this subsection— 6

‘‘(A) I

N GENERAL

.—The term ‘trade or 7

business’ shall not include— 8

‘‘(i) the trade or business of per-9

forming services as an employee, 10

‘‘(ii) any electing real property trade 11

or business, 12

‘‘(iii) any electing farming business, 13

or 14

‘‘(iv) the trade or business of the fur-15

nishing or sale of— 16

‘‘(I) electrical energy, water, or 17

sewage disposal services, 18

‘‘(II) gas or steam through a 19

local distribution system, or 20

‘‘(III) transportation of gas or 21

steam by pipeline, 22

if the rates for such furnishing or sale, as 23

the case may be, have been established or 24

approved by a State or political subdivision 25

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180

thereof, by any agency or instrumentality 1

of the United States, by a public service or 2

public utility commission or other similar 3

body of any State or political subdivision 4

thereof, or by the governing or ratemaking 5

body of an electric cooperative. 6

‘‘(B) E

LECTING REAL PROPERTY TRADE

OR BUSINESS

.—For purposes of this paragraph, 8

the term ‘electing real property trade or busi-9

ness’ means any trade or business which is de-10

scribed in section 469(c)(7)(C) and which 11

makes an election under this subparagraph. 12

Any such election shall be made at such time 13

and in such manner as the Secretary shall pre-14

scribe, and, once made, shall be irrevocable. 15

‘‘(C) E

LECTING FARMING BUSINESS

.—For 16

purposes of this paragraph, the term ‘electing 17

farming business’ means— 18

‘‘(i) a farming business (as defined in 19

section 263A(e)(4)) which makes an elec-20

tion under this subparagraph, or 21

‘‘(ii) any trade or business of a speci-22

fied agricultural or horticultural coopera-23

tive (as defined in section 199A(g)(2)) 24

with respect to which the cooperative 25

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181

makes an election under this subpara-1

graph. 2

Any such election shall be made at such time 3

and in such manner as the Secretary shall pre-4

scribe, and, once made, shall be irrevocable. 5

‘‘(8) A

DJUSTED TAXABLE INCOME

.—For pur-6

poses of this subsection, the term ‘adjusted taxable 7

income’ means the taxable income of the taxpayer— 8

‘‘(A) computed without regard to— 9

‘‘(i) any item of income, gain, deduc-10

tion, or loss which is not properly allocable 11

to a trade or business, 12

‘‘(ii) any business interest or business 13

interest income, 14

‘‘(iii) the amount of any net operating 15

loss deduction under section 172, 16

‘‘(iv) the amount of any deduction al-17

lowed under section 199A, and 18

‘‘(v) in the case of taxable years be-19

ginning before January 1, 2022, any de-20

duction allowable for depreciation, amorti-21

zation, or depletion, and 22

‘‘(B) computed with such other adjust-23

ments as provided by the Secretary. 24

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‘‘(9) F

LOOR PLAN FINANCING INTEREST DE

-1

FINED

.—For purposes of this subsection— 2

‘‘(A) I

N GENERAL

.—The term ‘floor plan 3

financing interest’ means interest paid or ac-4

crued on floor plan financing indebtedness. 5

‘‘(B) F

LOOR PLAN FINANCING INDEBTED

-6

NESS

.—The term ‘floor plan financing indebt-7

edness’ means indebtedness— 8

‘‘(i) used to finance the acquisition of 9

motor vehicles held for sale or lease, and 10

‘‘(ii) secured by the inventory so ac-11

quired. 12

‘‘(C) M

OTOR VEHICLE

.—The term ‘motor 13

vehicle’ means a motor vehicle that is any of 14

the following: 15

‘‘(i) Any self-propelled vehicle de-16

signed for transporting persons or property 17

on a public street, highway, or road. 18

‘‘(ii) A boat. 19

‘‘(iii) Farm machinery or equipment. 20

‘‘(10) C

ROSS REFERENCES

.— 21

‘‘(A) For requirement that an electing real 22

property trade or business use the alternative 23

depreciation system, see section 168(g)(1)(F). 24

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183

‘‘(B) For requirement that an electing 1

farming business use the alternative deprecia-2

tion system, see section 168(g)(1)(G).’’. 3

(b) T

REATMENT OF

ARRYFORWARD OF

-4

ALLOWED

USINESS

NTEREST IN

ERTAIN

ORPORATE

CQUISITIONS

.— 6

(1) I

N GENERAL

.—Section 381(c) is amended 7

by inserting after paragraph (19) the following new 8

paragraph: 9

‘‘(20) C

ARRYFORWARD OF DISALLOWED BUSI

-10

NESS INTEREST

.—The carryover of disallowed busi-11

ness interest described in section 163(j)(2) to tax-12

able years ending after the date of distribution or 13

transfer.’’. 14

(2) A

PPLICATION OF LIMITATION

.—Section 15

382(d) is amended by adding at the end the fol-16

lowing new paragraph: 17

‘‘(3) A

PPLICATION TO CARRYFORWARD OF DIS

-18

ALLOWED INTEREST

.—The term ‘pre-change loss’ 19

shall include any carryover of disallowed interest de-20

scribed in section 163(j)(2) under rules similar to 21

the rules of paragraph (1).’’. 22

(3) C

ONFORMING AMENDMENT

.—Section 23

382(k)(1) is amended by inserting after the first 24

sentence the following: ‘‘Such term shall include any 25

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corporation entitled to use a carryforward of dis-1

allowed interest described in section 381(c)(20).’’. 2

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

SEC. 13302. MODIFICATION OF NET OPERATING LOSS DE-6

DUCTION. 7

(a) L

IMITATION ON

EDUCTION

.— 8

(1) I

N GENERAL

.—Section 172(a) is amended 9

to read as follows: 10

‘‘(a) D

EDUCTION

LLOWED

.—There shall be allowed 11

as a deduction for the taxable year an amount equal to 12

the lesser of— 13

‘‘(1) the aggregate of the net operating loss 14

carryovers to such year, plus the net operating loss 15

carrybacks to such year, or 16

‘‘(2) 80 percent of taxable income computed 17

without regard to the deduction allowable under this 18

section. 19

For purposes of this subtitle, the term ‘net operating loss 20

deduction’ means the deduction allowed by this sub-21

section.’’. 22

(2) C

OORDINATION OF LIMITATION WITH

CARRYBACKS AND CARRYOVERS

.—Section 172(b)(2) 24

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185

is amended by striking ‘‘shall be computed—’’ and 1

all that follows and inserting ‘‘shall— 2

‘‘(A) be computed with the modifications 3

specified in subsection (d) other than para-4

graphs (1), (4), and (5) thereof, and by deter-5

mining the amount of the net operating loss de-6

duction without regard to the net operating loss 7

for the loss year or for any taxable year there-8

after, 9

‘‘(B) not be considered to be less than 10

zero, and 11

‘‘(C) not exceed the amount determined 12

under subsection (a)(2) for such prior taxable 13

year.’’. 14

(3) C

ONFORMING AMENDMENT

.—Section 15

172(d)(6) is amended by striking ‘‘and’’ at the end 16

of subparagraph (A), by striking the period at the 17

end of subparagraph (B) and inserting ‘‘; and’’, and 18

by adding at the end the following new subpara-19

graph: 20

‘‘(C) subsection (a)(2) shall be applied by 21

substituting ‘real estate investment trust tax-22

able income (as defined in section 857(b)(2) but 23

without regard to the deduction for dividends 24

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186

paid (as defined in section 561))’ for ‘taxable 1

income’.’’. 2

(b) R

EPEAL OF

PERATING

OSS

ARRYBACK

; 3

NDEFINITE

ARRYFORWARD

.— 4

(1) I

N GENERAL

.—Section 172(b)(1)(A) is 5

amended— 6

(A) by striking ‘‘shall be a net operating 7

loss carryback to each of the 2 taxable years’’ 8

in clause (i) and inserting ‘‘except as otherwise 9

provided in this paragraph, shall not be a net 10

operating loss carryback to any taxable year’’, 11

and 12

(B) by striking ‘‘to each of the 20 taxable 13

years’’ in clause (ii) and inserting ‘‘to each tax-14

able year’’. 15

(2) C

ONFORMING AMENDMENT

.—Section 16

172(b)(1) is amended by striking subparagraphs (B) 17

through (F). 18

REATMENT OF

ARMING

OSSES

.— 19

(1) A

LLOWANCE OF CARRYBACKS

.—Section 20

172(b)(1), as amended by subsection (b)(2), is 21

amended by adding at the end the following new 22

subparagraph: 23

‘‘(B) F

ARMING LOSSES

.— 24

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‘‘(i) I

N GENERAL

.—In the case of any 1

portion of a net operating loss for the tax-2

able year which is a farming loss with re-3

spect to the taxpayer, such loss shall be a 4

net operating loss carryback to each of the 5

2 taxable years preceding the taxable year 6

of such loss. 7

‘‘(ii) F

ARMING LOSS

.—For purposes 8

of this section, the term ‘farming loss’ 9

means the lesser of— 10

‘‘(I) the amount which would be 11

the net operating loss for the taxable 12

year if only income and deductions at-13

tributable to farming businesses (as 14

defined in section 263A(e)(4)) are 15

taken into account, or 16

‘‘(II) the amount of the net oper-17

ating loss for such taxable year. 18

‘‘(iii) C

OORDINATION WITH PARA

-19

GRAPH (2)

.—For purposes of applying 20

paragraph (2), a farming loss for any tax-21

able year shall be treated as a separate net 22

operating loss for such taxable year to be 23

taken into account after the remaining 24

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188

portion of the net operating loss for such 1

taxable year. 2

‘‘(iv) E

LECTION

.—Any taxpayer enti-3

tled to a 2-year carryback under clause (i) 4

from any loss year may elect not to have 5

such clause apply to such loss year. Such 6

election shall be made in such manner as 7

prescribed by the Secretary and shall be 8

made by the due date (including extensions 9

of time) for filing the taxpayer’s return for 10

the taxable year of the net operating loss. 11

Such election, once made for any taxable 12

year, shall be irrevocable for such taxable 13

year.’’. 14

(2) C

ONFORMING AMENDMENTS

.— 15

(A) Section 172 is amended by striking 16

subsections (f), (g), and (h), and by redesig-17

nating subsection (i) as subsection (f). 18

(B) Section 537(b)(4) is amended by in-19

serting ‘‘(as in effect before the date of enact-20

ment of the Tax Cuts and Jobs Act)’’ after ‘‘as 21

defined in section 172(f)’’. 22

(d) T

REATMENT OF

ERTAIN

NSURANCE

OSSES

.— 23

(1) T

REATMENT OF CARRYFORWARDS AND

CARRYBACKS

.—Section 172(b)(1), as amended by 25

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189

subsections (b)(2) and (c)(1), is amended by adding 1

at the end the following new subparagraph: 2

‘‘(C) I

NSURANCE COMPANIES

.—In the case 3

of an insurance company (as defined in section 4

816(a)) other than a life insurance company, 5

the net operating loss for any taxable year— 6

‘‘(i) shall be a net operating loss 7

carryback to each of the 2 taxable years 8

preceding the taxable year of such loss, 9

and 10

‘‘(ii) shall be a net operating loss car-11

ryover to each of the 20 taxable years fol-12

lowing the taxable year of the loss.’’. 13

(2) E

XEMPTION FROM LIMITATION

.—Section 14

172, as amended by subsection (c)(2)(A), is amend-15

ed by redesignating subsection (f) as subsection (g) 16

and inserting after subsection (e) the following new 17

subsection: 18

‘‘(f) S

PECIAL

ULE FOR

NSURANCE

OMPANIES

.— 19

In the case of an insurance company (as defined in section 20

816(a)) other than a life insurance company— 21

‘‘(1) the amount of the deduction allowed under 22

subsection (a) shall be the aggregate of the net oper-23

ating loss carryovers to such year, plus the net oper-24

ating loss carrybacks to such year, and 25

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190

‘‘(2) subparagraph (C) of subsection (b)(2) 1

shall not apply.’’. 2

(e) E

FFECTIVE

ATE

.— 3

(1) N

ET OPERATING LOSS LIMITATION

.—The 4

amendments made by subsections (a) and (d)(2) 5

shall apply to losses arising in taxable years begin-6

ning after December 31, 2017. 7

(2) C

ARRYFORWARDS AND CARRYBACKS

.—The 8

amendments made by subsections (b), (c), and 9

(d)(1) shall apply to net operating losses arising in 10

taxable years ending after December 31, 2017. 11

SEC. 13303. LIKE-KIND EXCHANGES OF REAL PROPERTY. 12

(a) I

ENERAL

.—Section 1031(a)(1) is amended by 13

striking ‘‘property’’ each place it appears and inserting 14

‘‘real property’’. 15

(b) C

ONFORMING

MENDMENTS

.— 16

(1)(A) Paragraph (2) of section 1031(a) is 17

amended to read as follows: 18

‘‘(2) E

XCEPTION FOR REAL PROPERTY HELD

FOR SALE

.—This subsection shall not apply to any 20

exchange of real property held primarily for sale.’’. 21

(B) Section 1031 is amended by striking sub-22

section (i). 23

(2) Section 1031 is amended by striking sub-24

section (e). 25

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191

(3) Section 1031, as amended by paragraph 1

(2), is amended by inserting after subsection (d) the 2

following new subsection: 3

‘‘(e) A

PPLICATION TO

ERTAIN

ARTNERSHIPS

.— 4

For purposes of this section, an interest in a partnership 5

which has in effect a valid election under section 761(a) 6

to be excluded from the application of all of subchapter 7

K shall be treated as an interest in each of the assets of 8

such partnership and not as an interest in a partnership.’’. 9

(4) Section 1031(h) is amended to read as fol-10

lows: 11

‘‘(h) S

PECIAL

ULES FOR

OREIGN

EAL

ROP

-12

ERTY

.—Real property located in the United States and 13

real property located outside the United States are not 14

property of a like kind.’’. 15

(5) The heading of section 1031 is amended by 16

striking ‘‘

PROPERTY

’’ and inserting ‘‘

REAL PROP

-17

ERTY

’’. 18

(6) The table of sections for part III of sub-19

chapter O of chapter 1 is amended by striking the 20

item relating to section 1031 and inserting the fol-21

lowing new item: 22

‘‘Sec. 1031. Exchange of real property held for productive use or investment.’’.

FFECTIVE

ATE

.— 23

(1) I

N GENERAL

.—Except as otherwise pro-24

vided in this subsection, the amendments made by 25

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192

this section shall apply to exchanges completed after 1

December 31, 2017. 2

(2) T

RANSITION RULE

.—The amendments 3

made by this section shall not apply to any exchange 4

if— 5

(A) the property disposed of by the tax-6

payer in the exchange is disposed of on or be-7

fore December 31 2017, or 8

(B) the property received by the taxpayer 9

in the exchange is received on or before Decem-10

ber 31, 2017. 11

SEC. 13304. LIMITATION ON DEDUCTION BY EMPLOYERS OF 12

EXPENSES FOR FRINGE BENEFITS. 13

(a) N

EDUCTION

LLOWED FOR

NTERTAINMENT

XPENSES

.— 15

(1) I

N GENERAL

.—Section 274(a) is amend-16

ed— 17

(A) in paragraph (1)(A), by striking ‘‘un-18

less’’ and all that follows through ‘‘trade or 19

business,’’, 20

(B) by striking the flush sentence at the 21

end of paragraph (1), and 22

(2) C

ONFORMING AMENDMENTS

.— 24

(A) Section 274(d) is amended— 25

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193

(i) by striking paragraph (2) and re-1

designating paragraphs (3) and (4) as 2

paragraphs (2) and (3), respectively, and 3

(ii) in the flush text following para-4

graph (3) (as so redesignated)— 5

(I) by striking ‘‘, entertainment, 6

amusement, recreation, or use of the 7

facility or property,’’ in item (B), and 8

(II) by striking ‘‘(D) the business 9

relationship to the taxpayer of persons 10

entertained, using the facility or prop-11

erty, or receiving the gift’’ and insert-12

ing ‘‘(D) the business relationship to 13

the taxpayer of the person receiving 14

the benefit’’, 15

(B) Section 274 is amended by striking 16

subsection (l). 17

‘‘

AND

NTERTAINMENT

’’ in the heading. 19

(D) Section 274(n)(1) is amended to read 20

as follows: 21

‘‘(1) I

N GENERAL

.—The amount allowable as a 22

deduction under this chapter for any expense for 23

food or beverages shall not exceed 50 percent of the 24

amount of such expense which would (but for this 25

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194

paragraph) be allowable as a deduction under this 1

chapter.’’. 2

(E) Section 274(n)(2) is amended— 3

(i) in subparagraph (B), by striking 4

‘‘in the case of an expense for food or bev-5

erages,’’, 6

(ii) by striking subparagraph (C) and 7

redesignating subparagraphs (D) and (E) 8

as subparagraphs (C) and (D), respec-9

tively, 10

(iii) by striking ‘‘of subparagraph 11

(E)’’ the last sentence and inserting ‘‘of 12

subparagraph (D)’’, and 13

(iv) by striking ‘‘in subparagraph 14

(D)’’ in the last sentence and inserting ‘‘in 15

subparagraph (C)’’. 16

(F) Clause (iv) of section 7701(b)(5)(A) is 17

amended to read as follows: 18

‘‘(iv) a professional athlete who is 19

temporarily in the United States to com-20

pete in a sports event— 21

‘‘(I) which is organized for the 22

primary purpose of benefiting an or-23

ganization which is described in sec-24

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195

tion 501(c)(3) and exempt from tax 1

under section 501(a), 2

‘‘(II) all of the net proceeds of 3

which are contributed to such organi-4

zation, and, 5

‘‘(III) which utilizes volunteers 6

for substantially all of the work per-7

formed in carrying out such event.’’. 8

(b) O

NLY

50 P

ERCENT OF

XPENSES FOR

EALS

ROVIDED ON OR

EAR

USINESS

REMISES

LLOWED

EDUCTION

.—Paragraph (2) of section 274(n), as 11

amended by subsection (a), is amended— 12

(1) by striking subparagraph (B), 13

(2) by redesignating subparagraphs (C) and 14

(D) as subparagraphs (B) and (C), respectively, 15

(3) by striking ‘‘of subparagraph (D)’’ in the 16

last sentence and inserting ‘‘of subparagraph (C)’’, 17

and 18

(4) by striking ‘‘in subparagraph (C)’’ in the 19

last sentence and inserting ‘‘in subparagraph (B)’’. 20

REATMENT OF

RANSPORTATION

ENEFITS

.— 21

Section 274, as amended by subsection (a), is amended— 22

(1) in subsection (a)— 23

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196

(A) in the heading, by striking ‘‘

ECREATION

’’ and inserting ‘‘R

ECREATION

UALIFIED

RANSPORTATION

RINGES

’’, and 3

(B) by adding at the end the following new 4

paragraph: 5

‘‘(4) Q

UALIFIED TRANSPORTATION FRINGES

.— 6

No deduction shall be allowed under this chapter for 7

the expense of any qualified transportation fringe 8

(as defined in section 132(f)) provided to an em-9

ployee of the taxpayer.’’, and 10

(2) by inserting after subsection (k) the fol-11

lowing new subsection: 12

‘‘(l) T

RANSPORTATION AND

OMMUTING

ENE

-13

FITS

.— 14

‘‘(1) I

N GENERAL

.—No deduction shall be al-15

lowed under this chapter for any expense incurred 16

for providing any transportation, or any payment or 17

reimbursement, to an employee of the taxpayer in 18

connection with travel between the employee’s resi-19

dence and place of employment, except as necessary 20

for ensuring the safety of the employee. 21

‘‘(2) E

XCEPTION

.—In the case of any qualified 22

bicycle commuting reimbursement (as described in 23

section 132(f)(5)(F)), this subsection shall not apply 24

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197

for any amounts paid or incurred after December 1

31, 2017, and before January 1, 2026.’’. 2

(d) E

LIMINATION OF

EDUCTION FOR

EALS

-3

VIDED AT

ONVENIENCE OF

MPLOYER

.—Section 274, as 4

amended by subsection (c), is amended— 5

(1) by redesignating subsection (o) as sub-6

section (p), and 7

(2) by inserting after subsection (n) the fol-8

lowing new subsection: 9

‘‘(o) M

EALS

ROVIDED AT

ONVENIENCE OF

-10

PLOYER

.—No deduction shall be allowed under this chap-11

ter for— 12

‘‘(1) any expense for the operation of a facility 13

described in section 132(e)(2), and any expense for 14

food or beverages, including under section 132(e)(1), 15

associated with such facility, or 16

‘‘(2) any expense for meals described in section 17

119(a).’’. 18

(e) E

FFECTIVE

ATE

.— 19

(1) I

N GENERAL

.—Except as provided in para-20

graph (2), the amendments made by this section 21

shall apply to amounts incurred or paid after De-22

cember 31, 2017. 23

(2) E

FFECTIVE DATE FOR ELIMINATION OF DE

-24

DUCTION FOR MEALS PROVIDED AT CONVENIENCE

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198

OF EMPLOYER

.—The amendments made by sub-1

section (d) shall apply to amounts incurred or paid 2

after December 31, 2025. 3

SEC. 13305. REPEAL OF DEDUCTION FOR INCOME ATTRIB-4

UTABLE TO DOMESTIC PRODUCTION ACTIVI-5

TIES. 6

(a) I

ENERAL

.—Part VI of subchapter B of chap-7

ter 1 is amended by striking section 199 (and by striking 8

the item relating to such section in the table of sections 9

for such part). 10

(b) C

ONFORMING

MENDMENTS

.— 11

(1) Sections 74(d)(2)(B), 86(b)(2)(A), 12

135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 13

221(b)(2)(C), 222(b)(2)(C), 246(b)(1), and 14

469(i)(3)(F)(iii) are each amended by striking 15

‘‘199,’’. 16

(2) Section 170(b)(2)(D), as amended by sub-17

title A, is amended by striking clause (iv), and by 18

redesignating clauses (v) and (vi) as clauses (iv) and 19

(v). 20

(3) Section 172(d) is amended by striking para-21

graph (7). 22

(4) Section 613(a), as amended by section 23

11011, is amended by striking ‘‘and without the de-24

duction under section 199’’. 25

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199

(5) Section 613A(d)(1), as amended by section 1

11011, is amended by striking subparagraph (B) 2

and by redesignating subparagraphs (C), (D), (E), 3

and (F) as subparagraphs (B), (C), (D), and (E), 4

respectively. 5

FFECTIVE

ATE

.—The amendments made by 6

this section shall apply to taxable years beginning after 7

December 31, 2017. 8

SEC. 13306. DENIAL OF DEDUCTION FOR CERTAIN FINES, 9

PENALTIES, AND OTHER AMOUNTS. 10

(a) D

ENIAL OF

EDUCTION

.— 11

(1) I

N GENERAL

.—Subsection (f) of section 162 12

is amended to read as follows: 13

‘‘(f) F

INES

, P

ENALTIES

AND

THER

MOUNTS

.— 14

‘‘(1) I

N GENERAL

.—Except as provided in the 15

following paragraphs of this subsection, no deduction 16

otherwise allowable shall be allowed under this chap-17

ter for any amount paid or incurred (whether by 18

suit, agreement, or otherwise) to, or at the direction 19

of, a government or governmental entity in relation 20

to the violation of any law or the investigation or in-21

quiry by such government or entity into the potential 22

violation of any law. 23

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200

‘‘(2) E

XCEPTION FOR AMOUNTS CONSTITUTING

RESTITUTION OR PAID TO COME INTO COMPLIANCE

WITH LAW

.— 3

‘‘(A) I

N GENERAL

.—Paragraph (1) shall 4

not apply to any amount that— 5

‘‘(i) the taxpayer establishes— 6

‘‘(I) constitutes restitution (in-7

cluding remediation of property) for 8

damage or harm which was or may be 9

caused by the violation of any law or 10

the potential violation of any law, or 11

‘‘(II) is paid to come into compli-12

ance with any law which was violated 13

or otherwise involved in the investiga-14

tion or inquiry described in paragraph 15

(1), 16

‘‘(ii) is identified as restitution or as 17

an amount paid to come into compliance 18

with such law, as the case may be, in the 19

court order or settlement agreement, and 20

‘‘(iii) in the case of any amount of 21

restitution for failure to pay any tax im-22

posed under this title in the same manner 23

as if such amount were such tax, would 24

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201

have been allowed as a deduction under 1

this chapter if it had been timely paid. 2

The identification under clause (ii) alone shall 3

not be sufficient to make the establishment re-4

quired under clause (i). 5

‘‘(B) L

IMITATION

.—Subparagraph (A) 6

shall not apply to any amount paid or incurred 7

as reimbursement to the government or entity 8

for the costs of any investigation or litigation. 9

‘‘(3) E

XCEPTION FOR AMOUNTS PAID OR IN

-10

CURRED AS THE RESULT OF CERTAIN COURT OR

-11

DERS

.—Paragraph (1) shall not apply to any 12

amount paid or incurred by reason of any order of 13

a court in a suit in which no government or govern-14

mental entity is a party. 15

‘‘(4) E

XCEPTION FOR TAXES DUE

.—Paragraph 16

(1) shall not apply to any amount paid or incurred 17

as taxes due. 18

‘‘(5) T

REATMENT OF CERTAIN NONGOVERN

-19

MENTAL REGULATORY ENTITIES

.—For purposes of 20

this subsection, the following nongovernmental enti-21

ties shall be treated as governmental entities: 22

‘‘(A) Any nongovernmental entity which 23

exercises self-regulatory powers (including im-24

posing sanctions) in connection with a qualified 25

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202

board or exchange (as defined in section 1

1256(g)(7)). 2

‘‘(B) To the extent provided in regulations, 3

any nongovernmental entity which exercises 4

self-regulatory powers (including imposing sanc-5

tions) as part of performing an essential gov-6

ernmental function.’’. 7

(2) E

FFECTIVE DATE

.—The amendment made 8

by this subsection shall apply to amounts paid or in-9

curred on or after the date of the enactment of this 10

Act, except that such amendments shall not apply to 11

amounts paid or incurred under any binding order 12

or agreement entered into before such date. Such ex-13

ception shall not apply to an order or agreement re-14

quiring court approval unless the approval was ob-15

tained before such date. 16

(b) R

EPORTING OF

EDUCTIBLE

MOUNTS

.— 17

(1) I

N GENERAL

.—Subpart B of part III of 18

subchapter A of chapter 61 is amended by inserting 19

after section 6050W the following new section: 20

‘‘SEC. 6050X. INFORMATION WITH RESPECT TO CERTAIN 21

FINES, PENALTIES, AND OTHER AMOUNTS. 22

‘‘(a) R

EQUIREMENT OF

EPORTING

.— 23

‘‘(1) I

N GENERAL

.—The appropriate official of 24

any government or any entity described in section 25

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162(f)(5) which is involved in a suit or agreement 1

described in paragraph (2) shall make a return in 2

such form as determined by the Secretary setting 3

forth— 4

‘‘(A) the amount required to be paid as a 5

result of the suit or agreement to which para-6

graph (1) of section 162(f) applies, 7

‘‘(B) any amount required to be paid as a 8

result of the suit or agreement which con-9

stitutes restitution or remediation of property, 10

and 11

‘‘(C) any amount required to be paid as a 12

result of the suit or agreement for the purpose 13

of coming into compliance with any law which 14

was violated or involved in the investigation or 15

inquiry. 16

‘‘(2) S

UIT OR AGREEMENT DESCRIBED

.— 17

‘‘(A) I

N GENERAL

.—A suit or agreement is 18

described in this paragraph if— 19

‘‘(i) it is— 20

‘‘(I) a suit with respect to a vio-21

lation of any law over which the gov-22

ernment or entity has authority and 23

with respect to which there has been 24

a court order, or 25

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204

‘‘(II) an agreement which is en-1

tered into with respect to a violation 2

of any law over which the government 3

or entity has authority, or with re-4

spect to an investigation or inquiry by 5

the government or entity into the po-6

tential violation of any law over which 7

such government or entity has author-8

ity, and 9

‘‘(ii) the aggregate amount involved in 10

all court orders and agreements with re-11

spect to the violation, investigation, or in-12

quiry is $600 or more. 13

‘‘(B) A

DJUSTMENT OF REPORTING

THRESHOLD

.—The Secretary shall adjust the 15

$600 amount in subparagraph (A)(ii) as nec-16

essary in order to ensure the efficient adminis-17

tration of the internal revenue laws. 18

‘‘(3) T

IME OF FILING

.—The return required 19

under this subsection shall be filed at the time the 20

agreement is entered into, as determined by the Sec-21

retary. 22

‘‘(b) S

TATEMENTS TO

URNISHED TO

NDIVID

-23

UALS

NVOLVED IN THE

ETTLEMENT

.—Every person re-24

quired to make a return under subsection (a) shall furnish 25

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205

to each person who is a party to the suit or agreement 1

a written statement showing— 2

‘‘(1) the name of the government or entity, and 3

‘‘(2) the information supplied to the Secretary 4

under subsection (a)(1). 5

The written statement required under the preceding sen-6

tence shall be furnished to the person at the same time 7

the government or entity provides the Secretary with the 8

information required under subsection (a). 9

‘‘(c) A

PPROPRIATE

FFICIAL

EFINED

.—For pur-10

poses of this section, the term ‘appropriate official’ means 11

the officer or employee having control of the suit, inves-12

tigation, or inquiry or the person appropriately designated 13

for purposes of this section.’’. 14

(2) C

ONFORMING AMENDMENT

.—The table of 15

sections for subpart B of part III of subchapter A 16

of chapter 61 is amended by inserting after the item 17

relating to section 6050W the following new item: 18

‘‘Sec. 6050X. Information with respect to certain fines, penalties, and other

amounts.’’.

(3) E

FFECTIVE DATE

.—The amendments made 19

by this subsection shall apply to amounts paid or in-20

curred on or after the date of the enactment of this 21

Act, except that such amendments shall not apply to 22

amounts paid or incurred under any binding order 23

or agreement entered into before such date. Such ex-24

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206

ception shall not apply to an order or agreement re-1

quiring court approval unless the approval was ob-2

tained before such date. 3

SEC. 13307. DENIAL OF DEDUCTION FOR SETTLEMENTS 4

SUBJECT TO NONDISCLOSURE AGREEMENTS 5

PAID IN CONNECTION WITH SEXUAL HARASS-6

MENT OR SEXUAL ABUSE. 7

(a) D

ENIAL OF

EDUCTION

.—Section 162 is amend-8

ed by redesignating subsection (q) as subsection (r) and 9

by inserting after subsection (p) the following new sub-10

section: 11

‘‘(q) P

AYMENTS

ELATED TO

EXUAL

ARASSMENT

AND

EXUAL

BUSE

.—No deduction shall be allowed 13

under this chapter for— 14

‘‘(1) any settlement or payment related to sex-15

ual harassment or sexual abuse if such settlement or 16

payment is subject to a nondisclosure agreement, or 17

‘‘(2) attorney’s fees related to such a settlement 18

or payment.’’. 19

(b) E

FFECTIVE

ATE

.—The amendments made by 20

this section shall apply to amounts paid or incurred after 21

the date of the enactment of this Act. 22

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SEC. 13308. REPEAL OF DEDUCTION FOR LOCAL LOBBYING 1

EXPENSES. 2

(a) I

ENERAL

.—Section 162(e) is amended by 3

striking paragraphs (2) and (7) and by redesignating 4

paragraphs (3), (4), (5), (6), and (8) as paragraphs (2), 5

(3), (4), (5), and (6), respectively. 6

(b) C

ONFORMING

MENDMENT

.—Section 7

6033(e)(1)(B)(ii) is amended by striking ‘‘section 8

162(e)(5)(B)(ii)’’ and inserting ‘‘section 9

162(e)(4)(B)(ii)’’. 10

FFECTIVE

ATE

.—The amendments made by 11

this section shall apply to amounts paid or incurred on 12

or after the date of the enactment of this Act. 13

SEC. 13309. RECHARACTERIZATION OF CERTAIN GAINS IN 14

THE CASE OF PARTNERSHIP PROFITS INTER-15

ESTS HELD IN CONNECTION WITH PERFORM-16

ANCE OF INVESTMENT SERVICES. 17

(a) I

ENERAL

.—Part IV of subchapter O of chap-18

ter 1 is amended— 19

(1) by redesignating section 1061 as section 20

1062, and 21

(2) by inserting after section 1060 the following 22

new section: 23

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208

‘‘SEC. 1061. PARTNERSHIP INTERESTS HELD IN CONNEC-1

TION WITH PERFORMANCE OF SERVICES. 2

‘‘(a) I

ENERAL

.—If one or more applicable part-3

nership interests are held by a taxpayer at any time during 4

the taxable year, the excess (if any) of— 5

‘‘(1) the taxpayer’s net long-term capital gain 6

with respect to such interests for such taxable year, 7

over 8

‘‘(2) the taxpayer’s net long-term capital gain 9

with respect to such interests for such taxable year 10

computed by applying paragraphs (3) and (4) of sec-11

tions 1222 by substituting ‘3 years’ for ‘1 year’, 12

shall be treated as short-term capital gain, notwith-13

standing section 83 or any election in effect under section 14

83(b). 15

‘‘(b) S

PECIAL

ULE

.—To the extent provided by the 16

Secretary, subsection (a) shall not apply to income or gain 17

attributable to any asset not held for portfolio investment 18

on behalf of third party investors. 19

‘‘(c) A

PPLICABLE

ARTNERSHIP

NTEREST

.—For 20

purposes of this section— 21

‘‘(1) I

N GENERAL

.—Except as provided in this 22

paragraph or paragraph (4), the term ‘applicable 23

partnership interest’ means any interest in a part-24

nership which, directly or indirectly, is transferred to 25

(or is held by) the taxpayer in connection with the 26

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209

performance of substantial services by the taxpayer, 1

or any other related person, in any applicable trade 2

or business. The previous sentence shall not apply to 3

an interest held by a person who is employed by an-4

other entity that is conducting a trade or business 5

(other than an applicable trade or business) and 6

only provides services to such other entity. 7

‘‘(2) A

PPLICABLE TRADE OR BUSINESS

.—The 8

term ‘applicable trade or business’ means any activ-9

ity conducted on a regular, continuous, and substan-10

tial basis which, regardless of whether the activity is 11

conducted in one or more entities, consists, in whole 12

or in part, of— 13

‘‘(A) raising or returning capital, and 14

‘‘(B) either— 15

‘‘(i) investing in (or disposing of) 16

specified assets (or identifying specified as-17

sets for such investing or disposition), or 18

‘‘(ii) developing specified assets. 19

‘‘(3) S

PECIFIED ASSET

.—The term ‘specified 20

asset’ means securities (as defined in section 21

475(c)(2) without regard to the last sentence there-22

of), commodities (as defined in section 475(e)(2)), 23

real estate held for rental or investment, cash or 24

cash equivalents, options or derivative contracts with 25

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210

respect to any of the foregoing, and an interest in 1

a partnership to the extent of the partnership’s pro-2

portionate interest in any of the foregoing. 3

‘‘(4) E

XCEPTIONS

.—The term ‘applicable part-4

nership interest’ shall not include— 5

‘‘(A) any interest in a partnership directly 6

or indirectly held by a corporation, or 7

‘‘(B) any capital interest in the partner-8

ship which provides the taxpayer with a right to 9

share in partnership capital commensurate 10

with— 11

‘‘(i) the amount of capital contributed 12

(determined at the time of receipt of such 13

partnership interest), or 14

‘‘(ii) the value of such interest subject 15

to tax under section 83 upon the receipt or 16

vesting of such interest. 17

‘‘(5) T

HIRD PARTY INVESTOR

.—The term ‘third 18

party investor’ means a person who— 19

‘‘(A) holds an interest in the partnership 20

which does not constitute property held in con-21

nection with an applicable trade or business; 22

and 23

‘‘(B) is not (and has not been) actively en-24

gaged, and is (and was) not related to a person 25

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211

so engaged, in (directly or indirectly) providing 1

substantial services described in paragraph (1) 2

for such partnership or any applicable trade or 3

business. 4

‘‘(d) T

RANSFER OF

PPLICABLE

ARTNERSHIP

-5

TEREST TO

ELATED

ERSON

.— 6

‘‘(1) I

N GENERAL

.—If a taxpayer transfers any 7

applicable partnership interest, directly or indirectly, 8

to a person related to the taxpayer, the taxpayer 9

shall include in gross income (as short term capital 10

gain) the excess (if any) of— 11

‘‘(A) so much of the taxpayer’s long-term 12

capital gains with respect to such interest for 13

such taxable year attributable to the sale or ex-14

change of any asset held for not more than 3 15

years as is allocable to such interest, over 16

‘‘(B) any amount treated as short term 17

capital gain under subsection (a) with respect 18

to the transfer of such interest. 19

‘‘(2) R

ELATED PERSON

.—For purposes of this 20

paragraph, a person is related to the taxpayer if— 21

‘‘(A) the person is a member of the tax-22

payer’s family within the meaning of section 23

318(a)(1), or 24

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212

‘‘(B) the person performed a service within 1

the current calendar year or the preceding three 2

calendar years in any applicable trade or busi-3

ness in which or for which the taxpayer per-4

formed a service. 5

‘‘(e) R

EPORTING

.—The Secretary shall require such 6

reporting (at the time and in the manner prescribed by 7

the Secretary) as is necessary to carry out the purposes 8

of this section. 9

‘‘(f) R

EGULATIONS

.—The Secretary shall issue such 10

regulations or other guidance as is necessary or appro-11

priate to carry out the purposes of this section’’. 12

(b) C

LERICAL

MENDMENT

.—The table of sections 13

for part IV of subchapter O of chapter 1 is amended by 14

striking the item relating to 1061 and inserting the fol-15

lowing new items: 16

‘‘Sec. 1061. Partnership interests held in connection with performance of serv-

ices.

‘‘Sec. 1062. Cross references.’’.

FFECTIVE

ATE

.—The amendments made by 17

this section shall apply to taxable years beginning after 18

December 31, 2017. 19

SEC. 13310. PROHIBITION ON CASH, GIFT CARDS, AND 20

OTHER NON-TANGIBLE PERSONAL PROPERTY 21

AS EMPLOYEE ACHIEVEMENT AWARDS. 22

(a) I

ENERAL

.—Subparagraph (A) of section 23

274(j)(3) is amended— 24

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213

(1) by striking ‘‘The term’’ and inserting the 1

following: 2

‘‘(i) I

N GENERAL

.—The term’’. 3

(2) by redesignating clauses (i), (ii), and (iii) as 4

subclauses (I), (II), and (III), respectively, and con-5

forming the margins accordingly, and 6

(3) by adding at the end the following new 7

clause: 8

‘‘(ii) T

ANGIBLE PERSONAL PROP

-9

ERTY

.—For purposes of clause (i), the 10

term ‘tangible personal property’ shall not 11

include— 12

‘‘(I) cash, cash equivalents, gift 13

cards, gift coupons, or gift certificates 14

(other than arrangements conferring 15

only the right to select and receive 16

tangible personal property from a lim-17

ited array of such items pre-selected 18

or pre-approved by the employer), or 19

‘‘(II) vacations, meals, lodging, 20

tickets to theater or sporting events, 21

stocks, bonds, other securities, and 22

other similar items.’’. 23

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214

(b) E

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to amounts paid or incurred after 2

December 31, 2017. 3

SEC. 13311. ELIMINATION OF DEDUCTION FOR LIVING EX-4

PENSES INCURRED BY MEMBERS OF CON-5

GRESS. 6

(a) I

ENERAL

.—Subsection (a) of section 162 is 7

amended in the matter following paragraph (3) by striking 8

‘‘in excess of $3,000’’. 9

(b) E

FFECTIVE

ATE

.—The amendment made by 10

this section shall apply to taxable years beginning after 11

the date of the enactment of this Act. 12

SEC. 13312. CERTAIN CONTRIBUTIONS BY GOVERNMENTAL 13

ENTITIES NOT TREATED AS CONTRIBUTIONS 14

TO CAPITAL. 15

(a) I

ENERAL

.—Section 118 is amended— 16

(1) by striking subsections (b), (c), and (d), 17

(2) by redesignating subsection (e) as sub-18

section (d), and 19

(3) by inserting after subsection (a) the fol-20

lowing new subsections: 21

‘‘(b) E

XCEPTIONS

.—For purposes of subsection (a), 22

the term ‘contribution to the capital of the taxpayer’ does 23

not include— 24

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215

‘‘(1) any contribution in aid of construction or 1

any other contribution as a customer or potential 2

customer, and 3

‘‘(2) any contribution by any governmental enti-4

ty or civic group (other than a contribution made by 5

a shareholder as such). 6

‘‘(c) R

EGULATIONS

.—The Secretary shall issue such 7

regulations or other guidance as may be necessary or ap-8

propriate to carry out this section, including regulations 9

or other guidance for determining whether any contribu-10

tion constitutes a contribution in aid of construction.’’. 11

(b) E

FFECTIVE

ATE

.— 12

(1) I

N GENERAL

.—Except as provided in para-13

graph (2), the amendments made by this section 14

shall apply to contributions made after the date of 15

enactment of this Act. 16

(2) E

XCEPTION

.—The amendments made by 17

this section shall not apply to any contribution, 18

made after the date of enactment of this Act by a 19

governmental entity, which is made pursuant to a 20

master development plan that has been approved 21

prior to such date by a governmental entity. 22

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216

SEC. 13313. REPEAL OF ROLLOVER OF PUBLICLY TRADED 1

SECURITIES GAIN INTO SPECIALIZED SMALL 2

BUSINESS INVESTMENT COMPANIES. 3

(a) I

ENERAL

.—Part III of subchapter O of chap-4

ter 1 is amended by striking section 1044 (and by striking 5

the item relating to such section in the table of sections 6

of such part). 7

(b) C

ONFORMING

MENDMENTS

.—Section 8

1016(a)(23) is amended— 9

(1) by striking ‘‘1044,’’, and 10

(2) by striking ‘‘1044(d),’’. 11

FFECTIVE

ATE

.—The amendments made by 12

this section shall apply to sales after December 31, 2017. 13

SEC. 13314. CERTAIN SELF-CREATED PROPERTY NOT 14

TREATED AS A CAPITAL ASSET. 15

(a) P

ATENTS

ETC

.—Section 1221(a)(3) is amended 16

by inserting ‘‘a patent, invention, model or design (wheth-17

er or not patented), a secret formula or process,’’ before 18

‘‘a copyright’’. 19

(b) C

ONFORMING

MENDMENT

.—Section 20

1231(b)(1)(C) is amended by inserting ‘‘a patent, inven-21

tion, model or design (whether or not patented), a secret 22

formula or process,’’ before ‘‘a copyright’’. 23

FFECTIVE

ATE

.—The amendments made by 24

this section shall apply to dispositions after December 31, 25

2017. 26

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217

PART V—BUSINESS CREDITS 1

SEC. 13401. MODIFICATION OF ORPHAN DRUG CREDIT. 2

(a) C

REDIT

ATE

.—Subsection (a) of section 45C is 3

amended by striking ‘‘50 percent’’ and inserting ‘‘25 per-4

cent’’. 5

(b) E

LECTION OF

EDUCED

REDIT

.—Subsection 6

(b) of section 280C is amended by redesignating para-7

graph (3) as paragraph (4) and by inserting after para-8

graph (2) the following new paragraph: 9

‘‘(3) E

LECTION OF REDUCED CREDIT

.— 10

‘‘(A) I

N GENERAL

.—In the case of any 11

taxable year for which an election is made 12

under this paragraph— 13

‘‘(i) paragraphs (1) and (2) shall not 14

apply, and 15

‘‘(ii) the amount of the credit under 16

section 45C(a) shall be the amount deter-17

mined under subparagraph (B). 18

‘‘(B) A

MOUNT OF REDUCED CREDIT

.—The 19

amount of credit determined under this sub-20

paragraph for any taxable year shall be the 21

amount equal to the excess of— 22

‘‘(i) the amount of credit determined 23

under section 45C(a) without regard to 24

this paragraph, over 25

‘‘(ii) the product of— 26

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218

‘‘(I) the amount described in 1

clause (i), and 2

‘‘(II) the maximum rate of tax 3

under section 11(b). 4

‘‘(C) E

LECTION

.—An election under this 5

paragraph for any taxable year shall be made 6

not later than the time for filing the return of 7

tax for such year (including extensions), shall 8

be made on such return, and shall be made in 9

such manner as the Secretary shall prescribe. 10

Such an election, once made, shall be irrev-11

ocable.’’. 12

FFECTIVE

ATE

.—The amendments made by 13

this section shall apply to taxable years beginning after 14

December 31, 2017. 15

SEC. 13402. REHABILITATION CREDIT LIMITED TO CER-16

TIFIED HISTORIC STRUCTURES. 17

(a) I

ENERAL

.—Subsection (a) of section 47 is 18

amended to read as follows: 19

‘‘(a) G

ENERAL

ULE

.— 20

‘‘(1) I

N GENERAL

.—For purposes of section 46, 21

for any taxable year during the 5-year period begin-22

ning in the taxable year in which a qualified reha-23

bilitated building is placed in service, the rehabilita-24

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tion credit for such year is an amount equal to the 1

ratable share for such year. 2

‘‘(2) R

ATABLE SHARE

.—For purposes of para-3

graph (1), the ratable share for any taxable year 4

during the period described in such paragraph is the 5

amount equal to 20 percent of the qualified rehabili-6

tation expenditures with respect to the qualified re-7

habilitated building, as allocated ratably to each year 8

during such period.’’. 9

(b) C

ONFORMING

MENDMENTS

.— 10

(1) Section 47(c) is amended— 11

(A) in paragraph (1)— 12

(i) in subparagraph (A), by amending 13

clause (iii) to read as follows: 14

‘‘(iii) such building is a certified his-15

toric structure, and’’, 16

(ii) by striking subparagraph (B), and 17

(iii) by redesignating subparagraphs 18

(C), respectively, and 20

(B) in paragraph (2)(B), by amending 21

clause (iv) to read as follows: 22

‘‘(iv) C

ERTIFIED HISTORIC STRUC

-23

TURE

.—Any expenditure attributable to 24

the rehabilitation of a qualified rehabili-25

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tated building unless the rehabilitation is a 1

certified rehabilitation (within the meaning 2

of subparagraph (C)).’’. 3

(2) Paragraph (4) of section 145(d) is amend-4

ed— 5

(A) by striking ‘‘of section 47(c)(1)(C)’’ 6

each place it appears and inserting ‘‘of section 7

47(c)(1)(B)’’, and 8

(B) by striking ‘‘section 47(c)(1)(C)(i)’’ 9

and inserting ‘‘section 47(c)(1)(B)(i)’’. 10

FFECTIVE

ATE

.— 11

(1) I

N GENERAL

.—Except as provided in para-12

graph (2), the amendments made by this section 13

shall apply to amounts paid or incurred after De-14

cember 31, 2017. 15

(2) T

RANSITION RULE

.—In the case of quali-16

fied rehabilitation expenditures with respect to any 17

building— 18

(A) owned or leased by the taxpayer dur-19

ing the entirety of the period after December 20

31, 2017, and 21

(B) with respect to which the 24-month 22

period selected by the taxpayer under clause (i) 23

of section 47(c)(1)(B) of the Internal Revenue 24

Code (as amended by subsection (b)), or the 25

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221

60-month period applicable under clause (ii) of 1

such section, begins not later than 180 days 2

after the date of the enactment of this Act, 3

the amendments made by this section shall apply to 4

such expenditures paid or incurred after the end of 5

the taxable year in which the 24-month period, or 6

the 60-month period, referred to in subparagraph 7

(B) ends. 8

SEC. 13403. EMPLOYER CREDIT FOR PAID FAMILY AND 9

MEDICAL LEAVE. 10

(a) I

ENERAL

.— 11

(1) A

LLOWANCE OF CREDIT

.—Subpart D of 12

part IV of subchapter A of chapter 1 is amended by 13

adding at the end the following new section: 14

‘‘SEC. 45S. EMPLOYER CREDIT FOR PAID FAMILY AND MED-15

ICAL LEAVE. 16

‘‘(a) E

STABLISHMENT OF

REDIT

.— 17

‘‘(1) I

N GENERAL

.—For purposes of section 38, 18

in the case of an eligible employer, the paid family 19

and medical leave credit is an amount equal to the 20

applicable percentage of the amount of wages paid 21

to qualifying employees during any period in which 22

such employees are on family and medical leave. 23

‘‘(2) A

PPLICABLE PERCENTAGE

.—For purposes 24

of paragraph (1), the term ‘applicable percentage’ 25

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means 12.5 percent increased (but not above 25 per-1

cent) by 0.25 percentage points for each percentage 2

point by which the rate of payment (as described 3

under subsection (c)(1)(B)) exceeds 50 percent. 4

‘‘(b) L

IMITATION

.— 5

‘‘(1) I

N GENERAL

.—The credit allowed under 6

subsection (a) with respect to any employee for any 7

taxable year shall not exceed an amount equal to the 8

product of the normal hourly wage rate of such em-9

ployee for each hour (or fraction thereof) of actual 10

services performed for the employer and the number 11

of hours (or fraction thereof) for which family and 12

medical leave is taken. 13

‘‘(2) N

HOURLY WAGE RATE

.—For purposes 14

of paragraph (1), in the case of any employee who 15

is not paid on an hourly wage rate, the wages of 16

such employee shall be prorated to an hourly wage 17

rate under regulations established by the Secretary. 18

‘‘(3) M

AXIMUM AMOUNT OF LEAVE SUBJECT TO

CREDIT

.—The amount of family and medical leave 20

that may be taken into account with respect to any 21

employee under subsection (a) for any taxable year 22

shall not exceed 12 weeks. 23

‘‘(c) E

LIGIBLE

MPLOYER

.—For purposes of this 24

section— 25

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‘‘(1) I

N GENERAL

.—The term ‘eligible em-1

ployer’ means any employer who has in place a writ-2

ten policy that meets the following requirements: 3

‘‘(A) The policy provides— 4

‘‘(i) in the case of a qualifying em-5

ployee who is not a part-time employee (as 6

defined in section 4980E(d)(4)(B)), not 7

less than 2 weeks of annual paid family 8

and medical leave, and 9

‘‘(ii) in the case of a qualifying em-10

ployee who is a part-time employee, an 11

amount of annual paid family and medical 12

leave that is not less than an amount 13

which bears the same ratio to the amount 14

of annual paid family and medical leave 15

that is provided to a qualifying employee 16

described in clause (i) as— 17

‘‘(I) the number of hours the em-18

ployee is expected to work during any 19

week, bears to 20

‘‘(II) the number of hours an 21

equivalent qualifying employee de-22

scribed in clause (i) is expected to 23

work during the week. 24

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224

‘‘(B) The policy requires that the rate of 1

payment under the program is not less than 50 2

percent of the wages normally paid to such em-3

ployee for services performed for the employer. 4

‘‘(2) S

PECIAL RULE FOR CERTAIN EMPLOY

-5

ERS

.— 6

‘‘(A) I

N GENERAL

.—An added employer 7

shall not be treated as an eligible employer un-8

less such employer provides paid family and 9

medical leave in compliance with a written pol-10

icy which ensures that the employer— 11

‘‘(i) will not interfere with, restrain, 12

or deny the exercise of or the attempt to 13

exercise, any right provided under the pol-14

icy, and 15

‘‘(ii) will not discharge or in any other 16

manner discriminate against any individual 17

for opposing any practice prohibited by the 18

policy. 19

‘‘(B) A

DDED EMPLOYER

;

ADDED EM

-20

PLOYEE

.—For purposes of this paragraph— 21

‘‘(i) A

DDED EMPLOYEE

.—The term 22

‘added employee’ means a qualifying em-23

ployee who is not covered by title I of the 24

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225

Family and Medical Leave Act of 1993, as 1

amended. 2

‘‘(ii) A

DDED EMPLOYER

.—The term 3

‘added employer’ means an eligible em-4

ployer (determined without regard to this 5

paragraph), whether or not covered by that 6

title I, who offers paid family and medical 7

leave to added employees. 8

‘‘(3) A

GGREGATION RULE

.—All persons which 9

are treated as a single employer under subsections 10

(a) and (b) of section 52 shall be treated as a single 11

taxpayer. 12

‘‘(4) T

REATMENT OF BENEFITS MANDATED OR

PAID FOR BY STATE OR LOCAL GOVERNMENTS

.—For 14

purposes of this section, any leave which is paid by 15

a State or local government or required by State or 16

local law shall not be taken into account in deter-17

mining the amount of paid family and medical leave 18

provided by the employer. 19

‘‘(5) N

O INFERENCE

.—Nothing in this sub-20

section shall be construed as subjecting an employer 21

to any penalty, liability, or other consequence (other 22

than ineligibility for the credit allowed by reason of 23

subsection (a) or recapturing the benefit of such 24

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226

credit) for failure to comply with the requirements 1

of this subsection. 2

‘‘(d) Q

UALIFYING

MPLOYEES

.—For purposes of 3

this section, the term ‘qualifying employee’ means any em-4

ployee (as defined in section 3(e) of the Fair Labor Stand-5

ards Act of 1938, as amended) who— 6

‘‘(1) has been employed by the employer for 1 7

year or more, and 8

‘‘(2) for the preceding year, had compensation 9

not in excess of an amount equal to 60 percent of 10

the amount applicable for such year under clause (i) 11

of section 414(q)(1)(B). 12

‘‘(e) F

AMILY AND

EDICAL

EAVE

.— 13

‘‘(1) I

N GENERAL

.—Except as provided in para-14

graph (2), for purposes of this section, the term 15

‘family and medical leave’ means leave for any 1 or 16

more of the purposes described under subparagraph 17

(A), (B), (C), (D), or (E) of paragraph (1), or para-18

graph (3), of section 102(a) of the Family and Med-19

ical Leave Act of 1993, as amended, whether the 20

leave is provided under that Act or by a policy of the 21

employer. 22

‘‘(2) E

XCLUSION

.—If an employer provides paid 23

leave as vacation leave, personal leave, or medical or 24

sick leave (other than leave specifically for 1 or more 25

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227

of the purposes referred to in paragraph (1)), that 1

paid leave shall not be considered to be family and 2

medical leave under paragraph (1). 3

‘‘(3) D

EFINITIONS

.—In this subsection, the 4

terms ‘vacation leave’, ‘personal leave’, and ‘medical 5

or sick leave’ mean those 3 types of leave, within the 6

meaning of section 102(d)(2) of that Act. 7

‘‘(f) D

ETERMINATIONS

ADE BY

ECRETARY OF

REASURY

.—For purposes of this section, any determina-9

tion as to whether an employer or an employee satisfies 10

the applicable requirements for an eligible employer (as 11

described in subsection (c)) or qualifying employee (as de-12

scribed in subsection (d)), respectively, shall be made by 13

the Secretary based on such information, to be provided 14

by the employer, as the Secretary determines to be nec-15

essary or appropriate. 16

‘‘(g) W

AGES

.—For purposes of this section, the term 17

‘wages’ has the meaning given such term by subsection 18

(b) of section 3306 (determined without regard to any dol-19

lar limitation contained in such section). Such term shall 20

not include any amount taken into account for purposes 21

of determining any other credit allowed under this sub-22

part. 23

‘‘(h) E

LECTION TO

AVE

REDIT

PPLY

.— 24

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‘‘(1) I

N GENERAL

.—A taxpayer may elect to 1

have this section not apply for any taxable year. 2

‘‘(2) O

THER RULES

.—Rules similar to the rules 3

of paragraphs (2) and (3) of section 51(j) shall 4

apply for purposes of this subsection. 5

‘‘(i) T

ERMINATION

.—This section shall not apply to 6

wages paid in taxable years beginning after December 31, 7

2019.’’. 8

(b) C

REDIT

ART OF

ENERAL

USINESS

REDIT

.— 9

Section 38(b) is amended by striking ‘‘plus’’ at the end 10

of paragraph (35), by striking the period at the end of 11

paragraph (36) and inserting ‘‘, plus’’, and by adding at 12

the end the following new paragraph: 13

‘‘(37) in the case of an eligible employer (as de-14

fined in section 45S(c)), the paid family and medical 15

leave credit determined under section 45S(a).’’. 16

REDIT

LLOWED

GAINST

AMT.—Subpara-17

graph (B) of section 38(c)(4) is amended by redesignating 18

clauses (ix) through (xi) as clauses (x) through (xii), re-19

spectively, and by inserting after clause (viii) the following 20

new clause: 21

‘‘(ix) the credit determined under sec-22

tion 45S,’’. 23

(d) C

ONFORMING

MENDMENTS

.— 24

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(1) D

ENIAL OF DOUBLE BENEFIT

.—Section 1

280C(a) is amended by inserting ‘‘45S(a),’’ after 2

‘‘45P(a),’’. 3

(2) E

LECTION TO HAVE CREDIT NOT APPLY

.— 4

Section 6501(m) is amended by inserting ‘‘45S(h),’’ 5

after ‘‘45H(g),’’. 6

(3) C

LERICAL AMENDMENT

.—The table of sec-7

tions for subpart D of part IV of subchapter A of 8

chapter 1 is amended by adding at the end the fol-9

lowing new item: 10

‘‘Sec. 45S. Employer credit for paid family and medical leave.’’.

(e) E

FFECTIVE

ATE

.—The amendments made by 11

this section shall apply to wages paid in taxable years be-12

ginning after December 31, 2017. 13

SEC. 13404. REPEAL OF TAX CREDIT BONDS. 14

(a) I

ENERAL

.—Part IV of subchapter A of chap-15

ter 1 is amended by striking subparts H, I, and J (and 16

by striking the items relating to such subparts in the table 17

of subparts for such part). 18

(b) P

AYMENTS TO

SSUERS

.—Subchapter B of chap-19

ter 65 is amended by striking section 6431 (and by strik-20

ing the item relating to such section in the table of sec-21

tions for such subchapter). 22

ONFORMING

MENDMENTS

.— 23

(1) Part IV of subchapter U of chapter 1 is 24

amended by striking section 1397E (and by striking 25

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230

the item relating to such section in the table of sec-1

tions for such part). 2

(2) Section 54(l)(3)(B) is amended by inserting 3

‘‘(as in effect before its repeal by the Tax Cuts and 4

Jobs Act)’’ after ‘‘section 1397E(I)’’. 5

(3) Section 6211(b)(4)(A) is amended by strik-6

ing ‘‘, and 6431’’ and inserting ‘‘and’’ before 7

‘‘36B’’. 8

(4) Section 6401(b)(1) is amended by striking 9

‘‘G, H, I, and J’’ and inserting ‘‘and G’’. 10

(d) E

FFECTIVE

ATE

.—The amendments made by 11

this section shall apply to bonds issued after December 12

31, 2017. 13

PART VI—PROVISIONS RELATED TO SPECIFIC 14

ENTITIES AND INDUSTRIES 15

Subpart A—Partnership Provisions 16

SEC. 13501. TREATMENT OF GAIN OR LOSS OF FOREIGN 17

PERSONS FROM SALE OR EXCHANGE OF IN-18

TERESTS IN PARTNERSHIPS ENGAGED IN 19

TRADE OR BUSINESS WITHIN THE UNITED 20

STATES. 21

(a) A

MOUNT

REATED AS

FFECTIVELY

-22

NECTED

.— 23

(1) I

N GENERAL

.—Section 864(c) is amended 24

by adding at the end the following: 25

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‘‘(8) G

AIN OR LOSS OF FOREIGN PERSONS

FROM SALE OR EXCHANGE OF CERTAIN PARTNER

-2

SHIP INTERESTS

.— 3

‘‘(A) I

N GENERAL

.—Notwithstanding any 4

other provision of this subtitle, if a nonresident 5

alien individual or foreign corporation owns, di-6

rectly or indirectly, an interest in a partnership 7

which is engaged in any trade or business with-8

in the United States, gain or loss on the sale 9

or exchange of all (or any portion of) such in-10

terest shall be treated as effectively connected 11

with the conduct of such trade or business to 12

the extent such gain or loss does not exceed the 13

amount determined under subparagraph (B). 14

‘‘(B) A

MOUNT TREATED AS EFFECTIVELY

CONNECTED

.—The amount determined under 16

this subparagraph with respect to any partner-17

ship interest sold or exchanged— 18

‘‘(i) in the case of any gain on the 19

sale or exchange of the partnership inter-20

est, is— 21

‘‘(I) the portion of the partner’s 22

distributive share of the amount of 23

gain which would have been effectively 24

connected with the conduct of a trade 25

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or business within the United States 1

if the partnership had sold all of its 2

assets at their fair market value as of 3

the date of the sale or exchange of 4

such interest, or 5

‘‘(II) zero if no gain on such 6

deemed sale would have been so effec-7

tively connected, and 8

‘‘(ii) in the case of any loss on the 9

sale or exchange of the partnership inter-10

est, is— 11

‘‘(I) the portion of the partner’s 12

distributive share of the amount of 13

loss on the deemed sale described in 14

clause (i)(I) which would have been so 15

effectively connected, or 16

‘‘(II) zero if no loss on such 17

deemed sale would be have been so ef-18

fectively connected. 19

For purposes of this subparagraph, a part-20

ner’s distributive share of gain or loss on 21

the deemed sale shall be determined in the 22

same manner as such partner’s distributive 23

share of the non-separately stated taxable 24

income or loss of such partnership. 25

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‘‘(C) C

OORDINATION WITH UNITED STATES

REAL PROPERTY INTERESTS

.—If a partnership 2

described in subparagraph (A) holds any United 3

States real property interest (as defined in sec-4

tion 897(c)) at the time of the sale or exchange 5

of the partnership interest, then the gain or loss 6

treated as effectively connected income under 7

subparagraph (A) shall be reduced by the 8

amount so treated with respect to such United 9

States real property interest under section 897. 10

‘‘(D) S

ALE OR EXCHANGE

.—For purposes 11

of this paragraph, the term ‘sale or exchange’ 12

means any sale, exchange, or other disposition. 13

‘‘(E) S

ECRETARIAL AUTHORITY

.—The Sec-14

retary shall prescribe such regulations or other 15

guidance as the Secretary determines appro-16

priate for the application of this paragraph, in-17

cluding with respect to exchanges described in 18

section 332, 351, 354, 355, 356, or 361.’’. 19

(2) C

ONFORMING AMENDMENTS

.—Section 20

864(c)(1) is amended— 21

(A) by striking ‘‘and (7)’’ in subparagraph 22

(A), and inserting ‘‘(7), and (8)’’, and 23

(B) by striking ‘‘or (7)’’ in subparagraph 24

(B), and inserting ‘‘(7), or (8)’’. 25

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(b) W

ITHHOLDING

EQUIREMENTS

.—Section 1446 1

is amended by redesignating subsection (f) as subsection 2

(g) and by inserting after subsection (e) the following: 3

‘‘(f) S

PECIAL

ULES FOR

ITHHOLDING ON

-4

POSITIONS OF

ARTNERSHIP

NTERESTS

.— 5

‘‘(1) I

N GENERAL

.—Except as provided in this 6

subsection, if any portion of the gain (if any) on any 7

disposition of an interest in a partnership would be 8

treated under section 864(c)(8) as effectively con-9

nected with the conduct of a trade or business with-10

in the United States, the transferee shall be required 11

to deduct and withhold a tax equal to 10 percent of 12

the amount realized on the disposition. 13

‘‘(2) E

XCEPTION IF NONFOREIGN AFFIDAVIT

FURNISHED

.— 15

‘‘(A) I

N GENERAL

.—No person shall be re-16

quired to deduct and withhold any amount 17

under paragraph (1) with respect to any dis-18

position if the transferor furnishes to the trans-19

feree an affidavit by the transferor stating, 20

under penalty of perjury, the transferor’s 21

United States taxpayer identification number 22

and that the transferor is not a foreign person. 23

‘‘(B) F

ALSE AFFIDAVIT

.—Subparagraph 24

(A) shall not apply to any disposition if— 25

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235

‘‘(i) the transferee has actual knowl-1

edge that the affidavit is false, or the 2

transferee receives a notice (as described in 3

section 1445(d)) from a transferor’s agent 4

or transferee’s agent that such affidavit or 5

statement is false, or 6

‘‘(ii) the Secretary by regulations re-7

quires the transferee to furnish a copy of 8

such affidavit or statement to the Sec-9

retary and the transferee fails to furnish a 10

copy of such affidavit or statement to the 11

Secretary at such time and in such manner 12

as required by such regulations. 13

‘‘(C) R

ULES FOR AGENTS

.—The rules of 14

section 1445(d) shall apply to a transferor’s 15

agent or transferee’s agent with respect to any 16

affidavit described in subparagraph (A) in the 17

same manner as such rules apply with respect 18

to the disposition of a United States real prop-19

erty interest under such section. 20

‘‘(3) A

UTHORITY OF SECRETARY TO PRESCRIBE

REDUCED AMOUNT

.—At the request of the trans-22

feror or transferee, the Secretary may prescribe a 23

reduced amount to be withheld under this section if 24

the Secretary determines that to substitute such re-25

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236

duced amount will not jeopardize the collection of 1

the tax imposed under this title with respect to gain 2

treated under section 864(c)(8) as effectively con-3

nected with the conduct of a trade or business with 4

in the United States. 5

‘‘(4) P

ARTNERSHIP TO WITHHOLD AMOUNTS

NOT WITHHELD BY THE TRANSFEREE

.—If a trans-7

feree fails to withhold any amount required to be 8

withheld under paragraph (1), the partnership shall 9

be required to deduct and withhold from distribu-10

tions to the transferee a tax in an amount equal to 11

the amount the transferee failed to withhold (plus 12

interest under this title on such amount). 13

‘‘(5) D

EFINITIONS

.—Any term used in this sub-14

section which is also used under section 1445 shall 15

have the same meaning as when used in such sec-16

tion. 17

‘‘(6) R

EGULATIONS

.—The Secretary shall pre-18

scribe such regulations or other guidance as may be 19

necessary to carry out the purposes of this sub-20

section, including regulations providing for excep-21

tions from the provisions of this subsection.’’. 22

FFECTIVE

ATES

.— 23

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(1) S

UBSECTION

(a).—The amendments made 1

by subsection (a) shall apply to sales, exchanges, and 2

dispositions on or after November 27, 2017. 3

(2) S

UBSECTION

(b).—The amendment made 4

by subsection (b) shall apply to sales, exchanges, 5

and dispositions after December 31, 2017. 6

SEC. 13502. MODIFY DEFINITION OF SUBSTANTIAL BUILT-IN 7

LOSS IN THE CASE OF TRANSFER OF PART-8

NERSHIP INTEREST. 9

(a) I

ENERAL

.—Paragraph (1) of section 743(d) 10

is to read as follows: 11

‘‘(1) I

N GENERAL

.—For purposes of this sec-12

tion, a partnership has a substantial built-in loss 13

with respect to a transfer of an interest in the part-14

nership if— 15

‘‘(A) the partnership’s adjusted basis in 16

the partnership property exceeds by more than 17

$250,000 the fair market value of such prop-18

erty, or 19

‘‘(B) the transferee partner would be allo-20

cated a loss of more than $250,000 if the part-21

nership assets were sold for cash equal to their 22

fair market value immediately after such trans-23

fer.’’. 24

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238

(b) E

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to transfers of partnership inter-2

ests after December 31, 2017. 3

SEC. 13503. CHARITABLE CONTRIBUTIONS AND FOREIGN 4

TAXES TAKEN INTO ACCOUNT IN DETER-5

MINING LIMITATION ON ALLOWANCE OF 6

PARTNER’S SHARE OF LOSS. 7

(a) I

ENERAL

.—Subsection (d) of section 704 is 8

amended— 9

(1) by striking ‘‘A partner’s distributive share’’ 10

and inserting the following: 11

‘‘(1) I

N GENERAL

.—A partner’s distributive 12

share’’, 13

(2) by striking ‘‘Any excess of such loss’’ and 14

inserting the following: 15

‘‘(2) C

ARRYOVER

.—Any excess of such loss’’, 16

and 17

(3) by adding at the end the following new 18

paragraph: 19

‘‘(3) S

PECIAL RULES

.— 20

‘‘(A) I

N GENERAL

.—In determining the 21

amount of any loss under paragraph (1), there 22

shall be taken into account the partner’s dis-23

tributive share of amounts described in para-24

graphs (4) and (6) of section 702(a). 25

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239

‘‘(B) E

XCEPTION

.—In the case of a chari-1

table contribution of property whose fair mar-2

ket value exceeds its adjusted basis, subpara-3

graph (A) shall not apply to the extent of the 4

partner’s distributive share of such excess.’’. 5

(b) E

FFECTIVE

ATE

.—The amendments made by 6

this section shall apply to partnership taxable years begin-7

ning after December 31, 2017. 8

SEC. 13504. REPEAL OF TECHNICAL TERMINATION OF 9

PARTNERSHIPS. 10

(a) I

ENERAL

.—Paragraph (1) of section 708(b) 11

is amended— 12

(1) by striking ‘‘, or’’ at the end of subpara-13

graph (A) and all that follows and inserting a pe-14

riod, and 15

(2) by striking ‘‘only if—’’ and all that follows 16

through ‘‘no part of any business’’ and inserting the 17

following: ‘‘only if no part of any business’’. 18

(b) C

ONFORMING

MENDMENT

.— 19

(1) Section 168(i)(7)(B) is amended by striking 20

the second sentence. 21

(2) Section 743(e) is amended by striking para-22

graph (4) and redesignating paragraphs (5), (6), 23

and (7) as paragraphs (4), (5), and (6). 24

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FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to partnership taxable years begin-2

ning after December 31, 2017. 3

Subpart B—Insurance Reforms 4

SEC. 13511. NET OPERATING LOSSES OF LIFE INSURANCE 5

COMPANIES. 6

(a) I

ENERAL

.—Section 805(b) is amended by 7

striking paragraph (4) and by redesignating paragraph 8

(5) as paragraph (4). 9

(b) C

ONFORMING

MENDMENTS

.— 10

(1) Part I of subchapter L of chapter 1 is 11

amended by striking section 810 (and by striking 12

the item relating to such section in the table of sec-13

tions for such part). 14

(2)(A) Part III of subchapter L of chapter 1 is 15

amended by striking section 844 (and by striking 16

the item relating to such section in the table of sec-17

tions for such part). 18

(B) Section 831(b)(3) is amended by striking 19

‘‘except as provided in section 844,’’ 20

(3) Section 381 is amended by striking sub-21

section (d). 22

(4) Section 805(a)(4)(B)(ii) is amended to read 23

as follows: 24

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241

‘‘(ii) the deduction allowed under sec-1

tion 172,’’. 2

(5) Section 805(a) is amended by striking para-3

graph (5). 4

(6) Section 805(b)(2)(A)(iv) is amended to read 5

as follows: 6

‘‘(iv) any net operating loss carryback 7

to the taxable year under section 172, 8

and’’. 9

(7) Section 953(b)(1)(B) is amended to read as 10

follows: 11

‘‘(B) So much of section 805(a)(8) as re-12

lates to the deduction allowed under section 13

172.’’. 14

(8) Section 1351(i)(3) is amended by striking 15

‘‘or the operations loss deduction under section 16

810,’’. 17

FFECTIVE

ATE

.—The amendments made by 18

this section shall apply to losses arising in taxable years 19

beginning after December 31, 2017. 20

SEC. 13512. REPEAL OF SMALL LIFE INSURANCE COMPANY 21

DEDUCTION. 22

(a) I

ENERAL

.—Part I of subchapter L of chapter 23

1 is amended by striking section 806 (and by striking the 24

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242

item relating to such section in the table of sections for 1

such part). 2

(b) C

ONFORMING

MENDMENTS

.— 3

(1) Section 453B(e) is amended— 4

(A) by striking ‘‘(as defined in section 5

806(b)(3))’’ in paragraph (2)(B), and 6

(B) by adding at the end the following new 7

paragraph: 8

‘‘(3) N

ONINSURANCE BUSINESS

.— 9

‘‘(A) I

N GENERAL

.—For purposes of this 10

subsection, the term ‘noninsurance business’ 11

means any activity which is not an insurance 12

business. 13

‘‘(B) C

ERTAIN ACTIVITIES TREATED AS IN

-14

SURANCE BUSINESSES

.—For purposes of sub-15

paragraph (A), any activity which is not an in-16

surance business shall be treated as an insur-17

ance business if— 18

‘‘(i) it is of a type traditionally carried 19

on by life insurance companies for invest-20

ment purposes, but only if the carrying on 21

of such activity (other than in the case of 22

real estate) does not constitute the active 23

conduct of a trade or business, or 24

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243

‘‘(ii) it involves the performance of ad-1

ministrative services in connection with 2

plans providing life insurance, pension, or 3

accident and health benefits.’’. 4

(2) Section 465(c)(7)(D)(v)(II) is amended by 5

striking ‘‘section 806(b)(3)’’ and inserting ‘‘section 6

453B(e)(3)’’. 7

(3) Section 801(a)(2) is amended by striking 8

subparagraph (C). 9

(4) Section 804 is amended by striking 10

‘‘means—’’ and all that follows and inserting 11

‘‘means the general deductions provided in section 12

805.’’. 13

(5) Section 805(a)(4)(B), as amended by this 14

Act, is amended by striking clause (i) and by redes-15

ignating clauses (ii), (iii), and (iv) as clauses (i), (ii), 16

and (iii), respectively. 17

(6) Section 805(b)(2)(A), as amended by this 18

Act, is amended by striking clause (iii) and by redes-19

ignating clauses (iv) and (v) as clauses (iii) and (iv), 20

respectively. 21

(7) Section 842(c) is amended by striking para-22

graph (1) and by redesignating paragraphs (2) and 23

(3) as paragraphs (1) and (2), respectively. 24

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(8) Section 953(b)(1), as amended by section 1

13511, is amended by striking subparagraph (A) 2

and by redesignating subparagraphs (B) and (C) as 3

subparagraphs (A) and (B), respectively. 4

FFECTIVE

ATE

.—The amendments made by 5

this section shall apply to taxable years beginning after 6

December 31, 2017. 7

SEC. 13513. ADJUSTMENT FOR CHANGE IN COMPUTING RE-8

SERVES. 9

(a) I

ENERAL

.—Paragraph (1) of section 807(f) 10

is amended to read as follows: 11

‘‘(1) T

REATMENT AS CHANGE IN METHOD OF

ACCOUNTING

.—If the basis for determining any item 13

referred to in subsection (c) as of the close of any 14

taxable year differs from the basis for such deter-15

mination as of the close of the preceding taxable 16

year, then so much of the difference between— 17

‘‘(A) the amount of the item at the close 18

of the taxable year, computed on the new basis, 19

and 20

‘‘(B) the amount of the item at the close 21

of the taxable year, computed on the old basis, 22

as is attributable to contracts issued before the tax-23

able year shall be taken into account under section 24

481 as adjustments attributable to a change in 25

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245

method of accounting initiated by the taxpayer and 1

made with the consent of the Secretary.’’. 2

(b) E

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

SEC. 13514. REPEAL OF SPECIAL RULE FOR DISTRIBUTIONS 6

TO SHAREHOLDERS FROM PRE-1984 POLICY-7

HOLDERS SURPLUS ACCOUNT. 8

(a) I

ENERAL

.—Subpart D of part I of subchapter 9

L is amended by striking section 815 (and by striking the 10

item relating to such section in the table of sections for 11

such subpart). 12

(b) C

ONFORMING

MENDMENT

.—Section 801 is 13

amended by striking subsection (c). 14

FFECTIVE

ATE

.—The amendments made by 15

this section shall apply to taxable years beginning after 16

December 31, 2017. 17

(d) P

HASED

NCLUSION OF

EMAINING

ALANCE OF

OLICYHOLDERS

URPLUS

CCOUNTS

.—In the case of 19

any stock life insurance company which has a balance (de-20

termined as of the close of such company’s last taxable 21

year beginning before January 1, 2018) in an existing pol-22

icyholders surplus account (as defined in section 815 of 23

the Internal Revenue Code of 1986, as in effect before 24

its repeal), the tax imposed by section 801 of such Code 25

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for the first 8 taxable years beginning after December 31, 1

2017, shall be the amount which would be imposed by 2

such section for such year on the sum of— 3

(1) life insurance company taxable income for 4

such year (within the meaning of such section 801 5

but not less than zero), plus 6

(2)

⁄

of such balance. 7

SEC. 13515. MODIFICATION OF PRORATION RULES FOR 8

PROPERTY AND CASUALTY INSURANCE COM-9

PANIES. 10

(a) I

ENERAL

.—Section 832(b)(5)(B) is amend-11

ed— 12

(1) by striking ‘‘15 percent’’ and inserting ‘‘the 13

applicable percentage’’, and 14

(2) by inserting at the end the following new 15

sentence: ‘‘For purposes of this subparagraph, the 16

applicable percentage is 5.25 percent divided by the 17

highest rate in effect under section 11(b).’’. 18

(b) E

FFECTIVE

ATE

.—The amendments made by 19

this section shall apply to taxable years beginning after 20

December 31, 2017. 21

SEC. 13516. REPEAL OF SPECIAL ESTIMATED TAX PAY-22

MENTS. 23

(a) I

ENERAL

.—Part III of subchapter L of chap-24

ter 1 is amended by striking section 847 (and by striking 25

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the item relating to such section in the table of sections 1

for such part). 2

(b) E

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

SEC. 13517. COMPUTATION OF LIFE INSURANCE TAX RE-6

SERVES. 7

(a) I

ENERAL

.— 8

(1) A

PPROPRIATE RATE OF INTEREST

.—The 9

second sentence of section 807(c) is amended to read 10

as follows: ‘‘For purposes of paragraph (3), the ap-11

propriate rate of interest is the highest rate or rates 12

permitted to be used to discount the obligations by 13

the National Association of Insurance Commis-14

sioners as of the date the reserve is determined.’’. 15

(2) M

ETHOD OF COMPUTING RESERVES

.—Sec-16

tion 807(d) is amended— 17

(A) by striking paragraphs (1), (2), (4), 18

and (5), 19

(B) by redesignating paragraph (6) as 20

paragraph (4), 21

following new paragraphs: 23

‘‘(1) D

ETERMINATION OF RESERVE

.— 24

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‘‘(A) I

N GENERAL

.—For purposes of this 1

part (other than section 816), the amount of 2

the life insurance reserves for any contract 3

(other than a contract to which subparagraph 4

(B) applies) shall be the greater of— 5

‘‘(i) the net surrender value of such 6

contract, or 7

‘‘(ii) 92.81 percent of the reserve de-8

termined under paragraph (2). 9

‘‘(B) V

ARIABLE CONTRACTS

.—For pur-10

poses of this part (other than section 816), the 11

amount of the life insurance reserves for a vari-12

able contract shall be equal to the sum of— 13

‘‘(i) the greater of— 14

‘‘(I) the net surrender value of 15

such contract, or 16

‘‘(II) the portion of the reserve 17

that is separately accounted for under 18

section 817, plus 19

‘‘(ii) 92.81 percent of the excess (if 20

any) of the reserve determined under para-21

graph (2) over the amount in clause (i). 22

‘‘(C) S

TATUTORY CAP

.—In no event shall 23

the reserves determined under subparagraphs 24

(A) or (B) for any contract as of any time ex-25

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249

ceed the amount which would be taken into ac-1

count with respect to such contract as of such 2

time in determining statutory reserves (as de-3

fined in paragraph (4)). 4

‘‘(D) N

O DOUBLE COUNTING

.—In no event 5

shall any amount or item be taken into account 6

more than once in determining any reserve 7

under this subchapter. 8

‘‘(2) A

MOUNT OF RESERVE

.—The amount of 9

the reserve determined under this paragraph with 10

respect to any contract shall be determined by using 11

the tax reserve method applicable to such contract.’’. 12

(D) by striking ‘‘(other than a qualified 13

long-term care insurance contract, as defined in 14

section 7702B(b)), a 2-year full preliminary 15

term method’’ in paragraph (3)(A)(iii) and in-16

serting ‘‘, the reserve method prescribed by the 17

National Association of Insurance Commis-18

sioners which covers such contract as of the 19

date the reserve is determined’’, 20

(E) by striking ‘‘(as of the date of 21

issuance)’’ in paragraph (3)(A)(iv)(I) and in-22

serting ‘‘(as of the date the reserve is deter-23

mined)’’, 24

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250

(F) by striking ‘‘as of the date of the 1

issuance of’’ in paragraph (3)(A)(iv)(II) and in-2

serting ‘‘as of the date the reserve is deter-3

mined for’’, 4

(G) by striking ‘‘in effect on the date of 5

the issuance of the contract’’ in paragraph 6

(3)(B)(i) and inserting ‘‘applicable to the con-7

tract and in effect as of the date the reserve is 8

determined’’, and 9

(H) by striking ‘‘in effect on the date of 10

the issuance of the contract’’ in paragraph 11

(3)(B)(ii) and inserting ‘‘applicable to the con-12

tract and in effect as of the date the reserve is 13

determined’’. 14

(3) S

PECIAL RULES

.—Section 807(e) is amend-15

ed— 16

(A) by striking paragraphs (2) and (5), 17

(B) by redesignating paragraphs (3), (4), 18

(6), and (7) as paragraphs (2), (3), (4), and 19

(5), respectively, 20

designated) to read as follows: 22

‘‘(2) Q

UALIFIED SUPPLEMENTAL BENEFITS

.— 23

‘‘(A) Q

UALIFIED SUPPLEMENTAL BENE

-24

FITS TREATED SEPARATELY

.—For purposes of 25

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251

this part, the amount of the life insurance re-1

serve for any qualified supplemental benefit 2

shall be computed separately as though such 3

benefit were under a separate contract. 4

‘‘(B) Q

UALIFIED SUPPLEMENTAL BEN

-5

EFIT

.—For purposes of this paragraph, the 6

term ‘qualified supplemental benefit’ means any 7

supplemental benefit described in subparagraph 8

‘‘(i) there is a separately identified 10

premium or charge for such benefit, and 11

‘‘(ii) any net surrender value under 12

the contract attributable to any other ben-13

efit is not available to fund such benefit. 14

‘‘(C) S

UPPLEMENTAL BENEFITS

.—For 15

purposes of this paragraph, the supplemental 16

benefits described in this subparagraph are 17

any— 18

‘‘(i) guaranteed insurability, 19

‘‘(ii) accidental death or disability 20

benefit, 21

‘‘(iii) convertibility, 22

‘‘(iv) disability waiver benefit, or 23

‘‘(v) other benefit prescribed by regu-24

lations, 25

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which is supplemental to a contract for which 1

there is a reserve described in subsection (c).’’, 2

and 3

(D) by adding at the end the following new 4

paragraph: 5

‘‘(6) R

EPORTING RULES

.—The Secretary shall 6

require reporting (at such time and in such manner 7

as the Secretary shall prescribe) with respect to the 8

opening balance and closing balance of reserves and 9

with respect to the method of computing reserves for 10

purposes of determining income.’’. 11

(4) D

EFINITION OF LIFE INSURANCE CON

-12

TRACT

.—Section 7702 is amended— 13

(A) by striking clause (i) of subsection 14

(c)(3)(B) and inserting the following: 15

‘‘(i) reasonable mortality charges 16

which meet the requirements prescribed in 17

regulations to be promulgated by the Sec-18

retary or that do not exceed the mortality 19

charges specified in the prevailing commis-20

sioners’ standard tables as defined in sub-21

section (f)(10),’’ and 22

(B) by adding at the end of subsection (f) 23

the following new paragraph: 24

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253

‘‘(10) P

REVAILING COMMISSIONERS

’

STANDARD

TABLES

.—For purposes of subsection (c)(3)(B)(i), 2

the term ‘prevailing commissioners’ standard tables’ 3

means the most recent commissioners’ standard ta-4

bles prescribed by the National Association of Insur-5

ance Commissioners which are permitted to be used 6

in computing reserves for that type of contract 7

under the insurance laws of at least 26 States when 8

the contract was issued. If the prevailing commis-9

sioners’ standard tables as of the beginning of any 10

calendar year (hereinafter in this paragraph referred 11

to as the ‘year of change’) are different from the 12

prevailing commissioners’ standard tables as of the 13

beginning of the preceding calendar year, the issuer 14

may use the prevailing commissioners’ standard ta-15

bles as of the beginning of the preceding calendar 16

year with respect to any contract issued after the 17

change and before the close of the 3-year period be-18

ginning on the first day of the year of change.’’. 19

(b) C

ONFORMING

MENDMENTS

.— 20

(1) Section 808 is amended by adding at the 21

end the following new subsection: 22

‘‘(g) P

REVAILING

TATE

SSUMED

NTEREST

ATE

.—For purposes of this subchapter— 24

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‘‘(1) I

N GENERAL

.—The term ‘prevailing State 1

assumed interest rate’ means, with respect to any 2

contract, the highest assumed interest rate per-3

mitted to be used in computing life insurance re-4

serves for insurance contracts or annuity contracts 5

(as the case may be) under the insurance laws of at 6

least 26 States. For purposes of the preceding sen-7

tence, the effect of nonforfeiture laws of a State on 8

interest rates for reserves shall not be taken into ac-9

count. 10

‘‘(2) W

HEN RATE DETERMINED

.—The pre-11

vailing State assumed interest rate with respect to 12

any contract shall be determined as of the beginning 13

of the calendar year in which the contract was 14

issued.’’. 15

(2) Paragraph (1) of section 811(d) is amended 16

by striking ‘‘the greater of the prevailing State as-17

sumed interest rate or applicable Federal interest 18

rate in effect under section 807’’ and inserting ‘‘the 19

interest rate in effect under section 808(g)’’. 20

(3) Subparagraph (A) of section 846(f)(6) is 21

amended by striking ‘‘except that’’ and all that fol-22

lows and inserting ‘‘except that the limitation of 23

subsection (a)(3) shall apply, and’’. 24

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255

(4) Section 848(e)(1)(B)(iii) is amended by 1

striking ‘‘807(e)(4)’’ and inserting ‘‘807(e)(3)’’. 2

(5) Subparagraph (B) of section 954(i)(5) is 3

amended by striking ‘‘shall be substituted for the 4

prevailing State assumed interest rate,’’ and insert-5

ing ‘‘shall apply,’’. 6

FFECTIVE

ATE

.— 7

(1) I

N GENERAL

.—The amendments made by 8

this section shall apply to taxable years beginning 9

after December 31, 2017. 10

(2) T

RANSITION RULE

.—For the first taxable 11

year beginning after December 31, 2017, the reserve 12

with respect to any contract (as determined under 13

section 807(d) of the Internal Revenue Code of 14

1986) at the end of the preceding taxable year shall 15

be determined as if the amendments made by this 16

section had applied to such reserve in such preceding 17

taxable year. 18

(3) T

RANSITION RELIEF

.— 19

(A) I

N GENERAL

.—If— 20

(i) the reserve determined under sec-21

tion 807(d) of the Internal Revenue Code 22

of 1986 (determined after application of 23

paragraph (2)) with respect to any con-24

tract as of the close of the year preceding 25

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256

the first taxable year beginning after De-1

cember 31, 2017, differs from 2

(ii) the reserve which would have been 3

determined with respect to such contract 4

as of the close of such taxable year under 5

such section determined without regard to 6

paragraph (2), 7

then the difference between the amount of the 8

reserve described in clause (i) and the amount 9

of the reserve described in clause (ii) shall be 10

taken into account under the method provided 11

in subparagraph (B). 12

(B) M

ETHOD

.—The method provided in 13

this subparagraph is as follows: 14

(i) If the amount determined under 15

subparagraph (A)(i) exceeds the amount 16

determined under subparagraph (A)(ii), 1/ 17

8 of such excess shall be taken into ac-18

count, for each of the 8 succeeding taxable 19

years, as a deduction under section 20

805(a)(2) or 832(c)(4) of such Code, as 21

applicable. 22

(ii) If the amount determined under 23

subparagraph (A)(ii) exceeds the amount 24

determined under subparagraph (A)(i), 1/8 25

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257

of such excess shall be included in gross in-1

come, for each of the 8 succeeding taxable 2

years, under section 803(a)(2) or 3

832(b)(1)(C) of such Code, as applicable. 4

SEC. 13518. MODIFICATION OF RULES FOR LIFE INSUR-5

ANCE PRORATION FOR PURPOSES OF DETER-6

MINING THE DIVIDENDS RECEIVED DEDUC-7

TION. 8

(a) I

ENERAL

.—Section 812 is amended to read 9

as follows: 10

‘‘SEC. 812. DEFINITION OF COMPANY’S SHARE AND POLICY-11

HOLDER’S SHARE. 12

‘‘(a) C

OMPANY

’

HARE

.—For purposes of section 13

805(a)(4), the term ‘company’s share’ means, with respect 14

to any taxable year beginning after December 31, 2017, 15

70 percent. 16

‘‘(b) P

OLICYHOLDER

’

HARE

.—For purposes of sec-17

tion 807, the term ‘policyholder’s share’ means, with re-18

spect to any taxable year beginning after December 31, 19

2017, 30 percent.’’. 20

(b) C

ONFORMING

MENDMENT

.—Section 817A(e)(2) 21

is amended by striking ‘‘, 807(d)(2)(B), and 812’’ and in-22

serting ‘‘and 807(d)(2)(B)’’. 23

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258

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to taxable years beginning after 2

December 31, 2017. 3

SEC. 13519. CAPITALIZATION OF CERTAIN POLICY ACQUISI-4

TION EXPENSES. 5

(a) I

ENERAL

.— 6

(1) Section 848(a)(2) is amended by striking 7

‘‘120-month’’ and inserting ‘‘180-month’’. 8

(2) Section 848(c)(1) is amended by striking 9

‘‘1.75 percent’’ and inserting ‘‘2.09 percent’’. 10

(3) Section 848(c)(2) is amended by striking 11

‘‘2.05 percent’’ and inserting ‘‘2.45 percent’’. 12

(4) Section 848(c)(3) is amended by striking 13

‘‘7.7 percent’’ and inserting ‘‘9.2 percent’’. 14

(b) C

ONFORMING

MENDMENTS

.—Section 848(b)(1) 15

is amended by striking ‘‘120-month’’ and inserting ‘‘180- 16

month’’. 17

FFECTIVE

ATE

.— 18

(1) I

N GENERAL

.—The amendments made by 19

this section shall apply to net premiums for taxable 20

years beginning after December 31, 2017. 21

(2) T

RANSITION RULE

.—Specified policy acqui-22

sition expenses first required to be capitalized in a 23

taxable year beginning before January 1, 2018, will 24

continue to be allowed as a deduction ratably over 25

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259

the 120-month period beginning with the first month 1

in the second half of such taxable year. 2

SEC. 13520. TAX REPORTING FOR LIFE SETTLEMENT 3

TRANSACTIONS. 4

(a) I

ENERAL

.—Subpart B of part III of sub-5

chapter A of chapter 61, as amended by section 13306, 6

is amended by adding at the end the following new section: 7

‘‘SEC. 6050Y. RETURNS RELATING TO CERTAIN LIFE INSUR-8

ANCE CONTRACT TRANSACTIONS. 9

‘‘(a) R

EQUIREMENT OF

EPORTING OF

ERTAIN

AYMENTS

.— 11

‘‘(1) I

N GENERAL

.—Every person who acquires 12

a life insurance contract or any interest in a life in-13

surance contract in a reportable policy sale during 14

any taxable year shall make a return for such tax-15

able year (at such time and in such manner as the 16

Secretary shall prescribe) setting forth— 17

‘‘(A) the name, address, and TIN of such 18

person, 19

‘‘(B) the name, address, and TIN of each 20

recipient of payment in the reportable policy 21

sale, 22

‘‘(C) the date of such sale, 23

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260

‘‘(D) the name of the issuer of the life in-1

surance contract sold and the policy number of 2

such contract, and 3

‘‘(E) the amount of each payment. 4

‘‘(2) S

TATEMENT TO BE FURNISHED TO PER

-5

SONS WITH RESPECT TO WHOM INFORMATION IS RE

-6

QUIRED

.—Every person required to make a return 7

under this subsection shall furnish to each person 8

whose name is required to be set forth in such re-9

turn a written statement showing— 10

‘‘(A) the name, address, and phone num-11

ber of the information contact of the person re-12

quired to make such return, and 13

‘‘(B) the information required to be shown 14

on such return with respect to such person, ex-15

cept that in the case of an issuer of a life insur-16

ance contract, such statement is not required to 17

include the information specified in paragraph 18

(1)(E). 19

‘‘(b) R

EQUIREMENT OF

EPORTING OF

ELLER

’

ASIS IN

IFE

NSURANCE

ONTRACTS

.— 21

‘‘(1) I

N GENERAL

.—Upon receipt of the state-22

ment required under subsection (a)(2) or upon no-23

tice of a transfer of a life insurance contract to a 24

foreign person, each issuer of a life insurance con-25

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261

tract shall make a return (at such time and in such 1

manner as the Secretary shall prescribe) setting 2

forth— 3

‘‘(A) the name, address, and TIN of the 4

seller who transfers any interest in such con-5

tract in such sale, 6

‘‘(B) the investment in the contract (as de-7

fined in section 72(e)(6)) with respect to such 8

seller, and 9

‘‘(C) the policy number of such contract. 10

‘‘(2) S

TATEMENT TO BE FURNISHED TO PER

-11

SONS WITH RESPECT TO WHOM INFORMATION IS RE

-12

QUIRED

.—Every person required to make a return 13

under this subsection shall furnish to each person 14

whose name is required to be set forth in such re-15

turn a written statement showing— 16

‘‘(A) the name, address, and phone num-17

ber of the information contact of the person re-18

quired to make such return, and 19

‘‘(B) the information required to be shown 20

on such return with respect to each seller whose 21

name is required to be set forth in such return. 22

‘‘(c) R

EQUIREMENT OF

EPORTING

ITH

ESPECT

EPORTABLE

EATH

ENEFITS

.— 24

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‘‘(1) I

N GENERAL

.—Every person who makes a 1

payment of reportable death benefits during any tax-2

able year shall make a return for such taxable year 3

(at such time and in such manner as the Secretary 4

shall prescribe) setting forth— 5

‘‘(A) the name, address, and TIN of the 6

person making such payment, 7

‘‘(B) the name, address, and TIN of each 8

recipient of such payment, 9

‘‘(C) the date of each such payment, 10

‘‘(D) the gross amount of each such pay-11

ment, and 12

‘‘(E) such person’s estimate of the invest-13

ment in the contract (as defined in section 14

72(e)(6)) with respect to the buyer. 15

‘‘(2) S

TATEMENT TO BE FURNISHED TO PER

-16

SONS WITH RESPECT TO WHOM INFORMATION IS RE

-17

QUIRED

.—Every person required to make a return 18

under this subsection shall furnish to each person 19

whose name is required to be set forth in such re-20

turn a written statement showing— 21

‘‘(A) the name, address, and phone num-22

ber of the information contact of the person re-23

quired to make such return, and 24

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263

‘‘(B) the information required to be shown 1

on such return with respect to each recipient of 2

payment whose name is required to be set forth 3

in such return. 4

‘‘(d) D

EFINITIONS

.—For purposes of this section: 5

‘‘(1) P

AYMENT

.—The term ‘payment’ means, 6

with respect to any reportable policy sale, the 7

amount of cash and the fair market value of any 8

consideration transferred in the sale. 9

‘‘(2) R

EPORTABLE POLICY SALE

.—The term 10

‘reportable policy sale’ has the meaning given such 11

term in section 101(a)(3)(B). 12

‘‘(3) I

SSUER

.—The term ‘issuer’ means any life 13

insurance company that bears the risk with respect 14

to a life insurance contract on the date any return 15

or statement is required to be made under this sec-16

tion. 17

‘‘(4) R

EPORTABLE DEATH BENEFITS

.—The 18

term ‘reportable death benefits’ means amounts paid 19

by reason of the death of the insured under a life 20

insurance contract that has been transferred in a re-21

portable policy sale.’’. 22

(b) C

LERICAL

MENDMENT

.—The table of sections 23

for subpart B of part III of subchapter A of chapter 61, 24

as amended by section 13306, is amended by inserting 25

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264

after the item relating to section 6050X the following new 1

item: 2

‘‘Sec. 6050Y. Returns relating to certain life insurance contract transactions.’’.

ONFORMING

MENDMENTS

.— 3

(1) Subsection (d) of section 6724 is amend-4

ed— 5

(A) by striking ‘‘or’’ at the end of clause 6

(xxiv) of paragraph (1)(B), by striking ‘‘and’’ 7

at the end of clause (xxv) of such paragraph 8

and inserting ‘‘or’’, and by inserting after such 9

clause (xxv) the following new clause: 10

‘‘(xxvi) section 6050Y (relating to re-11

turns relating to certain life insurance con-12

tract transactions), and’’, and 13

(B) by striking ‘‘or’’ at the end of subpara-14

graph (HH) of paragraph (2), by striking the 15

period at the end of subparagraph (II) of such 16

paragraph and inserting ‘‘, or’’, and by insert-17

ing after such subparagraph (II) the following 18

new subparagraph: 19

‘‘(JJ) subsection (a)(2), (b)(2), or (c)(2) of 20

section 6050Y (relating to returns relating to 21

certain life insurance contract transactions).’’. 22

(2) Section 6047 is amended— 23

(A) by redesignating subsection (g) as sub-24

section (h), 25

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265

(B) by inserting after subsection (f) the 1

following new subsection: 2

‘‘(g) I

NFORMATION

ELATING TO

IFE

NSURANCE

ONTRACT

RANSACTIONS

.—This section shall not apply 4

to any information which is required to be reported under 5

section 6050Y.’’, and 6

as so redesignated, the following new para-8

graph: 9

‘‘(4) For provisions requiring reporting of infor-10

mation relating to certain life insurance contract 11

transactions, see section 6050Y.’’. 12

(d) E

FFECTIVE

ATE

.—The amendments made by 13

this section shall apply to— 14

(1) reportable policy sales (as defined in section 15

6050Y(d)(2) of the Internal Revenue Code of 1986 16

(as added by subsection (a)) after December 31, 17

2017, and 18

(2) reportable death benefits (as defined in sec-19

tion 6050Y(d)(4) of such Code (as added by sub-20

section (a)) paid after December 31, 2017. 21

SEC. 13521. CLARIFICATION OF TAX BASIS OF LIFE INSUR-22

ANCE CONTRACTS. 23

(a) C

LARIFICATION

ITH

ESPECT TO

DJUST

-24

MENTS

.—Paragraph (1) of section 1016(a) is amended by 25

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266

striking subparagraph (A) and all that follows and insert-1

ing the following: 2

‘‘(A) for— 3

‘‘(i) taxes or other carrying charges 4

described in section 266; or 5

‘‘(ii) expenditures described in section 6

173 (relating to circulation expenditures), 7

for which deductions have been taken by the 8

taxpayer in determining taxable income for the 9

taxable year or prior taxable years; or 10

‘‘(B) for mortality, expense, or other rea-11

sonable charges incurred under an annuity or 12

life insurance contract;’’. 13

(b) E

FFECTIVE

ATE

.—The amendment made by 14

this section shall apply to transactions entered into after 15

August 25, 2009. 16

SEC. 13522. EXCEPTION TO TRANSFER FOR VALUABLE CON-17

SIDERATION RULES. 18

(a) I

ENERAL

.—Subsection (a) of section 101 is 19

amended by inserting after paragraph (2) the following 20

new paragraph: 21

‘‘(3) E

XCEPTION TO VALUABLE CONSIDERATION

RULES FOR COMMERCIAL TRANSFERS

.— 23

‘‘(A) I

N GENERAL

.—The second sentence 24

of paragraph (2) shall not apply in the case of 25

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267

a transfer of a life insurance contract, or any 1

interest therein, which is a reportable policy 2

sale. 3

‘‘(B) R

EPORTABLE POLICY SALE

.—For 4

purposes of this paragraph, the term ‘reportable 5

policy sale’ means the acquisition of an interest 6

in a life insurance contract, directly or indi-7

rectly, if the acquirer has no substantial family, 8

business, or financial relationship with the in-9

sured apart from the acquirer’s interest in such 10

life insurance contract. For purposes of the pre-11

ceding sentence, the term ‘indirectly’ applies to 12

the acquisition of an interest in a partnership, 13

trust, or other entity that holds an interest in 14

the life insurance contract.’’. 15

(b) C

ONFORMING

MENDMENT

.—Paragraph (1) of 16

section 101(a) is amended by striking ‘‘paragraph (2)’’ 17

and inserting ‘‘paragraphs (2) and (3)’’. 18

FFECTIVE

ATE

.—The amendments made by 19

this section shall apply to transfers after December 31, 20

2017. 21

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SEC. 13523. MODIFICATION OF DISCOUNTING RULES FOR 1

PROPERTY AND CASUALTY INSURANCE COM-2

PANIES. 3

(a) M

ODIFICATION OF

ATE OF

NTEREST

SED TO

ISCOUNT

NPAID

OSSES

.—Paragraph (2) of section 5

846(c) is amended to read as follows: 6

‘‘(2) D

ETERMINATION OF ANNUAL RATE

.—The 7

annual rate determined by the Secretary under this 8

paragraph for any calendar year shall be a rate de-9

termined on the basis of the corporate bond yield 10

curve (as defined in section 430(h)(2)(D)(i), deter-11

mined by substituting ‘60-month period’ for ‘24- 12

month period’ therein).’’. 13

(b) M

ODIFICATION OF

OMPUTATIONAL

ULES FOR

OSS

AYMENT

ATTERNS

.—Section 846(d)(3) is amend-15

ed by striking subparagraphs (B) through (G) and insert-16

ing the following new subparagraph: 17

‘‘(B) T

REATMENT OF CERTAIN LOSSES

.— 18

‘‘(i) 3-

YEAR LOSS PAYMENT PAT

-19

TERN

.—In the case of any line of business 20

not described in subparagraph (A)(ii), 21

losses paid after the 1st year following the 22

accident year shall be treated as paid 23

equally in the 2nd and 3rd year following 24

the accident year. 25

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269

‘‘(ii) 10-

YEAR LOSS PAYMENT PAT

-1

TERN

.— 2

‘‘(I) I

N GENERAL

.—The period 3

taken into account under subpara-4

graph (A)(ii) shall be extended to the 5

extent required under subclause (II). 6

‘‘(II) C

OMPUTATION OF EXTEN

-7

SION

.—The amount of losses which 8

would have been treated as paid in the 9

10th year after the accident year shall 10

be treated as paid in such 10th year 11

and each subsequent year in an 12

amount equal to the amount of the 13

average of the losses treated as paid 14

in the 7th, 8th, and 9th years after 15

the accident year (or, if lesser, the 16

portion of the unpaid losses not there-17

tofore taken into account). To the ex-18

tent such unpaid losses have not been 19

treated as paid before the 24th year 20

after the accident year, they shall be 21

treated as paid in such 24th year.’’. 22

EPEAL OF

ISTORICAL

AYMENT

ATTERN

LECTION

.—Section 846, as amended by this Act, is 24

amended by striking subsection (e) and by redesignating 25

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subsections (f) and (g) as subsections (e) and (f), respec-1

tively. 2

(d) E

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years beginning after 4

December 31, 2017. 5

(e) T

RANSITIONAL

ULE

.—For the first taxable year 6

beginning after December 31, 2017— 7

(1) the unpaid losses and the expenses unpaid 8

(as defined in paragraphs (5)(B) and (6) of section 9

832(b) of the Internal Revenue Code of 1986) at the 10

end of the preceding taxable year, and 11

(2) the unpaid losses as defined in sections 12

807(c)(2) and 805(a)(1) of such Code at the end of 13

the preceding taxable year, 14

shall be determined as if the amendments made by this 15

section had applied to such unpaid losses and expenses 16

unpaid in the preceding taxable year and by using the in-17

terest rate and loss payment patterns applicable to acci-18

dent years ending with calendar year 2018, and any ad-19

justment shall be taken into account ratably in such first 20

taxable year and the 7 succeeding taxable years. For sub-21

sequent taxable years, such amendments shall be applied 22

with respect to such unpaid losses and expenses unpaid 23

by using the interest rate and loss payment patterns appli-24

cable to accident years ending with calendar year 2018. 25

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Subpart C—Banks and Financial Instruments 1

SEC. 13531. LIMITATION ON DEDUCTION FOR FDIC PRE-2

MIUMS. 3

(a) I

ENERAL

.—Section 162, as amended by sec-4

tions 13307, is amended by redesignating subsection (r) 5

as subsection (s) and by inserting after subsection (q) the 6

following new subsection: 7

‘‘(r) D

ISALLOWANCE OF

FDIC P

REMIUMS

AID BY

ERTAIN

ARGE

INANCIAL

NSTITUTIONS

.— 9

‘‘(1) I

N GENERAL

.—No deduction shall be al-10

lowed for the applicable percentage of any FDIC 11

premium paid or incurred by the taxpayer. 12

‘‘(2) E

XCEPTION FOR SMALL INSTITUTIONS

.— 13

Paragraph (1) shall not apply to any taxpayer for 14

any taxable year if the total consolidated assets of 15

such taxpayer (determined as of the close of such 16

taxable year) do not exceed $10,000,000,000. 17

‘‘(3) A

PPLICABLE PERCENTAGE

.—For purposes 18

of this subsection, the term ‘applicable percentage’ 19

means, with respect to any taxpayer for any taxable 20

year, the ratio (expressed as a percentage but not 21

greater than 100 percent) which— 22

‘‘(A) the excess of— 23

‘‘(i) the total consolidated assets of 24

such taxpayer (determined as of the close 25

of such taxable year), over 26

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272

‘‘(ii) $10,000,000,000, bears to 1

‘‘(B) $40,000,000,000. 2

‘‘(4) FDIC

PREMIUMS

.—For purposes of this 3

subsection, the term ‘FDIC premium’ means any as-4

sessment imposed under section 7(b) of the Federal 5

Deposit Insurance Act (12 U.S.C. 1817(b)). 6

‘‘(5) T

OTAL CONSOLIDATED ASSETS

.—For pur-7

poses of this subsection, the term ‘total consolidated 8

assets’ has the meaning given such term under sec-9

tion 165 of the Dodd-Frank Wall Street Reform and 10

Consumer Protection Act (12 U.S.C. 5365). 11

‘‘(6) A

GGREGATION RULE

.— 12

‘‘(A) I

N GENERAL

.—Members of an ex-13

panded affiliated group shall be treated as a 14

single taxpayer for purposes of applying this 15

subsection. 16

‘‘(B) E

XPANDED AFFILIATED GROUP

.— 17

‘‘(i) I

N GENERAL

.—For purposes of 18

this paragraph, the term ‘expanded affili-19

ated group’ means an affiliated group as 20

defined in section 1504(a), determined— 21

‘‘(I) by substituting ‘more than 22

50 percent’ for ‘at least 80 percent’ 23

each place it appears, and 24

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‘‘(II) without regard to para-1

graphs (2) and (3) of section 1504(b). 2

‘‘(ii) C

ONTROL OF NON

CORPORATE

ENTITIES

.—A partnership or any other en-4

tity (other than a corporation) shall be 5

treated as a member of an expanded affili-6

ated group if such entity is controlled 7

(within the meaning of section 954(d)(3)) 8

by members of such group (including any 9

entity treated as a member of such group 10

by reason of this clause).’’. 11

(b) E

FFECTIVE

ATE

.—The amendments made by 12

this section shall apply to taxable years beginning after 13

December 31, 2017. 14

SEC. 13532. REPEAL OF ADVANCE REFUNDING BONDS. 15

(a) I

ENERAL

.—Paragraph (1) of section 149(d) 16

is amended by striking ‘‘as part of an issue described in 17

paragraph (2), (3), or (4).’’ and inserting ‘‘to advance re-18

fund another bond.’’. 19

(b) C

ONFORMING

MENDMENTS

.— 20

(1) Section 149(d) is amended by striking para-21

graphs (2), (3), (4), and (6) and by redesignating 22

paragraphs (5) and (7) as paragraphs (2) and (3). 23

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(2) Section 148(f)(4)(C) is amended by striking 1

clause (xiv) and by redesignating clauses (xv) to 2

(xvii) as clauses (xiv) to (xvi). 3

FFECTIVE

ATE

.—The amendments made by 4

this section shall apply to advance refunding bonds issued 5

after December 31, 2017. 6

Subpart D—S Corporations 7

SEC. 13541. EXPANSION OF QUALIFYING BENEFICIARIES OF 8

AN ELECTING SMALL BUSINESS TRUST. 9

(a) N

OOK

THROUGH FOR

LIGIBILITY

-10

POSES

.—Section 1361(c)(2)(B)(v) is amended by adding 11

at the end the following new sentence: ‘‘This clause shall 12

not apply for purposes of subsection (b)(1)(C).’’. 13

(b) E

FFECTIVE

ATE

.—The amendment made by 14

this section shall take effect on January 1, 2018. 15

SEC. 13542. CHARITABLE CONTRIBUTION DEDUCTION FOR 16

ELECTING SMALL BUSINESS TRUSTS. 17

(a) I

ENERAL

.—Section 641(c)(2) is amended by 18

inserting after subparagraph (D) the following new sub-19

paragraph: 20

‘‘(E)(i) Section 642(c) shall not apply. 21

‘‘(ii) For purposes of section 170(b)(1)(G), 22

adjusted gross income shall be computed in the 23

same manner as in the case of an individual, 24

except that the deductions for costs which are 25

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paid or incurred in connection with the admin-1

istration of the trust and which would not have 2

been incurred if the property were not held in 3

such trust shall be treated as allowable in arriv-4

ing at adjusted gross income.’’. 5

(b) E

FFECTIVE

ATE

.—The amendment made by 6

this section shall apply to taxable years beginning after 7

December 31, 2017. 8

SEC. 13543. MODIFICATION OF TREATMENT OF S CORPORA-9

TION CONVERSIONS TO C CORPORATIONS. 10

(a) A

DJUSTMENTS

TTRIBUTABLE TO

ONVERSION

ROM

S C

ORPORATION TO

C C

ORPORATION

.—Section 481 12

is amended by adding at the end the following new sub-13

section: 14

‘‘(d) A

DJUSTMENTS

TTRIBUTABLE TO

ONVERSION

ROM

S C

ORPORATION TO

C C

ORPORATION

.— 16

‘‘(1) I

N GENERAL

.—In the case of an eligible 17

terminated S corporation, any adjustment required 18

by subsection (a)(2) which is attributable to such 19

corporation’s revocation described in paragraph 20

(2)(A)(ii) shall be taken into account ratably during 21

the 6-taxable year period beginning with the year of 22

change. 23

‘‘(2) E

LIGIBLE TERMINATED S CORPORA

-24

TION

.—For purposes of this subsection, the term ‘el-25

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igible terminated S corporation’ means any C cor-1

poration— 2

‘‘(A) which— 3

‘‘(i) was an S corporation on the day 4

before the date of the enactment of the 5

Tax Cuts and Jobs Act, and 6

‘‘(ii) during the 2-year period begin-7

ning on the date of such enactment makes 8

a revocation of its election under section 9

1362(a), and 10

‘‘(B) the owners of the stock of which, de-11

termined on the date such revocation is made, 12

are the same owners (and in identical propor-13

tions) as on the date of such enactment.’’. 14

(b) C

ASH

ISTRIBUTIONS

OLLOWING

OST

TERMI

-15

NATION

RANSITION

ERIOD

ROM

S C

ORPORATION

-16

TUS

.—Section 1371 is amended by adding at the end the 17

following new subsection: 18

‘‘(f) C

ASH

ISTRIBUTIONS

OLLOWING

OST

TERMI

-19

NATION

RANSITION

ERIOD

.—In the case of a distribu-20

tion of money by an eligible terminated S corporation (as 21

defined in section 481(d)) after the post-termination tran-22

sition period, the accumulated adjustments account shall 23

be allocated to such distribution, and the distribution shall 24

be chargeable to accumulated earnings and profits, in the 25

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same ratio as the amount of such accumulated adjust-1

ments account bears to the amount of such accumulated 2

earnings and profits.’’. 3

PART VII—EMPLOYMENT 4

Subpart A—Compensation 5

SEC. 13601. MODIFICATION OF LIMITATION ON EXCESSIVE 6

EMPLOYEE REMUNERATION. 7

(a) R

EPEAL OF

ERFORMANCE

BASED

OMPENSA

-8

TION AND

OMMISSION

XCEPTIONS FOR

IMITATION ON

XCESSIVE

MPLOYEE

EMUNERATION

.— 10

(1) I

N GENERAL

.—Paragraph (4) of section 11

162(m) is amended by striking subparagraphs (B) 12

and (C) and by redesignating subparagraphs (D), 13

(E), (F), and (G) as subparagraphs (B), (C), (D), 14

and (E), respectively. 15

(2) C

ONFORMING AMENDMENTS

.— 16

(A) Paragraphs (5)(E) and (6)(D) of sec-17

tion 162(m) are each amended by striking 18

‘‘subparagraphs (B), (C), and (D)’’ and insert-19

ing ‘‘subparagraph (B)’’. 20

(B) Paragraphs (5)(G) and (6)(G) of sec-21

tion 162(m) are each amended by striking ‘‘(F) 22

and (G)’’ and inserting ‘‘(D) and (E)’’. 23

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(b) M

ODIFICATION OF

EFINITION OF

OVERED

-1

PLOYEES

.—Paragraph (3) of section 162(m) is amend-2

ed— 3

(1) in subparagraph (A), by striking ‘‘as of the 4

close of the taxable year, such employee is the chief 5

executive officer of the taxpayer or is’’ and inserting 6

‘‘such employee is the principal executive officer or 7

principal financial officer of the taxpayer at any 8

time during the taxable year, or was’’, 9

(2) in subparagraph (B)— 10

(A) by striking ‘‘4’’ and inserting ‘‘3’’, and 11

(B) by striking ‘‘(other than the chief exec-12

utive officer)’’ and inserting ‘‘(other than any 13

individual described in subparagraph (A))’’, and 14

(3) by striking ‘‘or’’ at the end of subparagraph 15

(A), by striking the period at the end of subpara-16

graph (B) and inserting ‘‘, or’’, and by adding at the 17

end the following: 18

‘‘(C) was a covered employee of the tax-19

payer (or any predecessor) for any preceding 20

taxable year beginning after December 31, 21

2016.’’. 22

XPANSION OF

PPLICABLE

MPLOYER

.— 23

(1) I

N GENERAL

.—Section 162(m)(2) is amend-24

ed to read as follows: 25

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‘‘(2) P

UBLICLY HELD CORPORATION

.—For pur-1

poses of this subsection, the term ‘publicly held cor-2

poration’ means any corporation which is an issuer 3

(as defined in section 3 of the Securities Exchange 4

Act of 1934 (15 U.S.C. 78c))— 5

‘‘(A) the securities of which are required to 6

be registered under section 12 of such Act (15 7

U.S.C. 78l), or 8

‘‘(B) that is required to file reports under 9

section 15(d) of such Act (15 U.S.C. 78o(d)).’’. 10

(2) C

ONFORMING AMENDMENT

.—Section 11

162(m)(3), as amended by subsection (b), is amend-12

ed by adding at the end the following flush sentence: 13

‘‘Such term shall include any employee who 14

would be described in subparagraph (B) if the re-15

porting described in such subparagraph were re-16

quired as so described.’’. 17

(d) S

PECIAL

ULE FOR

EMUNERATION

AID TO

ENEFICIARIES

ETC

.—Paragraph (4) of section 162(m), 19

as amended by subsection (a), is amended by adding at 20

the end the following new subparagraph: 21

‘‘(F) S

PECIAL RULE FOR REMUNERATION

PAID TO BENEFICIARIES

ETC

.—Remuneration 23

shall not fail to be applicable employee remu-24

neration merely because it is includible in the 25

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income of, or paid to, a person other than the 1

covered employee, including after the death of 2

the covered employee.’’. 3

(e) E

FFECTIVE

ATE

.— 4

(1) I

N GENERAL

.—Except as provided in para-5

graph (2), the amendments made by this section 6

shall apply to taxable years beginning after Decem-7

ber 31, 2017. 8

(2) E

XCEPTION FOR BINDING CONTRACTS

.— 9

The amendments made by this section shall not 10

apply to remuneration which is provided pursuant to 11

a written binding contract which was in effect on 12

November 2, 2017, and which was not modified in 13

any material respect on or after such date. 14

SEC. 13602. EXCISE TAX ON EXCESS TAX-EXEMPT ORGANI-15

ZATION EXECUTIVE COMPENSATION. 16

(a) I

ENERAL

.—Subchapter D of chapter 42 is 17

amended by adding at the end the following new section: 18

‘‘SEC. 4960. TAX ON EXCESS TAX-EXEMPT ORGANIZATION 19

EXECUTIVE COMPENSATION. 20

‘‘(a) T

MPOSED

.—There is hereby imposed a tax 21

equal to the product of the rate of tax under section 11 22

and the sum of— 23

‘‘(1) so much of the remuneration paid (other 24

than any excess parachute payment) by an applica-25

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ble tax-exempt organization for the taxable year with 1

respect to employment of any covered employee in 2

excess of $1,000,000, plus 3

‘‘(2) any excess parachute payment paid by 4

such an organization to any covered employee. 5

For purposes of the preceding sentence, remuneration 6

shall be treated as paid when there is no substantial risk 7

of forfeiture (within the meaning of section 457(f)(3)(B)) 8

of the rights to such remuneration. 9

‘‘(b) L

IABILITY FOR

.—The employer shall be lia-10

ble for the tax imposed under subsection (a). 11

‘‘(c) D

EFINITIONS AND

PECIAL

ULES

.—For pur-12

poses of this section— 13

‘‘(1) A

PPLICABLE TAX

EXEMPT ORGANIZA

-14

TION

.—The term ‘applicable tax-exempt organiza-15

tion’ means any organization which for the taxable 16

year— 17

‘‘(A) is exempt from taxation under section 18

501(a), 19

‘‘(B) is a farmers’ cooperative organization 20

described in section 521(b)(1), 21

‘‘(C) has income excluded from taxation 22

under section 115(1), or 23

‘‘(D) is a political organization described in 24

section 527(e)(1). 25

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‘‘(2) C

OVERED EMPLOYEE

.—For purposes of 1

this section, the term ‘covered employee’ means any 2

employee (including any former employee) of an ap-3

plicable tax-exempt organization if the employee— 4

‘‘(A) is one of the 5 highest compensated 5

employees of the organization for the taxable 6

year, or 7

‘‘(B) was a covered employee of the organi-8

zation (or any predecessor) for any preceding 9

taxable year beginning after December 31, 10

2016. 11

‘‘(3) R

EMUNERATION

.—For purposes of this 12

section: 13

‘‘(A) I

N GENERAL

.—The term ‘remunera-14

tion’ means wages (as defined in section 15

3401(a)), except that such term shall not in-16

clude any designated Roth contribution (as de-17

fined in section 402A(c)) and shall include 18

amounts required to be included in gross in-19

come under section 457(f). 20

‘‘(B) E

XCEPTION FOR REMUNERATION FOR

MEDICAL SERVICES

.—The term ‘remuneration’ 22

shall not include the portion of any remunera-23

tion paid to a licensed medical professional (in-24

cluding a veterinarian) which is for the per-25

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formance of medical or veterinary services by 1

such professional. 2

‘‘(4) R

EMUNERATION FROM RELATED ORGANI

-3

ZATIONS

.— 4

‘‘(A) I

N GENERAL

.—Remuneration of a 5

covered employee by an applicable tax-exempt 6

organization shall include any remuneration 7

paid with respect to employment of such em-8

ployee by any related person or governmental 9

entity. 10

‘‘(B) R

ELATED ORGANIZATIONS

.—A per-11

son or governmental entity shall be treated as 12

related to an applicable tax-exempt organization 13

if such person or governmental entity— 14

‘‘(i) controls, or is controlled by, the 15

organization, 16

‘‘(ii) is controlled by one or more per-17

sons which control the organization, 18

‘‘(iii) is a supported organization (as 19

defined in section 509(f)(3)) during the 20

taxable year with respect to the organiza-21

tion, 22

‘‘(iv) is a supporting organization de-23

scribed in section 509(a)(3) during the 24

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284

taxable year with respect to the organiza-1

tion, or 2

‘‘(v) in the case of an organization 3

which is a voluntary employees’ beneficiary 4

association described in section 501(c)(9), 5

establishes, maintains, or makes contribu-6

tions to such voluntary employees’ bene-7

ficiary association. 8

‘‘(C) L

IABILITY FOR TAX

.—In any case in 9

which remuneration from more than one em-10

ployer is taken into account under this para-11

graph in determining the tax imposed by sub-12

section (a), each such employer shall be liable 13

for such tax in an amount which bears the 14

same ratio to the total tax determined under 15

subsection (a) with respect to such remunera-16

tion as— 17

‘‘(i) the amount of remuneration paid 18

by such employer with respect to such em-19

ployee, bears to 20

‘‘(ii) the amount of remuneration paid 21

by all such employers to such employee. 22

‘‘(5) E

XCESS PARACHUTE PAYMENT

.—For pur-23

poses of determining the tax imposed by subsection 24

(a)(2)— 25

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‘‘(A) I

N GENERAL

.—The term ‘excess 1

parachute payment’ means an amount equal to 2

the excess of any parachute payment over the 3

portion of the base amount allocated to such 4

payment. 5

‘‘(B) P

ARACHUTE PAYMENT

.—The term 6

‘parachute payment’ means any payment in the 7

nature of compensation to (or for the benefit 8

of) a covered employee if— 9

‘‘(i) such payment is contingent on 10

such employee’s separation from employ-11

ment with the employer, and 12

‘‘(ii) the aggregate present value of 13

the payments in the nature of compensa-14

tion to (or for the benefit of) such indi-15

vidual which are contingent on such sepa-16

ration equals or exceeds an amount equal 17

to 3 times the base amount. 18

‘‘(C) E

XCEPTION

.—Such term does not in-19

clude any payment— 20

‘‘(i) described in section 280G(b)(6) 21

(relating to exemption for payments under 22

qualified plans), 23

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‘‘(ii) made under or to an annuity 1

contract described in section 403(b) or a 2

plan described in section 457(b), 3

‘‘(iii) to a licensed medical profes-4

sional (including a veterinarian) to the ex-5

tent that such payment is for the perform-6

ance of medical or veterinary services by 7

such professional, or 8

‘‘(iv) to an individual who is not a 9

highly compensated employee as defined in 10

section 414(q). 11

‘‘(D) B

ASE AMOUNT

.—Rules similar to the 12

rules of 280G(b)(3) shall apply for purposes of 13

determining the base amount. 14

‘‘(E) P

ROPERTY TRANSFERS

;

PRESENT

VALUE

.—Rules similar to the rules of para-16

graphs (3) and (4) of section 280G(d) shall 17

apply. 18

‘‘(6) C

OORDINATION WITH DEDUCTION LIMITA

-19

TION

.—Remuneration the deduction for which is not 20

allowed by reason of section 162(m) shall not be 21

taken into account for purposes of this section. 22

‘‘(d) R

EGULATIONS

.—The Secretary shall prescribe 23

such regulations as may be necessary to prevent avoidance 24

of the tax under this section, including regulations to pre-25

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287

vent avoidance of such tax through the performance of 1

services other than as an employee or by providing com-2

pensation through a pass-through or other entity to avoid 3

such tax.’’. 4

(b) C

LERICAL

MENDMENT

.—The table of sections 5

for subchapter D of chapter 42 is amended by adding at 6

the end the following new item: 7

‘‘Sec. 4960. Tax on excess tax-exempt organization executive compensation.’’.

FFECTIVE

ATE

.—The amendments made by 8

this section shall apply to taxable years beginning after 9

December 31, 2017. 10

SEC. 13603. TREATMENT OF QUALIFIED EQUITY GRANTS. 11

(a) I

ENERAL

.—Section 83 is amended by adding 12

at the end the following new subsection: 13

‘‘(i) Q

UALIFIED

QUITY

RANTS

.— 14

‘‘(1) I

N GENERAL

.—For purposes of this sub-15

title— 16

‘‘(A) T

IMING OF INCLUSION

.—If qualified 17

stock is transferred to a qualified employee who 18

makes an election with respect to such stock 19

under this subsection, subsection (a) shall be 20

applied by including the amount determined 21

under such subsection with respect to such 22

stock in income of the employee in the taxable 23

year determined under subparagraph (B) in lieu 24

of the taxable year described in subsection (a). 25

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288

‘‘(B) T

AXABLE YEAR DETERMINED

.—The 1

taxable year determined under this subpara-2

graph is the taxable year of the employee which 3

includes the earliest of— 4

‘‘(i) the first date such qualified stock 5

becomes transferable (including, solely for 6

purposes of this clause, becoming transfer-7

able to the employer), 8

‘‘(ii) the date the employee first be-9

comes an excluded employee, 10

‘‘(iii) the first date on which any stock 11

of the corporation which issued the quali-12

fied stock becomes readily tradable on an 13

established securities market (as deter-14

mined by the Secretary, but not including 15

any market unless such market is recog-16

nized as an established securities market 17

by the Secretary for purposes of a provi-18

sion of this title other than this sub-19

section), 20

‘‘(iv) the date that is 5 years after the 21

first date the rights of the employee in 22

such stock are transferable or are not sub-23

ject to a substantial risk of forfeiture, 24

whichever occurs earlier, or 25

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289

‘‘(v) the date on which the employee 1

revokes (at such time and in such manner 2

as the Secretary provides) the election 3

under this subsection with respect to such 4

stock. 5

‘‘(2) Q

UALIFIED STOCK

.— 6

‘‘(A) I

N GENERAL

.—For purposes of this 7

subsection, the term ‘qualified stock’ means, 8

with respect to any qualified employee, any 9

stock in a corporation which is the employer of 10

such employee, if— 11

‘‘(i) such stock is received— 12

‘‘(I) in connection with the exer-13

cise of an option, or 14

‘‘(II) in settlement of a restricted 15

stock unit, and 16

‘‘(ii) such option or restricted stock 17

unit was granted by the corporation— 18

‘‘(I) in connection with the per-19

formance of services as an employee, 20

and 21

‘‘(II) during a calendar year in 22

which such corporation was an eligible 23

corporation. 24

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290

‘‘(B) L

IMITATION

.—The term ‘qualified 1

stock’ shall not include any stock if the em-2

ployee may sell such stock to, or otherwise re-3

ceive cash in lieu of stock from, the corporation 4

at the time that the rights of the employee in 5

such stock first become transferable or not sub-6

ject to a substantial risk of forfeiture. 7

‘‘(C) E

LIGIBLE CORPORATION

.—For pur-8

poses of subparagraph (A)(ii)(II)— 9

‘‘(i) I

N GENERAL

.—The term ‘eligible 10

corporation’ means, with respect to any 11

calendar year, any corporation if— 12

‘‘(I) no stock of such corporation 13

(or any predecessor of such corpora-14

tion) is readily tradable on an estab-15

lished securities market (as deter-16

mined under paragraph (1)(B)(iii)) 17

during any preceding calendar year, 18

and 19

‘‘(II) such corporation has a writ-20

ten plan under which, in such cal-21

endar year, not less than 80 percent 22

of all employees who provide services 23

to such corporation in the United 24

States (or any possession of the 25

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291

United States) are granted stock op-1

tions, or are granted restricted stock 2

units, with the same rights and privi-3

leges to receive qualified stock. 4

‘‘(ii) S

AME RIGHTS AND PRIVI

-5

LEGES

.—For purposes of clause (i)(II)— 6

‘‘(I) except as provided in sub-7

clauses (II) and (III), the determina-8

tion of rights and privileges with re-9

spect to stock shall be made in a simi-10

lar manner as under section 11

423(b)(5), 12

‘‘(II) employees shall not fail to 13

be treated as having the same rights 14

and privileges to receive qualified 15

stock solely because the number of 16

shares available to all employees is not 17

equal in amount, so long as the num-18

ber of shares available to each em-19

ployee is more than a de minimis 20

amount, and 21

‘‘(III) rights and privileges with 22

respect to the exercise of an option 23

shall not be treated as the same as 24

rights and privileges with respect to 25

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292

the settlement of a restricted stock 1

unit. 2

‘‘(iii) E

MPLOYEE

.—For purposes of 3

clause (i)(II), the term ‘employee’ shall not 4

include any employee described in section 5

4980E(d)(4) or any excluded employee. 6

‘‘(iv) S

PECIAL RULE FOR CALENDAR

YEARS BEFORE 2018

.—In the case of any 8

calendar year beginning before January 1, 9

2018, clause (i)(II) shall be applied with-10

out regard to whether the rights and privi-11

leges with respect to the qualified stock are 12

the same. 13

‘‘(3) Q

UALIFIED EMPLOYEE

;

EXCLUDED EM

-14

PLOYEE

.—For purposes of this subsection— 15

‘‘(A) I

N GENERAL

.—The term ‘qualified 16

employee’ means any individual who— 17

‘‘(i) is not an excluded employee, and 18

‘‘(ii) agrees in the election made 19

under this subsection to meet such require-20

ments as are determined by the Secretary 21

to be necessary to ensure that the with-22

holding requirements of the corporation 23

under chapter 24 with respect to the quali-24

fied stock are met. 25

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293

‘‘(B) E

XCLUDED EMPLOYEE

.—The term 1

‘excluded employee’ means, with respect to any 2

corporation, any individual— 3

‘‘(i) who is a 1-percent owner (within 4

the meaning of section 416(i)(1)(B)(ii)) at 5

any time during the calendar year or who 6

was such a 1 percent owner at any time 7

during the 10 preceding calendar years, 8

‘‘(ii) who is or has been at any prior 9

time— 10

‘‘(I) the chief executive officer of 11

such corporation or an individual act-12

ing in such a capacity, or 13

‘‘(II) the chief financial officer of 14

such corporation or an individual act-15

ing in such a capacity, 16

‘‘(iii) who bears a relationship de-17

scribed in section 318(a)(1) to any indi-18

vidual described in subclause (I) or (II) of 19

clause (ii), or 20

‘‘(iv) who is one of the 4 highest com-21

pensated officers of such corporation for 22

the taxable year, or was one of the 4 high-23

est compensated officers of such corpora-24

tion for any of the 10 preceding taxable 25

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294

years, determined with respect to each 1

such taxable year on the basis of the 2

shareholder disclosure rules for compensa-3

tion under the Securities Exchange Act of 4

1934 (as if such rules applied to such cor-5

poration). 6

‘‘(4) E

LECTION

.— 7

‘‘(A) T

IME FOR MAKING ELECTION

.—An 8

election with respect to qualified stock shall be 9

made under this subsection no later than 30 10

days after the first date the rights of the em-11

ployee in such stock are transferable or are not 12

subject to a substantial risk of forfeiture, 13

whichever occurs earlier, and shall be made in 14

a manner similar to the manner in which an 15

election is made under subsection (b). 16

‘‘(B) L

IMITATIONS

.—No election may be 17

made under this section with respect to any 18

qualified stock if— 19

‘‘(i) the qualified employee has made 20

an election under subsection (b) with re-21

spect to such qualified stock, 22

‘‘(ii) any stock of the corporation 23

which issued the qualified stock is readily 24

tradable on an established securities mar-25

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ket (as determined under paragraph 1

(1)(B)(iii)) at any time before the election 2

is made, or 3

‘‘(iii) such corporation purchased any 4

of its outstanding stock in the calendar 5

year preceding the calendar year which in-6

cludes the first date the rights of the em-7

ployee in such stock are transferable or are 8

not subject to a substantial risk of for-9

feiture, unless— 10

‘‘(I) not less than 25 percent of 11

the total dollar amount of the stock so 12

purchased is deferral stock, and 13

‘‘(II) the determination of which 14

individuals from whom deferral stock 15

is purchased is made on a reasonable 16

basis. 17

‘‘(C) D

EFINITIONS AND SPECIAL RULES

RELATED TO LIMITATION ON STOCK REDEMP

-19

TIONS

.— 20

‘‘(i) D

EFERRAL STOCK

.—For pur-21

poses of this paragraph, the term ‘deferral 22

stock’ means stock with respect to which 23

an election is in effect under this sub-24

section. 25

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‘‘(ii) D

EFERRAL STOCK WITH RE

-1

SPECT TO ANY INDIVIDUAL NOT TAKEN

INTO ACCOUNT IF INDIVIDUAL HOLDS DE

-3

FERRAL STOCK WITH LONGER DEFERRAL

PERIOD

.—Stock purchased by a corpora-5

tion from any individual shall not be treat-6

ed as deferral stock for purposes of sub-7

paragraph (B)(iii) if such individual (im-8

mediately after such purchase) holds any 9

deferral stock with respect to which an 10

election has been in effect under this sub-11

section for a longer period than the elec-12

tion with respect to the stock so pur-13

chased. 14

‘‘(iii) P

URCHASE OF ALL OUT

-15

STANDING DEFERRAL STOCK

.—The re-16

quirements of subclauses (I) and (II) of 17

subparagraph (B)(iii) shall be treated as 18

met if the stock so purchased includes all 19

of the corporation’s outstanding deferral 20

stock. 21

‘‘(iv) R

EPORTING

.—Any corporation 22

which has outstanding deferral stock as of 23

the beginning of any calendar year and 24

which purchases any of its outstanding 25

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stock during such calendar year shall in-1

clude on its return of tax for the taxable 2

year in which, or with which, such calendar 3

year ends the total dollar amount of its 4

outstanding stock so purchased during 5

such calendar year and such other infor-6

mation as the Secretary requires for pur-7

poses of administering this paragraph. 8

‘‘(5) C

ONTROLLED GROUPS

.—For purposes of 9

this subsection, all persons treated as a single em-10

ployer under section 414(b) shall be treated as 1 11

corporation. 12

‘‘(6) N

OTICE REQUIREMENT

.—Any corporation 13

which transfers qualified stock to a qualified em-14

ployee shall, at the time that (or a reasonable period 15

before) an amount attributable to such stock would 16

(but for this subsection) first be includible in the 17

gross income of such employee— 18

‘‘(A) certify to such employee that such 19

stock is qualified stock, and 20

‘‘(B) notify such employee— 21

‘‘(i) that the employee may be eligible 22

to elect to defer income on such stock 23

under this subsection, and 24

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298

‘‘(ii) that, if the employee makes such 1

an election— 2

‘‘(I) the amount of income recog-3

nized at the end of the deferral period 4

will be based on the value of the stock 5

at the time at which the rights of the 6

employee in such stock first become 7

transferable or not subject to substan-8

tial risk of forfeiture, notwithstanding 9

whether the value of the stock has de-10

clined during the deferral period, 11

‘‘(II) the amount of such income 12

recognized at the end of the deferral 13

period will be subject to withholding 14

under section 3401(i) at the rate de-15

termined under section 3402(t), and 16

‘‘(III) the responsibilities of the 17

employee (as determined by the Sec-18

retary under paragraph (3)(A)(ii)) 19

with respect to such withholding. 20

‘‘(7) R

ESTRICTED STOCK UNITS

.—This section 21

(other than this subsection), including any election 22

under subsection (b), shall not apply to restricted 23

stock units.’’. 24

(b) W

ITHHOLDING

.— 25

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(1) T

IME OF WITHHOLDING

.—Section 3401 is 1

amended by adding at the end the following new 2

subsection: 3

‘‘(i) Q

UALIFIED

TOCK FOR

HICH AN

LECTION

FFECT

NDER

ECTION

83(

).—For purposes of sub-5

section (a), qualified stock (as defined in section 83(i)) 6

with respect to which an election is made under section 7

83(i) shall be treated as wages— 8

‘‘(1) received on the earliest date described in 9

section 83(i)(1)(B), and 10

‘‘(2) in an amount equal to the amount in-11

cluded in income under section 83 for the taxable 12

year which includes such date.’’. 13

(2) A

MOUNT OF WITHHOLDING

.—Section 3402 14

is amended by adding at the end the following new 15

subsection: 16

‘‘(t) R

ATE OF

ITHHOLDING FOR

ERTAIN

TOCK

.—In the case of any qualified stock (as defined in 18

section 83(i)(2)) with respect to which an election is made 19

under section 83(i)— 20

‘‘(1) the rate of tax under subsection (a) shall 21

not be less than the maximum rate of tax in effect 22

under section 1, and 23

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‘‘(2) such stock shall be treated for purposes of 1

section 3501(b) in the same manner as a non-cash 2

fringe benefit.’’. 3

OORDINATION

ITH

THER

EFERRED

-4

PENSATION

ULES

.— 5

(1) E

LECTION TO APPLY DEFERRAL TO STATU

-6

TORY OPTIONS

.— 7

(A) I

NCENTIVE STOCK OPTIONS

.—Section 8

422(b) is amended by adding at the end the fol-9

lowing: ‘‘Such term shall not include any option 10

if an election is made under section 83(i) with 11

respect to the stock received in connection with 12

the exercise of such option.’’. 13

(B) E

MPLOYEE STOCK PURCHASE

PLANS

.—Section 423 is amended— 15

(i) in subsection (b)(5), by striking 16

‘‘and’’ before ‘‘the plan’’ and by inserting 17

‘‘, and the rules of section 83(i) shall apply 18

in determining which employees have a 19

right to make an election under such sec-20

tion’’ before the semicolon at the end, and 21

(ii) by adding at the end the following 22

new subsection: 23

‘‘(d) C

OORDINATION

ITH

UALIFIED

QUITY

RANTS

.—An option for which an election is made under 25

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section 83(i) with respect to the stock received in connec-1

tion with its exercise shall not be considered as granted 2

pursuant an employee stock purchase plan.’’. 3

(2) E

XCLUSION FROM DEFINITION OF NON

-4

QUALIFIED DEFERRED COMPENSATION PLAN

.—Sub-5

section (d) of section 409A is amended by adding at 6

the end the following new paragraph: 7

‘‘(7) T

REATMENT OF QUALIFIED STOCK

.—An 8

arrangement under which an employee may receive 9

qualified stock (as defined in section 83(i)(2)) shall 10

not be treated as a nonqualified deferred compensa-11

tion plan with respect to such employee solely be-12

cause of such employee’s election, or ability to make 13

an election, to defer recognition of income under sec-14

tion 83(i).’’. 15

(d) I

NFORMATION

EPORTING

.—Section 6051(a) is 16

amended by striking ‘‘and’’ at the end of paragraph 17

(14)(B), by striking the period at the end of paragraph 18

(15) and inserting a comma, and by inserting after para-19

graph (15) the following new paragraphs: 20

‘‘(16) the amount includible in gross income 21

under subparagraph (A) of section 83(i)(1) with re-22

spect to an event described in subparagraph (B) of 23

such section which occurs in such calendar year, and 24

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302

‘‘(17) the aggregate amount of income which is 1

being deferred pursuant to elections under section 2

83(i), determined as of the close of the calendar 3

year.’’. 4

(e) P

ENALTY FOR

AILURE OF

MPLOYER TO

-5

VIDE

OTICE OF

ONSEQUENCES

.—Section 6652 is 6

amended by adding at the end the following new sub-7

section: 8

‘‘(p) F

AILURE TO

ROVIDE

OTICE

NDER

ECTION

83(

).—In the case of each failure to provide a notice as 10

required by section 83(i)(6), at the time prescribed there-11

for, unless it is shown that such failure is due to reason-12

able cause and not to willful neglect, there shall be paid, 13

on notice and demand of the Secretary and in the same 14

manner as tax, by the person failing to provide such no-15

tice, an amount equal to $100 for each such failure, but 16

the total amount imposed on such person for all such fail-17

ures during any calendar year shall not exceed $50,000.’’. 18

(f) E

FFECTIVE

ATES

.— 19

(1) I

N GENERAL

.—Except as provided in para-20

graph (2), the amendments made by this section 21

shall apply to stock attributable to options exercised, 22

or restricted stock units settled, after December 31, 23

2017. 24

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(2) R

EQUIREMENT TO PROVIDE NOTICE

.—The 1

amendments made by subsection (e) shall apply to 2

failures after December 31, 2017. 3

(g) T

RANSITION

ULE

.—Until such time as the Sec-4

retary (or the Secretary’s delegate) issues regulations or 5

other guidance for purposes of implementing the require-6

ments of paragraph (2)(C)(i)(II) of section 83(i) of the 7

Internal Revenue Code of 1986 (as added by this section), 8

or the requirements of paragraph (6) of such section, a 9

corporation shall be treated as being in compliance with 10

such requirements (respectively) if such corporation com-11

plies with a reasonable good faith interpretation of such 12

requirements. 13

SEC. 13604. INCREASE IN EXCISE TAX RATE FOR STOCK 14

COMPENSATION OF INSIDERS IN EXPATRI-15

ATED CORPORATIONS. 16

(a) I

ENERAL

.—Section 4985(a)(1) is amended by 17

striking ‘‘section 1(h)(1)(C)’’ and inserting ‘‘section 18

1(h)(1)(D)’’. 19

(b) E

FFECTIVE

ATE

.—The amendment made by 20

this section shall apply to corporations first becoming ex-21

patriated corporations (as defined in section 4985 of the 22

Internal Revenue Code of 1986) after the date of enact-23

ment of this Act. 24

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304

Subpart B—Retirement Plans 1

SEC. 13611. REPEAL OF SPECIAL RULE PERMITTING RE-2

CHARACTERIZATION OF ROTH CONVER-3

SIONS. 4

(a) I

ENERAL

.—Section 408A(d)(6)(B) is amend-5

ed by adding at the end the following new clause: 6

‘‘(iii) C

ONVERSIONS

.—Subparagraph 7

(A) shall not apply in the case of a quali-8

fied rollover contribution to which sub-9

section (d)(3) applies (including by reason 10

of subparagraph (C) thereof).’’. 11

(b) E

FFECTIVE

ATE

.—The amendments made by 12

this section shall apply to taxable years beginning after 13

December 31, 2017. 14

SEC. 13612. MODIFICATION OF RULES APPLICABLE TO 15

LENGTH OF SERVICE AWARD PLANS. 16

(a) M

AXIMUM

EFERRAL

MOUNT

.—Clause (ii) of 17

section 457(e)(11)(B) is amended by striking ‘‘$3,000’’ 18

and inserting ‘‘$6,000’’. 19

(b) C

OST OF

IVING

DJUSTMENT

.—Subparagraph 20

(B) of section 457(e)(11) is amended by adding at the 21

end the following: 22

‘‘(iii) C

OST OF LIVING ADJUST

-23

MENT

.—In the case of taxable years begin-24

ning after December 31, 2017, the Sec-25

retary shall adjust the $6,000 amount 26

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305

under clause (ii) at the same time and in 1

the same manner as under section 415(d), 2

except that the base period shall be the 3

calendar quarter beginning July 1, 2016, 4

and any increase under this paragraph 5

that is not a multiple of $500 shall be 6

rounded to the next lowest multiple of 7

$500.’’. 8

PPLICATION OF

IMITATION ON

CCRUALS

.— 9

Subparagraph (B) of section 457(e)(11), as amended by 10

subsection (b), is amended by adding at the end the fol-11

lowing: 12

‘‘(iv) S

PECIAL RULE FOR APPLICA

-13

TION OF LIMITATION ON ACCRUALS FOR

CERTAIN PLANS

.—In the case of a plan de-15

scribed in subparagraph (A)(ii) which is a 16

defined benefit plan (as defined in section 17

414(j)), the limitation under clause (ii) 18

shall apply to the actuarial present value 19

of the aggregate amount of length of serv-20

ice awards accruing with respect to any 21

year of service. Such actuarial present 22

value with respect to any year shall be cal-23

culated using reasonable actuarial assump-24

tions and methods, assuming payment will 25

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306

be made under the most valuable form of 1

payment under the plan with payment 2

commencing at the later of the earliest age 3

at which unreduced benefits are payable 4

under the plan or the participant’s age at 5

the time of the calculation.’’. 6

(d) E

FFECTIVE

ATE

.—The amendments made by 7

this section shall apply to taxable years beginning after 8

December 31, 2017. 9

SEC. 13613. EXTENDED ROLLOVER PERIOD FOR PLAN LOAN 10

OFFSET AMOUNTS. 11

(a) I

ENERAL

.—Paragraph (3) of section 402(c) 12

is amended by adding at the end the following new sub-13

paragraph: 14

‘‘(C) R

OLLOVER OF CERTAIN PLAN LOAN

OFFSET AMOUNTS

.— 16

‘‘(i) I

N GENERAL

.—In the case of a 17

qualified plan loan offset amount, para-18

graph (1) shall not apply to any transfer 19

of such amount made after the due date 20

(including extensions) for filing the return 21

of tax for the taxable year in which such 22

amount is treated as distributed from a 23

qualified employer plan. 24

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307

‘‘(ii) Q

UALIFIED PLAN LOAN OFFSET

AMOUNT

.—For purposes of this subpara-2

graph, the term ‘qualified plan loan offset 3

amount’ means a plan loan offset amount 4

which is treated as distributed from a 5

qualified employer plan to a participant or 6

beneficiary solely by reason of— 7

‘‘(I) the termination of the quali-8

fied employer plan, or 9

‘‘(II) the failure to meet the re-10

payment terms of the loan from such 11

plan because of the severance from 12

employment of the participant. 13

‘‘(iii) P

LAN LOAN OFFSET AMOUNT

.— 14

For purposes of clause (ii), the term ‘plan 15

loan offset amount’ means the amount by 16

which the participant’s accrued benefit 17

under the plan is reduced in order to repay 18

a loan from the plan. 19

‘‘(iv) L

IMITATION

.—This subpara-20

graph shall not apply to any plan loan off-21

set amount unless such plan loan offset 22

amount relates to a loan to which section 23

72(p)(1) does not apply by reason of sec-24

tion 72(p)(2). 25

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308

‘‘(v) Q

UALIFIED EMPLOYER PLAN

.— 1

For purposes of this subsection, the term 2

‘qualified employer plan’ has the meaning 3

given such term by section 72(p)(4).’’. 4

(b) C

ONFORMING

MENDMENTS

.—Section 402(c)(3) 5

is amended— 6

(1) by striking ‘‘T

RANSFER MUST BE MADE

WITHIN 60 DAYS OF RECEIPT

’’ in the heading and 8

inserting ‘‘T

IME LIMIT ON TRANSFERS

’’, and 9

(2) by striking ‘‘subparagraph (B)’’ in subpara-10

graph (A) and inserting ‘‘subparagraphs (B) and 11

(C)’’. 12

FFECTIVE

ATE

.—The amendments made by 13

this section shall apply to plan loan offset amounts which 14

are treated as distributed in taxable years beginning after 15

December 31, 2017. 16

PART VIII—EXEMPT ORGANIZATIONS 17

SEC. 13701. EXCISE TAX BASED ON INVESTMENT INCOME 18

OF PRIVATE COLLEGES AND UNIVERSITIES. 19

(a) I

ENERAL

.—Chapter 42 is amended by adding 20

at the end the following new subchapter: 21

‘‘Subchapter H—Excise Tax Based on Invest-22

ment Income of Private Colleges and Uni-23

versities 24

‘‘Sec. 4968. Excise tax based on investment income of private colleges and uni-

versities.

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‘‘SEC. 4968. EXCISE TAX BASED ON INVESTMENT INCOME 1

OF PRIVATE COLLEGES AND UNIVERSITIES. 2

‘‘(a) T

MPOSED

.—There is hereby imposed on 3

each applicable educational institution for the taxable year 4

a tax equal to 1.4 percent of the net investment income 5

of such institution for the taxable year. 6

‘‘(b) A

PPLICABLE

DUCATIONAL

NSTITUTION

.—For 7

purposes of this subchapter— 8

‘‘(1) I

N GENERAL

.—The term ‘applicable edu-9

cational institution’ means an eligible educational in-10

stitution (as defined in section 25A(f)(2))— 11

‘‘(A) which had at least 500 tuition-paying 12

students during the preceding taxable year, 13

‘‘(B) more than 50 percent of the tuition- 14

paying students of which are located in the 15

United States, 16

‘‘(C) which is not described in the first 17

sentence of section 511(a)(2)(B) (relating to 18

State colleges and universities), and 19

‘‘(D) the aggregate fair market value of 20

the assets of which at the end of the preceding 21

taxable year (other than those assets which are 22

used directly in carrying out the institution’s 23

exempt purpose) is at least $500,000 per stu-24

dent of the institution. 25

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310

‘‘(2) S

TUDENTS

.—For purposes of paragraph 1

(1), the number of students of an institution (includ-2

ing for purposes of determining the number of stu-3

dents at a particular location) shall be based on the 4

daily average number of full-time students attending 5

such institution (with part-time students taken into 6

account on a full-time student equivalent basis). 7

‘‘(c) N

NVESTMENT

NCOME

.—For purposes of 8

this section, net investment income shall be determined 9

under rules similar to the rules of section 4940(c). 10

‘‘(d) A

SSETS AND

NVESTMENT

NCOME OF

-11

LATED

RGANIZATIONS

.— 12

‘‘(1) I

N GENERAL

.—For purposes of sub-13

sections (b)(1)(C) and (c), assets and net investment 14

income of any related organization with respect to 15

an educational institution shall be treated as assets 16

and net investment income, respectively, of the edu-17

cational institution, except that— 18

‘‘(A) no such amount shall be taken into 19

account with respect to more than 1 educational 20

institution, and 21

‘‘(B) unless such organization is controlled 22

by such institution or is described in section 23

509(a)(3) with respect to such institution for 24

the taxable year, assets and net investment in-25

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311

come which are not intended or available for 1

the use or benefit of the educational institution 2

shall not be taken into account. 3

‘‘(2) R

ELATED ORGANIZATION

.—For purposes 4

of this subsection, the term ‘related organization’ 5

means, with respect to an educational institution, 6

any organization which— 7

‘‘(A) controls, or is controlled by, such in-8

stitution, 9

‘‘(B) is controlled by 1 or more persons 10

which also control such institution, or 11

‘‘(C) is a supported organization (as de-12

fined in section 509(f)(3)), or an organization 13

described in section 509(a)(3), during the tax-14

able year with respect to such institution.’’. 15

(b) C

LERICAL

MENDMENT

.—The table of sub-16

chapters for chapter 42 is amended by adding at the end 17

the following new item: 18

‘‘

SUBCHAPTER H

—

EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE

COLLEGES AND UNIVERSITIES

’’.

FFECTIVE

ATE

.—The amendments made by 19

this section shall apply to taxable years beginning after 20

December 31, 2017. 21

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SEC. 13702. UNRELATED BUSINESS TAXABLE INCOME SEPA-1

RATELY COMPUTED FOR EACH TRADE OR 2

BUSINESS ACTIVITY. 3

(a) I

ENERAL

.—Subsection (a) of section 512 is 4

amended by adding at the end the following new para-5

graph: 6

‘‘(6) S

PECIAL RULE FOR ORGANIZATION WITH

MORE THAN 1 UNRELATED TRADE OR BUSINESS

.— 8

In the case of any organization with more than 1 9

unrelated trade or business— 10

‘‘(A) unrelated business taxable income, in-11

cluding for purposes of determining any net op-12

erating loss deduction, shall be computed sepa-13

rately with respect to each such trade or busi-14

ness and without regard to subsection (b)(12), 15

‘‘(B) the unrelated business taxable income 16

of such organization shall be the sum of the un-17

related business taxable income so computed 18

with respect to each such trade or business, less 19

a specific deduction under subsection (b)(12), 20

and 21

‘‘(C) for purposes of subparagraph (B), 22

unrelated business taxable income with respect 23

to any such trade or business shall not be less 24

than zero.’’. 25

(b) E

FFECTIVE

ATE

.— 26

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(1) I

N GENERAL

.—Except to the extent pro-1

vided in paragraph (2), the amendment made by this 2

section shall apply to taxable years beginning after 3

December 31, 2017. 4

(2) C

ARRYOVERS OF NET OPERATING

LOSSES

.—If any net operating loss arising in a tax-6

able year beginning before January 1, 2018, is car-7

ried over to a taxable year beginning on or after 8

such date— 9

(A) subparagraph (A) of section 512(a)(6) 10

of the Internal Revenue Code of 1986, as added 11

by this Act, shall not apply to such net oper-12

ating loss, and 13

(B) the unrelated business taxable income 14

of the organization, after the application of sub-15

paragraph (B) of such section, shall be reduced 16

by the amount of such net operating loss. 17

SEC. 13703. UNRELATED BUSINESS TAXABLE INCOME IN-18

CREASED BY AMOUNT OF CERTAIN FRINGE 19

BENEFIT EXPENSES FOR WHICH DEDUCTION 20

IS DISALLOWED. 21

(a) I

ENERAL

.—Section 512(a), as amended by 22

this Act, is further amended by adding at the end the fol-23

lowing new paragraph: 24

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314

‘‘(7) I

NCREASE IN UNRELATED BUSINESS TAX

-1

ABLE INCOME BY DISALLOWED FRINGE

.—Unrelated 2

business taxable income of an organization shall be 3

increased by any amount for which a deduction is 4

not allowable under this chapter by reason of section 5

274 and which is paid or incurred by such organiza-6

tion for any qualified transportation fringe (as de-7

fined in section 132(f)), any parking facility used in 8

connection with qualified parking (as defined in sec-9

tion 132(f)(5)(C)), or any on-premises athletic facil-10

ity (as defined in section 132(j)(4)(B)). The pre-11

ceding sentence shall not apply to the extent the 12

amount paid or incurred is directly connected with 13

an unrelated trade or business which is regularly 14

carried on by the organization. The Secretary shall 15

issue such regulations or other guidance as may be 16

necessary or appropriate to carry out the purposes 17

of this paragraph, including regulations or other 18

guidance providing for the appropriate allocation of 19

depreciation and other costs with respect to facilities 20

used for parking or for on-premises athletic facili-21

ties.’’. 22

(b) E

FFECTIVE

ATE

.—The amendment made by 23

this section shall apply to amounts paid or incurred after 24

December 31, 2017. 25

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315

SEC. 13704. REPEAL OF DEDUCTION FOR AMOUNTS PAID IN 1

EXCHANGE FOR COLLEGE ATHLETIC EVENT 2

SEATING RIGHTS. 3

(a) I

ENERAL

.—Section 170(l) is amended— 4

(1) by striking paragraph (1) and inserting the 5

following: 6

‘‘(1) I

N GENERAL

.—No deduction shall be al-7

lowed under this section for any amount described in 8

paragraph (2).’’, and 9

(2) in paragraph (2)(B), by striking ‘‘such 10

amount would be allowable as a deduction under this 11

section but for the fact that’’. 12

(b) E

FFECTIVE

ATE

.—The amendments made by 13

this section shall apply to contributions made in taxable 14

years beginning after December 31, 2017. 15

SEC. 13705. REPEAL OF SUBSTANTIATION EXCEPTION IN 16

CASE OF CONTRIBUTIONS REPORTED BY 17

DONEE. 18

(a) I

ENERAL

.—Section 170(f)(8) is amended by 19

striking subparagraph (D) and by redesignating subpara-20

graph (E) as subparagraph (D). 21

(b) E

FFECTIVE

ATE

.—The amendments made by 22

this section shall apply to contributions made in taxable 23

years beginning after December 31, 2016. 24

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316

PART IX—OTHER PROVISIONS 1

Subpart A—Craft Beverage Modernization and Tax 2

Reform 3

SEC. 13801. PRODUCTION PERIOD FOR BEER, WINE, AND 4

DISTILLED SPIRITS. 5

(a) I

ENERAL

.—Section 263A(f) is amended— 6

(1) by redesignating paragraph (4) as para-7

graph (5), and 8

(2) by inserting after paragraph (3) the fol-9

lowing new paragraph: 10

‘‘(4) E

XEMPTION FOR AGING PROCESS OF

BEER

WINE

AND DISTILLED SPIRITS

.— 12

‘‘(A) I

N GENERAL

.—For purposes of this 13

subsection, the production period shall not in-14

clude the aging period for— 15

‘‘(i) beer (as defined in section 16

5052(a)), 17

‘‘(ii) wine (as described in section 18

5041(a)), or 19

‘‘(iii) distilled spirits (as defined in 20

section 5002(a)(8)), except such spirits 21

that are unfit for use for beverage pur-22

poses. 23

‘‘(B) T

ERMINATION

.—This paragraph 24

shall not apply to interest costs paid or accrued 25

after December 31, 2019.’’. 26

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317

(b) C

ONFORMING

MENDMENT

.—Paragraph 1

(5)(B)(ii) of section 263A(f), as redesignated by this sec-2

tion, is amended by inserting ‘‘except as provided in para-3

graph (4),’’ before ‘‘ending on the date’’. 4

FFECTIVE

ATE

.—The amendments made by 5

this section shall apply to interest costs paid or accrued 6

in calendar years beginning after December 31, 2017. 7

SEC. 13802. REDUCED RATE OF EXCISE TAX ON BEER. 8

(a) I

ENERAL

.—Paragraph (1) of section 5051(a) 9

is amended to read as follows: 10

‘‘(1) I

N GENERAL

.— 11

‘‘(A) I

MPOSITION OF TAX

.—A tax is here-12

by imposed on all beer brewed or produced, and 13

removed for consumption or sale, within the 14

United States, or imported into the United 15

States. Except as provided in paragraph (2), 16

the rate of such tax shall be the amount deter-17

mined under this paragraph. 18

‘‘(B) R

ATE

.—Except as provided in sub-19

paragraph (C), the rate of tax shall be $18 for 20

per barrel. 21

‘‘(C) S

PECIAL RULE

.—In the case of beer 22

removed after December 31, 2017, and before 23

January 1, 2020, the rate of tax shall be— 24

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‘‘(i) $16 on the first 6,000,000 barrels 1

of beer— 2

‘‘(I) brewed by the brewer and 3

removed during the calendar year for 4

consumption or sale, or 5

‘‘(II) imported by the importer 6

into the United States during the cal-7

endar year, and 8

‘‘(ii) $18 on any barrels of beer to 9

which clause (i) does not apply. 10

‘‘(D) B

ARREL

.—For purposes of this sec-11

tion, a barrel shall contain not more than 31 12

gallons of beer, and any tax imposed under this 13

section shall be applied at a like rate for any 14

other quantity or for fractional parts of a bar-15

rel.’’. 16

(b) R

EDUCED

ATE FOR

ERTAIN

OMESTIC

-17

DUCTION

.—Subparagraph (A) of section 5051(a)(2) is 18

amended— 19

(1) in the heading, by striking ‘‘

$7 A BARREL

’’, 20

and 21

(2) by inserting ‘‘($3.50 in the case of beer re-22

moved after December 31, 2017, and before January 23

1, 2020)’’ after ‘‘$7’’. 24

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319

PPLICATION OF

EDUCED

ATE FOR

-1

EIGN

ANUFACTURERS AND

MPORTERS

.—Subsection (a) 2

of section 5051 is amended— 3

(1) in subparagraph (C)(i)(II) of paragraph (1), 4

as amended by subsection (a), by inserting ‘‘but only 5

if the importer is an electing importer under para-6

graph (4) and the barrels have been assigned to the 7

importer pursuant to such paragraph’’ after ‘‘during 8

the calendar year’’, and 9

(2) by adding at the end the following new 10

paragraph: 11

‘‘(4) R

EDUCED TAX RATE FOR FOREIGN MANU

-12

FACTURERS AND IMPORTERS

.— 13

‘‘(A) I

N GENERAL

.—In the case of any 14

barrels of beer which have been brewed or pro-15

duced outside of the United States and im-16

ported into the United States, the rate of tax 17

applicable under clause (i) of paragraph (1)(C) 18

(referred to in this paragraph as the ‘reduced 19

tax rate’) may be assigned by the brewer (pro-20

vided that the brewer makes an election de-21

scribed in subparagraph (B)(ii)) to any electing 22

importer of such barrels pursuant to the re-23

quirements established by the Secretary under 24

subparagraph (B). 25

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320

‘‘(B) A

SSIGNMENT

.—The Secretary shall, 1

through such rules, regulations, and procedures 2

as are determined appropriate, establish proce-3

dures for assignment of the reduced tax rate 4

provided under this paragraph, which shall in-5

clude— 6

‘‘(i) a limitation to ensure that the 7

number of barrels of beer for which the re-8

duced tax rate has been assigned by a 9

brewer— 10

‘‘(I) to any importer does not ex-11

ceed the number of barrels of beer 12

brewed or produced by such brewer 13

during the calendar year which were 14

imported into the United States by 15

such importer, and 16

‘‘(II) to all importers does not 17

exceed the 6,000,000 barrels to which 18

the reduced tax rate applies, 19

‘‘(ii) procedures that allow the election 20

of a brewer to assign and an importer to 21

receive the reduced tax rate provided under 22

this paragraph, 23

‘‘(iii) requirements that the brewer 24

provide any information as the Secretary 25

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321

determines necessary and appropriate for 1

purposes of carrying out this paragraph, 2

and 3

‘‘(iv) procedures that allow for revoca-4

tion of eligibility of the brewer and the im-5

porter for the reduced tax rate provided 6

under this paragraph in the case of any er-7

roneous or fraudulent information provided 8

under clause (iii) which the Secretary 9

deems to be material to qualifying for such 10

reduced rate. 11

‘‘(C) C

ONTROLLED GROUP

.—For purposes 12

of this section, any importer making an election 13

described in subparagraph (B)(ii) shall be 14

deemed to be a member of the controlled group 15

of the brewer, as described under paragraph 16

(5).’’. 17

(d) C

ONTROLLED

ROUP AND

INGLE

AXPAYER

ULES

.—Subsection (a) of section 5051, as amended by 19

this section, is amended— 20

(1) in paragraph (2)— 21

(A) by striking subparagraph (B), and 22

(B) by redesignating subparagraph (C) as 23

subparagraph (B), and 24

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322

(2) by adding at the end the following new 1

paragraph: 2

‘‘(5) C

ONTROLLED GROUP AND SINGLE TAX

-3

PAYER RULES

.— 4

‘‘(A) I

N GENERAL

.—Except as provided in 5

subparagraph (B), in the case of a controlled 6

group, the 6,000,000 barrel quantity specified 7

in paragraph (1)(C)(i) and the 2,000,000 barrel 8

quantity specified in paragraph (2)(A) shall be 9

applied to the controlled group, and the 10

6,000,000 barrel quantity specified in para-11

graph (1)(C)(i) and the 60,000 barrel quantity 12

specified in paragraph (2)(A) shall be appor-13

tioned among the brewers who are members of 14

such group in such manner as the Secretary or 15

their delegate shall by regulations prescribe. 16

For purposes of the preceding sentence, the 17

term ‘controlled group’ has the meaning as-18

signed to it by subsection (a) of section 1563, 19

except that for such purposes the phrase ‘more 20

than 50 percent’ shall be substituted for the 21

phrase ‘at least 80 percent’ in each place it ap-22

pears in such subsection. Under regulations 23

prescribed by the Secretary, principles similar 24

to the principles of the preceding two sentences 25

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323

shall be applied to a group of brewers under 1

common control where one or more of the brew-2

ers is not a corporation. 3

‘‘(B) F

OREIGN MANUFACTURERS AND IM

-4

PORTERS

.—For purposes of paragraph (4), in 5

the case of a controlled group, the 6,000,000 6

barrel quantity specified in paragraph (1)(C)(i) 7

shall be applied to the controlled group and ap-8

portioned among the members of such group in 9

such manner as the Secretary shall by regula-10

tions prescribe. For purposes of the preceding 11

sentence, the term ‘controlled group’ has the 12

meaning given such term under subparagraph 13

(A). Under regulations prescribed by the Sec-14

retary, principles similar to the principles of the 15

preceding two sentences shall be applied to a 16

group of brewers under common control where 17

one or more of the brewers is not a corporation. 18

‘‘(C) S

INGLE TAXPAYER

.—Pursuant to 19

rules issued by the Secretary, two or more enti-20

ties (whether or not under common control) 21

that produce beer marketed under a similar 22

brand, license, franchise, or other arrangement 23

shall be treated as a single taxpayer for pur-24

poses of the application of this subsection.’’. 25

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(e) E

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to beer removed after December 2

31, 2017. 3

SEC. 13803. TRANSFER OF BEER BETWEEN BONDED FACILI-4

TIES. 5

(a) I

ENERAL

.—Section 5414 is amended— 6

(1) by striking ‘‘Beer may be removed’’ and in-7

serting ‘‘(a) I

ENERAL

—Beer may be removed’’, 8

and 9

(2) by adding at the end the following: 10

‘‘(b) T

RANSFER OF

EER

ETWEEN

ONDED

-11

CILITIES

.— 12

‘‘(1) I

N GENERAL

.—Beer may be removed from 13

one bonded brewery to another bonded brewery, 14

without payment of tax, and may be mingled with 15

beer at the receiving brewery, subject to such condi-16

tions, including payment of the tax, and in such con-17

tainers, as the Secretary by regulations shall pre-18

scribe, which shall include— 19

‘‘(A) any removal from one brewery to an-20

other brewery belonging to the same brewer, 21

‘‘(B) any removal from a brewery owned 22

by one corporation to a brewery owned by an-23

other corporation when— 24

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325

‘‘(i) one such corporation owns the 1

controlling interest in the other such cor-2

poration, or 3

‘‘(ii) the controlling interest in each 4

such corporation is owned by the same per-5

son or persons, and 6

‘‘(C) any removal from one brewery to an-7

other brewery when— 8

‘‘(i) the proprietors of transferring 9

and receiving premises are independent of 10

each other and neither has a proprietary 11

interest, directly or indirectly, in the busi-12

ness of the other, and 13

‘‘(ii) the transferor has divested itself 14

of all interest in the beer so transferred 15

and the transferee has accepted responsi-16

bility for payment of the tax. 17

‘‘(2) T

RANSFER OF LIABILITY FOR TAX

.—For 18

purposes of paragraph (1)(C), such relief from liabil-19

ity shall be effective from the time of removal from 20

the transferor’s bonded premises, or from the time 21

of divestment of interest, whichever is later. 22

‘‘(3) T

ERMINATION

.—This subsection shall not 23

apply to any calendar quarter beginning after De-24

cember 31, 2019.’’. 25

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326

(b) R

EMOVAL

ROM

REWERY BY

IPELINE

.—Sec-1

tion 5412 is amended by inserting ‘‘pursuant to section 2

5414 or’’ before ‘‘by pipeline’’. 3

FFECTIVE

ATE

.—The amendments made by 4

this section shall apply to any calendar quarters beginning 5

after December 31, 2017. 6

SEC. 13804. REDUCED RATE OF EXCISE TAX ON CERTAIN 7

WINE. 8

(a) I

ENERAL

.—Section 5041(c) is amended by 9

adding at the end the following new paragraph: 10

‘‘(8) S

PECIAL RULE FOR 2018 AND 2019

.— 11

‘‘(A) I

N GENERAL

.—In the case of wine re-12

moved after December 31, 2017, and before 13

January 1, 2020, paragraphs (1) and (2) shall 14

not apply and there shall be allowed as a credit 15

against any tax imposed by this title (other 16

than chapters 2, 21, and 22) an amount equal 17

to the sum of— 18

‘‘(i) $1 per wine gallon on the first 19

30,000 wine gallons of wine, plus 20

‘‘(ii) 90 cents per wine gallon on the 21

first 100,000 wine gallons of wine to which 22

clause (i) does not apply, plus 23

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327

‘‘(iii) 53.5 cents per wine gallon on 1

the first 620,000 wine gallons of wine to 2

which clauses (i) and (ii) do not apply, 3

which are produced by the producer and re-4

moved during the calendar year for consump-5

tion or sale, or which are imported by the im-6

porter into the United States during the cal-7

endar year. 8

‘‘(B) A

DJUSTMENT OF CREDIT FOR HARD

CIDER

.—In the case of wine described in sub-10

section (b)(6), subparagraph (A) of this para-11

graph shall be applied— 12

‘‘(i) in clause (i) of such subpara-13

graph, by substituting ‘6.2 cents’ for ‘$1’, 14

‘‘(ii) in clause (ii) of such subpara-15

graph, by substituting ‘5.6 cents’ for ‘90 16

cents’, and 17

‘‘(iii) in clause (iii) of such subpara-18

graph, by substituting ‘3.3 cents’ for ‘53.5 19

cents’.’’, 20

(b) C

ONTROLLED

ROUP AND

INGLE

AXPAYER

ULES

.—Paragraph (4) of section 5041(c) is amended by 22

striking ‘‘section 5051(a)(2)(B)’’ and inserting ‘‘section 23

5051(a)(5)’’. 24

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328

LLOWANCE OF

REDIT FOR

OREIGN

ANU

-1

FACTURERS AND

MPORTERS

.—Subsection (c) of section 2

5041, as amended by subsection (a), is amended— 3

(1) in subparagraph (A) of paragraph (8), by 4

inserting ‘‘but only if the importer is an electing im-5

porter under paragraph (9) and the wine gallons of 6

wine have been assigned to the importer pursuant to 7

such paragraph’’ after ‘‘into the United States dur-8

ing the calendar year’’, and 9

(2) by adding at the end the following new 10

paragraph: 11

‘‘(9) A

LLOWANCE OF CREDIT FOR FOREIGN

MANUFACTURERS AND IMPORTERS

.— 13

‘‘(A) I

N GENERAL

.—In the case of any 14

wine gallons of wine which have been produced 15

outside of the United States and imported into 16

the United States, the credit allowable under 17

paragraph (8) (referred to in this paragraph as 18

the ‘tax credit’) may be assigned by the person 19

who produced such wine (referred to in this 20

paragraph as the ‘foreign producer’), provided 21

that such person makes an election described in 22

subparagraph (B)(ii), to any electing importer 23

of such wine gallons pursuant to the require-24

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329

ments established by the Secretary under sub-1

paragraph (B). 2

‘‘(B) A

SSIGNMENT

.—The Secretary shall, 3

through such rules, regulations, and procedures 4

as are determined appropriate, establish proce-5

dures for assignment of the tax credit provided 6

under this paragraph, which shall include— 7

‘‘(i) a limitation to ensure that the 8

number of wine gallons of wine for which 9

the tax credit has been assigned by a for-10

eign producer— 11

‘‘(I) to any importer does not ex-12

ceed the number of wine gallons of 13

wine produced by such foreign pro-14

ducer during the calendar year which 15

were imported into the United States 16

by such importer, and 17

‘‘(II) to all importers does not 18

exceed the 750,000 wine gallons of 19

wine to which the tax credit applies, 20

‘‘(ii) procedures that allow the election 21

of a foreign producer to assign and an im-22

porter to receive the tax credit provided 23

under this paragraph, 24

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330

‘‘(iii) requirements that the foreign 1

producer provide any information as the 2

Secretary determines necessary and appro-3

priate for purposes of carrying out this 4

paragraph, and 5

‘‘(iv) procedures that allow for revoca-6

tion of eligibility of the foreign producer 7

and the importer for the tax credit pro-8

vided under this paragraph in the case of 9

any erroneous or fraudulent information 10

provided under clause (iii) which the Sec-11

retary deems to be material to qualifying 12

for such credit. 13

‘‘(C) C

ONTROLLED GROUP

.—For purposes 14

of this section, any importer making an election 15

described in subparagraph (B)(ii) shall be 16

deemed to be a member of the controlled group 17

of the foreign producer, as described under 18

paragraph (4).’’. 19

(d) E

FFECTIVE

ATE

.—The amendments made by 20

this section shall apply to wine removed after December 21

31, 2017. 22

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331

SEC. 13805. ADJUSTMENT OF ALCOHOL CONTENT LEVEL 1

FOR APPLICATION OF EXCISE TAX RATES. 2

(a) I

ENERAL

.—Paragraphs (1) and (2) of section 3

5041(b) are each amended by inserting ‘‘(16 percent in 4

the case of wine removed after December 31, 2017, and 5

before January 1, 2020’’ after ‘‘14 percent’’. 6

(b) E

FFECTIVE

ATE

.—The amendments made by 7

this section shall apply to wine removed after December 8

31, 2017. 9

SEC. 13806. DEFINITION OF MEAD AND LOW ALCOHOL BY 10

VOLUME WINE. 11

(a) I

ENERAL

.—Section 5041 is amended— 12

(1) in subsection (a), by striking ‘‘Still wines’’ 13

and inserting ‘‘Subject to subsection (h), still 14

wines’’, and 15

(2) by adding at the end the following new sub-16

section: 17

‘‘(h) M

EAD AND

LCOHOL BY

OLUME

INE

.— 19

‘‘(1) I

N GENERAL

.—For purposes of sub-20

sections (a) and (b)(1), mead and low alcohol by vol-21

ume wine shall be deemed to be still wines con-22

taining not more than 16 percent of alcohol by vol-23

ume. 24

‘‘(2) D

EFINITIONS

.— 25

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332

‘‘(A) M

EAD

.—For purposes of this section, 1

the term ‘mead’ means a wine— 2

‘‘(i) containing not more than 0.64 3

gram of carbon dioxide per hundred milli-4

liters of wine, except that the Secretary 5

shall by regulations prescribe such toler-6

ances to this limitation as may be reason-7

ably necessary in good commercial prac-8

tice, 9

‘‘(ii) which is derived solely from 10

honey and water, 11

‘‘(iii) which contains no fruit product 12

or fruit flavoring, and 13

‘‘(iv) which contains less than 8.5 per-14

cent alcohol by volume. 15

‘‘(B) L

OW ALCOHOL BY VOLUME WINE

.— 16

For purposes of this section, the term ‘low alco-17

hol by volume wine’ means a wine— 18

‘‘(i) containing not more than 0.64 19

gram of carbon dioxide per hundred milli-20

liters of wine, except that the Secretary 21

shall by regulations prescribe such toler-22

ances to this limitation as may be reason-23

ably necessary in good commercial prac-24

tice, 25

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333

‘‘(ii) which is derived— 1

‘‘(I) primarily from grapes, or 2

‘‘(II) from grape juice con-3

centrate and water, 4

‘‘(iii) which contains no fruit product 5

or fruit flavoring other than grape, and 6

‘‘(iv) which contains less than 8.5 per-7

cent alcohol by volume. 8

‘‘(3) T

ERMINATION

.—This subsection shall not 9

apply to wine removed after December 31, 2019.’’. 10

(b) E

FFECTIVE

ATE

.—The amendments made by 11

this section shall apply to wine removed after December 12

31, 2017. 13

SEC. 13807. REDUCED RATE OF EXCISE TAX ON CERTAIN 14

DISTILLED SPIRITS. 15

(a) I

ENERAL

.—Section 5001 is amended by re-16

designating subsection (c) as subsection (d) and by insert-17

ing after subsection (b) the following new subsection: 18

‘‘(c) R

EDUCED

ATE FOR

2018

AND

2019.— 19

‘‘(1) I

N GENERAL

.—In the case of a distilled 20

spirits operation, the otherwise applicable tax rate 21

under subsection (a)(1) shall be— 22

‘‘(A) $2.70 per proof gallon on the first 23

100,000 proof gallons of distilled spirits, and 24

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334

‘‘(B) $13.34 per proof gallon on the first 1

22,130,000 of proof gallons of distilled spirits 2

to which subparagraph (A) does not apply, 3

which have been distilled or processed by such oper-4

ation and removed during the calendar year for con-5

sumption or sale, or which have been imported by 6

the importer into the United States during the cal-7

endar year. 8

‘‘(2) C

ONTROLLED GROUPS

.— 9

‘‘(A) I

N GENERAL

.—In the case of a con-10

trolled group, the proof gallon quantities speci-11

fied under subparagraphs (A) and (B) of para-12

graph (1) shall be applied to such group and 13

apportioned among the members of such group 14

in such manner as the Secretary or their dele-15

gate shall by regulations prescribe. 16

‘‘(B) D

EFINITION

.—For purposes of sub-17

paragraph (A), the term ‘controlled group’ shall 18

have the meaning given such term by subsection 19

(a) of section 1563, except that ‘more than 50 20

percent’ shall be substituted for ‘at least 80 21

percent’ each place it appears in such sub-22

section. 23

‘‘(C) R

ULES FOR NON

CORPORATIONS

.— 24

Under regulations prescribed by the Secretary, 25

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335

principles similar to the principles of subpara-1

graphs (A) and (B) shall be applied to a group 2

under common control where one or more of the 3

persons is not a corporation. 4

‘‘(D) S

INGLE TAXPAYER

.—Pursuant to 5

rules issued by the Secretary, two or more enti-6

ties (whether or not under common control) 7

that produce distilled spirits marketed under a 8

similar brand, license, franchise, or other ar-9

rangement shall be treated as a single taxpayer 10

for purposes of the application of this sub-11

section. 12

‘‘(3) T

ERMINATION

.—This subsection shall not 13

apply to distilled spirits removed after December 31, 14

2019.’’. 15

(b) C

ONFORMING

MENDMENT

.—Section 7652(f)(2) 16

is amended by striking ‘‘section 5001(a)(1)’’ and inserting 17

‘‘subsection (a)(1) of section 5001, determined as if sub-18

section (c)(1) of such section did not apply’’. 19

PPLICATION OF

EDUCED

ATE FOR

-20

EIGN

ANUFACTURERS AND

MPORTERS

.—Subsection (c) 21

of section 5001, as added by subsection (a), is amended— 22

(1) in paragraph (1), by inserting ‘‘but only if 23

the importer is an electing importer under para-24

graph (3) and the proof gallons of distilled spirits 25

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have been assigned to the importer pursuant to such 1

paragraph’’ after ‘‘into the United States during the 2

calendar year’’, and 3

(2) by redesignating paragraph (3) as para-4

graph (4) and by inserting after paragraph (2) the 5

following new paragraph: 6

‘‘(3) R

EDUCED TAX RATE FOR FOREIGN MANU

-7

FACTURERS AND IMPORTERS

.— 8

‘‘(A) I

N GENERAL

.—In the case of any 9

proof gallons of distilled spirits which have been 10

produced outside of the United States and im-11

ported into the United States, the rate of tax 12

applicable under paragraph (1) (referred to in 13

this paragraph as the ‘reduced tax rate’) may 14

be assigned by the distilled spirits operation 15

(provided that such operation makes an election 16

described in subparagraph (B)(ii)) to any elect-17

ing importer of such proof gallons pursuant to 18

the requirements established by the Secretary 19

under subparagraph (B). 20

‘‘(B) A

SSIGNMENT

.—The Secretary shall, 21

through such rules, regulations, and procedures 22

as are determined appropriate, establish proce-23

dures for assignment of the reduced tax rate 24

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provided under this paragraph, which shall in-1

clude— 2

‘‘(i) a limitation to ensure that the 3

number of proof gallons of distilled spirits 4

for which the reduced tax rate has been as-5

signed by a distilled spirits operation— 6

‘‘(I) to any importer does not ex-7

ceed the number of proof gallons pro-8

duced by such operation during the 9

calendar year which were imported 10

into the United States by such im-11

porter, and 12

‘‘(II) to all importers does not 13

exceed the 22,230,000 proof gallons of 14

distilled spirits to which the reduced 15

tax rate applies, 16

‘‘(ii) procedures that allow the election 17

of a distilled spirits operation to assign 18

and an importer to receive the reduced tax 19

rate provided under this paragraph, 20

‘‘(iii) requirements that the distilled 21

spirits operation provide any information 22

as the Secretary determines necessary and 23

appropriate for purposes of carrying out 24

this paragraph, and 25

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‘‘(iv) procedures that allow for revoca-1

tion of eligibility of the distilled spirits op-2

eration and the importer for the reduced 3

tax rate provided under this paragraph in 4

the case of any erroneous or fraudulent in-5

formation provided under clause (iii) which 6

the Secretary deems to be material to 7

qualifying for such reduced rate. 8

‘‘(C) C

ONTROLLED GROUP

.— 9

‘‘(i) I

N GENERAL

.—For purposes of 10

this section, any importer making an elec-11

tion described in subparagraph (B)(ii) 12

shall be deemed to be a member of the 13

controlled group of the distilled spirits op-14

eration, as described under paragraph (2). 15

‘‘(ii) A

PPORTIONMENT

.—For purposes 16

of this paragraph, in the case of a con-17

trolled group, rules similar to section 18

5051(a)(5)(B) shall apply.’’. 19

(d) E

FFECTIVE

ATE

.—The amendments made by 20

this section shall apply to distilled spirits removed after 21

December 31, 2017. 22

SEC. 13808. BULK DISTILLED SPIRITS. 23

(a) I

ENERAL

.—Section 5212 is amended by add-24

ing at the end the following sentence: ‘‘In the case of dis-25

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tilled spirits transferred in bond after December 31, 2017, 1

and before January 1, 2020, this section shall be applied 2

without regard to whether distilled spirits are bulk dis-3

tilled spirits.’’. 4

(b) E

FFECTIVE

ATE

.—The amendments made by 5

this section shall apply distilled spirits transferred in bond 6

after December 31, 2017. 7

Subpart B—Miscellaneous Provisions 8

SEC. 13821. MODIFICATION OF TAX TREATMENT OF ALASKA 9

NATIVE CORPORATIONS AND SETTLEMENT 10

TRUSTS. 11

(a) E

XCLUSION FOR

ANCSA P

AYMENTS

SSIGNED

LASKA

ATIVE

ETTLEMENT

RUSTS

.— 13

(1) I

N GENERAL

.—Part III of subchapter B of 14

chapter 1 is amended by inserting before section 140 15

the following new section: 16

‘‘SEC. 139G. ASSIGNMENTS TO ALASKA NATIVE SETTLE-17

MENT TRUSTS. 18

‘‘(a) I

ENERAL

.—In the case of a Native Corpora-19

tion, gross income shall not include the value of any pay-20

ments that would otherwise be made, or treated as being 21

made, to such Native Corporation pursuant to, or as re-22

quired by, any provision of the Alaska Native Claims Set-23

tlement Act (43 U.S.C. 1601 et seq.), including any pay-24

ment that would otherwise be made to a Village Corpora-25

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340

tion pursuant to section 7(j) of the Alaska Native Claims 1

Settlement Act (43 U.S.C. 1606(j)), provided that any 2

such payments— 3

‘‘(1) are assigned in writing to a Settlement 4

Trust, and 5

‘‘(2) were not received by such Native Corpora-6

tion prior to the assignment described in paragraph 7

(1). 8

‘‘(b) I

NCLUSION IN

ROSS

NCOME

.—In the case of 9

a Settlement Trust which has been assigned payments de-10

scribed in subsection (a), gross income shall include such 11

payments when received by such Settlement Trust pursu-12

ant to the assignment and shall have the same character 13

as if such payments were received by the Native Corpora-14

tion. 15

‘‘(c) A

MOUNT AND

COPE OF

SSIGNMENT

.—The 16

amount and scope of any assignment under subsection (a) 17

shall be described with reasonable particularity and may 18

either be in a percentage of one or more such payments 19

or in a fixed dollar amount. 20

‘‘(d) D

URATION OF

SSIGNMENT

; R

EVOCABILITY

.— 21

Any assignment under subsection (a) shall specify— 22

‘‘(1) a duration either in perpetuity or for a pe-23

riod of time, and 24

‘‘(2) whether such assignment is revocable. 25

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‘‘(e) P

ROHIBITION ON

EDUCTION

.—Notwith-1

standing section 247, no deduction shall be allowed to a 2

Native Corporation for purposes of any amounts described 3

in subsection (a). 4

‘‘(f) D

EFINITIONS

.—For purposes of this section, the 5

terms ‘Native Corporation’ and ‘Settlement Trust’ have 6

the same meaning given such terms under section 7

646(h).’’. 8

(2) C

ONFORMING AMENDMENT

.—The table of 9

sections for part III of subchapter B of chapter 1 10

is amended by inserting before the item relating to 11

section 140 the following new item: 12

‘‘Sec. 139G. Assignments to Alaska Native Settlement Trusts.’’.

(3) E

FFECTIVE DATE

.—The amendments made 13

by this subsection shall apply to taxable years begin-14

ning after December 31, 2016. 15

(b) D

EDUCTION OF

ONTRIBUTIONS TO

LASKA

-16

TIVE

ETTLEMENT

RUSTS

.— 17

(1) I

N GENERAL

.—Part VIII of subchapter B 18

of chapter 1 is amended by inserting before section 19

248 the following new section: 20

‘‘SEC. 247. CONTRIBUTIONS TO ALASKA NATIVE SETTLE-21

MENT TRUSTS. 22

‘‘(a) I

ENERAL

.—In the case of a Native Corpora-23

tion, there shall be allowed a deduction for any contribu-24

tions made by such Native Corporation to a Settlement 25

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342

Trust (regardless of whether an election under section 646 1

is in effect for such Settlement Trust) for which the Na-2

tive Corporation has made an annual election under sub-3

section (e). 4

‘‘(b) A

MOUNT OF

EDUCTION

.—The amount of the 5

deduction under subsection (a) shall be equal to— 6

‘‘(1) in the case of a cash contribution (regard-7

less of the method of payment, including currency, 8

coins, money order, or check), the amount of such 9

contribution, or 10

‘‘(2) in the case of a contribution not described 11

in paragraph (1), the lesser of— 12

‘‘(A) the Native Corporation’s adjusted 13

basis in the property contributed, or 14

‘‘(B) the fair market value of the property 15

contributed. 16

‘‘(c) L

IMITATION AND

ARRYOVER

.— 17

‘‘(1) I

N GENERAL

.—Subject to paragraph (2), 18

the deduction allowed under subsection (a) for any 19

taxable year shall not exceed the taxable income (as 20

determined without regard to such deduction) of the 21

Native Corporation for the taxable year in which the 22

contribution was made. 23

‘‘(2) C

ARRYOVER

.—If the aggregate amount of 24

contributions described in subsection (a) for any tax-25

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able year exceeds the limitation under paragraph 1

(1), such excess shall be treated as a contribution 2

described in subsection (a) in each of the 15 suc-3

ceeding years in order of time. 4

‘‘(d) D

EFINITIONS

.—For purposes of this section, the 5

terms ‘Native Corporation’ and ‘Settlement Trust’ have 6

the same meaning given such terms under section 646(h). 7

‘‘(e) M

ANNER OF

AKING

LECTION

.— 8

‘‘(1) I

N GENERAL

.—For each taxable year, a 9

Native Corporation may elect to have this section 10

apply for such taxable year on the income tax return 11

or an amendment or supplement to the return of the 12

Native Corporation, with such election to have effect 13

solely for such taxable year. 14

‘‘(2) R

EVOCATION

.—Any election made by a 15

Native Corporation pursuant to this subsection may 16

be revoked pursuant to a timely filed amendment or 17

supplement to the income tax return of such Native 18

Corporation. 19

‘‘(f) A

DDITIONAL

ULES

.— 20

‘‘(1) E

ARNINGS AND PROFITS

.—Notwith-21

standing section 646(d)(2), in the case of a Native 22

Corporation which claims a deduction under this sec-23

tion for any taxable year, the earnings and profits 24

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344

of such Native Corporation for such taxable year 1

shall be reduced by the amount of such deduction. 2

‘‘(2) G

AIN OR LOSS

.—No gain or loss shall be 3

recognized by the Native Corporation with respect to 4

a contribution of property for which a deduction is 5

allowed under this section. 6

‘‘(3) I

NCOME

.—Subject to subsection (g), a Set-7

tlement Trust shall include in income the amount of 8

any deduction allowed under this section in the tax-9

able year in which the Settlement Trust actually re-10

ceives such contribution. 11

‘‘(4) P

ERIOD

.—The holding period under sec-12

tion 1223 of the Settlement Trust shall include the 13

period the property was held by the Native Corpora-14

tion. 15

‘‘(5) B

ASIS

.—The basis that a Settlement Trust 16

has for which a deduction is allowed under this sec-17

tion shall be equal to the lesser of— 18

‘‘(A) the adjusted basis of the Native Cor-19

poration in such property immediately before 20

such contribution, or 21

‘‘(B) the fair market value of the property 22

immediately before such contribution. 23

‘‘(6) P

ROHIBITION

.—No deduction shall be al-24

lowed under this section with respect to any con-25

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345

tributions made to a Settlement Trust which are in 1

violation of subsection (a)(2) or (c)(2) of section 39 2

of the Alaska Native Claims Settlement Act (43 3

U.S.C. 1629e). 4

‘‘(g) E

LECTION BY

ETTLEMENT

RUST TO

EFER

NCOME

ECOGNITION

.— 6

‘‘(1) I

N GENERAL

.—In the case of a contribu-7

tion which consists of property other than cash, a 8

Settlement Trust may elect to defer recognition of 9

any income related to such property until the sale or 10

exchange of such property, in whole or in part, by 11

the Settlement Trust. 12

‘‘(2) T

REATMENT

.—In the case of property de-13

scribed in paragraph (1), any income or gain real-14

ized on the sale or exchange of such property shall 15

be treated as— 16

‘‘(A) for such amount of the income or 17

gain as is equal to or less than the amount of 18

income which would be included in income at 19

the time of contribution under subsection (f)(3) 20

but for the taxpayer’s election under this sub-21

section, ordinary income, and 22

‘‘(B) for any amounts of the income or 23

gain which are in excess of the amount of in-24

come which would be included in income at the 25

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346

time of contribution under subsection (f)(3) but 1

for the taxpayer’s election under this sub-2

section, having the same character as if this 3

subsection did not apply. 4

‘‘(3) E

LECTION

.— 5

‘‘(A) I

N GENERAL

.—For each taxable year, 6

a Settlement Trust may elect to apply this sub-7

section for any property described in paragraph 8

(1) which was contributed during such year. 9

Any property to which the election applies shall 10

be identified and described with reasonable par-11

ticularity on the income tax return or an 12

amendment or supplement to the return of the 13

Settlement Trust, with such election to have ef-14

fect solely for such taxable year. 15

‘‘(B) R

EVOCATION

.—Any election made by 16

a Settlement Trust pursuant to this subsection 17

may be revoked pursuant to a timely filed 18

amendment or supplement to the income tax re-19

turn of such Settlement Trust. 20

‘‘(C) C

ERTAIN DISPOSITIONS

.— 21

‘‘(i) I

N GENERAL

.—In the case of any 22

property for which an election is in effect 23

under this subsection and which is dis-24

posed of within the first taxable year sub-25

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347

sequent to the taxable year in which such 1

property was contributed to the Settlement 2

Trust— 3

‘‘(I) this section shall be applied 4

as if the election under this subsection 5

had not been made, 6

‘‘(II) any income or gain which 7

would have been included in the year 8

of contribution under subsection (f)(3) 9

but for the taxpayer’s election under 10

this subsection shall be included in in-11

come for the taxable year of such con-12

tribution, and 13

‘‘(III) the Settlement Trust shall 14

pay any increase in tax resulting from 15

such inclusion, including any applica-16

ble interest, and increased by 10 per-17

cent of the amount of such increase 18

with interest. 19

‘‘(ii) A

SSESSMENT

.—Notwithstanding 20

section 6501(a), any amount described in 21

subclause (III) of clause (i) may be as-22

sessed, or a proceeding in court with re-23

spect to such amount may be initiated 24

without assessment, within 4 years after 25

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348

the date on which the return making the 1

election under this subsection for such 2

property was filed.’’. 3

(2) C

ONFORMING AMENDMENT

.—The table of 4

sections for part VIII of subchapter B of chapter 1 5

is amended by inserting before the item relating to 6

section 248 the following new item: 7

‘‘Sec. 247. Contributions to Alaska Native Settlement Trusts.’’.

(3) E

FFECTIVE DATE

.— 8

(A) I

N GENERAL

.—The amendments made 9

by this subsection shall apply to taxable years 10

for which the period of limitation on refund or 11

credit under section 6511 of the Internal Rev-12

enue Code of 1986 has not expired. 13

(B) O

YEAR WAIVER OF STATUTE OF

LIMITATIONS

.—If the period of limitation on a 15

credit or refund resulting from the amendments 16

made by paragraph (1) expires before the end 17

of the 1-year period beginning on the date of 18

the enactment of this Act, refund or credit of 19

such overpayment (to the extent attributable to 20

such amendments) may, nevertheless, be made 21

or allowed if claim therefor is filed before the 22

close of such 1-year period. 23

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349

NFORMATION

EPORTING FOR

EDUCTIBLE

ONTRIBUTIONS TO

LASKA

ATIVE

ETTLEMENT

RUSTS

.— 3

(1) I

N GENERAL

.—Section 6039H is amend-4

ed— 5

(A) in the heading, by striking ‘‘

SPON

-6

SORING

’’, and 7

(B) by adding at the end the following new 8

subsection: 9

‘‘(e) D

EDUCTIBLE

ONTRIBUTIONS BY

ATIVE

-10

PORATIONS TO

LASKA

ATIVE

ETTLEMENT

RUSTS

.— 11

‘‘(1) I

N GENERAL

.—Any Native Corporation (as 12

defined in subsection (m) of section 3 of the Alaska 13

Native Claims Settlement Act (43 U.S.C. 1602(m))) 14

which has made a contribution to a Settlement 15

Trust (as defined in subsection (t) of such section) 16

to which an election under subsection (e) of section 17

247 applies shall provide such Settlement Trust with 18

a statement regarding such election not later than 19

January 31 of the calendar year subsequent to the 20

calendar year in which the contribution was made. 21

‘‘(2) C

ONTENT OF STATEMENT

.—The state-22

ment described in paragraph (1) shall include— 23

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350

‘‘(A) the total amount of contributions to 1

which the election under subsection (e) of sec-2

tion 247 applies, 3

‘‘(B) for each contribution, whether such 4

contribution was in cash, 5

‘‘(C) for each contribution which consists 6

of property other than cash, the date that such 7

property was acquired by the Native Corpora-8

tion and the adjusted basis and fair market 9

value of such property on the date such prop-10

erty was contributed to the Settlement Trust, 11

‘‘(D) the date on which each contribution 12

was made to the Settlement Trust, and 13

‘‘(E) such information as the Secretary de-14

termines to be necessary or appropriate for the 15

identification of each contribution and the accu-16

rate inclusion of income relating to such con-17

tributions by the Settlement Trust.’’. 18

(2) C

ONFORMING AMENDMENT

.—The item re-19

lating to section 6039H in the table of sections for 20

subpart A of part III of subchapter A of chapter 61 21

is amended to read as follows: 22

‘‘Sec. 6039H. Information With Respect to Alaska Native Settlement Trusts

and Native Corporations.’’.

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351

(3) E

FFECTIVE DATE

.—The amendments made 1

by this subsection shall apply to taxable years begin-2

ning after December 31, 2016. 3

SEC. 13822. AMOUNTS PAID FOR AIRCRAFT MANAGEMENT 4

SERVICES. 5

(a) I

ENERAL

.—Subsection (e) of section 4261 is 6

amended by adding at the end the following new para-7

graph: 8

‘‘(5) A

MOUNTS PAID FOR AIRCRAFT MANAGE

-9

MENT SERVICES

.— 10

‘‘(A) I

N GENERAL

.—No tax shall be im-11

posed by this section or section 4271 on any 12

amounts paid by an aircraft owner for aircraft 13

management services related to— 14

‘‘(i) maintenance and support of the 15

aircraft owner’s aircraft, or 16

‘‘(ii) flights on the aircraft owner’s 17

aircraft. 18

‘‘(B) A

IRCRAFT MANAGEMENT SERV

-19

ICES

.—For purposes of subparagraph (A), the 20

term ‘aircraft management services’ includes— 21

‘‘(i) assisting an aircraft owner with 22

administrative and support services, such 23

as scheduling, flight planning, and weather 24

forecasting, 25

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352

‘‘(ii) obtaining insurance, 1

‘‘(iii) maintenance, storage and fuel-2

ing of aircraft, 3

‘‘(iv) hiring, training, and provision of 4

pilots and crew, 5

‘‘(v) establishing and complying with 6

safety standards, and 7

‘‘(vi) such other services as are nec-8

essary to support flights operated by an 9

aircraft owner. 10

‘‘(C) L

ESSEE TREATED AS AIRCRAFT

OWNER

.— 12

‘‘(i) I

N GENERAL

.—For purposes of 13

this paragraph, the term ‘aircraft owner’ 14

includes a person who leases the aircraft 15

other than under a disqualified lease. 16

‘‘(ii) D

ISQUALIFIED LEASE

.—For pur-17

poses of clause (i), the term ‘disqualified 18

lease’ means a lease from a person pro-19

viding aircraft management services with 20

respect to such aircraft (or a related per-21

son (within the meaning of section 22

465(b)(3)(C)) to the person providing such 23

services), if such lease is for a term of 31 24

days or less. 25

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353

‘‘(D) P

RO RATA ALLOCATION

.—In the case 1

of amounts paid to any person which (but for 2

this subsection) are subject to the tax imposed 3

by subsection (a), a portion of which consists of 4

amounts described in subparagraph (A), this 5

paragraph shall apply on a pro rata basis only 6

to the portion which consists of amounts de-7

scribed in such subparagraph.’’. 8

(b) E

FFECTIVE

ATE

.—The amendment made by 9

this section shall apply to amounts paid after the date of 10

the enactment of this Act. 11

SEC. 13823. OPPORTUNITY ZONES. 12

(a) I

ENERAL

.—Chapter 1 is amended by adding 13

at the end the following: 14

‘‘Subchapter Z—Opportunity Zones 15

‘‘Sec. 1400Z–1. Designation.

‘‘Sec. 1400Z–2. Special rules for capital gains invested in opportunity zones.

‘‘SEC. 1400Z–1. DESIGNATION. 16

‘‘(a) Q

UALIFIED

PPORTUNITY

ONE

EFINED

.— 17

For the purposes of this subchapter, the term ‘qualified 18

opportunity zone’ means a population census tract that 19

is a low-income community that is designated as a quali-20

fied opportunity zone. 21

‘‘(b) D

ESIGNATION

.— 22

‘‘(1) I

N GENERAL

.—For purposes of subsection 23

(a), a population census tract that is a low-income 24

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354

community is designated as a qualified opportunity 1

zone if— 2

‘‘(A) not later than the end of the deter-3

mination period, the chief executive officer of 4

the State in which the tract is located— 5

‘‘(i) nominates the tract for designa-6

tion as a qualified opportunity zone, and 7

‘‘(ii) notifies the Secretary in writing 8

of such nomination, and 9

‘‘(B) the Secretary certifies such nomina-10

tion and designates such tract as a qualified op-11

portunity zone before the end of the consider-12

ation period. 13

‘‘(2) E

XTENSION OF PERIODS

.—A chief execu-14

tive officer of a State may request that the Sec-15

retary extend either the determination or consider-16

ation period, or both (determined without regard to 17

this subparagraph), for an additional 30 days. 18

‘‘(c) O

THER

EFINITIONS

.—For purposes of this 19

subsection— 20

‘‘(1) L

INCOME COMMUNITIES

.—The term 21

‘low-income community’ has the same meaning as 22

when used in section 45D(e). 23

‘‘(2) D

EFINITION OF PERIODS

.— 24

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355

‘‘(A) C

ONSIDERATION PERIOD

.—The term 1

‘consideration period’ means the 30-day period 2

beginning on the date on which the Secretary 3

receives notice under subsection (b)(1)(A)(ii), 4

as extended under subsection (b)(2). 5

‘‘(B) D

ETERMINATION PERIOD

.—The term 6

‘determination period’ means the 90-day period 7

beginning on the date of the enactment of the 8

Tax Cuts and Jobs Act, as extended under sub-9

section (b)(2). 10

‘‘(3) S

TATE

.—For purposes of this section, the 11

term ‘State’ includes any possession of the United 12

States. 13

‘‘(d) N

UMBER OF

ESIGNATIONS

.— 14

‘‘(1) I

N GENERAL

.—Except as provided by 15

paragraph (2), the number of population census 16

tracts in a State that may be designated as qualified 17

opportunity zones under this section may not exceed 18

25 percent of the number of low-income communities 19

in the State. 20

‘‘(2) E

XCEPTION

.—If the number of low-income 21

communities in a State is less than 100, then a total 22

of 25 of such tracts may be designated as qualified 23

opportunity zones. 24

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356

‘‘(e) D

ESIGNATION OF

RACTS

ONTIGUOUS

ITH

INCOME

OMMUNITIES

.— 2

‘‘(1) I

N GENERAL

.—A population census tract 3

that is not a low-income community may be des-4

ignated as a qualified opportunity zone under this 5

section if— 6

‘‘(A) the tract is contiguous with the low- 7

income community that is designated as a 8

qualified opportunity zone, and 9

‘‘(B) the median family income of the tract 10

does not exceed 125 percent of the median fam-11

ily income of the low-income community with 12

which the tract is contiguous. 13

‘‘(2) L

IMITATION

.—Not more than 5 percent of 14

the population census tracts designated in a State as 15

a qualified opportunity zone may be designated 16

under paragraph (1). 17

‘‘(f) P

ERIOD FOR

HICH

ESIGNATION

SIN

-18

FECT

.—A designation as a qualified opportunity zone 19

shall remain in effect for the period beginning on the date 20

of the designation and ending at the close of the 10th cal-21

endar year beginning on or after such date of designation. 22

‘‘SEC. 1400Z–2. SPECIAL RULES FOR CAPITAL GAINS IN-23

VESTED IN OPPORTUNITY ZONES. 24

‘‘(a) I

ENERAL

.— 25

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357

‘‘(1) T

REATMENT OF GAINS

.—In the case of 1

gain from the sale to, or exchange with, an unre-2

lated person of any property held by the taxpayer, 3

at the election of the taxpayer— 4

‘‘(A) gross income for the taxable year 5

shall not include so much of such gain as does 6

not exceed the aggregate amount invested by 7

the taxpayer in a qualified opportunity fund 8

during the 180-day period beginning on the 9

date of such sale or exchange, 10

‘‘(B) the amount of gain excluded by sub-11

paragraph (A) shall be included in gross income 12

as provided by subsection (b), and 13

‘‘(C) subsection (c) shall apply. 14

‘‘(2) E

LECTION

.—No election may be made 15

under paragraph (1)— 16

‘‘(A) with respect to a sale or exchange if 17

an election previously made with respect to such 18

sale or exchange is in effect, or 19

‘‘(B) with respect to any sale or exchange 20

after December 31, 2026. 21

‘‘(b) D

EFERRAL OF

AIN

NVESTED IN

PPOR

-22

TUNITY

ONE

ROPERTY

.— 23

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358

‘‘(1) Y

EAR OF INCLUSION

.—Gain to which sub-1

section (a)(1)(B) applies shall be included in income 2

in the taxable year which includes the earlier of— 3

‘‘(A) the date on which such investment is 4

sold or exchanged, or 5

‘‘(B) December 31, 2026. 6

‘‘(2) A

MOUNT INCLUDIBLE

.— 7

‘‘(A) I

N GENERAL

.—The amount of gain 8

included in gross income under subsection 9

(a)(1)(A) shall be the excess of— 10

‘‘(i) the lesser of the amount of gain 11

excluded under paragraph (1) or the fair 12

market value of the investment as deter-13

mined as of the date described in para-14

graph (1), over 15

‘‘(ii) the taxpayer’s basis in the in-16

vestment. 17

‘‘(B) D

ETERMINATION OF BASIS

.— 18

‘‘(i) I

N GENERAL

.—Except as other-19

wise provided in this clause or subsection 20

(c), the taxpayer’s basis in the investment 21

shall be zero. 22

‘‘(ii) I

NCREASE FOR GAIN RECOG

-23

NIZED UNDER SUBSECTION

(a)(1)(B).— 24

The basis in the investment shall be in-25

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359

creased by the amount of gain recognized 1

by reason of subsection (a)(1)(B) with re-2

spect to such property. 3

‘‘(iii) I

NVESTMENTS HELD FOR 5

YEARS

.—In the case of any investment 5

held for at least 5 years, the basis of such 6

investment shall be increased by an 7

amount equal to 10 percent of the amount 8

of gain deferred by reason of subsection 9

(a)(1)(A). 10

‘‘(iv) I

NVESTMENTS HELD FOR 7

YEARS

.—In the case of any investment 12

held by the taxpayer for at least 7 years, 13

in addition to any adjustment made under 14

clause (iii), the basis of such property shall 15

be increased by an amount equal to 5 per-16

cent of the amount of gain deferred by rea-17

son of subsection (a)(1)(A). 18

‘‘(c) S

PECIAL

ULE FOR

NVESTMENTS

ELD FOR

EAST

10 Y

EARS

.—In the case of any investment held 20

by the taxpayer for at least 10 years and with respect to 21

which the taxpayer makes an election under this clause, 22

the basis of such property shall be equal to the fair market 23

value of such investment on the date that the investment 24

is sold or exchanged. 25

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360

‘‘(d) Q

UALIFIED

PPORTUNITY

UND

.—For pur-1

poses of this section— 2

‘‘(1) I

N GENERAL

.—The term ‘qualified oppor-3

tunity fund’ means any investment vehicle which is 4

organized as a corporation or a partnership for the 5

purpose of investing in qualified opportunity zone 6

property (other than another qualified opportunity 7

fund) that holds at least 90 percent of its assets in 8

qualified opportunity zone property, determined by 9

the average of the percentage of qualified oppor-10

tunity zone property held in the fund as measured— 11

‘‘(A) on the last day of the first 6-month 12

period of the taxable year of the fund, and 13

‘‘(B) on the last day of the taxable year of 14

the fund. 15

‘‘(2) Q

UALIFIED OPPORTUNITY ZONE PROP

-16

ERTY

.— 17

‘‘(A) I

N GENERAL

.—The term ‘qualified 18

opportunity zone property’ means property 19

which is— 20

‘‘(i) qualified opportunity zone stock, 21

‘‘(ii) qualified opportunity zone part-22

nership interest, or 23

‘‘(iii) qualified opportunity zone busi-24

ness property. 25

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361

‘‘(B) Q

UALIFIED OPPORTUNITY ZONE

STOCK

.— 2

‘‘(i) I

N GENERAL

.—Except as pro-3

vided in clause (ii), the term ‘qualified op-4

portunity zone stock’ means any stock in a 5

domestic corporation if— 6

‘‘(I) such stock is acquired by the 7

qualified opportunity fund after De-8

cember 31, 2017, at its original issue 9

(directly or through an underwriter) 10

from the corporation solely in ex-11

change for cash, 12

‘‘(II) as of the time such stock 13

was issued, such corporation was a 14

qualified opportunity zone business 15

(or, in the case of a new corporation, 16

such corporation was being organized 17

for purposes of being a qualified op-18

portunity zone business), and 19

‘‘(III) during substantially all of 20

the qualified opportunity fund’s hold-21

ing period for such stock, such cor-22

poration qualified as a qualified op-23

portunity zone business. 24

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362

‘‘(ii) R

EDEMPTIONS

.—A rule similar 1

to the rule of section 1202(c)(3) shall 2

apply for purposes of this paragraph. 3

‘‘(C) Q

UALIFIED OPPORTUNITY ZONE

PARTNERSHIP INTEREST

.—The term ‘qualified 5

opportunity zone partnership interest’ means 6

any capital or profits interest in a domestic 7

partnership if— 8

‘‘(i) such interest is acquired by the 9

qualified opportunity fund after December 10

31, 2017, from the partnership solely in 11

exchange for cash, 12

‘‘(ii) as of the time such interest was 13

acquired, such partnership was a qualified 14

opportunity zone business (or, in the case 15

of a new partnership, such partnership was 16

being organized for purposes of being a 17

qualified opportunity zone business), and 18

‘‘(iii) during substantially all of the 19

qualified opportunity fund’s holding period 20

for such interest, such partnership quali-21

fied as a qualified opportunity zone busi-22

ness. 23

‘‘(D) Q

UALIFIED OPPORTUNITY ZONE

BUSINESS PROPERTY

.— 25

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‘‘(i) I

N GENERAL

.—The term ‘quali-1

fied opportunity zone business property’ 2

means tangible property used in a trade or 3

business of the qualified opportunity fund 4

if— 5

‘‘(I) such property was acquired 6

by the qualified opportunity fund by 7

purchase (as defined in section 8

179(d)(2)) after December 31, 2017, 9

‘‘(II) the original use of such 10

property in the qualified opportunity 11

zone commences with the qualified op-12

portunity fund or the qualified oppor-13

tunity fund substantially improves the 14

property, and 15

‘‘(III) during substantially all of 16

the qualified opportunity fund’s hold-17

ing period for such property, substan-18

tially all of the use of such property 19

was in a qualified opportunity zone. 20

‘‘(ii) S

UBSTANTIAL IMPROVEMENT

.— 21

For purposes of subparagraph (A)(ii), 22

property shall be treated as substantially 23

improved by the qualified opportunity fund 24

only if, during any 30-month period begin-25

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364

ning after the date of acquisition of such 1

property, additions to basis with respect to 2

such property in the hands of the qualified 3

opportunity fund exceed an amount equal 4

to the adjusted basis of such property at 5

the beginning of such 30-month period in 6

the hands of the qualified opportunity 7

fund. 8

‘‘(iii) R

ELATED PARTY

.—For pur-9

poses of subparagraph (A)(i), the related 10

person rule of section 179(d)(2) shall be 11

applied pursuant to paragraph (8) of this 12

subsection in lieu of the application of such 13

rule in section 179(d)(2)(A). 14

‘‘(3) Q

UALIFIED OPPORTUNITY ZONE BUSI

-15

NESS

.— 16

‘‘(A) I

N GENERAL

.—The term ‘qualified 17

opportunity zone business’ means a trade or 18

business— 19

‘‘(i) in which substantially all of the 20

tangible property owned or leased by the 21

taxpayer is qualified opportunity zone busi-22

ness property (determined by substituting 23

‘qualified opportunity zone business’ for 24

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365

‘qualified opportunity fund’ each place it 1

appears in paragraph (2)(D)), 2

‘‘(ii) which satisfies the requirements 3

of paragraphs (2), (4), and (8) of section 4

1397C(b), and 5

‘‘(iii) which is not described in section 6

144(c)(6)(B). 7

‘‘(B) S

PECIAL RULE

.—For purposes of 8

subparagraph (A), tangible property that ceases 9

to be a qualified opportunity zone business 10

property shall continue to be treated as a quali-11

fied opportunity zone business property for the 12

lesser of— 13

‘‘(i) 5 years after the date on which 14

such tangible property ceases to be so 15

qualified, or 16

‘‘(ii) the date on which such tangible 17

property is no longer held by the qualified 18

opportunity zone business. 19

‘‘(e) A

PPLICABLE

ULES

.— 20

‘‘(1) T

REATMENT OF INVESTMENTS WITH

MIXED FUNDS

.—In the case of any investment in a 22

qualified opportunity fund only a portion of which 23

consists of investments of gain to which an election 24

under subsection (a) is in effect— 25

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366

‘‘(A) such investment shall be treated as 2 1

separate investments, consisting of— 2

‘‘(i) one investment that only includes 3

amounts to which the election under sub-4

section (a) applies, and 5

‘‘(ii) a separate investment consisting 6

of other amounts, and 7

‘‘(B) subsections (a), (b), and (c) shall 8

only apply to the investment described in sub-9

paragraph (A)(i). 10

‘‘(2) R

ELATED PERSONS

.—For purposes of this 11

section, persons are related to each other if such 12

persons are described in section 267(b) or 707(b)(1), 13

determined by substituting ‘20 percent’ for ‘50 per-14

cent’ each place it occurs in such sections. 15

‘‘(3) D

ECEDENTS

.—In the case of a decedent, 16

amounts recognized under this section shall, if not 17

properly includible in the gross income of the dece-18

dent, be includible in gross income as provided by 19

section 691. 20

‘‘(4) R

EGULATIONS

.—The Secretary shall pre-21

scribe such regulations as may be necessary or ap-22

propriate to carry out the purposes of this section, 23

including— 24

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367

‘‘(A) rules for the certification of qualified 1

opportunity funds for the purposes of this sec-2

tion, 3

‘‘(B) rules to ensure a qualified oppor-4

tunity fund has a reasonable period of time to 5

reinvest the return of capital from investments 6

in qualified opportunity zone stock and quali-7

fied opportunity zone partnership interests, and 8

to reinvest proceeds received from the sale or 9

disposition of qualified opportunity zone prop-10

erty, and 11

‘‘(C) rules to prevent abuse. 12

‘‘(f) F

AILURE OF

UALIFIED

PPORTUNITY

UND

AINTAIN

NVESTMENT

TANDARD

.— 14

‘‘(1) I

N GENERAL

.—If a qualified opportunity 15

fund fails to meet the 90-percent requirement of 16

subsection (c)(1), the qualified opportunity fund 17

shall pay a penalty for each month it fails to meet 18

the requirement in an amount equal to the product 19

of— 20

‘‘(A) the excess of— 21

‘‘(i) the amount equal to 90 percent of 22

its aggregate assets, over 23

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368

‘‘(ii) the aggregate amount of quali-1

fied opportunity zone property held by the 2

fund, multiplied by 3

‘‘(B) the underpayment rate established 4

under section 6621(a)(2) for such month. 5

‘‘(2) S

PECIAL RULE FOR PARTNERSHIPS

.—In 6

the case that the qualified opportunity fund is a 7

partnership, the penalty imposed by paragraph (1) 8

shall be taken into account proportionately as part 9

of the distributive share of each partner of the part-10

nership. 11

‘‘(3) R

EASONABLE CAUSE EXCEPTION

.—No 12

penalty shall be imposed under this subsection with 13

respect to any failure if it is shown that such failure 14

is due to reasonable cause.’’. 15

(b) B

ASIS

DJUSTMENTS

.—Section 1016(a) is 16

amended by striking ‘‘and’’ at the end of paragraph (36), 17

by striking the period at the end of paragraph (37) and 18

inserting ‘‘, and’’, and by inserting after paragraph (37) 19

the following: 20

‘‘(38) to the extent provided in subsections 21

(b)(2) and (c) of section 1400Z–2.’’. 22

LERICAL

MENDMENT

.—The table of sub-23

chapters for chapter 1 is amended by adding at the end 24

the following new item: 25

‘‘

SUBCHAPTER Z

OPPORTUNITY ZONES

’’.

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369

(d) E

FFECTIVE

ATE

.—The amendments made by 1

this section shall take effect on the date of the enactment 2

of this Act. 3

Subtitle D—International Tax 4

Provisions 5

PART I—OUTBOUND TRANSACTIONS 6

Subpart A—Establishment of Participation 7

Exemption System for Taxation of Foreign Income 8

SEC. 14101. DEDUCTION FOR FOREIGN-SOURCE PORTION 9

OF DIVIDENDS RECEIVED BY DOMESTIC COR-10

PORATIONS FROM SPECIFIED 10-PERCENT 11

OWNED FOREIGN CORPORATIONS. 12

(a) I

ENERAL

.—Part VIII of subchapter B of 13

chapter 1 is amended by inserting after section 245 the 14

following new section: 15

‘‘SEC. 245A. DEDUCTION FOR FOREIGN SOURCE-PORTION 16

OF DIVIDENDS RECEIVED BY DOMESTIC COR-17

PORATIONS FROM SPECIFIED 10-PERCENT 18

OWNED FOREIGN CORPORATIONS. 19

‘‘(a) I

ENERAL

.—In the case of any dividend re-20

ceived from a specified 10-percent owned foreign corpora-21

tion by a domestic corporation which is a United States 22

shareholder with respect to such foreign corporation, there 23

shall be allowed as a deduction an amount equal to the 24

foreign-source portion of such dividend. 25

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‘‘(b) S

PECIFIED

10-

PERCENT

WNED

OREIGN

-1

PORATION

.—For purposes of this section— 2

‘‘(1) I

N GENERAL

.—The term ‘specified 10-per-3

cent owned foreign corporation’ means any foreign 4

corporation with respect to which any domestic cor-5

poration is a United States shareholder with respect 6

to such corporation. 7

‘‘(2) E

XCLUSION OF PASSIVE FOREIGN INVEST

-8

MENT COMPANIES

.—Such term shall not include any 9

corporation which is a passive foreign investment 10

company (as defined in section 1297) with respect to 11

the shareholder and which is not a controlled foreign 12

corporation. 13

‘‘(c) F

OREIGN

SOURCE

ORTION

.—For purposes of 14

this section— 15

‘‘(1) I

N GENERAL

.—The foreign-source portion 16

of any dividend from a specified 10-percent owned 17

foreign corporation is an amount which bears the 18

same ratio to such dividend as— 19

‘‘(A) the undistributed foreign earnings of 20

the specified 10-percent owned foreign corpora-21

tion, bears to 22

‘‘(B) the total undistributed earnings of 23

such foreign corporation. 24

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371

‘‘(2) U

NDISTRIBUTED EARNINGS

.—The term 1

‘undistributed earnings’ means the amount of the 2

earnings and profits of the specified 10-percent 3

owned foreign corporation (computed in accordance 4

with sections 964(a) and 986)— 5

‘‘(A) as of the close of the taxable year of 6

the specified 10-percent owned foreign corpora-7

tion in which the dividend is distributed, and 8

‘‘(B) without diminution by reason of divi-9

dends distributed during such taxable year. 10

‘‘(3) U

NDISTRIBUTED FOREIGN EARNINGS

.— 11

The term ‘undistributed foreign earnings’ means the 12

portion of the undistributed earnings which is attrib-13

utable to neither— 14

‘‘(A) income described in subparagraph (A) 15

of section 245(a)(5), nor 16

‘‘(B) dividends described in subparagraph 17

(B) of such section (determined without regard 18

to section 245(a)(12)). 19

‘‘(d) D

ISALLOWANCE OF

OREIGN

REDIT

, 20

ETC

.— 21

‘‘(1) I

N GENERAL

.—No credit shall be allowed 22

under section 901 for any taxes paid or accrued (or 23

treated as paid or accrued) with respect to any divi-24

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372

dend for which a deduction is allowed under this sec-1

tion. 2

‘‘(2) D

ENIAL OF DEDUCTION

.—No deduction 3

shall be allowed under this chapter for any tax for 4

which credit is not allowable under section 901 by 5

reason of paragraph (1) (determined by treating the 6

taxpayer as having elected the benefits of subpart A 7

of part III of subchapter N). 8

‘‘(e) S

PECIAL

ULES FOR

YBRID

IVIDENDS

.— 9

‘‘(1) I

N GENERAL

.—Subsection (a) shall not 10

apply to any dividend received by a United States 11

shareholder from a controlled foreign corporation if 12

the dividend is a hybrid dividend. 13

‘‘(2) H

YBRID DIVIDENDS OF TIERED CORPORA

-14

TIONS

.—If a controlled foreign corporation with re-15

spect to which a domestic corporation is a United 16

States shareholder receives a hybrid dividend from 17

any other controlled foreign corporation with respect 18

to which such domestic corporation is also a United 19

States shareholder, then, notwithstanding any other 20

provision of this title— 21

‘‘(A) the hybrid dividend shall be treated 22

for purposes of section 951(a)(1)(A) as subpart 23

F income of the receiving controlled foreign cor-24

poration for the taxable year of the controlled 25

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373

foreign corporation in which the dividend was 1

received, and 2

‘‘(B) the United States shareholder shall 3

include in gross income an amount equal to the 4

shareholder’s pro rata share (determined in the 5

same manner as under section 951(a)(2)) of the 6

subpart F income described in subparagraph 7

(A). 8

‘‘(3) D

ENIAL OF FOREIGN TAX CREDIT

ETC

.— 9

The rules of subsection (d) shall apply to any hybrid 10

dividend received by, or any amount included under 11

paragraph (2) in the gross income of, a United 12

States shareholder. 13

‘‘(4) H

YBRID DIVIDEND

.—The term ‘hybrid 14

dividend’ means an amount received from a con-15

trolled foreign corporation— 16

‘‘(A) for which a deduction would be al-17

lowed under subsection (a) but for this sub-18

section, and 19

‘‘(B) for which the controlled foreign cor-20

poration received a deduction (or other tax ben-21

efit) with respect to any income, war profits, or 22

excess profits taxes imposed by any foreign 23

country or possession of the United States. 24

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374

‘‘(f) S

PECIAL

ULE FOR

URGING

ISTRIBUTIONS

ASSIVE

OREIGN

NVESTMENT

OMPANIES

.—Any 2

amount which is treated as a dividend under section 3

1291(d)(2)(B) shall not be treated as a dividend for pur-4

poses of this section. 5

‘‘(g) R

EGULATIONS

.—The Secretary shall prescribe 6

such regulations or other guidance as may be necessary 7

or appropriate to carry out the provisions of this section, 8

including regulations for the treatment of United States 9

shareholders owning stock of a specified 10 percent owned 10

foreign corporation through a partnership.’’. 11

(b) A

PPLICATION OF

OLDING

ERIOD

EQUIRE

-12

MENT

.—Subsection (c) of section 246 is amended— 13

(1) by striking ‘‘or 245’’ in paragraph (1) and 14

inserting ‘‘245, or 245A’’, and 15

(2) by adding at the end the following new 16

paragraph: 17

‘‘(5) S

PECIAL RULES FOR FOREIGN SOURCE

PORTION OF DIVIDENDS RECEIVED FROM SPECIFIED

PERCENT OWNED FOREIGN CORPORATIONS

.— 20

‘‘(A) 1-

YEAR HOLDING PERIOD REQUIRE

-21

MENT

.—For purposes of section 245A— 22

‘‘(i) paragraph (1)(A) shall be ap-23

plied— 24

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375

‘‘(I) by substituting ‘365 days’ 1

for ‘45 days’ each place it appears, 2

and 3

‘‘(II) by substituting ‘731-day pe-4

riod’ for ‘91-day period’, and 5

‘‘(ii) paragraph (2) shall not apply. 6

‘‘(B) S

TATUS MUST BE MAINTAINED DUR

-7

ING HOLDING PERIOD

.—For purposes of apply-8

ing paragraph (1) with respect to section 245A, 9

the taxpayer shall be treated as holding the 10

stock referred to in paragraph (1) for any pe-11

riod only if— 12

‘‘(i) the specified 10-percent owned 13

foreign corporation referred to in section 14

245A(a) is a specified 10-percent owned 15

foreign corporation at all times during 16

such period, and 17

‘‘(ii) the taxpayer is a United States 18

shareholder with respect to such specified 19

10-percent owned foreign corporation at all 20

times during such period.’’. 21

PPLICATION OF

ULES

ENERALLY

PPLICA

-22

BLE TO

EDUCTIONS FOR

IVIDENDS

ECEIVED

.— 23

(1) T

REATMENT OF DIVIDENDS FROM CERTAIN

CORPORATIONS

.—Paragraph (1) of section 246(a) is 25

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376

amended by striking ‘‘and 245’’ and inserting ‘‘245, 1

and 245A’’. 2

(2) C

OORDINATION WITH SECTION 1059

.—Sub-3

paragraph (B) of section 1059(b)(2) is amended by 4

striking ‘‘or 245’’ and inserting ‘‘245, or 245A’’. 5

(d) C

OORDINATION

ITH

OREIGN

REDIT

IMITATION

.—Subsection (b) of section 904 is amended 7

by adding at the end the following new paragraph: 8

‘‘(5) T

REATMENT OF DIVIDENDS FOR WHICH

DEDUCTION IS ALLOWED UNDER SECTION 245A

.— 10

For purposes of subsection (a), in the case of a do-11

mestic corporation which is a United States share-12

holder with respect to a specified 10-percent owned 13

foreign corporation, such shareholder’s taxable in-14

come from sources without the United States (and 15

entire taxable income) shall be determined without 16

regard to— 17

‘‘(A) the foreign-source portion of any divi-18

dend received from such foreign corporation, 19

and 20

‘‘(B) any deductions properly allocable or 21

apportioned to— 22

‘‘(i) income (other than amounts in-23

cludible under section 951(a)(1) or 24

951A(a)) with respect to stock of such 25

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377

specified 10-percent owned foreign cor-1

poration, or 2

‘‘(ii) such stock to the extent income 3

with respect to such stock is other than 4

amounts includible under section 951(a)(1) 5

or 951A(a). 6

Any term which is used in section 245A and in this 7

paragraph shall have the same meaning for purposes 8

of this paragraph as when used in such section.’’. 9

(e) C

ONFORMING

MENDMENTS

.— 10

(1) Subsection (b) of section 951 is amended by 11

striking ‘‘subpart’’ and inserting ‘‘title’’. 12

(2) Subsection (a) of section 957 is amended by 13

striking ‘‘subpart’’ in the matter preceding para-14

graph (1) and inserting ‘‘title’’. 15

(3) The table of sections for part VIII of sub-16

chapter B of chapter 1 is amended by inserting after 17

the item relating to section 245 the following new 18

item: 19

‘‘Sec. 245A. Deduction for foreign source-portion of dividends received by do-

mestic corporations from certain 10-percent owned foreign cor-

porations.’’.

(f) E

FFECTIVE

ATE

.—The amendments made by 20

this section shall apply to distributions made after (and, 21

in the case of the amendments made by subsection (d), 22

deductions with respect to taxable years ending after) De-23

cember 31, 2017. 24

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378

SEC. 14102. SPECIAL RULES RELATING TO SALES OR 1

TRANSFERS INVOLVING SPECIFIED 10-PER-2

CENT OWNED FOREIGN CORPORATIONS. 3

(a) S

ALES BY

NITED

TATES

ERSONS OF

TOCK

.— 5

(1) I

N GENERAL

.—Section 1248 is amended by 6

redesignating subsection (j) as subsection (k) and by 7

inserting after subsection (i) the following new sub-8

section: 9

‘‘(j) C

OORDINATION

ITH

IVIDENDS

ECEIVED

EDUCTION

.—In the case of the sale or exchange by a 11

domestic corporation of stock in a foreign corporation held 12

for 1 year or more, any amount received by the domestic 13

corporation which is treated as a dividend by reason of 14

this section shall be treated as a dividend for purposes 15

of applying section 245A.’’. 16

(2) E

FFECTIVE DATE

.—The amendments made 17

by this subsection shall apply to sales or exchanges 18

after December 31, 2017. 19

(b) B

ASIS IN

PECIFIED

10-

PERCENT

WNED

-20

EIGN

ORPORATION

EDUCED BY

ONTAXED

ORTION

IVIDEND FOR

URPOSES OF

ETERMINING

OSS

.— 22

(1) I

N GENERAL

.—Section 961 is amended by 23

adding at the end the following new subsection: 24

‘‘(d) B

ASIS IN

PECIFIED

10-

PERCENT

WNED

-25

EIGN

ORPORATION

EDUCED BY

ONTAXED

ORTION

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379

IVIDEND FOR

URPOSES OF

ETERMINING

OSS

.— 1

If a domestic corporation received a dividend from a speci-2

fied 10-percent owned foreign corporation (as defined in 3

section 245A) in any taxable year, solely for purposes of 4

determining loss on any disposition of stock of such for-5

eign corporation in such taxable year or any subsequent 6

taxable year, the basis of such domestic corporation in 7

such stock shall be reduced (but not below zero) by the 8

amount of any deduction allowable to such domestic cor-9

poration under section 245A with respect to such stock 10

except to the extent such basis was reduced under section 11

1059 by reason of a dividend for which such a deduction 12

was allowable.’’. 13

(2) E

FFECTIVE DATE

.—The amendments made 14

by this subsection shall apply to distributions made 15

after December 31, 2017. 16

ALE BY A

CFC

OF A

OWER

IER

CFC.— 17

(1) I

N GENERAL

.—Section 964(e) is amended 18

by adding at the end the following new paragraph: 19

‘‘(4) C

OORDINATION WITH DIVIDENDS RE

-20

CEIVED DEDUCTION

.— 21

‘‘(A) I

N GENERAL

.—If, for any taxable 22

year of a controlled foreign corporation begin-23

ning after December 31, 2017, any amount is 24

treated as a dividend under paragraph (1) by 25

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380

reason of a sale or exchange by the controlled 1

foreign corporation of stock in another foreign 2

corporation held for 1 year or more, then, not-3

withstanding any other provision of this title— 4

‘‘(i) the foreign-source portion of such 5

dividend shall be treated for purposes of 6

section 951(a)(1)(A) as subpart F income 7

of the selling controlled foreign corporation 8

for such taxable year, 9

‘‘(ii) a United States shareholder with 10

respect to the selling controlled foreign cor-11

poration shall include in gross income for 12

the taxable year of the shareholder with or 13

within which such taxable year of the con-14

trolled foreign corporation ends an amount 15

equal to the shareholder’s pro rata share 16

(determined in the same manner as under 17

section 951(a)(2)) of the amount treated 18

as subpart F income under clause (i), and 19

‘‘(iii) the deduction under section 20

245A(a) shall be allowable to the United 21

States shareholder with respect to the sub-22

part F income included in gross income 23

under clause (ii) in the same manner as if 24

such subpart F income were a dividend re-25

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381

ceived by the shareholder from the selling 1

controlled foreign corporation. 2

‘‘(B) A

PPLICATION OF BASIS OR SIMILAR

ADJUSTMENT

.—For purposes of this title, in 4

the case of a sale or exchange by a controlled 5

foreign corporation of stock in another foreign 6

corporation in a taxable year of the selling con-7

trolled foreign corporation beginning after De-8

cember 31, 2017, rules similar to the rules of 9

section 961(d) shall apply. 10

‘‘(C) F

OREIGN

SOURCE PORTION

.—For 11

purposes of this paragraph, the foreign-source 12

portion of any amount treated as a dividend 13

under paragraph (1) shall be determined in the 14

same manner as under section 245A(c).’’. 15

(2) E

FFECTIVE DATE

.—The amendments made 16

by this subsection shall apply to sales or exchanges 17

after December 31, 2017. 18

(d) T

REATMENT OF

OREIGN

RANCH

OSSES

RANSFERRED TO

PECIFIED

10-

PERCENT

WNED

-20

EIGN

ORPORATIONS

.— 21

(1) I

N GENERAL

.—Part II of subchapter B of 22

chapter 1 is amended by adding at the end the fol-23

lowing new section: 24

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382

‘‘SEC. 91. CERTAIN FOREIGN BRANCH LOSSES TRANS-1

FERRED TO SPECIFIED 10-PERCENT OWNED 2

FOREIGN CORPORATIONS. 3

‘‘(a) I

ENERAL

.—If a domestic corporation trans-4

fers substantially all of the assets of a foreign branch 5

(within the meaning of section 367(a)(3)(C), as in effect 6

before the date of the enactment of the Tax Cuts and Jobs 7

Act) to a specified 10-percent owned foreign corporation 8

(as defined in section 245A) with respect to which it is 9

a United States shareholder after such transfer, such do-10

mestic corporation shall include in gross income for the 11

taxable year which includes such transfer an amount equal 12

to the transferred loss amount with respect to such trans-13

fer. 14

‘‘(b) T

RANSFERRED

OSS

MOUNT

.—For purposes 15

of this section, the term ‘transferred loss amount’ means, 16

with respect to any transfer of substantially all of the as-17

sets of a foreign branch, the excess (if any) of— 18

‘‘(1) the sum of losses— 19

‘‘(A) which were incurred by the foreign 20

branch after December 31, 2017, and before 21

the transfer, and 22

‘‘(B) with respect to which a deduction was 23

allowed to the taxpayer, over 24

‘‘(2) the sum of— 25

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383

‘‘(A) any taxable income of such branch 1

for a taxable year after the taxable year in 2

which the loss was incurred and through the 3

close of the taxable year of the transfer, and 4

‘‘(B) any amount which is recognized 5

under section 904(f)(3) on account of the trans-6

fer. 7

‘‘(c) R

EDUCTION FOR

ECOGNIZED

AINS

.—The 8

transferred loss amount shall be reduced (but not below 9

zero) by the amount of gain recognized by the taxpayer 10

on account of the transfer (other than amounts taken into 11

account under subsection (b)(2)(B)). 12

‘‘(d) S

OURCE OF

NCOME

.—Amounts included in 13

gross income under this section shall be treated as derived 14

from sources within the United States. 15

‘‘(e) B

ASIS

DJUSTMENTS

.—Consistent with such 16

regulations or other guidance as the Secretary shall pre-17

scribe, proper adjustments shall be made in the adjusted 18

basis of the taxpayer’s stock in the specified 10-percent 19

owned foreign corporation to which the transfer is made, 20

and in the transferee’s adjusted basis in the property 21

transferred, to reflect amounts included in gross income 22

under this section.’’. 23

(2) C

LERICAL AMENDMENT

.—The table of sec-24

tions for part II of subchapter B of chapter 1 is 25

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384

amended by adding at the end the following new 1

item: 2

‘‘Sec. 91. Certain foreign branch losses transferred to specified 10-percent

owned foreign corporations.’’.

(3) E

FFECTIVE DATE

.—The amendments made 3

by this subsection shall apply to transfers after De-4

cember 31, 2017. 5

(4) T

RANSITION RULE

.—The amount of gain 6

taken into account under section 91(c) of the Inter-7

nal Revenue Code of 1986, as added by this sub-8

section, shall be reduced by the amount of gain 9

which would be recognized under section 10

367(a)(3)(C) (determined without regard to the 11

amendments made by subsection (e)) with respect to 12

losses incurred before January 1, 2018. 13

(e) R

EPEAL OF

CTIVE

RADE OR

USINESS

XCEP

-14

TION

NDER

ECTION

367.— 15

(1) I

N GENERAL

.—Section 367(a) is amended 16

by striking paragraph (3) and redesignating para-17

graphs (4), (5), and (6) as paragraphs (3), (4), and 18

(5), respectively. 19

(2) C

ONFORMING AMENDMENTS

.—Section 20

367(a)(4), as redesignated by paragraph (1), is 21

amended— 22

(A) by striking ‘‘Paragraphs (2) and (3)’’ 23

and inserting ‘‘Paragraph (2)’’, and 24

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385

(B) by striking ‘‘P

ARAGRAPHS (2) AND (3)

’’ 1

in the heading and inserting ‘‘P

ARAGRAPH (2)

’’. 2

(3) E

FFECTIVE DATE

.—The amendments made 3

by this subsection shall apply to transfers after De-4

cember 31, 2017. 5

SEC. 14103. TREATMENT OF DEFERRED FOREIGN INCOME 6

UPON TRANSITION TO PARTICIPATION EX-7

EMPTION SYSTEM OF TAXATION. 8

(a) I

ENERAL

.—Section 965 is amended to read 9

as follows: 10

‘‘SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME 11

UPON TRANSITION TO PARTICIPATION EX-12

EMPTION SYSTEM OF TAXATION. 13

‘‘(a) T

REATMENT OF

EFERRED

OREIGN

NCOME

UBPART

F I

NCOME

.—In the case of the last taxable 15

year of a deferred foreign income corporation which begins 16

before January 1, 2018, the subpart F income of such 17

foreign corporation (as otherwise determined for such tax-18

able year under section 952) shall be increased by the 19

greater of— 20

‘‘(1) the accumulated post-1986 deferred for-21

eign income of such corporation determined as of 22

November 2, 2017, or 23

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386

‘‘(2) the accumulated post-1986 deferred for-1

eign income of such corporation determined as of 2

December 31, 2017. 3

‘‘(b) R

EDUCTION IN

MOUNTS

NCLUDED IN

ROSS

NCOME OF

NITED

TATES

HAREHOLDERS OF

PECI

-5

FIED

OREIGN

ORPORATIONS

ITH

EFICITS IN

ARN

-6

INGS AND

ROFITS

.— 7

‘‘(1) I

N GENERAL

.—In the case of a taxpayer 8

which is a United States shareholder with respect to 9

at least one deferred foreign income corporation and 10

at least one E&P deficit foreign corporation, the 11

amount which would (but for this subsection) be 12

taken into account under section 951(a)(1) by rea-13

son of subsection (a) as such United States share-14

holder’s pro rata share of the subpart F income of 15

each deferred foreign income corporation shall be re-16

duced by the amount of such United States share-17

holder’s aggregate foreign E&P deficit which is allo-18

cated under paragraph (2) to such deferred foreign 19

income corporation. 20

‘‘(2) A

LLOCATION OF AGGREGATE FOREIGN E&P

DEFICIT

.—The aggregate foreign E&P deficit of any 22

United States shareholder shall be allocated among 23

the deferred foreign income corporations of such 24

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387

United States shareholder in an amount which bears 1

the same proportion to such aggregate as— 2

‘‘(A) such United States shareholder’s pro 3

rata share of the accumulated post-1986 de-4

ferred foreign income of each such deferred for-5

eign income corporation, bears to 6

‘‘(B) the aggregate of such United States 7

shareholder’s pro rata share of the accumulated 8

post-1986 deferred foreign income of all de-9

ferred foreign income corporations of such 10

United States shareholder. 11

‘‘(3) D

EFINITIONS RELATED TO E&P DEFI

-12

CITS

.—For purposes of this subsection— 13

‘‘(A) A

GGREGATE FOREIGN E&P DEF

-14

ICIT

.— 15

‘‘(i) I

N GENERAL

.—The term ‘aggre-16

gate foreign E&P deficit’ means, with re-17

spect to any United States shareholder, the 18

lesser of— 19

‘‘(I) the aggregate of such share-20

holder’s pro rata shares of the speci-21

fied E&P deficits of the E&P deficit 22

foreign corporations of such share-23

holder, or 24

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388

‘‘(II) the amount determined 1

under paragraph (2)(B). 2

‘‘(ii) A

LLOCATION OF DEFICIT

.—If 3

the amount described in clause (i)(II) is 4

less than the amount described in clause 5

(i)(I), then the shareholder shall designate, 6

in such form and manner as the Secretary 7

determines— 8

‘‘(I) the amount of the specified 9

E&P deficit which is to be taken into 10

account for each E&P deficit corpora-11

tion with respect to the taxpayer, and 12

‘‘(II) in the case of an E&P def-13

icit corporation which has a qualified 14

deficit (as defined in section 952), the 15

portion (if any) of the deficit taken 16

into account under subclause (I) 17

which is attributable to a qualified 18

deficit, including the qualified activi-19

ties to which such portion is attrib-20

utable. 21

‘‘(B) E&P

DEFICIT FOREIGN CORPORA

-22

TION

.—The term ‘E&P deficit foreign corpora-23

tion’ means, with respect to any taxpayer, any 24

specified foreign corporation with respect to 25

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389

which such taxpayer is a United States share-1

holder, if, as of November 2, 2017— 2

‘‘(i) such specified foreign corporation 3

has a deficit in post-1986 earnings and 4

profits, 5

‘‘(ii) such corporation was a specified 6

foreign corporation, and 7

‘‘(iii) such taxpayer was a United 8

States shareholder of such corporation. 9

‘‘(C) S

PECIFIED E&P DEFICIT

.—The term 10

‘specified E&P deficit’ means, with respect to 11

any E&P deficit foreign corporation, the 12

amount of the deficit referred to in subpara-13

graph (B). 14

‘‘(4) T

REATMENT OF EARNINGS AND PROFITS

IN FUTURE YEARS

.— 16

‘‘(A) R

EDUCED EARNINGS AND PROFITS

TREATED AS PREVIOUSLY TAXED INCOME

WHEN DISTRIBUTED

.—For purposes of apply-19

ing section 959 in any taxable year beginning 20

with the taxable year described in subsection 21

(a), with respect to any United States share-22

holder of a deferred foreign income corporation, 23

an amount equal to such shareholder’s reduc-24

tion under paragraph (1) which is allocated to 25

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390

such deferred foreign income corporation under 1

this subsection shall be treated as an amount 2

which was included in the gross income of such 3

United States shareholder under section 951(a). 4

‘‘(B) E&P

DEFICITS

.—For purposes of 5

this title, with respect to any taxable year be-6

ginning with the taxable year described in sub-7

section (a), a United States shareholder’s pro 8

rata share of the earnings and profits of any 9

E&P deficit foreign corporation under this sub-10

section shall be increased by the amount of the 11

specified E&P deficit of such corporation taken 12

into account by such shareholder under para-13

graph (1), and, for purposes of section 952, 14

such increase shall be attributable to the same 15

activity to which the deficit so taken into ac-16

count was attributable. 17

‘‘(5) N

ETTING AMONG UNITED STATES SHARE

-18

HOLDERS IN SAME AFFILIATED GROUP

.— 19

‘‘(A) I

N GENERAL

.—In the case of any af-20

filiated group which includes at least one E&P 21

net surplus shareholder and one E&P net def-22

icit shareholder, the amount which would (but 23

for this paragraph) be taken into account under 24

section 951(a)(1) by reason of subsection (a) by 25

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391

each such E&P net surplus shareholder shall be 1

reduced (but not below zero) by such share-2

holder’s applicable share of the affiliated 3

group’s aggregate unused E&P deficit. 4

‘‘(B) E&P

NET SURPLUS SHARE

-5

HOLDER

.—For purposes of this paragraph, the 6

term ‘E&P net surplus shareholder’ means any 7

United States shareholder which would (deter-8

mined without regard to this paragraph) take 9

into account an amount greater than zero 10

under section 951(a)(1) by reason of subsection 11

(a). 12

‘‘(C) E&P

NET DEFICIT SHAREHOLDER

.— 13

For purposes of this paragraph, the term ‘E&P 14

net deficit shareholder’ means any United 15

States shareholder if— 16

‘‘(i) the aggregate foreign E&P deficit 17

with respect to such shareholder (as de-18

fined in paragraph (3)(A) without regard 19

to clause (i)(II) thereof), exceeds 20

‘‘(ii) the amount which would (but for 21

this subsection) be taken into account by 22

such shareholder under section 951(a)(1) 23

by reason of subsection (a). 24

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392

‘‘(D) A

GGREGATE UNUSED E&P DEFICIT

.— 1

For purposes of this paragraph— 2

‘‘(i) I

N GENERAL

.—The term ‘aggre-3

gate unused E&P deficit’ means, with re-4

spect to any affiliated group, the lesser 5

of— 6

‘‘(I) the sum of the excesses de-7

scribed in subparagraph (C), deter-8

mined with respect to each E&P net 9

deficit shareholder in such group, or 10

‘‘(II) the amount determined 11

under subparagraph (E)(ii). 12

‘‘(ii) R

EDUCTION WITH RESPECT TO

E&P NET DEFICIT SHAREHOLDERS WHICH

ARE NOT WHOLLY OWNED BY THE AFFILI

-15

ATED GROUP

.—If the group ownership per-16

centage of any E&P net deficit shareholder 17

is less than 100 percent, the amount of the 18

excess described in subparagraph (C) 19

which is taken into account under clause 20

(i)(I) with respect to such E&P net deficit 21

shareholder shall be such group ownership 22

percentage of such amount. 23

‘‘(E) A

PPLICABLE SHARE

.—For purposes 24

of this paragraph, the term ‘applicable share’ 25

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393

means, with respect to any E&P net surplus 1

shareholder in any affiliated group, the amount 2

which bears the same proportion to such 3

group’s aggregate unused E&P deficit as— 4

‘‘(i) the product of— 5

‘‘(I) such shareholder’s group 6

ownership percentage, multiplied by 7

‘‘(II) the amount which would 8

(but for this paragraph) be taken into 9

account under section 951(a)(1) by 10

reason of subsection (a) by such 11

shareholder, bears to 12

‘‘(ii) the aggregate amount deter-13

mined under clause (i) with respect to all 14

E&P net surplus shareholders in such 15

group. 16

‘‘(F) G

ROUP OWNERSHIP PERCENTAGE

.— 17

For purposes of this paragraph, the term 18

‘group ownership percentage’ means, with re-19

spect to any United States shareholder in any 20

affiliated group, the percentage of the value of 21

the stock of such United States shareholder 22

which is held by other includible corporations in 23

such affiliated group. Notwithstanding the pre-24

ceding sentence, the group ownership percent-25

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394

age of the common parent of the affiliated 1

group is 100 percent. Any term used in this 2

subparagraph which is also used in section 3

1504 shall have the same meaning as when 4

used in such section. 5

‘‘(c) A

PPLICATION OF

ARTICIPATION

XEMPTION

NCLUDED

NCOME

.— 7

‘‘(1) I

N GENERAL

.—In the case of a United 8

States shareholder of a deferred foreign income cor-9

poration, there shall be allowed as a deduction for 10

the taxable year in which an amount is included in 11

the gross income of such United States shareholder 12

under section 951(a)(1) by reason of this section an 13

amount equal to the sum of— 14

‘‘(A) the United States shareholder’s 8 15

percent rate equivalent percentage of the excess 16

(if any) of— 17

‘‘(i) the amount so included as gross 18

income, over 19

‘‘(ii) the amount of such United 20

States shareholder’s aggregate foreign cash 21

position, plus 22

‘‘(B) the United States shareholder’s 15.5 23

percent rate equivalent percentage of so much 24

of the amount described in subparagraph (A)(ii) 25

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395

as does not exceed the amount described in sub-1

paragraph (A)(i). 2

‘‘(2) 8

AND 15

5 PERCENT RATE EQUIVALENT

PERCENTAGES

.—For purposes of this subsection— 4

‘‘(A) 8

PERCENT RATE EQUIVALENT PER

-5

CENTAGE

.—The term ‘8 percent rate equivalent 6

percentage’ means, with respect to any United 7

States shareholder for any taxable year, the 8

percentage which would result in the amount to 9

which such percentage applies being subject to 10

a 8 percent rate of tax determined by only tak-11

ing into account a deduction equal to such per-12

centage of such amount and the highest rate of 13

tax specified in section 11 for such taxable 14

year. In the case of any taxable year of a 15

United States shareholder to which section 15 16

applies, the highest rate of tax under section 11 17

before the effective date of the change in rates 18

and the highest rate of tax under section 11 19

after the effective date of such change shall 20

each be taken into account under the preceding 21

sentence in the same proportions as the portion 22

of such taxable year which is before and after 23

such effective date, respectively. 24

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396

‘‘(B) 15.5

PERCENT RATE EQUIVALENT

PERCENTAGE

.—The term ‘15.5 percent rate 2

equivalent percentage’ means, with respect to 3

any United States shareholder for any taxable 4

year, the percentage determined under subpara-5

graph (A) applied by substituting ‘15.5 percent 6

rate of tax’ for ‘8 percent rate of tax’. 7

‘‘(3) A

GGREGATE FOREIGN CASH POSITION

.— 8

For purposes of this subsection— 9

‘‘(A) I

N GENERAL

.—The term ‘aggregate 10

foreign cash position’ means, with respect to 11

any United States shareholder, the greater of— 12

‘‘(i) the aggregate of such United 13

States shareholder’s pro rata share of the 14

cash position of each specified foreign cor-15

poration of such United States shareholder 16

determined as of the close of the last tax-17

able year of such specified foreign corpora-18

tion which begins before January 1, 2018, 19

or 20

‘‘(ii) one half of the sum of— 21

‘‘(I) the aggregate described in 22

clause (i) determined as of the close of 23

the last taxable year of each such 24

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397

specified foreign corporation which 1

ends before November 2, 2017, plus 2

‘‘(II) the aggregate described in 3

clause (i) determined as of the close of 4

the taxable year of each such specified 5

foreign corporation which precedes the 6

taxable year referred to in subclause 7

(I). 8

‘‘(B) C

ASH POSITION

.—For purposes of 9

this paragraph, the cash position of any speci-10

fied foreign corporation is the sum of— 11

‘‘(i) cash held by such foreign cor-12

poration, 13

‘‘(ii) the net accounts receivable of 14

such foreign corporation, plus 15

‘‘(iii) the fair market value of the fol-16

lowing assets held by such corporation: 17

‘‘(I) Personal property which is 18

of a type that is actively traded and 19

for which there is an established fi-20

nancial market. 21

‘‘(II) Commercial paper, certifi-22

cates of deposit, the securities of the 23

Federal government and of any State 24

or foreign government. 25

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398

‘‘(III) Any foreign currency. 1

‘‘(IV) Any obligation with a term 2

of less than one year. 3

‘‘(V) Any asset which the Sec-4

retary identifies as being economically 5

equivalent to any asset described in 6

this subparagraph. 7

‘‘(C) N

ET ACCOUNTS RECEIVABLE

.—For 8

purposes of this paragraph, the term ‘net ac-9

counts receivable’ means, with respect to any 10

specified foreign corporation, the excess (if any) 11

of— 12

‘‘(i) such corporation’s accounts re-13

ceivable, over 14

‘‘(ii) such corporation’s accounts pay-15

able (determined consistent with the rules 16

of section 461). 17

‘‘(D) P

REVENTION OF DOUBLE COUNT

-18

ING

.—Cash positions of a specified foreign cor-19

poration described in clause (ii), (iii)(I), or 20

(iii)(IV) of subparagraph (B) shall not be taken 21

into account by a United States shareholder 22

under subparagraph (A) to the extent that such 23

United States shareholder demonstrates to the 24

satisfaction of the Secretary that such amount 25

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399

is so taken into account by such United States 1

shareholder with respect to another specified 2

foreign corporation. 3

‘‘(E) C

ASH POSITIONS OF CERTAIN NON

- 4

CORPORATE ENTITIES TAKEN INTO ACCOUNT

.— 5

An entity (other than a corporation) shall be 6

treated as a specified foreign corporation of a 7

United States shareholder for purposes of de-8

termining such United States shareholder’s ag-9

gregate foreign cash position if any interest in 10

such entity is held by a specified foreign cor-11

poration of such United States shareholder (de-12

termined after application of this subpara-13

graph) and such entity would be a specified for-14

eign corporation of such United States share-15

holder if such entity were a foreign corporation. 16

‘‘(F) A

NTI

ABUSE

.—If the Secretary deter-17

mines that a principal purpose of any trans-18

action was to reduce the aggregate foreign cash 19

position taken into account under this sub-20

section, such transaction shall be disregarded 21

for purposes of this subsection. 22

‘‘(d) D

EFERRED

OREIGN

NCOME

ORPORATION

; 23

CCUMULATED

OST

-1986 D

EFERRED

OREIGN

-24

COME

.—For purposes of this section— 25

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‘‘(1) D

EFERRED FOREIGN INCOME CORPORA

-1

TION

.—The term ‘deferred foreign income corpora-2

tion’ means, with respect to any United States 3

shareholder, any specified foreign corporation of 4

such United States shareholder which has accumu-5

lated post-1986 deferred foreign income (as of the 6

date referred to in paragraph (1) or (2) of sub-7

section (a)) greater than zero. 8

‘‘(2) A

CCUMULATED POST

1986 DEFERRED FOR

-9

EIGN INCOME

.—The term ‘accumulated post-1986 10

deferred foreign income’ means the post-1986 earn-11

ings and profits except to the extent such earnings— 12

‘‘(A) are attributable to income of the 13

specified foreign corporation which is effectively 14

connected with the conduct of a trade or busi-15

ness within the United States and subject to 16

tax under this chapter, or 17

‘‘(B) in the case of a controlled foreign 18

corporation, if distributed, would be excluded 19

from the gross income of a United States share-20

holder under section 959. 21

To the extent provided in regulations or other guid-22

ance prescribed by the Secretary, in the case of any 23

controlled foreign corporation which has share-24

holders which are not United States shareholders, 25

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401

accumulated post-1986 deferred foreign income shall 1

be appropriately reduced by amounts which would be 2

described in subparagraph (B) if such shareholders 3

were United States shareholders. 4

‘‘(3) P

OST

1986 EARNINGS AND PROFITS

.—The 5

term ‘post-1986 earnings and profits’ means the 6

earnings and profits of the foreign corporation (com-7

puted in accordance with sections 964(a) and 986, 8

and by only taking into account periods when the 9

foreign corporation was a specified foreign corpora-10

tion) accumulated in taxable years beginning after 11

December 31, 1986, and determined— 12

‘‘(A) as of the date referred to in para-13

graph (1) or (2) of subsection (a), whichever is 14

applicable with respect to such foreign corpora-15

tion, and 16

‘‘(B) without diminution by reason of divi-17

dends distributed during the taxable year de-18

scribed in subsection (a) other than dividends 19

distributed to another specified foreign corpora-20

tion. 21

‘‘(e) S

PECIFIED

OREIGN

ORPORATION

.— 22

‘‘(1) I

N GENERAL

.—For purposes of this sec-23

tion, the term ‘specified foreign corporation’ 24

means— 25

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402

‘‘(A) any controlled foreign corporation, 1

and 2

‘‘(B) any foreign corporation with respect 3

to which one or more domestic corporations is 4

a United States shareholder. 5

‘‘(2) A

PPLICATION TO CERTAIN FOREIGN COR

-6

PORATIONS

.—For purposes of sections 951 and 961, 7

a foreign corporation described in paragraph (1)(B) 8

shall be treated as a controlled foreign corporation 9

solely for purposes of taking into account the sub-10

part F income of such corporation under subsection 11

(a) (and for purposes of applying subsection (f)). 12

‘‘(3) E

XCLUSION OF PASSIVE FOREIGN INVEST

-13

MENT COMPANIES

.—Such term shall not include any 14

corporation which is a passive foreign investment 15

company (as defined in section 1297) with respect to 16

the shareholder and which is not a controlled foreign 17

corporation. 18

‘‘(f) D

ETERMINATIONS OF

ATA

HARE

.— 19

‘‘(1) I

N GENERAL

.—For purposes of this sec-20

tion, the determination of any United States share-21

holder’s pro rata share of any amount with respect 22

to any specified foreign corporation shall be deter-23

mined under rules similar to the rules of section 24

951(a)(2) by treating such amount in the same 25

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403

manner as subpart F income (and by treating such 1

specified foreign corporation as a controlled foreign 2

corporation). 3

‘‘(2) S

PECIAL RULES

.—The portion which is in-4

cluded in the income of a United States shareholder 5

under section 951(a)(1) by reason of subsection (a) 6

which is equal to the deduction allowed under sub-7

section (c) by reason of such inclusion— 8

‘‘(A) shall be treated as income exempt 9

from tax for purposes of sections 705(a)(1)(B) 10

and 1367(a)(1)(A), and 11

‘‘(B) shall not be treated as income exempt 12

from tax for purposes of determining whether 13

an adjustment shall be made to an accumulated 14

adjustment account under section 15

1368(e)(1)(A). 16

‘‘(g) D

ISALLOWANCE OF

OREIGN

REDIT

, 17

ETC

.— 18

‘‘(1) I

N GENERAL

.—No credit shall be allowed 19

under section 901 for the applicable percentage of 20

any taxes paid or accrued (or treated as paid or ac-21

crued) with respect to any amount for which a de-22

duction is allowed under this section. 23

‘‘(2) A

PPLICABLE PERCENTAGE

.—For purposes 24

of this subsection, the term ‘applicable percentage’ 25

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404

means the amount (expressed as a percentage) equal 1

to the sum of— 2

‘‘(A) 0.771 multiplied by the ratio of— 3

‘‘(i) the excess to which subsection 4

(c)(1)(A) applies, divided by 5

‘‘(ii) the sum of such excess plus the 6

amount to which subsection (c)(1)(B) ap-7

plies, plus 8

‘‘(B) 0.557 multiplied by the ratio of— 9

‘‘(i) the amount to which subsection 10

(c)(1)(B) applies, divided by 11

‘‘(ii) the sum described in subpara-12

graph (A)(ii). 13

‘‘(3) D

ENIAL OF DEDUCTION

.—No deduction 14

shall be allowed under this chapter for any tax for 15

which credit is not allowable under section 901 by 16

reason of paragraph (1) (determined by treating the 17

taxpayer as having elected the benefits of subpart A 18

of part III of subchapter N). 19

‘‘(4) C

OORDINATION WITH SECTION 78

.—With 20

respect to the taxes treated as paid or accrued by a 21

domestic corporation with respect to amounts which 22

are includible in gross income of such domestic cor-23

poration by reason of this section, section 78 shall 24

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405

apply only to so much of such taxes as bears the 1

same proportion to the amount of such taxes as— 2

‘‘(A) the excess of— 3

‘‘(i) the amounts which are includible 4

in gross income of such domestic corpora-5

tion by reason of this section, over 6

‘‘(ii) the deduction allowable under 7

subsection (c) with respect to such 8

amounts, bears to 9

‘‘(B) such amounts. 10

‘‘(h) E

LECTION TO

IABILITY IN

NSTALL

-11

MENTS

.— 12

‘‘(1) I

N GENERAL

.—In the case of a United 13

States shareholder of a deferred foreign income cor-14

poration, such United States shareholder may elect 15

to pay the net tax liability under this section in 8 16

installments of the following amounts: 17

‘‘(A) 8 percent of the net tax liability in 18

the case of each of the first 5 of such install-19

ments, 20

‘‘(B) 15 percent of the net tax liability in 21

the case of the 6th such installment, 22

‘‘(C) 20 percent of the net tax liability in 23

the case of the 7th such installment, and 24

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406

‘‘(D) 25 percent of the net tax liability in 1

the case of the 8th such installment. 2

‘‘(2) D

ATE FOR PAYMENT OF INSTALLMENTS

.— 3

If an election is made under paragraph (1), the first 4

installment shall be paid on the due date (deter-5

mined without regard to any extension of time for 6

filing the return) for the return of tax for the tax-7

able year described in subsection (a) and each suc-8

ceeding installment shall be paid on the due date (as 9

so determined) for the return of tax for the taxable 10

year following the taxable year with respect to which 11

the preceding installment was made. 12

‘‘(3) A

CCELERATION OF PAYMENT

.—If there is 13

an addition to tax for failure to timely pay any in-14

stallment required under this subsection, a liquida-15

tion or sale of substantially all the assets of the tax-16

payer (including in a title 11 or similar case), a ces-17

sation of business by the taxpayer, or any similar 18

circumstance, then the unpaid portion of all remain-19

ing installments shall be due on the date of such 20

event (or in the case of a title 11 or similar case, 21

the day before the petition is filed). The preceding 22

sentence shall not apply to the sale of substantially 23

all the assets of a taxpayer to a buyer if such buyer 24

enters into an agreement with the Secretary under 25

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407

which such buyer is liable for the remaining install-1

ments due under this subsection in the same manner 2

as if such buyer were the taxpayer. 3

‘‘(4) P

RORATION OF DEFICIENCY TO INSTALL

-4

MENTS

.—If an election is made under paragraph (1) 5

to pay the net tax liability under this section in in-6

stallments and a deficiency has been assessed with 7

respect to such net tax liability, the deficiency shall 8

be prorated to the installments payable under para-9

graph (1). The part of the deficiency so prorated to 10

any installment the date for payment of which has 11

not arrived shall be collected at the same time as, 12

and as a part of, such installment. The part of the 13

deficiency so prorated to any installment the date 14

for payment of which has arrived shall be paid upon 15

notice and demand from the Secretary. This sub-16

section shall not apply if the deficiency is due to 17

negligence, to intentional disregard of rules and reg-18

ulations, or to fraud with intent to evade tax. 19

‘‘(5) E

LECTION

.—Any election under paragraph 20

(1) shall be made not later than the due date for the 21

return of tax for the taxable year described in sub-22

section (a) and shall be made in such manner as the 23

Secretary shall provide. 24

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408

‘‘(6) N

ET TAX LIABILITY UNDER THIS SEC

-1

TION

.—For purposes of this subsection— 2

‘‘(A) I

N GENERAL

.—The net tax liability 3

under this section with respect to any United 4

States shareholder is the excess (if any) of— 5

‘‘(i) such taxpayer’s net income tax 6

for the taxable year in which an amount is 7

included in the gross income of such 8

United States shareholder under section 9

951(a)(1) by reason of this section, over 10

‘‘(ii) such taxpayer’s net income tax 11

for such taxable year determined— 12

‘‘(I) without regard to this sec-13

tion, and 14

‘‘(II) without regard to any in-15

come or deduction properly attrib-16

utable to a dividend received by such 17

United States shareholder from any 18

deferred foreign income corporation. 19

‘‘(B) N

ET INCOME TAX

.—The term ‘net 20

income tax’ means the regular tax liability re-21

duced by the credits allowed under subparts A, 22

B, and D of part IV of subchapter A. 23

‘‘(i) S

PECIAL

ULES FOR

S C

ORPORATION

HARE

-24

HOLDERS

.— 25

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409

‘‘(1) I

N GENERAL

.—In the case of any S cor-1

poration which is a United States shareholder of a 2

deferred foreign income corporation, each share-3

holder of such S corporation may elect to defer pay-4

ment of such shareholder’s net tax liability under 5

this section with respect to such S corporation until 6

the shareholder’s taxable year which includes the 7

triggering event with respect to such liability. Any 8

net tax liability payment of which is deferred under 9

the preceding sentence shall be assessed on the re-10

turn of tax as an addition to tax in the shareholder’s 11

taxable year which includes such triggering event. 12

‘‘(2) T

RIGGERING EVENT

.— 13

‘‘(A) I

N GENERAL

.—In the case of any 14

shareholder’s net tax liability under this section 15

with respect to any S corporation, the trig-16

gering event with respect to such liability is 17

whichever of the following occurs first: 18

‘‘(i) Such corporation ceases to be an 19

S corporation (determined as of the first 20

day of the first taxable year that such cor-21

poration is not an S corporation). 22

‘‘(ii) A liquidation or sale of substan-23

tially all the assets of such S corporation 24

(including in a title 11 or similar case), a 25

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410

cessation of business by such S corpora-1

tion, such S corporation ceases to exist, or 2

any similar circumstance. 3

‘‘(iii) A transfer of any share of stock 4

in such S corporation by the taxpayer (in-5

cluding by reason of death, or otherwise). 6

‘‘(B) P

ARTIAL TRANSFERS OF STOCK

.—In 7

the case of a transfer of less than all of the tax-8

payer’s shares of stock in the S corporation, 9

such transfer shall only be a triggering event 10

with respect to so much of the taxpayer’s net 11

tax liability under this section with respect to 12

such S corporation as is properly allocable to 13

such stock. 14

‘‘(C) T

RANSFER OF LIABILITY

.—A trans-15

fer described in clause (iii) of subparagraph (A) 16

shall not be treated as a triggering event if the 17

transferee enters into an agreement with the 18

Secretary under which such transferee is liable 19

for net tax liability with respect to such stock 20

in the same manner as if such transferee were 21

the taxpayer. 22

‘‘(3) N

ET TAX LIABILITY

.—A shareholder’s net 23

tax liability under this section with respect to any S 24

corporation is the net tax liability under this section 25

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411

which would be determined under subsection (h)(6) 1

if the only subpart F income taken into account by 2

such shareholder by reason of this section were allo-3

cations from such S corporation. 4

‘‘(4) E

LECTION TO PAY DEFERRED LIABILITY

IN INSTALLMENTS

.—In the case of a taxpayer which 6

elects to defer payment under paragraph (1)— 7

‘‘(A) subsection (h) shall be applied sepa-8

rately with respect to the liability to which such 9

election applies, 10

‘‘(B) an election under subsection (h) with 11

respect to such liability shall be treated as time-12

ly made if made not later than the due date for 13

the return of tax for the taxable year in which 14

the triggering event with respect to such liabil-15

ity occurs, 16

‘‘(C) the first installment under subsection 17

(h) with respect to such liability shall be paid 18

not later than such due date (but determined 19

without regard to any extension of time for fil-20

ing the return), and 21

‘‘(D) if the triggering event with respect to 22

any net tax liability is described in paragraph 23

(2)(A)(ii), an election under subsection (h) with 24

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412

respect to such liability may be made only with 1

the consent of the Secretary. 2

‘‘(5) J

OINT AND SEVERAL LIABILITY OF S COR

-3

PORATION

.—If any shareholder of an S corporation 4

elects to defer payment under paragraph (1), such 5

S corporation shall be jointly and severally liable for 6

such payment and any penalty, addition to tax, or 7

additional amount attributable thereto. 8

‘‘(6) E

XTENSION OF LIMITATION ON COLLEC

-9

TION

.—Any limitation on the time period for the col-10

lection of a liability deferred under this subsection 11

shall not be treated as beginning before the date of 12

the triggering event with respect to such liability. 13

‘‘(7) A

NNUAL REPORTING OF NET TAX LIABIL

-14

ITY

.— 15

‘‘(A) I

N GENERAL

.—Any shareholder of an 16

S corporation which makes an election under 17

paragraph (1) shall report the amount of such 18

shareholder’s deferred net tax liability on such 19

shareholder’s return of tax for the taxable year 20

for which such election is made and on the re-21

turn of tax for each taxable year thereafter 22

until such amount has been fully assessed on 23

such returns. 24

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413

‘‘(B) D

EFERRED NET TAX LIABILITY

.— 1

For purposes of this paragraph, the term ‘de-2

ferred net tax liability’ means, with respect to 3

any taxable year, the amount of net tax liability 4

payment of which has been deferred under 5

paragraph (1) and which has not been assessed 6

on a return of tax for any prior taxable year. 7

‘‘(C) F

AILURE TO REPORT

.—In the case of 8

any failure to report any amount required to be 9

reported under subparagraph (A) with respect 10

to any taxable year before the due date for the 11

return of tax for such taxable year, there shall 12

be assessed on such return as an addition to 13

tax 5 percent of such amount. 14

‘‘(8) E

LECTION

.—Any election under paragraph 15

(1)— 16

‘‘(A) shall be made by the shareholder of 17

the S corporation not later than the due date 18

for such shareholder’s return of tax for the tax-19

able year which includes the close of the taxable 20

year of such S corporation in which the amount 21

described in subsection (a) is taken into ac-22

count, and 23

‘‘(B) shall be made in such manner as the 24

Secretary shall provide. 25

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414

‘‘(j) R

EPORTING BY

S C

ORPORATION

.—Each S cor-1

poration which is a United States shareholder of a speci-2

fied foreign corporation shall report in its return of tax 3

under section 6037(a) the amount includible in its gross 4

income for such taxable year by reason of this section and 5

the amount of the deduction allowable by subsection (c). 6

Any copy provided to a shareholder under section 6037(b) 7

shall include a statement of such shareholder’s pro rata 8

share of such amounts. 9

‘‘(k) E

XTENSION OF

IMITATION ON

SSESSMENT

.— 10

Notwithstanding section 6501, the limitation on the time 11

period for the assessment of the net tax liability under 12

this section (as defined in subsection (h)(6)) shall not ex-13

pire before the date that is 6 years after the return for 14

the taxable year described in such subsection was filed. 15

‘‘(l) R

ECAPTURE FOR

XPATRIATED

NTITIES

.— 16

‘‘(1) I

N GENERAL

.—If a deduction is allowed 17

under subsection (c) to a United States shareholder 18

and such shareholder first becomes an expatriated 19

entity at any time during the 10-year period begin-20

ning on the date of the enactment of the Tax Cuts 21

and Jobs Act (with respect to a surrogate foreign 22

corporation which first becomes a surrogate foreign 23

corporation during such period), then— 24

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415

‘‘(A) the tax imposed by this chapter shall 1

be increased for the first taxable year in which 2

such taxpayer becomes an expatriated entity by 3

an amount equal to 35 percent of the amount 4

of the deduction allowed under subsection (c), 5

and 6

‘‘(B) no credits shall be allowed against 7

the increase in tax under subparagraph (A). 8

‘‘(2) E

XPATRIATED ENTITY

.—For purposes of 9

this subsection, the term ‘expatriated entity’ has the 10

same meaning given such term under section 11

7874(a)(2), except that such term shall not include 12

an entity if the surrogate foreign corporation with 13

respect to the entity is treated as a domestic cor-14

poration under section 7874(b). 15

‘‘(3) S

URROGATE FOREIGN CORPORATION

.—For 16

purposes of this subsection, the term ‘surrogate for-17

eign corporation’ has the meaning given such term 18

in section 7874(a)(2)(B). 19

‘‘(m) S

PECIAL

ULES FOR

NITED

TATES

HARE

-20

HOLDERS

HICH

EAL

STATE

NVESTMENT

RUSTS

.— 22

‘‘(1) I

N GENERAL

.—If a real estate investment 23

trust is a United States shareholder in 1 or more de-24

ferred foreign income corporations— 25

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416

‘‘(A) any amount required to be taken into 1

account under section 951(a)(1) by reason of 2

this section shall not be taken into account as 3

gross income of the real estate investment trust 4

for purposes of applying paragraphs (2) and (3) 5

of section 856(c) to any taxable year for which 6

such amount is taken into account under sec-7

tion 951(a)(1), and 8

‘‘(B) if the real estate investment trust 9

elects the application of this subparagraph, not-10

withstanding subsection (a), any amount re-11

quired to be taken into account under section 12

951(a)(1) by reason of this section shall, in lieu 13

of the taxable year in which it would otherwise 14

be included in gross income (for purposes of the 15

computation of real estate investment trust tax-16

able income under section 857(b)), be included 17

in gross income as follows: 18

‘‘(i) 8 percent of such amount in the 19

case of each of the taxable years in the 5- 20

taxable year period beginning with the tax-21

able year in which such amount would oth-22

erwise be included. 23

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417

‘‘(ii) 15 percent of such amount in the 1

case of the 1st taxable year following such 2

period. 3

‘‘(iii) 20 percent of such amount in 4

the case of the 2nd taxable year following 5

such period. 6

‘‘(iv) 25 percent of such amount in 7

the case of the 3rd taxable year following 8

such period. 9

‘‘(2) R

ULES FOR TRUSTS ELECTING DEFERRED

INCLUSION

.— 11

‘‘(A) E

LECTION

.—Any election under 12

paragraph (1)(B) shall be made not later than 13

the due date for the first taxable year in the 5- 14

taxable year period described in clause (i) of 15

paragraph (1)(B) and shall be made in such 16

manner as the Secretary shall provide. 17

‘‘(B) S

PECIAL RULES

.—If an election 18

under paragraph (1)(B) is in effect with respect 19

to any real estate investment trust, the fol-20

lowing rules shall apply: 21

‘‘(i) A

PPLICATION OF PARTICIPATION

EXEMPTION

.—For purposes of subsection 23

(c)(1)— 24

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418

‘‘(I) the aggregate amount to 1

which subparagraph (A) or (B) of 2

subsection (c)(1) applies shall be de-3

termined without regard to the elec-4

tion, 5

‘‘(II) each such aggregate 6

amount shall be allocated to each tax-7

able year described in paragraph 8

(1)(B) in the same proportion as the 9

amount included in the gross income 10

of such United States shareholder 11

under section 951(a)(1) by reason of 12

this section is allocated to each such 13

taxable year. 14

‘‘(III) N

O INSTALLMENT PAY

-15

MENTS

.—The real estate investment 16

trust may not make an election under 17

subsection (g) for any taxable year de-18

scribed in paragraph (1)(B). 19

‘‘(ii) A

CCELERATION OF INCLUSION

.— 20

If there is a liquidation or sale of substan-21

tially all the assets of the real estate in-22

vestment trust (including in a title 11 or 23

similar case), a cessation of business by 24

such trust, or any similar circumstance, 25

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419

then any amount not yet included in gross 1

income under paragraph (1)(B) shall be in-2

cluded in gross income as of the day before 3

the date of the event and the unpaid por-4

tion of any tax liability with respect to 5

such inclusion shall be due on the date of 6

such event (or in the case of a title 11 or 7

similar case, the day before the petition is 8

filed). 9

‘‘(n) E

LECTION

OT TO

PPLY

PERATING

OSS

EDUCTION

.— 11

‘‘(1) I

N GENERAL

.—If a United States share-12

holder of a deferred foreign income corporation 13

elects the application of this subsection for the tax-14

able year described in subsection (a), then the 15

amount described in paragraph (2) shall not be 16

taken into account— 17

‘‘(A) in determining the amount of the net 18

operating loss deduction under section 172 of 19

such shareholder for such taxable year, or 20

‘‘(B) in determining the amount of taxable 21

income for such taxable year which may be re-22

duced by net operating loss carryovers or 23

carrybacks to such taxable year under section 24

172. 25

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‘‘(2) A

MOUNT DESCRIBED

.—The amount de-1

scribed in this paragraph is the sum of— 2

‘‘(A) the amount required to be taken into 3

account under section 951(a)(1) by reason of 4

this section (determined after the application of 5

subsection (c)), plus 6

‘‘(B) in the case of a domestic corporation 7

which chooses to have the benefits of subpart A 8

of part III of subchapter N for the taxable 9

year, the taxes deemed to be paid by such cor-10

poration under subsections (a) and (b) of sec-11

tion 960 for such taxable year with respect to 12

the amount described in subparagraph (A) 13

which are treated as a dividends under section 14

78. 15

‘‘(3) E

LECTION

.—Any election under this sub-16

section shall be made not later than the due date 17

(including extensions) for filing the return of tax for 18

the taxable year and shall be made in such manner 19

as the Secretary shall prescribe. 20

‘‘(o) R

EGULATIONS

.—The Secretary shall prescribe 21

such regulations or other guidance as may be necessary 22

or appropriate to carry out the provisions of this section, 23

including— 24

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‘‘(1) regulations or other guidance to provide 1

appropriate basis adjustments, and 2

‘‘(2) regulations or other guidance to prevent 3

the avoidance of the purposes of this section, includ-4

ing through a reduction in earnings and profits, 5

through changes in entity classification or account-6

ing methods, or otherwise.’’. 7

(b) C

LERICAL

MENDMENT

.—The table of sections 8

for subpart F of part III of subchapter N of chapter 1 9

is amended by striking the item relating to section 965 10

and inserting the following: 11

‘‘Sec. 965. Treatment of deferred foreign income upon transition to participa-

tion exemption system of taxation.’’.

Subpart B—Rules Related to Passive and Mobile 12

Income 13

CHAPTER 1—TAXATION OF FOREIGN-DE-14

RIVED INTANGIBLE INCOME AND 15

GLOBAL INTANGIBLE LOW-TAXED IN-16

COME 17

SEC. 14201. CURRENT YEAR INCLUSION OF GLOBAL INTAN-18

GIBLE LOW-TAXED INCOME BY UNITED 19

STATES SHAREHOLDERS. 20

(a) I

ENERAL

.—Subpart F of part III of sub-21

chapter N of chapter 1 is amended by inserting after sec-22

tion 951 the following new section: 23

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‘‘SEC. 951A. GLOBAL INTANGIBLE LOW-TAXED INCOME IN-1

CLUDED IN GROSS INCOME OF UNITED 2

STATES SHAREHOLDERS. 3

‘‘(a) I

ENERAL

.—Each person who is a United 4

States shareholder of any controlled foreign corporation 5

for any taxable year of such United States shareholder 6

shall include in gross income such shareholder’s global in-7

tangible low-taxed income for such taxable year. 8

‘‘(b) G

LOBAL

NTANGIBLE

TAXED

NCOME

.— 9

For purposes of this section— 10

‘‘(1) I

N GENERAL

.—The term ‘global intangible 11

low-taxed income’ means, with respect to any United 12

States shareholder for any taxable year of such 13

United States shareholder, the excess (if any) of— 14

‘‘(A) such shareholder’s net CFC tested in-15

come for such taxable year, over 16

‘‘(B) such shareholder’s net deemed tan-17

gible income return for such taxable year. 18

‘‘(2) N

ET DEEMED TANGIBLE INCOME RE

-19

TURN

.—The term ‘net deemed tangible income re-20

turn’ means, with respect to any United States 21

shareholder for any taxable year, the excess of— 22

‘‘(A) 10 percent of the aggregate of such 23

shareholder’s pro rata share of the qualified 24

business asset investment of each controlled for-25

eign corporation with respect to which such 26

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423

shareholder is a United States shareholder for 1

such taxable year (determined for each taxable 2

year of each such controlled foreign corporation 3

which ends in or with such taxable year of such 4

United States shareholder), over 5

‘‘(B) the amount of interest expense taken 6

into account under subsection (c)(2)(A)(ii) in 7

determining the shareholder’s net CFC tested 8

income for the taxable year to the extent the in-9

terest income attributable to such expense is 10

not taken into account in determining such 11

shareholder’s net CFC tested income. 12

‘‘(c) N

CFC T

ESTED

NCOME

.—For purposes of 13

this section— 14

‘‘(1) I

N GENERAL

.—The term ‘net CFC tested 15

income’ means, with respect to any United States 16

shareholder for any taxable year of such United 17

States shareholder, the excess (if any) of— 18

‘‘(A) the aggregate of such shareholder’s 19

pro rata share of the tested income of each con-20

trolled foreign corporation with respect to which 21

such shareholder is a United States shareholder 22

for such taxable year of such United States 23

shareholder (determined for each taxable year 24

of such controlled foreign corporation which 25

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424

ends in or with such taxable year of such 1

United States shareholder), over 2

‘‘(B) the aggregate of such shareholder’s 3

pro rata share of the tested loss of each con-4

trolled foreign corporation with respect to which 5

such shareholder is a United States shareholder 6

for such taxable year of such United States 7

shareholder (determined for each taxable year 8

of such controlled foreign corporation which 9

ends in or with such taxable year of such 10

United States shareholder). 11

‘‘(2) T

ESTED INCOME

;

TESTED LOSS

.—For pur-12

poses of this section— 13

‘‘(A) T

ESTED INCOME

.—The term ‘tested 14

income’ means, with respect to any controlled 15

foreign corporation for any taxable year of such 16

controlled foreign corporation, the excess (if 17

any) of— 18

‘‘(i) the gross income of such corpora-19

tion determined without regard to— 20

‘‘(I) any item of income described 21

in section 952(b), 22

‘‘(II) any gross income taken into 23

account in determining the subpart F 24

income of such corporation, 25

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‘‘(III) any gross income excluded 1

from the foreign base company income 2

(as defined in section 954) and the in-3

surance income (as defined in section 4

953) of such corporation by reason of 5

section 954(b)(4), 6

‘‘(IV) any dividend received from 7

a related person (as defined in section 8

954(d)(3)), and 9

‘‘(V) any foreign oil and gas ex-10

traction income (as defined in section 11

907(c)(1)) of such corporation, over 12

‘‘(ii) the deductions (including taxes) 13

properly allocable to such gross income 14

under rules similar to the rules of section 15

954(b)(5) (or to which such deductions 16

would be allocable if there were such gross 17

income). 18

‘‘(B) T

ESTED LOSS

.— 19

‘‘(i) I

N GENERAL

.—The term ‘tested 20

loss’ means, with respect to any controlled 21

foreign corporation for any taxable year of 22

such controlled foreign corporation, the ex-23

cess (if any) of the amount described in 24

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subparagraph (A)(ii) over the amount de-1

scribed in subparagraph (A)(i). 2

‘‘(ii) C

OORDINATION WITH SUBPART F

TO DENY DOUBLE BENEFIT OF LOSSES

.— 4

Section 952(c)(1)(A) shall be applied by 5

increasing the earnings and profits of the 6

controlled foreign corporation by the tested 7

loss of such corporation. 8

‘‘(d) Q

UALIFIED

USINESS

SSET

NVESTMENT

.— 9

For purposes of this section— 10

‘‘(1) I

N GENERAL

.—The term ‘qualified busi-11

ness asset investment’ means, with respect to any 12

controlled foreign corporation for any taxable year, 13

the average of such corporation’s aggregate adjusted 14

bases as of the close of each quarter of such taxable 15

year in specified tangible property— 16

‘‘(A) used in a trade or business of the 17

corporation, and 18

‘‘(B) of a type with respect to which a de-19

duction is allowable under section 167. 20

‘‘(2) S

PECIFIED TANGIBLE PROPERTY

.— 21

‘‘(A) I

N GENERAL

.—The term ‘specified 22

tangible property’ means, except as provided in 23

subparagraph (B), any tangible property used 24

in the production of tested income. 25

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427

‘‘(B) D

UAL USE PROPERTY

.—In the case 1

of property used both in the production of test-2

ed income and income which is not tested in-3

come, such property shall be treated as speci-4

fied tangible property in the same proportion 5

that the gross income described in subsection 6

(c)(1)(A) produced with respect to such prop-7

erty bears to the total gross income produced 8

with respect to such property. 9

‘‘(3) D

ETERMINATION OF ADJUSTED BASIS

.— 10

For purposes of this subsection, notwithstanding any 11

provision of this title (or any other provision of law) 12

which is enacted after the date of the enactment of 13

this section, the adjusted basis in any property shall 14

be determined— 15

‘‘(A) by using the alternative depreciation 16

system under section 168(g), and 17

‘‘(B) by allocating the depreciation deduc-18

tion with respect to such property ratably to 19

each day during the period in the taxable year 20

to which such depreciation relates. 21

‘‘(3) P

ARTNERSHIP PROPERTY

.—For purposes 22

of this subsection, if a controlled foreign corporation 23

holds an interest in a partnership at the close of 24

such taxable year of the controlled foreign corpora-25

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428

tion, such controlled foreign corporation shall take 1

into account under paragraph (1) the controlled for-2

eign corporation’s distributive share of the aggregate 3

of the partnership’s adjusted bases (determined as 4

of such date in the hands of the partnership) in tan-5

gible property held by such partnership to the extent 6

such property— 7

‘‘(A) is used in the trade or business of the 8

partnership, 9

‘‘(B) is of a type with respect to which a 10

deduction is allowable under section 167, and 11

‘‘(C) is used in the production of tested in-12

come (determined with respect to such con-13

trolled foreign corporation’s distributive share 14

of income with respect to such property). 15

For purposes of this paragraph, the controlled for-16

eign corporation’s distributive share of the adjusted 17

basis of any property shall be the controlled foreign 18

corporation’s distributive share of income with re-19

spect to such property. 20

‘‘(4) R

EGULATIONS

.—The Secretary shall issue 21

such regulations or other guidance as the Secretary 22

determines appropriate to prevent the avoidance of 23

the purposes of this subsection, including regulations 24

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429

or other guidance which provide for the treatment of 1

property if— 2

‘‘(A) such property is transferred, or held, 3

temporarily, or 4

‘‘(B) the avoidance of the purposes of this 5

paragraph is a factor in the transfer or holding 6

of such property. 7

‘‘(e) D

ETERMINATION OF

ATA

HARE

ETC

.— 8

For purposes of this section— 9

‘‘(1) I

N GENERAL

.—The pro rata shares re-10

ferred to in subsections (b), (c)(1)(A), and (c)(1)(B), 11

respectively, shall be determined under the rules of 12

section 951(a)(2) in the same manner as such sec-13

tion applies to subpart F income and shall be taken 14

into account in the taxable year of the United States 15

shareholder in which or with which the taxable year 16

of the controlled foreign corporation ends. 17

‘‘(2) T

REATMENT AS UNITED STATES SHARE

-18

HOLDER

.—A person shall be treated as a United 19

States shareholder of a controlled foreign corpora-20

tion for any taxable year of such person only if such 21

person owns (within the meaning of section 958(a)) 22

stock in such foreign corporation on the last day in 23

the taxable year of such foreign corporation on 24

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which such foreign corporation is a controlled for-1

eign corporation. 2

‘‘(3) T

REATMENT AS CONTROLLED FOREIGN

CORPORATION

.—A foreign corporation shall be treat-4

ed as a controlled foreign corporation for any tax-5

able year if such foreign corporation is a controlled 6

foreign corporation at any time during such taxable 7

year. 8

‘‘(f) T

REATMENT AS

UBPART

F I

NCOME FOR

-9

TAIN

URPOSES

.— 10

‘‘(1) I

N GENERAL

.— 11

‘‘(A) A

PPLICATION

.—Except as provided in 12

subparagraph (B), any global intangible low- 13

taxed income included in gross income under 14

subsection (a) shall be treated in the same 15

manner as an amount included under section 16

951(a)(1)(A) for purposes of applying sections 17

168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 18

959, 961, 962, 993(a)(1)(E), 996(f)(1), 19

1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 20

6654(d)(2)(D), and 6655(e)(4). 21

‘‘(B) E

XCEPTION

.—The Secretary shall 22

provide rules for the application of subpara-23

graph (A) to other provisions of this title in any 24

case in which the determination of subpart F 25

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income is required to be made at the level of 1

the controlled foreign corporation. 2

‘‘(2) A

LLOCATION OF GLOBAL INTANGIBLE

LOW

TAXED INCOME TO CONTROLLED FOREIGN COR

-4

PORATIONS

.—For purposes of the sections referred 5

to in paragraph (1), with respect to any controlled 6

foreign corporation any pro rata amount from which 7

is taken into account in determining the global in-8

tangible low-taxed income included in gross income 9

of a United States shareholder under subsection (a), 10

the portion of such global intangible low-taxed in-11

come which is treated as being with respect to such 12

controlled foreign corporation is— 13

‘‘(A) in the case of a controlled foreign 14

corporation with no tested income, zero, and 15

‘‘(B) in the case of a controlled foreign 16

corporation with tested income, the portion of 17

such global intangible low-taxed income which 18

bears the same ratio to such global intangible 19

low-taxed income as— 20

‘‘(i) such United States shareholder’s 21

pro rata amount of the tested income of 22

such controlled foreign corporation, bears 23

to 24

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432

‘‘(ii) the aggregate amount described 1

in subsection (c)(1)(A) with respect to 2

such United States shareholder.’’. 3

(b) F

OREIGN

REDIT

.— 4

(1) A

PPLICATION OF DEEMED PAID FOREIGN

TAX CREDIT

.—Section 960 is amended adding at the 6

end the following new subsection: 7

‘‘(d) D

EEMED

AID

REDIT FOR

AXES

ROPERLY

TTRIBUTABLE TO

ESTED

NCOME

.— 9

‘‘(1) I

N GENERAL

.—For purposes of subpart A 10

of this part, if any amount is includible in the gross 11

income of a domestic corporation under section 12

951A, such domestic corporation shall be deemed to 13

have paid foreign income taxes equal to 80 percent 14

of the product of— 15

‘‘(A) such domestic corporation’s inclusion 16

percentage, multiplied by 17

‘‘(B) the aggregate tested foreign income 18

taxes paid or accrued by controlled foreign cor-19

porations. 20

‘‘(2) I

NCLUSION PERCENTAGE

.—For purposes 21

of paragraph (1), the term ‘inclusion percentage’ 22

means, with respect to any domestic corporation, the 23

ratio (expressed as a percentage) of— 24

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433

‘‘(A) such corporation’s global intangible 1

low-taxed income (as defined in section 2

951A(b)), divided by 3

‘‘(B) the aggregate amount described in 4

section 951A(c)(1)(A) with respect to such cor-5

poration. 6

‘‘(3) T

ESTED FOREIGN INCOME TAXES

.—For 7

purposes of paragraph (1), the term ‘tested foreign 8

income taxes’ means, with respect to any domestic 9

corporation which is a United States shareholder of 10

a controlled foreign corporation, the foreign income 11

taxes paid or accrued by such foreign corporation 12

which are properly attributable to the tested income 13

of such foreign corporation taken into account by 14

such domestic corporation under section 951A.’’. 15

(2) A

PPLICATION OF FOREIGN TAX CREDIT

LIMITATION

.— 17

(A) S

EPARATE BASKET FOR GLOBAL IN

-18

TANGIBLE LOW

TAXED INCOME

.—Section 19

904(d)(1) is amended by redesignating subpara-20

graphs (A) and (B) as subparagraphs (B) and 21

(C), respectively, and by inserting before sub-22

paragraph (B) (as so redesignated) the fol-23

lowing new subparagraph: 24

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‘‘(A) any amount includible in gross in-1

come under section 951A (other than passive 2

category income),’’. 3

(B) E

XCLUSION FROM GENERAL CAT

-4

EGORY INCOME

.—Section 904(d)(2)(A)(ii) is 5

amended by inserting ‘‘income described in 6

paragraph (1)(A) and’’ before ‘‘passive category 7

income’’. 8

O CARRYOVER OR CARRYBACK OF EX

-9

CESS TAXES

.—Section 904(c) is amended by 10

adding at the end the following: ‘‘This sub-11

section shall not apply to taxes paid or accrued 12

with respect to amounts described in subsection 13

(d)(1)(A).’’. 14

LERICAL

MENDMENT

.—The table of sections 15

for subpart F of part III of subchapter N of chapter 1 16

is amended by inserting after the item relating to section 17

951 the following new item: 18

‘‘Sec. 951A. Global intangible low-taxed income included in gross income of

United States shareholders.’’.

(d) E

FFECTIVE

ATE

.—The amendments made by 19

this section shall apply to taxable years of foreign corpora-20

tions beginning after December 31, 2017, and to taxable 21

years of United States shareholders in which or with which 22

such taxable years of foreign corporations end. 23

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SEC. 14202. DEDUCTION FOR FOREIGN-DERIVED INTAN-1

GIBLE INCOME AND GLOBAL INTANGIBLE 2

LOW-TAXED INCOME. 3

(a) I

ENERAL

.—Part VIII of subchapter B of 4

chapter 1 is amended by adding at the end the following 5

new section: 6

‘‘SEC. 250. FOREIGN-DERIVED INTANGIBLE INCOME AND 7

GLOBAL INTANGIBLE LOW-TAXED INCOME. 8

‘‘(a) A

LLOWANCE OF

EDUCTION

.— 9

‘‘(1) I

N GENERAL

.—In the case of a domestic 10

corporation for any taxable year, there shall be al-11

lowed as a deduction an amount equal to the sum 12

of— 13

‘‘(A) 37.5 percent of the foreign-derived in-14

tangible income of such domestic corporation 15

for such taxable year, plus 16

‘‘(B) 50 percent of— 17

‘‘(i) the global intangible low-taxed in-18

come amount (if any) which is included in 19

the gross income of such domestic corpora-20

tion under section 951A for such taxable 21

year, and 22

‘‘(ii) the amount treated as a dividend 23

received by such corporation under section 24

78 which is attributable to the amount de-25

scribed in clause (i). 26

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‘‘(2) L

IMITATION BASED ON TAXABLE IN

-1

COME

.— 2

‘‘(A) I

N GENERAL

.—If, for any taxable 3

year— 4

‘‘(i) the sum of the foreign-derived in-5

tangible income and the global intangible 6

low-taxed income amount otherwise taken 7

into account by the domestic corporation 8

under paragraph (1), exceeds 9

‘‘(ii) the taxable income of the domes-10

tic corporation (determined without regard 11

to this section), 12

then the amount of the foreign-derived intan-13

gible income and the global intangible low-taxed 14

income amount so taken into account shall be 15

reduced as provided in subparagraph (B). 16

‘‘(B) R

EDUCTION

.—For purposes of sub-17

paragraph (A)— 18

‘‘(i) foreign-derived intangible income 19

shall be reduced by an amount which bears 20

the same ratio to the excess described in 21

subparagraph (A) as such foreign-derived 22

intangible income bears to the sum de-23

scribed in subparagraph (A)(i), and 24

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437

‘‘(ii) the global intangible low-taxed 1

income amount shall be reduced by the re-2

mainder of such excess. 3

‘‘(3) R

EDUCTION IN DEDUCTION FOR TAXABLE

YEARS AFTER 2025

.—In the case of any taxable year 5

beginning after December 31, 2025, paragraph (1) 6

shall be applied by substituting— 7

‘‘(A) ‘21.875 percent’ for ‘37.5 percent’ in 8

subparagraph (A), and 9

‘‘(B) ‘37.5 percent’ for ‘50 percent’ in sub-10

paragraph (B). 11

‘‘(b) F

OREIGN

DERIVED

NTANGIBLE

NCOME

.—For 12

purposes of this section— 13

‘‘(1) I

N GENERAL

.—The foreign-derived intan-14

gible income of any domestic corporation is the 15

amount which bears the same ratio to the deemed 16

intangible income of such corporation as— 17

‘‘(A) the foreign-derived deduction eligible 18

income of such corporation, bears to 19

‘‘(B) the deduction eligible income of such 20

corporation. 21

‘‘(2) D

EEMED INTANGIBLE INCOME

.—For pur-22

poses of this subsection— 23

‘‘(A) I

N GENERAL

.—The term ‘deemed in-24

tangible income’ means the excess (if any) of— 25

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438

‘‘(i) the deduction eligible income of 1

the domestic corporation, over 2

‘‘(ii) the deemed tangible income re-3

turn of the corporation. 4

‘‘(B) D

EEMED TANGIBLE INCOME RE

-5

TURN

.—The term ‘deemed tangible income re-6

turn’ means, with respect to any corporation, 7

an amount equal to 10 percent of the corpora-8

tion’s qualified business asset investment (as 9

defined in section 951A(d), determined by sub-10

stituting ‘deduction eligible income’ for ‘tested 11

income’ in paragraph (2) thereof and without 12

regard to whether the corporation is a con-13

trolled foreign corporation). 14

‘‘(3) D

EDUCTION ELIGIBLE INCOME

.— 15

‘‘(A) I

N GENERAL

.—The term ‘deduction 16

eligible income’ means, with respect to any do-17

mestic corporation, the excess (if any) of— 18

‘‘(i) gross income of such corporation 19

determined without regard to— 20

‘‘(I) any amount included in the 21

gross income of such corporation 22

under section 951(a)(1), 23

‘‘(II) the global intangible low- 24

taxed income included in the gross in-25

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439

come of such corporation under sec-1

tion 951A, 2

‘‘(III) any financial services in-3

come (as defined in section 4

904(d)(2)(D)) of such corporation, 5

‘‘(IV) any dividend received from 6

a corporation which is a controlled 7

foreign corporation of such domestic 8

corporation, 9

‘‘(V) any domestic oil and gas ex-10

traction income of such corporation, 11

and 12

‘‘(VI) any foreign branch income 13

(as defined in section 904(d)(2)(J)), 14

over 15

‘‘(ii) the deductions (including taxes) 16

properly allocable to such gross income. 17

‘‘(B) D

OMESTIC OIL AND GAS EXTRACTION

INCOME

.—For purposes of subparagraph (A), 19

the term ‘domestic oil and gas extraction in-20

come’ means income described in section 21

907(c)(1), determined by substituting ‘within 22

the United States’ for ‘without the United 23

States’. 24

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‘‘(4) F

OREIGN

DERIVED DEDUCTION ELIGIBLE

INCOME

.—The term ‘foreign-derived deduction eligi-2

ble income’ means, with respect to any taxpayer for 3

any taxable year, any deduction eligible income of 4

such taxpayer which is derived in connection with— 5

‘‘(A) property— 6

‘‘(i) which is sold by the taxpayer to 7

any person who is not a United States per-8

son, and 9

‘‘(ii) which the taxpayer establishes to 10

the satisfaction of the Secretary is for a 11

foreign use, or 12

‘‘(B) services provided by the taxpayer 13

which the taxpayer establishes to the satisfac-14

tion of the Secretary are provided to any per-15

son, or with respect to property, not located 16

within the United States. 17

‘‘(5) R

ULES RELATING TO FOREIGN USE PROP

-18

ERTY OR SERVICES

.—For purposes of this sub-19

section— 20

‘‘(A) F

OREIGN USE

.—The term ‘foreign 21

use’ means any use, consumption, or disposition 22

which is not within the United States. 23

‘‘(B) P

ROPERTY OR SERVICES PROVIDED

TO DOMESTIC INTERMEDIARIES

.— 25

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‘‘(i) P

ROPERTY

.—If a taxpayer sells 1

property to another person (other than a 2

related party) for further manufacture or 3

other modification within the United 4

States, such property shall not be treated 5

as sold for a foreign use even if such other 6

person subsequently uses such property for 7

a foreign use. 8

‘‘(ii) S

ERVICES

.—If a taxpayer pro-9

vides services to another person (other 10

than a related party) located within the 11

United States, such services shall not be 12

treated as described in paragraph (4)(B) 13

even if such other person uses such serv-14

ices in providing services which are so de-15

scribed. 16

‘‘(C) S

PECIAL RULES WITH RESPECT TO

RELATED PARTY TRANSACTIONS

.— 18

‘‘(i) S

ALES TO RELATED PARTIES

.—If 19

property is sold to a related party who is 20

not a United States person, such sale shall 21

not be treated as for a foreign use un-22

less— 23

‘‘(I) such property is ultimately 24

sold by a related party, or used by a 25

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related party in connection with prop-1

erty which is sold or the provision of 2

services, to another person who is an 3

unrelated party who is not a United 4

States person, and 5

‘‘(II) the taxpayer establishes to 6

the satisfaction of the Secretary that 7

such property is for a foreign use. 8

For purposes of this clause, a sale of prop-9

erty shall be treated as a sale of each of 10

the components thereof. 11

‘‘(ii) S

ERVICE PROVIDED TO RELATED

PARTIES

.—If a service is provided to a re-13

lated party who is not located in the 14

United States, such service shall not be 15

treated described in subparagraph (A)(ii) 16

unless the taxpayer established to the sat-17

isfaction of the Secretary that such service 18

is not substantially similar to services pro-19

vided by such related party to persons lo-20

cated within the United States. 21

‘‘(D) R

ELATED PARTY

.—For purposes of 22

this paragraph, the term ‘related party’ means 23

any member of an affiliated group as defined in 24

section 1504(a), determined— 25

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‘‘(i) by substituting ‘more than 50 1

percent’ for ‘at least 80 percent’ each place 2

it appears, and 3

‘‘(ii) without regard to paragraphs (2) 4

and (3) of section 1504(b). 5

Any person (other than a corporation) shall be 6

treated as a member of such group if such per-7

son is controlled by members of such group (in-8

cluding any entity treated as a member of such 9

group by reason of this sentence) or controls 10

any such member. For purposes of the pre-11

ceding sentence, control shall be determined 12

under the rules of section 954(d)(3). 13

‘‘(E) S

OLD

.—For purposes of this sub-14

section, the terms ‘sold’, ‘sells’, and ‘sale’ shall 15

include any lease, license, exchange, or other 16

disposition. 17

‘‘(c) R

EGULATIONS

.—The Secretary shall prescribe 18

such regulations or other guidance as may be necessary 19

or appropriate to carry out the provisions of this section.’’. 20

(b) C

ONFORMING

MENDMENTS

.— 21

(1) Section 172(d), as amended by this Act, is 22

amended by adding at the end the following new 23

paragraph: 24

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‘‘(9) D

EDUCTION FOR FOREIGN

DERIVED IN

-1

TANGIBLE INCOME

.—The deduction under section 2

250 shall not be allowed.’’. 3

(2) Section 246(b)(1) is amended— 4

(A) by striking ‘‘and subsection (a) and (b) 5

of section 245’’ the first place it appears and 6

inserting ‘‘, subsection (a) and (b) of section 7

245, and section 250’’, 8

(B) by striking ‘‘and subsection (a) and 9

(b) of section 245’’ the second place it appears 10

and inserting ‘‘subsection (a) and (b) of section 11

245, and 250’’. 12

(3) Section 469(i)(3)(F)(iii) is amended by 13

striking ‘‘and 222’’ and inserting ‘‘222, and 250’’. 14

(4) The table of sections for part VIII of sub-15

chapter B of chapter 1 is amended by adding at the 16

end the following new item: 17

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

income.’’.

FFECTIVE

ATE

.—The amendments made by 18

this section shall apply to taxable years beginning after 19

December 31, 2017. 20

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CHAPTER 2—OTHER MODIFICATIONS OF 1

SUBPART F PROVISIONS 2

SEC. 14211. ELIMINATION OF INCLUSION OF FOREIGN BASE 3

COMPANY OIL RELATED INCOME. 4

(a) R

EPEAL

.—Subsection (a) of section 954 is 5

amended— 6

(1) by inserting ‘‘and’’ at the end of paragraph 7

(2), 8

(2) by striking the comma at the end of para-9

graph (3) and inserting a period, and 10

(3) by striking paragraph (5). 11

(b) C

ONFORMING

MENDMENTS

.— 12

(1) Section 952(c)(1)(B)(iii) is amended by 13

striking subclause (I) and redesignating subclauses 14

(II) through (V) as subclauses (I) through (IV), re-15

spectively. 16

(2) Section 954(b) is amended— 17

(A) by striking the second sentence of 18

paragraph (4), 19

(B) by striking ‘‘the foreign base company 20

services income, and the foreign base company 21

oil related income’’ in paragraph (5) and insert-22

ing ‘‘and the foreign base company services in-23

come’’, and 24

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(3) Section 954 is amended by striking sub-1

section (g). 2

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to taxable years of foreign corpora-4

tions beginning after December 31, 2017, and to taxable 5

years of United States shareholders with or within which 6

such taxable years of foreign corporations end. 7

SEC. 14212. REPEAL OF INCLUSION BASED ON WITH-8

DRAWAL OF PREVIOUSLY EXCLUDED SUB-9

PART F INCOME FROM QUALIFIED INVEST-10

MENT. 11

(a) I

ENERAL

.—Subpart F of part III of sub-12

chapter N of chapter 1 is amended by striking section 955. 13

(b) C

ONFORMING

MENDMENTS

.— 14

(1)(A) Section 951(a)(1)(A) is amended to read 15

as follows: 16

‘‘(A) his pro rata share (determined under 17

paragraph (2)) of the corporation’s subpart F 18

income for such year, and’’. 19

(B) Section 851(b) is amended by striking ‘‘sec-20

tion 951(a)(1)(A)(i)’’ in the flush language at the 21

end and inserting ‘‘section 951(a)(1)(A)’’. 22

striking ‘‘section 951(a)(1)(A)(i)’’ and inserting 24

‘‘section 951(a)(1)(A)’’. 25

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(D) Section 953(c)(1)(C) is amended by strik-1

ing ‘‘section 951(a)(1)(A)(i)’’ and inserting ‘‘section 2

951(a)(1)(A)’’. 3

(2) Section 951(a) is amended by striking para-4

graph (3). 5

(3) Section 953(d)(4)(B)(iv)(II) is amended by 6

striking ‘‘or amounts referred to in clause (ii) or (iii) 7

of section 951(a)(1)(A)’’. 8

(4) Section 964(b) is amended by striking ‘‘, 9

955,’’. 10

(5) Section 970 is amended by striking sub-11

section (b). 12

(6) The table of sections for subpart F of part 13

III of subchapter N of chapter 1 is amended by 14

striking the item relating to section 955. 15

FFECTIVE

ATE

.—The amendments made by 16

this section shall apply to taxable years of foreign corpora-17

tions beginning after December 31, 2017, and to taxable 18

years of United States shareholders in which or with which 19

such taxable years of foreign corporations end. 20

SEC. 14213. MODIFICATION OF STOCK ATTRIBUTION RULES 21

FOR DETERMINING STATUS AS A CON-22

TROLLED FOREIGN CORPORATION. 23

(a) I

ENERAL

.—Section 958(b) is amended— 24

(1) by striking paragraph (4), and 25

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448

(2) by striking ‘‘Paragraphs (1) and (4)’’ in the 1

last sentence and inserting ‘‘Paragraph (1)’’. 2

(b) E

FFECTIVE

ATE

.—The amendments made by 3

this section shall apply to— 4

(1) the last taxable year of foreign corporations 5

beginning before January 1, 2018, and each subse-6

quent taxable year of such foreign corporations, and 7

(2) taxable years of United States shareholders 8

in which or with which such taxable years of foreign 9

corporations end. 10

SEC. 14214. MODIFICATION OF DEFINITION OF UNITED 11

STATES SHAREHOLDER. 12

(a) I

ENERAL

.—Section 951(b) is amended by in-13

serting ‘‘, or 10 percent or more of the total value of 14

shares of all classes of stock of such foreign corporation’’ 15

after ‘‘such foreign corporation’’. 16

(b) E

FFECTIVE

ATE

.—The amendment made by 17

this section shall apply to taxable years of foreign corpora-18

tions beginning after December 31, 2017, and to taxable 19

years of United States shareholders with or within which 20

such taxable years of foreign corporations end. 21

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449

SEC. 14215. ELIMINATION OF REQUIREMENT THAT COR-1

PORATION MUST BE CONTROLLED FOR 30 2

DAYS BEFORE SUBPART F INCLUSIONS 3

APPLY. 4

(a) I

ENERAL

.—Section 951(a)(1) is amended by 5

striking ‘‘for an uninterrupted period of 30 days or more’’ 6

and inserting ‘‘at any time’’. 7

(b) E

FFECTIVE

ATE

.—The amendment made by 8

this section shall apply to taxable years of foreign corpora-9

tions beginning after December 31, 2017, and to taxable 10

years of United States shareholders with or within which 11

such taxable years of foreign corporations end. 12

CHAPTER 3—PREVENTION OF BASE 13

EROSION 14

SEC. 14221. LIMITATIONS ON INCOME SHIFTING THROUGH 15

INTANGIBLE PROPERTY TRANSFERS. 16

(a) D

EFINITION OF

NTANGIBLE

SSET

.—Section 17

936(h)(3)(B) is amended— 18

(1) by striking ‘‘or’’ at the end of clause (v), 19

(2) by striking clause (vi) and inserting the fol-20

lowing: 21

‘‘(vi) any goodwill, going concern 22

value, or workforce in place (including its 23

composition and terms and conditions 24

(contractual or otherwise) of its employ-25

ment); or 26

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450

‘‘(vii) any other item the value or po-1

tential value of which is not attributable to 2

tangible property or the services of any in-3

dividual.’’, and 4

(3) by striking the flush language after clause 5

(vii), as added by paragraph (2). 6

(b) C

LARIFICATION OF

LLOWABLE

ALUATION

ETHODS

.— 8

(1) F

OREIGN CORPORATIONS

.—Section 9

367(d)(2) is amended by adding at the end the fol-10

lowing new subparagraph: 11

‘‘(D) R

EGULATORY AUTHORITY

.—For pur-12

poses of the last sentence of subparagraph (A), 13

the Secretary shall require— 14

‘‘(i) the valuation of transfers of in-15

tangible property, including intangible 16

property transferred with other property or 17

services, on an aggregate basis, or 18

‘‘(ii) the valuation of such a transfer 19

on the basis of the realistic alternatives to 20

such a transfer, 21

if the Secretary determines that such basis is 22

the most reliable means of valuation of such 23

transfers.’’. 24

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451

(2) A

LLOCATION AMONG TAXPAYERS

.—Section 1

482 is amended by adding at the end the following: 2

‘‘For purposes of this section, the Secretary shall re-3

quire the valuation of transfers of intangible prop-4

erty (including intangible property transferred with 5

other property or services) on an aggregate basis or 6

the valuation of such a transfer on the basis of the 7

realistic alternatives to such a transfer, if the Sec-8

retary determines that such basis is the most reli-9

able means of valuation of such transfers.’’. 10

FFECTIVE

ATE

.— 11

(1) I

N GENERAL

.—The amendments made by 12

this section shall apply to transfers in taxable years 13

beginning after December 31, 2017. 14

(2) N

O INFERENCE

.—Nothing in the amend-15

ment made by subsection (a) shall be construed to 16

create any inference with respect to the application 17

of section 936(h)(3) of the Internal Revenue Code of 18

1986, or the authority of the Secretary of the Treas-19

ury to provide regulations for such application, with 20

respect to taxable years beginning before January 1, 21

2018. 22

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452

SEC. 14222. CERTAIN RELATED PARTY AMOUNTS PAID OR 1

ACCRUED IN HYBRID TRANSACTIONS OR 2

WITH HYBRID ENTITIES. 3

(a) I

ENERAL

.—Part IX of subchapter B of chap-4

ter 1 is amended by inserting after section 267 the fol-5

lowing: 6

‘‘SEC. 267A. CERTAIN RELATED PARTY AMOUNTS PAID OR 7

ACCRUED IN HYBRID TRANSACTIONS OR 8

WITH HYBRID ENTITIES. 9

‘‘(a) I

ENERAL

.—No deduction shall be allowed 10

under this chapter for any disqualified related party 11

amount paid or accrued pursuant to a hybrid transaction 12

or by, or to, a hybrid entity. 13

‘‘(b) D

ISQUALIFIED

ELATED

ARTY

MOUNT

.—For 14

purposes of this section— 15

‘‘(1) D

ISQUALIFIED RELATED PARTY

AMOUNT

.—The term ‘disqualified related party 17

amount’ means any interest or royalty paid or ac-18

crued to a related party to the extent that— 19

‘‘(A) such amount is not included in the 20

income of such related party under the tax law 21

of the country of which such related party is a 22

resident for tax purposes or is subject to tax, 23

or 24

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453

‘‘(B) such related party is allowed a deduc-1

tion with respect to such amount under the tax 2

law of such country. 3

Such term shall not include any payment to the ex-4

tent such payment is included in the gross income 5

of a United States shareholder under section 951(a). 6

‘‘(2) R

ELATED PARTY

.—The term ‘related 7

party’ means a related person as defined in section 8

954(d)(3), except that such section shall be applied 9

with respect to the person making the payment de-10

scribed in paragraph (1) in lieu of the controlled for-11

eign corporation otherwise referred to in such sec-12

tion. 13

‘‘(c) H

YBRID

RANSACTION

.—For purposes of this 14

section, the term ‘hybrid transaction’ means any trans-15

action, series of transactions, agreement, or instrument 16

one or more payments with respect to which are treated 17

as interest or royalties for purposes of this chapter and 18

which are not so treated for purposes the tax law of the 19

foreign country of which the recipient of such payment 20

is resident for tax purposes or is subject to tax. 21

‘‘(d) H

YBRID

NTITY

.—For purposes of this section, 22

the term ‘hybrid entity’ means any entity which is either— 23

‘‘(1) treated as fiscally transparent for purposes 24

of this chapter but not so treated for purposes of the 25

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454

tax law of the foreign country of which the entity is 1

resident for tax purposes or is subject to tax, or 2

‘‘(2) treated as fiscally transparent for purposes 3

of such tax law but not so treated for purposes of 4

this chapter. 5

‘‘(e) R

EGULATIONS

.—The Secretary shall issue such 6

regulations or other guidance as may be necessary or ap-7

propriate to carry out the purposes of this section, includ-8

ing regulations or other guidance providing for— 9

‘‘(1) rules for treating certain conduit arrange-10

ments which involve a hybrid transaction or a hybrid 11

entity as subject to subsection (a), 12

‘‘(2) rules for the application of this section to 13

branches or domestic entities, 14

‘‘(3) rules for treating certain structured trans-15

actions as subject to subsection (a), 16

‘‘(4) rules for treating a tax preference as an 17

exclusion from income for purposes of applying sub-18

section (b)(1) if such tax preference has the effect 19

of reducing the generally applicable statutory rate by 20

25 percent or more, 21

‘‘(5) rules for treating the entire amount of in-22

terest or royalty paid or accrued to a related party 23

as a disqualified related party amount if such 24

amount is subject to a participation exemption sys-25

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455

tem or other system which provides for the exclusion 1

or deduction of a substantial portion of such 2

amount, 3

‘‘(6) rules for determining the tax residence of 4

a foreign entity if the entity is otherwise considered 5

a resident of more than one country or of no coun-6

try, 7

‘‘(7) exceptions from subsection (a) with respect 8

to— 9

‘‘(A) cases in which the disqualified related 10

party amount is taxed under the laws of a for-11

eign country other than the country of which 12

the related party is a resident for tax purposes, 13

and 14

‘‘(B) other cases which the Secretary de-15

termines do not present a risk of eroding the 16

Federal tax base, 17

‘‘(8) requirements for record keeping and infor-18

mation reporting in addition to any requirements 19

imposed by section 6038A.’’. 20

(b) C

ONFORMING

MENDMENT

.—The table of sec-21

tions for part IX of subchapter B of chapter 1 is amended 22

by inserting after the item relating to section 267 the fol-23

lowing new item: 24

‘‘Sec. 267A. Certain related party amounts paid or accrued in hybrid trans-

actions or with hybrid entities.’’.

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456

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to taxable years beginning after 2

December 31, 2017. 3

SEC. 14223. SHAREHOLDERS OF SURROGATE FOREIGN COR-4

PORATIONS NOT ELIGIBLE FOR REDUCED 5

RATE ON DIVIDENDS. 6

(a) I

ENERAL

.—Section 1(h)(11)(C)(iii) is amend-7

ed— 8

(1) by striking ‘‘shall not include any foreign 9

corporation’’ and inserting ‘‘shall not include— 10

‘‘(I) any foreign corporation’’, 11

(2) by striking the period at the end and insert-12

ing ‘‘, and’’, and 13

(3) by adding at the end the following new sub-14

clause: 15

‘‘(II) any corporation which first 16

becomes a surrogate foreign corpora-17

tion (as defined in section 18

7874(a)(2)(B)) after the date of the 19

enactment of this subclause, other 20

than a foreign corporation which is 21

treated as a domestic corporation 22

under section 7874(b).’’. 23

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(b) E

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to dividends received after the date 2

of the enactment of this Act. 3

Subpart C—Modifications Related to Foreign Tax 4

Credit System 5

SEC. 14301. REPEAL OF SECTION 902 INDIRECT FOREIGN 6

TAX CREDITS; DETERMINATION OF SECTION 7

960 CREDIT ON CURRENT YEAR BASIS. 8

(a) R

EPEAL OF

ECTION

902 I

NDIRECT

OREIGN

REDITS

.—Subpart A of part III of subchapter N 10

of chapter 1 is amended by striking section 902. 11

(b) D

ETERMINATION OF

ECTION

960 C

REDIT ON

URRENT

EAR

ASIS

.—Section 960, as amended by sec-13

tion 14201, is amended— 14

(1) by striking subsection (c), by redesignating 15

subsection (b) as subsection (c), by striking all that 16

precedes subsection (c) (as so redesignated) and in-17

serting the following: 18

‘‘SEC. 960. DEEMED PAID CREDIT FOR SUBPART F INCLU-19

SIONS. 20

‘‘(a) I

ENERAL

.—For purposes of subpart A of 21

this part, if there is included in the gross income of a do-22

mestic corporation any item of income under section 23

951(a)(1) with respect to any controlled foreign corpora-24

tion with respect to which such domestic corporation is 25

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458

a United States shareholder, such domestic corporation 1

shall be deemed to have paid so much of such foreign cor-2

poration’s foreign income taxes as are properly attrib-3

utable to such item of income. 4

‘‘(b) S

PECIAL

ULES FOR

ISTRIBUTIONS

ROM

REVIOUSLY

AXED

ARNINGS AND

ROFITS

.—For pur-6

poses of subpart A of this part— 7

‘‘(1) I

N GENERAL

.—If any portion of a dis-8

tribution from a controlled foreign corporation to a 9

domestic corporation which is a United States share-10

holder with respect to such controlled foreign cor-11

poration is excluded from gross income under section 12

959(a), such domestic corporation shall be deemed 13

to have paid so much of such foreign corporation’s 14

foreign income taxes as— 15

‘‘(A) are properly attributable to such por-16

tion, and 17

‘‘(B) have not been deemed to have to been 18

paid by such domestic corporation under this 19

section for the taxable year or any prior taxable 20

year. 21

‘‘(2) T

IERED CONTROLLED FOREIGN CORPORA

-22

TIONS

.—If section 959(b) applies to any portion of 23

a distribution from a controlled foreign corporation 24

to another controlled foreign corporation, such con-25

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459

trolled foreign corporation shall be deemed to have 1

paid so much of such other controlled foreign cor-2

poration’s foreign income taxes as— 3

‘‘(A) are properly attributable to such por-4

tion, and 5

‘‘(B) have not been deemed to have been 6

paid by a domestic corporation under this sec-7

tion for the taxable year or any prior taxable 8

year.’’, 9

(2) and by adding after subsection (d) (as 10

added by section 14201) the following new sub-11

sections: 12

‘‘(e) F

OREIGN

NCOME

AXES

.—The term ‘foreign 13

income taxes’ means any income, war profits, or excess 14

profits taxes paid or accrued to any foreign country or 15

possession of the United States. 16

‘‘(f) R

EGULATIONS

.—The Secretary shall prescribe 17

such regulations or other guidance as may be necessary 18

or appropriate to carry out the provisions of this section.’’. 19

ONFORMING

MENDMENTS

.— 20

(1) Section 78 is amended to read as follows: 21

‘‘SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX 22

CREDIT. 23

‘‘If a domestic corporation chooses to have the bene-24

fits of subpart A of part III of subchapter N (relating 25

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460

to foreign tax credit) for any taxable year, an amount 1

equal to the taxes deemed to be paid by such corporation 2

under subsections (a), (b), and (d) of section 960 (deter-3

mined without regard to the phrase ‘80 percent of’ in sub-4

section (d)(1) thereof) for such taxable year shall be treat-5

ed for purposes of this title (other than sections 245 and 6

245A) as a dividend received by such domestic corporation 7

from the foreign corporation.’’. 8

(2) Paragraph (4) of section 245(a) is amended 9

to read as follows: 10

‘‘(4) P

OST

1986 UNDISTRIBUTED EARNINGS

.— 11

The term ‘post-1986 undistributed earnings’ means 12

the amount of the earnings and profits of the for-13

eign corporation (computed in accordance with sec-14

tions 964(a) and 986) accumulated in taxable years 15

beginning after December 31, 1986— 16

‘‘(A) as of the close of the taxable year of 17

the foreign corporation in which the dividend is 18

distributed, and 19

‘‘(B) without diminution by reason of divi-20

dends distributed during such taxable year.’’. 21

(3) Section 245(a)(10)(C) is amended by strik-22

ing ‘‘902, 907, and 960’’ and inserting ‘‘907 and 23

960’’. 24

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461

(4) Sections 535(b)(1) and 545(b)(1) are each 1

amended by striking ‘‘section 902(a) or 960(a)(1)’’ 2

and inserting ‘‘section 960’’. 3

(5) Section 814(f)(1) is amended— 4

(A) by striking subparagraph (B), and 5

(B) by striking all that precedes ‘‘No in-6

come’’ and inserting the following: 7

‘‘(1) T

REATMENT OF FOREIGN TAXES

.—’’. 8

(6) Section 865(h)(1)(B) is amended by strik-9

ing ‘‘902, 907,’’ and inserting ‘‘907’’. 10

(7) Section 901(a) is amended by striking ‘‘sec-11

tions 902 and 960’’ and inserting ‘‘section 960’’. 12

(8) Section 901(e)(2) is amended by striking 13

‘‘but is not limited to—’’ and all that follows 14

through ‘‘that portion’’ and inserting ‘‘but is not 15

limited to that portion’’. 16

(9) Section 901(f) is amended by striking ‘‘sec-17

tions 902 and 960’’ and inserting ‘‘section 960’’. 18

(10) Section 901(j)(1)(A) is amended by strik-19

ing ‘‘902 or’’. 20

(11) Section 901(j)(1)(B) is amended by strik-21

ing ‘‘sections 902 and 960’’ and inserting ‘‘section 22

960’’. 23

(12) Section 901(k)(2) is amended by striking 24

‘‘, 902,’’. 25

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462

(13) Section 901(k)(6) is amended by striking 1

‘‘902 or’’. 2

(14) Section 901(m)(1)(B) is amended to read 3

as follows: 4

‘‘(B) in the case of a foreign income tax 5

paid by a foreign corporation, shall not be 6

taken into account for purposes of section 7

960.’’. 8

(15) Section 904(d)(2)(E) is amended— 9

(A) by amending clause (i) to read as fol-10

lows: 11

‘‘(i) N

ONCONTROLLED 10

PERCENT

OWNED FOREIGN CORPORATION

.—The 13

term ‘noncontrolled 10-percent owned for-14

eign corporation’ means any foreign cor-15

poration which is— 16

‘‘(I) a specified 10-percent owned 17

foreign corporation (as defined in sec-18

tion 245A(b)), or 19

‘‘(II) a passive foreign invest-20

ment company (as defined in section 21

1297(a)) with respect to which the 22

taxpayer meets the stock ownership 23

requirements of section 902(a) (or, for 24

purposes of applying paragraphs (3) 25

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463

and (4), the requirements of section 1

902(b)). 2

A controlled foreign corporation shall not 3

be treated as a noncontrolled 10-percent 4

owned foreign corporation with respect to 5

any distribution out of its earnings and 6

profits for periods during which it was a 7

controlled foreign corporation. Any ref-8

erence to section 902 in this clause shall be 9

treated as a reference to such section as in 10

effect before its repeal.’’, and 11

(B) by striking ‘‘non-controlled section 902 12

corporation’’ in clause (ii) and inserting ‘‘non-13

controlled 10-percent owned foreign corpora-14

tion’’. 15

(16) Section 904(d)(4) is amended— 16

(A) by striking ‘‘noncontrolled section 902 17

corporation’’ each place it appears and inserting 18

‘‘noncontrolled 10-percent owned foreign cor-19

poration’’, 20

(B) by striking ‘‘

NONCONTROLLED SEC

-21

TION 902 CORPORATIONS

’’ in the heading there-22

of and inserting ‘‘

NONCONTROLLED 10

PERCENT

OWNED FOREIGN CORPORATIONS

’’. 24

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464

(17) Section 904(d)(6)(A) is amended by strik-1

ing ‘‘902, 907,’’ and inserting ‘‘907’’. 2

(18) Section 904(h)(10)(A) is amended by 3

striking ‘‘sections 902, 907, and 960’’ and inserting 4

‘‘sections 907 and 960’’. 5

(19) Section 904(k) is amended to read as fol-6

lows: 7

‘‘(k) C

ROSS

EFERENCES

.—For increase of limita-8

tion under subsection (a) for taxes paid with respect to 9

amounts received which were included in the gross income 10

of the taxpayer for a prior taxable year as a United States 11

shareholder with respect to a controlled foreign corpora-12

tion, see section 960(c).’’. 13

(20) Section 905(c)(1) is amended by striking 14

the last sentence. 15

(21) Section 905(c)(2)(B)(i) is amended to read 16

as follows: 17

‘‘(i) shall be taken into account for 18

the taxable year to which such taxes relate, 19

and’’. 20

(22) Section 906(a) is amended by striking ‘‘(or 21

deemed, under section 902, paid or accrued during 22

the taxable year)’’. 23

(23) Section 906(b) is amended by striking 24

paragraphs (4) and (5). 25

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465

(24) Section 907(b)(2)(B) is amended by strik-1

ing ‘‘902 or’’. 2

(25) Section 907(c)(3)(A) is amended— 3

(A) by striking subparagraph (A) and in-4

serting the following: 5

‘‘(A) interest, to the extent the category of 6

income of such interest is determined under 7

section 904(d)(3),’’, and 8

(B) by striking ‘‘section 960(a)’’ in sub-9

paragraph (B) and inserting ‘‘section 960’’. 10

(26) Section 907(c)(5) is amended by striking 11

‘‘902 or’’. 12

(27) Section 907(f)(2)(B)(i) is amended by 13

striking ‘‘902 or’’. 14

(28) Section 908(a) is amended by striking 15

‘‘902 or’’. 16

(29) Section 909(b) is amended— 17

(A) by striking ‘‘section 902 corporation’’ 18

in the matter preceding paragraph (1) and in-19

serting ‘‘specified 10-percent owned foreign cor-20

poration (as defined in section 245A(b) without 21

regard to paragraph (2) thereof)’’, 22

(B) by striking ‘‘902 or’’ in paragraph (1), 23

poration’’ and all that follows in the matter fol-25

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466

lowing paragraph (2) and inserting ‘‘by such 1

specified 10-percent owned foreign corporation 2

or a domestic corporation which is a United 3

States shareholder with respect to such speci-4

fied 10-percent owned foreign corporation.’’, 5

and 6

(D) by striking ‘‘S

ECTION

902 C

ORPORA

-7

TIONS

’’ in the heading thereof and inserting 8

‘‘S

PECIFIED

10-

PERCENT

WNED

OREIGN

ORPORATIONS

’’. 10

(30) Section 909(d) is amended by striking 11

paragraph (5). 12

(31) Section 958(a)(1) is amended by striking 13

‘‘960(a)(1)’’ and inserting ‘‘960’’. 14

(32) Section 959(d) is amended by striking 15

‘‘Except as provided in section 960(a)(3), any’’ and 16

inserting ‘‘Any’’. 17

(33) Section 959(e) is amended by striking 18

‘‘section 960(b)’’ and inserting ‘‘section 960(c)’’. 19

(34) Section 1291(g)(2)(A) is amended by 20

striking ‘‘any distribution—’’ and all that follows 21

through ‘‘but only if’’ and inserting ‘‘any distribu-22

tion, any withholding tax imposed with respect to 23

such distribution, but only if’’. 24

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467

(35) Section 1293(f) is amended by striking 1

‘‘and’’ at the end of paragraph (1), by striking the 2

period at the end of paragraph (2) and inserting ‘‘, 3

and’’, and by adding at the end the following new 4

paragraph: 5

‘‘(3) a domestic corporation which owns (or is 6

treated under section 1298(a) as owning) stock of a 7

qualified electing fund shall be treated in the same 8

manner as a United States shareholder of a con-9

trolled foreign corporation (and such qualified elect-10

ing fund shall be treated in the same manner as 11

such controlled foreign corporation) if such domestic 12

corporation meets the stock ownership requirements 13

of subsection (a) or (b) of section 902 (as in effect 14

before its repeal) with respect to such qualified elect-15

ing fund.’’. 16

(36) Section 6038(c)(1)(B) is amended by 17

striking ‘‘sections 902 (relating to foreign tax credit 18

for corporate stockholder in foreign corporation) and 19

960 (relating to special rules for foreign tax credit)’’ 20

and inserting ‘‘section 960’’. 21

(37) Section 6038(c)(4) is amended by striking 22

subparagraph (C). 23

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468

(38) The table of sections for subpart A of part 1

III of subchapter N of chapter 1 is amended by 2

striking the item relating to section 902. 3

(39) The table of sections for subpart F of part 4

III of subchapter N of chapter 1 is amended by 5

striking the item relating to section 960 and insert-6

ing the following: 7

‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’.

(d) E

FFECTIVE

ATE

.—The amendments made by 8

this section shall apply to taxable years of foreign corpora-9

tions beginning after December 31, 2017, and to taxable 10

years of United States shareholders in which or with which 11

such taxable years of foreign corporations end. 12

SEC. 14302. SEPARATE FOREIGN TAX CREDIT LIMITATION 13

BASKET FOR FOREIGN BRANCH INCOME. 14

(a) I

ENERAL

.—Section 904(d)(1), as amended by 15

section 14201, is amended by redesignating subpara-16

graphs (B) and (C) as subparagraphs (C) and (D), respec-17

tively, and by inserting after subparagraph (A) the fol-18

lowing new subparagraph: 19

‘‘(B) foreign branch income,’’. 20

(b) F

OREIGN

RANCH

NCOME

.— 21

(1) I

N GENERAL

.—Section 904(d)(2) is amend-22

ed by inserting after subparagraph (I) the following 23

new subparagraph: 24

‘‘(J) F

OREIGN BRANCH INCOME

.— 25

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469

‘‘(i) I

N GENERAL

.—The term ‘foreign 1

branch income’ means the business profits 2

of such United States person which are at-3

tributable to 1 or more qualified business 4

units (as defined in section 989(a)) in 1 or 5

more foreign countries. For purposes of 6

the preceding sentence, the amount of 7

business profits attributable to a qualified 8

business unit shall be determined under 9

rules established by the Secretary. 10

‘‘(ii) E

XCEPTION

.—Such term shall 11

not include any income which is passive 12

category income.’’. 13

(2) C

ONFORMING AMENDMENT

.—Section 14

904(d)(2)(A)(ii), as amended by section 14201, is 15

amended by striking ‘‘income described in paragraph 16

(1)(A) and’’ and inserting ‘‘income described in 17

paragraph (1)(A), foreign branch income, and’’. 18

FFECTIVE

ATE

.—The amendments made by 19

this section shall apply to taxable years beginning after 20

December 31, 2017. 21

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SEC. 14303. SOURCE OF INCOME FROM SALES OF INVEN-1

TORY DETERMINED SOLELY ON BASIS OF 2

PRODUCTION ACTIVITIES. 3

(a) I

ENERAL

.—Section 863(b) is amended by 4

adding at the end the following: ‘‘Gains, profits, and in-5

come from the sale or exchange of inventory property de-6

scribed in paragraph (2) shall be allocated and appor-7

tioned between sources within and without the United 8

States solely on the basis of the production activities with 9

respect to the property.’’. 10

(b) E

FFECTIVE

ATE

.—The amendment made by 11

this section shall apply to taxable years beginning after 12

December 31, 2017. 13

SEC. 14304. ELECTION TO INCREASE PERCENTAGE OF DO-14

MESTIC TAXABLE INCOME OFFSET BY OVER-15

ALL DOMESTIC LOSS TREATED AS FOREIGN 16

SOURCE. 17

(a) I

ENERAL

.—Section 904(g) is amended by 18

adding at the end the following new paragraph: 19

‘‘(5) E

LECTION TO INCREASE PERCENTAGE OF

TAXABLE INCOME TREATED AS FOREIGN SOURCE

.— 21

‘‘(A) I

N GENERAL

.—If any pre-2018 un-22

used overall domestic loss is taken into account 23

under paragraph (1) for any applicable taxable 24

year, the taxpayer may elect to have such para-25

graph applied to such loss by substituting a 26

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471

percentage greater than 50 percent (but not 1

greater than 100 percent) for 50 percent in 2

subparagraph (B) thereof. 3

‘‘(B) P

2018 UNUSED OVERALL DOMES

-4

TIC LOSS

.—For purposes of this paragraph, the 5

term ‘pre-2018 unused overall domestic loss’ 6

means any overall domestic loss which— 7

‘‘(i) arises in a qualified taxable year 8

beginning before January 1, 2018, and 9

‘‘(ii) has not been used under para-10

graph (1) for any taxable year beginning 11

before such date. 12

‘‘(C) A

PPLICABLE TAXABLE YEAR

.—For 13

purposes of this paragraph, the term ‘applicable 14

taxable year’ means any taxable year of the tax-15

payer beginning after December 31, 2017, and 16

before January 1, 2028.’’. 17

(b) E

FFECTIVE

ATE

.—The amendment made by 18

this section shall apply to taxable years beginning after 19

December 31, 2017. 20

PART II—INBOUND TRANSACTIONS 21

SEC. 14401. BASE EROSION AND ANTI-ABUSE TAX. 22

(a) I

MPOSITION OF

.—Subchapter A of chapter 23

1 is amended by adding at the end the following new part: 24

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472

‘‘PART VII—BASE EROSION AND ANTI-ABUSE TAX 1

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

receipts.

‘‘SEC. 59A. TAX ON BASE EROSION PAYMENTS OF TAX-2

PAYERS WITH SUBSTANTIAL GROSS RE-3

CEIPTS. 4

‘‘(a) I

MPOSITION OF

.—There is hereby imposed 5

on each applicable taxpayer for any taxable year a tax 6

equal to the base erosion minimum tax amount for the 7

taxable year. Such tax shall be in addition to any other 8

tax imposed by this subtitle. 9

‘‘(b) B

ASE

ROSION

INIMUM

MOUNT

.—For 10

purposes of this section— 11

‘‘(1) I

N GENERAL

.—Except as provided in para-12

graphs (2) and (3), the term ‘base erosion minimum 13

tax amount’ means, with respect to any applicable 14

taxpayer for any taxable year, the excess (if any) 15

of— 16

‘‘(A) an amount equal to 10 percent (5 17

percent in the case of taxable years beginning 18

in calendar year 2018) of the modified taxable 19

income of such taxpayer for the taxable year, 20

over 21

‘‘(B) an amount equal to the regular tax li-22

ability (as defined in section 26(b)) of the tax-23

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473

payer for the taxable year, reduced (but not 1

below zero) by the excess (if any) of— 2

‘‘(i) the credits allowed under this 3

chapter against such regular tax liability, 4

over 5

‘‘(ii) the sum of— 6

‘‘(I) the credit allowed under sec-7

tion 38 for the taxable year which is 8

properly allocable to the research 9

credit determined under section 41(a), 10

plus 11

‘‘(II) the portion of the applicable 12

section 38 credits not in excess of 80 13

percent of the lesser of the amount of 14

such credits or the base erosion min-15

imum tax amount (determined with-16

out regard to this subclause). 17

‘‘(2) M

ODIFICATIONS FOR TAXABLE YEARS BE

-18

GINNING AFTER 2025

.—In the case of any taxable 19

year beginning after December 31, 2025, paragraph 20

(1) shall be applied— 21

‘‘(A) by substituting ‘12.5 percent’ for ‘10 22

percent’ in subparagraph (A) thereof, and 23

‘‘(B) by reducing (but not below zero) the 24

regular tax liability (as defined in section 25

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474

26(b)) for purposes of subparagraph (B) there-1

of by the aggregate amount of the credits al-2

lowed under this chapter against such regular 3

tax liability rather than the excess described in 4

such subparagraph. 5

‘‘(3) I

NCREASED RATE FOR CERTAIN BANKS

AND SECURITIES DEALERS

.— 7

‘‘(A) I

N GENERAL

.—In the case of a tax-8

payer described in subparagraph (B) who is an 9

applicable taxpayer for any taxable year, the 10

percentage otherwise in effect under paragraphs 11

(1)(A) and (2)(A) shall each be increased by 12

one percentage point. 13

‘‘(B) T

AXPAYER DESCRIBED

.—A taxpayer 14

is described in this subparagraph if such tax-15

payer is a member of an affiliated group (as de-16

fined in section 1504(a)(1)) which includes— 17

‘‘(i) a bank (as defined in section 18

581), or 19

‘‘(ii) a registered securities dealer 20

under section 15(a) of the Securities Ex-21

change Act of 1934. 22

‘‘(4) A

PPLICABLE SECTION 38 CREDITS

.—For 23

purposes of paragraph (1)(B)(ii)(II), the term ‘ap-24

plicable section 38 credits’ means the credit allowed 25

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475

under section 38 for the taxable year which is prop-1

erly allocable to— 2

‘‘(A) the low-income housing credit deter-3

mined under section 42(a), 4

‘‘(B) the renewable electricity production 5

credit determined under section 45(a), and 6

‘‘(C) the investment credit determined 7

under section 46, but only to the extent prop-8

erly allocable to the energy credit determined 9

under section 48. 10

‘‘(c) M

ODIFIED

AXABLE

NCOME

.—For purposes of 11

this section— 12

‘‘(1) I

N GENERAL

.—The term ‘modified taxable 13

income’ means the taxable income of the taxpayer 14

computed under this chapter for the taxable year, 15

determined without regard to— 16

‘‘(A) any base erosion tax benefit with re-17

spect to any base erosion payment, or 18

‘‘(B) the base erosion percentage of any 19

net operating loss deduction allowed under sec-20

tion 172 for the taxable year. 21

‘‘(2) B

ASE EROSION TAX BENEFIT

.— 22

‘‘(A) I

N GENERAL

.—The term ‘base ero-23

sion tax benefit’ means— 24

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476

‘‘(i) any deduction described in sub-1

section (d)(1) which is allowed under this 2

chapter for the taxable year with respect to 3

any base erosion payment, 4

‘‘(ii) in the case of a base erosion pay-5

ment described in subsection (d)(2), any 6

deduction allowed under this chapter for 7

the taxable year for depreciation (or amor-8

tization in lieu of depreciation) with re-9

spect to the property acquired with such 10

payment, 11

‘‘(iii) in the case of a base erosion 12

payment described in subsection (d)(3)— 13

‘‘(I) any reduction under section 14

803(a)(1)(B) in the gross amount of 15

premiums and other consideration on 16

insurance and annuity contracts for 17

premiums and other consideration 18

arising out of indemnity insurance, 19

and 20

‘‘(II) any deduction under section 21

832(b)(4)(A) from the amount of 22

gross premiums written on insurance 23

contracts during the taxable year for 24

premiums paid for reinsurance, and 25

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477

‘‘(iv) in the case of a base erosion 1

payment described in subsection (d)(4), 2

any reduction in gross receipts with re-3

spect to such payment in computing gross 4

income of the taxpayer for the taxable year 5

for purposes of this chapter. 6

‘‘(B) T

AX BENEFITS DISREGARDED IF TAX

WITHHELD ON BASE EROSION PAYMENT

.— 8

‘‘(i) I

N GENERAL

.—Except as pro-9

vided in clause (ii), any base erosion tax 10

benefit attributable to any base erosion 11

payment— 12

‘‘(I) on which tax is imposed by 13

section 871 or 881, and 14

‘‘(II) with respect to which tax 15

has been deducted and withheld under 16

section 1441 or 1442, 17

shall not be taken into account in com-18

puting modified taxable income under 19

paragraph (1)(A) or the base erosion per-20

centage under paragraph (4). 21

‘‘(ii) E

XCEPTION

.—The amount not 22

taken into account in computing modified 23

taxable income by reason of clause (i) shall 24

be reduced under rules similar to the rules 25

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478

under section 163(j)(5)(B) (as in effect be-1

fore the date of the enactment of the Tax 2

Cuts and Jobs Act). 3

‘‘(3) S

PECIAL RULES FOR DETERMINING INTER

-4

EST FOR WHICH DEDUCTION ALLOWED

.—For pur-5

poses of applying paragraph (1), in the case of a 6

taxpayer to which section 163(j) applies for the tax-7

able year, the reduction in the amount of interest for 8

which a deduction is allowed by reason of such sub-9

section shall be treated as allocable first to interest 10

paid or accrued to persons who are not related par-11

ties with respect to the taxpayer and then to such 12

related parties. 13

‘‘(4) B

ASE EROSION PERCENTAGE

.—For pur-14

poses of paragraph (1)(B)— 15

‘‘(A) I

N GENERAL

.—The term ‘base ero-16

sion percentage’ means, for any taxable year, 17

the percentage determined by dividing— 18

‘‘(i) the aggregate amount of base 19

erosion tax benefits of the taxpayer for the 20

taxable year, by 21

‘‘(ii) the sum of— 22

‘‘(I) the aggregate amount of the 23

deductions (including deductions de-24

scribed in clauses (i) and (ii) of para-25

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479

graph (2)(A)) allowable to the tax-1

payer under this chapter for the tax-2

able year, plus 3

‘‘(II) the base erosion tax bene-4

fits described in clauses (iii) and (iv) 5

of paragraph (2)(A) allowable to the 6

taxpayer for the taxable year. 7

‘‘(B) C

ERTAIN ITEMS NOT TAKEN INTO AC

-8

COUNT

.—The amount under subparagraph 9

(A)(ii) shall be determined by not taking into 10

account— 11

‘‘(i) any deduction allowed under sec-12

tion 172, 245A, or 250 for the taxable 13

year, 14

‘‘(ii) any deduction for amounts paid 15

or accrued for services to which the excep-16

tion under subsection (d)(5) applies, and 17

‘‘(iii) any deduction for qualified de-18

rivative payments which are not treated as 19

a base erosion payment by reason of sub-20

section (h). 21

‘‘(d) B

ASE

ROSION

AYMENT

.—For purposes of 22

this section— 23

‘‘(1) I

N GENERAL

.—The term ‘base erosion 24

payment’ means any amount paid or accrued by the 25

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480

taxpayer to a foreign person which is a related party 1

of the taxpayer and with respect to which a deduc-2

tion is allowable under this chapter. 3

‘‘(2) P

URCHASE OF DEPRECIABLE PROPERTY

.— 4

Such term shall also include any amount paid or ac-5

crued by the taxpayer to a foreign person which is 6

a related party of the taxpayer in connection with 7

the acquisition by the taxpayer from such person of 8

property of a character subject to the allowance for 9

depreciation (or amortization in lieu of depreciation). 10

‘‘(3) R

EINSURANCE PAYMENTS

.—Such term 11

shall also include any premium or other consider-12

ation paid or accrued by the taxpayer to a foreign 13

person which is a related party of the taxpayer for 14

any reinsurance payments which are taken into ac-15

count under sections 803(a)(1)(B) or 832(b)(4)(A). 16

‘‘(4) C

ERTAIN PAYMENTS TO EXPATRIATED EN

-17

TITIES

.— 18

‘‘(A) I

N GENERAL

.—Such term shall also 19

include any amount paid or accrued by the tax-20

payer with respect to a person described in sub-21

paragraph (B) which results in a reduction of 22

the gross receipts of the taxpayer. 23

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481

‘‘(B) P

ERSON DESCRIBED

.—A person is 1

described in this subparagraph if such person is 2

a— 3

‘‘(i) surrogate foreign corporation 4

which is a related party of the taxpayer, 5

but only if such person first became a sur-6

rogate foreign corporation after November 7

9, 2017, or 8

‘‘(ii) foreign person which is a mem-9

ber of the same expanded affiliated group 10

as the surrogate foreign corporation. 11

‘‘(C) D

EFINITIONS

.—For purposes of this 12

paragraph— 13

‘‘(i) S

URROGATE FOREIGN CORPORA

-14

TION

.—The term ‘surrogate foreign cor-15

poration’ has the meaning given such term 16

by section 7874(a)(2)(B) but does not in-17

clude a foreign corporation treated as a do-18

mestic corporation under section 7874(b). 19

‘‘(ii) E

XPANDED AFFILIATED

GROUP

.—The term ‘expanded affiliated 21

group’ has the meaning given such term by 22

section 7874(c)(1). 23

‘‘(5) E

XCEPTION FOR CERTAIN AMOUNTS WITH

RESPECT TO SERVICES

.—Paragraph (1) shall not 25

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482

apply to any amount paid or accrued by a taxpayer 1

for services if— 2

‘‘(A) such services are services which meet 3

the requirements for eligibility for use of the 4

services cost method under section 482 (deter-5

mined without regard to the requirement that 6

the services not contribute significantly to fun-7

damental risks of business success or failure), 8

and 9

‘‘(B) such amount constitutes the total 10

services cost with no markup component. 11

‘‘(e) A

PPLICABLE

AXPAYER

.—For purposes of this 12

section— 13

‘‘(1) I

N GENERAL

.—The term ‘applicable tax-14

payer’ means, with respect to any taxable year, a 15

taxpayer— 16

‘‘(A) which is a corporation other than a 17

regulated investment company, a real estate in-18

vestment trust, or an S corporation, 19

‘‘(B) the average annual gross receipts of 20

which for the 3-taxable-year period ending with 21

the preceding taxable year are at least 22

$500,000,000, and 23

‘‘(C) the base erosion percentage (as deter-24

mined under subsection (c)(4)) of which for the 25

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483

taxable year is 3 percent (2 percent in the case 1

of a taxpayer described in subsection (b)(3)(B)) 2

or higher. 3

‘‘(2) G

ROSS RECEIPTS

.— 4

‘‘(A) S

PECIAL RULE FOR FOREIGN PER

-5

SONS

.—In the case of a foreign person the 6

gross receipts of which are taken into account 7

for purposes of paragraph (1)(B), only gross re-8

ceipts which are taken into account in deter-9

mining income which is effectively connected 10

with the conduct of a trade or business within 11

the United States shall be taken into account. 12

In the case of a taxpayer which is a foreign per-13

son, the preceding sentence shall not apply to 14

the gross receipts of any United States person 15

which are aggregated with the taxpayer’s gross 16

receipts by reason of paragraph (3). 17

‘‘(B) O

THER RULES MADE APPLICABLE

.— 18

Rules similar to the rules of subparagraphs (B), 19

(C), and (D) of section 448(c)(3) shall apply in 20

determining gross receipts for purposes of this 21

section. 22

‘‘(3) A

GGREGATION RULES

.—All persons treat-23

ed as a single employer under subsection (a) of sec-24

tion 52 shall be treated as 1 person for purposes of 25

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484

this subsection and subsection (c)(4), except that in 1

applying section 1563 for purposes of section 52, the 2

exception for foreign corporations under section 3

1563(b)(2)(C) shall be disregarded. 4

‘‘(f) F

OREIGN

ERSON

.—For purposes of this sec-5

tion, the term ‘foreign person’ has the meaning given such 6

term by section 6038A(c)(3). 7

‘‘(g) R

ELATED

ARTY

.—For purposes of this sec-8

tion— 9

‘‘(1) I

N GENERAL

.—The term ‘related party’ 10

means, with respect to any applicable taxpayer— 11

‘‘(A) any 25-percent owner of the taxpayer, 12

‘‘(B) any person who is related (within the 13

meaning of section 267(b) or 707(b)(1)) to the 14

taxpayer or any 25-percent owner of the tax-15

payer, and 16

‘‘(C) any other person who is related (with-17

in the meaning of section 482) to the taxpayer. 18

‘‘(2) 25-

PERCENT OWNER

.—The term ‘25-per-19

cent owner’ means, with respect to any corporation, 20

any person who owns at least 25 percent of— 21

‘‘(A) the total voting power of all classes of 22

stock of a corporation entitled to vote, or 23

‘‘(B) the total value of all classes of stock 24

of such corporation. 25

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485

‘‘(3) S

ECTION 318 TO APPLY

.—Section 318 1

shall apply for purposes of paragraphs (1) and (2), 2

except that— 3

‘‘(A) ‘10 percent’ shall be substituted for 4

‘50 percent’ in section 318(a)(2)(C), and 5

‘‘(B) subparagraphs (A), (B), and (C) of 6

section 318(a)(3) shall not be applied so as to 7

consider a United States person as owning 8

stock which is owned by a person who is not a 9

United States person. 10

‘‘(h) E

XCEPTION FOR

ERTAIN

AYMENTS

ADE IN

THE

RDINARY

OURSE OF

RADE OR

USINESS

.—For 12

purposes of this section— 13

‘‘(1) I

N GENERAL

.—Except as provided in para-14

graph (3), any qualified derivative payment shall not 15

be treated as a base erosion payment. 16

‘‘(2) Q

UALIFIED DERIVATIVE PAYMENT

.— 17

‘‘(A) I

N GENERAL

.—The term ‘qualified 18

derivative payment’ means any payment made 19

by a taxpayer pursuant to a derivative with re-20

spect to which the taxpayer— 21

‘‘(i) recognizes gain or loss as if such 22

derivative were sold for its fair market 23

value on the last business day of the tax-24

able year (and such additional times as re-25

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486

quired by this title or the taxpayer’s meth-1

od of accounting), 2

‘‘(ii) treats any gain or loss so recog-3

nized as ordinary, and 4

‘‘(iii) treats the character of all items 5

of income, deduction, gain, or loss with re-6

spect to a payment pursuant to the deriva-7

tive as ordinary. 8

‘‘(B) R

EPORTING REQUIREMENT

.—No 9

payments shall be treated as qualified derivative 10

payments under subparagraph (A) for any tax-11

able year unless the taxpayer includes in the in-12

formation required to be reported under section 13

6038B(b)(2) with respect to such taxable year 14

such information as is necessary to identify the 15

payments to be so treated and such other infor-16

mation as the Secretary determines necessary 17

to carry out the provisions of this subsection. 18

‘‘(3) E

XCEPTIONS FOR PAYMENTS OTHERWISE

TREATED AS BASE EROSION PAYMENTS

.—This sub-20

section shall not apply to any qualified derivative 21

payment if— 22

‘‘(A) the payment would be treated as a 23

base erosion payment if it were not made pur-24

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487

suant to a derivative, including any interest, 1

royalty, or service payment, or 2

‘‘(B) in the case of a contract which has 3

derivative and nonderivative components, the 4

payment is properly allocable to the nonderiva-5

tive component. 6

‘‘(4) D

ERIVATIVE DEFINED

.—For purposes of 7

this subsection— 8

‘‘(A) I

N GENERAL

.—The term ‘derivative’ 9

means any contract (including any option, for-10

ward contract, futures contract, short position, 11

swap, or similar contract) the value of which, or 12

any payment or other transfer with respect to 13

which, is (directly or indirectly) determined by 14

reference to one or more of the following: 15

‘‘(i) Any share of stock in a corpora-16

tion. 17

‘‘(ii) Any evidence of indebtedness. 18

‘‘(iii) Any commodity which is actively 19

traded. 20

‘‘(iv) Any currency. 21

‘‘(v) Any rate, price, amount, index, 22

formula, or algorithm. 23

Such term shall not include any item described 24

in clauses (i) through (v). 25

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488

‘‘(B) T

REATMENT OF AMERICAN DEPOSI

-1

TORY RECEIPTS AND SIMILAR INSTRUMENTS

.— 2

Except as otherwise provided by the Secretary, 3

for purposes of this part, American depository 4

receipts (and similar instruments) with respect 5

to shares of stock in foreign corporations shall 6

be treated as shares of stock in such foreign 7

corporations. 8

‘‘(C) E

XCEPTION FOR CERTAIN CON

-9

TRACTS

.—Such term shall not include any in-10

surance, annuity, or endowment contract issued 11

by an insurance company to which subchapter 12

L applies (or issued by any foreign corporation 13

to which such subchapter would apply if such 14

foreign corporation were a domestic corpora-15

tion). 16

‘‘(i) R

EGULATIONS

.—The Secretary shall prescribe 17

such regulations or other guidance as may be necessary 18

or appropriate to carry out the provisions of this section, 19

including regulations— 20

‘‘(1) providing for such adjustments to the ap-21

plication of this section as are necessary to prevent 22

the avoidance of the purposes of this section, includ-23

ing through— 24

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489

‘‘(A) the use of unrelated persons, conduit 1

transactions, or other intermediaries, or 2

‘‘(B) transactions or arrangements de-3

signed, in whole or in part— 4

‘‘(i) to characterize payments other-5

wise subject to this section as payments 6

not subject to this section, or 7

‘‘(ii) to substitute payments not sub-8

ject to this section for payments otherwise 9

subject to this section and 10

‘‘(2) for the application of subsection (g), in-11

cluding rules to prevent the avoidance of the excep-12

tions under subsection (g)(3).’’. 13

(b) R

EPORTING

EQUIREMENTS AND

ENALTIES

.— 14

(1) I

N GENERAL

.—Subsection (b) of section 15

6038A is amended to read as follows: 16

‘‘(b) R

EQUIRED

NFORMATION

.— 17

‘‘(1) I

N GENERAL

.—For purposes of subsection 18

(a), the information described in this subsection is 19

such information as the Secretary prescribes by reg-20

ulations relating to— 21

‘‘(A) the name, principal place of business, 22

nature of business, and country or countries in 23

which organized or resident, of each person 24

which— 25

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490

‘‘(i) is a related party to the reporting 1

corporation, and 2

‘‘(ii) had any transaction with the re-3

porting corporation during its taxable year, 4

‘‘(B) the manner in which the reporting 5

corporation is related to each person referred to 6

in subparagraph (A), and 7

‘‘(C) transactions between the reporting 8

corporation and each foreign person which is a 9

related party to the reporting corporation. 10

‘‘(2) A

DDITIONAL INFORMATION REGARDING

BASE EROSION PAYMENTS

.—For purposes of sub-12

section (a) and section 6038C, if the reporting cor-13

poration or the foreign corporation to whom section 14

6038C applies is an applicable taxpayer, the infor-15

mation described in this subsection shall include— 16

‘‘(A) such information as the Secretary de-17

termines necessary to determine the base ero-18

sion minimum tax amount, base erosion pay-19

ments, and base erosion tax benefits of the tax-20

payer for purposes of section 59A for the tax-21

able year, and 22

‘‘(B) such other information as the Sec-23

retary determines necessary to carry out such 24

section. 25

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491

For purposes of this paragraph, any term used in 1

this paragraph which is also used in section 59A 2

shall have the same meaning as when used in such 3

section.’’. 4

(2) I

NCREASE IN PENALTY

.—Paragraphs (1) 5

and (2) of section 6038A(d) are each amended by 6

striking ‘‘$10,000’’ and inserting ‘‘$25,000’’. 7

ISALLOWANCE OF

REDITS

GAINST

ASE

ROSION

.—Paragraph (2) of section 26(b) is amend-9

ed by inserting after subparagraph (A) the following new 10

subparagraph: 11

‘‘(B) section 59A (relating to base erosion 12

and anti-abuse tax),’’. 13

(d) C

ONFORMING

MENDMENTS

.— 14

(1) The table of parts for subchapter A of chap-15

ter 1 is amended by adding after the item relating 16

to part VI the following new item: 17

‘‘P

ART

VII. B

ASE

ROSION AND

NTI

ABUSE

’’.

(2) Paragraph (1) of section 882(a), as amend-18

ed by this Act, is amended by inserting ‘‘ or 59A,’’ 19

after ‘‘section 11,’’. 20

(3) Subparagraph (A) of section 6425(c)(1), as 21

amended by section 13001, is amended to read as 22

follows: 23

‘‘(A) the sum of— 24

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492

‘‘(i) the tax imposed by section 11, or 1

subchapter L of chapter 1, whichever is 2

applicable, plus 3

‘‘(ii) the tax imposed by section 59A, 4

over’’. 5

(4)(A) Subparagraph (A) of section 6655(g)(1), 6

as amended by sections 12001 and 13001, is amend-7

ed by striking ‘‘plus’’ at the end of clause (i), by re-8

designating clause (ii) as clause (iii), and by insert-9

ing after clause (i) the following new clause: 10

‘‘(ii) the tax imposed by section 59A, 11

plus’’. 12

(B) Subparagraphs (A)(i) and (B)(i) of section 13

6655(e)(2), as amended by sections 12001 and 14

13001, are each amended by inserting ‘‘and modi-15

fied taxable income’’ after ‘‘taxable income’’. 16

amended by adding at the end the following new 18

clause: 19

‘‘(iii) M

ODIFIED TAXABLE INCOME

.— 20

The term ‘modified taxable income’ has the 21

meaning given such term by section 22

59A(c)(1).’’. 23

(e) E

FFECTIVE

ATE

.—The amendments made by 24

this section shall apply to base erosion payments (as de-25

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493

fined in section 59A(d) of the Internal Revenue Code of 1

1986, as added by this section) paid or accrued in taxable 2

years beginning after December 31, 2017. 3

PART III—OTHER PROVISIONS 4

SEC. 14501. RESTRICTION ON INSURANCE BUSINESS EXCEP-5

TION TO PASSIVE FOREIGN INVESTMENT 6

COMPANY RULES. 7

(a) I

ENERAL

.—Section 1297(b)(2)(B) is amend-8

ed to read as follows: 9

‘‘(B) derived in the active conduct of an in-10

surance business by a qualifying insurance cor-11

poration (as defined in subsection (f)),’’. 12

(b) Q

UALIFYING

NSURANCE

ORPORATION

-13

FINED

.—Section 1297 is amended by adding at the end 14

the following new subsection: 15

‘‘(f) Q

UALIFYING

NSURANCE

ORPORATION

.—For 16

purposes of subsection (b)(2)(B)— 17

‘‘(1) I

N GENERAL

.—The term ‘qualifying insur-18

ance corporation’ means, with respect to any taxable 19

year, a foreign corporation— 20

‘‘(A) which would be subject to tax under 21

subchapter L if such corporation were a domes-22

tic corporation, and 23

‘‘(B) the applicable insurance liabilities of 24

which constitute more than 25 percent of its 25

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494

total assets, determined on the basis of such li-1

abilities and assets as reported on the corpora-2

tion’s applicable financial statement for the last 3

year ending with or within the taxable year. 4

‘‘(2) A

LTERNATIVE FACTS AND CIR

-5

CUMSTANCES TEST FOR CERTAIN CORPORATIONS

.— 6

If a corporation fails to qualify as a qualified insur-7

ance corporation under paragraph (1) solely because 8

the percentage determined under paragraph (1)(B) 9

is 25 percent or less, a United States person that 10

owns stock in such corporation may elect to treat 11

such stock as stock of a qualifying insurance cor-12

poration if— 13

‘‘(A) the percentage so determined for the 14

corporation is at least 10 percent, and 15

‘‘(B) under regulations provided by the 16

Secretary, based on the applicable facts and cir-17

cumstances— 18

‘‘(i) the corporation is predominantly 19

engaged in an insurance business, and 20

‘‘(ii) such failure is due solely to run-21

off-related or rating-related circumstances 22

involving such insurance business. 23

‘‘(3) A

PPLICABLE INSURANCE LIABILITIES

.— 24

For purposes of this subsection— 25

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495

‘‘(A) I

N GENERAL

.—The term ‘applicable 1

insurance liabilities’ means, with respect to any 2

life or property and casualty insurance busi-3

ness— 4

‘‘(i) loss and loss adjustment ex-5

penses, and 6

‘‘(ii) reserves (other than deficiency, 7

contingency, or unearned premium re-8

serves) for life and health insurance risks 9

and life and health insurance claims with 10

respect to contracts providing coverage for 11

mortality or morbidity risks. 12

‘‘(B) L

IMITATIONS ON AMOUNT OF LIABIL

-13

ITIES

.—Any amount determined under clause 14

(i) or (ii) of subparagraph (A) shall not exceed 15

the lesser of such amount— 16

‘‘(i) as reported to the applicable in-17

surance regulatory body in the applicable 18

financial statement described in paragraph 19

(4)(A) (or, if less, the amount required by 20

applicable law or regulation), or 21

‘‘(ii) as determined under regulations 22

prescribed by the Secretary. 23

‘‘(4) O

THER DEFINITIONS AND RULES

.—For 24

purposes of this subsection— 25

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496

‘‘(A) A

PPLICABLE FINANCIAL STATE

-1

MENT

.—The term ‘applicable financial state-2

ment’ means a statement for financial reporting 3

purposes which— 4

‘‘(i) is made on the basis of generally 5

accepted accounting principles, 6

‘‘(ii) is made on the basis of inter-7

national financial reporting standards, but 8

only if there is no statement that meets 9

the requirement of clause (i), or 10

‘‘(iii) except as otherwise provided by 11

the Secretary in regulations, is the annual 12

statement which is required to be filed 13

with the applicable insurance regulatory 14

body, but only if there is no statement 15

which meets the requirements of clause (i) 16

or (ii). 17

‘‘(B) A

PPLICABLE INSURANCE REGU

-18

LATORY BODY

.—The term ‘applicable insurance 19

regulatory body’ means, with respect to any in-20

surance business, the entity established by law 21

to license, authorize, or regulate such business 22

and to which the statement described in sub-23

paragraph (A) is provided.’’. 24

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497

FFECTIVE

ATE

.—The amendments made by 1

this section shall apply to taxable years beginning after 2

December 31, 2017. 3

SEC. 14502. REPEAL OF FAIR MARKET VALUE METHOD OF 4

INTEREST EXPENSE APPORTIONMENT. 5

(a) I

ENERAL

.—Paragraph (2) of section 864(e) 6

is amended to read as follows: 7

‘‘(2) G

ROSS INCOME AND FAIR MARKET VALUE

METHODS MAY NOT BE USED FOR INTEREST

.—All 9

allocations and apportionments of interest expense 10

shall be determined using the adjusted bases of as-11

sets rather than on the basis of the fair market 12

value of the assets or gross income.’’. 13

(b) E

FFECTIVE

ATE

.—The amendment made by 14

this section shall apply to taxable years beginning after 15

December 31, 2017. 16

TITLE II 17

SEC. 20001. OIL AND GAS PROGRAM. 18

(a) D

EFINITIONS

.—In this section: 19

(1) C

OASTAL PLAIN

.—The term ‘‘Coastal 20

Plain’’ means the area identified as the 1002 Area 21

on the plates prepared by the United States Geologi-22

cal Survey entitled ‘‘ANWR Map – Plate 1’’ and 23

‘‘ANWR Map – Plate 2’’, dated October 24, 2017, 24

and on file with the United States Geological Survey 25

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498

and the Office of the Solicitor of the Department of 1

the Interior. 2

(2) S

ECRETARY

.—The term ‘‘Secretary’’ means 3

the Secretary of the Interior, acting through the Bu-4

reau of Land Management. 5

(b) O

IL AND

ROGRAM

.— 6

(1) I

N GENERAL

.—Section 1003 of the Alaska 7

National Interest Lands Conservation Act (16 8

U.S.C. 3143) shall not apply to the Coastal Plain. 9

(2) E

STABLISHMENT

.— 10

(A) I

N GENERAL

.—The Secretary shall es-11

tablish and administer a competitive oil and gas 12

program for the leasing, development, produc-13

tion, and transportation of oil and gas in and 14

from the Coastal Plain. 15

(B) P

URPOSES

.—Section 303(2)(B) of the 16

Alaska National Interest Lands Conservation 17

Act (Public Law 96–487; 94 Stat. 2390) is 18

amended— 19

(i) in clause (iii), by striking ‘‘and’’ at 20

the end; 21

(ii) in clause (iv), by striking the pe-22

riod at the end and inserting ‘‘; and’’; and 23

(iii) by adding at the end the fol-24

lowing: 25

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499

‘‘(v) to provide for an oil and gas pro-1

gram on the Coastal Plain.’’. 2

(3) M

ANAGEMENT

.—Except as otherwise pro-3

vided in this section, the Secretary shall manage the 4

oil and gas program on the Coastal Plain in a man-5

ner similar to the administration of lease sales under 6

the Naval Petroleum Reserves Production Act of 7

1976 (42 U.S.C. 6501 et seq.) (including regula-8

tions). 9

(4) R

OYALTIES

.—Notwithstanding the Mineral 10

Leasing Act (30 U.S.C. 181 et seq.), the royalty 11

rate for leases issued pursuant to this section shall 12

be 16.67 percent. 13

(5) R

ECEIPTS

.—Notwithstanding the Mineral 14

Leasing Act (30 U.S.C. 181 et seq.), of the amount 15

of adjusted bonus, rental, and royalty receipts de-16

rived from the oil and gas program and operations 17

on Federal land authorized under this section— 18

(A) 50 percent shall be paid to the State 19

of Alaska; and 20

(B) the balance shall be deposited into the 21

Treasury as miscellaneous receipts. 22

EASE

ALES

ITHIN

10 Y

EARS

.— 23

(1) R

EQUIREMENT

.— 24

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500

(A) I

N GENERAL

.—Subject to subpara-1

graph (B), the Secretary shall conduct not 2

fewer than 2 lease sales area-wide under the oil 3

and gas program under this section by not later 4

than 10 years after the date of enactment of 5

this Act. 6

(B) S

ALE ACREAGES

;

SCHEDULE

.— 7

(i) A

CREAGES

.—The Secretary shall 8

offer for lease under the oil and gas pro-9

gram under this section— 10

(I) not fewer than 400,000 acres 11

area-wide in each lease sale; and 12

(II) those areas that have the 13

highest potential for the discovery of 14

hydrocarbons. 15

(ii) S

CHEDULE

.—The Secretary shall 16

offer— 17

(I) the initial lease sale under the 18

oil and gas program under this sec-19

tion not later than 4 years after the 20

date of enactment of this Act; and 21

(II) a second lease sale under the 22

oil and gas program under this sec-23

tion not later than 7 years after the 24

date of enactment of this Act. 25

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501

(2) R

IGHTS

WAY

.—The Secretary shall issue 1

any rights-of-way or easements across the Coastal 2

Plain for the exploration, development, production, 3

or transportation necessary to carry out this section. 4

(3) S

URFACE DEVELOPMENT

.—In admin-5

istering this section, the Secretary shall authorize up 6

to 2,000 surface acres of Federal land on the Coast-7

al Plain to be covered by production and support fa-8

cilities (including airstrips and any area covered by 9

gravel berms or piers for support of pipelines) dur-10

ing the term of the leases under the oil and gas pro-11

gram under this section. 12

SEC. 20002. LIMITATIONS ON AMOUNT OF DISTRIBUTED 13

QUALIFIED OUTER CONTINENTAL SHELF 14

REVENUES. 15

Section 105(f)(1) of the Gulf of Mexico Energy Secu-16

rity Act of 2006 (43 U.S.C. 1331 note; Public Law 109– 17

432) is amended by striking ‘‘exceed $500,000,000 for 18

each of fiscal years 2016 through 2055.’’ and inserting 19

the following: ‘‘exceed— 20

‘‘(A) $500,000,000 for each of fiscal years 21

2016 through 2019; 22

‘‘(B) $650,000,000 for each of fiscal years 23

2020 and 2021; and 24

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502

‘‘(C) $500,000,000 for each of fiscal years 1

2022 through 2055.’’. 2

SEC. 20003. STRATEGIC PETROLEUM RESERVE DRAWDOWN 3

AND SALE. 4

(a) D

RAWDOWN AND

ALE

.— 5

(1) I

N GENERAL

.—Notwithstanding section 161 6

of the Energy Policy and Conservation Act (42 7

U.S.C. 6241), except as provided in subsections (b) 8

and (c), the Secretary of Energy shall draw down 9

and sell from the Strategic Petroleum Reserve 10

7,000,000 barrels of crude oil during the period of 11

fiscal years 2026 through 2027. 12

(2) D

EPOSIT OF AMOUNTS RECEIVED FROM

SALE

.—Amounts received from a sale under para-14

graph (1) shall be deposited in the general fund of 15

the Treasury during the fiscal year in which the sale 16

occurs. 17

(b) E

MERGENCY

ROTECTION

.—The Secretary of 18

Energy shall not draw down and sell crude oil under sub-19

section (a) in a quantity that would limit the authority 20

to sell petroleum products under subsection (h) of section 21

161 of the Energy Policy and Conservation Act (42 U.S.C. 22

6241) in the full quantity authorized by that subsection. 23

IMITATION

.—The Secretary of Energy shall not 24

drawdown or conduct sales of crude oil under subsection 25

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503

(a) after the date on which a total of $600,000,000 has 1

been deposited in the general fund of the Treasury from 2

sales authorized under that subsection. 3

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CONTENTS

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JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE ............. 1

TITLE I − INDIVIDUAL TAX REFORM .................................................................................... 2

A. Reduction and Simplification of Individual Income Tax Rates (sec. 1001 of the House

bill, sec. 11001 of the Senate amendment, and sec. 1 of the Code) .......................................... 2

1. Increase in standard deduction (sec. 1002 of the House bill, sec. 11021 of the Senate

amendment, and sec. 63 of the Code) ............................................................................... 14

2. Repeal of the deduction for personal exemptions (sec. 1003 of the House bill, sec.

11041 of the Senate amendment, and sec. 151 of the Code) ............................................ 15

3. Alternative inflation adjustment (secs. 1001 and 1005 of the House bill, sec. 11002 of

the Senate amendment, and sec. 1 of the Code) ............................................................... 17

B. Treatment of Business Income of Individuals, Trusts, and Estates .................................. 20

1. Deduction for qualified business income (sec. 1004 of the House bill, sec. 11011 of

the Senate amendment, and sec. 199A of the Code) ......................................................... 20

C. Simplification and Reform of Family and Individual Tax Credits ................................... 41

1. Enhancement of child tax credit and new family credit (sec. 1101 of the House bill,

sec. 11022 of the Senate amendment, and sec. 24 of the Code) ....................................... 41

2. Credit for the elderly and permanently disabled (sec. 1102(a) of the House bill and

sec. 22 of the Code) .......................................................................................................... 44

3. Repeal of credit for plug-in electric drive motor vehicles (sec. 1102(c) of the House

bill and sec. 30D of the Code) .......................................................................................... 45

4. Termination of credit for interest on certain home mortgages (sec. 1102(b) of the

House bill and sec. 25 of the Code) .................................................................................. 46

5. Modification of taxpayer identification number requirements for the child tax credit,

earned income credit, and American Opportunity credit (sec. 1103 of the House bill, sec.

11022 of the Senate amendment and secs. 24, 25A and 32 of the Code) ......................... 46

6. Procedures to reduce improper claims of earned income credit (sec. 1104 of the

House bill and new secs. 32(c)(2)(B)(vii) and 6011(i) of the Code) ................................ 50

7. Certain income disallowed for purposes of the earned income tax credit (sec. 1105 of

the House bill, new secs. 32(n) and 32(c)(2)(C) of the Code, and secs. 6051, 6052,

6041(a), and 6050(w) of the Code) ................................................................................... 53

8. Limitation on losses for taxpayers other than corporations (sec. 11012 of the Senate

amendment and sec. 461(l) of the Code) .......................................................................... 56



9. Reform of American opportunity tax credit and repeal of lifetime learning credit (sec.

1201 of the House bill and sec. 25A of the Code) ............................................................ 58

10.Consolidation and modification of education savings rules (sec. 1202 of the House

bill, sec. 11033 of the Senate amendment, and secs. 529 and 530 of the Code) .............. 60

11.Reforms to discharge of certain student loan indebtedness (sec. 1203 of the House

bill, sec. 11031 of the Senate amendment, and sec. 108 of the Code) .............................. 64

12.Repeal of deduction for student loan interest (sec. 1204 of the House bill and sec. 221

of the Code)....................................................................................................................... 66

13.Repeal of deduction for qualified tuition and related expenses (sec. 1204 of the House

bill and sec. 222 of the Code) ........................................................................................... 67

14.Repeal of exclusion for qualified tuition reductions (sec. 1204 of the House bill and

sec. 117(d) of the Code) .................................................................................................... 68

15.Repeal of exclusion for interest on United States savings bonds used for higher

education expenses (sec. 1204 of the House bill and sec. 135 of the Code) .................... 69

16.Repeal of exclusion for educational assistance programs (sec. 1204 of the House bill

and sec. 127 of the Code) .................................................................................................. 70

17.Rollovers between qualified tuition programs and qualified ABLE programs (sec.

1205 of the House bill, sec. 11025 of the Senate amendment and secs. 529 and 529A of

the Code) ........................................................................................................................... 71

18.Repeal of overall limitation on itemized deductions (sec. 1301 of the House bill, sec.

11046 of the Senate amendment, and sec. 68 of the Code) .............................................. 74

D. Simplification and Reform of Deductions and Exclusions ............................................... 76

1. Modification of deduction for home mortgage interest (sec. 1302 of the House bill,

sec. 11043 of the Senate amendment, and sec. 163(h) of the Code) ................................ 76

2. Modification of deduction for taxes not paid or accrued in a trade or business (sec.

1303 of the House bill, sec. 11042 of the Senate amendment, and sec. 164 of the Code) 78

3. Repeal of deduction for personal casualty and theft losses (sec. 1304 of the House

bill, sec. 11044 of the Senate amendment, and sec. 165 of the Code) .............................. 81

iii

4. Limitation on wagering losses (sec. 1305 of the House bill, sec. 11051 of the Senate

amendment, and sec. 165 of the Code) ............................................................................. 82

5. Modifications to the deduction for charitable contributions (sec. 1306 of the House

bill, secs. 11023, 13703, and 13704 of the Senate amendment, and sec. 170 of the Code)

83

6. Repeal of Certain Miscellaneous Itemized Deductions Subject to the Two-Percent

Floor (secs. 1307 and 1312 of the House bill, sec. 11045 of the Senate amendment, and

secs. 62, 67 and 212 of the Code) ..................................................................................... 95

7. Repeal of deduction for medical expenses (sec. 1308 of the House bill, sec. 11028 of

the Senate amendment and sec. 213 of the Code) ............................................................ 99

8. Repeal of deduction for alimony payments and corresponding inclusion in gross

income (sec. 1309 of the House bill and secs. 61, 71, and 215 of the Code) ................. 100

9. Repeal of deduction for moving expenses (sec. 1310 of the House bill, sec. 11050 of

the Senate amendment, and sec. 217 of the Code) ......................................................... 101

10.Termination of deduction and exclusions for contributions to medical savings

accounts (sec. 1311 of the House bill, secs. 106(b) and 220 of the Code) ..................... 102

11.Denial of deduction for performing artists and certain officials; Modification of

deduction for educator expenses (sec. 1312 of the House bill, sec. 11032 of the Senate

amendment and sec. 62 of the Code) .............................................................................. 105

12.Suspension of exclusion for qualified bicycle commuting reimbursement (sec. 11048

of the Senate amendment and secs. 132(f) of the Code) ................................................. 106

13.Limitation on exclusion for employer-provided housing (sec. 1401 of the House bill

and sec. 119 of the Code) ................................................................................................ 107

14.Modification of exclusion of gain on sale of a principal residence (sec. 1402 of the

House bill, sec. 11047 of the Senate amendment, and sec. 121 of the Code) ................ 108

15.Sunset of exclusion for dependent care assistance programs (sec. 1404 of the House

bill and sec. 129 of the Code) ......................................................................................... 109

16.Repeal of exclusion for qualified moving expense reimbursement (sec. 1405 of the

House bill, sec. 11049 of the Senate amendment, and sec. 132(g) of the Code) ............ 110

17.Repeal of exclusion for adoption assistance programs (sec. 1406 of the House bill and

sec. 137 of the Code) ...................................................................................................... 111

E. Simplification and Reform of Savings, Pensions, Retirement ........................................ 113

1. Repeal of special rule permitting recharacterization of IRA contributions (sec. 1501

of the House bill, sec. 13611 of the Senate amendment, and sec. 408A of the Code) ... 113

2. Reduction in minimum age for allowable in-service distributions (sec. 1502 of the

House bill and secs. 401 and 457 of the Code) ............................................................... 117

3. Modification of rules governing hardship distributions (sec. 1503 of the House bill

and secs. 401 and 403 of the Code) ................................................................................ 118

4. Modification of rules relating to hardship withdrawals from cash or deferred

arrangements (sec. 1504 of the bill, sec. 11033(c) of the Senate amendment, and sec. 401

of the Code)..................................................................................................................... 119

5. Extended rollover period for the rollover of plan loan offset amounts in certain cases

(sec. 1505 of the bill, sec. 13613 of the Senate amendment, and sec. 402 of the Code) 120

6. Modification of nondiscrimination rules for certain plans providing benefits or

contributions to older, longer service participants (sec. 1506 of the House bill and

sec. 401 of the Code) ...................................................................................................... 122

7. Modification of rules applicable to length of service award programs for bona fide

public safety volunteers (sec. 13612 of the Senate amendment and sec. 457(e) of the

Code) ............................................................................................................................... 132

F. Modifications to Estate, Gift, and Generation-Skipping Transfers Taxes (secs 1601 and

1602 of the House bill, sec. 11061 of the Senate amendment, and secs. 2001 and 2010 of the

Code) ..................................................................................................................................... 134

G. Alternative Minimum Tax (sec. 2001 of the House bill, sec. 12001 of the Senate

amendment, and secs. 53 and 55-59 of the Code) ................................................................ 145

H. Elimination of Shared Responsibility Payment for Individuals Failing to Maintain

Minimal Essential Coverage (sec. 11081 of the Senate amendment and sec. 5000A of the

Code) ..................................................................................................................................... 153

I. Other Provisions.............................................................................................................. 155

1. Temporarily allow increased contributions to ABLE accounts, and allow

contributions to be eligible for saver’s credit (sec. 11024 of the Senate amendment and

sec. 529A of the Code) .................................................................................................... 155

2. Extension of time limit for contesting IRS levy (sec. 11071 of the Senate amendment

and secs. 6343 and 6532 of the Code) ............................................................................ 159

3. Treatment of certain individuals performing services in the Sinai Peninsula of Egypt

(sec. 11026 of the Senate amendment and secs. 2, 112, 692, 2201, 3401, 4253, 6013, and

7508 of the Code)............................................................................................................ 160

4. Modifications of user fees requirements for installment agreements (sec. 11073 of the

Senate amendment and new sec. 6159(f) of the Code) ................................................... 162

5. Relief for 2016 disaster areas (sec. 11029 of the Senate amendment and secs. 72(t),

165, 401-403, 408, 457, and 3405 of the Code) ............................................................. 163



6. Attorneys’ fees relating to awards to whistleblowers (sec. 11078 of the Senate

amendment and sec. 62(a)(21) of the Code) ................................................................... 166

7. Clarification of whistleblower awards (sec. 11079 of the Senate amendment and new

sec. 7623(c) of the Code) ................................................................................................ 167

8. Exclusion from gross income of certain amounts received by wrongly incarcerated

individuals (sec. 11027 of the Senate amendment and sec. 139F of the Code) .............. 172

BUSINESS TAX REFORM ....................................................................................................... 174

A. Tax Rates ........................................................................................................................ 174

1. Reduction in corporate tax rate (sec. 3001 of the House bill, secs. 13001 and 13002 of

the Senate amendment, and secs. 11 and 243 of the Code) ............................................ 174

B. Cost Recovery ................................................................................................................. 179

1. Increased expensing (sec. 3101 of the House bill, secs. 13201 and 13311 of the

Senate amendment, and sec. 168(k) of the Code) ........................................................... 179

2. Modifications to depreciation limitations on luxury automobiles and personal use

property (sec. 13202 of the Senate amendment and sec. 280F of the Code) .................. 193

3. Modifications of treatment of certain farm property (sec. 13203 of the Senate

amendment and sec. 168 of the Code) ............................................................................ 195

4. Applicable recovery period for real property (sec. 13204 of the Senate amendment

and sec. 168 of the Code) ................................................................................................ 199

5. Use of alternative depreciation system for electing farming businesses (sec. 13205 of

the Senate amendment and sec. 168 of the Code) .......................................................... 205

6. Expensing of certain costs of replanting citrus plants lost by reason of casualty (sec.

13207 of the Senate amendment and sec. 263A of the Code) ........................................ 209

C. Small Business Reforms ................................................................................................. 212

1. Expansion of section 179 expensing (sec. 3201 of the House bill, sec. 13101 of the

Senate amendment, and sec. 179 of the Code) ............................................................... 212

2. Small business accounting method reform and simplification (sec. 3202 of the House

bill, secs. 13102 through 13105 of the Senate amendment, and secs. 263A, 448, 460, and

471 of the Code) .............................................................................................................. 215

3. Modification of treatment of S corporation conversions to C corporations (sec. 3204

of the House bill, sec. 13543 of the Senate amendment, and secs. 481 and 1371 of the

Code) ............................................................................................................................... 222



D. Reform of Business Related Exclusions, Deductions, etc. ............................................. 226

1. Interest (sec. 3301 of the House bill, secs. 13301 and 13311 of the Senate

amendment, and sec. 163(j) of the Code) ....................................................................... 226

2. Modification of net operating loss deduction (sec. 3302 of the House bill, sec. 13302

of the Senate amendment, and sec. 172 of the Code) ..................................................... 234

3. Like-kind exchanges of real property (sec. 3303 of the House bill, and sec. 13303 of

the Senate amendment, and sec. 1031 of the Code) ....................................................... 236

4. Revision of treatment of contributions to capital (sec. 3304 of the House bill and

sec. 118 of the Code) ...................................................................................................... 239

5. Repeal of deduction for local lobbying expenses (sec. 3305 of the House bill, sec.

13308 of the Senate amendment, and sec. 162(e) of the Code) ...................................... 242

6. Repeal of deduction for income attributable to domestic production activities (sec.

3306 of the House bill, sec. 13305 of the Senate amendment, and sec. 199 of the Code)

244

7. Entertainment, etc. expenses (sec. 3307 of the House bill, sec. 13304 of the Senate

amendment, and sec. 274 of the Code) ........................................................................... 246

8. Repeal of exclusion, etc., for employee achievement awards (sec. 1403 of the House

bill, sec. 13310 of the Senate amendment, and secs. 74(c) and 274(j) of the Code) ...... 251

9. Unrelated business taxable income increased by amount of certain fringe benefit

expenses for which deduction is disallowed (sec. 3308 of the House bill and sec. 512 of

the Code) ......................................................................................................................... 252

10.Limitation on deduction for FDIC premiums (sec. 3309 of the House bill, sec. 13531

of the Senate amendment, and sec. 162 of the Code) ..................................................... 254

11.Repeal of rollover of publicly traded securities gain into specialized small business

investment companies (sec. 3310 of the House bill and sec. 1044 of the Code) ............ 258

12.Certain self-created property not treated as a capital asset (sec. 3311 of the House bill

and sec. 1221 of the Code) .............................................................................................. 258

vii

13.Repeal of special rule for sale or exchange of patents (sec. 3312 of the House bill and

sec. 1235 of the Code)) ................................................................................................... 260

14.Repeal of technical termination of partnerships (sec. 3313 of the House bill and

sec. 708(b) of the Code) .................................................................................................. 261



15.Recharacterization of certain gains in the case of partnership profits interests held in

connection with performance of investment services (sec. 3314 of the House bill,

sec. 13310 of the Senate amendment, and secs. 1061 and 83 of the Code) .................... 262

16.Amortization of research and experimental expenditures (sec. 3315 of the House bill,

sec. 13206 of the Senate amendment, and sec. 174 of the Code) ................................... 269

17.Certain special rules for taxable year of inclusion (sec. 13221 of the Senate

amendment and sec. 451 of the Code) ............................................................................ 272

18.Denial of deduction for certain fines, penalties, and other amounts (sec. 13306 of the

Senate amendment and sec. 162(f) and new sec. 6050X of the Code) ........................... 277

19.Denial of deduction for settlements subject to nondisclosure agreements paid in

connection with sexual harassment or sexual abuse (sec. 13307 of the Senate amendment

and new sec. 162(q) of the Code) ................................................................................... 279

20.Uniform treatment of expenses in contingency fee cases (sec. 3316 of the House bill

and new sec. 162(q) of the Code) ................................................................................... 279

E. Reform of Business Credits ............................................................................................ 282

1. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or

conditions (sec. 3401 of the House bill, sec. 13401 of the Senate amendment, and

sec. 45C of the Code) ...................................................................................................... 282

2. Repeal of employer-provided child care credit (sec. 3402 of the House bill and sec.

42F of the Code) ............................................................................................................. 283

3. Rehabilitation credit (sec. 3403 of the House bill, sec. 13402 of the Senate

amendment, and sec. 47 of the Code) ............................................................................. 284

4. Repeal of work opportunity tax credit (sec. 3404 of the House bill and sec. 51 of the

Code) ............................................................................................................................... 285

5. Repeal of deduction for certain unused business credits (sec. 3405 of the House bill,

sec. 13403 of the Senate amendment, and sec. 196 of the Code) ................................... 287

6. Termination of new markets tax credit (sec. 3406 of the House bill and sec. 45D of

the Code) ......................................................................................................................... 288

viii

7. Repeal of credit for expenditures to provide access to disabled individuals (sec. 3407

of the House bill and sec. 44 of the Code) ...................................................................... 290

8. Modification of credit for portion of employer social security taxes paid with respect

to employee tips (sec. 3408 of the House bill and sec. 45B of the Code) ...................... 292



9. Employer credit for paid family and medical leave (sec. 13403 of the Senate

amendment, and new sec. 45S of the Code) ................................................................... 293

F. Energy Credits ................................................................................................................ 295

1. Modifications to credit for electricity produced from certain renewable resources

(sec. 3501 of the House bill and sec. 45 of the Code) .................................................... 295

2. Modification of the energy investment tax credit (sec. 3502 of the House bill and

sec. 48 of the Code) ........................................................................................................ 297

3. Extension and phaseout of residential energy efficient property credit (sec. 3503 of

the House bill and sec. 25D of the Code) ....................................................................... 301

4. Repeal of enhanced oil recovery credit (sec. 3504 of the House bill and sec. 43 of the

Code) ............................................................................................................................... 303

5. Repeal of credit for producing oil and gas from marginal wells (sec. 3505 of the

House bill and sec. 45I of the Code) ............................................................................... 303

6. Modification of credit for production from advanced nuclear power facilities

(sec. 3506 of the House bill and sec. 45J of the Code) ................................................... 304

G. Bond Reforms ................................................................................................................. 307

1. Termination of private activity bonds (sec. 3601 of the bill and sec. 103 of the Code)

307

2. Repeal of advance refunding bonds (sec. 3602 of the bill, sec. 13532 of the Senate

amendment, and sec. 149(d) of the Code) ...................................................................... 310

3. Repeal of tax credit bonds (sec. 3603 of the bill and secs. 54A, 54B, 54C, 54D, 54E,

54F and 6431 of the Code) .............................................................................................. 311

4. No tax-exempt bonds for professional stadiums (sec. 3604 of the bill and sec. 103 of

the Code) ......................................................................................................................... 315

H. Insurance ......................................................................................................................... 318

1. Net operating losses of life insurance companies (sec. 3701 of the House bill, sec.

13511 of the Senate amendment, and sec. 810 of the Code) .......................................... 318

2. Repeal of small life insurance company deduction (sec. 3702 of the House bill, sec.

13512 of the Senate amendment, and sec. 806 of the Code) .......................................... 319

3. Surtax on life insurance company taxable income (sec. 3703 of the House bill and

sec. 801 of the Code) ...................................................................................................... 319



4. Adjustment for change in computing reserves (sec. 3704 of the House bill, sec. 13513

of the Senate amendment, and sec. 807 of the Code) ..................................................... 320

5. Repeal of special rule for distributions to shareholders from pre-1984 policyholders

surplus account (sec. 3705 of the House bill, sec. 13514 of the Senate amendment, and

sec. 815 of the Code) ...................................................................................................... 321

6. Modification of proration rules for property and casualty insurance companies

(sec. 3706 of the House bill, sec. 13515 of the Senate amendment, and sec. 832 of the

Code) ............................................................................................................................... 323

7. Modification of discounting rules for property and casualty insurance companies

(sec. 3707 of the House bill and sec. 832 of the Code) .................................................. 324

8. Repeal of special estimated tax payments (sec. 3708 of the House bill, sec. 13516 of

the Senate amendment, and sec. 847 of the Code) ......................................................... 327

9. Computation of life insurance tax reserves (sec. 13517 of the Senate amendment and

sec. 807 of the Code) ...................................................................................................... 330

10.Modification of rules for life insurance proration for purposes of determining the

dividends received deduction (sec. 13518 of the Senate amendment and sec. 812 of the

Code) ............................................................................................................................... 333

11.Capitalization of certain policy acquisition expenses (sec. 13519 of the Senate

amendment and sec. 848 of the Code) ............................................................................ 336

12.Tax reporting for life settlement transactions, clarification of tax basis of life

insurance contracts, and exception to transfer for valuable consideration rules (secs.

13518 through 13520 of the Senate amendment and secs. 101, 1016, and 6050X of the

Code) ............................................................................................................................... 337

I. Compensation ................................................................................................................. 341

1. Modification of limitation on excessive employee remuneration (sec. 3801 of the

House bill, sec. 13601 of the Senate amendment, and sec. 162(m) of the Code) ........... 341

2. Excise tax on excess tax-exempt organization executive compensation (sec. 3802 of

the House bill, sec. 13602 of the Senate amendment, and sec. 4960 of the Code) ......... 346

3. Treatment of qualified equity grants (sec. 3803 of the House bill, sec. 13603 of the

Senate amendment, and secs. 83, 3401, and 6051 of the Code) ..................................... 349

4. Increase in excise tax rate for stock compensation of insiders in expatriated

corporations (sec. 13604 of the Senate amendment and sec. 4985 of the Code) ............ 359

J. Other Provisions.............................................................................................................. 366

1. Treatment of gain or loss of foreign persons from sale or exchange of interests in

partnerships engaged in trade or business within the United States (sec. 13501 of the

Senate amendment and secs. 864(c) and 1446 of the Code) ........................................... 366

2. Modification of the definition of substantial built-in loss in the case of transfer of

partnership interest (sec. 13502 of the Senate amendment and sec. 743 of the Code) ... 369

3. Charitable contributions and foreign taxes taken into account in determining

limitation on allowance of partner’s share of loss (sec. 13503 of the Senate amendment

and sec. 704 of the Code) ................................................................................................ 371

4. Cost basis of specified securities determined without regard to identification

(sec. 13533 of the Senate amendment and sec. 1012 of the Code) ................................. 373

5. Expansion of qualifying beneficiaries of an electing small business trust (sec. 13541

of the Senate amendment and sec. 1361 of the Code) .................................................... 375

6. Charitable contribution deduction for electing small business trusts (sec. 13542 of the

Senate amendment and sec. 642(c) of the Code) ............................................................ 376

7. Production period for beer, wine, and distilled spirits (sec. 13801 of the Senate

amendment and sec. 263A of the Code) ......................................................................... 377

8. Reduced rate of excise tax on beer (sec. 13802 of the Senate amendment and sec.

5051 of the Code)............................................................................................................ 379

9. Transfer of beer between bonded facilities (sec. 13803 of the Senate amendment and

sec. 5414 of the Code) .................................................................................................... 381

10.Reduced rate of excise tax on certain wine (sec. 13804 of the Senate amendment and

sec. 5041 of the Code) .................................................................................................... 383

11.Adjustment of alcohol content level for application of excise tax rates (sec. 13805 of

the Senate amendment and sec. 5041 of the Code) ........................................................ 385

12.Definition of mead and low alcohol by volume wine (sec. 13806 of the Senate

amendment and sec. 5041 of the Code) .......................................................................... 387

13.Reduced rate of excise tax on certain distilled spirits (sec. 13807 of the Senate

amendment and sec. 5001 of the Code) .......................................................................... 389

14.Bulk distilled spirits (sec. 13808 of the Senate amendment and sec. 5212 of the Code)

390

15.Modification of tax treatment of Alaska Native Corporations and Settlement Trusts

(sec. 13821 of the Senate amendment and sec. 6039H and new secs. 139G and 247 of the

Code) ............................................................................................................................... 392

16.Amounts paid for aircraft management services (sec. 13822 of the Senate amendment

and sec. 4261 of the Code) .............................................................................................. 395



17.Opportunity zones (sec. 13823 of the Senate amendment and new secs. 1400Z-1 and

1400Z-2 of the Code) ...................................................................................................... 398

18.Provisions relating to the low-income housing credit (secs. 13411 and 13412 of the

Senate amendment and sec. 42 of the Code) .................................................................. 401

EXEMPT ORGANIZATIONS ................................................................................................... 404

A. Unrelated Business Income Tax ..................................................................................... 404

1. Clarification of unrelated business income tax treatment of entities exempt from tax

under section 501(a) (sec. 5001 of the House bill and sec. 511 of the Code) ................. 404

2. Exclusion of research income from unrelated business taxable income limited to

publicly available research (sec. 5002 of the House bill and sec. 512(b)(9) of the Code)

406

3. Unrelated business taxable income separately computed for each trade or business

activity (sec. 13703 of the Senate amendment and sec. 512(a) of the Code) ................. 408

B. Excise Taxes ................................................................................................................... 412

1. Simplification of excise tax on private foundation investment income (sec. 5101 of

the House bill and sec. 4940 of the Code) ...................................................................... 412

2. Private operating foundation requirements relating to operation of an art museum

(sec. 5102 of the House bill and sec. 4942(j) of the Code) ............................................. 413

3. Excise tax based on investment income of private colleges and universities (sec. 5103

of the House bill, sec. 13701 of the Senate amendment, and new sec. 4968 of the Code)

416

4. Provide an exception to the private foundation excess business holdings rules for

philanthropic business holdings (sec. 5104 of the House bill and sec. 4943 of the Code)

420

C. Requirements for Organizations Exempt From Tax ....................................................... 424

1. Section 501(c)(3) organizations permitted to make statements relating to political

campaign in ordinary course of activities in carrying out exempt purpose (sec. 5201 of

the House bill and sec. 501 of the Code) ........................................................................ 424

xii

2. Additional reporting requirements for donor advised fund sponsoring organizations

(sec. 5202 of the House bill and sec. 6033 of the Code) ................................................ 426

INTERNATIONAL TAX PROVISIONS .................................................................................. 466

A. Establishment of Participation Exemption System for Taxation of Foreign Income ..... 466

1. Deduction for foreign-source portion of dividends received by domestic corporations

from specified 10-percent owned foreign corporations (sec. 4001 of the House bill, sec.

14101 of the Senate amendment, and new sec. 245A of the Code) ................................ 466

2. Modification of subpart F inclusion for increased investments in United States

property (sec. 4002 of the House bill, sec. 14218 of the Senate amendment, and sec. 956

of the Code)..................................................................................................................... 472

3. Special rules relating to sales or transfers involving specified 10-percent owned

foreign corporations (sec. 4003 of the House bill, sec. 14102 of the Senate Amendment

and secs. 367(a)(3)(C), 961, 1248 and new sec. 91 of the Code) ................................... 472

4. Treatment of deferred foreign income upon transition to participation exemption

system of taxation and deemed repatriation at two-tier rate (sec. 4004 of the House bill,

sec. 14103 of the Senate amendment, and secs. 78, 904, 907 and 965 of the Code) ...... 477

5. Election to increase percentage of domestic taxable income offset by overall domestic

loss treated as foreign source (sec. 14305 of the Senate amendment and sec. 904(g) of the

Code) ............................................................................................................................... 493

B. Rules Related to Passive and Mobile Income ................................................................. 494

1. Deduction for foreign-derived intangible income and global intangible low-taxed

income (sec. 14202 of the Senate amendment and new sec. 250 of the Code) .............. 494

2. Special rules for transfers of intangible property from controlled foreign corporations

to United States shareholders (sec. 14203 of the Senate amendment and new sec. 966 of

the Code) ......................................................................................................................... 499

C. Modifications Related to Foreign Tax Credit System .................................................... 501

1. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit

on current year basis (sec. 4101 of the House bill, sec. 14301 of the Senate amendment,

and secs. 902 and 960 of the Code) ................................................................................ 501

2. Source of income from sales of inventory determined solely on basis of production

activities (sec. 4102 of the House bill, sec. 14304 of the Senate amendment, and sec.

863(b) of the Code) ......................................................................................................... 502

3. Separate foreign tax credit limitation basket for foreign branch income (sec. 14302 of

the Senate amendment and sec. 904 of the Code) .......................................................... 503

xiii

4. Acceleration of election to allocate interest, etc., on a worldwide basis (sec. 14303 of

the Senate amendment and sec. 864 of the Code) .......................................................... 503

D. Modification of Subpart F Provisions ............................................................................. 505

1. Repeal of inclusion based on withdrawal of previously excluded subpart F income

from qualified investment (sec. 4201 of the House bill, sec. 14213 of the Senate

amendment, and sec. 955 of the Code) ........................................................................... 505

2. Repeal of treatment of foreign base company oil related income as subpart F income

(sec. 4202 of the House bill, sec. 14211 of the Senate amendment, and sec. 954(a) of the

Code) ............................................................................................................................... 505

3. Inflation adjustment of de minimis exception for foreign base company income (sec.

4203 of the House bill, sec. 14212 of the Senate amendment, and sec. 954(b)(3) of the

Code) ............................................................................................................................... 506

4. Look-thru rule for related controlled foreign corporations made permanent (sec. 4204

of the House bill, sec. 14217 of the Senate amendment, and sec. 954(c)(6) of the Code)

506

5. Modification of stock attribution rules for determining CFC status (sec. 4205 of the

House bill, sec. 14214 of the Senate amendment, and secs. 318 and 958 of the Code) . 507

6. Modification of definition of United States shareholder (sec. 14215 of the Senate

amendment and sec. 951 of the Code) ............................................................................ 508

7. Elimination of requirement that corporation must be controlled for 30 days before

subpart F inclusions apply (sec. 4206 of the House bill, sec. 14216 of the Senate

amendment, and sec. 951(a)(1) of the Code) .................................................................. 508

8. Current year inclusion of foreign high return amounts or global intangible low-taxed

income by United States shareholders (sec. 4301 of the House bill, sec. 14201 of the

Senate amendment, and secs. 78 and 960 and new sec. 951A of the Code) ................... 509

9. Limitation on deduction of interest by domestic corporations which are members of

an international group (sec. 4302 of the House bill, sec. 14221 of the Senate amendment,

and new sec. 163(n) of the Code) ................................................................................... 520

E. Prevention of Base Erosion ............................................................................................. 524

1. Base erosion using deductible cross-border payments between affiliated companies

(sec. 4303 of the House bill and new secs. 4491 and 6038E of the Code; sec. 14401 of the

Senate amendment and secs. 6038A and 6038C and new secs. 59A and 59B of the Code)

524

2. Limitations on income shifting through intangible property transfers (sec. 14222 of

the bill and secs. 367, 482, and 936 of the Code) ........................................................... 536

xiv

3. Certain related party amounts paid or accrued in hybrid transactions or with hybrid

entities (sec. 14223 of the Senate amendment and sec. 267A of the Code) ................... 537

4. Shareholders of surrogate foreign corporations not eligible not eligible for reduced

rate on dividends (sec. 14225 of the Senate amendment and sec. 1 of the Code) .......... 539



F. Provisions Related to the Possessions of the United States ............................................ 540

1. Extension of deduction allowable with respect to income attributable to domestic

production activities in Puerto Rico (sec. 4401 of the House bill and sec. 199 of the Code)

540

2. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto

Rico and the Virgin Islands (sec. 4402 of the House bill and sec. 7652(f) of the Code)

542

3. Extension of American Samoa economic development credit (sec. 4403 of the House

bill and sec. 119 of Pub. L. No. 109-432) ....................................................................... 543

G. Other International Reforms ........................................................................................... 546

1. Restriction on insurance business exception to the passive foreign investment

company rules (sec. 4501 of the House bill, sec. 14502 of the Senate amendment, and

sec. 1297 of the Code) .................................................................................................... 546

2. Repeal of fair market value of interest expense apportionment (sec. 14503 of the

Senate amendment and sec. 864 of the Code) ................................................................ 549

3. Modification to source rules involving possessions (sec. 14504 of the Senate

amendment and sec. 865 of the Code) ............................................................................ 549

TITLE II − JOINT EXPLANATORY STATEMENT ............................................................... 553

CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND LIMITED TARIFF

BENEFITS .................................................................................................................................. 554

TAX COMPLEXITY ANALYSIS ............................................................................................. 555

JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

The managers on the part of the House and the Senate at the conference on the

disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 1), the Tax

Cuts and Jobs Act, submit the following joint statement to the House and the Senate in

explanation of the effect of the action agreed upon by the managers and recommended in the

accompanying conference report:

The Senate amendment struck all of the House bill after the enacting clause and inserted

a substitute text.

The House recedes from its disagreement to the amendment of the Senate with an

amendment that is a substitute for the House bill and the Senate amendment. The differences

between the House bill, the Senate amendment, and the substitute agreed to in conference are

noted below, except for clerical corrections, conforming changes made necessary by agreements

reached by the conferees, and minor drafting and clarifying changes.

TITLE I

INDIVIDUAL TAX PROVISIONS

A. Reduction and Simplification of Individual Income Tax Rates

(sec. 1001 of the House bill, sec. 11001 of the Senate amendment, and sec. 1 of the Code)

Present Law

In general

To determine regular tax liability, an individual taxpayer generally must apply the tax

rate schedules (or the tax tables) to his or her regular taxable income. The rate schedules are

broken into several ranges of income, known as income brackets, and the marginal tax rate

increases as a taxpayer’s income increases.

Tax rate schedules

Separate rate schedules apply based on an individual’s filing status. For 2017, the regular

individual income tax rate schedules are as follows:

Table 1.─Federal Individual Income Tax Rates for 2017

If taxable income is: Then income tax equals:

Single Individuals

Not over $9,325 10% of the taxable income

Over $9,325 but not over $37,950 $932.50 plus 15% of the excess over $9,325

Over $37,950 but not over $91,900 $5,226.25 plus 25% of the excess over $37,950

Over $91,900 but not over $191,650 $18,713.75 plus 28% of the excess over $91,900

Over $191,650 but not over $416,700 $46,643.75 plus 33% of the excess over $191,650

Over $416,700 but not over $418,400 $120,910.25 plus 35% of the excess over $416,700

Over $418,400 $121,505.25 plus 39.6% of the excess over $418,400

Heads of Households

Not over $13,350 10% of the taxable income

Over $13,350 but not over $50,800 $1,335 plus 15% of the excess over $13,350

Over $50,800 but not over $131,200 $6,952.50 plus 25% of the excess over $50,800

Over $131,200 but not over $212,500 $27,052.50 plus 28% of the excess over $131,200

Over $212,500 but not over $416,700 $49,816.50 plus 33% of the excess over $212,500

If taxable income is: Then income tax equals:

Over $416,700 but not over $444,550 $117,202.50 plus 35% of the excess over $416,700

Over $444,550 $126,950 plus 39.6% of the excess over $444,550

Married Individuals Filing Joint Returns and Surviving Spouses

Not over $18,650 10% of the taxable income

Over $18,650 but not over $75,900 $1,865 plus 15% of the excess over $18,650

Over $75,900 but not over $153,100 $10,452.50 plus 25% of the excess over $75,900

Over $153,100 but not over $233,350 $29,752.50 plus 28% of the excess over $153,100

Over $233,350 but not over $416,700 $52,222.50 plus 33% of the excess over $233,350

Over $416,700 but not over $470,700 $112,728 plus 35% of the excess over $416,700

Over $470,700 $131,628 plus 39.6% of the excess over $470,700

Married Individuals Filing Separate Returns

Not over $9,325 10% of the taxable income

Over $9,325 but not over $37,950 $932.50 plus 15% of the excess over $9,325

Over $37,950 but not over $76,550 $5,226.25 plus 25% of the excess over $37,950

Over $76,550 but not over $116,675 $14,876.25 plus 28% of the excess over $76,550

Over $116,675 but not over $208,350 $26,111.25 plus 33% of the excess over $116,675

Over $208,350 but not over $235,350 $56,364 plus 35% of the excess over $208,350

Over $235,350 $65,814 plus 39.6% of the excess over $235,350

Estates and Trusts

Not over $2,550 15% of the taxable income

Over $2,550 but not over $6,000 $382.50 plus 25% of the excess over $2,550

Over $6,000 but not over $9,150 $1,245 plus 28% of the excess over $6,000

Over $9,150 but not over $12,500 $2,127 plus 33% of the excess over $9,150

Over $12,500 $3,232.50 plus 39.6% of the excess over $12,500

Rev. Proc. 2016-55, 2016-45 I.R.B. 707, sec. 3.01.

Unearned income of children

Special rules (generally referred to as the “kiddie tax”) apply to the net unearned income

of certain children.

Generally, the kiddie tax applies to a child if: (1) the child has not reached

the age of 19 by the close of the taxable year, or the child is a full-time student under the age of

24, and either of the child’s parents is alive at such time; (2) the child’s unearned income exceeds

$2,100 (for 2017); and (3) the child does not file a joint return.

The kiddie tax applies

regardless of whether the child may be claimed as a dependent by either or both parents. For

children above age 17, the kiddie tax applies only to children whose earned income does not

exceed one-half of the amount of their support.

Under these rules, the net unearned income of a child (for 2017, unearned income over

$2,100) is taxed at the parents’ tax rates if the parents’ tax rates are higher than the tax rates of

the child.

The remainder of a child’s taxable income (i.e., earned income, plus unearned income

up to $2,100 (for 2017), less the child’s standard deduction) is taxed at the child’s rates,

regardless of whether the kiddie tax applies to the child. For these purposes, unearned income is

income other than wages, salaries, professional fees, other amounts received as compensation for

personal services actually rendered, and distributions from qualified disability trusts.

In general,

a child is eligible to use the preferential tax rates for qualified dividends and capital gains.

The kiddie tax is calculated by computing the “allocable parental tax.” This involves

adding the net unearned income of the child to the parent’s income and then applying the

parent’s tax rate. A child’s “net unearned income” is the child’s unearned income less the sum

of (1) the minimum standard deduction allowed to dependents ($1,050 for 2017

), and (2) the

greater of (a) such minimum standard deduction amount or (b) the amount of allowable itemized

deductions that are directly connected with the production of the unearned income.

The allocable parental tax equals the hypothetical increase in tax to the parent that results

from adding the child’s net unearned income to the parent’s taxable income.

If the child has net

capital gains or qualified dividends, these items are allocated to the parent’s hypothetical taxable

income according to the ratio of net unearned income to the child’s total unearned income. If a

Sec. 1(g). Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, as

amended (the “Code”).

Sec. 1(g)(2).

Special rules apply for determining which parent’s rate applies where a joint return is not filed.

Sec. 1(g)(4) and sec. 911(d)(2).

Sec. 1(h).

Sec. 3.02 of Rev. Proc. 2016-55, supra.

Sec. 1(g)(4).

Sec. 1(g)(3).

parent has more than one child subject to the kiddie tax, the net unearned income of all children

is combined, and a single kiddie tax is calculated. Each child is then allocated a proportionate

share of the hypothetical increase, based upon the child’s net unearned income relative to the

aggregate net unearned income of all of the parent’s children subject to the tax.

Generally, a child must file a separate return to report his or her income.

In such case,

items on the parents’ return are not affected by the child’s income, and the total tax due from the

child is the greater of:

1. The sum of (a) the tax payable by the child on the child’s earned income and unearned

income up to $2,100 (for 2017), plus (b) the allocable parental tax on the child’s

unearned income, or

2. The tax on the child’s income without regard to the kiddie tax provisions.

Under certain circumstances, a parent may elect to report a child’s unearned income on

the parent’s return.

Capital gains rates

In general

In the case of an individual, estate, or trust, any adjusted net capital gain which otherwise

would be taxed at the 10- or 15-percent rate is not taxed. Any adjusted net capital gain which

otherwise would be taxed at rates over 15-percent and below 39.6 percent is taxed at a 15-

percent rate. Any adjusted net capital gain which otherwise would be taxed at a 39.6-percent rate

is taxed at a 20-percent rate.

The unrecaptured section 1250 gain is taxed at a maximum rate of 25 percent, and 28-

percent rate gain is taxed at a maximum rate of 28 percent. Any amount of unrecaptured section

1250 gain or 28-percent rate gain otherwise taxed at a 10- or 15-percent rate is taxed at the

otherwise applicable rate.

In addition, a tax is imposed on net investment income in the case of an individual, estate,

or trust. In the case of an individual, the tax is 3.8 percent of the lesser of net investment income,

which includes gains and dividends, or the excess of modified adjusted gross income over the

threshold amount. The threshold amount is $250,000 in the case of a joint return or surviving

spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in the

case of any other individual.

Sec. 1(g)(6). See Form 8615, Tax for Certain Children Who Have Unearned Income.

Sec. 1(g)(1).

Sec. 1(g)(7).

Definitions

Net capital gain

In general, gain or loss reflected in the value of an asset is not recognized for income tax

purposes until a taxpayer disposes of the asset. On the sale or exchange of a capital asset, any

gain generally is included in income. Net capital gain is the excess of the net long-term capital

gain for the taxable year over the net short-term capital loss for the year. Gain or loss is treated

as long-term if the asset is held for more than one year.

A capital asset generally means any property except (1) inventory, stock in trade, or

property held primarily for sale to customers in the ordinary course of the taxpayer’s trade or

business, (2) depreciable or real property used in the taxpayer’s trade or business, (3) specified

literary or artistic property, (4) business accounts or notes receivable, (5) certain U.S.

publications, (6) certain commodity derivative financial instruments, (7) hedging transactions,

and (8) business supplies. In addition, the net gain from the disposition of certain property used

in the taxpayer’s trade or business is treated as long-term capital gain. Gain from the disposition

of depreciable personal property is not treated as capital gain to the extent of all previous

depreciation allowances. Gain from the disposition of depreciable real property is generally not

treated as capital gain to the extent of the depreciation allowances in excess of the allowances

available under the straight-line method of depreciation.

Adjusted net capital gain

The “adjusted net capital gain” of an individual is the net capital gain reduced (but not

below zero) by the sum of the 28-percent rate gain and the unrecaptured section 1250 gain. The

net capital gain is reduced by the amount of gain that the individual treats as investment income

for purposes of determining the investment interest limitation under section 163(d).

Qualified dividend income

Adjusted net capital gain is increased by the amount of qualified dividend income.

A dividend is the distribution of property made by a corporation to its shareholders out of

its after-tax earnings and profits. Qualified dividends generally includes dividends received from

domestic corporations and qualified foreign corporations. The term “qualified foreign

corporation” includes a foreign corporation that is eligible for the benefits of a comprehensive

income tax treaty with the United States which the Treasury Department determines to be

satisfactory and which includes an exchange of information program. In addition, a foreign

corporation is treated as a qualified foreign corporation for any dividend paid by the corporation

with respect to stock that is readily tradable on an established securities market in the United

States.

If a shareholder does not hold a share of stock for more than 60 days during the 121-day

period beginning 60 days before the ex-dividend date (as measured under section 246(c)),

dividends received on the stock are not eligible for the reduced rates. Also, the reduced rates are

not available for dividends to the extent that the taxpayer is obligated to make related payments

with respect to positions in substantially similar or related property.

Dividends received from a corporation that is a passive foreign investment company (as

defined in section 1297) in either the taxable year of the distribution, or the preceding taxable

year, are not qualified dividends.

A dividend is treated as investment income for purposes of determining the amount of

deductible investment interest only if the taxpayer elects to treat the dividend as not eligible for

the reduced rates.

The amount of dividends qualifying for reduced rates that may be paid by a regulated

investment company (“RIC”) for any taxable year in which the qualified dividend income

received by the RIC is less than 95 percent of its gross income (as specially computed) may not

exceed the sum of (1) the qualified dividend income of the RIC for the taxable year and (2) the

amount of earnings and profits accumulated in a non-RIC taxable year that were distributed by

the RIC during the taxable year.

The amount of qualified dividend income that may be paid by a real estate investment

trust (“REIT”) for any taxable year may not exceed the sum of (1) the qualified dividend income

of the REIT for the taxable year, (2) an amount equal to the excess of the income subject to the

taxes imposed by section 857(b)(1) and the regulations prescribed under section 337(d) for the

preceding taxable year over the amount of these taxes for the preceding taxable year, and (3) the

amount of earnings and profits accumulated in a non-REIT taxable year that were distributed by

the REIT during the taxable year.

Dividends received from an organization that was exempt from tax under section 501 or

was a tax-exempt farmers’ cooperative in either the taxable year of the distribution or the

preceding taxable year; dividends received from a mutual savings bank that received a deduction

under section 591; or deductible dividends paid on employer securities are not qualified dividend

income.

28-percent rate gain

The term “28-percent rate gain” means the excess of the sum of the amount of net gain

attributable to long-term capital gains and losses from the sale or exchange of collectibles (as

defined in section 408(m) without regard to paragraph (3) thereof) and the amount of gain equal

to the additional amount of gain that would be excluded from gross income under section 1202

(relating to certain small business stock) if the percentage limitations of section 1202(a) did not

apply, over the sum of the net short-term capital loss for the taxable year and any long-term

capital loss carryover to the taxable year.

Unrecaptured section 1250 gain

“Unrecaptured section 1250 gain” means any long-term capital gain from the sale or

exchange of section 1250 property (i.e., depreciable real estate) held more than one year to the

extent of the gain that would have been treated as ordinary income if section 1250 applied to all

depreciation, reduced by the net loss (if any) attributable to the items taken into account in

computing 28-percent rate gain. The amount of unrecaptured section 1250 gain (before the

reduction for the net loss) attributable to the disposition of property to which section 1231

(relating to certain property used in a trade or business) applies may not exceed the net section

1231 gain for the year.

House Bill

Modification of rates

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

Table 2.─ Federal Individual Income Tax Rates for 2018 Under the House Bill

If taxable income is: Then income tax equals:

Single Individuals

Not over $45,000 12% of the taxable income

Over $45,000 but not over $200,000 $5,400 plus 25% of the excess over $45,000

Over $200,000 but not over $500,000 $44,150 plus 35% of the excess over $200,000

Over $500,000 $149,150 plus 39.6% of the excess over $500,000

Heads of Households

Not over $67,500 12% of the taxable income

Over $67,500 but not over $200,000 $8,100 plus 25% of the excess over $67,500

Over $200,000 but not over $500,000 $41,225 plus 35% of the excess over $200,000

Over $500,000 $146,225 plus 39.6% of the excess over $500,000

Married Individuals Filing Joint Returns and Surviving Spouses

Not over $90,000 12% of the taxable income

Over $90,000 but not over $260,000 $10,800 plus 25% of the excess over $90,000

Over $260,000 but not over $1,000,000 $53,300 plus 35% of the excess over $260,000

Over $1,000,000 $312,300 plus 39.6% of the excess over $1,000,000

Married Individuals Filing Separate Returns

Not over $45,000 12% of the taxable income

Over $45,000 but not over $130,000 $5,400 plus 25% of the excess over $45,000

Over $130,000 but not over $500,000 $26,650 plus 35% of the excess over $130,000

Over $500,000 $156,150 plus 39.6% of the excess over $500,000

If taxable income is: Then income tax equals:

Estates and Trusts

Not over $2,550 12% of the taxable income

Over $2,550 but not over $9,150 $306 plus 25% of the excess over $2,550

Over $9,150 but not over $12,500 $1,956 plus 35% of the excess over $9,150

Over $12,500 $3,128.50 plus 39.6% of the excess over $12,500

The dollar amounts for bracket thresholds are all adjusted for inflation and then rounded

to the next lowest multiple of $100 in future years.

Unlike present law, which uses a measure

of the Consumer Price Index for All Urban Consumers (“CPI-U”), the new inflation adjustment

uses the Chained Consumer Price Index for All Urban Consumers (“C-CPI-U”).

Phaseout of benefit of the 12-percent bracket

For taxpayers with adjusted gross income in excess of $1,000,000 ($1,200,000 in the case

of married taxpayers filing jointly), the benefit of the 12-percent bracket, as measured against the

39.6-percent bracket, is phased out at a rate of 6-percent for taxpayers whose AGI is in excess of

these amounts. Thus, in the case of a married taxpayer filing a joint return, if AGI is in excess of

$1,200,000, the benefit of $24,840 (27.6-percent of $90,000) phases out over an income range of

$414,000. The phaseout thresholds are indexed for inflation.

Simplification of tax on unearned income of children

The provision simplifies the “kiddie tax” by effectively applying ordinary and capital

gains rates applicable to trusts and estates to the net unearned income of a child. Thus, as under

present law, taxable income attributable to earned income is taxed according to an unmarried

taxpayers’ brackets and rates. Taxable income attributable to net unearned income is taxed

according to the brackets applicable to trusts and estates, with respect to both ordinary income

and income taxed at preferential rates. Thus, under the provision, the child’s tax is unaffected by

the tax situation of the child’s parent or the unearned income of any siblings.

Maximum rates on capital gains and qualified dividends

The provision generally retains the present-law maximum rates on net capital gain and

qualified dividends. The breakpoints between the zero- and 15-percent rates (“15-percent

breakpoint”) and the 15- and 20-percent rates (“20-percent breakpoint”) are based on the same

amounts as the breakpoints under present law, except the breakpoints are indexed using the C-

CPI-U in taxable years beginning after 2017. Thus, for 2018, the 15-percent breakpoint is

$77,200 for joint returns and surviving spouses (one-half of this amount for married taxpayers

filing separately), $51,700 for heads of household, $2,600 for estates and trusts, and $38,600 for

other unmarried individuals. The 20-percent breakpoint is $479,000 for joint returns and

Some thresholds are defined as ½ of dollar amounts and thus may be multiples of $50.

surviving spouses (one-half of this amount for married taxpayers filing separately), $452,400 for

heads of household, $12,700 for estates and trusts, and $425,800 for other unmarried individuals.

Therefore, in the case of an individual (including an estate or trust) with adjusted net

capital gain, to the extent the gain would not result in taxable income exceeding the 15-percent

breakpoint, such gain is not taxed. Any adjusted net capital gain which would result in taxable

income exceeding the 15-percent breakpoint but not exceeding the 20-percent breakpoint is taxed

at 15 percent. The remaining adjusted net capital gain is taxed at 20 percent.

As under present law, unrecaptured section 1250 gain generally is taxed at a maximum

rate of 25 percent, and 28-percent rate gain is taxed at a maximum rate of 28 percent.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

Senate Amendment

Temporary modification of rates

The Senate amendment temporarily replaces the individual income tax rate structure with

a new rate structure.

Table 3.─Federal Individual Income Tax Rates for 2018 Under the Senate Amendment

If taxable income is: Then income tax equals:

Single Individuals

Not over $9,525 10% of the taxable income

Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $70,000 $4,453.50 plus 22% of the excess over $38,700

Over $70,000 but not over $160,000 $11,339.50 plus 24% of the excess over $70,000

Over $160,000 but not over $200,000 $32,939.50 plus 32% of the excess over $160,000

Over $200,000 but not over $500,000 $45,739.50 plus 35% of the excess over $200,000

Over $500,000 $150,739.50 plus 38.5% of the excess over $500,000

Heads of Households

Not over $13,600 10% of the taxable income

Over $13,600 but not over $51,800 $1,360 plus 12% of the excess over $13,600

Over $51,800 but not over $70,000 $5,944 plus 22% of the excess over $51,800

Over $70,000 but not over $160,000 $9,948 plus 24% of the excess over $70,000

Over $160,000 but not over $200,000 $31,548 plus 32% of the excess over $160,000

If taxable income is: Then income tax equals:

Over $200,000 but not over $500,000 $44,348 plus 35% of the excess over $200,000

Over $500,000 $149,348 plus 38.5% of the excess over $500,000

Married Individuals Filing Joint Returns and Surviving Spouses

Not over $19,050 10% of the taxable income

Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050

Over $77,400 but not over $140,000 $8,907 plus 22% of the excess over $77,400

Over $140,000 but not over $320,000 $22,679 plus 24% of the excess over $140,000

Over $320,000 but not over $400,000 $65,879 plus 32% of the excess over $320,000

Over $400,000 but not over $1,000,000 $91,479 plus 35% of the excess over $400,000

Over $1,000,000 $301,479 plus 38.5% of the excess over $1,000,000

Married Individuals Filing Separate Returns

Not over $9,525 10% of the taxable income

Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $70,000 $4,453.50 plus 22% of the excess over $38,700

Over $70,000 but not over $160,000 $11,339.50 plus 24% of the excess over $70,000

Over $160,000 but not over $200,000 $32,939.50 plus 32% of the excess over $160,000

Over $200,000 but not over $500,000 $45,739.50 plus 35% of the excess over $200,000

Over $500,000 $150,739.50 plus 38.5% of the excess over $500,000

Estates and Trusts

Not over $2,550 10% of the taxable income

Over $2,550 but not over $9,150 $255 plus 24% of the excess over $2,550

Over $9,150 but not over $12,500 $1,839 plus 35% of the excess over $9,150

Over $12,500 $3,011.50 plus 38.5% of the excess over $12,500

Unlike present law, which uses a measure of the CPI-U, the new inflation adjustment

uses the C-CPI-U.

The provision’s rate structure does not apply to taxable years beginning after December

31, 2025.

Temporary simplification of tax on unearned income of children

The Senate amendment follows the House bill in applying ordinary and capital gains

rates applicable to trusts and estates to the net unearned income of a child, but does not apply

these changes to taxable years beginning after December 31, 2025.

Maximum rates on capital gains and qualified dividends

The Senate amendment follows the House bill and generally retains the present-law

maximum rates on net capital gain and qualified dividends.

Paid preparer due diligence requirement for head of household status

The Senate amendment directs the Secretary of the Treasury to promulgate due diligence

requirements for paid preparers in determining eligibility for a taxpayer to file as head of

household. A penalty of $500 is imposed for each failure to meet these requirements.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

Conference Agreement

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

structure.

Table 4.─Federal Individual Income Tax Rates for 2018 Under the Conference Agreement

If taxable income is: Then income tax equals:

Single Individuals

Not over $9,525 10% of the taxable income

Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700

Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500

Over $200,000 but not over $500,000 $45,689.50 plus 35% of the excess over $200,000

Over $500,000 $150,689.50 plus 37% of the excess over $500,000

Heads of Households

Not over $13,600 10% of the taxable income

Over $13,600 but not over $51,800 $1,360 plus 12% of the excess over $13,600

Over $51,800 but not over $82,500 $5,944 plus 22% of the excess over $51,800

If taxable income is: Then income tax equals:

Over $82,500 but not over $157,500 $12,698 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000 $30,698 plus 32% of the excess over $157,500

Over $200,000 but not over $500,000 $44,298 plus 35% of the excess over $200,000

Over $500,000 $149,298 plus 37% of the excess over $500,000

Married Individuals Filing Joint Returns and Surviving Spouses

Not over $19,050 10% of the taxable income

Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050

Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400

Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000

Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000

Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,000

Over $600,000 $161,379 plus 37% of the excess over $600,000

Married Individuals Filing Separate Returns

Not over $9,525 10% of the taxable income

Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700

Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500

Over $200,000 but not over $300,000 $45,689.50 plus 35% of the excess over $200,000

Over $300,000 $80,689.50 plus 37% of the excess over $300,000

Estates and Trusts

Not over $2,550 10% of the taxable income

Over $2,550 but not over $9,150 $255 plus 24% of the excess over $2,550

Over $9,150 but not over $12,500 $1,839 plus 35% of the excess over $9,150

Over $12,500 $3,011.50 plus 37% of the excess over $12,500

The provision’s rate structure does not apply to taxable years beginning after December

31, 2025.

The conference agreement does not follow the House bill in phasing out the benefit of the

12-percent bracket for taxpayers with adjusted gross income in excess of $1,000,000 ($1,200,000

in the case of married taxpayers filing jointly).

The conference agreement follows the House bill and generally retains present-law

maximum rates on net capital gains and qualified dividends.

The conference agreement follows the House bill in simplifying the tax on the unearned

income of children. This provision does not apply to taxable years beginning after December 31,

2025.

The conference agreement follows the Senate amendment and directs the Secretary of the

Treasury to promulgate due diligence requirements for paid preparers in determining eligibility

for a taxpayer to file as head of household.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

1. Increase in standard deduction (sec. 1002 of the House bill, sec. 11021 of the Senate

amendment, and sec. 63 of the Code)

Present Law

Under present law, an individual who does not elect to itemize deductions may reduce his

or her adjusted gross income (“AGI”) by the amount of the applicable standard deduction in

arriving at his or her taxable income. The standard deduction is the sum of the basic standard

deduction and, if applicable, the additional standard deduction. The basic standard deduction

varies depending upon a taxpayer’s filing status. For 2017, the amount of the basic standard

deduction is $6,350 for single individuals and married individuals filing separate returns, $9,350

for heads of households, and $12,700 for married individuals filing a joint return and surviving

spouses. An additional standard deduction is allowed with respect to any individual who is

elderly or blind.

The amount of the standard deduction is indexed annually for inflation.

In the case of a dependent for whom a deduction for a personal exemption is allowed to

another taxpayer, the standard deduction may not exceed the greater of (i) $1,050 (in 2017) or

(ii) the sum of $350 (in 2017) plus the individual’s earned income.

House Bill

The House bill increases the standard deduction for individuals across all filing statuses.

Under the provision, the amount of the standard deduction is $24,400 for married individuals

filing a joint return, $18,300 for head-of-household filers, and $12,200 for all other taxpayers.

The amount of the standard deduction is indexed for inflation using the C-CPI-U for taxable

years beginning after December 31, 2019.

For 2017, the additional amount is $1,250 for married taxpayers (for each spouse meeting the applicable

criterion) and surviving spouses. The additional amount for single individuals and heads of households is $1,550.

An individual who qualifies as both blind and elderly is entitled to two additional standard deductions, for a total

additional amount (for 2017) of $2,500 or $3,100, as applicable.

Thus, the standard deduction is the same for 2018 and 2019.

The provision eliminates the additional standard deduction for the aged and the blind.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment temporarily increases the basic standard deduction for individuals

across all filing statuses. Under the provision, the amount of the standard deduction is

temporarily increased to $24,000 for married individuals filing a joint return, $18,000 for head-

of-household filers, and $12,000 for all other individuals. The amount of the standard deduction

is indexed for inflation using the C-CPI-U for taxable years beginning after December 31, 2018.

The additional standard deduction for the elderly and the blind is not changed by the

provision.

The increase of the basic standard deduction does not apply to taxable years beginning

after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment.

2. Repeal of the deduction for personal exemptions (sec. 1003 of the House bill, sec. 11041

of the Senate amendment, and sec. 151 of the Code)

Present Law

Under present law, in determining taxable income, an individual reduces AGI by any

personal exemption deductions and either the applicable standard deduction or his or her

itemized deductions. Personal exemptions generally are allowed for the taxpayer, his or her

spouse, and any dependents. For 2017, the amount deductible for each personal exemption is

$4,050. This amount is indexed annually for inflation. The personal exemption amount is

phased out in the case of an individual with AGI in excess of $313,800 for married taxpayers

filing jointly, $287,650 for heads of household, $156,900 for married taxpayers filing separately,

and $261,500 for all other filers. In addition, no personal exemption is allowed in the case of a

dependent if a deduction is allowed to another taxpayer.

Withholding rules

Under present law, the amount of tax required to be withheld by employers from a

taxpayer’s wages is based in part on the number of withholding exemptions a taxpayer claims on

The standard deduction continues to be indexed with the C-CPI-U after this sunset.

his Form W-4. An employee is entitled to the following exemptions: (1) an exemption for

himself, unless he allowed to be claimed as a dependent of another person; (2) an exemption to

which the employee’s spouse would be entitled, if that spouse does not file a Form W-4 for that

taxable year claiming an exemption described in (1); (3) an exemption for each individual who is

a dependent (but only if the employee’s spouse has not also claimed such a withholding

exemption on a Form W-4); (4) additional withholding allowances (taking into account estimated

itemized deductions, estimated tax credits, and additional deductions as provided by the

Secretary of the Treasury); and (5) a standard deduction allowance.

Filing requirements

Under present law, an unmarried individual is required to file a tax return for the taxable

year if in that year the individual had income which equals or exceeds the exemption amount

plus the standard deduction applicable to such individual (i.e., single, head of household, or

surviving spouse). An individual entitled to file a joint return is required to do so unless that

individual’s gross income, when combined with the individual’s spouse’s gross income for the

taxable year, is less than the sum of twice the exemption amount plus the basic standard

deduction applicable to a joint return, provided that such individual and his spouse, at the close

of the taxable year, had the same household as their home.

Trusts and estates

In lieu of the deduction for personal exemptions, an estate is allowed a deduction of

$600. A trust is allowed a deduction of $100; $300 if required to distribute all its income

currently; and an amount equal to the personal exemption of an individual in the case of a

qualified disability trust.

House Bill

The House bill repeals the deduction for personal exemptions.

The provision modifies the requirements for those who are required to file a tax return.

In the case of an individual who is not married, such individual is required to file a tax return if

the taxpayer’s gross income for the taxable year exceeds the applicable standard deduction.

Married individuals are required to file a return if that individual’s gross income, when combined

with the individual’s spouse’s gross income, for the taxable year is more than the standard

deduction applicable to a joint return, provided that: (i) such individual and his spouse, at the

close of the taxable year, had the same household as their home; (ii) the individual’s spouse does

not make a separate return; and (iii) neither the individual nor his spouse is a dependent of

another taxpayer who has income (other than earned income) in excess of $500 (indexed for

inflation).

The provision repeals the enhanced deduction for qualified disability trusts.

Under the provision, the Secretary of the Treasury is to develop rules to determine the

amount of tax required to be withheld by employers from a taxpayer’s wages.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment suspends the deduction for personal exemptions.

The Senate amendment follows the House bill in modifying the requirements for those

who are required to file a tax return.

The provision does not apply to taxable years beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment and suspends the deduction for

personal exemptions. The suspension does not apply to taxable years beginning after December

31, 2025.

The conference agreement generally follows the House bill in modifying the withholding

rules to reflect that taxpayers no longer claim personal exemptions under the conference

agreement.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017. The conference agreement provides that the Secretary may administer the withholding

rules under section 3402 for taxable years beginning before January 1, 2019, without regard to

the amendments made under this provision. Thus, at the Secretary’s discretion, wage

withholding rules may remain the same as under present law for 2018.

3. Alternative inflation adjustment (secs. 1001 and 1005 of the House bill, sec. 11002 of the

Senate amendment, and sec. 1 of the Code)

Present Law

Under present law, many parameters of the tax system are adjusted for inflation to protect

taxpayers from the effects of rising prices. Most of the adjustments are based on annual changes

in the level of the Consumer Price Index for All Urban Consumers (“CPI-U”).

The CPI-U is an

The provision also clarifies that, for purposes of taxable years in which the personal exemption is

reduced to zero, this should not alter the operation of those provisions of the Code which refer to a taxpayer allowed

a deduction (or an individual with respect to whom a taxpayer is allowed a deduction) under section 151. Thus, for

instance, sec. 24(a) allows a credit against tax with respect to each qualifying child of the taxpayer for which the

taxpayer is allowed a deduction under section 151. A qualifying child, as defined under section 152(c), remains

eligible for the credit, notwithstanding that the deduction under section 151 has been reduced to zero.

Generally, the Code adjusts calendar year values for cost of living by using the percentage by which the

price index for the preceding calendar year exceeds the price index for a base calendar year. Sec. 1(f).

index that measures prices paid by typical urban consumers on a broad range of products, and is

developed and published by the Department of Labor.

Among the inflation-indexed tax parameters are the following individual income tax

amounts: (1) the regular income tax brackets; (2) the basic standard deduction; (3) the additional

standard deduction for aged and blind; (4) the personal exemption amount; (5) the thresholds for

the overall limitation on itemized deductions and the personal exemption phase-out; (6) the

phase-in and phase-out thresholds of the earned income credit; (7) IRA contribution limits and

deductible amounts; and (8) the saver’s credit.

House Bill

The House bill requires the use of the Chained Consumer Price Index for All Urban

Consumers (“C-CPI-U”) to adjust tax parameters currently indexed by the CPI-U. The C-CPI-U,

like the CPI-U, is a measure of the average change over time in prices paid by urban consumers.

It is developed and published by the Department of Labor, but differs from the CPI-U in

accounting for the ability of individuals to alter their consumption patterns in response to relative

price changes. The C-CPI-U accomplishes this by allowing for consumer substitution between

item categories in the market basket of consumer goods and services that make up the index,

while the CPI-U only allows for modest substitution within item categories.

Under the provision, indexed parameters in the Code switch from CPI-U indexing to C-

CPI-U indexing going forward in taxable years beginning after December 31, 2017. Therefore,

in the case of any existing tax parameters that are not reset for 2018, the provision indexes

parameters as if CPI-U applies through 2017 and C-CPI-U applies for years thereafter; the

provision does not index all existing tax parameters from their base years using the C-CPI-U.

Tax parameters with cost-of-living adjustment base years of 2016 and later are indexed solely

with C-CPI-U. Therefore, tax values that are reset for 2018 are indexed by the C-CPI-U in

taxable years beginning after December 31, 2018.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment generally follows the House bill.

The provision requiring C-CPI-U indexing after 2017 is permanent. Thus, after certain

temporary tax parameters sunset, such as bracket thresholds and the increased basic standard

deduction, corresponding present law values in the Code are indexed appropriately with the C-

CPI-U.

One exception is the increased standard deduction which is indexed by C-CPI-U in taxable years

beginning after December 31, 2019 and therefore is the same in 2018 and 2019.

The Senate Amendment indexes all tax values that are temporarily reset for 2018, including the basic

standard deduction, with the C-CPI-U in taxable years beginning after December 31, 2018.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment.

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

1. Deduction for qualified business income (sec. 1004 of the House bill, sec. 11011 of the

Senate amendment, and sec. 199A of the Code)

Present Law

Individual income tax rates

To determine regular tax liability, an individual taxpayer generally must apply the tax

rate schedules (or the tax tables) to his or her regular taxable income. The rate schedules are

broken into several ranges of income, known as income brackets, and the marginal tax rate

increases as a taxpayer’s income increases. Separate rate schedules apply based on an

individual’s filing status (i.e., single, head of household, married filing jointly, or married filing

separately). For 2017, the regular individual income tax rate schedule provides rates of 10, 15,

25, 28, 33, 35, and 39.6 percent.

Partnerships

Partnerships generally are treated for Federal income tax purposes as pass-through

entities not subject to tax at the entity level.

Items of income (including tax-exempt income),

gain, loss, deduction, and credit of the partnership are taken into account by the partners in

computing their income tax liability (based on the partnership’s method of accounting and

regardless of whether the income is distributed to the partners).

A partner’s deduction for

partnership losses is limited to the partner’s adjusted basis in its partnership interest.

Losses

not allowed as a result of that limitation generally are carried forward to the next year. A

partner’s adjusted basis in the partnership interest generally equals the sum of (1) the partner’s

capital contributions to the partnership, (2) the partner’s distributive share of partnership income,

and (3) the partner’s share of partnership liabilities, less (1) the partner’s distributive share of

losses allowed as a deduction and certain nondeductible expenditures, and (2) any partnership

distributions to the partner.

Partners generally may receive distributions of partnership

property without recognition of gain or loss, subject to some exceptions.

Sec. 701.

Sec. 702(a).

Sec. 704(d). In addition, passive loss and at-risk limitations limit the extent to which certain types of

income can be offset by partnership deductions (sections 469 and 465). These limitations do not apply to corporate

partners (except certain closely-held corporations) and may not be important to individual partners who have

partner-level passive income from other investments.

Sec. 705.

Sec. 731. Gain or loss may nevertheless be recognized, for example, on the distribution of money or

marketable securities, distributions with respect to contributed property, or in the case of disproportionate

distributions (which can result in ordinary income).

Partnerships may allocate items of income, gain, loss, deduction, and credit among the

partners, provided the allocations have substantial economic effect.

In general, an allocation

has substantial economic effect to the extent the partner to which the allocation is made receives

the economic benefit or bears the economic burden of such allocation and the allocation

substantially affects the dollar amounts to be received by the partners from the partnership

independent of tax consequences.

State laws of every State provide for limited liability companies

(“LLCs”), which are

neither partnerships nor corporations under applicable State law, but which are generally treated

as partnerships for Federal tax purposes.

Under present law, a publicly traded partnership generally is treated as a corporation for

Federal tax purposes.

For this purpose, a publicly traded partnership means any partnership if

interests in the partnership are traded on an established securities market or interests in the

partnership are readily tradable on a secondary market (or the substantial equivalent thereof).

An exception from corporate treatment is provided for certain publicly traded

partnerships, 90 percent or more of whose gross income is qualifying income.

Sec. 704(b)(2).

Treas. Reg. sec. 1.704-1(b)(2).

The first LLC statute was enacted in Wyoming in 1977. All States (and the District of Columbia) now

have an LLC statute, though the tax treatment of LLCs for State tax purposes may differ.

Under Treasury regulations promulgated in 1996, any domestic nonpublicly traded unincorporated entity

with two or more members generally is treated as a partnership for federal income tax purposes, while any single-

member domestic unincorporated entity generally is treated as disregarded for Federal income tax purposes (i.e.,

treated as not separate from its owner). Instead of the applicable default treatment, however, an LLC may elect to be

treated as a corporation for Federal income tax purposes. Treas. Reg. sec. 301.7701-3. These are known as the

“check-the-box” regulations.

Sec. 7704(a).

Sec. 7704(b).

Sec. 7704(c)(2). Qualifying income is defined to include interest, dividends, and gains from the

disposition of a capital asset (or of property described in section 1231(b)) that is held for the production of income

that is qualifying income. Sec. 7704(d). Qualifying income also includes rents from real property, gains from the

sale or other disposition of real property, and income and gains from the exploration, development, mining or

production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the

marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber), industrial source

carbon dioxide, or the transportation or storage of certain fuel mixtures, alternative fuel, alcohol fuel, or biodiesel

fuel. It also includes income and gains from commodities (not described in section 1221(a)(1)) or futures, options,

or forward contracts with respect to such commodities (including foreign currency transactions of a commodity

pool) where a principal activity of the partnership is the buying and selling of such commodities, futures, options, or

forward contracts. However, the exception for partnerships with qualifying income does not apply to any

partnership resembling a mutual fund (i.e., that would be described in section 851(a) if it were a domestic

S corporations

For Federal income tax purposes, an S corporation

generally is not subject to tax at the

corporate level.

Items of income (including tax-exempt income), gain, loss, deduction, and

credit of the S corporation are taken into account by the S corporation shareholders in computing

their income tax liabilities (based on the S corporation’s method of accounting and regardless of

whether the income is distributed to the shareholders). A shareholder’s deduction for corporate

losses is limited to the sum of the shareholder’s adjusted basis in its S corporation stock and the

indebtedness of the S corporation to such shareholder. Losses not allowed as a result of that

limitation generally are carried forward to the next year. A shareholder’s adjusted basis in the

S corporation stock generally equals the sum of (1) the shareholder’s capital contributions to the

S corporation and (2) the shareholder’s pro rata share of S corporation income, less (1) the

shareholder’s pro rata share of losses allowed as a deduction and certain nondeductible

expenditures, and (2) any S corporation distributions to the shareholder.

In general, an S corporation shareholder is not subject to tax on corporate distributions

unless the distributions exceed the shareholder’s basis in the stock of the corporation.

Electing S corporation status

To be eligible to elect S corporation status, a corporation may not have more than

100 shareholders and may not have more than one class of stock.

Only individuals (other than

nonresident aliens), certain tax-exempt organizations, and certain trusts and estates are permitted

shareholders of an S corporation.

Sole proprietorships

Unlike a C corporation, partnership, or S corporation, a business conducted as a sole

proprietorship is not treated as an entity distinct from its owner for Federal income tax

corporation), which includes a corporation registered under the Investment Company Act of 1940 (Pub. L. No. 76-

768 (1940)) as a management company or unit investment trust (sec. 7704(c)(3)).

An S corporation is so named because its Federal tax treatment is governed by subchapter S of the Code.

Secs. 1363 and 1366.

Sec. 1367. If any amount that would reduce the adjusted basis of a shareholder’s S corporation stock

exceeds the amount that would reduce that basis to zero, the excess is applied to reduce (but not below zero) the

shareholder’s basis in any indebtedness of the S corporation to the shareholder. If, after a reduction in the basis of

such indebtedness, there is an event that would increase the adjusted basis of the shareholder’s S corporation stock,

such increase is instead first applied to restore the reduction in the basis of the shareholder’s indebtedness.

Sec. 1367(b)(2).

Sec. 1361. For this purpose, a husband and wife and all members of a family are treated as one

shareholder. Sec. 1361(c)(1).

purposes.

Rather, the business owner is taxed directly on business income, and files

Schedule C (sole proprietorships generally), Schedule E (rental real estate and royalties), or

Schedule F (farms) with his or her individual tax return. Furthermore, transfer of a sole

proprietorship is treated as a transfer of each individual asset of the business. Nonetheless, a sole

proprietorship is treated as an entity separate from its owner for employment tax purposes,

for

certain excise taxes,

and certain information reporting requirements.

House Bill

Qualified business income of an individual from a partnership, S corporation, or sole

proprietorship is subject to Federal income tax at a rate no higher than 25 percent. Qualified

business income means, generally, all net business income from a passive business activity plus

the capital percentage of net business income from an active business activity, reduced by

carryover business losses and by certain net business losses from the current year, as determined

under the provision.

Determination of rate

25-percent rate

The provision provides that an individual’s tax is reduced to reflect a maximum rate of

25 percent on qualified business income. Qualified business income includes the capital

percentage, generally 30 percent, of net business income. The percentage differs in the case of

specified service activities or in the case of a taxpayer election to prove out a different

percentage.

Taxable income (reduced by net capital gain) that exceeds the maximum dollar amount

for the 25-percent rate bracket applicable to the taxpayer, and that exceeds qualified business

income, is subject to tax in the next higher brackets.

The provision provides that a 25-percent tax rate applies generally to dividends received

from a real estate investment trust (other than any portion that is a capital gain dividend or a

qualified dividend), and applies generally to dividends that are includable in gross income from

certain cooperatives.

A single-member unincorporated entity is disregarded for Federal income tax purposes, unless its owner

elects to be treated as a C corporation. Treas. Reg. sec. 301.7701-3(b)(1)(ii). Sole proprietorships often are

conducted through legal entities for nontax reasons. While sole proprietorships generally may have no more than

one owner, a married couple that files a joint return and jointly owns and operates a business may elect to have that

business treated as a sole proprietorship under section 761(f).

Treas. Reg. sec. 301.7701-2(c)(2)(iv).

Treas. Reg. sec. 301.7701-2(c)(2)(v).

Treas. Reg. sec. 301.7701-2(c)(2)(vi).

Nine-percent rate

A special rule provides a reduced tax rate of 11, 10, or nine percent in the case of an

individual’s qualified active business income below an indexed threshold of $75,000 (in the case

of a joint return or a surviving spouse) (the “nine-percent bracket threshold amount”). The

indexed $75,000 threshold is three quarters of that amount for individuals filing as head of

household and half that amount for other individuals. The reduced rate is not available to estates

and trusts.

The reduced rate is phased in. The reduced rate is 11 percent (that is, one percentage

point below the 12 percent rate) for taxable years beginning in 2018 and 2019, and is 10 percent

(that is, two percentage points below the 12 percent rate) for taxable years beginning in 2020 and

2021. For taxable years beginning in 2022 and thereafter the reduced rate is nine percent (that is,

three percentage points below the 12 percent rate).

The reduced tax rate applies to the least of three amounts, the taxpayer’s: (1) qualified

active business income, (2) taxable income reduced by net capital gain, or (3) nine-percent

bracket threshold amount (described above). Qualified active business income for a taxable year

means the excess of the taxpayer’s net business income from any active business activity over

his or her net business loss from any active business activity. An active business activity is an

activity that involves the conduct of any trade or business and that is not a passive activity for

purposes of the passive loss rules of section 469 determined without regard to paragraphs (2) and

(6)(B) of section 469(c) (that is, generally, the taxpayer materially participates in the trade or

business activity). Qualified active business income includes income from any trade or business

activity, including service businesses. No capital percentage limitation applies in determining

qualified active business income.

A phaseout applies to the amount subject to the 11-, 10-, or nine-percent rate. The

amount taxed at one of these rates is reduced by the excess of taxable income over an indexed

applicable threshold amount, $150,000 in the case of married individuals filing jointly. The

applicable threshold amount is three quarters of that amount for individuals filing as head of

household and half that amount for other individuals.

For example, assume that in 2022, an individual (married filing jointly) has $70,000 of

qualified active business income and $40,000 of other income, resulting in taxable income of

$110,000. The $70,000 of qualified active business income is subject to tax at nine percent.

Alternatively, assume that in 2022, another individual has $160,000 of qualified active business

income and $10,000 of other income resulting in taxable income of $170,000. The excess of the

taxpayer’s $170,000 taxable income over the $150,000 applicable threshold amount is $20,000.

Taking into account the phaseout, this $20,000 amount reduces the $75,000 amount that, absent

the phaseout, would be subject to the nine-percent rate, reversing the benefit of the nine-percent

rate for $20,000 of the taxpayer’s qualified active business income. The effect is that $55,000 is

subject to the nine percent rate.

Qualified business income

Qualified business income is defined as the sum of 100 percent of any net business

income derived from any passive business activity plus the capital percentage of net business

income derived from any active business activity, reduced by the sum of 100 percent of any net

business loss derived from any passive business activity, 30 percent (except as otherwise

provided under rules for determining the capital percentage, below) of any net business loss

derived from any active business activity, and any carryover business loss determined for the

preceding taxable year. Qualified business income does not include income from a business

activity that exceeds these percentages.

Net business income or loss

To determine qualified business income requires a calculation of net business income or

loss from each of an individual’s passive business activities and active business activities. Net

business income or loss is determined at the activity level, that is, separately for each business

activity.

Net business income is determined by appropriately netting items of income, gain,

deduction and loss with respect to the business activity. The determination takes into account

these amounts only to the extent the amount affects the determination of taxable income for the

year. For example, if in a taxable year, a business activity has 100 of ordinary income from

inventory sales, and makes an expenditure of 25 that is required to be capitalized and amortized

over 5 years under applicable tax rules, the net business income is 100 minus 5 (current-year

ordinary amortization deduction), or 95. The net business income is not reduced by the entire

amount of the capital expenditure, only by the amount deductible in determining taxable income

for the year.

Net business income or loss includes the amounts received by the individual taxpayer as

wages, director’s fees, guaranteed payments and amounts received from a partnership other than

in the individual’s capacity as a partner, that are properly attributable to a business activity.

These amounts are taken into account as an item of income with respect to the business activity.

For example, if an individual shareholder of an S corporation engaged in a business activity is

paid wages or director’s fees by the S corporation, the amount of wages or director’s fees is

added in determining net business or loss with respect to the business activity. This rule is

intended to ensure that the amount eligible for the 25-percent tax rate is not erroneously reduced

because of compensation for services or other specified amounts that are paid separately (or

treated as separate) from the individual’s distributive share of passthrough income.

Net business income or loss does not include specified investment-related income,

deductions, or loss. Specifically, net business income does not include (1) any item taken into

account in determining net long-term capital gain or net long-term capital loss, (2) dividends,

income equivalent to a dividend, or payments in lieu of dividends, (3) interest income and

income equivalent to interest, other than that which is properly allocable to a trade or business,

(4) the excess of gain over loss from commodities transactions, other than those entered into in

the normal course of the trade or business or with respect to stock in trade or property held

primarily for sale to customers in the ordinary course of the trade or business, property used in

the trade or business, or supplies regularly used or consumed in the trade or business, (5) the

excess of foreign currency gains over foreign currency losses from section 988 transactions,

other than transactions directly related to the business needs of the business activity, (6) net

income from notional principal contracts, other than clearly identified hedging transactions that

are treated as ordinary (i.e., not treated as capital assets), and (7) any amount received from an

annuity that is not used in the trade or business of the business activity. Net business income

does not include any item of deduction or loss properly allocable to such income.

Carryover business loss

The carryover business loss from the preceding taxable year reduces qualified business

income in the taxable year. The carryover business loss is the excess of (1) the sum of 100

percent of any net business loss derived from any passive business activity, 30 percent (except as

otherwise provided under rules for determining the capital percentage, below) of any net

business loss derived from any active business activity, and any carryover business loss

determined for the preceding taxable year, over (2) the sum of 100 percent of any net business

income derived from any passive business activity plus the capital percentage of net business

income derived from any active business activity. There is no time limit on carryover business

losses. For example, an individual has two business activities that give rise to a net business loss

of 3 and 4, respectively, in year one, giving rise to a carryover business loss of 7 in year two. If

in year two the two business activities each give rise to net business income of 2, a carryover

business loss of 3 is carried to year three (that is, <7> - (2 + 2) = <3>).

Passive business activity and active business activity

A business activity means an activity that involves the conduct of any trade or business.

A taxpayer’s activities include those conducted through partnerships, S corporations, and sole

proprietorships. An activity has the same meaning as under the present-law passive loss rules

(section 469). As provided in regulations under those rules, a taxpayer may use any reasonable

method of applying the relevant facts and circumstances in grouping activities together or as

separate activities (through rental activities generally may not be grouped with other activities

unless together they constitute an appropriate economic unit, and grouping real property rentals

with personal property rentals is not permitted). It is intended that the activity grouping the

taxpayer has selected under the passive loss rules is required to be used for purposes of the

passthrough rate rules. For example, an individual taxpayer has an interest in a bakery and a

movie theater in Baltimore, and a bakery and a movie theatre in Philadelphia. For purposes of

the passive loss rules, the taxpayer has grouped them as two activities, a bakery activity and a

movie theatre activity. The taxpayer must group them the same way that is as two activities, a

bakery activity and a movie theatre activity, for purposes of rules of this provision.

Regulatory authority is provided to require or permit grouping as one or as multiple

activities in particular circumstances, in the case of specified services activities that would be

treated as a single employer under broad related party rules of present law.

A passive business activity generally has the same meaning as a passive activity under

the present-law passive loss rules. However, for this purpose, a passive business activity is not

defined to exclude a working interest in any oil or gas property that the taxpayer holds directly or

through an entity that does not limit the taxpayer’s liability. Rather, whether the taxpayer

materially participates in the activity is relevant. Further, for this purpose, a passive business

activity does not include an activity in connection with a trade or business or in connection with

the production of income.

An active business activity is an activity that involves the conduct of any trade or

business and that is not a passive activity. For example, if an individual has a partnership

interest in a manufacturing business and materially participates in the manufacturing business, it

is considered an active business activity of the individual.

Capital percentage

The capital percentage is the percentage of net business income from an active business

activity that is included in qualified business income subject to Federal income tax at a rate no

higher than 25 percent.

In general, the capital percentage is 30 percent, except as provided in the case of

application of an increased percentage for capital-intensive business activities, in the case of

specified service activities, and in the case of application of the rule for capital-intensive

specified service activities.

The capital percentage is reduced if the portion of net business income represented by the

sum of wages, director’s fees, guaranteed payments and amounts received from a partnership

other than in the individual’s capacity as a partner, that are properly attributable to a business

activity exceeds the difference between 100 percent and the capital percentage. For example, if

net business income from an individual’s active business activity conducted through an S

corporation is 100, including 75 of wages that the S corporation pays the individual, the

otherwise applicable capital percentage is reduced from 30 percent to 25 percent.

Increased percentage for capital-intensive business activities.−A taxpayer may elect the

application of an increased percentage with respect to any active business activity other than a

specified service activity (described below). The election applies for the taxable year it is made

and each of the next four taxable years. The election is to be made no later than the due date

(including extensions) of the return for the taxable year made, and is irrevocable. The

percentage under the election is the applicable percentage (described below) for the five taxable

years of the election.

Specified service activities.−In the case of an active business activity that is a specified

service activity, generally the capital percentage is 0 and the percentage of any net business loss

from the specified service activity that is taken into account as qualified business income is 0

percent.

A specified service activity means any trade or business activity involving the

performance of services in the fields of health, law, engineering, architecture, accounting,

actuarial science, performing arts, consulting, athletics, financial services, brokerage services,

any trade or business where the principal asset of such trade or business is the reputation or skill

of one or more of its employees, or investing, trading, or dealing in securities, partnership

interests, or commodities. For this purpose a security and a commodity have the meanings

provided in the rules for the mark-to-market accounting method for dealers in securities (sections

475(c)(2) and 475(e)(2), respectively).

Capital-intensive specified service activities.−A taxpayer may elect the application of an

exception with respect to any active business activity that is specified service activity, provided

the applicable percentage (described below) for the taxable year is at least 10 percent. If the

election is validly made, the capital percentage and the percentage of net business loss with

respect to the activity are not 0 percent, but rather, the applicable percentage for the taxable year.

Calculation of applicable percentage.−The applicable percentage is the percentage

applied in lieu of the capital percentage in the case of either of the foregoing elections. The

applicable percentage (not the capital percentage) then determines the portion of the net business

income or loss from the activity for the taxable year that is taken into account in determining

qualified business income subject to Federal income tax at a rate no higher than 25 percent.

The applicable percentage is determined by dividing (1) the specified return on capital for

the activity for the taxable year, by (2) the taxpayer’s net business income derived from that

activity for that taxable year. The specified return on capital for any active business activity is

determined by multiplying a deemed rate of return, the short-term AFR plus 7 percentage points,

times the asset balance for the activity for the taxable year, and reducing the product by interest

expense deducted with respect to the activity for the taxable year. The asset balance for this

purpose is the adjusted basis of property used in connection with the activity as of the end of the

taxable year, but without taking account of basis adjustments for bonus depreciation under

section 168(k) or expensing under section 179. In the case of an active business activity

conducted through a partnership or S corporation, the taxpayer takes into account his distributive

share of the asset balance of the partnership’s or S corporation’s property used in connection

with the activity. Regulatory authority is provided to ensure that in determining asset balance,

no amount is taken into account for more than one activity.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017. A transition rule provides that for fiscal year taxpayers whose taxable year includes

December 31, 2017, a proportional benefit of the reduced rate under the provision is allowed for

the period beginning January 1, 2018, and ending on the day before the beginning of the taxable

year beginning after December 31, 2017.

Senate Amendment

In general

For taxable years beginning after December 31, 2017 and before January 1, 2026, an

individual taxpayer generally may deduct 23 percent of qualified business income from a

partnership, S corporation, or sole proprietorship, as well as 23 percent of aggregate qualified

REIT dividends, qualified cooperative dividends, and qualified publicly traded partnership

income. Special rules apply to specified agricultural or horticultural cooperatives. A limitation

based on W-2 wages paid is phased in above a threshold amount of taxable income. A

disallowance of the deduction with respect to specified service trades or businesses is also

phased in above the threshold amount of taxable income.

Qualified business income

Qualified business income is determined for each qualified trade or business of the

taxpayer. For any taxable year, qualified business income means the net amount of qualified

items of income, gain, deduction, and loss with respect to the qualified trade or business of the

taxpayer. The determination of qualified items of income, gain, deduction, and loss takes into

account these items only to the extent included or allowed in the determination of taxable income

for the year. For example, if in a taxable year, a qualified business has $100,000 of ordinary

income from inventory sales, and makes an expenditure of $25,000 that is required to be

capitalized and amortized over 5 years under applicable tax rules, the qualified business income

is $100,000 minus $5,000 (current-year ordinary amortization deduction), or $95,000. The

qualified business income is not reduced by the entire amount of the capital expenditure, only by

the amount deductible in determining taxable income for the year.

If the net amount of qualified business income from all qualified trades or businesses

during the taxable year is a loss, it is carried forward as a loss from a qualified trade or business

in the next taxable year. Similar to a qualified trade or business that has a qualified business loss

for the current taxable year, any deduction allowed in a subsequent year is reduced (but not

below zero) by 23 percent of any carryover qualified business loss. For example, Taxpayer has

qualified business income of $20,000 from qualified business A and a qualified business loss of

$50,000 from qualified business B in Year 1. Taxpayer is not permitted a deduction for Year 1

and has a carryover qualified business loss of $30,000 to Year 2. In Year 2, Taxpayer has

qualified business income of $20,000 from qualified business A and qualified business income of

$50,000 from qualified business B. To determine the deduction for Year 2, Taxpayer reduces the

23 percent deductible amount determined for the qualified business income of $70,000 from

qualified businesses A and B by 23 percent of the $30,000 carryover qualified business loss.

Domestic business

Items are treated as qualified items of income, gain, deduction, and loss only to the extent

they are effectively connected with the conduct of a trade or business within the United States.

In the case of a taxpayer who is an individual with otherwise qualified business income from

sources within the commonwealth of Puerto Rico, if all the income is taxable under section 1

(income tax rates for individuals) for the taxable year, the “United States” is considered to

include Puerto Rico for purposes of determining the individual’s qualified business income.

For purposes of this provision, taxable income is computed without regard to the 23 percent deduction.

For this purpose, section 864(c) is applied substituting "qualified trade or business (within the meaning

of section 199A)" for "nonresident alien individual or a foreign corporation" or "a foreign corporation."

Treatment of investment income

Qualified items do not include specified investment-related income, deductions, or loss.

Specifically, qualified items of income, gain, deduction and loss do not include (1) any item

taken into account in determining net long-term capital gain or net long-term capital loss, (2)

dividends, income equivalent to a dividend, or payments in lieu of dividends, (3) interest income

other than that which is properly allocable to a trade or business, (4) the excess of gain over loss

from commodities transactions, other than those entered into in the normal course of the trade or

business or with respect to stock in trade or property held primarily for sale to customers in the

ordinary course of the trade or business, property used in the trade or business, or supplies

regularly used or consumed in the trade or business, (5) the excess of foreign currency gains over

foreign currency losses from section 988 transactions, other than transactions directly related to

the business needs of the business activity, (6) net income from notional principal contracts,

other than clearly identified hedging transactions that are treated as ordinary (i.e., not treated as

capital assets), and (7) any amount received from an annuity that is not used in the trade or

business of the business activity. Qualified items under this provision do not include any item of

deduction or loss properly allocable to such income.

Reasonable compensation and guaranteed payments

Qualified business income does not include any amount paid by an S corporation that is

treated as reasonable compensation of the taxpayer. Similarly, qualified business income does

not include any guaranteed payment for services rendered with respect to the trade or business,

and to the extent provided in regulations, does not include any amount paid or incurred by a

partnership to a partner who is acting other than in his or her capacity as a partner for services.

Qualified trade or business

A qualified trade or business means any trade or business other than a specified service

trade or business and other than the trade or business of being an employee.

Specified service business

A specified service trade or business means any trade or business involving the

performance of services in the fields of health,

law, engineering, architecture, accounting,

Described in sec. 707(c).

Described in sec. 707(a).

A similar list of service trades or business is provided in section 448(d)(2)(A) and Treas. Reg. sec.

1.448-1T(e)(4)(i). For purposes of section 448, Treasury regulations provide that the performance of services in the

field of health means the provision of medical services by physicians, nurses, dentists, and other similar healthcare

professionals. The performance of services in the field of health does not include the provision of services not

directly related to a medical field, even though the services may purportedly relate to the health of the service

recipient. For example, the performance of services in the field of health does not include the operation of health

actuarial science, performing arts,

consulting,

athletics, financial services, brokerage services,

including investing and investment management, trading, or dealing in securities, partnership

interests, or commodities, and any trade or business where the principal asset of such trade or

business is the reputation or skill of one or more of its employees. For this purpose a security

and a commodity have the meanings provided in the rules for the mark-to-market accounting

method for dealers in securities (sections 475(c)(2) and 475(e)(2), respectively).

Phase-in of specified service business limitation

The exclusion from the definition of a qualified business for specified service trades or

businesses phases in for a taxpayer with taxable income in excess of a threshold amount. The

threshold amount is $250,000 (200 percent of that amount, or $500,000, in the case of a joint

return) (the “threshold amount”). The threshold amount is indexed for inflation. The exclusion

from the definition of a qualified business for specified service trades or businesses is fully

phased in for a taxpayer with taxable income in excess of the threshold amount plus $50,000

($100,000 in the case of a joint return). For a taxpayer with taxable income within the phase-in

range, the exclusion applies as follows.

In computing the qualified business income with respect to a specified service trade or

business, the taxpayer takes into account only the applicable percentage of qualified items of

income, gain, deduction, or loss, and of allocable W-2 wages. The applicable percentage with

respect to any taxable year is 100 percent reduced by the percentage equal to the ratio of the

excess of the taxable income of the taxpayer over the threshold amount bears to $50,000

($100,000 in the case of a joint return).

clubs or health spas that provide physical exercise or conditioning to their customers. See Treas. Reg. sec. 1.448-

1T(e)(4)(ii).

For purposes of the similar list of services in section 448, Treasury regulations provide that the

performance of services in the field of the performing arts means the provision of services by actors, actresses,

singers, musicians, entertainers, and similar artists in their capacity as such. The performance of services in the field

of the performing arts does not include the provision of services by persons who themselves are not performing

artists (e.g., persons who may manage or promote such artists, and other persons in a trade or business that relates to

the performing arts). Similarly, the performance of services in the field of the performing arts does not include the

provision of services by persons who broadcast or otherwise disseminate the performance of such artists to members

of the public (e.g., employees of a radio station that broadcasts the performances of musicians and singers). See

Treas. Reg. sec. 1.448-1T(e)(4)(iii).

For purposes of the similar list of services in section 448, Treasury regulations provide that the

performance of services in the field of consulting means the provision of advice and counsel. The performance of

services in the field of consulting does not include the performance of services other than advice and counsel, such

as sales or brokerage services, or economically similar services. For purposes of the preceding sentence, the

determination of whether a person’s services are sales or brokerage services, or economically similar services, shall

be based on all the facts and circumstances of that person’s business. Such facts and circumstances include, for

example, the manner in which the taxpayer is compensated for the services provided (e.g., whether the

compensation for the services is contingent upon the consummation of the transaction that the services were

intended to effect). See Treas. Reg. sec. 1.448-1T(e)(4)(iv).

For example, Taxpayer has taxable income of $280,000, of which $200,000 is

attributable to an accounting sole proprietorship after paying wages of $100,000 to employees.

Taxpayer has an applicable percentage of 40 percent.

In determining includible qualified

business income, Taxpayer takes into account 40 percent of $200,000, or $80,000. In

determining the includible W-2 wages, Taxpayer takes into account 40 percent of $100,000, or

$40,000. Taxpayer calculates the deduction by taking the lesser of 23 percent of $80,000

($18,400) or 50 percent of $40,000 ($20,000). Taxpayer takes a deduction for $18,400.

Tentative deductible amount for a qualified trade or business

In general

For each qualified trade or business, the taxpayer is allowed a deductible amount equal to

the lesser of 23 percent of the qualified business income with respect to such trade or business or

50 percent of the W-2 wages with respect to such business (the “wage limit”). However, if the

taxpayer’s taxable income is below the threshold amount, the deductible amount for each

qualified trade or business is equal to 23 percent of the qualified business income with respect to

each respective trade or business.

W-2 wages

W-2 wages are the total wages

subject to wage withholding, elective deferrals,

and

deferred compensation

paid by the qualified trade or business with respect to employment of its

employees during the calendar year ending during the taxable year of the taxpayer.

W-2 wages

do not include any amount which is not properly allocable to the qualified business income as a

qualified item of deduction. In addition, W-2 wages do not include any amount which was not

properly included in a return filed with the Social Security Administration on or before the 60

day after the due date (including extensions) for such return.

1 - ($280,000 - $250,000)/$50,000 = 1 - 30,000/50,000 = 1 - .6 = 40 percent.

Defined in sec. 3401(a).

Within the meaning of sec. 402(g)(3).

Deferred compensation includes compensation deferred under section 457, as well as the amount of any

designated Roth contributions (as defined in section 402A).

In the case of a taxpayer with a short taxable year that does not contain a calendar year ending during

such short taxable year, the Committee intends that the following amounts shall be treated as the W-2 wages of the

taxpayer for the short taxable year: (1) only those wages paid during the short taxable year to employees of the

qualified trade or business, (2) only those elective deferrals (within the meaning of section 402(g)(3)) made during

the short taxable year by employees of the qualified trade or business, and (3) only compensation actually deferred

under section 457 during the short taxable year with respect to employees of the qualified trade or business. The

Committee intends that amounts that are treated as W-2 wages for a taxable year shall not be treated as W-2 wages

of any other taxable year.

In the case of a taxpayer who is an individual with otherwise qualified business income

from sources within the commonwealth of Puerto Rico, if all the income is taxable under section

1 (income tax rates for individuals) for the taxable year, the determination of W-2 wages with

respect to the taxpayer’s trade or business conducted in Puerto Rico is made without regard to

any exclusion under the wage withholding rules

for remuneration paid for services in Puerto

Rico.

Phase-in of wage limit

The application of the wage limit phases in for a taxpayer with taxable income in excess

of the threshold amount. The wage limit applies fully for a taxpayer with taxable income in

excess of the threshold amount plus $50,000 ($100,000 in the case of a joint return). For a

taxpayer with taxable income within the phase-in range, the wage limit applies as follows.

With respect to any qualified trade or business, the taxpayer compares (1) 23 percent of

the taxpayer’s qualified business income with respect to the qualified trade or business with (2)

50 percent of the W-2 wages with respect to the qualified trade or business. If the amount

determined under (2) is less than the amount determined (1), (that is, if the wage limit is

binding), the taxpayer’s deductible amount is the amount determined under (1) reduced by the

same proportion of the difference between the two amounts as the excess of the taxable income

of the taxpayer over the threshold amount bears to $50,000 ($100,000 in the case of a joint

return).

For example, H and W file a joint return on which they report taxable income of

$520,000. W has a qualified trade or business that is not a specified service business, such that

23 percent of the qualified business income with respect to the business is $15,000. W’s share of

wages paid by the business is $20,000, such that 50 percent of the W-2 wages with respect to the

business is $10,000. The $15,000 amount is reduced by 20 percent

of the difference between

$15,000 and $10,000, or $1,000. H and W take a deduction for $14,000.

Qualified REIT dividends, cooperative dividends, and publicly traded partnership income

A deduction is allowed under the provision for 23 percent of the taxpayer’s aggregate

amount of qualified REIT dividends, qualified cooperative dividends, and qualified publicly

traded partnership income for the taxable year. Qualified REIT dividends do not include any

portion of a dividend received from a REIT that is a capital gain dividend

or a qualified

dividend.

A qualified cooperative dividend means a patronage dividend,

per-unit retain

As provided in sec. 3401(a)(8).

($520,000-$500,000)/$100,000 = 20 percent.

Defined in sec. 857(b)(3).

Defined in sec. 1(h)(11).

Defined in sec. 1388(a).

allocation,

qualified written notice of allocation,

or any similar amount, provided it is

includible in gross income and is received from either (1) a tax-exempt benevolent life insurance

association, mutual ditch or irrigation company, cooperative telephone company, like

cooperative organization,

or a taxable or tax-exempt cooperative that is described in section

1381(a), or (2) a taxable cooperative governed by tax rules applicable to cooperatives before the

enactment of subchapter T of the Code in 1962. Qualified publicly traded partnership income

means (with respect to any qualified trade or business of the taxpayer), the sum of the (a) the net

amount of the taxpayer’s allocable share of each qualified item of income, gain, deduction, and

loss (that are effectively connected with a U.S. trade or business and are included or allowed in

determining taxable income for the taxable year and do not constitute excepted enumerated

investment-type income, and not including the taxpayer’s reasonable compensation, guaranteed

payments for services, or (to the extent provided in regulations) section 707(a) payments for

services) from a publicly traded partnership not treated as a corporation, and (b) gain recognized

by the taxpayer on disposition of its interest in the partnership that is treated as ordinary income

(for example, by reason of section 751).

Determination of the taxpayer’s deduction

The taxpayer’s deduction for qualified business income is equal to the lesser of the

combined qualified business income amount for the taxable year or an amount equal to 23

percent of the taxpayer’s taxable income (reduced by any net capital gain

) for the taxable year.

The combined qualified business income amount is the sum of the deductible amounts

determined for each qualified trade or business for the taxable year and 23 percent of the

qualified REIT dividends and qualified cooperative dividends received by the taxpayer for the

taxable year.

Specified agricultural or horticultural cooperatives

For taxable years beginning after December 31, 2018 but not after December 31, 2025, a

deduction is allowed to any specified agricultural or horticultural cooperative equal to the lesser

of 23 percent of the cooperative’s taxable income for the taxable year or 50 percent of the W-2

wages paid by the cooperative with respect to its trade or business. A specified agricultural or

horticultural cooperative is a organization to which subchapter T applies that is engaged in (a)

the manufacturing, production, growth, or extraction in whole or significant part of any

agricultural or horticultural product, (b) the marketing of agricultural or horticultural products

that its patrons have so manufactured, produced, grown, or extracted, or (c) the provision of

supplies, equipment, or services to farmers or organizations described in the foregoing.

Defined in sec. 1388(f).

Defined in sec. 1388(c).

Described in sec. 501(c)(12).

Defined in sec. 1(h).

Special rules and definitions

For purposes of the provision, taxable income is determined without regard to the

deduction allowable under the provision.

In the case of a partnership or S corporation, the provision applies at the partner or

shareholder level. Each partner takes into account the partner’s allocable share of each qualified

item of income, gain, deduction, and loss, and is treated as having W-2 wages for the taxable

year equal to the partner’s allocable share of W-2 wages of the partnership. The partner’s

allocable share of W-2 wages is required to be determined in the same manner as the partner’s

share of wage expenses. For example, if a partner is allocated a deductible amount of 10 percent

of wages paid by the partnership to employees for the taxable year, the partner is required to be

allocated 10 percent of the W-2 wages of the partnership for purposes of calculating the wage

limit under this deduction. Similarly, each shareholder of an S corporation takes into account the

shareholder’s pro rata share of each qualified item of income, gain, deduction, and loss, and is

treated as having W-2 wages for the taxable year equal to the shareholder’s pro rata share of W-2

wages of the S corporation.

Qualified business income is determined without regard to any adjustments prescribed

under the rules of the alternative minimum tax.

The provision does not apply to a trust or estate.

The deduction under the provision is allowed only for Federal income tax purposes.

For purposes of determining a substantial underpayment of income tax under the

accuracy related penalty,

a substantial underpayment exists if the amount of the understatement

exceeds the greater of five percent (not 10 percent) of the tax required to be shown on the return

or $5,000.

Authority is provided to promulgate regulations needed to carry out the purposes of the

provision, including regulations requiring, or restricting, the allocation of items of income, gain,

loss, or deduction, or of wages under the provision. In addition, regulatory authority is provided

to address reporting requirements appropriate under the provision, and the application of the

provision in the case of tiered entities.

The provision does not apply to taxable years beginning after December 31, 2025.

Additional examples

The following examples provide a comprehensive illustration of the provision.

Sec. 6662(d)(1)(A).

Example 1

H and W file a joint return on which they report taxable income of $520,000 (determined

without regard to this provision). H is a partner in a qualified trade or business that is not a

specified service business (“qualified business A”). W has a sole proprietorship qualified trade

or business that is a specified service business (“qualified business B”). H and W also received

$10,000 in qualified REIT dividends during the tax year.

H’s allocable share of qualified business income from qualified business A is $300,000,

such that 23 percent of the qualified business income with respect to the business is $69,000.

H’s allocable share of wages paid by qualified business A is $100,000, such that 50 percent of

the W-2 wages with respect to the business is $50,000.

As H and W’s taxable income is above

the threshold amount for a joint return, the application of the wage limit for qualified business A

is phased in. Accordingly, the $69,000 amount is reduced by 20 percent

of the difference

between $69,000 and $50,000, or $3,800.

H’s deductible amount for qualified business A is

$65,200.

W’s qualified business income and W-2 wages from qualified business B, which is a

specified service business, are $325,000 and $150,000, respectively. H and W’s taxable income

is above the threshold amount for a joint return. Thus, the exclusion of qualified business

income and W-2 wages from the specified service business are phased in. W has an applicable

percentage of 80 percent.

In determining includible qualified business income, W takes into

account 80 percent of $325,000, or $260,000. In determining includible W-2 wages, W takes

into account 80 percent of $150,000, or $120,000. W calculates the deductible amount for

qualified business B by taking the lesser of 23 percent of $260,000 ($59,800) or 50 percent of

includible W-2 wages of $120,000 ($60,000).

W’s deductible amount for qualified business B

is $59,800.

H and W’s combined qualified business income amount of $127,300 is comprised of the

deductible amount for qualified business A of $65,200, the deductible amount for qualified

business B of $59,800, and 23 percent of the $10,000 qualified REIT dividends ($2,300). H and

$300,000*.23 = $69,000.

$100,000*.5 = $50,000.

($520,000-$500,000)/$100,000 = 20 percent.

($69,000 - $50,000)*.2 = $3,800.

$69,000 - $3,800 = $65,200.

1 - ($520,000-$500,000)/$100,000 = 1 - $20,000/$100,000 = 1 - .2 = 80 percent.

Although H and W’s taxable income is above the threshold amount for a joint return, the wage limit is

not binding as the 23 percent of includible qualified business income of qualified business B ($59,800) is less than

50 percent of includible W-2 wages of qualified business B ($60,000).

W’s deduction is limited to 23 percent of their taxable income for the year ($520,000), or

$119,600. Accordingly, H and W’s deduction for the taxable year is $119,600.

Example 2

H and W file a joint return on which they report taxable income of $200,000 (determined

without regard to this provision). H has a sole proprietorship qualified trade or business that is

not a specified service business (“qualified business A”). W is a partner in a qualified trade or

business that is not a specified service business (“qualified business B”). H and W have a

carryover qualified business loss of $50,000.

H’s qualified business income from qualified business A is $150,000, such that 23

percent of the qualified business income with respect to the business is $34,500. As H and W’s

taxable income is below the threshold amount for a joint return, the wage limit does not apply to

qualified business A. H’s deductible amount for qualified business A is $34,500.

W’s allocable share of qualified business loss is $40,000, such that 23 percent of the

qualified business loss with respect to the business is $9,200. As H and W’s taxable income is

below the threshold amount for a joint return, the wage limit does not apply to qualified business

B. W’s deductible amount for qualified business B is a reduction to the deduction of $9,200.

H and W’s combined qualified business income amount of $13,800 is comprised of the

deductible amount for qualified business A of $34,500, the reduction to the deduction for

qualified business B of $9,200, and the reduction to the deduction of $11,500 attributable to the

carryover qualified business loss. H and W’s deduction is limited to 23 percent of their taxable

income for the year ($200,000), or $46,000. Accordingly, H and W’s deduction for the taxable

year is $13,800.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment with modifications.

Deduction percentage

Under the conference agreement, the percentage of the deduction allowable under the

provision is 20 percent (not 23 percent).

Threshold amount

The conference agreement reduces the threshold amount above which both the limitation

on specified service businesses and the wage limit are phased in. Under the conference

agreement, the threshold amount is $157,500 (twice that amount or $315,000 in the case of a

joint return), indexed. The conferees expect that the reduced threshold amount will serve to

deter high-income taxpayers from attempting to convert wages or other compensation for

personal services to income eligible for the 20-percent deduction under the provision.

The conference agreement provides that the range over which the phase-in of these

limitations applies is $50,000 ($100,000 in the case of a joint return).

Limitation based on W-2 wages and capital

The conference agreement modifies the wage limit applicable to taxpayers with taxable

income above the threshold amount to provide a limit based either on wages paid or on wages

paid plus a capital element. Under the conference agreement, the limitation is the greater of (a)

50 percent of the W-2 wages paid with respect to the qualified trade or business, or (b) the sum

of 25 of percent of the W-2 wages with respect to the qualified trade or business plus 2.5 percent

of the unadjusted basis, immediately after acquisition, of all qualified property.

For purposes of the provision, qualified property means tangible property of a character

subject to depreciation that is held by, and available for use in, the qualified trade or business at

the close of the taxable year, and which is used in the production of qualified business income,

and for which the depreciable period has not ended before the close of the taxable year. The

depreciable period with respect to qualified property of a taxpayer means the period beginning

on the date the property is first placed in service by the taxpayer and ending on the later of (a) the

date 10 years after that date, or (b) the last day of the last full year in the applicable recovery

period that would apply to the property under section 168 (without regard to section 168(g)).

For example, a taxpayer (who is subject to the limit) does business as a sole

proprietorship conducting a widget-making business. The business buys a widget-making

machine for $100,000 and places it in service in 2020. The business has no employees in 2020.

The limitation in 2020 is the greater of (a) 50 percent of W-2 wages, or $0, or (b) the sum of 25

percent of W-2 wages ($0) plus 2.5 percent of the unadjusted basis of the machine immediately

after its acquisition: $100,000 x .025 = $2,500. The amount of the limitation on the taxpayer’s

deduction is $2,500.

In the case of property that is sold, for example, the property is no longer available for

use in the trade or business and is not taken into account in determining the limitation. The

Secretary is required to provide rules for applying the limitation in cases of a short taxable year

of where the taxpayer acquires, or disposes of, the major portion of a trade or business or the

major portion of a separate unit of a trade or business during the year. The Secretary is required

to provide guidance applying rules similar to the rules of section 179(d)(2) to address

acquisitions of property from a related party, as well as in a sale-leaseback or other transaction as

needed to carry out the purposes of the provision and to provide anti-abuse rules, including under

the limitation based on W-2 wages and capital. Similarly, the Secretary shall provide guidance

prescribing rules for determining the unadjusted basis immediately after acquisition of qualified

property acquired in like-kind exchanges or involuntary conversions as needed to carry out the

purposes of the provision and to provide anti-abuse rules, including under the limitation based on

W-2 wages and capital.

Specified service trade or business

The conference agreement modifies the definition of a specified service trade or business

in several respects. The definition is modified to exclude engineering and architecture services,

and to take into account the reputation or skill of owners.

A specified service trade or business means any trade or business involving the

performance of services in the fields of health, law, consulting, athletics, financial services,

brokerage services, or any trade or business where the principal asset of such trade or business is

the reputation or skill of one or more of its employees or owners, or which involves the

performance of services that consist of investing and investment management trading, or dealing

in securities, partnership interests, or commodities. For this purpose a security and a commodity

have the meanings provided in the rules for the mark-to-market accounting method for dealers in

securities (sections 475(c)(2) and 475(e)(2), respectively).

Determination of the taxpayer’s deduction

The taxpayer’s deduction for qualified business income for the taxable year is equal to

the sum of (a) the lesser of the combined qualified business income amount for the taxable year

or an amount equal to 20 percent of the excess of taxpayer’s taxable income over any net capital

gain

and qualified cooperative dividends, plus (b) the lesser of 20 percent of qualified

cooperative dividends and taxable income (reduced by net capital gain). This sum may not

exceed the taxpayer's taxable income for the taxable year (reduced by net capital gain). Under

the provision, the 20-percent deduction with respect to qualified cooperative dividends is limited

to taxable income (reduced by net capital gain) for the year. The combined qualified business

income amount for the taxable year is the sum of the deductible amounts determined for each

qualified trade or business carried on by the taxpayer and 20 percent of the taxpayer’s qualified

REIT dividends and qualified publicly traded partnership income. The deductible amount for

each qualified trade or business is the lesser of (a) 20 percent of the taxpayer's qualified business

income with respect to the trade or business, or (b) the greater of 50 percent of the W-2 wages

with respect to the trade or business or the sum of 25 percent of the W-2 wages with respect to

the trade or business and 2.5 percent of the unadjusted basis, immediately after acquisition, of all

qualified property.

Deduction against taxable income

The conference agreement clarifies that the 20-percent deduction is not allowed in

computing adjusted gross income, and instead is allowed as a deduction reducing taxable

income. Thus, for example, the provision does not affect limitations based on adjusted gross

income. Similarly the conference agreement clarifies that the deduction is available to both non-

itemizers and itemizers.

Defined in sec. 1(h).

Treatment of agricultural and horticultural cooperatives

For taxable years beginning after December 31, 2017 but not after December 31, 2025, a

deduction is allowed to any specified agricultural or horticultural cooperative equal to the lesser

of (a) 20 percent of the cooperative’s taxable income for the taxable year or (b) the greater of 50

percent of the W-2 wages paid by the cooperative with respect to its trade or business or the sum

of 25 percent of the W-2 wages of the cooperative with respect to its trade or business plus 2.5

percent of the unadjusted basis immediately after acquisition of qualified property of the

cooperative. A specified agricultural or horticultural cooperative is a organization to which

subchapter T applies that is engaged in (a) the manufacturing, production, growth, or extraction

in whole or significant part of any agricultural or horticultural product, (b) the marketing of

agricultural or horticultural products that its patrons have so manufactured, produced, grown, or

extracted, or (c) the provision of supplies, equipment, or services to farmers or organizations

described in the foregoing.

Treatment of trusts and estates

The conference agreement provides that trusts and estates are eligible for the 20-percent

deduction under the provision. Rules similar to the rules under present-law section 199 (as in

effect on December 1, 2017) apply for apportioning between fiduciaries and beneficiaries any

W-2 wages and unadjusted basis of qualified property under the limitation based on W-2 wages

and capital.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

C. Simplification and Reform of Family and Individual Tax Credits

1. Enhancement of child tax credit and new family credit (sec. 1101 of the House bill,

sec. 11022 of the Senate amendment, and sec. 24 of the Code)

Present Law

An individual may claim a tax credit for each qualifying child under the age of 17. The

amount of the credit per child is $1,000. A child who is not a citizen, national, or resident of the

United States cannot be a qualifying child.

The aggregate amount of child credits that may be claimed is phased out for individuals

with income over certain threshold amounts. Specifically, the otherwise allowable child tax

credit is reduced by $50 for each $1,000 (or fraction thereof) of modified adjusted gross income

(“AGI”) over $75,000 for single individuals or heads of households, $110,000 for married

individuals filing joint returns, and $55,000 for married individuals filing separate returns. For

purposes of this limitation, modified AGI includes certain otherwise excludable income earned

by U.S. citizens or residents living abroad or in certain U.S. territories.

The credit is allowable against both the regular tax and the alternative minimum tax

(“AMT”). To the extent the child credit exceeds the taxpayer’s tax liability, the taxpayer is

eligible for a refundable credit

(the “additional child tax credit”) equal to 15 percent of earned

income in excess of $3,000 (the “earned income” formula).

Families with three or more children may determine the additional child tax credit using

the “alternative formula,” if this results in a larger credit than determined under the earned

income formula. Under the alternative formula, the additional child tax credit equals the amount

by which the taxpayer’s Social Security taxes exceed the taxpayer’s earned income credit

(“EIC”).

Earned income is defined as the sum of wages, salaries, tips, and other taxable employee

compensation plus net self-employment earnings. At the taxpayer’s election, combat pay may be

treated as earned income for these purposes. Unlike the EIC, which also includes the preceding

items in its definition of earned income, the additional child tax credit is based only on earned

income to the extent it is included in computing taxable income. For example, some ministers’

parsonage allowances are considered self-employment income, and thus are considered earned

income for purposes of computing the EIC, but the allowances are excluded from gross income

for individual income tax purposes, and thus are not considered earned income for purposes of

the additional child tax credit since the income is not included in taxable income.

Any credit or refund allowed or made to an individual under this provision (including to

any resident of a U.S. possession) is not taken into account as income and is not be taken into

account as resources for the month of receipt and the following two months for purposes of

determining eligibility of such individual or any other individual for benefits or assistance, or the

The refundable credit may not exceed the maximum credit per child of $1,000.

amount or extent of benefits or assistance, under any Federal program or under any State or local

program financed in whole or in part with Federal funds.

House Bill

The provision expands the child tax credit into a new family tax credit. The family credit

consists of a $1,600 credit per qualifying child under the age of 17, and a $300 credit for each of

the taxpayer (both spouses in the case of married taxpayers filing a joint return) and each

dependent of the taxpayer who is not a qualifying child under age 17.

The provision generally retains the present-law definition of dependent. However, under

the provision, a qualifying child is eligible for the $1,600 credit only if such child is a citizen or

national of the United States.

The family credit phases out at AGI of $230,000 for married taxpayers filing joint returns

and $115,000 for other individuals. The credit is refundable under rules similar to the present

law additional child tax credit. That is, to the extent the credit exceeds the taxpayer’s tax

liability, the taxpayer is eligible for a refundable credit equal to 15 percent of earned income in

excess of $3,000.

The refundable credit is limited to $1,000 times the number of qualifying

children under the age of 17 claimed on the return. This $1,000 per child dollar limitation is

indexed for inflation, with a base year of 2017, rounding up to the nearest $100. Accordingly, in

2018 the limitation will be $1,100.

The provision requires that the taxpayer include the name and taxpayer identification

number of each qualifying child and dependent on the tax return for each taxable year.

The $300 credit for the taxpayer, spouse, and non-child dependents of the taxpayer

expires for taxable years beginning after December 31, 2022.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The provision temporarily increases the child tax credit to $2,000 per qualifying child.

Additionally, the age limit for a qualifying child is temporarily increased by one year, such that a

taxpayer may claim the credit with respect to any qualifying child under the age of 18. This

increase in the age limit expires for taxable years after December 31, 2024.

The alternate formula described in the present law section applies to the refundable portion of the family

credit as well.

See a description of sec. 1103 of the House bill for modifications to the taxpayer identification number

requirement.

The credit is further modified to temporarily provide for a $500 nonrefundable credit for

qualifying dependents other than qualifying children. The provision generally retains the

present-law definition of dependent.

Under the temporary provision, beginning in 2018, the threshold at which the credit

begins to phase out is increased to $500,000 for all taxpayers. These amounts are not indexed

for inflation.

The provision temporarily lowers the earned income threshold for the refundable child

tax credit to $2,500. As under present law, the maximum amount refundable may not exceed

$1,000 per qualifying child. Under the provision, this $1,000 threshold is indexed for inflation

with a base year of 2017, rounding up to the nearest $100 (such that the threshold is $1,100 in

2018). A temporary rule provides that, for the taxable years for which the above-described

changes are in effect, in order to receive the refundable portion of the child tax credit, a taxpayer

must include a Social Security number for each qualifying child for whom the credit is claimed

on the tax return.

The temporary provision (other than the increase in the age limit, which expires one year

earlier) expires for taxable years beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement temporarily increases the child tax credit to $2,000 per

qualifying child. The credit is further modified to temporarily provide for a $500 nonrefundable

credit for qualifying dependents other than qualifying children. The provision generally retains

the present-law definition of dependent.

Under the conference agreement, the maximum amount refundable may not exceed

$1,400 per qualifying child.

Additionally, the conference agreement provides that, in order to

receive the child tax credit (i.e., both the refundable and non-refundable portion), a taxpayer

must include a Social Security number for each qualifying child for whom the credit is claimed

on the tax return. For these purposes, a Social Security number must be issued before the due

date for the filing of the return for the taxable year. This requirement does not apply to a non-

child dependent for whom the $500 non-refundable credit is claimed.

Further, the conference agreement retains the present-law age limit for a qualifying child.

Thus, a qualifying child is an individual who has not attained age 17 during the taxable year.

Unlike both the House bill and the Senate amendment, the conference agreement uses an indexing

convention that rounds the $1,400 amount to the next lowest multiple of $100.

Additionally, a qualifying child who is ineligible to receive the child tax credit because that child did not

have a Social Security number as the child’s taxpayer identification number may nonetheless qualify for the non-

refundable $500 credit.

Finally, the conference agreement modifies the adjusted gross income phaseout

thresholds. Under the conference agreement, the credit begins to phase out for taxpayers with

adjusted gross income in excess of $400,000 (in the case of married taxpayers filing a joint

return) and $200,000 (for all other taxpayers). These phaseout thresholds are not indexed for

inflation.

As was the case with the Senate amendment, the provision expires for taxable years

beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

2. Credit for the elderly and permanently disabled (sec. 1102(a) of the House bill and

sec. 22 of the Code)

Present Law

Certain taxpayers who are over the age of 65 or retired on account of permanent and total

disability may claim a nonrefundable credit. The maximum credit is 15 percent of $5,000 for a

return where one individual qualifies and $7,500 on a joint return where both spouses qualify.

Thus, the maximum credit amounts are $750 and $1,125, respectively.

The credit base is reduced by one half of the amount by which the taxpayer's adjusted

gross income exceeds $7,500 if the taxpayer is unmarried, $10,000 if the taxpayer is married and

files a joint return, or $5,000 if the taxpayer is married and files a separate return.

Thus, the

credit base is phased down to zero when adjusted gross income exceeds $17,500 for an

unmarried person, $20,000 for a married couple filing a joint return where only one spouse

qualifies for the credit, $25,000 for a joint return where both spouses qualify, and $12,500 for a

married person filing a separate return.

Additionally, the credit base is reduced by certain items of income otherwise exempt

from tax: (1) benefits under Title II of the Social Security Act; (2) retirement benefits under the

Railroad Retirement Act of 1974; (3) disability benefits paid by the Veterans Administration,

except for benefits payable on account of personal injuries or sickness resulting from active

service in the Armed Forces; and (4) pensions, annuities, and disability benefits exempted from

tax by any provision not in the Code.

To qualify for the credit, a taxpayer must, at the end of the taxable year, be at least 65

years old or retired on account of permanent and total disability.

Permanent and total disability

Sec. 22(a).

Sec. 22(d).

Sec. 22(c)(3).

Sec. 22(b).

exists if, at the time of retirement, the taxpayer was “unable to engage in any substantial gainful

activity by reason of any medically determinable physical or mental impairment which can be

expected to result in death or which has lasted or can be expected to last for a continuous period

of not less than 12 months.

House Bill

The House bill repeals the credit for the elderly and permanently disabled.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

3. Repeal of credit for plug-in electric drive motor vehicles (sec. 1102(c) of the House bill

and sec. 30D of the Code)

Present Law

A credit is available for new four-wheeled vehicles (excluding low speed vehicles and

vehicles weighing 14,000 pounds or more) propelled by a battery with at least 4 kilowatt-hours

of electricity that can be charged from an external source.

The base credit is $2,500 plus $417

for each kilowatt-hour of additional battery capacity in excess of 4 kilowatt-hours (for a

maximum credit of $7,500). Qualified vehicles are subject to a 200,000 vehicle-per-

manufacturer limitation. Once the limitation has been reached the credit is phased down over

four calendar quarters.

House Bill

The provision repeals the credit for plug-in electric drive motor vehicles.

Effective date.−The provision is effective for vehicles placed in service in taxable years

beginning after December 31, 2017.

Senate Amendment

No provision.

Sec. 22(e)(3).

Sec. 30D.

Conference Agreement

The conference agreement does not include the House bill provision.

4. Termination of credit for interest on certain home mortgages (sec. 1102(b) of the House

bill and sec. 25 of the Code)

Present Law

Qualified governmental units can elect to exchange all or a portion of their qualified

mortgage bond authority for authority to issue mortgage credit certificates (“MCCs”).

MCCs

entitle homebuyers to a nonrefundable income tax credit for a specified percentage of interest

paid on mortgage loans on their principal residences. The tax credit provided by the MCC may

be carried forward three years. Once issued, an MCC generally remains in effect as long as the

residence being financed is the certificate-recipient’s principal residence. MCCs generally are

subject to the same eligibility and targeted area requirements as qualified mortgage bonds.

House Bill

No credit is allowed with respect to any MCC issued after December 31, 2017.

Effective date.−The provision applies to taxable years ending after December 31, 2017.

Credits continue for interest paid on mortgage loans on principal residences for which MCCs

have been issued on or before December 31, 2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not contain the House bill provision.

5. Modification of taxpayer identification number requirements for the child tax credit,

earned income credit, and American Opportunity credit (sec. 1103 of the House bill,

sec. 11022 of the Senate amendment and secs. 24, 25A and 32 of the Code)

Present Law

Earned income credit

Low and moderate-income taxpayers may be eligible for the refundable earned income

credit (“EIC”). Eligibility for the EIC is based on the taxpayer’s earned income, adjusted gross

Sec. 25.

Sec. 143.

income, investment income, filing status, and work status in the United States. The amount of

the EIC is based on the presence and number of qualifying children in the worker’s family, as

well as on adjusted gross income and earned income.

The earned income credit generally equals a specified percentage of earned income

to a maximum dollar amount. The maximum amount applies over a certain income range and

then diminishes to zero over a specified phase-out range. For taxpayers with earned income (or

adjusted gross income (“AGI”), if greater) in excess of the beginning of the phase-out range, the

maximum EIC amount is reduced by the phase-out rate multiplied by the amount of earned

income (or AGI, if greater) in excess of the beginning of the phase-out range. For taxpayers with

earned income (or AGI, if greater) in excess of the end of the phase-out range, no credit is

allowed.

An individual is not eligible for the EIC if the aggregate amount of disqualified income

of the taxpayer for the taxable year exceeds $3,450 (for 2017). This threshold is indexed for

inflation. Disqualified income is the sum of: (1) interest (taxable and tax-exempt); (2) dividends;

(3) net rent and royalty income (if greater than zero); (4) capital gains net income; and (5) net

passive income (if greater than zero) that is not self-employment income.

The EIC is a refundable credit, meaning that if the amount of the credit exceeds the

taxpayer’s Federal income tax liability, the excess is payable to the taxpayer as a direct transfer

payment.

Child tax credit

An individual may claim a tax credit of $1,000 for each qualifying child under the age of

17. A child who is not a citizen, national, or resident of the United States cannot be a qualifying

child.

The aggregate amount of allowable child credits is phased out for individuals with

income over certain threshold amounts. Specifically, the otherwise allowable aggregate child tax

credit (“CTC”) amount is reduced by $50 for each $1,000 (or fraction thereof) of modified

adjusted gross income (“modified AGI”) over $75,000 for single individuals or heads of

households, $110,000 for married individuals filing joint returns, and $55,000 for married

individuals filing separate returns. For purposes of this limitation, modified AGI includes certain

otherwise excludable income

earned by U.S. citizens or residents living abroad or in certain

U.S. territories.

The child tax credit is allowable against both the regular tax and the alternative minimum

tax (“AMT”). To the extent the credit exceeds the taxpayer’s tax liability, the taxpayer is eligible

Earned income is defined as (1) wages, salaries, tips, and other employee compensation, but only if such

amounts are includible in gross income, plus (2) the amount of the individual’s net self-employment earnings.

See description of sec. 1101 of the House bill for the House bill and Senate amendment modifications to

the child tax credit.

Sec. 911.

for a refundable credit (the “additional child tax credit”) equal to 15 percent of earned income in

excess of a threshold dollar amount of $3,000 (the “earned income” formula).

Families with three or more qualifying children may determine the additional child tax

credit using the “alternative formula” if this results in a larger credit than determined under the

earned income formula. Under the alternative formula, the additional child tax credit equals the

amount by which the taxpayer’s Social Security taxes exceed the taxpayer’s EIC.

As with the EIC, earned income is defined as the sum of wages, salaries, tips, and other

taxable employee compensation plus net self-employment earnings. Unlike the EIC, the

additional child tax credit is based on earned income only to the extent it is included in

computing taxable income. For example, some ministers’ parsonage allowances are considered

self-employment income and thus are considered earned income for purposes of computing the

EIC, but the allowances are excluded from gross income for individual income tax purposes and

thus are not considered earned income for purposes of the additional child tax credit.

American Opportunity credit

The American Opportunity credit provides individuals with a tax credit of up to $2,500

per eligible student per year for qualified tuition and related expenses (including course

materials) paid for each of the first four years of the student’s post-secondary education in a

degree or certificate program. The credit rate is 100 percent on the first $2,000 of qualified

tuition and related expenses, and 25 percent on the next $2,000 of qualified tuition and related

expenses.

The American Opportunity credit is phased out ratably for taxpayers with modified AGI

between $80,000 and $90,000 ($160,000 and $180,000 for married taxpayers filing a joint

return). The credit may be claimed against a taxpayer’s AMT liability.

Forty percent of a taxpayer’s otherwise allowable modified credit is refundable. A

refundable credit is a credit which, if the amount of the credit exceeds the taxpayer’s Federal

income tax liability, the excess is payable to the taxpayer as a direct transfer payment.

No credit is allowed to a taxpayer who fails to include the taxpayer identification number

of the student to whom the qualified tuition and related expenses relate.

Taxpayer identification number requirements

Any individual filing a U.S. tax return is required to state his or her taxpayer

identification number on such return. Generally, a taxpayer identification number is the

individual’s Social Security number (“SSN”).

However, in the case of an individual who is not

See description of sec. 1201 of the House bill for the bill’s modifications to the American Opportunity

credit.

Sec. 6109(a).

eligible to be issued an SSN, but who has a tax filing obligation, the Internal Revenue Service

(“IRS”) issues an individual taxpayer identification number (“ITIN”) for use in connection with

the individual’s tax filing requirements.

An individual who is eligible to receive an SSN may

not obtain an ITIN for purposes of his or her tax filing obligations.

An ITIN does not provide

eligibility to work in the United States or claim Social Security benefits.

Examples of individuals who are not eligible for SSNs, but potentially need ITINs in

order to file U.S. returns include a nonresident alien filing a claim for a reduced withholding rate

under a U.S. income tax treaty, a nonresident alien required to file a U.S. tax return,

individual who is a U.S. resident alien under the substantial presence test and who therefore must

file a U.S. tax return,

a dependent or spouse of the prior two categories of individuals, or a

dependent or spouse of a nonresident alien visa holder.

An individual is ineligible for the EIC (but not the child tax credit) if he or she does not

include a valid SSN and the qualifying child’s valid SSN (and, if married, the spouse’s SSN) on

his or her tax return. For these purposes, the Code defines an SSN as a Social Security number

issued to an individual, other than an SSN issued to an individual solely for the purpose of

applying for or receiving federally funded benefits.

If an individual fails to provide a correct

taxpayer identification number, such omission will be treated as a mathematical or clerical error

by the IRS.

A taxpayer who resides with a qualifying child may not claim the EIC with respect to the

qualifying child if such child does not have a valid SSN. The taxpayer also is ineligible for the

EIC for workers without children because he or she resides with a qualifying child. However, if

a taxpayer has two or more qualifying children, some of whom do not have a valid SSN, the

taxpayer may claim the EIC based on the number of qualifying children for whom there are valid

SSNs.

House Bill

Under the provision, any qualifying child claimed by the taxpayer on the tax return must

use, as that child’s identifying number, a Social Security number that is valid for employment in

the United States in order to be eligible for the CTC. Under the provision, if a child’s identifying

number was other than a Social Security number (such as an ITIN), the taxpayer would be

Treas. Reg. Sec. 301.6109-1(d)(3)(i).

Treas. Reg. Sec. 301.6109-1(d)(3)(ii).

For instance, in the case of an individual that has income which is effectively connected with a United

States trade or business, such as the performance of personal services in the United States.

Such an individual would have a filing requirement without regard to whether the individual is lawfully

present or has work authorization.

Sec. 205(c)(2)(B)(i)(II) (and that portion of sec. 205(c)(2)(B)(i)(III) relating to it) of the Social Security

Act.

eligible to receive the $300 credit for dependents other than qualifying children, assuming such

child otherwise qualified as a dependent of the taxpayer.

Additionally, under the provision, taxpayers who use as their taxpayer identification

number a Social Security number issued for non-work reasons, such as for purposes of receiving

Federal benefits or for any other reason, are not eligible for the EIC.

Lastly, under the provision, in order to claim the American Opportunity credit, the

identification number provided with respect to the student to whom the tuition and related

expenses relate must be a Social Security number.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

Under the Senate amendment, as a part of the temporary modifications to the child tax

credit, for the taxable years 2018 through 2025, in order to receive the refundable portion of the

child tax credit, a taxpayer must include a Social Security number for each qualifying child for

whom the credit is claimed on the tax return.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement does not contain the House bill provision.

6. Procedures to reduce improper claims of earned income credit (sec. 1104 of the House

bill and new secs. 32(c)(2)(B)(vii) and 6011(i) of the Code)

Present Law

Earned income credit

Low- and moderate-income workers may be eligible for the refundable earned income

credit (“EIC”). Eligibility for the EIC is based on earned income, adjusted gross income

(“AGI”), investment income, filing status, number of children, and immigration and work status

in the United States. The maximum amount of the EIC applies over a certain income range and

then diminishes to zero over a specified phaseout range. The EIC is a refundable credit, meaning

See description of sec. 1101 of the House bill.

But see description of sec. 11022 of the conference agreement for a description of modifications with

respect to the taxpayer identification number requirements pertaining to the child tax credit.

that if the amount of the credit exceeds the taxpayer’s Federal income tax liability, the excess is

payable to the taxpayer as a direct transfer payment.

The EIC generally equals a specified percentage of earned income up to a maximum

dollar amount. Earned income is the sum of employee compensation includible in gross income

(generally the amount reported in Box 1 of Form W-2, Wage and Tax Statement, discussed

below) plus net earnings from self-employment determined with regard to the deduction for one-

half of self-employment taxes.

Special rules apply in computing earned income for purposes of

the EIC.

Net earnings from self-employment generally includes the gross income derived by

an individual from any trade or business carried on by the individual, less the deductions

attributable to the trade or business that are allowed under the self-employment tax rules, plus the

individual’s distributive share of income or loss from any trade or business of a partnership in

which the individual is a partner.

Employment taxes and quarterly reporting by employers

Employment taxes include employer and employee taxes on employee wages under the

Federal Insurance Contributions Act (“FICA”) and income taxes required to be withheld by

employers from employee wages (“income tax withholding”).

Income tax withholding rates

vary depending on the amount of wages paid, the length of the payroll period, and the number of

withholding allowances claimed by the employee. Employers are required also to withhold the

employee share of FICA tax from employee wages. For these purposes, wages is defined

broadly to include all remuneration, subject to exceptions specifically provided in the relevant

statutory provisions.

Employers generally submit quarterly reports to IRS on Form 941, Employer’s Quarterly

Federal Tax Return, showing the number of employees to whom wages were paid during the

quarter, the total wages paid to employees, total FICA taxes (employer and employee) on the

wages, and total income tax withheld from the wages.

In addition, by January 31 after the end

of a calendar year, an employer must provide each employee with Form W-2, Wage and Tax

Statement, showing the total wages paid to the employee during the calendar year and certain

Sec. 32(c)(2)(A).

Sec. 32(c)(2)(B).

Sec. 1402(a); Chief Counsel Advice 200022051.

Secs. 3101-3128 (FICA) and 3401-3404 (income tax withholding). Employment taxes also include

taxes under the Railroad Retirement Act (“RRTA”), sections 3201-3241, and tax under the Federal Unemployment

Taxes Act (“FUTA”), sections 3301-3311. Sections 3501-3510 provide additional employment tax rules.

Treas. Secs. 31.6011(a)-1(a)(1), 31.6011(a)-4(a)(1), 31.6011(a)-1(a)(5). If the total amount of FICA

taxes and withheld income tax for a year is $1,000 or less, instead of filing Form 941 for each quarter, the employer

is permitted file annually on Form 944, Employer’s Annual Federal Tax Return. Separate forms and filing

requirement apply with respect to RRTA and FUTA taxes.

other information.

100

The information contained on each employee’s W-2 is also provided to the

IRS, accompanied by Form W-3, Transmittal of Wage and Tax Statements, showing the total

number of Forms W-2 and aggregate information for all employees, such as aggregate wages

reported on Forms W-2. IRS then compares the W-3 wage totals to the Form 941 (or Form 944)

wage totals.

House Bill

Modification of the definition of “earned income”

The provision clarifies that a taxpayer is required to claim all allowable deductions in

computing net earnings from self-employment for EIC purposes.

Quarterly reporting of wages by employers

The provision modifies employer reporting requirements associated with the deduction

and withholding of certain employment taxes on wages. Under the provision, employers must

report, along with the aggregate wages paid and employment taxes collected on Form 941 or

Form 944, the name and address of each employee and the amount of reportable wages received

by each of those employees.

Effective date.−Modification of the definition of “earned income”

The provision applies to taxable years ending after the date of enactment.

Effective date.−Quarterly reporting of wages by employers

The provision applies to taxable years ending after the date of enactment, subject to the

authority of the Secretary to delay for such period as the Secretary determines to be reasonable to

allow adequate time to modify systems to permit compliance with the additional reporting

requirements.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

100

Sec. 6051(a). Employees are required to include a copy of Form W-2 when filing their income tax

returns.

7. Certain income disallowed for purposes of the earned income tax credit (sec. 1105 of the

House bill, new secs. 32(n) and 32(c)(2)(C) of the Code, and secs. 6051, 6052, 6041(a), and

6050(w) of the Code)

Present Law

Earned income credit

Low- and moderate-income workers may be eligible for the refundable earned income

credit (“EIC”). Eligibility for the EIC is based on earned income, adjusted gross income

(“AGI”), investment income, filing status, number of children, and immigration and work status

in the United States. The maximum amount of the EIC applies over a certain income range and

then diminishes to zero over a specified phaseout range. The EIC is a refundable credit, meaning

that if the amount of the credit exceeds the taxpayer’s Federal income tax liability, the excess is

payable to the taxpayer as a direct transfer payment.

The EIC generally equals a specified percentage of earned income up to a maximum

dollar amount. Earned income is the sum of employee compensation includible in gross income

plus net earnings from self-employment determined with regard to the deduction for one-half of

self-employment taxes.

101

Special rules apply in computing earned income for purposes of the

EIC.

102

Information reporting

Present law imposes a variety of information reporting requirements on participants in

certain transactions.

103

These requirements are intended to assist taxpayers in preparing their

income tax returns and to help the Internal Revenue Service (“IRS”) determine whether such

returns are correct and complete.

The primary provision governing information reporting by payors requires an information

return by every person engaged in a trade or business who makes payments aggregating $600 or

more in any taxable year to a single payee in the course of the payor’s trade or business.

104

Payments to corporations generally are excepted from this requirement. Payments subject to

reporting include fixed or determinable income or compensation, but do not include payments

for goods or certain enumerated types of payments that are subject to other specific reporting

101

Sec. 32(c)(2)(A).

102

Sec. 32(c)(2)(B).

103

Sec. 6031 through 6060.

104

The information return generally is submitted electronically as a Form-1099 or Form-1096, although

certain payments to beneficiaries or employees may require use of Forms W-3 or W-2, respectively. Treas. Reg. sec.

1.6041-1(a)(2).

requirements.

105

Detailed rules are provided for the reporting of various types of investment

income, including interest, dividends, and gross proceeds from brokered transactions (such as a

sale of stock) paid to U.S. persons.

106

Special information reporting requirements exist for employers required to deduct and

withhold tax from employees’ income.

107

In addition, any service recipient engaged in a trade or

business and paying for services is required to make a return according to regulations when the

aggregate of payments is $600 or more.

108

There are also information reporting requirements for merchant acquiring entities and

third party settlement organizations with respect to payments made in settlement of payment card

transactions and third party payment network transactions occurring in that calendar year.

109

The payor of amounts described above is required to provide the recipient of the payment

with an annual statement showing the aggregate payments made and contact information for the

payor.

110

The statement must be supplied to taxpayers by the payors by January 31 of the

following calendar year.

Payors generally must file the information return with the IRS on or

before January 31 of the year following the calendar year to which such returns relate.

111

Failure to comply with the information reporting requirements results in penalties, which

may include a penalty for failure to file the information return,

112

to furnish payee statements,

113

or to comply with other various reporting requirements.

114

No penalty is imposed if the failure is

due to reasonable cause.

115

Any person who is required to file an information return, but who

105

Sec. 6041(a) requires reporting as to fixed or determinable gains, profits, and income (other than

payments to which section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a), or 6050N(a) applies and other than payments

with respect to which a statement is required under authority of section 6042(a), 6044(a)(2) or 6045). These

payments excepted from section 6041(a) include most interest, royalties, and dividends.

106

Secs. 6042 (dividends), 6045 (broker reporting) and 6049 (interest) and the Treasury regulations

thereunder.

107

Sec. 6051(a).

108

Sec. 6041A.

109

Sec. 6050W.

110

Sec. 6041(d).

111

Sec. 6071(d).

112

Sec. 6721.

113

Sec. 6722.

114

Sec. 6723.

115

Sec. 6724.

fails to do so on or before the prescribed filing date is subject to a penalty that varies based on

when, if at all, the correct information return is filed and the correct payee statement is furnished.

Books or records

Every person liable for any tax imposed by the Code, or for the collection thereof, must

keep such records, render such statements, make such returns, and comply with such rules and

regulations as the Secretary may from time to time prescribe.

116

Whenever necessary, the

Secretary may require any person, by notice served upon that person or by regulations, to make

such returns, render such statements, or keep such records, as the Secretary deems sufficient to

show whether or not that person is liable for tax. Persons subject to income tax are required to

keep books or records sufficient to establish the amount of gross income, deductions, credits, or

other matters required to be shown by that person in any return of such tax or information.

117

The books or records are required to be kept available at all times for inspection by the IRS, and

must be retained so long as the contents thereof may become material in the administration of

any internal revenue law.

118

House Bill

The provision limits earned income for purposes of the earned income credit to amounts

substantiated by the taxpayer on statements furnished or returns filed under third party

information reporting requirements, or amounts substantiated by the taxpayer’s books and

records. The authority of the IRS to make returns, render statements, or keep records and,

pursuant to the Code, to make corresponding adjustments to income to reflect substantiated

amounts for purposes other than the EIC remains unaffected by this provision.

Effective date.−The provision is effective for taxable years ending after the date of

enactment.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

116

Sec. 6001.

117

Treas. sec. 1.6001-1(a).

118

Treas. sec. 1.6001-1(e).

8. Limitation on losses for taxpayers other than corporations (sec. 11012 of the Senate

amendment and sec. 461(l) of the Code)

Present Law

Loss limitation rules applicable to individuals

Passive loss rules

The passive loss rules limit deductions and credits from passive trade or business

activities.

119

The passive loss rules apply to individuals, estates and trusts, and closely held

corporations. A passive activity for this purpose is a trade or business activity in which the

taxpayer owns an interest, but in which the taxpayer does not materially participate. A taxpayer

is treated as materially participating in an activity only if the taxpayer is involved in the

operation of the activity on a basis that is regular, continuous, and substantial.

120

Deductions

attributable to passive activities, to the extent they exceed income from passive activities,

generally may not be deducted against other income. Deductions and credits that are suspended

under these rules are carried forward and treated as deductions and credits from passive activities

in the next year. The suspended losses from a passive activity are allowed in full when a

taxpayer makes a taxable disposition of his entire interest in the passive activity to an unrelated

person.

Excess farm loss rules

A limitation on excess farm losses applies to taxpayers other than C corporations.

121

If a

taxpayer other than a C corporation receives an applicable subsidy for the taxable year, the

amount of the excess farm loss is not allowed for the taxable year, and is carried forward and

treated as a deduction attributable to farming businesses in the next taxable year. An excess farm

loss for a taxable year means the excess of aggregate deductions that are attributable to farming

businesses over the sum of aggregate gross income or gain attributable to farming businesses

plus the threshold amount. The threshold amount is the greater of (1) $300,000 ($150,000 for

married individuals filing separately), or (2) for the five-consecutive-year period preceding the

taxable year, the excess of the aggregate gross income or gain attributable to the taxpayer’s

farming businesses over the aggregate deductions attributable to the taxpayer’s farming

businesses.

House Bill

No provision.

119

Sec. 469.

120

Regulations provide more detailed standards for material participation. See Treas. Reg. sec. 1.469-5

and -5T.

121

Sec. 461(j).

Senate Amendment

For taxable years beginning after December 31, 2017 and before January 1, 2026, excess

business losses of a taxpayer other than a corporation are not allowed for the taxable year. Such

losses are carried forward and treated as part of the taxpayer’s net operating loss (“NOL”)

carryforward in subsequent taxable years. Under the bill, NOL carryovers generally are allowed

for a taxable year up to the lesser of the carryover amount or 90 percent (80 percent for taxable

years beginning after December 31, 2022) of taxable income determined without regard to the

deduction for NOLs.

An excess business loss for the taxable year is the excess of aggregate deductions of the

taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the

limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus

a threshold amount. The threshold amount for a taxable year is $250,000 (or twice the otherwise

applicable threshold amount in the case of a joint return). The threshold amount is indexed for

inflation.

In the case of a partnership or S corporation, the provision applies at the partner or

shareholder level. Each partner’s distributive share and each S corporation shareholder’s pro rata

share of items of income, gain, deduction, or loss of the partnership or S corporation are taken

into account in applying the limitation under the provision for the taxable year of the partner or S

corporation shareholder. Regulatory authority is provided to apply the provision to any other

passthrough entity to the extent necessary to carry out the provision. Regulatory authority is also

provided to require any additional reporting as the Secretary determines is appropriate to carry

out the purposes of the provision.

The provision applies after the application of the passive loss rules.

122

For taxable years beginning after December 31, 2017 and before January 1, 2026, the

present-law limitation relating to excess farm losses does not apply.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment. Thus, excess business losses

not allowed are carried forward and treated as part of the taxpayer’s net operating loss (“NOL”)

carryforward in subsequent taxable years as determined under the NOL rules provided under the

conference agreement.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

122

Sec. 469.

9. Reform of American opportunity tax credit and repeal of lifetime learning credit

(sec. 1201 of the House bill and sec. 25A of the Code)

Present Law

American Opportunity credit

The American Opportunity credit provides individuals with a tax credit of up to $2,500

per eligible student per year for qualified tuition and related expenses (including course

materials) paid for each of the first four years of the student’s post-secondary education in a

degree or certificate program. The credit rate is 100 percent on the first $2,000 of qualified

tuition and related expenses, and 25 percent on the next $2,000 of qualified tuition and related

expenses. The credit may not be claimed for more than four taxable years with respect to any

student.

The American Opportunity credit is phased out ratably for taxpayers with modified AGI

between $80,000 and $90,000 ($160,000 and $180,000 for married taxpayers filing a joint

return). The credit may be claimed against a taxpayer’s AMT liability.

Forty percent of a taxpayer’s otherwise allowable modified credit is refundable. A

refundable credit is a credit which, if the amount of the credit exceeds the taxpayer’s Federal

income tax liability, the excess is payable to the taxpayer as a direct transfer payment.

A taxpayer may not claim the American Opportunity credit if the qualified tuition and

related expenses for the enrollment or attendance of a student, if such student has been convicted

of a Federal or State felony offense consisting of the possession or distribution of a controlled

substance before the end of the taxable year.

123

Lifetime learning credit

Individual taxpayers may be eligible to claim a nonrefundable credit, the Lifetime

Learning credit, against Federal income taxes equal to 20 percent of qualified tuition and related

expenses incurred during the taxable year on behalf of the taxpayer, the taxpayer’s spouse, or

any dependents. Up to $10,000 of qualified tuition and related expenses per taxpayer return are

eligible for the Lifetime Learning credit (i.e., the maximum credit per taxpayer return is $2,000).

In contrast to the American Opportunity credit, a taxpayer may claim the Lifetime

Learning credit for an unlimited number of taxable years.

124

Also in contrast to the American

Opportunity credit, the maximum amount of the Lifetime Learning credit that may be claimed on

a taxpayer’s return does not vary based on the number of students in the taxpayer’s family—that

is, the American Opportunity credit is computed on a per-student basis while the Lifetime

Learning credit is computed on a family-wide basis. The Lifetime Learning credit amount that a

taxpayer may otherwise claim is phased out ratably for taxpayers with modified AGI between

123

Sec. 25A(b)(2)(D).

124

Sec. 25A(a)(2).

$56,000 and $66,000 ($112,000 and $132,000 for married taxpayers filing a joint return) in

2017.

House Bill

The House bill modifies the American Opportunity credit

125

by providing that a credit

may be claimed with respect to a student for five taxable years (rather than four taxable years

under present law). For a credit claimed with respect to the student’s fifth taxable year, the

credit is half the value of the American Opportunity credit that is applicable to the first four

taxable years (the refundable portion of the credit is 40-percent of the half-value credit).

Additionally, the provision allows a student to claim the American Opportunity credit for any of

the first five years of postsecondary education.

The operation of this provision is as follows. Assume that a student enters college in the

Fall of 2018, attending for eight consecutive semesters, such that the student graduates in the

Spring of 2022. Assume that qualifying tuition and fees for each semester is in excess of $5,000.

For each of taxable years 2018, 2019, 2020 and 2021, an individual claiming the credit on behalf

of the student would be eligible for the maximum credit of $2,500 (of which $1,000 is

refundable). For taxable year 2022, a taxpayer claiming the credit on behalf of the student may

be eligible for a $1,250 credit (of which $500 is refundable). Alternatively, if no credit were

claimed with respect to the student in 2022, and the student were to decide to attend graduate

school in the Fall of 2024, the student may claim the half-value fifth year credit ($1,250 ($500

refundable)) for the 2024 taxable year.

The provision repeals the lifetime learning credit.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

125

The provision also repeals the Hope credit, a precursor to the American Opportunity credit which since

2009 has been largely superseded in the Code by the American Opportunity credit.

10. Consolidation and modification of education savings rules (sec. 1202 of the House bill,

sec. 11033 of the Senate amendment, and secs. 529 and 530 of the Code)

Present Law

Coverdell education savings accounts

A Coverdell education savings account is a trust or custodial account created exclusively

for the purpose of paying qualified education expenses of a named beneficiary.

126

Annual

contributions to Coverdell education savings accounts may not exceed $2,000 per designated

beneficiary and may not be made after the designated beneficiary reaches age 18 (except in the

case of a special needs beneficiary). The contribution limit is phased out for taxpayers with

modified AGI between $95,000 and $110,000 ($190,000 and $220,000 for married taxpayers

filing a joint return); the AGI of the contributor, and not that of the beneficiary, controls whether

a contribution is permitted by the taxpayer.

Earnings on contributions to a Coverdell education savings account generally are subject

to tax when withdrawn.

127

However, distributions from a Coverdell education savings account

are excludable from the gross income of the distributee (i.e., the student) to the extent that the

distribution does not exceed the qualified education expenses incurred by the beneficiary during

the year the distribution is made. The earnings portion of a Coverdell education savings account

distribution not used to pay qualified education expenses is includible in the gross income of the

distributee and generally is subject to an additional 10-percent tax.

128

Tax-free (and free of additional 10-percent tax) transfers or rollovers of account balances

from one Coverdell education savings account benefiting one beneficiary to another Coverdell

education savings account benefiting another beneficiary (as well as redesignations of the named

beneficiary) are permitted, provided that the new beneficiary is a member of the family of the

prior beneficiary and is under age 30 (except in the case of a special needs beneficiary). In

general, any balance remaining in a Coverdell education savings account is deemed to be

distributed within 30 days after the date that the beneficiary reaches age 30 (or, if the beneficiary

dies before attaining age 30, within 30 days of the date that the beneficiary dies).

Qualified education expenses include qualified elementary and secondary expenses and

qualified higher education expenses. Such qualified education expenses generally include only

out-of-pocket expenses. They do not include expenses covered by employer-provided

educational assistance or scholarships for the benefit of the beneficiary that are excludable from

gross income.

126

Sec. 530.

127

In addition, Coverdell education savings accounts are subject to the unrelated business income tax

imposed by section 511.

128

This 10-percent additional tax does not apply if a distribution from an education savings account is

made on account of the death or disability of the designated beneficiary, or if made on account of a scholarship

received by the designated beneficiary.

The term qualified elementary and secondary school expenses, means expenses for: (1)

tuition, fees, academic tutoring, special needs services, books, supplies, and other equipment

incurred in connection with the enrollment or attendance of the beneficiary at a public, private,

or religious school providing elementary or secondary education (kindergarten through grade 12)

as determined under State law; (2) room and board, uniforms, transportation, and supplementary

items or services (including extended day programs) required or provided by such a school in

connection with such enrollment or attendance of the beneficiary; and (3) the purchase of any

computer technology or equipment (as defined in section 170(e)(6)(F)(i)) or internet access and

related services, if such technology, equipment, or services are to be used by the beneficiary and

the beneficiary’s family during any of the years the beneficiary is in elementary or secondary

school. Computer software primarily involving sports, games, or hobbies is not considered a

qualified elementary and secondary school expense unless the software is predominantly

educational in nature.

The term qualified higher education expenses includes tuition, fees, books, supplies, and

equipment required for the enrollment or attendance of the designated beneficiary at an eligible

education institution, regardless of whether the beneficiary is enrolled at an eligible educational

institution on a full-time, half-time, or less than half-time basis.

129

Moreover, qualified higher

education expenses include certain room and board expenses for any period during which the

beneficiary is at least a half-time student. Qualified higher education expenses include expenses

with respect to undergraduate or graduate-level courses. In addition, qualified higher education

expenses include amounts paid or incurred to purchase tuition credits (or to make contributions

to an account) under a qualified tuition program for the benefit of the beneficiary of the

Coverdell education savings account.

130

Section 529 qualified tuition programs

In general

A qualified tuition program is a program established and maintained by a State or agency

or instrumentality thereof, or by one or more eligible educational institutions, which satisfies

certain requirements and under which a person may purchase tuition credits or certificates on

behalf of a designated beneficiary that entitle the beneficiary to the waiver or payment of

qualified higher education expenses of the beneficiary (a “prepaid tuition program”).

Section

529 provides specified income tax and transfer tax rules for the treatment of accounts and

contracts established under qualified tuition programs.

131

In the case of a program established

and maintained by a State or agency or instrumentality thereof, a qualified tuition program also

includes a program under which a person may make contributions to an account that is

established for the purpose of satisfying the qualified higher education expenses of the

designated beneficiary of the account, provided it satisfies certain specified requirements (a

129

Qualified higher education expenses are defined in the same manner as for qualified tuition programs.

130

Sec. 530(b)(2)(B).

131

For purposes of this description, the term “account” is used interchangeably to refer to a prepaid tuition

benefit contract or a tuition savings account established pursuant to a qualified tuition program.

“savings account program”). Under both types of qualified tuition programs, a contributor

establishes an account for the benefit of a particular designated beneficiary to provide for that

beneficiary’s higher education expenses.

In general, prepaid tuition contracts and tuition savings accounts established under a

qualified tuition program involve prepayments or contributions made by one or more individuals

for the benefit of a designated beneficiary. Decisions with respect to the contract or account are

typically made by an individual who is not the designated beneficiary. Qualified tuition accounts

or contracts generally require the designation of a person (generally referred to as an “account

owner”)

132

whom the program administrator (oftentimes a third party administrator retained by

the State or by the educational institution that established the program) may look to for decisions,

recordkeeping, and reporting with respect to the account established for a designated beneficiary.

The person or persons who make the contributions to the account need not be the same person

who is regarded as the account owner for purposes of administering the account. Under many

qualified tuition programs, the account owner generally has control over the account or contract,

including the ability to change designated beneficiaries and to withdraw funds at any time and

for any purpose. Thus, in practice, qualified tuition accounts or contracts generally involve a

contributor, a designated beneficiary, an account owner (who oftentimes is not the contributor or

the designated beneficiary), and an administrator of the account or contract.

Qualified higher education expenses

For purposes of receiving a distribution from a qualified tuition program that qualifies for

favorable tax treatment under the Code, qualified higher education expenses means tuition, fees,

books, supplies, and equipment required for the enrollment or attendance of a designated

beneficiary at an eligible educational institution, and expenses for special needs services in the

case of a special needs beneficiary that are incurred in connection with such enrollment or

attendance. Qualified higher education expenses generally also include room and board for

students who are enrolled at least half-time. Qualified higher education expenses include the

purchase of any computer technology or equipment, or Internet access or related services, if such

technology or services were to be used primarily by the beneficiary during any of the years a

beneficiary is enrolled at an eligible institution.

Contributions to qualified tuition programs

Contributions to a qualified tuition program must be made in cash. Section 529 does not

impose a specific dollar limit on the amount of contributions, account balances, or prepaid tuition

benefits relating to a qualified tuition account; however, the program is required to have

adequate safeguards to prevent contributions in excess of amounts necessary to provide for the

beneficiary’s qualified higher education expenses. Contributions generally are treated as a

completed gift eligible for the gift tax annual exclusion. Contributions are not tax deductible for

Federal income tax purposes, although they may be deductible for State income tax purposes.

132

Section 529 refers to contributors and designated beneficiaries, but does not define or otherwise refer to

the term “account owner,” which is a commonly used term among qualified tuition programs.

Amounts in the account accumulate on a tax-free basis (i.e., income on accounts in the plan is

not subject to current income tax).

A qualified tuition program may not permit any contributor to, or designated beneficiary

under, the program to direct (directly or indirectly) the investment of any contributions (or

earnings thereon) more than two times in any calendar year, and must provide separate

accounting for each designated beneficiary. A qualified tuition program may not allow any

interest in an account or contract (or any portion thereof) to be used as security for a loan.

House Bill

Under the House bill, no new contributions are permitted into Coverdell savings accounts

after December 31, 2017. However, rollovers of account balances from one Coverdell education

savings account to another pre-existing Coverdell education savings account benefiting another

beneficiary remain permitted after this date. Additionally, the provision allows section 529 plans

to receive rollover contributions from Coverdell education savings accounts.

The provision modifies section 529 plans to allow such plans to distribute not more than

$10,000 in expenses for tuition incurred during the taxable year in connection with the

enrollment or attendance of the designated beneficiary at a public, private or religious elementary

or secondary school. This limitation applies on a per-student basis, rather than a per-account

basis. Thus, under the provision, although an individual may be the designated beneficiary of

multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax,

regardless of whether the funds are distributed from multiple accounts. Any excess distributions

received by the individual would be treated as a distribution subject to tax under the general rules

of section 529.

The provision also modifies section 529 plans to allow such plan distributions to be used

for certain expenses, including books, supplies, and equipment, required for attendance in a

registered apprenticeship program. Registered apprenticeship programs are apprenticeship

programs registered and certified with the Secretary of Labor.

Finally, the provision specifies that nothing in this section shall prevent an unborn child

from qualifying as a designated beneficiary. For these purposes, an unborn child means a child

in utero, and the term child in utero means a member of the species homo sapiens, at any stage

of development, who is carried in the womb.

Effective date.−The provision applies to contributions and distributions made after

December 31, 2017.

Senate Amendment

The Senate amendment modifies section 529 plans to allow such plans to distribute not

more than $10,000 in expenses for tuition incurred during the taxable year in connection with the

enrollment or attendance of the designated beneficiary at a public, private or religious elementary

or secondary school. This limitation applies on a per-student basis, rather than a per-account

basis. Thus, under the provision, although an individual may be the designated beneficiary of

multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax,

regardless of whether the funds are distributed from multiple accounts. Any excess distributions

received by the individual would be treated as a distribution subject to tax under the general rules

of section 529.

The provision also modifies the definition of higher education expenses to include certain

expenses incurred in connection with a homeschool. Those expenses are (1) curriculum and

curricular materials; (2) books or other instructional materials; (3) online educational materials;

(4) tuition for tutoring or educational classes outside of the home (but only if the tutor or

instructor is not related to the student); (5) dual enrollment in an institution of higher education;

and (6) educational therapies for students with disabilities.

Effective date.−The provision applies to distributions made after December 31, 2017.

Conference Agreement

The conference agreement follows the Senate amendment.

11. Reforms to discharge of certain student loan indebtedness (sec. 1203 of the House bill,

sec. 11031 of the Senate amendment, and sec. 108 of the Code)

Present Law

Gross income generally includes the discharge of indebtedness of the taxpayer. Under an

exception to this general rule, gross income does not include any amount from the forgiveness

(in whole or in part) of certain student loans, provided that the forgiveness is contingent on the

student’s working for a certain period of time in certain professions for any of a broad class of

employers.

133

Student loans eligible for this special rule must be made to an individual to assist the

individual in attending an educational institution that normally maintains a regular faculty and

curriculum and normally has a regularly enrolled body of students in attendance at the place

where its education activities are regularly carried on. Loan proceeds may be used not only for

tuition and required fees, but also to cover room and board expenses. The loan must be made by

(1) the United States (or an instrumentality or agency thereof), (2) a State (or any political

subdivision thereof), (3) certain tax-exempt public benefit corporations that control a State,

county, or municipal hospital and whose employees have been deemed to be public employees

under State law, or (4) an educational organization that originally received the funds from which

the loan was made from the United States, a State, or a tax-exempt public benefit corporation.

In addition, an individual’s gross income does not include amounts from the forgiveness

of loans made by educational organizations (and certain tax-exempt organizations in the case of

refinancing loans) out of private, nongovernmental funds if the proceeds of such loans are used

to pay costs of attendance at an educational institution or to refinance any outstanding student

loans (not just loans made by educational organizations) and the student is not employed by the

lender organization. In the case of such loans made or refinanced by educational organizations

133

Sec. 108(f).

(or refinancing loans made by certain tax-exempt organizations), cancellation of the student loan

must be contingent on the student working in an occupation or area with unmet needs and such

work must be performed for, or under the direction of, a tax-exempt charitable organization or a

governmental entity.

Finally, an individual’s gross income does not include any loan repayment amount

received under the National Health Service Corps loan repayment program, certain State loan

repayment programs, or any amount received by an individual under any State loan repayment or

loan forgiveness program that is intended to provide for the increased availability of health care

services in underserved or health professional shortage areas (as determined by the State).

House Bill

The House bill modifies the exclusion of student loan discharges from gross income, by

including within the exclusion certain discharges on account of death or disability. Loans

eligible for the exclusion under the provision are loans made by (1) the United States (or an

instrumentality or agency thereof), (2) a State (or any political subdivision thereof), (3) certain

tax-exempt public benefit corporations that control a State, county, or municipal hospital and

whose employees have been deemed to be public employees under State law, (4) an educational

organization that originally received the funds from which the loan was made from the United

States, a State, or a tax-exempt public benefit corporation, or (5) private education loans (for this

purpose, private education loan is defined in section 140(7) of the Consumer Protection Act).

134

Under the provision, the discharge of a loan as described above is excluded from gross

income if the discharge was pursuant to the death or total and permanent disability of the

student.

135

Additionally, the provision modifies the gross income exclusion for amounts received

under the National Health Service Corps loan repayment program or certain State loan

repayment programs to include any amount received by an individual under the Indian Health

Service loan repayment program.

136

Effective date.−The provision applies to discharges of loans after, and amounts received

after, December 31, 2017.

134

15 U.S.C. 1650(7).

135

Although the provision makes specific reference to those provisions of the Higher Education Act of

1965 that discharge William D. Ford Federal Direct Loan Program loans, Federal Family Education Loan Program

loans, and Federal Perkins Loan Program loans in the case of death and total and permanent disability, the provision

also contains a catch-all exclusion in the case of a student loan discharged on account of the death or total and

permanent disability of the student, in addition to those specific statutory references.

136

Section 108 of the Indian Health Care Improvement Act established the Indian Health Service loan

repayment program to assure a sufficient supply of trained health professionals needed to provide health care

services to Indians. Pub. L. No. 94-437, as amended by Pub. L. No. 100-713, sec. 108, and Pub. L. No. 102-573,

sec. 106, and as amended, and permanently reauthorized by Pub. L. No. 111-148, sec. 10221.

Senate Amendment

The Senate amendment generally follows the House bill. However, the Senate

amendment does not contain the provision in the House bill excluding amounts received under

the Indian Health Service loan repayment program from income.

Additionally, the Senate amendment does not apply to discharges of indebtedness

occurring after December 31, 2025.

Effective date.−The provision is effective for discharges of indebtedness after December

31, 2017.

Conference Agreement

The conference agreement follows the Senate amendment.

12. Repeal of deduction for student loan interest (sec. 1204 of the House bill and sec. 221 of

the Code)

Present Law

Certain individuals who have paid interest on qualified education loans may claim an

above-the-line deduction for such interest expenses, subject to a maximum annual deduction

limit.

137

Required payments of interest generally do not include voluntary payments, such as

interest payments made during a period of loan forbearance. No deduction is allowed to an

individual if that individual is claimed as a dependent on another taxpayer’s return for the

taxable year.

138

A qualified education loan generally is defined as any indebtedness incurred solely to pay

for the costs of attendance (including room and board) of the taxpayer, the taxpayer’s spouse, or

any dependent of the taxpayer as of the time the indebtedness was incurred in attending on at

least a half-time basis (1) eligible educational institutions, or (2) institutions conducting

internship or residency programs leading to a degree or certificate from an institution of higher

education, a hospital, or a health care facility conducting postgraduate training. The cost of

attendance is reduced by any amount excluded from gross income under the exclusions for

qualified scholarships and tuition reductions, employer-provided educational assistance, interest

earned on education savings bonds, qualified tuition programs, and Coverdell education savings

accounts, as well as the amount of certain other scholarships and similar payments.

The maximum allowable deduction per year is $2,500.

139

For 2017, the deduction is

phased out ratably for taxpayers with AGI between $65,000 and $80,000 ($135,000 and

137

Sec. 221.

138

Sec. 221(c).

139

Sec. 221(b)(1).

$165,000 for married taxpayers filing a joint return). The income phase-out ranges are indexed

for inflation and rounded to the next lowest multiple of $5,000.

House Bill

The provision repeals the deduction for student loan interest.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

13. Repeal of deduction for qualified tuition and related expenses (sec. 1204 of the House

bill and sec. 222 of the Code)

Present Law

For taxable years beginning before January 1, 2017, an individual is allowed an above-

the-line deduction for qualified tuition and related expenses for higher education paid by the

individual during the taxable year.

140

Qualified tuition includes tuition and fees required for the

enrollment or attendance by the taxpayer, the taxpayer’s spouse, or any dependent of the

taxpayer with respect to whom the taxpayer may claim a personal exemption, at an eligible

institution of higher education for courses of instruction of such individual at such institution.

The expenses must be in connection with enrollment at an institution of higher education during

the taxable year, or with an academic term beginning during the taxable year or during the first

three months of the next taxable year. The deduction is not available for tuition and related

expenses paid for elementary or secondary education.

The maximum deduction is $4,000 for an individual whose AGI for the taxable year does

not exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for other individuals whose

AGI does not exceed $80,000 ($160,000 in the case of a joint return).

141

No deduction is

allowed for an individual whose AGI exceeds the relevant AGI limitations, for a married

individual who does not file a joint return, or for an individual with respect to whom a personal

exemption deduction may be claimed by another taxpayer for the taxable year. The deduction is

not available for taxable years beginning after December 31, 2016.

140

Sec. 222(a).

141

Sec. 222(b)(2)(B).

House Bill

The provision repeals the deduction for qualified tuition and related expenses.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

14. Repeal of exclusion for qualified tuition reductions (sec. 1204 of the House bill and

sec. 117(d) of the Code)

Present Law

Qualified tuition reductions for certain education provided to employees (and their

spouses and dependents

142

) of certain educational organizations are excludible from gross

income.

143

The tuition reduction is subject to nondiscrimination rules.

144

The exclusion

generally applies below the graduate level, and to teaching and research assistants who are

students at the graduate level, but does not apply to any amount received by a student that

represents payment for teaching, research or other services by the student required as a condition

for receiving the tuition reduction. Amounts that are excludible from gross income for income

tax purposes are also excluded from wages for employment tax purposes.

House Bill

The provision repeals the exclusions from gross income and wages for qualified tuition

reductions.

Effective date.−The provision applies to amounts paid or incurred after December 31,

2017.

142

Individuals described under the rules of Sec. 132(h).

143

Educational organization described in section 170(b)(1)(A)(ii). Sec. 117(d)(2).

144

The exclusion applies with respect to highly compensated employees, within the meaning of Sec.

414(q), only if such tuition reductions are available on substantially the same terms to each member of a group of

employees which is defined under a reasonable classification established by the employer, such that the benefit does

not discriminate in favor of highly compensated employees.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

15. Repeal of exclusion for interest on United States savings bonds used for higher

education expenses (sec. 1204 of the House bill and sec. 135 of the Code)

Present Law

Interest earned on a qualified United States Series EE savings bond issued after 1989 is

excludable from gross income if the proceeds of the bond upon redemption do not exceed

qualified higher education expenses paid by the taxpayer during the taxable year.

145

Qualified

higher education expenses include tuition and fees (but not room and board expenses) required

for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or a dependent of the

taxpayer at certain eligible higher educational institutions. The amount of qualified higher

education expenses taken into account for purposes of the exclusion is reduced by the amount of

such expenses taken into account in determining the Hope, American Opportunity, or Lifetime

Learning credits claimed by any taxpayer, or taken into account in determining an exclusion

from gross income for a distribution from a qualified tuition program or a Coverdell education

savings account, with respect to a particular student for the taxable year.

The exclusion is phased out for certain higher-income taxpayers, determined by the

taxpayer’s modified AGI during the year the bond is redeemed. For 2017, the exclusion is

phased out for taxpayers with modified AGI between $78,150 and $93,150 ($117,250 and

$147,250 for married taxpayers filing a joint return). To prevent taxpayers from effectively

avoiding the income phaseout limitation through the purchase of bonds directly in the child’s

name, the interest exclusion is available only with respect to U.S. Series EE savings bonds issued

to taxpayers who are at least 24 years old.

House Bill

The House bill repeals exclusion for interest on Series EE savings bond used for qualified

higher education expenses.

Effective date.−The provision generally applies to taxable years beginning after

December 31, 2017.

Senate Amendment

No provision.

145

Sec. 135.

Conference Agreement

The conference agreement does not include the House bill provision.

16. Repeal of exclusion for educational assistance programs (sec. 1204 of the House bill and

sec. 127 of the Code)

Present Law

Up to $5,250 annually of educational assistance provided by an employer to an employee

is excludible from the employee’s gross income, provided that certain requirements are

satisfied.

146

Nondiscrimination rules

147

apply and the educational assistance must be provided

pursuant to a separate written plan of the employer. The exclusion applies to both graduate and

undergraduate courses, and applies only with respect to education provided to the employee (i.e.,

it does not apply to education provided to the spouse or a child of the employee). Amounts that

are excludible from gross income for income tax purposes are also excluded from wages for

employment tax purposes.

For purposes of the exclusion, educational assistance means the payment by an employer

of expenses incurred by or on behalf of the employee for education of the employee including,

but not limited to, tuition, fees and similar payments, books, supplies, and equipment.

Educational assistance also includes the provision by the employer of courses of instruction for

the employee (including books, supplies, and equipment). Educational assistance does not

include (1) tools or supplies that may be retained by the employee after completion of a course,

(2) meals, lodging, or transportation, and (3) any education involving sports, games, or hobbies.

House Bill

The provision repeals the exclusions from gross income and wages for educational

assistance programs.

Effective date.−The provision applies to taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

146

Sec. 127(a).

147

The employer’s educational assistance program must not discriminate in favor of highly compensated

employees, within the meaning of Sec. 414(q). In addition, no more than five percent of the amounts paid or

incurred by the employer during the year for educational assistance under a qualified educational assistance program

can be provided for the class of individuals consisting of more-than-five-percent owners of the employer and the

spouses or dependents of such more-than-five-percent owners.

Conference Agreement

The conference agreement does not include the House bill provision.

17. Rollovers between qualified tuition programs and qualified ABLE programs (sec. 1205

of the House bill, sec. 11025 of the Senate amendment and secs. 529 and 529A of the Code)

Present Law

Qualified ABLE programs

The Code provides for a tax-favored savings program intended to benefit disabled

individuals, known as qualified ABLE programs.

148

A qualified ABLE program is a program

established and maintained by a State or agency or instrumentality thereof. A qualified ABLE

program must meet the following conditions: (1) under the provisions of the program,

contributions may be made to an account (an “ABLE account”), established for the purpose of

meeting the qualified disability expenses of the designated beneficiary of the account; (2) the

program must limit a designated beneficiary to one ABLE account; and (3) the program must

meet certain other requirements discussed below. A qualified ABLE program is generally

exempt from income tax, but is otherwise subject to the taxes imposed on the unrelated business

income of tax-exempt organizations.

A designated beneficiary of an ABLE account is the owner of the ABLE account. A

designated beneficiary must be an eligible individual (defined below) who established the ABLE

account and who is designated at the commencement of participation in the qualified ABLE

program as the beneficiary of amounts paid (or to be paid) into and from the program.

Contributions to an ABLE account must be made in cash and are not deductible for

Federal income tax purposes. Except in the case of a rollover contribution from another ABLE

account, an ABLE account must provide that it may not receive aggregate contributions during a

taxable year in excess of the amount under section 2503(b) of the Code (the annual gift tax

exemption). For 2017, this is $14,000.

149

Additionally, a qualified ABLE program must provide

adequate safeguards to ensure that ABLE account contributions do not exceed the limit imposed

on accounts under the qualified tuition program of the State maintaining the qualified ABLE

program. Amounts in the account accumulate on a tax-deferred basis (i.e., income on accounts

under the program is not subject to current income tax).

A qualified ABLE program may permit a designated beneficiary to direct (directly or

indirectly) the investment of any contributions (or earnings thereon) no more than two times in

148

Sec. 529A.

149

This amount is indexed for inflation. In the case that contributions to an ABLE account exceed the

annual limit, an excise tax in the amount of six percent of the excess contribution to such account is imposed on the

designated beneficiary. Such tax does not apply in the event that the trustee of such account makes a corrective

distribution of such excess amounts by the due date (including extensions) of the individual’s tax return for the year

within the taxable year.

any calendar year and must provide separate accounting for each designated beneficiary. A

qualified ABLE program may not allow any interest in the program (or any portion thereof) to be

used as security for a loan.

Distributions from an ABLE account are generally includible in the distributee’s income

to the extent consisting of earnings on the account.

150

Distributions from an ABLE account are

excludable from income to the extent that the total distribution does not exceed the qualified

disability expenses of the designated beneficiary during the taxable year. If a distribution from

an ABLE account exceeds the qualified disability expenses of the designated beneficiary, a pro

rata portion of the distribution is excludable from income. The portion of any distribution that is

includible in income is subject to an additional 10-percent tax unless the distribution is made

after the death of the beneficiary. Amounts in an ABLE account may be rolled over without

income tax liability to another ABLE account for the same beneficiary

151

or another ABLE

account for the designated beneficiary’s brother, sister, stepbrother or stepsister who is also an

eligible individual.

Except in the case of an ABLE account established in a different ABLE program for

purposes of transferring ABLE accounts,

152

no more than one ABLE account may be established

by a designated beneficiary. Thus, once an ABLE account has been established by a designated

beneficiary, no account subsequently established by such beneficiary shall be treated as an

ABLE account.

A contribution to an ABLE account is treated as a completed gift of a present interest to

the designated beneficiary of the account. Such contributions qualify for the per-donee annual

gift tax exclusion ($14,000 for 2017) and, to the extent of such exclusion, are exempt from the

generation skipping transfer (“GST”) tax. A distribution from an ABLE account generally is not

subject to gift tax or GST tax.

Eligible individuals

As described above, a qualified ABLE program may provide for the establishment of

ABLE accounts only if those accounts are established and owned by an eligible individual, such

owner referred to as a designated beneficiary. For these purposes, an eligible individual is an

individual either (1) for whom a disability certification has been filed with the Secretary for the

taxable year, or (2) who is entitled to Social Security Disability Insurance benefits or SSI

benefits

153

based on blindness or disability, and such blindness or disability occurred before the

individual attained age 26.

150

The rules of section 72 apply in determining the portion of a distribution that consists of earnings.

151

For instance, if a designated beneficiary were to relocate to a different State.

152

In which case the contributor ABLE account must be closed 60 days after the transfer to the new ABLE

account is made.

153

These are benefits, respectively, under Title II or Title XVI of the Social Security Act.

A disability certification means a certification to the satisfaction of the Secretary, made

by the eligible individual or the parent or guardian of the eligible individual, that the individual

has a medically determinable physical or mental impairment, which results in marked and severe

functional limitations, and which can be expected to result in death or which has lasted or can be

expected to last for a continuous period of not less than 12 months, or is blind (within the

meaning of section 1614(a)(2) of the Social Security Act). Such blindness or disability must

have occurred before the date the individual attained age 26. Such certification must include a

copy of the diagnosis of the individual’s impairment and be signed by a licensed physician.

154

Qualified disability expenses

As described above, the earnings on distributions from an ABLE account are excluded

from income only to the extent total distributions do not exceed the qualified disability expenses

of the designated beneficiary. For this purpose, qualified disability expenses are any expenses

related to the eligible individual’s blindness or disability which are made for the benefit of the

designated beneficiary. Such expenses include the following expenses: education, housing,

transportation, employment training and support, assistive technology and personal support

services, health, prevention and wellness, financial management and administrative services,

legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other

expenses, which are approved by the Secretary under regulations and consistent with the

purposes of section 529A.

Transfer to State

In the event that the designated beneficiary dies, subject to any outstanding payments due

for qualified disability expenses incurred by the designated beneficiary, all amounts remaining in

the deceased designated beneficiary’s ABLE account not in excess of the amount equal to the

total medical assistance paid such individual under any State Medicaid plan established under

title XIX of the Social Security Act shall be distributed to such State upon filing of a claim for

payment by such State. Such repaid amounts shall be net of any premiums paid from the account

or by or on behalf of the beneficiary to the State’s Medicaid Buy-In program.

Treatment of ABLE accounts under Federal programs

Any amounts in an ABLE account, and any distribution for qualified disability expenses,

shall be disregarded for purposes of determining eligibility to receive, or the amount of, any

assistance or benefit authorized by any Federal means-tested program. However, in the case of

the SSI program, a distribution for housing expenses is not disregarded, nor are amounts in an

ABLE account in excess of $100,000. In the case that an individual’s ABLE account balance

exceeds $100,000, such individual’s SSI benefits shall not be terminated, but instead shall be

suspended until such time as the individual’s resources fall below $100,000. However, such

suspension shall not apply for purposes of Medicaid eligibility.

154

No inference may be drawn from a disability certification for purposes of eligibility for Social Security,

SSI or Medicaid benefits.

House Bill

The House bill allows for amounts from qualified tuition programs (also known as 529

accounts) to be rolled over to an ABLE account without penalty, provided that the ABLE

account is owned by the designated beneficiary of that 529 account, or a member of such

designated beneficiary's family.

155

Such rolled-over amounts count towards the overall

limitation on amounts that can be contributed to an ABLE account within a taxable year.

156

Any

amount rolled over that is in excess of this limitation shall be includible in the gross income of

the distributee in a manner provided by section 72.

157

Effective date.−The provision applies to distributions after December 31, 2017.

Senate Amendment

The Senate amendment generally follows the House Bill. Under the Senate amendment,

the provision is not effective for distributions after December 31, 2025.

Effective date.−The provision applies to distributions after the date of enactment.

Conference Agreement

The conference agreement follows the Senate amendment.

18. Repeal of overall limitation on itemized deductions (sec. 1301 of the House bill,

sec. 11046 of the Senate amendment, and sec. 68 of the Code)

Present Law

The total amount of most otherwise allowable itemized deductions (other than the

deductions for medical expenses, investment interest and casualty, theft or gambling losses) is

limited for certain upper-income taxpayers.

158

All other limitations applicable to such

deductions (such as the separate floors) are first applied and, then, the otherwise allowable total

amount of itemized deductions is reduced by three percent of the amount by which the

taxpayer’s adjusted gross income exceeds a threshold amount.

For 2017, the threshold amounts are $261,500 for single taxpayers, $287,650 for heads of

household, $313,800 for married couples filing jointly, and $156,900 for married taxpayers filing

separately. These threshold amounts are indexed for inflation. The otherwise allowable

155

For these purposes, a member of the family means, with respect to any designated beneficiary, the

taxpayer's: (1) spouse; (2) child or descendant of a child; (3) brother, sister, stepbrother or stepsister; (4) father,

mother or ancestor of either; (5) stepfather or stepmother; (6) niece or nephew; (7) aunt or uncle; (8) in-law; (9) the

spouse of any individual described in (2)-(8); and (10) any first cousin of the designated beneficiary.

156

529A(b)(2)(B).

157

529(c)(3)(A).

158

Sec. 68.

itemized deductions may not be reduced by more than 80 percent by reason of the overall limit

on itemized deductions.

House Bill

The House bill repeals the overall limitation on itemized deductions.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment follows the House bill. Under the Senate amendment, the

suspension of the overall limitation on itemized deductions does not apply to taxable years

beginning after December 31, 2025.

Conference Agreement

The conference agreement follows the Senate amendment.

D. Simplification and Reform of Deductions and Exclusions

1. Modification of deduction for home mortgage interest (sec. 1302 of the House bill,

sec. 11043 of the Senate amendment, and sec. 163(h) of the Code)

Present Law

As a general matter, personal interest is not deductible.

159

Qualified residence interest is

not treated as personal interest and is allowed as an itemized deduction, subject to limitations.

160

Qualified residence interest means interest paid or accrued during the taxable year on either

acquisition indebtedness or home equity indebtedness. A qualified residence means the

taxpayer’s principal residence and one other residence of the taxpayer selected to be a qualified

residence. A qualified residence can be a house, condominium, cooperative, mobile home, house

trailer, or boat.

Acquisition indebtedness

Acquisition indebtedness is indebtedness that is incurred in acquiring, constructing, or

substantially improving a qualified residence of the taxpayer and which secures the residence.

The maximum amount treated as acquisition indebtedness is $1 million ($500,000 in the case of

a married person filing a separate return).

Acquisition indebtedness also includes indebtedness from the refinancing of other

acquisition indebtedness but only to the extent of the amount (and term) of the refinanced

indebtedness. Thus, for example, if the taxpayer incurs $200,000 of acquisition indebtedness to

acquire a principal residence and pays down the debt to $150,000, the taxpayer’s acquisition

indebtedness with respect to the residence cannot thereafter be increased above $150,000 (except

by indebtedness incurred to substantially improve the residence).

Interest on acquisition indebtedness is allowable in computing alternative minimum

taxable income. However, in the case of a second residence, the acquisition indebtedness may

only be incurred with respect to a house, apartment, condominium, or a mobile home that is not

used on a transient basis.

Home equity indebtedness

Home equity indebtedness is indebtedness (other than acquisition indebtedness) secured

by a qualified residence.

The amount of home equity indebtedness may not exceed $100,000 ($50,000 in the case

of a married individual filing a separate return) and may not exceed the fair market value of the

residence reduced by the acquisition indebtedness.

159

Sec. 163(h)(1).

160

Sec. 163(h)(2)(D) and (h)(3).

Interest on home equity indebtedness is not deductible in computing alternative minimum

taxable income.

Interest on qualifying home equity indebtedness is deductible, regardless of how the

proceeds of the indebtedness are used. For example, personal expenditures may include health

costs and education expenses for the taxpayer’s family members or any other personal expenses

such as vacations, furniture, or automobiles. A taxpayer and a mortgage company can contract

for the home equity indebtedness loan proceeds to be transferred to the taxpayer in a lump sum

payment (e.g., a traditional mortgage), a series of payments (e.g., a reverse mortgage), or the

lender may extend the borrower a line of credit up to a fixed limit over the term of the loan (e.g.,

a home equity line of credit).

Thus, the aggregate limitation on the total amount of a taxpayer’s acquisition

indebtedness and home equity indebtedness with respect to a taxpayer’s principal residence and a

second residence that may give rise to deductible interest is $1,100,000 ($550,000, for married

persons filing a separate return).

House Bill

The House bill modifies the home mortgage interest deduction in the following ways.

First, under the provision, only interest paid on indebtedness used to acquire, construct or

substantially improve the taxpayer’s principal residence may be included in the calculation of the

deduction. Thus, under the provision, a taxpayer receives no deduction for interest paid on

indebtedness used to acquire a second home.

Second, under the provision, a taxpayer may treat no more than $500,000 as principal

residence acquisition indebtedness ($250,000 in the case of married taxpayers filing separately).

In the case of principal residence acquisition indebtedness incurred before the date of

introduction (November 2, 2017), this limitation is $1,000,000 ($500,000 in the case of married

taxpayers filing separately).

161

Although the term principal residence acquisition indebtedness is

not defined in the statute, it is intended that this “grandfathering” provision apply only with

respect to indebtedness incurred with respect to a taxpayer’s principal residence.

Last, under the provision, interest paid on home equity indebtedness is not treated as

qualified residence interest, and thus is not deductible. This is the case regardless of when the

home equity indebtedness was incurred.

Effective date.−The provision is effective for interest paid or accrued in taxable years

beginning after December 31, 2017.

161

Special rules apply in the case of indebtedness from refinancing existing principal residence acquisition

indebtedness. Specifically, the $1,000,000 ($500,000 in the case of married taxpayers filing separately) limitation

continues to apply to any indebtedness incurred on or after November 2, 2017, to refinance qualified residence

indebtedness incurred before that date to the extent the amount of the indebtedness resulting from the refinancing

does not exceed the amount of the refinanced indebtedness. Thus, the maximum dollar amount that may be treated

as principal residence acquisition indebtedness will not decrease by reason of a refinancing.

Senate Amendment

The Senate amendment suspends the deduction for interest on home equity indebtedness.

Thus, for taxable years beginning after December 31, 2017, a taxpayer may not claim a

deduction for interest on home equity indebtedness. The suspension ends for taxable years

beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement provides that, in the case of taxable years beginning after

December 31, 2017, and beginning before January 1, 2026, a taxpayer may treat no more than

$750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing

separately). In the case of acquisition indebtedness incurred before December 15, 2017

162

this

limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately).

163

For

taxable years beginning after December 31, 2025, a taxpayer may treat up to $1,000,000

($500,000 in the case of married taxpayers filing separately) of indebtedness as acquisition

indebtedness, regardless of when the indebtedness was incurred.

Additionally, the conference agreement suspends the deduction for interest on home

equity indebtedness. Thus, for taxable years beginning after December 31, 2017, a taxpayer may

not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable

years beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

2. Modification of deduction for taxes not paid or accrued in a trade or business (sec. 1303

of the House bill, sec. 11042 of the Senate amendment, and sec. 164 of the Code)

Present Law

Individuals are permitted a deduction for certain taxes paid or accrued, whether or not

incurred in a taxpayer’s trade or business. These taxes are: (i) State and local real and foreign

162

The conference agreement provides that a taxpayer who has entered into a binding written 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, shall be considered to incurred acquisition indebtedness prior to

December 15, 2017 under this provision.

163

Special rules apply in the case of indebtedness from refinancing existing acquisition indebtedness.

Specifically, the $1,000,000 ($500,000 in the case of married taxpayers filing separately) limitation continues to

apply to any indebtedness incurred on or after December 15, 2017, to refinance qualified residence indebtedness

incurred before that date to the extent the amount of the indebtedness resulting from the refinancing does not exceed

the amount of the refinanced indebtedness. Thus, the maximum dollar amount that may be treated as principal

residence acquisition indebtedness will not decrease by reason of a refinancing.

property taxes;

164

(ii) State and local personal property taxes;

165

(iii) State, local, and foreign

income, war profits, and excess profits taxes.

166

At the election of the taxpayer, an itemized

deduction may be taken for State and local general sales taxes in lieu of the itemized deduction

for State and local income taxes.

167

Property taxes may be allowed as a deduction in computing adjusted gross income if

incurred in connection with property used in a trade or business; otherwise they are an itemized

deduction. In the case of State and local income taxes, the deduction is an itemized deduction

notwithstanding that the tax may be imposed on profits from a trade or business.

168

Individuals also are permitted a deduction for Federal and State generation skipping

transfer tax (“GST tax”) imposed on certain income distributions that are included in the gross

income of the distributee.

169

In determining a taxpayer’s alternative minimum taxable income, no itemized deduction

for property, income, or sales tax is allowed.

House Bill

Under the provision, in the case of an individual, as a general matter, State, local, and

foreign property taxes and State and local sales taxes are allowed as a deduction only when paid

or accrued in carrying on a trade or business, or an activity described in section 212 (relating to

expenses for the production of income).

170

Thus, the provision allows only those deductions for

State, local, and foreign property taxes, and sales taxes, that are presently deductible in

computing income on an individual’s Schedule C, Schedule E, or Schedule F on such

individual’s tax return. Thus, for instance, in the case of property taxes, an individual may

deduct such items only if these taxes were imposed on business assets (such as residential rental

property).

164

Sec. 164(a)(1).

165

Sec. 164(a)(2).

166

Sec. 164(a)(3). A foreign tax credit, in lieu of a deduction, is allowable for foreign taxes if the taxpayer

so elects.

167

Sec. 164(b)(5).

168

See H. Rep. No. 1365 to accompany Individual Income Tax Bill of 1944 (78

Cong., 2d. Sess.),

reprinted at 19 C.B. 839 (1944).

169

Sec. 164(a)(4).

170

The proposal does not modify the deductibility of GST tax imposed on certain income distributions.

Additionally, taxes imposed at the entity level, such as a business tax imposed on pass-through entities, that are

reflected in a partner’s or S corporation shareholder’s distributive or pro-rata share of income or loss on a Schedule

K-1 (or similar form), will continue to reduce such partner’s or shareholder’s distributive or pro-rata share of income

as under present law.

The provision contains an exception to the above-stated rule in the case of real property

taxes. Under this exception, an individual may claim an itemized deduction of up to $10,000

($5,000 for married taxpayer filing a separate return) for property taxes paid or accrued in the

taxable year, in addition to any property taxes deducted in carrying on a trade or business or an

activity described in section 212. Foreign real property taxes may not be deducted under this

exception.

Under the provision, in the case of an individual, State and local income, war profits, and

excess profits taxes are not allowable as a deduction.

It is intended that persons required to report refunds of State and local income taxes

under section 6050E should no longer be required to report such refunds of tax relating to taxable

years beginning after December 31, 2017. A technical amendment may be needed to reflect this

intent.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment follows the House bill. However, under the Senate amendment,

the suspension of the deduction for State and local taxes expires for taxable years beginning after

December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement provides that in the case of an individual,

171

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).

172

Thus, the provision allows

only those deductions for State, local, and foreign property taxes, and sales taxes, that are

presently deductible in computing income on an individual’s Schedule C, Schedule E, or

Schedule F on such individual’s tax return. Thus, for instance, in the case of property taxes, an

individual may deduct such items only if these taxes were imposed on business assets (such as

residential rental property).

171

See sec. 641(b) regarding the computation of taxable income of an estate or trust in the same manner as

an individual.

172

The proposal does not modify the deductibility of GST tax imposed on certain income distributions.

Additionally, taxes imposed at the entity level, such as a business tax imposed on pass-through entities, that are

reflected in a partner’s or S corporation shareholder’s distributive or pro-rata share of income or loss on a Schedule

K-1 (or similar form), will continue to reduce such partner’s or shareholder’s distributive or pro-rata share of income

as under present law.

Under the provision, in the case of an individual, State and local income, war profits, and

excess profits taxes are not allowable as a deduction.

The provision contains an exception 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.

The above rules apply to taxable years beginning after December 31, 2017, and

beginning before January 1, 2026.

The conference agreement also provides that, in the case of an amount paid in a taxable

year beginning before January 1, 2018, with respect to a State or local income tax imposed for a

taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last

day of the taxable year for which such tax is so imposed for purposes of applying the provision

limiting the dollar amount of the deduction. Thus, under the provision, an individual may not

claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in

order to avoid the dollar limitation applicable for taxable years beginning after 2017.

Effective date.−The provision is effective for taxable years beginning after December 31,

2016.

3. Repeal of deduction for personal casualty and theft losses (sec. 1304 of the House bill,

sec. 11044 of the Senate amendment, and sec. 165 of the Code)

Present Law

A taxpayer may generally claim a deduction for any loss sustained during the taxable

year, not compensated by insurance or otherwise. For individual taxpayers, deductible losses

must be incurred in a trade or business or other profit-seeking activity or consist of property

losses arising from fire, storm, shipwreck, or other casualty, or from theft.

173

Personal casualty

or theft losses are deductible only if they exceed $100 per casualty or theft. In addition,

aggregate net casualty and theft losses are deductible only to the extent they exceed 10 percent of

an individual taxpayer’s adjusted gross income.

House Bill

The House bill repeals the deduction for personal casualty and theft losses. However,

notwithstanding the repeal of the deduction, the provision retains the benefit of the deduction, as

modified by the Disaster Tax Relief and Airport and Airway Extension Act of 2017,

174

for those

173

Sec. 165(c).

174

Pub. L. No. 115-63.

individuals who sustained a personal casualty loss arising from hurricanes Harvey, Irma, or

Maria.

Effective date.−The provision is effective for losses incurred in taxable years beginning

after December 31, 2017.

Senate Amendment

The Senate amendment temporarily modifies the deduction for personal casualty and

theft losses. Under the provision, a taxpayer may claim a personal casualty loss (subject to the

limitations described above) only if such loss was attributable to a disaster declared by the

President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance

Act.

The above-described limitation does not apply with respect to losses incurred after

December 31, 2025.

Effective date.−The provision is effective for losses incurred in taxable years beginning

after December 31, 2017.

Conference Agreement

The conference agreement follows the Senate amendment.

4. Limitation on wagering losses (sec. 1305 of the House bill, sec. 11051 of the Senate

amendment, and sec. 165 of the Code)

Present Law

Losses sustained during the taxable year on wagering transactions are allowed as a

deduction only to the extent of the gains during the taxable year from such transactions.

175

House Bill

The House bill clarifies the scope of “losses from wagering transactions” as that term is

used in section 165(d). Under the provision, this term includes any deduction otherwise

allowable under chapter 1 of the Code incurred in carrying on any wagering transaction.

The provision is intended to clarify that the limitation on losses from wagering

transactions applies not only to the actual costs of wagers incurred by an individual, but to other

expenses incurred by the individual in connection with the conduct of that individual’s gambling

175

Sec. 165(d).

activity.

176

The provision clarifies, for instance, an individual’s otherwise deductible expenses in

traveling to or from a casino are subject to the limitation under section 165(d).

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment follows the House bill. However, the Senate amendment does

not apply to taxable years beginning after December 31, 2025.

Conference Agreement

The conference agreement follows the Senate amendment

5. Modifications to the deduction for charitable contributions (sec. 1306 of the House bill,

secs. 11023, 13703, and 13704 of the Senate amendment, and sec. 170 of the Code)

Present Law

In general

The Internal Revenue Code allows taxpayers to reduce their income tax liability by

taking deductions for contributions to certain organizations, including charities, Federal, State,

local, and Indian tribal governments, and certain other organizations.

To be deductible, a charitable contribution generally must meet several threshold

requirements. First, the recipient of the transfer must be eligible to receive charitable

contributions (i.e., an organization or entity described in section 170(c)). Second, the transfer

must be made with gratuitous intent and without the expectation of a benefit of substantial

economic value in return. Third, the transfer must be complete and generally must be a transfer

of a donor’s entire interest in the contributed property (i.e., not a contingent or partial interest

contribution). To qualify for a current year charitable deduction, payment of the contribution

must be made within the taxable year.

177

Fourth, the transfer must be of money or property—

contributions of services are not deductible.

178

Finally, the transfer must be substantiated and in

the proper form.

176

The provision thus reverses the result reached by the Tax Court in Ronald A. Mayo v. Commissioner,

136 T.C. 81 (2011). In that case, the Court held that a taxpayer’s expenses incurred in the conduct of the trade or

business of gambling, other than the cost of wagers, were not limited by sec. 165(d), and were thus deductible under

sec. 162(a).

177

Sec. 170(a)(1).

178

For example, as discussed in greater detail below, the value of time spent volunteering for a charitable

organization is not deductible. Incidental expenses such as mileage, supplies, or other expenses incurred while

volunteering for a charitable organization, however, may be deductible.

As discussed below, special rules limit the deductibility of a taxpayer’s charitable

contributions in a given year to a percentage of income, and those rules, in part, turn on whether

the organization receiving the contributions is a public charity or a private foundation. Other

special rules determine the deductible value of contributed property for each type of property.

Contributions of partial interests in property

In general

In general, a charitable deduction is not allowed for income, estate, or gift tax purposes if

the donor transfers an interest in property to a charity while retaining an interest in that property

or transferring an interest in that property to a noncharity for less than full and adequate

consideration.

179

This rule of nondeductibility, often referred to as the partial interest rule,

generally prohibits a charitable deduction for contributions of income interests, remainder

interests, or rights to use property.

A charitable contribution deduction generally is not allowable for a contribution of a

future interest in tangible personal property.

180

For this purpose, a future interest is one “in

which a donor purports to give tangible personal property to a charitable organization, but has an

understanding, arrangement, agreement, etc., whether written or oral, with the charitable

organization that has the effect of reserving to, or retaining in, such donor a right to the use,

possession, or enjoyment of the property.”

181

A gift of an undivided portion of a donor’s entire interest in property generally is not

treated as a nondeductible gift of a partial interest in property.

182

For this purpose, an undivided

portion of a donor’s entire interest in property must consist of a fraction or percentage of each

and every substantial interest or right owned by the donor in such property and must extend over

the entire term of the donor’s interest in such property.

183

A gift generally is treated as a gift of

an undivided portion of a donor’s entire interest in property if the donee is given the right, as a

179

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

180

Sec. 170(a)(3).

181

Treas. Reg. sec. 1.170A-5(a)(4). Treasury regulations provide that section 170(a)(3), which generally

denies a deduction for a contribution of a future interest in tangible personal property, has “no application in respect

of a transfer of an undivided present interest in property. For example, a contribution of an undivided one-quarter

interest in a painting with respect to which the donee is entitled to possession during three months of each year shall

be treated as made upon the receipt by the donee of a formally executed and acknowledged deed of gift. However,

the period of initial possession by the donee may not be deferred in time for more than one year.” Treas. Reg. sec.

1.170A-5(a)(2).

182

Sec. 170(f)(3)(B)(ii).

183

Treas. Reg. sec. 1.170A-7(b)(1).

tenant in common with the donor, to possession, dominion, and control of the property for a

portion of each year appropriate to its interest in such property.

184

Other exceptions to the partial interest rule are provided for, among other interests:

(1) remainder interests in charitable remainder annuity trusts, charitable remainder unitrusts, and

pooled income funds; (2) present interests in the form of a guaranteed annuity or a fixed

percentage of the annual value of the property; (3) a remainder interest in a personal residence or

farm; and (4) qualified conservation contributions.

Qualified conservation contributions

Qualified conservation contributions are not subject to the partial interest rule, which

generally bars deductions for charitable contributions of partial interests in property.

185

qualified conservation contribution is a contribution of a qualified real property interest to a

qualified organization exclusively for conservation purposes. A qualified real property interest is

defined as: (1) the entire interest of the donor other than a qualified mineral interest; (2) a

remainder interest; or (3) a restriction (granted in perpetuity) on the use that may be made of the

real property (generally, a conservation easement). Qualified organizations include certain

governmental units, public charities that meet certain public support tests, and certain supporting

organizations. Conservation purposes include: (1) the preservation of land areas for outdoor

recreation by, or for the education of, the general public; (2) the protection of a relatively natural

habitat of fish, wildlife, or plants, or similar ecosystem; (3) the preservation of open space

(including farmland and forest land) where such preservation will yield a significant public

benefit and is either for the scenic enjoyment of the general public or pursuant to a clearly

delineated Federal, State, or local governmental conservation policy; and (4) the preservation of

an historically important land area or a certified historic structure.

Percentage limits on charitable contributions

Individual taxpayers

Charitable contributions by individual taxpayers are limited to a specified percentage of

the individual’s contribution base. The contribution base is the taxpayer’s adjusted gross income

(“AGI”) for a taxable year, disregarding any net operating loss carryback to the year under

section 172.

186

In general, more favorable (higher) percentage limits apply to contributions of

cash and ordinary income property than to contributions of capital gain property. More

favorable limits also generally apply to contributions to public charities (and certain operating

foundations) than to contributions to nonoperating private foundations.

More specifically, the deduction for charitable contributions by an individual taxpayer of

cash and property that is not appreciated to a charitable organization described in section

184

Treas. Reg. sec. 1.170A-7(b)(1).

185

Secs. 170(f)(3)(B)(iii) and 170(h).

186

Sec. 170(b)(1)(G).

170(b)(1)(A) (public charities, private foundations other than nonoperating private foundations,

and certain governmental units) may not exceed 50 percent of the taxpayer’s contribution base.

Contributions of this type of property to nonoperating private foundations generally may be

deducted up to the lesser of 30 percent of the taxpayer’s contribution base or the excess of (i) 50

percent of the contribution base over (ii) the amount of contributions subject to the 50 percent

limitation.

Contributions of appreciated capital gain property to public charities and other

organizations described in section 170(b)(1)(A) generally are deductible up to 30 percent of the

taxpayer’s contribution base (after taking into account contributions other than contributions of

capital gain property). An individual may elect, however, to bring all these contributions of

appreciated capital gain property for a taxable year within the 50-percent limitation category by

reducing the amount of the contribution deduction by the amount of the appreciation in the

capital gain property. Contributions of appreciated capital gain property to nonoperating private

foundations are deductible up to the lesser of 20 percent of the taxpayer’s contribution base or

the excess of (i) 30 percent of the contribution base over (ii) the amount of contributions subject

to the 30 percent limitation.

Finally, contributions that are for the use of (not to) the donee charity get less favorable

percentage limits. Contributions of capital gain property for the use of public charities and other

organizations described in section 170(b)(1)(A) also are limited to 20 percent of the taxpayer’s

contribution base. Property contributed for the use of an organization generally has been

interpreted to mean property contributed in trust for the organization.

187

Charitable contributions

of income interests (where deductible) also generally are treated as contributions for the use of

the donee organization.

187

Rockefeller v. Commissioner, 676 F.2d 35, 39 (2d Cir. 1982).

Table 3.–Charitable Contribution Percentage Limits For Individual Taxpayers

188

Ordinary Income

Property and Cash

Capital Gain

Property to the

Recipient

189

Capital Gain

Property for the use

of the Recipient

Public Charities, Private

Operating Foundations, and

Private Distributing Foundations

50% 30%

190

20%

Nonoperating Private

Foundations

30% 20% 20%

Corporate taxpayers

A corporation generally may deduct charitable contributions up to 10 percent of the

corporation’s taxable income for the year.

191

For this purpose, taxable income is determined

without regard to: (1) the charitable contributions deduction; (2) any net operating loss

carryback to the taxable year; (3) deductions for dividends received; (4) deductions for dividends

paid on certain preferred stock of public utilities; and (5) any capital loss carryback to the taxable

year.

192

Carryforwards of excess contributions

Charitable contributions that exceed the applicable percentage limit generally may be

carried forward for up to five years.

193

In general, contributions carried over from a prior year

are taken into account after contributions for the current year that are subject to the same

percentage limit. Excess contributions made for the use of (rather than to) an organization

generally may not be carried forward.

188

Percentages shown are the percentage of an individual’s contribution base.

189

Capital gain property contributed to public charities, private operating foundations, or private

distributing foundations will be subject to the 50-percent limitation if the donor elects to reduce the fair market value

of the property by the amount that would have been long-term capital gain if the property had been sold.

190

Certain qualified conservation contributions to public charities (generally, conservation easements),

qualify for more generous contribution limits. In general, the 30-percent limit applicable to contributions of capital

gain property is increased to 100 percent if the individual making the qualified conservation contribution is a

qualified farmer or rancher or to 50 percent if the individual is not a qualified farmer or rancher.

191

Sec. 170(b)(2)(A).

192

Sec. 170(b)(2)(C).

193

Sec. 170(d).

Qualified conservation contributions

Preferential percentage limits and carryforward rules apply for qualified conservation

contributions.

194

In general, the 30-percent contribution base limitation on contributions of

capital gain property by individuals does not apply to qualified conservation contributions.

Instead, individuals may deduct the fair market value of any qualified conservation contribution

to an organization described in section 170(b)(1)(A) (generally, public charities) to the extent of

the excess of 50 percent of the contribution base over the amount of all other allowable

charitable contributions. These contributions are not taken into account in determining the

amount of other allowable charitable contributions. Individuals are allowed to carry forward any

qualified conservation contributions that exceed the 50-percent limitation for up to 15 years. In

the case of an individual who is a qualified farmer or rancher for the taxable year in which the

contribution is made, a qualified conservation contribution is allowable up to 100 percent of the

excess of the taxpayer’s contribution base over the amount of all other allowable charitable

contributions.

In the case of a corporation (other than a publicly traded corporation) that is a qualified

farmer or rancher for the taxable year in which the contribution is made, any qualified

conservation contribution is allowable up to 100 percent of the excess of the corporation’s

taxable income (as computed under section 170(b)(2)) over the amount of all other allowable

charitable contributions. Any excess may be carried forward for up to 15 years as a contribution

subject to the 100-percent limitation.

195

A qualified farmer or rancher means a taxpayer whose gross income from the trade or

business of farming (within the meaning of section 2032A(e)(5)) is greater than 50 percent of the

taxpayer’s gross income for the taxable year.

Valuation of charitable contributions

In general

For purposes of the income tax charitable deduction, the value of property contributed to

charity may be limited to the fair market value of the property, the donor’s tax basis in the

property, or in some cases a different amount.

Charitable contributions of cash are deductible in the amount contributed, subject to the

percentage limits discussed above. In addition, a taxpayer generally may deduct the full fair

market value of long-term capital gain property contributed to charity.

196

Contributions of

194

Sec. 170(b)(1)(E).

195

Sec. 170(b)(2)(B).

196

Capital gain property means any capital asset or property used in the taxpayer’s trade or business, the

sale of which at its fair market value, at the time of contribution, would have resulted in gain that would have been

long-term capital gain. Sec. 170(e)(1)(A).

tangible personal property also generally are deductible at fair market value if the use by the

recipient charitable organization is related to its tax-exempt purpose.

In certain other cases, however, section 170(e) limits the deductible value of the

contribution of appreciated property to the donor’s tax basis in the property. This limitation of

the property’s deductible value to basis generally applies, for example, for: (1) contributions of

inventory or other ordinary income or short-term capital gain property;

197

(2) contributions of

tangible personal property if the use by the recipient charitable organization is unrelated to the

organization’s tax-exempt purpose;

198

and (3) contributions to or for the use of a private

foundation (other than certain private operating foundations).

199

For contributions of qualified appreciated stock, the above-described rule that limits the

value of property contributed to or for the use of a private nonoperating foundation to the

taxpayer’s basis in the property does not apply; therefore, subject to certain limits, contributions

of qualified appreciated stock to a nonoperating private foundation may be deducted at fair

market value.

200

Qualified appreciated stock is stock that is capital gain property and for which

(as of the date of the contribution) market quotations are readily available on an established

securities market.

201

A contribution of qualified appreciated stock (when increased by the

aggregate amount of all prior such contributions by the donor of stock in the corporation)

generally does not include a contribution of stock to the extent the amount of the stock

contributed exceeds 10 percent (in value) of all of the outstanding stock of the corporation.

202

Contributions of property with a fair market value that is less than the donor’s tax basis

generally are deductible at the fair market value of the property.

Enhanced deduction rules for certain contributions of inventory and other property

Although most charitable contributions of property are valued at fair market value or the

donor’s tax basis in the property, certain statutorily described contributions of appreciated

inventory and other property qualify for an enhanced deduction valuation that exceeds the

donor’s tax basis in the property, but which is less than the fair market value of the property.

197

Sec. 170(e). Special rules, discussed below, apply for certain contributions of inventory and other

property.

198

Sec. 170(e)(1)(B)(i)(I).

199

Sec. 170(e)(1)(B)(ii). Certain contributions of patents or other intellectual property also generally are

limited to the donor’s basis in the property. Sec. 170(e)(1)(B)(iii). However, a special rule permits additional

charitable deductions beyond the donor’s tax basis in certain situations.

200

Sec. 170(e)(5).

201

Sec. 170(e)(5)(B).

202

Sec. 170(e)(5)(C).

As discussed above, a taxpayer’s deduction for charitable contributions of inventory

property generally is limited to the taxpayer’s basis (typically, cost) in the inventory, or if less,

the fair market value of the property. For certain contributions of inventory, however, C

corporations (but not other taxpayers) may claim an enhanced deduction equal to the lesser of

(1) basis plus one-half of the item’s appreciation (i.e., basis plus one-half of fair market value in

excess of basis) or (2) two times basis.

203

To be eligible for the enhanced deduction value, the

contributed property generally must be inventory of the taxpayer, contributed to a charitable

organization described in section 501(c)(3) (except for private nonoperating foundations), and

the donee must (1) use the property consistent with the donee’s exempt purpose solely for the

care of the ill, the needy, or infants, (2) not transfer the property in exchange for money, other

property, or services, and (3) provide the taxpayer a written statement that the donee’s use of the

property will be consistent with such requirements.

204

Contributions to organizations that are not

described in section 501(c)(3), such as governmental entities, do not qualify for this enhanced

deduction.

To use the enhanced deduction provision, the taxpayer must establish that the fair market

value of the donated item exceeds basis.

A taxpayer engaged in a trade or business, whether or not a C corporation, is eligible to

claim the enhanced deduction for certain donations of food inventory.

205

Selected statutory rules for specific types of contributions

Special statutory rules limit the deductible value (and impose enhanced reporting

obligations on donors) of charitable contributions of certain types of property, including vehicles,

intellectual property, and clothing and household items. Each of these rules was enacted in

response to concerns that some taxpayers did not accurately report – and in many instances

overstated – the value of the property for purposes of claiming a charitable deduction.

Vehicle donations.−Under present law, the amount of deduction for charitable

contributions of vehicles (generally including automobiles, boats, and airplanes for which the

claimed value exceeds $500 and excluding inventory property) depends upon the use of the

vehicle by the donee organization. If the donee organization sells the vehicle without any

significant intervening use or material improvement of such vehicle by the organization, the

amount of the deduction may not exceed the gross proceeds received from the sale. In other

situations, a fair market value deduction may be allowed.

203

Sec. 170(e)(3).

204

Sec. 170(e)(3)(A)(i)-(iii).

205

Sec. 170(e)(3)(C).

Patents and other intellectual property.−If a taxpayer contributes a patent or other

intellectual property (other than certain copyrights or inventory)

206

to a charitable organization,

the taxpayer’s initial charitable deduction is limited to the lesser of the taxpayer’s basis in the

contributed property or the fair market value of the property.

207

In addition, the taxpayer

generally is permitted to deduct, as a charitable contribution, certain additional amounts in the

year of contribution or in subsequent taxable years based on a specified percentage of the

qualified donee income received or accrued by the charitable donee with respect to the

contributed intellectual property. For this purpose, qualified donee income includes net income

received or accrued by the donee that properly is allocable to the intellectual property itself (as

opposed to the activity in which the intellectual property is used).

208

Clothing and household items.−Charitable contributions of clothing and household items

generally are subject to the charitable deduction rules applicable to tangible personal property. If

such contributed property is appreciated property in the hands of the taxpayer, and is not used to

further the donee’s exempt purpose, the deduction is limited to basis. In most situations,

however, clothing and household items have a fair market value that is less than the taxpayer’s

basis in the property. Because property with a fair market value less than basis generally is

deductible at the property’s fair market value, taxpayers generally may deduct only the fair

market value of most contributions of clothing or household items, regardless of whether the

property is used for exempt or unrelated purposes by the donee organization. Furthermore, a

special rule generally provides that no deduction is allowed for a charitable contribution of

clothing or a household item unless the item is in good used or better condition. The Secretary is

authorized to deny by regulation a deduction for any contribution of clothing or a household item

that has minimal monetary value, such as used socks and used undergarments. Notwithstanding

the general rule, a charitable contribution of clothing or household items not in good used or

better condition with a claimed value of more than $500 may be deducted if the taxpayer

includes with the taxpayer’s return a qualified appraisal with respect to the property.

209

Household items include furniture, furnishings, electronics, appliances, linens, and other similar

items. Food, paintings, antiques, and other objects of art, jewelry and gems, and certain

collections are excluded from the special rules described in the preceding paragraph.

210

206

Under present and prior law, certain copyrights are not considered capital assets, such that the

charitable deduction for such copyrights generally is limited to the taxpayer’s basis. See sec. 1221(a)(3),

1231(b)(1)(C).

207

Sec. 170(e)(1)(B)(iii).

208

The present-law rules allowing additional charitable deductions for qualified donee income were

enacted as part of the American Jobs Creation Act of 2004, and are effective for contributions made after June 3,

2004. For a more detailed description of these rules, see Joint Committee on Taxation, General Explanation of Tax

Legislation Enacted in the 108

Congress (JCS-5-05), May 2005, pp. 457-461.

209

As is discussed above, the charitable contribution substantiation rules generally require a qualified

appraisal where the claimed value of a contribution is more than $5,000.

210

The special rules concerning the deductibility of clothing and household items were enacted as part of

the Pension Protection Act of 2006, P.L. 109-280 (August 17, 2006), and are effective for contributions made after

College athletic seating rights.−In general, where a taxpayer receives or expects to

receive a substantial return benefit for a payment to charity, the payment is not deductible as a

charitable contribution. However, special rules apply to certain payments to institutions of

higher education in exchange for which the payor receives the right to purchase tickets or seating

at an athletic event. Specifically, the payor may treat 80 percent of a payment as a charitable

contribution where: (1) the amount is paid to or for the benefit of an institution of higher

education (as defined in section 3304(f)) described in section (b)(1)(A)(ii) (generally, a school

with a regular faculty and curriculum and meeting certain other requirements), and (2) such

amount would be allowable as a charitable deduction but for the fact that the taxpayer receives

(directly or indirectly) as a result of the payment the right to purchase tickets for seating at an

athletic event in an athletic stadium of such institution.

211

Use of a vehicle when volunteering for a charity

Unreimbursed out-of-pocket expenditures made incident to providing donated services to

a qualified charitable organization − such as out-of-pocket transportation expenses necessarily

incurred in performing donated services − may qualify as a charitable contribution.

212

charitable contribution deduction is allowed for traveling expenses (including expenses for meals

and lodging) while away from home, whether paid directly or by reimbursement, unless there is

no significant element of personal pleasure, recreation, or vacation in such travel.

213

In determining the amount treated as a charitable contribution where a taxpayer operates

a vehicle in providing donated services to a charity, the taxpayer either may track and deduct

actual out-of-pocket expenditures or, in the case of a passenger automobile, may use the

charitable standard mileage rate. The charitable standard mileage rate is set by statute at 14 cents

per mile.

214

The taxpayer may also deduct (under either computation method), any parking fees

and tolls incurred in rendering the services, but may not deduct any amount (regardless of the

computation method used) for general repair or maintenance expenses, depreciation, insurance,

registration fees, etc. Regardless of the computation method used, the taxpayer must keep

reliable written records of expenses incurred. For example, where a taxpayer uses the charitable

standard mileage rate to determine a deduction, the IRS has stated that the taxpayer generally

must maintain records of miles driven, time, place (or use), and purpose of the mileage. If the

August 17, 2006. For a more detailed description of these rules, see Joint Committee on Taxation, General

Explanation of Tax Legislation Enacted in the 109

Congress (JCS-1-07), January 17, 2007, pp. 597-600.

211

Sec. 170(l).

212

Treas. Reg. sec. 1.170A-1(g).

213

Sec. 170(j).

214

Sec. 170(i).

charitable standard mileage rate is not used to determine the deduction, the taxpayer generally

must maintain reliable written records of actual expenses incurred.

215

Substantiation and other formal requirements

In general

A donor who claims a deduction for a charitable contribution must maintain reliable

written records regarding the contribution, regardless of the value or amount of such

contribution.

216

In the case of a charitable contribution of money, regardless of the amount,

applicable recordkeeping requirements are satisfied only if the donor maintains as a record of the

contribution a bank record or a written communication from the donee showing the name of the

donee organization, the date of the contribution, and the amount of the contribution. In such

cases, the recordkeeping requirements may not be satisfied by maintaining other written records.

No charitable contribution deduction is allowed for a separate contribution of $250 or

more unless the donor obtains a contemporaneous written acknowledgement of the contribution

from the charity indicating whether the charity provided any good or service (and an estimate of

the value of any such good or service) to the taxpayer in consideration for the contribution.

217

In addition, any charity receiving a contribution exceeding $75 made partly as a gift and

partly as consideration for goods or services furnished by the charity (a “quid pro quo”

contribution) is required to inform the contributor in writing of an estimate of the value of the

goods or services furnished by the charity and that only the portion exceeding the value of the

goods or services is deductible as a charitable contribution.

218

If the total charitable deduction claimed for noncash property is more than $500, the

taxpayer must attach a completed Form 8283 (Noncash Charitable Contributions) to the

taxpayer’s return or the deduction is not allowed.

219

In general, taxpayers are required to obtain

215

In lieu of actual operating expenses, an optional standard mileage rate may be used in computing

deductible transportation expenses for medical purposes (section 213) or for work-related moving (section 217).

The standard mileage rates for medical and moving purposes generally cover only out-of-pocket operating expenses

(including gasoline and oil) directly related to the use of the automobile. Such rates do not include costs that are not

deductible for medical or moving purposes, such as general maintenance expenses, depreciation, insurance, and

registration fees. The medical and moving standard mileage rates are determined by the IRS and updated

periodically. For expenses paid or incurred on or after January 1, 2017, the rate for both such purposes is 17 cents

per mile. IRS Notice 2016-79.

216

Sec. 170(f)(17).

217

Such acknowledgement must include the amount of cash and a description (but not value) of any

property other than cash contributed, whether the donee provided any goods or services in consideration for the

contribution, and a good faith estimate of the value of any such goods or services. Sec. 170(f)(8).

218

Sec. 6115.

219

Sec. 170(f)(11).

a qualified appraisal for donated property with a value of more than $5,000, and to attach an

appraisal summary to the tax return.

Exception for certain contributions reported by the donee organization

Subsection 170(f)(8)(D) provides an exception to the contemporaneous written

acknowledgment requirement described above. Under the exception, a contemporaneous written

acknowledgment is not required if the donee organization files a return, on such form and in

accordance with such regulations as the Secretary may prescribe, that includes the same content.

“[T]he section 170(f)(8)(D) exception is not available unless and until the Treasury Department

and the IRS issue final regulations prescribing the method by which donee reporting may be

accomplished.”

220

No such final regulations have been issued.

221

House Bill

The provision makes the following modifications to the present law charitable deduction

rules.

Increased percentage limit for contributions of cash to public charities

The provision increases the income-based percentage limit described in section

170(b)(1)(A) for certain charitable contributions by an individual taxpayer of cash to public

charities and certain other organizations from 50 percent to 60 percent.

Charitable mileage rate adjusted for inflation

The provision repeals the statutory charitable mileage rate and provides instead that the

standard mileage rate used for determining the charitable contribution deduction shall be a rate

which takes into account the variable costs of operating an automobile. The intent of the

provision is to allow the IRS to determine, and make periodic adjustments to, the charitable

standard mileage rate, taking into account the types of costs that are deductible under section 170

of the Code when operating a vehicle in connection with providing volunteer services (i.e.,

generally, the out-of-pocket operating expenses (including gasoline and oil) directly related to

the use of the automobile for such purposes).

220

See IRS, Notice of Proposed Rulemaking, Substantiation Requirement for Certain Contributions, REG-

138344-13 (October 13, 2015), I.R.B. 2015-41 (preamble).

221

In October 2015, the IRS issued proposed regulations that, if finalized, would have implemented the

section 170(f)(8)(D) exception to the contemporaneous written acknowledgment requirement. The proposed

regulations provided that a return filed by a donee organization under section 170(f)(8)(D) must include, in addition

to the information generally required on a contemporaneous written acknowledgment: (1) the name and address of

the donee organization; (2) the name and address of the donor; and (3) the taxpayer identification number of the

donor. In addition, the return must be filed with the IRS (with a copy provided to the donor) on or before February

28 of the year following the calendar year in which the contribution was made. Under the proposed regulations,

donee reporting would have been optional and would have been available solely at the discretion of the donee

organization. The proposed regulations were withdrawn in January 2016. See Prop. Treas. Reg. sec 1.170A-

13(f)(18).

Denial of charitable deduction for college athletic event seating rights

The provision amends section 170(l) to provide that no charitable deduction shall be

allowed for any amount described in paragraph 170(l)(2), generally, a payment to an institution

of higher education in exchange for which the payor receives the right to purchase tickets or

seating at an athletic event, as described in greater detail above.

Repeal of substantiation exception for certain contributions reported by the donee

organization

The provision repeals the section 170(f)(8)(D) exception to the contemporaneous written

acknowledgment requirement.

Effective date.−The provision is effective for contributions made in taxable years

beginning after December 31, 2017

Senate Amendment

The Senate amendment includes three of the House bill’s four modifications to the

present-law charitable contribution rules: (1) the increase in the percentage limit for charitable

contributions of cash to public charities; (2) the denial of a charitable deduction for payments

made in exchange for college athletic event seating rights; and (3) the repeal of the substantiation

exception for certain contributions reported by the donee organization.

The Senate amendment does not include the provision from the House bill that allows the

charitable standard mileage rate to be adjusted for inflation.

Effective date.−The provisions that increase the charitable contribution percentage limit

and deny a deduction for stadium seating payments are effective for contributions made in

taxable years beginning after December 31, 2017. The provision that repeals the substantiation

exception for certain contributions reported by the donee organization is effective for

contributions made in taxable years beginning after December 31, 2016.

Conference Agreement

The conference agreement follows the Senate amendment.

6. Repeal of Certain Miscellaneous Itemized Deductions Subject to the Two-Percent Floor

(secs. 1307 and 1312 of the House bill, sec. 11045 of the Senate amendment, and secs. 62, 67

and 212 of the Code)

Present Law

Individuals may claim itemized deductions for certain miscellaneous expenses. Certain of

these expenses are not deductible unless, in aggregate, they exceed two percent of the taxpayer’s

adjusted gross income (“AGI”).

222

The deductions described below are subject to the aggregate

two-percent floor.

223

Expenses for the production or collection of income

Individuals may deduct all ordinary and necessary expenses paid or incurred during the

taxable year for the production or collection of income.

224

Present law and IRS guidance provide examples of items that may be deducted under this

provision. This non-exhaustive list includes:

225

 Appraisal fees for a casualty loss or charitable contribution;

 Casualty and theft losses from property used in performing services as an employee;

 Clerical help and office rent in caring for investments;

 Depreciation on home computers used for investments;

 Excess deductions (including administrative expenses) allowed a beneficiary on

termination of an estate or trust;

 Fees to collect interest and dividends;

 Hobby expenses, but generally not more than hobby income;

 Indirect miscellaneous deductions from pass-through entities;

 Investment fees and expenses;

 Loss on deposits in an insolvent or bankrupt financial institution;

 Loss on traditional IRAs or Roth IRAs, when all amounts have been distributed;

 Repayments of income;

 Safe deposit box rental fees, except for storing jewelry and other personal effects;

 Service charges on dividend reinvestment plans; and

 Trustee’s fees for an IRA, if separately billed and paid.

222

Sec. 67(a).

223

The miscellaneous itemized deduction for tax preparation expenses is described in a separate section of

this document.

224

Sec. 212(1).

225

See IRS Publication 529, “Miscellaneous Deductions” (2016), p. 9.

Tax preparation expenses

For regular income tax purposes, individuals are allowed an itemized deduction for

expenses for the production of income. These expenses are defined as ordinary and necessary

expenses paid or incurred in a taxable year: (1) for the production or collection of income; (2) for

the management, conservation, or maintenance of property held for the production of income; or

(3) in connection with the determination, collection, or refund of any tax.

226

Unreimbursed expenses attributable to the trade or business of being an employee

In general, unreimbursed business expenses incurred by an employee are deductible, but

only as an itemized deduction and only to the extent the expenses exceed two percent of adjusted

gross income.

227

Present law and IRS guidance provide examples of items that may be deducted under this

provision. This non-exhaustive list includes:

228

 Business bad debt of an employee;

 Business liability insurance premiums;

 Damages paid to a former employer for breach of an employment contract;

 Depreciation on a computer a taxpayer’s employer requires him to use in his work;

 Dues to a chamber of commerce if membership helps the taxpayer perform his job;

 Dues to professional societies;

 Educator expenses;

229

 Home office or part of a taxpayer’s home used regularly and exclusively in the

taxpayer’s work;

 Job search expenses in the taxpayer’s present occupation;

 Laboratory breakage fees;

 Legal fees related to the taxpayer’s job;

 Licenses and regulatory fees;

 Malpractice insurance premiums;

 Medical examinations required by an employer;

226

Sec. 212.

227

Secs. 62(a)(1) and 67.

228

See IRS Publication 529, “Miscellaneous Deductions” (2016), p. 3.

229

Under a special provision, these expenses are deductible “above the line” up to $250.

 Occupational taxes;

 Passport fees for a business trip;

 Repayment of an income aid payment received under an employer’s plan;

 Research expenses of a college professor;

 Rural mail carriers’ vehicle expenses;

 Subscriptions to professional journals and trade magazines related to the taxpayer’s

work;

 Tools and supplies used in the taxpayer’s work;

 Purchase of travel, transportation, meals, entertainment, gifts, and local lodging

related to the taxpayer’s work;

 Union dues and expenses;

 Work clothes and uniforms if required and not suitable for everyday use; and

 Work-related education.

Other miscellaneous itemized deductions subject to the two-percent floor

Other miscellaneous itemized deductions subject to the two-percent floor include:

 Repayments of income received under a claim of right (only subject to the two-

percent floor if less than $3,000);

 Repayments of Social Security benefits; and

 The share of deductible investment expenses from pass-through entities.

House Bill

The House bill repeals the deduction for expenses in connection with the determination,

collection, or refund of any tax.

Under the provision, business expenses incurred by an employee are not deductible, other

than expenses that are deductible in determining adjusted gross income (that is, above-the-line

deductions).

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment suspends all miscellaneous itemized deductions that are subject

to the two-percent floor under present law. Thus, under the provision, taxpayers may not claim

the above-listed items as itemized deductions for the taxable years to which the suspension

applies. The provision does not apply for taxable years beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment.

7. Repeal of deduction for medical expenses (sec. 1308 of the House bill, sec. 11028 of the

Senate amendment and sec. 213 of the Code)

Present Law

Individuals may claim an itemized deduction for unreimbursed medical expenses, but

only to the extent that such expenses exceed 10 percent of adjusted gross income.

230

For taxable

years beginning before January 1, 2017, the 10-percent threshold is reduced to 7.5 percent in the

case of taxpayers who have attained the age of 65 before the close of the taxable year. In the

case of married taxpayers, the 7.5 percent threshold applies if either spouse has obtained the age

of 65 before the close of the taxable year. For these taxpayers, during these years, the threshold

is 10 percent for AMT purposes.

House Bill

The House bill repeals the deduction for unreimbursed medical expenses.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment provides that, for taxable years beginning after December 31,

2016 and ending before January 1, 2019, the threshold for deducting medical expenses shall be

7.5-percent for all taxpayers. For these years, this threshold applies for purposes of the AMT in

addition to the regular tax.

Effective date.−The provision is effective for taxable years beginning after December 31,

2016.

230

Sec. 213. The threshold was amended by the Patient Protection and Affordable Care Act (Pub. L. No.

111-118). For taxable years beginning before January 1, 2013, the threshold was 7.5 percent and 10 percent for

alternative minimum tax (“AMT”) purposes.

100

Conference Agreement

The conference agreement follows the Senate amendment.

8. Repeal of deduction for alimony payments and corresponding inclusion in gross income

(sec. 1309 of the House bill and secs. 61, 71, and 215 of the Code)

Present Law

Alimony and separate maintenance payments are deductible by the payor spouse and

includible in income by the recipient spouse.

231

Child support payments are not treated as

alimony.

232

House Bill

Under the House bill, alimony and separate maintenance payments are not deductible by

the payor spouse. The House bill repeals the Code provisions that specify that alimony and

separate maintenance payments are included in income. Thus, the intent of the provision is to

follow the rule of the United States Supreme Court’s holding in Gould v. Gould,

233

in which the

Court held that such payments are not income to the recipient. Income used for alimony

payments is taxed at the rates applicable to the payor spouse rather than the recipient spouse.

The treatment of child support is not changed.

Effective date.−The provision is effective for any divorce or separation instrument

executed after December 31, 2017, or for any divorce or separation instrument executed on or

before December 31, 2017, and modified after that date, if the modification expressly provides

that the amendments made by this section apply to such modification.

Senate Amendment

No provision.

Conference Agreement

The conference agreement generally follows the House bill. However, the conference

agreement delays the effective date of the provision by one year. Thus, the conference

agreement is effective for any divorce or separation instrument executed after December 31,

2018, or for any divorce or separation instrument executed on or before December 31, 2018, and

modified after that date, if the modification expressly provides that the amendments made by this

section apply to such modification.

231

Secs. 215(a), 61(a)(8) and 71(a).

232

Sec. 71(c).

233

245 U.S. 151 (1917).

101

9. Repeal of deduction for moving expenses (sec. 1310 of the House bill, sec. 11050 of the

Senate amendment, and sec. 217 of the Code)

Present Law

Individuals are permitted an above-the-line deduction for moving expenses paid or

incurred during the taxable year in connection with the commencement of work by the taxpayer

as an employee or as a self-employed individual at a new principal place of work.

234

Such

expenses are deductible only if the move meets certain conditions related to distance from the

taxpayer’s previous residence and the taxpayer’s status as a full-time employee in the new

location.

Special rules apply in the case of a member of the Armed Forces of the United States. In

the case of any such individual who is on active duty, who moves pursuant to a military order

and incident to a permanent change of station, the limitations related to distance from the

taxpayer’s previous residence and status as a full-time employee in the new location do not

apply.

235

Additionally, any moving and storage expenses which are furnished in kind to such an

individual, spouse, or dependents, or if such expenses are reimbursed or an allowance for such

expenses is provided, such amounts are excluded from gross income.

236

Rules also apply to

exclude amounts furnished to the spouse and dependents of such an individual in the event that

such individuals move to a location other than to where the member of the Armed Forces is

moving.

Present law provides income exclusions for various benefits provided to members of the

Armed Forces.

237

House Bill

The House bill generally repeals the deduction for moving expenses. The provision

intends to retain tax benefits for the moving expenses of members of the Armed Forces of the

United States.

238

Thus, the provision retains the special rules under present law that provide an

exclusion for amounts attributable to in-kind moving and storage expenses (and reimbursements

or allowances for these expenses) for members of the Armed Forces (or their spouse or

234

Sec. 217(a).

235

Sec. 217(g).

236

Sec. 217(g)(2).

237

Sec. 134.

238

A technical amendment may be needed to reflect this intent for the deduction for moving expenses for

members of the Armed Forces.

102

dependents) on active duty that move pursuant to a military order and incident to a permanent

change of station.

239

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment generally suspends the deduction for moving expenses for

taxable years 2018 through 2025. However, during that suspension period, the provision retains

the deduction for moving expenses and the rules providing for exclusions of amounts attributable

to in-kind moving and storage expenses (and reimbursements or allowances for these expenses)

for members of the Armed Forces (or their spouse or dependents) on active duty that move

pursuant to a military order and incident to a permanent change of station.

The suspension of the deduction for moving expenses does not apply to taxable years

beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment.

10. Termination of deduction and exclusions for contributions to medical savings accounts

(sec. 1311 of the House bill, secs. 106(b) and 220 of the Code)

Present Law

Archer MSAs

As of 1997, certain individuals are permitted to contribute to an Archer MSA, which is a

tax-exempt trust or custodial account.

240

Within limits, contributions to an Archer MSA are

deductible in determining adjusted gross income if made by an individual and are excludible

from gross income for income tax purposes and wages for employment tax

241

purposes if made

by the employer of an individual.

242

An individual is generally eligible for an Archer MSA if the individual is covered by a

high deductible health plan and no other health plan other than a plan that provides certain

239

Under the provision, these exclusions are added to section 134.

240

Archer MSAs were originally called medical savings accounts or MSAs.

241

The FICA exclusion is provided under IRS Notice 96-53.

242

Sections 106(b) and 220.

103

permitted insurance or permitted coverage. In addition, the individual either must be an

employee of a small employer (generally an employer with 50 or fewer employees on average)

that provides the high deductible health plan or must be self-employed or the spouse of a self-

employed individual and the high deductible health plan is not provided by the employer of the

individual or spouse.

For 2017, a high deductible health plan for purposes of Archer MSA eligibility is a health

plan with an annual deductible of at least $2,250 and not more than $3,350 in the case of self-

only coverage and at least $4,500 and not more than $6,750 in the case of family coverage. In

addition, for 2017, the maximum out-of-pocket expenses with respect to allowed costs must be

no more than $4,500 in the case of self-only coverage and no more than $8,250 in the case of

family coverage. Out-of-pocket expenses include deductibles, co-payments, and other amounts

(other than premiums) that the individual must pay for covered benefits under the plan. A plan

does not fail to qualify as a high deductible health plan if substantially all of the coverage under

the plan is certain permitted insurance or is coverage (whether provided through insurance or

otherwise) for accidents, disability, dental care, vision care, or long-term care.

The maximum annual contribution that can be made to an Archer MSA for a year is 65

percent of the annual deductible under the individual’s high deductible health plan in the case of

self-only coverage (65 percent of $3,350 for 2017) and 75 percent of the annual deductible in the

case of family coverage (75 percent of $6,750 for 2017), but in no case more than the

individual’s compensation income. In addition, the maximum contribution can be made only if

the individual is covered by the high deductible health plan for the full year.

Distributions from an Archer MSA for qualified medical expenses are not includible in

gross income. Distributions not used for qualified medical expenses are includible in gross

income and subject to an additional 20-percent tax unless an exception applies. A distribution

from an Archer MSA may be rolled over on a nontaxable basis to another Archer MSA or to a

health savings account and does not count against the contribution limits.

After 2007, no new contributions can be made to Archer MSAs except by or on behalf of

individuals who previously had made Archer MSA contributions and employees of small

employers that previously contributed to Archer MSAs (or at least 20 percent of whose

employees who were previously eligible to contribute to Archer MSAs did so).

Health savings accounts

As of 2004, an individual with a high deductible health plan (and no other health plan

other than a plan that provides certain permitted insurance or permitted coverage) generally may

contribute to a health savings account (“HSA”), which is a tax-exempt trust or custodial account.

HSAs provide similar tax-favored savings treatment as Archer MSAs. That is, within limits,

contributions to an HSA are deductible in determining adjusted gross income if made by an

individual and are excludable from gross income for income tax purposes and wages for

employment tax

243

purposes if made by the employer of an individual, and distributions for

243

The FICA exclusion is provided under IRS Notice 2004-2.

104

qualified medical expenses are not includible in gross income.

244

However, the rules for HSAs

are in various aspects more favorable than the rules for Archer MSAs. For example, the

availability of HSAs is not limited to employees of small employers or self-employed individuals

and their spouses.

For 2017, a high deductible health plan for purposes of HSA eligibility is a health plan

with an annual deductible of at least $1,300 in the case of self-only coverage and at least $2,600

in the case of family coverage. In addition, for 2017, the sum of the deductible and the

maximum out-of-pocket expenses with respect to allowed costs must be no more than $6,550 in

the case of self-only coverage and no more than $13,100 in the case of family coverage. A plan

does not fail to qualify as a high deductible health plan for HSA purposes merely because it does

not have a deductible for preventive care.

For 2017, the maximum aggregate annual contribution that can be made to an HSA is

$3,400 in the case of self-only coverage and $6,750 in the case of family coverage. The annual

contribution limits are increased by $1,000 for individuals who have attained age 55 by the end

of the taxable year (referred to as “catch-up contributions”). The maximum amount that an

individual make contribute is reduced by the amount of any contributions to the individual’s

Archer MSA and any excludable HSA contributions made by the individual’s employer. In

some cases, an individual may make the maximum HSA contribution, even if the individual is

covered by the high deductible health plan for only part of the year. A distribution from an HSA

may be rolled over on a nontaxable basis to another HSA and does not count against the

contribution limits.

House Bill

Under the provision, contributions to Archer MSAs for taxable years beginning after

December 31, 2017, are not deductible or excludible from gross income and wages.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not contain the House bill provision.

244

Secs. 106(d) and 223.

105

11. Denial of deduction for performing artists and certain officials; Modification of

deduction for educator expenses (sec. 1312 of the House bill, sec. 11032 of the Senate

amendment and sec. 62 of the Code)

Present Law

In general, unreimbursed business expenses incurred by an employee are deductible, but

only as an itemized deduction and only to the extent the expenses exceed two percent of adjusted

gross income.

245

However, in the case of certain employees and certain expenses, a deduction

may be taken in determining adjusted gross income (referred to as an “above-the-line”

deduction), including expenses of qualified performing artists, expenses of State or local

government officials performing services on a fee basis, and expenses of eligible educators.

246

Eligible educators are elementary or secondary school teachers, instructors, counselors,

principals, or aides in a school for at least 900 hours during a school year.

247

An eligible

educator may take an “above-the-line” deduction for ordinary and necessary expenses incurred

1) by reason of participation in professional development courses related to the curriculum or

students the educator teaches, or 2) in connection with books, supplies, computer and other

equipment, and supplementary materials to be used in the classroom. The deduction may not

exceed $250 (for 2017) in expenses, and is indexed for inflation.

House Bill

The House bill repeals the present-law provisions allowing for above-the-line deductions

for expenses of qualified performing artists, expenses of State or local government officials

performing services on a fee basis, and expenses of eligible educators.

248

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment temporarily increases the limit for the deduction of certain

expenses of eligible educators, in determining adjusted gross income, to $500. Any deduction

245

Secs. 62(a)(1) and 67.

246

Sec. 62(a)(2)(B), (C), and (D). Under section 62(a)(2)(A) and (C), certain reimbursements of employee

business expenses are excluded from income. Under section 62(a)(2)(E), an above-the-line deduction applies to

expenses of members of a reserve component of the Armed Forces.

247

Sec. 62(d)(1).

248

The provision retains the present-law provisions under which certain reimbursements of employee

business expenses are excluded from income and under which an above-the-line deduction applies to expenses of

members of a reserve component of the Armed Forces.

106

for expenses in excess of this amount (under present law generally a miscellaneous itemized

deduction subject to the two-percent floor) is suspended.

249

The provision does not apply to taxable years beginning after December 31, 2025.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement does not include the House bill provision or the Senate

amendment provision and retains the present-law above-the-line deduction and limit for certain

expenses of eligible educators.

12. Suspension of exclusion for qualified bicycle commuting reimbursement (sec. 11048 of

the Senate amendment and secs. 132(f) of the Code)

Present Law

Qualified bicycle commuting reimbursements of up to $20 per qualifying bicycle

commuting month are excludible from an employee’s gross income

250

. A qualifying bicycle

commuting month is any month during which the employee regularly uses the bicycle for a

substantial portion of travel to a place of employment and during which the employee does not

receive transportation in a commuter highway vehicle, a transit pass, or qualified parking from

an employer.

Qualified reimbursements are any amount received from an employer during a 15-month

period beginning with the first day of the calendar year as payment for reasonable expenses

during a calendar year. Reasonable expenses are those incurred in a calendar year for the

purchase of a bicycle and bicycle improvements, repair, and storage, if the bicycle is regularly

used for travel between the employee’s residence and place of employment.

Amounts that are excludible from gross income for income tax purposes are also

excluded from wages for employment tax purposes.

House Bill

No provision.

249

Sec. 11045 of the Senate amendment.

250

Section 132(a)(5) and 132(f)(1)(D).

107

Senate Amendment

The provision suspends the exclusion from gross income and wages for qualified bicycle

commuting reimbursements. The exclusion does not apply to taxable years beginning after

December 31, 2017 and before January 1, 2026.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment.

13. Limitation on exclusion for employer-provided housing (sec. 1401 of the House bill and

sec. 119 of the Code)

Present Law

The value of lodging furnished to an employee, spouse, or dependents by or on behalf of

an employer for the convenience of the employer (referred to as “employer-provided lodging”) is

excludible from the employee’s gross income, but only if the employee is required to accept the

lodging on the business premises of the employer as a condition of employment.

251

Special rules

apply with respect to employees living in foreign camps

252

and lodging furnished by certain

educational institutions to employees.

253

Amounts attributable to employer-provided lodging that

are excludible from gross income for income tax purposes are also excluded from wages for

employment tax purposes.

House Bill

The provision limits the amount that may be excluded from gross income for employer-

provided lodging to $50,000 ($25,000 in the case of a married individual filing a separate return),

subject to a phase-out based on the employee’s level of compensation. The exclusion is phased

out by $1 for every $2 earned above the indexed compensation threshold. For 2017, this

compensation threshold is $120,000.

254

The provision also denies any exclusion for employer-

provided housing provided to 5% owners,

255

regardless of their compensation level.

In addition, the exclusion does not apply to more than one residence at any given time.

In the case of spouses filing a joint return, the one residence limit may be applied separately to

each spouse for a period during which the spouses reside in separate residences provided in

connection with their respective employments.

251

Sec. 119(a).

252

Sec. 119(c).

253

Sec. 119(d).

254

The compensation threshold is that amount in effect under section 414(q)(1)(B)(i).

255

As defined in section 416(i)(1)(B)(i).

108

Those amounts that are not excludible from gross income for income tax purposes will

also not be excluded from wages for employment tax purposes.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

14. Modification of exclusion of gain on sale of a principal residence (sec. 1402 of the House

bill, sec. 11047 of the Senate amendment, and sec. 121 of the Code)

Present Law

A taxpayer who is an individual may exclude up to $250,000 ($500,000 if married filing

a joint return) of gain realized on the sale or exchange of a principal residence. To be eligible for

the exclusion, the taxpayer must have owned and used the residence as a principal residence for

at least two of the five years ending on the date of the sale or exchange. A taxpayer who fails to

meet these requirements by reason of a change of place of employment, health, or, to the extent

provided under regulations, unforeseen circumstances, is able to exclude an amount equal to the

fraction of the $250,000 ($500,000 if married filing a joint return) that is equal to the fraction of

the two years that the ownership and use requirements are met.

The exclusion under this provision may not be claimed for more than one sale or

exchange during any two-year period.

House Bill

The provision extends the length of time a taxpayer must own and use a residence to

qualify for this exclusion. Specifically, the exclusion is available only if the taxpayer has owned

and used the residence as a principal residence for at least five of the eight years ending on the

date of the sale or exchange. A taxpayer who fails to meet these requirements by reason of a

change of place of employment, health, or, to the extent provided under regulations, unforeseen

circumstances is able to exclude an amount equal to the fraction of the $250,000 ($500,000 if

married filing a joint return) that is equal to the fraction of the five years that the ownership and

use requirements are met.

The provision limits the exclusion so that the exclusion may not apply to more than one

sale or exchange during any five-year period.

The provision phases-out the exclusion by one dollar for every dollar a taxpayer’s AGI

exceeds $250,000 ($500,000 if married filing a joint return). For purposes of this provision, AGI

109

is measured using the average of the taxpayer’s AGI in the year of sale (excluding any income

from the sale of the home) and the prior two taxable years before the sale.

Effective date.−The provision is effective for sales and exchanges after December 31,

2017.

Senate Amendment

The Senate amendment generally follows the House bill, but does not include the

provision that phases out the exclusion for AGI in excess of $250,000 ($500,000 if married filing

a joint return). The Senate amendment does not apply to taxable years beginning after December

31, 2025.

Effective date.−The provision is effective for sales and exchanges after December 31,

2017.

Conference Agreement

No provision.

15. Sunset of exclusion for dependent care assistance programs (sec. 1404 of the House bill

and sec. 129 of the Code)

Present Law

An exclusion from the gross income of an employee of up to $5,000 annually for

employer-provided dependent care assistance

256

is allowed if the assistance is provided pursuant

to a separate written plan of an employer that does not discriminate in favor of highly

compensated employees

257

and meets certain other requirements. The amount excludible cannot

exceed the earned income of the employee or, if the employee is married, the lesser of the earned

income of the employee or the earned income of the employee’s spouse. Amounts attributable to

dependent care assistance that are excludible from gross income for income tax purposes are also

excludible from wages for employment tax purposes.

House Bill

The provision repeals the deduction for qualified tuition and related expenses.

Effective date.−The provision terminates the exclusions from gross income and wages for

dependent care assistance programs for taxable years beginning after December 31, 2022.

256

Sec. 129(a).

257

Section 129(d). The exclusion applies if the contributions or benefits under the program do not

discriminate in favor of highly compensated employees, within the meaning of Sec. 414(q), or their dependents, and

the program benefits employees under a classification established by the employer found not to be discriminatory in

favor or such highly compensated employees or their dependents.

110

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

16. Repeal of exclusion for qualified moving expense reimbursement (sec. 1405 of the

House bill, sec. 11049 of the Senate amendment, and sec. 132(g) of the Code)

Present Law

Qualified moving expense reimbursements are excluded from an employee’s gross

income,

258

and are defined as any amount received (directly or indirectly) from an employer as

payment for (or reimbursement of) expenses which would be deductible as moving expenses

under section 217

259

if directly paid or incurred by the employee. However, any such amount

actually deducted by the individual is not eligible for this exclusion. Amounts that are excludible

from gross income for income tax purposes are also excluded from wages for employment tax

purposes.

House Bill

The provision repeals the exclusion from gross income and wages for qualified moving

expense reimbursements except in the case of a member of the Armed Forces of the United

States on active duty who moves pursuant to a military order.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment is the same as the House bill except that the exclusion does not

apply to taxable years beginning after December 31, 2017 and before January 1, 2026.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

258

Secs. 132(a)(6) and 132(g).

259

Individuals are allowed an itemized deduction for moving expenses paid or incurred during the taxable

year in connection with the commencement of work by the taxpayer as an employee or as a self-employed

individual at a new principal place of work.

259

Such expenses are deductible only if the move meets certain

conditions related to distance from the taxpayer’s previous residence and the taxpayer’s status as a full-time

employee in the new location.

111

Conference Agreement

The conference agreement follows the Senate amendment.

17. Repeal of exclusion for adoption assistance programs (sec. 1406 of the House bill and

sec. 137 of the Code)

Present Law

An exclusion from an employee’s gross income is allowed for qualified adoption

expenses paid or reimbursed by an employer, if such amounts are furnished pursuant to an

adoption assistance program.

260

For 2017, the maximum exclusion amount is $13,570, and is

phased out ratably for taxpayers with modified adjusted gross income (“AGI”) above a certain

amount. In 2017, the phase out range begins at modified AGI of $203,540, with no exclusion

when modified AGI equals or exceeds $243,540. Modified AGI is the sum of the taxpayer’s

AGI plus amounts excluded from income under sections 911, 931, and 933 (relating to the

exclusion of income of U.S. citizens or residents living abroad; residents of Guam, American

Samoa, and the Northern Mariana Islands and residents of Puerto Rico, respectively).

In the case of adoption of a child with special needs that is finalized during a taxable

year, the taxpayer may claim as an exclusion the amount of the maximum exclusion minus the

aggregate qualified adoption expenses with respect to that adoption for all prior taxable years.

Qualified adoption expenses are reasonable and necessary adoption fees, court costs,

attorney fees, and other expenses that are: (1) directly related to, and the principal purpose of

which is for, the legal adoption of an eligible child by the taxpayer; (2) not incurred in violation

of State or Federal law, or in carrying out any surrogate parenting arrangement; (3) not for the

adoption of the child of the taxpayer’s spouse; and (4) not reimbursed (e.g., by an employer).

261

For the exclusion to apply, certain requirements must be satisfied, including satisfaction

of nondiscrimination rules and providing employees with reasonable notification of the

availability and terms of the program.

262

Adoption expenses paid or reimbursed by the employer under an adoption assistance

program are not eligible for the adoption credit under section 23. A taxpayer may be eligible for

the adoption credit (with respect to qualified adoption expenses he or she incurs) and also for the

260

Sec. 137(a).

261

Sec. 23(d)(1).

262

The employer’s adoption assistance program must not discriminate in favor of highly compensated

employees, within the meaning of Sec. 414(q). In addition, no more than five percent of the amounts paid or

incurred by the employer during the year for qualified adoption expenses under an adoption assistance program can

be provided for the class of individuals consisting of more-than-five-percent owners of the employer and the spouses

or dependents of such more-than-five-percent owners.

112

exclusion (with respect to different qualified adoption expenses paid or reimbursed by his or her

employer).

House Bill

The provision repeals the exclusion from gross income for adoption assistance programs.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

113

E. Simplification and Reform of Savings, Pensions, Retirement

1. Repeal of special rule permitting recharacterization of IRA contributions (sec. 1501 of

the House bill, sec. 13611 of the Senate amendment, and sec. 408A of the Code)

Present Law

Individual retirement arrangements

There are two basic types of individual retirement arrangements (“IRAs”) under present

law: traditional IRAs,

263

to which both deductible and nondeductible contributions may be

made,

264

and Roth IRAs, to which only nondeductible contributions may be made.

265

The

principal difference between these two types of IRAs is the timing of income tax inclusion.

An annual limit applies to contributions to IRAs. The contribution limit is coordinated so

that the aggregate maximum amount that can be contributed to all of an individual’s IRAs (both

traditional and Roth) for a taxable year is the lesser of a certain dollar amount ($5,500 for 2017)

or the individual’s compensation. In the case of a married couple, contributions can be made up

to the dollar limit for each spouse if the combined compensation of the spouses is at least equal

to the contributed amount. The dollar limit is increased annually (“indexed”) as needed to reflect

increases in the cost-of living. An individual who has attained age 50 before the end of the

taxable year may also make catch-up contributions up to $1,000 to an IRA. The IRA catch-up

contribution limit is not indexed.

Traditional IRAs

An individual may make deductible contributions to a traditional IRA up to the IRA

contribution limit (reduced by any contributions to Roth IRAs) if neither the individual nor the

individual’s spouse is an active participant in an employer-sponsored retirement plan. If an

individual (or the individual’s spouse) is an active participant in an employer-sponsored

retirement plan, the deduction is phased out for taxpayers with adjusted gross income (“AGI”)

for the taxable year over certain indexed levels.

266

To the extent an individual cannot or does not

make deductible contributions to a traditional IRA or contributions to a Roth IRA for the taxable

year, the individual may make nondeductible after-tax contributions to a traditional IRA (that is,

no AGI limits apply), subject to the same contribution limits as the limits on deductible

contributions, including catch-up contributions. An individual who has attained age 70½ before

to the close of a year is not permitted to make contributions to a traditional IRA for that year.

263

Sec. 408.

264

Secs. 219(a) and 408(o).

265

Sec. 408A.

266

Sec. 219(g).

114

Amounts held in a traditional IRA are includible in income when withdrawn, except to

the extent the withdrawal is a return of the individual’s basis.

267

All traditional IRAs of an

individual are treated as a single contract for purposes of recovering basis in the IRAs.

Roth IRAs

Individuals with AGI below certain levels may make nondeductible contributions to a

Roth IRA. The maximum annual contribution that can be made to a Roth IRA is phased out for

taxpayers with AGI for the taxable year over certain indexed levels.

268

Amounts held in a Roth IRA that are withdrawn as a qualified distribution are not

includible in income. A qualified distribution is a distribution that (1) is made after the five-

taxable-year period beginning with the first taxable year for which the individual first made a

contribution to a Roth IRA, and (2) is made after attainment of age 59½, on account of death or

disability, or is made for first-time homebuyer expenses of up to $10,000.

Distributions from a Roth IRA that are not qualified distributions are includible in

income to the extent attributable to earnings; amounts that are attributable to a return of

contributions to the Roth IRA are not includible in income. All Roth IRAs are treated as a single

contract for purposes of determining the amount that is a return of contributions.

Separation of traditional and Roth IRA accounts

Contributions to traditional IRAs and to Roth IRAs must be segregated into separate

IRAs, meaning arrangements with separate trusts, accounts, or contracts, and separate IRA

documents. Except in the case of a conversion or recharacterization, amounts cannot be

transferred or rolled over between the two types of IRAs.

Taxpayers generally may convert an amount in a traditional IRA to a Roth IRA.

269

The

amount converted is includible in the taxpayer’s income as if a withdrawal had been made.

270

The conversion is accomplished by a trustee-to-trustee transfer of the amount from the traditional

267

Basis results from after-tax contributions to traditional IRAs or a rollovers to traditional IRAs of after-

tax amounts from another eligible retirement plan.

268

Although an individual with AGI exceeding certain limits is not permitted to make a contribution

directly to a Roth IRA, the individual can make a contribution to a traditional IRA and convert the traditional IRA to

a Roth IRA, as discussed below.

269

Although an individual with AGI exceeding certain limits is not permitted to make a contribution

directly to a Roth IRA, the individual can make a contribution to a traditional IRA and convert the traditional IRA to

a Roth IRA.

270

Subject to various exceptions, distributions from an IRA before age 59½ that are includible in income

are subject to a 10-percent early distribution tax under section 72(t). An exception applies to an amount includible

in income as a result of the conversion from a traditional IRA into a Roth IRA. However, the early distribution tax

applies if the taxpayer withdraws the amount within five years of the conversion.

115

IRA to the Roth IRA, or by a distribution from the traditional IRA and contribution to the Roth

IRA within 60 days.

Rollovers to IRAs of distributions from tax-favored employer-sponsored retirement plans

(that is, qualified retirement plans, tax-deferred annuity plans, and governmental eligible

deferred compensation plans

271

) are also permitted. For tax-free rollovers, distributions from

pretax accounts under an employer-sponsored plan generally must are contributed to a traditional

IRA, and distributions from a designated Roth account under an employer-sponsored plan must

be contributed only to a Roth IRA. However, a distribution from an employer-sponsored plan

that is not from a designated Roth account is also permitted to be rolled over into a Roth IRA,

subject to the rules that apply to conversions from a traditional IRA into a Roth IRA. Thus, a

rollover from a tax-favored employer-sponsored plan to a Roth IRA is includible in gross income

(except to the extent it represents a return of after-tax contributions).

272

Recharacterization of IRA contributions

If an individual makes a contribution to an IRA (traditional or Roth) for a taxable year,

the individual is permitted to recharacterize the contribution as a contribution to the other type of

IRA (traditional or Roth) by making a trustee-to-trustee transfer to the other type of IRA before

the due date for the individual’s income tax return for that year.

273

In the case of a

recharacterization, the contribution will be treated as having been made to the transferee IRA

(and not the original, transferor IRA) as of the date of the original contribution. Both regular

contributions and conversion contributions to a Roth IRA can be recharacterized as having been

made to a traditional IRA.

The amount transferred in a recharacterization must be accompanied by any net income

allocable to the contribution. In general, even if a recharacterization is accomplished by

transferring a specific asset, net income is calculated as a pro rata portion of income on the entire

account rather than income allocable to the specific asset transferred. However, when doing a

Roth conversion of an amount for a year, an individual may establish multiple Roth IRAs, for

example, Roth IRAs with different investment strategies, and divide the amount being converted

among the IRAs. The individual can then choose whether to recharacterize any of the Roth IRAs

as a traditional IRA by transferring the entire amount in the particular Roth IRA to a traditional

IRA.

274

For example, if the value of the assets in a particular Roth IRA declines after the

conversion, the conversion can be reversed by recharacterizing that IRA as a traditional IRA.

The individual may then later convert that traditional IRA to a Roth IRA (referred to as a

reconversion), including only the lower value in income. Treasury regulations prevent the

271

Secs. 401(a), 403(a), 403(b) and 457(b).

272

As in the case of a conversion of an amount from a traditional IRA to a Roth IRA, the special recapture

rule relating to the 10-percent additional tax on early distributions applies for distributions made from the Roth IRA

within a specified five-year period after the rollover.

273

Sec. 408A(d)(6).

274

Treas. Reg. sec. 1.408A-5, Q&A-2(b).

116

reconversion from taking place immediately after the recharcterization, by requiring a minimum

period to elapse before the reconversion. Generally the reconversion cannot occur sooner than

the later of 30 days after the recharacterization or a date during the taxable year following the

taxable year of the original conversion.

275

House Bill

The House bill repeals the special rule that allows IRA contributions to one type of IRA

(either traditional or Roth) to be recharacterized as a contribution to the other type of IRA. Thus,

for example, under the provision, a conversion contribution establishing a Roth IRA during a

taxable year can no longer be recharacterized as a contribution to a traditional IRA (thereby

unwinding the conversion).

276

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment is the same as the House bill.

Conference Agreement

The conference agreement follows the House bill and the Senate amendment with a

modification. Under the provision, the special rule that allows a contribution to one type of IRA

to be recharacterized as a contribution to the other type of IRA does not apply to a conversion

contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth

conversion. However, recharacterization is still permitted with respect to other contributions.

For example, an individual may make a contribution for a year to a Roth IRA and, before the due

date for the individual’s income tax return for that year, recharacterize it as a contribution to a

traditional IRA.

277

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

275

Treas. Reg. sec. 1.408A-5, Q&A-9.

276

The provision does not preclude an individual from making a contribution to a traditional IRA and

converting the traditional IRA to a Roth IRA. Rather, the provision would preclude the individual from later

unwinding the conversion through a recharacterization.

277

In addition, an individual may still make a contribution to a traditional IRA and convert the traditional

IRA to a Roth IRA, but the provision precludes the individual from later unwinding the conversion through a

recharacterization.

117

2. Reduction in minimum age for allowable in-service distributions (sec. 1502 of the House

bill and secs. 401 and 457 of the Code)

Present Law

Tax-favored employer-sponsored retirement plans consist of qualified retirement plans,

including certain defined contribution plans that allow employees to make elective deferrals (a

“section 401(k) plan”), tax-deferred annuity plans (a “section 403(b) plan”), which may also

allow employees to make elective deferrals, and eligible deferred compensation plans of State

and local government employers (a “governmental section 457(b) plan”).

278

The terms of an

employer-sponsored retirement plan generally determine when distributions are permitted.

However, in some cases, restrictions may apply to distribution before an employee’s severance

from employment, referred to as “in-service” distributions.

In-service distributions of elective deferrals (and related earnings) under a section 401(k)

plan generally are permitted only after attainment of age 59½ or termination of the plan.

279

In-service distributions of elective deferrals (but not related earnings) are also permitted in the

case of hardship. Elective deferrals under a section 403(b) plan are subject to in-service

distribution restrictions similar to those applicable to elective deferrals under a section 401(k)

plan, and, in some cases, other contributions to a section 403(b) plan are subject to similar

restrictions.

280

Pension plans, that is, qualified defined benefit plans and money purchase pension plans,

a type of qualified defined contribution plan, generally may not permit in-service distributions

before attainment of age 62 (or attainment of normal retirement age under the plan if earlier) or

termination of the plan.

281

Deferrals under a governmental section 457(b) plan are subject to in-service distribution

restrictions similar to those applicable to elective deferrals under a section 401(k) plan, except

that in-service distributions under a governmental section 457(b) plan are permitted only after

attainment of age 70½ (rather than age 59½).

282

278

Secs. 401(a), 401(k), 403(a), 403(b), and 457(b).

279

Sec. 401(k)(2)(B). Similar restrictions apply to certain other contributions, such as employer matching

or nonelective contributions required under the nondiscrimination safe harbors under section 401(k).

280

Secs. 403(b)(7)(A)(ii) and 403(b)(11).

281

Sec. 401(a)(36) and Treas. Reg. secs. 1.401-1(b)(1)(i) and 1.401(a)-1(b).

282

Sec. 457(d)(1)(A).

118

House Bill

Under the House bill, in-service distributions are permitted under a pension plan or a

governmental section 457(b) plan at age 59½, thus making the rules for those plans consistent

with the rules for section 401(k) plans and section 403(b) plans.

Effective date.−The provision is effective for plan years beginning after December 31,

2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

3. Modification of rules governing hardship distributions (sec. 1503 of the House bill and

secs. 401 and 403 of the Code)

Present Law

Elective deferrals under a section 401(k) plan or a section 403(b) plan may not be

distributed before the occurrence of one or more specified events, including financial hardship of

the employee.

283

Applicable Treasury regulations provide that a distribution is made on account of

hardship only if the distribution is made on account of an immediate and heavy financial need of

the employee and is necessary to satisfy the heavy need.

284

The Treasury regulations provide a

safe harbor under which a distribution may be deemed necessary to satisfy an immediate and

heavy financial need. One requirement of this safe harbor is that the employee be prohibited

from making elective deferrals and employee contributions to the plan and all other plans

maintained by the employer for at least six months after receipt of the hardship distribution.

House Bill

Under the House bill, the Secretary of the Treasury is directed to modify the applicable

regulations within one year of the date of enactment to (1) delete the requirement that an

employee be prohibited from making elective deferrals and employee contributions for six

months after the receipt of a hardship distribution in order for the distribution to be deemed

necessary to satisfy an immediate and heavy financial need, and (2) make any other

modifications necessary to carry out the purposes of the rule allowing elective deferrals to be

distributed in the case of hardship. Thus, under the modified regulations, an employee would not

283

Secs. 401(k)(2)(B)(i)(IV) and 403(b)(7)(A)(ii) and (b)(11)(B). Other types of contributions may also be

subject to this restriction.

284

Treas. Reg. sec. 1.401(k)-1(d)(3).

119

be prevented for any period after the receipt of a hardship distribution from continuing to make

elective deferrals and employee contributions.

Effective date.−The regulations as revised by the provision shall apply to plan years

beginning after December 31, 2017.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

4. Modification of rules relating to hardship withdrawals from cash or deferred

arrangements (sec. 1504 of the bill, sec. 11033(c) of the Senate amendment, and sec. 401 of

the Code)

Present Law

Amounts attributable to elective deferrals (including earnings thereon) under a

section 401(k) plan generally may not be distributed before the earliest of the employee's

severance from employment, death, disability or attainment of age 59½, or termination of the

plan, or as a qualified reservist distribution.

285

Elective deferrals, but not associated earnings,

may be distributed on account of hardship.

An employer may make nonelective and matching contributions for employees under a

section 401(k) plan. Elective deferrals, and matching contributions and after-tax employee

contributions, are subject to special tests (“nondiscrimination tests”) to prevent discrimination in

favor of highly compensated employees. Nonelective contributions and matching contributions

that satisfy certain requirements (“qualified nonelective contributions and qualified matching

contributions”) may be used to enable the plan to satisfy these nondiscrimination tests. One of

the requirements is that these contributions be subject to the same distribution restrictions as

elective deferrals, except that these contributions (and associated earnings) are not permitted to

be distributed on account of hardship.

Applicable Treasury regulations provide that a distribution is made on account of

hardship only if the distribution is made on account of an immediate and heavy financial need of

the employee and is necessary to satisfy the heavy need.

286

The Treasury regulations provide a

safe harbor under which a distribution may be deemed necessary to satisfy an immediate and

heavy financial need. One requirement of the safe harbor is that the employee represent that the

285

Sec. 401(k)(2)(B)(i).

286

Treas. Reg. sec. 1.401(k)-1(d)(3).

120

need cannot be satisfied through currently available plan loans. This in effect requires an

employee to take any available plan loan before receiving a hardship distribution.

House Bill

The House bill allows earnings on elective deferrals under a section 401(k) plan, as well

as qualified nonelective contributions and qualified matching contributions (and associated

earnings), to be distributed on account of hardship. Further, a distribution is not treated as failing

to be on account of hardship solely because the employee does not take any available plan loan.

Effective date.−The provision is effective for plan years beginning after December 31,

2017.

Senate Amendment

The Senate amendment is the same as the House bill.

Conference Agreement

The conference agreement does not include the House bill provision or Senate

amendment.

5. Extended rollover period for the rollover of plan loan offset amounts in certain cases

(sec. 1505 of the bill, sec. 13613 of the Senate amendment, and sec. 402 of the Code)

Present Law

Taxation of retirement plan distributions

A distribution from a tax-favored employer-sponsored retirement plan (that is, a qualified

retirement plan, section 403(b) plan, or a governmental section 457(b) plan) is generally

includible in gross income, except in the case of a qualified distribution from a designated Roth

account or to the extent the distribution is a recovery of basis under the plan or the distribution is

contributed to another such plan or an IRA (referred to as eligible retirement plans) in a tax-free

rollover.

287

In the case of a distribution from a retirement plan to an employee under age 59½,

the distribution (other than a distribution from a governmental section 457(b) plan) is also

subject to a 10-percent early distribution tax unless an exception applies.

288

A distribution from a tax-favored employer-sponsored retirement plan that is an eligible

rollover distribution may be rolled over to an eligible retirement plan.

289

The rollover generally

can be achieved by direct rollover (direct payment from the distributing plan to the recipient

287

Secs. 402(a) and (c), 402A(d), 403(a) and (b), 457(a) and (e)(16).

288

Sec. 72(t).

289

Certain distributions are not eligible rollover distributions, such as annuity payments, required

minimum distributions, hardship distributions, and loans that are treated as deemed distributions under section 72(p).

121

plan) or by contributing the distribution to the eligible retirement plan within 60 days of

receiving the distribution (“60-day rollover”).

Employer-sponsored retirement plans are required to offer an employee a direct rollover

with respect to any eligible rollover distribution before paying the amount to the employee. If an

eligible rollover distribution is not directly rolled over to an eligible retirement plan, the taxable

portion of the distribution generally is subject to mandatory 20-percent income tax

withholding.

290

Employees who do not elect a direct rollover but who roll over eligible

distributions within 60 days of receipt also defer tax on the rollover amounts; however, the 20

percent withheld will remain taxable unless the employee substitutes funds within the 60-day

period.

Plan loans

Employer-sponsored retirement plans may provide loans to employees. Unless the loan

satisfies certain requirements in both form and operation, the amount of a retirement plan loan is

a deemed distribution from the retirement plan, including that the terms of the loan provide for a

repayment period of not more than five years (except for a loan specifically to purchase a home)

and for level amortization of loan payments with payments not less frequently than quarterly.

291

Thus, if an employee stops making payments on a loan before the loan is repaid, a deemed

distribution of the outstanding loan balance generally occurs. A deemed distribution of an

unpaid loan balance is generally taxed as though an actual distribution occurred, including being

subject to a 10-percent early distribution tax, if applicable. A deemed distribution is not eligible

for rollover to another eligible retirement plan.

A plan may also provide that, in certain circumstances (for example, if an employee

terminates employment), an employee’s obligation to repay a loan is accelerated and, if the loan

is not repaid, the loan is cancelled and the amount in employee’s account balance is offset by the

amount of the unpaid loan balance, referred to as a loan offset. A loan offset is treated as an

actual distribution from the plan equal to the unpaid loan balance (rather than a deemed

distribution), and (unlike a deemed distribution) the amount of the distribution is eligible for tax-

free rollover to another eligible retirement plan within 60 days. However, the plan is not

required to offer a direct rollover with respect to a plan loan offset amount that is an eligible

rollover distribution, and the plan loan offset amount is generally not subject to 20-percent

income tax withholding.

House Bill

Under the House bill, the period during which a qualified plan loan offset amount may be

contributed to an eligible retirement plan as a rollover contribution is extended from 60 days

after the date of the offset to the due date (including extensions) for filing the Federal income tax

return for the taxable year in which the plan loan offset occurs, that is, the taxable year in which

the amount is treated as distributed from the plan. Under the provision, a qualified plan loan

290

Treas. Reg. sec. 1.402(c)-2, Q&A-1(b)(3).

291

Sec. 72(p).

122

offset amount is a plan loan offset amount that is treated as distributed from a qualified

retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of

the termination of the plan or the failure to meet the repayment terms of the loan because of the

employee’s separation from service, whether due to layoff, cessation of business, termination of

employment, or otherwise. As under present law, a loan offset amount under the provision is the

amount by which an employee’s account balance under the plan is reduced to repay a loan from

the plan.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Senate Amendment

The Senate amendment is the same as the House bill, except that a qualified plan loan

offset amount is a plan loan offset amount that is treated as distributed from a qualified

retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of

the termination of the plan or the failure to meet the repayment terms of the loan because of the

employee’s severance from employment.

Effective date.−The provision is effective for plan loan offset amounts treated as

distributed in taxable years beginning after December 31, 2017.

Conference Agreement

The conference agreement follows the Senate amendment.

6. Modification of nondiscrimination rules for certain plans providing benefits or

contributions to older, longer service participants (sec. 1506 of the House bill and sec. 401

of the Code)

Present Law

In general

Qualified retirement plans are subject to nondiscrimination requirements, under which

the group of employees covered by a plan (“plan coverage”) and the contributions or benefits

provided to employees, including benefits, rights, and features under the plan, must not

discriminate in favor of highly compensated employees.

292

The timing of plan amendments must

also not have the effect of discriminating significantly in favor of highly compensated

employees. In addition, in the case of a defined benefit plan, the plan must benefit at least the

lesser of (1) 50 employees and (2) the greater of 40 percent of all employees and two employees

292

Secs. 401(a)(3)-(5) and 410(b). Detailed rules are provided in Treas. Reg. secs. 1.401(a)(4)-1

through -13 and secs. 1.410(b)-2 through -10. In applying the nondiscrimination requirements, certain employees,

such as those under age 21 or with less than a year of service, generally may be disregarded. In addition, employees

of controlled groups and affiliated service groups under the aggregation rules of section 414(b), (c), (m) and (o) are

treated as employed by a single employer.

123

(or one employee if the employer has only one employee), referred to as the “minimum

participation” requirements.

293

These nondiscrimination requirements are designed to help

ensure that qualified retirement plans achieve the goal of retirement security for both lower and

higher paid employees.

For nondiscrimination purposes, an employee generally is treated as highly compensated

if the employee (1) was a five-percent owner of the employer at any time during the year or the

preceding year, or (2) had compensation for the preceding year in excess of $120,000 (for

2017).

294

Employees who are not highly compensated are referred to as nonhighly compensated

employees.

Nondiscriminatory plan coverage

Whether plan coverage of employees is nondiscriminatory is determined by calculating a

plan’s ratio percentage, that is, the ratio of the percentage of nonhighly compensated employees

covered under the plan to the percentage of highly compensated employees covered. For this

purpose, certain portions of a defined contribution plan are treated as separate plans to which the

plan coverage requirements are applied separately, referred to as mandatory disaggregation.

Specifically, the following, if provided under a plan, are treated as separate plans: the portion of

a plan consisting of employee elective deferrals, the portion consisting of employer matching

contributions, the portion consisting of employer nonelective contributions, and the portion

consisting of an employee stock ownership plan (“ESOP”).

295

Subject to mandatory

disaggregation, different qualified retirement plans may otherwise be aggregated and tested

together as a single plan, provided that they use the same plan year. The plan determined under

these rules for plan coverage purposes generally is also treated as the plan for purposes of

applying the other nondiscrimination requirements.

A plan’s coverage is nondiscriminatory if the ratio percentage, as determined above, is 70

percent or greater. If a plan’s ratio percentage is less than 70 percent, a multi-part test applies,

referred to as the average benefit test. First, the plan must meet a “nondiscriminatory

classification requirement,” that is, it must cover a group of employees that is reasonable and

established under objective business criteria and the plan’s ratio percentage must be at or above a

level specified in the regulations, which varies depending on the percentage of nonhighly

293

Sec. 401(a)(26).

294

Sec. 414(q). At the election of the employer, employees who are highly compensated based on the

amount of their compensation may be limited to employees who were among the top 20 percent of employees based

on compensation.

295

Elective deferrals are contributions that an employee elects to have made to a defined contribution plan

that includes a qualified cash or deferred arrangement (referred to as “section 401(k) plan”) rather than receive the

same amount as current compensation. Employer matching contributions are contributions made by an employer

only if an employee makes elective deferrals or after-tax employee contributions. Employer nonelective

contributions are contributions made by an employer regardless of whether an employee makes elective deferrals or

after-tax employee contributions. Under section 4975(e)(7), an ESOP is a defined contribution plan, or portion of a

defined contribution plan, that is designated as an ESOP and is designed to invest primarily in employer stock.

124

compensated employees in the employer’s workforce. In addition, the average benefit

percentage test must be satisfied.

Under the average benefit percentage test, in general, the average rate of

employer-provided contributions or benefit accruals for all nonhighly compensated employees

under all plans of the employer must be at least 70 percent of the average contribution or accrual

rate of all highly compensated employees.

296

In applying the average benefit percentage test,

elective deferrals made by employees, as well as employer matching and nonelective

contributions, are taken into account. Generally, all plans maintained by the employer are taken

into account, including ESOPs, regardless of whether plans use the same plan year.

Under a transition rule applicable in the case of the acquisition or disposition of a

business, or portion of a business, or a similar transaction, a plan that satisfied the plan coverage

requirements before the transaction is deemed to continue to satisfy them for a period after the

transaction, provided coverage under the plan is not significantly changed during that period.

297

Nondiscriminatory contributions or benefit accruals

In general

There are three general approaches to testing the amount of benefits under qualified

retirement plans: (1) design-based safe harbors under which the plan’s contribution or benefit

accrual formula satisfies certain uniformity standards, (2) a general test, described below, and

(3) cross-testing of equivalent contributions or benefit accruals. Employee elective deferrals and

employer matching contributions under defined contribution plans are subject to special testing

rules and generally are not permitted to be taken into account in determining whether other

contributions or benefits are nondiscriminatory.

298

The nondiscrimination rules allow contributions and benefit accruals to be provided to

highly compensated and nonhighly compensated employees at the same percentage of

compensation.

299

Thus, the various testing approaches described below are generally applied to

296

Contribution and benefit rates are generally determined under the rules for nondiscriminatory

contributions or benefit accruals, described below. These rules are generally based on benefit accruals under a

defined benefit plan, other than accruals attributable to after-tax employee contributions, and contributions allocated

to participants’ accounts under a defined contribution plan, other than allocations attributable to after-tax employee

contributions. (Under these rules, contributions allocated to a participants accounts are referred to as “allocations,”

with the related rates referred to as “allocation rates,” but “contribution rates” is used herein for convenience.)

However, as discussed below, benefit accruals can be converted to actuarially equivalent contributions, and

contributions can be converted to actuarially equivalent benefit accruals.

297

Sec. 410(b)(6)(C).

298

Secs. 401(k) and (m), the latter of which applies also to after-tax employee contributions under a

defined contribution plan.

299

For this purpose, under section 401(a)(17), compensation generally is limited to $265,000 per year (for

2016).

125

the amount of contributions or accruals provided as a percentage of compensation, referred to as

a contribution rate or accrual rate. In addition, under the “permitted disparity” rules, in

calculating an employee’s contribution or accrual rate, credit may be given for the employer paid

portion of Social Security taxes or benefits.

300

The permitted disparity rules do not apply in

testing whether elective deferrals, matching contributions, or ESOP contributions are

nondiscriminatory.

The general test is generally satisfied by measuring the rate of contribution or benefit

accrual for each highly compensated employee to determine if the group of employees with the

same or higher rate (a “rate” group) is a nondiscriminatory group, using the nondiscriminatory

plan coverage standards described above. For this purpose, if the ratio percentage of a rate group

is less than 70 percent, a simplified standard applies, which includes disregarding the reasonable

classification requirement, but requires satisfaction of the average benefit percentage test.

Cross-testing

Cross-testing involves the conversion of contributions under a defined contribution plan

or benefit accruals under a defined benefit plan to actuarially equivalent accruals or

contributions, with the resulting equivalencies tested under the general test. However, employee

elective deferrals and employer matching contributions under defined contribution plans are not

permitted to be taken into account for this purpose, and cross-testing of contributions under a

defined contribution plan, or cross-testing of a defined contribution plan aggregated with a

defined benefit plan, is permitted only if certain threshold requirements are satisfied.

In order for a defined contribution plan to be tested on an equivalent benefit accrual basis,

one of the following three threshold conditions must be met:

 The plan has broadly available allocation rates, that is, each allocation rate under the

plan is available to a nondiscriminatory group of employees (disregarding certain

permitted additional contributions provided to employees as a replacement for

benefits under a frozen defined benefit plan, as discussed below);

 The plan provides allocations that meet prescribed designs under which allocations

gradually increase with age or service or are expected to provide a target level of

annuity benefit; or

 The plan satisfies a minimum allocation gateway, under which each nonhighly

compensated employee has an allocation rate of (a) at least one-third of the highest

rate for any highly compensated employee, or (b) if less, at least five percent.

300

See sections 401(a)(5)(C) and (D) and 401(l) and Treas. Reg. section 1. 401(a)(4)-7 and 1.401(l)-1

through -6 for rules for determining the amount of contributions or benefits that can be attributed to the

employer-paid portion of Social Security taxes or benefits.

126

In order for an aggregated defined contribution and defined benefit plan to be tested on

an aggregate equivalent benefit accrual basis, one of the following three threshold conditions

must be met:

 The plan must be primarily defined benefit in character, that is, for more than fifty

percent of the nonhighly compensated employees under the plan, their accrual rate

under the defined benefit plan exceeds their equivalent accrual rate under the defined

contribution plan;

 The plan consists of broadly available separate defined benefit and defined

contribution plans, that is, the defined benefit plan and the defined contribution plan

would separately satisfy simplified versions of the minimum coverage and

nondiscriminatory amount requirements; or

 The plan satisfies a minimum aggregate allocation gateway, under which each

nonhighly compensated employee has an aggregate allocation rate (consisting of

allocations under the defined contribution plan and equivalent allocations under the

defined benefit plan) of (a) at least one-third of the highest aggregate allocation rate

for any nonhighly compensated employee, or (b) if less, at least five percent in the

case of a highest nonhighly compensated employee’s rate up to 25 percent, increased

by one percentage point for each five-percentage-point increment (or portion thereof)

above 25 percent, subject to a maximum of 7.5 percent.

Benefits, rights, and features

Each benefit, right, or feature offered under the plan generally must be available to a

group of employees that has a ratio percentage that satisfies the minimum coverage

requirements, including the reasonable classification requirement if applicable, except that the

average benefit percentage test does not have to be met, even if the ratio percentage is less than

70 percent.

Multiple-employer and section 403(b) plans

A multiple-employer plan generally is a single plan maintained by two or more unrelated

employers, that is, employers that are not treated as a single employer under the aggregation

rules for related entities.

301

The plan coverage and other nondiscrimination requirements are

applied separately to the portions of a multiple-employer plan covering employees of different

employers.

302

301

Sec. 413(c). Multiple-employer status does not apply if the plan is a multiemployer plan, defined under

sec. 414(f) as a plan maintained pursuant to one or more collective bargaining agreements with two or more

unrelated employers and to which the employers are required to contribute under the collective bargaining

agreement(s). Multiemployer plans are also known as Taft-Hartley plans.

302

Treas. Reg. sec. 1.413-2(a)(3)(ii)-(iii).

127

Certain tax-exempt charitable organizations may offer their employees a tax-deferred

annuity plan (“section 403(b) plan).

303

The nondiscrimination requirements, other than the

requirements applicable to elective deferrals, generally apply to section 403(b) plans of private

tax-exempt organizations. For purposes of applying the nondiscrimination requirements to a

section 403(b) plan, subject to mandatory disaggregation, a qualified retirement plan may be

combined with the section 403(b) plan and treated as a single plan.

304

However, a section 403(b)

plan and qualified retirement plan may not be treated as a single plan for purposes of applying

the nondiscrimination requirements to the qualified retirement plan.

Closed and frozen defined benefit plans

A defined benefit plan may be amended to limit participation in the plan to individuals

who are employees as of a certain date. That is, employees hired after that date are not eligible

to participate in the plan. Such a plan is sometimes referred to as a “closed” defined benefit plan

(that is, closed to new entrants). In such a case, it is common for the employer also to maintain a

defined contribution plan and to provide employer matching or nonelective contributions only to

employees not covered by the defined benefit plan or at a higher rate to such employees.

Over time, the group of employees continuing to accrue benefits under the defined

benefit plan may come to consist more heavily of highly compensated employees, for example,

because of greater turnover among nonhighly compensated employees or because increasing

compensation causes nonhighly compensated employees to become highly compensated. In that

case, the defined benefit plan may have to be combined with the defined contribution plan and

tested on a benefit accrual basis. However, under the regulations, if none of the threshold

conditions is met, testing on a benefits basis may not be available. Notwithstanding the

regulations, recent IRS guidance provides relief for a limited period, allowing certain closed

defined benefit plans to be aggregated with a defined contribution plan and tested on an

aggregate equivalent benefits basis without meeting any of the threshold conditions.

305

When the

group of employees continuing to accrue benefits under a closed defined benefit plan consists

more heavily of highly compensated employees, the benefits, rights, and features provided under

the plan may also fail the tests under the existing nondiscrimination rules.

In some cases, if a defined benefit plan is amended to cease future accruals for all

participants, referred to as a “frozen” defined benefit plan, additional contributions to a defined

contribution plan may be provided for participants, in particular for older participants, in order to

make up in part for the loss of the benefits they expected to earn under the defined benefit plan

(“make-whole” contributions). As a practical matter, testing on a benefit accrual basis may be

303

Sec. 403(b). These plans are available to employers that are tax-exempt under section 501(c)(3), as

well as to educational institutions of State or local governments.

304

Treas. Reg. sec. 1.410(b)-7(f).

305

Notice 2014-5, 2014-2 I.R.B. 276, extended by Notice 2015-28, 2015-14 14 I.R.B. 848,

Notice 2016-57, 2016-40 I.R.B. 432, and Notice 2017-45, 2017-38 I.R.B. 232. Proposed regulations revising the

nondiscrimination requirements for closed plans were also issued earlier this year, subject to various conditions.

81 Fed. Reg. 4976 (January 29, 2016).

128

required in that case, but may not be available because the defined contribution plan does not

meet any of the threshold conditions.

House Bill

Closed or frozen defined benefit plans

In general

Under the House bill, nondiscrimination relief applies with respect to benefits, rights, and

features for a closed class of participants (“closed class”),

306

and with respect to benefit accruals

for a closed class, under a defined benefit plan that meets the requirements described below

(referred to herein as an “applicable” defined benefit plan). In addition, the provision treats a

closed or frozen applicable defined benefit plan as meeting the minimum participation

requirements if the plan met the requirements as of the effective date of the plan amendment by

which the plan was closed or frozen.

If a portion of an applicable defined benefit plan eligible for relief under the provision is

spun off to another employer, and if the spun-off plan continues to satisfy any ongoing

requirements applicable for the relevant relief as described below, the relevant relief for the

spun-off plan will continue with respect to the other employer.

Benefits, rights, or features for a closed class

Under the provision, an applicable defined benefit plan that provides benefits, rights, or

features to a closed class does not fail the nondiscrimination requirements by reason of the

composition of the closed class, or the benefits, rights, or features provided to the closed class, if

(1) for the plan year as of which the class closes and the two succeeding plan years, the benefits,

rights, and features satisfy the nondiscrimination requirements without regard to the relief under

the provision, but taking into account the special testing rules described below,

307

and (2) after

the date as of which the class was closed, any plan amendment modifying the closed class or the

benefits, rights, and features provided to the closed class does not discriminate significantly in

favor of highly compensated employees.

For purposes of requirement (1) above, the following special testing rules apply:

 In applying the plan coverage transition rule for business acquisitions, dispositions,

and similar transactions, the closing of the class of participants is not treated as a

significant change in coverage;

306

References under the provision to a closed class of participants and similar references to a closed class

include arrangements under which one or more classes of participants are closed, except that one or more classes of

participants closed on different dates are not aggregated for purposes of determining the date any such class was

closed.

307

Other testing options available under present law are also available for this purpose.

129

 Two or more plans do not fail to be eligible to be a treated as a single plan solely by

reason of having different plan years;

308

and

 Changes in employee population are disregarded to the extent attributable to

individuals who become employees or cease to be employees, after the date the class

is closed, by reason of a merger, acquisition, divestiture, or similar event.

Benefit accruals for a closed class

Under the provision, an applicable defined benefit plan that provides benefits to a closed

class may be aggregated, that is, treated as a single plan, and tested on a benefit accrual basis

with one or more defined contribution plans (without having to satisfy the threshold conditions

under present law) if (1) for the plan year as of which the class closes and the two succeeding

plan years, the plan satisfies the plan coverage and nondiscrimination requirements without

regard to the relief under the provision, but taking into account the special testing rules described

above,

309

and (2) after the date as of which the class was closed, any plan amendment modifying

the closed class or the benefits provided to the closed class does not discriminate significantly in

favor of highly compensated employees.

Under the provision, defined contribution plans that may be aggregated with an

applicable defined benefit plan and treated as a single plan include the portion of one or more

defined contribution plans consisting of matching contributions, an ESOP, or matching or

nonelective contributions under a section 403(b) plan. If an applicable defined benefit plan is

aggregated with the portion of a defined contribution plan consisting of matching contributions,

any portion of the defined contribution plan consisting of elective deferrals must also be

aggregated. In addition, the matching contributions are treated in the same manner as

nonelective contributions, including for purposes of permitted disparity.

Applicable defined benefit plan

An applicable defined benefit plan to which relief under the provision applies is a defined

benefit plan under which the class was closed (or the plan frozen) before April 5, 2017, or that

meets the following alternative conditions: (1) taking into account any predecessor plan, the

plan has been in effect for at least five years as of the date the class is closed (or the plan is

frozen) and (2) under the plan, during the five-year period preceding that date, (a) for purposes of

the relief provided with respect to benefits, rights, and features for a closed class, there has not

been a substantial increase in the coverage or value of the benefits, rights, or features, or (b) for

purposes of the relief provided with respect to benefit accruals for a closed class or the minimum

participation requirements, there has not been a substantial increase in the coverage or benefits

under the plan.

308

This rule applies also for purposes applying the plan coverage and other nondiscrimination

requirements to an applicable defined benefit plan and one or more defined contributions that, under the provision,

may be treated as a single plan as described below.

309

Other testing options available under present law are also available for this purpose.

130

For purposes of (2)(a) above, a plan is treated as having a substantial increase in coverage

or value of benefits, rights, or features only if, during the applicable five-year period, either the

number of participants covered by the benefits, rights, or features on the date the period ends is

more than 50 percent greater than the number on the first day of the plan year in which the

period began, or the benefits, rights, and features have been modified by one or more plan

amendments in such a way that, as of the date the class is closed, the value of the benefits, rights,

and features to the closed class as a whole is substantially greater than the value as of the first

day of the five-year period, solely as a result of the amendments.

For purposes of (2)(b) above, a plan is treated as having had a substantial increase in

coverage or benefits only if, during the applicable five-year period, either the number of

participants benefiting under the plan on the date the period ends is more than 50 percent greater

than the number of participants on the first day of the plan year in which the period began, or the

average benefit provided to participants on the date the period ends is more than 50 percent

greater than the average benefit provided on the first day of the plan year in which the period

began. In applying this requirement, the average benefit provided to participants under the plan

is treated as having remained the same between the two relevant dates if the benefit formula

applicable to the participants has not changed between the dates and, if the benefit formula has

changed, the average benefit under the plan is considered to have increased by more than 50

percent only if the target normal cost for all participants benefiting under the plan for the plan

year in which the five-year period ends exceeds the target normal cost for all such participants

for that plan year if determined using the benefit formula in effect for the participants for the first

plan year in the five-year period by more than 50 percent.

310

In applying these rules, a

multiple-employer plan is treated as a single plan, rather than as separate plans separately

covering the employees of each participating employer.

In applying these standards, any increase in coverage or value, or in coverage or benefits,

whichever is applicable, is generally disregarded if it is attributable to coverage and value, or

coverage and benefits, provided to employees who (1) became participants as a result of a

merger, acquisition, or similar event that occurred during the 7-year period preceding the date the

class was closed, or (2) became participants by reason of a merger of the plan with another plan

that had been in effect for at least five years as of the date of the merger and, in the case of

benefits, rights, or features for a closed class, under the merger, the benefits, rights, or features

under one plan were conformed to the benefits, rights, or features under the other plan

prospectively.

310

Under the funding requirements applicable to defined benefit plans, target normal cost for a plan year

(defined in section 430(b)(1)(A)(i)) is generally the sum of the present value of the benefits expected to be earned

under the plan during the plan year plus the amount of plan-related expenses to be paid from plan assets during the

plan year. Under the provision, in applying this average benefit rule to certain defined benefit plans maintained by

cooperative organizations and charities, referred to as CSEC plans (defined in section 414(y)), which are subject to

different funding requirements, the CSEC plan’s normal cost under section 433(j)(1)(B) is used instead of target

normal cost.

131

Make-whole contributions under a defined contribution plan

Under the provision, a defined contribution plan is permitted to be tested on an equivalent

benefit accrual basis (without having to satisfy the threshold conditions under present law) if the

following requirements are met:

 The plan provides make-whole contributions to a closed class of participants whose

accruals under a defined benefit plan have been reduced or ended (“make-whole

class”);

 For the plan year of the defined contribution plan as of which the make-whole class

closes and the two succeeding plan years, the make-whole class satisfies the

nondiscriminatory classification requirement under the plan coverage rules, taking

into account the special testing rules described above;

 After the date as of which the class was closed, any amendment to the defined

contribution plan modifying the make-whole class or the allocations, benefits, rights,

and features provided to the make-whole class does not discriminate significantly in

favor of highly compensated employees; and

 Either the class was closed before April 5, 2017, or the defined benefit plan is an

applicable defined benefit plan under the alternative conditions applicable for

purposes of the relief provided with respect to benefit accruals for a closed class.

With respect to one or more defined contribution plans meeting the requirements above,

in applying the plan coverage and nondiscrimination requirements, the portion of the plan

providing make-whole or other nonelective contributions may also be aggregated and tested on

an equivalent benefit accrual basis with the portion of one or more other defined contribution

plans consisting of matching contributions, an ESOP, or matching or nonelective contributions

under a section 403(b) plan. If the plan is aggregated with the portion of a defined contribution

plan consisting of matching contributions, any portion of the defined contribution plan consisting

of elective deferrals must also be aggregated. In addition, the matching contributions are treated

in the same manner as nonelective contributions, including for purposes of permitted disparity.

Under the provision, “make-whole contributions” generally means nonelective

contributions for each employee in the make-whole class that are reasonably calculated, in a

consistent manner, to replace some or all of the retirement benefits that the employee would have

received under the defined benefit plan and any other plan or qualified cash or deferred

arrangement under a section 401(k) plan if no change had been made to the defined benefit plan

and other plan or arrangement.

311

However, under a special rule, in the case of a defined

contribution plan that provides benefits, rights, or features to a closed class of participants whose

accruals under a defined benefit plan have been reduced or eliminated, the plan will not fail to

satisfy the nondiscrimination requirements solely by reason of the composition of the closed

class, or the benefits, rights, or features provided to the closed class, if the defined contribution

plan and defined benefit plan otherwise meet the requirements described above but for the fact

311

For this purpose, consistency is not required with respect to employees who were subject to different

benefit formulas under the defined benefit plan.

132

that the make-whole contributions under the defined contribution plan are made in whole or in

part through matching contributions.

If a portion of a defined contribution plan eligible for relief under the provision is spun

off to another employer, and if the spun-off plan continues to satisfy any ongoing requirements

applicable for the relevant relief as described above, the relevant relief for the spun-off plan will

continue with respect to the other employer.

Effective date.−The provision is generally effective on the date of enactment without

regard to whether any plan modifications referred to in the provision are adopted or effective

before, on, or after the date of enactment. However, at the election of a plan sponsor, the

provision will apply to plan years beginning after December 31, 2013. For purposes of the

provision, a closed class of participants under a defined benefit plan is treated as being closed

before April 5, 2017, if the plan sponsor’s intention to create the closed class is reflected in

formal written documents and communicated to participants before that date. In addition, a plan

does not fail to be eligible for the relief under the provision solely because (1) in the case of

benefits, rights, or features for a closed class under a defined benefit plan, the plan was amended

before the date of enactment to eliminate one or more benefits, rights, or features and is further

amended after the date of enactment to provide the previously eliminated benefits, rights, or

features to a closed class of participants, or (2) in the case of benefit accruals for a closed class

under a defined benefit plan or application of the minimum benefit requirements to a closed or

frozen defined benefit plan, the plan was amended before the date of the enactment to cease all

benefit accruals and is further amended after the date of enactment to provide benefit accruals to

a closed class of participants. In either case, the relevant relief applies only if the plan otherwise

meets the requirements for the relief, and, in applying the relevant relief, the date the class of

participants is closed is the effective date of the later amendment.

Senate Amendment

No provision.

Conference Agreement

The conference agreement does not include the House bill provision.

7. Modification of rules applicable to length of service award programs for bona fide

public safety volunteers (sec. 13612 of the Senate amendment and sec. 457(e) of the Code)

Present Law

Special rules apply to deferred compensation plans of State and local government and

private, tax-exempt employers.

312

However, an exception to these rules applies in the case of a

plan paying solely length of service awards to bona fide volunteers (or their beneficiaries) on

account of qualified services performed by the volunteers. For this purpose, qualified services

consist of firefighting and fire prevention services, emergency medical services, and ambulance

312

Sec. 457.

133

services. An individual is treated as a bona fide volunteer for this purpose if the only

compensation received by the individual for performing qualified services is in the form of

(1) reimbursement or a reasonable allowance for reasonable expenses incurred in the

performance of such services, or (2) reasonable benefits (including length of service awards) and

nominal fees for the services, customarily paid in connection with the performance of such

services by volunteers. The exception applies only if the aggregate amount of length of service

awards accruing for a bona fide volunteer with respect to any year of service does not exceed

$3,000.

House Bill

No provision.

Senate Amendment

The Senate amendment increases the aggregate amount of length of service awards that

may accrue for a bona fide volunteer with respect to any year of service to $6,000 and adjusts

that amount in $500 increments to reflect changes in cost-of-living for years after the first year

the provision is effective. In addition, under the provision, if the plan is a defined benefit plan,

the limit applies to the actuarial present value of the aggregate amount of length of service

awards accruing with respect to any year of service. Actuarial present value is to be calculated

using reasonable actuarial assumptions and methods, assuming payment will be made under the

most valuable form of payment under the plan with payment commencing at the later of the

earliest age at which unreduced benefits are payable under the plan or the participant’s age at the

time of the calculation.

Effective date.−The provision is effective for taxable years beginning after December 31,

2017.

Conference Agreement

The conference agreement follows the Senate amendment.

134

F. Modifications to Estate, Gift, and Generation-Skipping Transfers Taxes

(secs. 1601 and 1602 of the House bill, sec. 11061 of the Senate amendment,

and secs. 2001 and 2010 of the Code)

Present Law

In general

A gift tax is imposed on certain lifetime transfers, and an estate tax is imposed on certain

transfers at death. A generation-skipping transfer tax generally is imposed on transfers, either

directly or in trust or similar arrangement, to a “skip person” (i.e., a beneficiary in a generation

more than one generation younger than that of the transferor). Transfers subject to the

generation-skipping transfer tax include direct skips, taxable terminations, and taxable

distributions.

Income tax rules determine the recipient’s tax basis in property acquired from a decedent

or by gift.

Gifts and bequests generally are excluded from the recipient’s gross income.

313

Common features of the estate, gift and generation-skipping transfer taxes

Unified credit (exemption) and tax rates

Unified credit.−A unified credit is available with respect to taxable transfers by gift and

at death.

314

The unified credit offsets tax, computed using the applicable estate and gift tax rates,

on a specified amount of transfers, referred to as the applicable exclusion amount, or exemption

amount. The exemption amount was set at $5 million for 2011 and is indexed for inflation for

later years.

315

For 2017, the inflation-indexed exemption amount is $5.49 million.

316

Exemption

used during life to offset taxable gifts reduces the amount of exemption that remains at death to

offset the value of a decedent’s estate. An election is available under which exemption that is

not used by a decedent may be used by the decedent’s surviving spouse (exemption portability).

Common tax rate table.−A common tax-rate table with a top marginal tax rate of 40

percent is used to compute gift tax and estate tax. The 40-percent rate applies to transfers in

excess of $1 million (to the extent not exempt). Because the exemption amount currently shields

the first $5.49 million in gifts and bequests from tax, transfers in excess of the exemption amount

generally are subject to tax at the highest marginal rate (40 percent).

313

Sec. 102.

314

Sec. 2010.

315

For 2011 and later years, the gift and estate taxes were reunified, meaning that the gift tax exemption

amount was increased to equal the estate tax exemption amount.

316

For 2017, the $5.49 million exemption amount results in a unified credit of $2,141,800, after applying

the applicable rates set forth in section 2001(c).

135

Generation-skipping transfer tax exemption and rate.−The generation-skipping transfer

tax is a separate tax that can apply in addition to either the gift tax or the estate tax. The tax rate

and exemption amount for generation-skipping transfer tax purposes, however, are set by

reference to the estate tax rules. Generation-skipping transfer tax is imposed using a flat rate

equal to the highest estate tax rate (40 percent). Tax is imposed on cumulative generation-

skipping transfers in excess of the generation-skipping transfer tax exemption amount in effect

for the year of the transfer. The generation-skipping transfer tax exemption for a given year is

equal to the estate tax exemption amount in effect for that year (currently $5.49 million).

Transfers between spouses.−A 100-percent marital deduction generally is permitted for

the value of property transferred between spouses.

317

In addition, transfers of “qualified

terminable interest property” also are eligible for the marital deduction. Qualified terminable

interest property is property: (1) that passes from the decedent, (2) in which the surviving spouse

has a “qualifying income interest for life,” and (3) to which an election under these rules applies.

A qualifying income interest for life exists if: (1) the surviving spouse is entitled to all the

income from the property (payable annually or at more frequent intervals) or has the right to use

the property during the spouse’s life, and (2) no person has the power to appoint any part of the

property to any person other than the surviving spouse.

A marital deduction generally is denied for property passing to a surviving spouse who is

not a citizen of the United States. A marital deduction is permitted, however, for property

passing to a qualified domestic trust of which the noncitizen surviving spouse is a beneficiary. A

qualified domestic trust is a trust that has as its trustee at least one U.S. citizen or U.S.

corporation. No corpus may be distributed from a qualified domestic trust unless the U.S. trustee

has the right to withhold any estate tax imposed on the distribution.

Tax is imposed on (1) any distribution from a qualified domestic trust before the date of

the death of the noncitizen surviving spouse and (2) the value of the property remaining in a

qualified domestic trust on the date of death of the noncitizen surviving spouse. The tax is

computed as an additional estate tax on the estate of the first spouse to die.

Transfers to charity.−Contributions to section 501(c)(3) charitable organizations and

certain other organizations may be deducted from the value of a gift or from the value of the

assets in an estate for Federal gift or estate tax purposes.

318

The effect of the deduction generally

is to remove the full fair market value of assets transferred to charity from the gift or estate tax

base; unlike the income tax charitable deduction, there are no percentage limits on the deductible

amount. For estate tax purposes, the charitable deduction is limited to the value of the

transferred property that is required to be included in the gross estate.

319

A charitable

317

Secs. 2056 and 2523.

318

Secs. 2055 and 2522.

319

Sec. 2055(d).

136

contribution of a partial interest in property, such as a remainder or future interest, generally is

not deductible for gift or estate tax purposes.

320

The estate tax

Overview

The Code imposes a tax on the transfer of the taxable estate of a decedent who is a citizen

or resident of the United States.

321

The taxable estate is determined by deducting from the value

of the decedent’s gross estate any deductions provided for in the Code. After applying tax rates

to determine a tentative amount of estate tax, certain credits are subtracted to determine estate tax

liability.

322

Because the estate tax shares a common unified credit (exemption) and tax rate table with

the gift tax, the exemption amounts and tax rates are described together above, along with certain

other common features of these taxes.

Gross estate

A decedent’s gross estate includes, to the extent provided for in other sections of the

Code, the date-of-death value of all of a decedent’s property, real or personal, tangible or

intangible, wherever situated.

323

In general, the value of property for this purpose is the fair

market value of the property as of the date of the decedent’s death, although an executor may

elect to value certain property as of the date that is six months after the decedent’s death (the

alternate valuation date).

324

320

Secs. 2055(e)(2) and 2522(c)(2).

321

Sec. 2001(a).

322

More mechanically, the taxable estate is combined with the value of adjusted taxable gifts made during

the decedent’s life (generally, post-1976 gifts), before applying tax rates to determine a tentative total amount of tax.

The portion of the tentative tax attributable to lifetime gifts is then subtracted from the total tentative tax to

determine the gross estate tax, i.e., the amount of estate tax before considering available credits. Credits are then

subtracted to determine the estate tax liability.

This method of computation was designed to ensure that a taxpayer only gets one run up through the rate

brackets for all lifetime gifts and transfers at death, at a time when the thresholds for applying the higher marginal

rates exceeded the exemption amount. However, the higher ($5.49 million) present-law exemption amount

effectively renders the lower rate brackets irrelevant, because the top marginal rate bracket applies to all transfers in

excess of $1 million. In other words, all transfers that are not exempt by reason of the $5.49 million exemption

amount are taxed at the highest marginal rate of 40 percent.

323

Sec. 2031(a).

324

Sec. 2032.

137

The gross estate includes not only property directly owned by the decedent, but also other

property in which the decedent had a beneficial interest at the time of his or her death.

325

The

gross estate also includes certain transfers made by the decedent prior to his or her death,

including: (1) certain gifts made within three years prior to the decedent’s death;

326

(2) certain

transfers of property in which the decedent retained a life estate;

327

(3) certain transfers taking

effect at death;

328

and (4) revocable transfers.

329

In addition, the gross estate also includes

property with respect to which the decedent had, at the time of death, a general power of

appointment (generally, the right to determine who will have beneficial ownership).

330

The

value of a life insurance policy on the decedent’s life is included in the gross estate if the

proceeds are payable to the decedent’s estate or the decedent had incidents of ownership with

respect to the policy at the time of his or her death.

331

Deductions from the gross estate

A decedent’s taxable estate is determined by subtracting from the value of the gross

estate any deductions provided for in the Code.

Marital and charitable transfers.−As described above, transfers to a surviving spouse or to

charity generally are deductible for estate tax purposes. The effect of the marital and charitable

deductions generally is to remove assets transferred to a surviving spouse or to charity from the

estate tax base.

State death taxes.−An estate tax deduction is permitted for death taxes (e.g., any estate,

inheritance, legacy, or succession taxes) actually paid to any State or the District of Columbia, in

respect of property included in the gross estate of the decedent.

332

Such State taxes must have

been paid and claimed before the later of: (1) four years after the filing of the estate tax return;

or (2) (a) 60 days after a decision of the U.S. Tax Court determining the estate tax liability

becomes final, (b) the expiration of the period of extension to pay estate taxes over time under

section 6166, or (c) the expiration of the period of limitations in which to file a claim for refund

or 60 days after a decision of a court in which such refund suit has become final.

325

Sec. 2033.

326

Sec. 2035.

327

Sec. 2036.

328

Sec. 2037.

329

Sec. 2038.

330

Sec. 2041.

331

Sec. 2042.

332

Sec. 2058.

138

Other deductions.−A deduction is available for funeral expenses, estate administration

expenses, and claims against the estate, including certain taxes.

333

A deduction also is available

for uninsured casualty and theft losses incurred during the settlement of the estate.

334

Credits against tax

After accounting for allowable deductions, a gross amount of estate tax is computed.

Estate tax liability is then determined by subtracting allowable credits from the gross estate tax.

Unified credit.−The most significant credit allowed for estate tax purposes is the unified

credit, which is discussed in greater detail above.

335

For 2017, the value of the unified credit is

$2,141,800, which has the effect of exempting $5.49 million in transfers from tax. The unified

credit available at death is reduced by the amount of unified credit used to offset gift tax on gifts

made during the decedent’s life.

Other credits.−Estate tax credits also are allowed for: (1) gift tax paid on certain pre-

1977 gifts (before the estate and gift tax computations were integrated);

336

(2) estate tax paid on

certain prior transfers (to limit the estate tax burden when estate tax is imposed on transfers of

the same property in two estates by reason of deaths in rapid succession);

337

and (3) certain

foreign death taxes paid (generally, where the property is situated in a foreign country but

included in the decedent’s U.S. gross estate).

338

Provisions affecting small and family-owned businesses and farms

Special-use valuation.−An executor can elect to value for estate tax purposes certain

“qualified real property” used in farming or another qualifying closely-held trade or business at

its current-use value, rather than its fair market value.

339

The maximum reduction in value for

such real property is $750,000 (adjusted for inflation occurring after 1997; the inflation-adjusted

amount for 2017 is $1,120,000). In general, real property qualifies for special-use valuation only

if (1) at least 50 percent of the adjusted value of the decedent’s gross estate (including both real

and personal property) consists of a farm or closely-held business property in the decedent’s

estate and (2) at least 25 percent of the adjusted value of the gross estate consists of farm or

333

Sec. 2053.

334

Sec. 2054.

335

Sec. 2010.

336

Sec. 2012.

337

Sec. 2013.

338

Sec. 2014. In certain cases, an election may be made to deduct foreign death taxes. See section

2053(d).

339

Sec. 2032A.

139

closely held business real property. In addition, the property must be used in a qualified use

(e.g., farming) by the decedent or a member of the decedent’s family for five of the eight years

before the decedent’s death.

If, after a special-use valuation election is made, the heir who acquired the real property

ceases to use it in its qualified use within 10 years of the decedent’s death, an additional estate

tax is imposed to recapture the entire estate-tax benefit of the special-use valuation.

Installment payment of estate tax for closely held businesses.−Under present law, the

estate tax generally is due within nine months of a decedent’s death. However, an executor

generally may elect to pay estate tax attributable to an interest in a closely held business in two

or more installments (but no more than 10).

340

An estate is eligible for payment of estate tax in

installments if the value of the decedent’s interest in a closely held business exceeds 35 percent

of the decedent’s adjusted gross estate (i.e., the gross estate less certain deductions). If the

election is made, the estate may defer payment of principal and pay only interest for the first five

years, followed by up to 10 annual installments of principal and interest. This provision

effectively extends the time for paying estate tax by 14 years from the original due date of the

estate tax. A special two-percent interest rate applies to the amount of deferred estate tax

attributable to the first $1 million (adjusted annually for inflation occurring after 1998; the

inflation-adjusted amount for 2017 is $1,490,000) in taxable value of a closely held business.

The interest rate applicable to the amount of estate tax attributable to the taxable value of the

closely held business in excess of $1 million (adjusted for inflation) is equal to 45 percent of the

rate applicable to underpayments of tax under section 6621 of the Code (i.e., 45 percent of the

Federal short-term rate plus three percentage points).

341

Interest paid on deferred estate taxes is

not deductible for estate or income tax purposes.

The gift tax

Overview

The Code imposes a tax for each calendar year on the transfer of property by gift during

such year by any individual, whether a resident or nonresident of the United States.

342

The

amount of taxable gifts for a calendar year is determined by subtracting from the total amount of

gifts made during the year: (1) the gift tax annual exclusion (described below); and (2) allowable

deductions.

Gift tax for the current taxable year is determined by: (1) computing a tentative tax on

the combined amount of all taxable gifts for the current and all prior calendar years using the

common gift tax and estate tax rate table; (2) computing a tentative tax only on all prior-year

gifts; (3) subtracting the tentative tax on prior-year gifts from the tentative tax computed for all

340

Sec. 6166.

341

The interest rate on this portion adjusts with the Federal short-term rate.

342

Sec. 2501(a).

140

years to arrive at the portion of the total tentative tax attributable to current-year gifts; and,

finally, (4) subtracting the amount of unified credit not consumed by prior-year gifts.

Because the gift tax shares a common unified credit (exemption) and tax rate table with

the estate tax, the exemption amounts and tax rates are described together above, along with

certain other common features of these taxes.

Transfers by gift

The gift tax applies to a transfer by gift regardless of whether: (1) the transfer is made

outright or in trust; (2) the gift is direct or indirect; or (3) the property is real or personal, tangible

or intangible.

343

For gift tax purposes, the value of a gift of property is the fair market value of

the property at the time of the gift.

344

Where property is transferred for less than full

consideration, the amount by which the value of the property exceeds the value of the

consideration is considered a gift and is included in computing the total amount of a taxpayer’s

gifts for a calendar year.

345

For a gift to occur, a donor generally must relinquish dominion and control over donated

property. For example, if a taxpayer transfers assets to a trust established for the benefit of his or

her children, but retains the right to revoke the trust, the taxpayer may not have made a

completed gift, because the taxpayer has retained dominion and control over the transferred

assets. A completed gift made in trust, on the other hand, often is treated as a gift to the trust

beneficiaries.

By reason of statute, certain transfers are not treated as transfers by gift for gift tax

purposes. These include, for example, certain transfers for educational and medical purposes,

346

transfers to section 527 political organizations,

347

and transfers to tax-exempt organizations

described in sections 501(c)(4), (5), or (6).

348

Taxable gifts

As stated above, the amount of a taxpayer’s taxable gifts for the year is determined by

subtracting from the total amount of the taxpayer’s gifts for the year the gift tax annual exclusion

and any available deductions.

343

Sec. 2511(a).

344

Sec. 2512(a).

345

Sec. 2512(b).

346

Sec. 2503(e).

347

Sec. 2501(a)(4).

348

Sec. 2501(a)(6).

141

Gift tax annual exclusion.−Under present law, donors of lifetime gifts are provided an

annual exclusion of $14,000 per donee in 2017 (indexed for inflation from the 1997 annual

exclusion amount of $10,000) for gifts of present interests in property during the taxable year.

349

If the non-donor spouse consents to split the gift with the donor spouse, then the annual

exclusion is $28,000 per donee in 2017. In general, unlimited transfers between spouses are

permitted without imposition of a gift tax. Special rules apply to the contributions to a qualified

tuition program (“529 Plan”) including an election to treat a contribution that exceeds the annual

exclusion as a contribution made ratably over a five-year period beginning with the year of the

contribution.

350

Marital and charitable deductions.−As described above, transfers to a surviving spouse or

to charity generally are deductible for gift tax purposes. The effect of the marital and charitable

deductions generally is to remove assets transferred to a surviving spouse or to charity from the

gift tax base.

The generation-skipping transfer tax

A generation-skipping transfer tax generally is imposed (in addition to the gift tax or the

estate tax) on transfers, either directly or in trust or similar arrangement, to a “skip person” (i.e.,

a beneficiary in a generation more than one generation below that of the transferor). Transfers

subject to the generation-skipping transfer tax include direct skips, taxable terminations, and

taxable distributions.

Exemption and tax rate

An exemption generally equal to the estate tax exemption amount ($5.49 million for

2017) is provided for each person making generation-skipping transfers. The exemption may be

allocated by a transferor (or his or her executor) to transferred property, and in some cases is

automatically allocated. The allocation of generation-skipping transfer tax exemption effectively

reduces the tax rate on a generation-skipping transfer.

The tax rate on generation-skipping transfers is a flat rate of tax equal to the maximum

estate and gift tax rate (40 percent) multiplied by the “inclusion ratio.” The inclusion ratio with

respect to any property transferred indicates the amount of “generation-skipping transfer tax

exemption” allocated to a trust (or to property transferred in a direct skip) relative to the total

value of property transferred.

351

If, for example, a taxpayer transfers $5 million in property to a

trust and allocates $5 million of exemption to the transfer, the inclusion ratio is zero, and the

applicable tax rate on any subsequent generation-skipping transfers from the trust is zero percent

(40 percent multiplied by the inclusion ratio of zero). If, however, the taxpayer allocated only

$2.5 million of exemption to the transfer, the inclusion ratio is 0.5, and the applicable tax rate on

349

Sec. 2503(b).

350

Sec. 529(c)(2).

351

The inclusion ratio is one minus the applicable fraction. The applicable fraction is the amount of

exemption allocated to a trust (or to a direct skip) divided by the value of assets transferred.

142

any subsequent generation-skipping transfers from the trust is 20 percent (40 percent multiplied

by the inclusion ratio of 0.5). If the taxpayer allocates no exemption to the transfer, the inclusion

ratio is one, and the applicable tax rate on any subsequent generation-skipping transfers from the

trust is 40 percent (40 percent multiplied by the inclusion ratio of one).

Generation-skipping transfers

Generation-skipping transfer tax generally is imposed at the time of a generation-

skipping transfer − a direct skip, a taxable termination, or a taxable distribution.

A direct skip is any transfer subject to estate or gift tax of an interest in property to a skip

person. A skip person may be a natural person or certain trusts. All persons assigned to the

second or more remote generation below the transferor are skip persons (e.g., grandchildren and

great-grandchildren). Trusts are skip persons if (1) all interests in the trust are held by skip

persons, or (2) no person holds an interest in the trust and at no time after the transfer may a

distribution (including distributions and terminations) be made to a non-skip person.

A taxable termination is a termination (by death, lapse of time, release of power, or

otherwise) of an interest in property held in trust unless, immediately after such termination, a

non-skip person has an interest in the property, or unless at no time after the termination may a

distribution (including a distribution upon termination) be made from the trust to a skip person.

A taxable distribution is a distribution from a trust to a skip person (other than a taxable

termination or direct skip). If a transferor allocates generation-skipping transfer tax exemption to

a trust prior to the taxable distribution, generation-skipping transfer tax may be avoided.

Income tax basis in property received

In general

Gain or loss, if any, on the disposition of property is measured by the taxpayer’s amount

realized (i.e., gross proceeds received) on the disposition, less the taxpayer’s basis in such

property. Basis generally represents a taxpayer’s investment in property with certain

adjustments required after acquisition. For example, basis is increased by the cost of capital

improvements made to the property and decreased by depreciation deductions taken with respect

to the property.

A gift or bequest of appreciated (or loss) property is not an income tax realization event

for the transferor. The Code provides special rules for determining a recipient’s basis in assets

received by lifetime gift or from a decedent.

Basis in property received by lifetime gift

Under present law, property received from a donor of a lifetime gift generally takes a

carryover basis. “Carryover basis” means that the basis in the hands of the donee is the same as

it was in the hands of the donor. The basis of property transferred by lifetime gift also is

increased, but not above fair market value, by any gift tax paid by the donor. The basis of a

lifetime gift, however, generally cannot exceed the property’s fair market value on the date of the

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gift. If a donor’s basis in property is greater than the fair market value of the property on the

date of the gift, then, for purposes of determining loss on a subsequent sale of the property, the

donee’s basis is the property’s fair market value on the date of the gift.

Basis in property acquired from a decedent

Property acquired from a decedent’s estate generally takes a stepped-up basis. “Stepped-

up basis” means that the basis of property acquired from a decedent’s estate generally is the fair

market value on the date of the decedent’s death (or, if the alternate valuation date is elected, the

earlier of six months after the decedent’s death or the date the property is sold or distributed by

the estate). Providing a fair market value basis eliminates the recognition of income on any

appreciation of the property that occurred prior to the decedent’s death and eliminates the tax

benefit from any unrealized loss.

In community property states, a surviving spouse’s one-half share of community property

held by the decedent and the surviving spouse (under the community property laws of any State,

U.S. possession, or foreign country) generally is treated as having passed from the decedent and,

thus, is eligible for stepped-up basis. Thus, both the decedent’s one-half share and the surviving

spouse’s one-half share are stepped up to fair market value. This rule applies if at least one-half

of the whole of the community interest is includible in the decedent’s gross estate.

Stepped-up basis treatment generally is denied to certain interests in foreign entities.

Stock in a passive foreign investment company (including those for which a mark-to-market

election has been made) generally takes a carryover basis, except that stock of a passive foreign

investment company for which a decedent shareholder had made a qualified electing fund

election is allowed a stepped-up basis. Stock owned by a decedent in a domestic international

sales corporation (or former domestic international sales corporation) takes a stepped-up basis

reduced by the amount (if any) which would have been included in gross income under section

995(c) as a dividend if the decedent had lived and sold the stock at its fair market value on the

estate tax valuation date (i.e., generally the date of the decedent’s death unless an alternate

valuation date is elected).

House Bill

The provision doubles the estate and gift tax exemption for decedents dying and gifts

made after December 31, 2017. This is accomplished by increasing the basic exclusion amount

provided in section 2010(c)(3) of the Code from $5 million to $10 million. The $10 million

amount is indexed for inflation occurring after 2011.

For estates of decedents dying and generation-skipping transfers made after December

31, 2024, the provision repeals the estate tax and the generation-skipping transfer tax. The

provision includes a transition rule for assets placed in a qualified domestic trust by a decedent

who died before the effective date of the provision. Specifically, estate tax will not be imposed

on: (1) distributions before the death of a surviving spouse from the trust more than 10 years

after the date of enactment; or (2) assets remaining in the qualified domestic trust upon the death

of the surviving spouse. The top marginal gift tax rate is reduced to 35 percent for gifts made

after December 31, 2024.

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The provision generally retains the present law rules for determining the income tax basis

of assets acquired by gift and assets acquired from a decedent. As a result, property received

from a donor of a lifetime gift generally will continue to take a carryover basis, and property

acquired from a decedent’s estate generally will continue to take a stepped-up basis.

Effective date.−The doubling of the estate and gift tax exemption is effective for estates

of decedents dying, generation-skipping transfers, and gifts made after December 31, 2017. The

repeal of the estate and generation-skipping transfer taxes, and the reduction in the gift tax rate to

35 percent, are effective for estates of decedents dying, generation-skipping transfers, and gifts

made after December 31, 2024.

Senate Amendment

The provision doubles the estate and gift tax exemption for estates of decedents dying

and gifts made after December 31, 2017, and before January 1, 2026. This is accomplished by

increasing the basic exclusion amount provided in section 2010(c)(3) of the Code from $5

million to $10 million. The $10 million amount is indexed for inflation occurring after 2011.

As a conforming amendment to section 2010(g) (regarding computation of estate tax), the

provision provides that the Secretary shall prescribe regulations as may be necessary or

appropriate to carry out the purposes of the section with respect to differences between the basic

exclusion amount in effect: (1) at the time of the decedent’s death; and (2) at the time of any

gifts made by the decedent.

Effective date.−The provision is effective for estates of decedents dying and gifts made

after December 31, 2017.

Conference Agreement

The conference agreement follows the Senate amendment.

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G. Alternative Minimum Tax

(sec. 2001 of the House bill, sec. 12001 of the Senate amendment,

and secs. 53 and 55-59 of the Code)

Present Law

Individual alternative minimum tax

In general

An alternative minimum tax (“AMT”) is imposed on an individual, estate, or trust in an

amount by which the tentative minimum tax exceeds the regular income tax for the taxable year.

For taxable years beginning in 2017, the tentative minimum tax is the sum of (1) 26 percent of so

much of the taxable excess as does not exceed $187,800 ($93,900 in the case of a married

individual filing a separate return) and (2) 28 percent of the remaining taxable excess. The

breakpoints are indexed for inflation. The taxable excess is so much of the alternative minimum

taxable income (“AMTI”) as exceeds the exemption amount. The maximum tax rates on net

capital gain and dividends used in computing the regular tax are used in computing the tentative

minimum tax. AMTI is the taxable income adjusted to take account of specified tax preferences

and adjustments.

The exemption amounts for taxable years beginning in 2017 are: (1) $84,500 in the case

of married individuals filing a joint return and surviving spouses; (2) $54,300 in the case of other

unmarried individuals; (3) $42,250 in the case of married individuals filing separate returns; and

(4) $24,100 in the case of an estate or trust. For taxable years beginning in 2017, the exemption

amounts are phased out by an amount equal to 25 percent of the amount by which the

individual’s AMTI exceeds (1) $160,900 in the case of married individuals filing a joint return

and surviving spouses, (2) $120,700 in the case of other unmarried individuals, and (3) $80,450

in the case of married individuals filing separate returns or an estate or a trust. The amounts are

indexed for inflation.

AMTI is the taxpayer’s taxable income increased by certain preference items and

adjusted by determining the tax treatment of certain items in a manner that negates the deferral of

income resulting from the regular tax treatment of those items.

Preference items in computing AMTI

The minimum tax preference items are:

1. The excess of the deduction for percentage depletion over the adjusted basis of each

mineral property (other than oil and gas properties) at the end of the taxable year.

2. The amount by which excess intangible drilling costs (i.e., expenses in excess the

amount that would have been allowable if amortized over a 10-year period) exceed

65 percent of the net income from oil, gas, and geothermal properties. This preference

applies to independent producers only to the extent it reduces the producer’s AMTI

(determined without regard to this preference and the net operating loss deduction) by

more than 40 percent.

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3. Tax-exempt interest income on private activity bonds (other than qualified 501(c)(3)

bonds, certain housing bonds, and bonds issued in 2009 and 2010) issued after

August 7, 1986.

4. Accelerated depreciation or amortization on certain property placed in service before

January 1, 1987.

5. Seven percent of the amount excluded from income under section 1202 (relating to

gains on the sale of certain small business stock).

In addition, losses from any tax shelter farm activity or passive activities are not taken

into account in computing AMTI.

Adjustments in computing AMTI

The adjustments that individuals must make to compute AMTI are:

1. Depreciation on property placed in service after 1986 and before January 1, 1999, is

computed by using the generally longer class lives prescribed by the alternative

depreciation system of section 168(g) and either (a) the straight-line method in the

case of property subject to the straight-line method under the regular tax or (b) the

150-percent declining balance method in the case of other property. Depreciation on

property placed in service after December 31, 1998, is computed by using the regular

tax recovery periods and the AMT methods described in the previous sentence.

Depreciation on property acquired after September 10, 2001, which is allowed an

additional allowance under section 168(k) for the regular tax is computed without

regard to any AMT adjustments.

2. Mining exploration and development costs are capitalized and amortized over a 10-

year period.

3. Taxable income from a long-term contract (other than a home construction contract)

is computed using the percentage of completion method of accounting.

4. Depreciation on property placed in service after 1986 and before January 1, 1999, is