I
113th CONGRESS
2d Session
H. R. 1
IN THE HOUSE OF REPRESENTATIVES
December 10, 2014
Mr. Camp introduced the following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide for comprehensive tax reform.
Short title; etc
Short title
This Act may be cited as the Tax Reform Act of 2014
.
Amendment of 1986 Code
Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
Table of contents
The table of contents of this Act is as follows:
Sec. 1. Short title; etc.
Title I—Tax Reform for Individuals
Subtitle A—Individual income tax rate reform
Sec. 1001. Simplification of individual income tax rates.
Sec. 1002. Deduction for adjusted net capital gain.
Sec. 1003. Conforming amendments related to simplification of individual income tax rates.
Subtitle B—Simplification of tax benefits for families
Sec. 1101. Standard deduction.
Sec. 1102. Increase and expansion of child tax credit.
Sec. 1103. Modification of earned income tax credit.
Sec. 1104. Repeal of deduction for personal exemptions.
Subtitle C—Simplification of education incentives
Sec. 1201. American opportunity tax credit.
Sec. 1202. Expansion of Pell Grant exclusion from gross income.
Sec. 1203. Repeal of exclusion of income from United States savings bonds used to pay higher education tuition and fees.
Sec. 1204. Repeal of deduction for interest on education loans.
Sec. 1205. Repeal of deduction for qualified tuition and related expenses.
Sec. 1206. No new contributions to Coverdell education savings accounts.
Sec. 1207. Repeal of exclusion for discharge of student loan indebtedness.
Sec. 1208. Repeal of exclusion for qualified tuition reductions.
Sec. 1209. Repeal of exclusion for education assistance programs.
Sec. 1210. Repeal of exception to 10-percent penalty for higher education expenses.
Subtitle D—Repeal of certain credits for individuals
Sec. 1301. Repeal of dependent care credit.
Sec. 1302. Repeal of credit for adoption expenses.
Sec. 1303. Repeal of credit for nonbusiness energy property.
Sec. 1304. Repeal of credit for residential energy efficient property.
Sec. 1305. Repeal of credit for qualified electric vehicles.
Sec. 1306. Repeal of alternative motor vehicle credit.
Sec. 1307. Repeal of alternative fuel vehicle refueling property credit.
Sec. 1308. Repeal of credit for new qualified plug-in electric drive motor vehicles.
Sec. 1309. Repeal of credit for health insurance costs of eligible individuals.
Sec. 1310. Repeal of first-time homebuyer credit.
Subtitle E—Deductions, exclusions, and certain other provisions
Sec. 1401. Exclusion of gain from sale of a principal residence.
Sec. 1402. Mortgage interest.
Sec. 1403. Charitable contributions.
Sec. 1404. Denial of deduction for expenses attributable to the trade or business of being an employee.
Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade or business.
Sec. 1406. Repeal of deduction for personal casualty losses.
Sec. 1407. Limitation on wagering losses.
Sec. 1408. Repeal of deduction for tax preparation expenses.
Sec. 1409. Repeal of deduction for medical expenses.
Sec. 1410. Repeal of disqualification of expenses for over-the-counter drugs under certain accounts and arrangements.
Sec. 1411. Repeal of deduction for alimony payments and corresponding inclusion in gross income.
Sec. 1412. Repeal of deduction for moving expenses.
Sec. 1413. Termination of deduction and exclusions for contributions to medical savings accounts.
Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized deductions.
Sec. 1415. Repeal of overall limitation on itemized deductions.
Sec. 1416. Deduction for amortizable bond premium allowed in determining adjusted gross income.
Sec. 1417. Repeal of exclusion, etc., for employee achievement awards.
Sec. 1418. Clarification of special rule for certain governmental plans.
Sec. 1419. Limitation on exclusion for employer-provided housing.
Sec. 1420. Fringe benefits.
Sec. 1421. Repeal of exclusion of net unrealized appreciation in employer securities.
Sec. 1422. Consistent basis reporting between estate and person acquiring property from decedent.
Subtitle F—Employment tax modifications
Sec. 1501. Modifications of deduction for Social Security taxes in computing net earnings from self-employment.
Sec. 1502. Determination of net earnings from self-employment.
Sec. 1503. Repeal of exemption from FICA taxes for certain foreign workers.
Sec. 1504. Repeal of exemption from FICA taxes for certain students.
Sec. 1505. Override of Treasury guidance providing that certain employer-provided supplemental unemployment benefits are not subject to employment taxes.
Sec. 1506. Certified professional employer organizations.
Subtitle G—Pensions and Retirement
Part 1—Individual Retirement Plans
Sec. 1601. Elimination of income limits on contributions to Roth IRA
s.Sec. 1602. No new contributions to traditional IRA
s.Sec. 1603. Inflation adjustment for Roth IRA contributions.
Sec. 1604. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions.
Sec. 1605. Repeal of exception to 10-percent penalty for first home purchases.
Part 2—Employer-Provided Plans
Sec. 1611. Termination for new SEPs.
Sec. 1612. Termination for new SIMPLE
401(k)s.Sec. 1613. Rules related to designated Roth contributions.
Sec. 1614. Modifications of required distribution rules for pension plans.
Sec. 1615. Reduction in minimum age for allowable in-service distributions.
Sec. 1616. Modification of rules governing hardship distributions.
Sec. 1617. Extended rollover period for the rollover of plan loan offset amounts in certain cases.
Sec. 1618. Coordination of contribution limitations for
403(b) plans and governmental 457(b) plans.Sec. 1619. Application of 10-percent early distribution tax to governmental
457 plans.Sec. 1620. Inflation adjustments for qualified plan benefit and contribution limitations.
Sec. 1621. Inflation adjustments for qualified plan elective deferral limitations.
Sec. 1622. Inflation adjustments for SIMPLE retirement accounts.
Sec. 1623. Inflation adjustments for catch-up contributions for certain employer plans.
Sec. 1624. Inflation adjustments for governmental and tax-exempt organization plans.
Subtitle H—Certain provisions related to members of Indian tribes
Sec. 1701. Indian general welfare benefits.
Sec. 1702. Tribal Advisory Committee.
Sec. 1703. Other relief for Indian tribes.
Title II—Alternative Minimum Tax Repeal
Sec. 2001. Repeal of alternative minimum tax.
Title III—Business Tax Reform
Subtitle A—Tax Rates
Sec. 3001. 25-percent corporate tax rate.
Subtitle B—Reform of business-Related exclusions and deductions
Sec. 3101. Revision of treatment of contributions to capital.
Sec. 3102. Repeal of deduction for local lobbying expenses.
Sec. 3103. Expenditures for repairs in connection with casualty losses.
Sec. 3104. Reform of accelerated cost recovery system.
Sec. 3105. Repeal of amortization of pollution control facilities.
Sec. 3106. Net operating loss deduction.
Sec. 3107. Circulation expenditures.
Sec. 3108. Amortization of research and experimental expenditures.
Sec. 3109. Repeal of deductions for soil and water conservation expenditures and endangered species recovery expenditures.
Sec. 3110. Amortization of certain advertising expenses.
Sec. 3111. Expensing certain depreciable business assets for small business.
Sec. 3112. Repeal of election to expense certain refineries.
Sec. 3113. Repeal of deduction for energy efficient commercial buildings.
Sec. 3114. Repeal of election to expense advanced mine safety equipment.
Sec. 3115. Repeal of deduction for expenditures by farmers for fertilizer, etc.
Sec. 3116. Repeal of special treatment of certain qualified film and television productions.
Sec. 3117. Repeal of special rules for recoveries of damages of antitrust violations, etc.
Sec. 3118. Treatment of reforestation expenditures.
Sec. 3119. 20-year amortization of goodwill and certain other intangibles.
Sec. 3120. Treatment of environmental remediation costs.
Sec. 3121. Repeal of expensing of qualified disaster expenses.
Sec. 3122. Phaseout and repeal of deduction for income attributable to domestic production activities.
Sec. 3123. Unification of deduction for organizational expenditures.
Sec. 3124. Prevention of arbitrage of deductible interest expense and tax-exempt interest income.
Sec. 3125. Prevention of transfer of certain losses from tax indifferent parties.
Sec. 3126. Entertainment, etc. expenses.
Sec. 3127. Repeal of limitation on corporate acquisition indebtedness.
Sec. 3128. Denial of deductions and credits for expenditures in illegal businesses.
Sec. 3129. Limitation on deduction for FDIC premiums.
Sec. 3130. Repeal of percentage depletion.
Sec. 3131. Repeal of passive activity exception for working interests in oil and gas property.
Sec. 3132. Repeal of special rules for gain or loss on timber, coal, or domestic iron ore.
Sec. 3133. Repeal of like-kind exchanges.
Sec. 3134. Restriction on trade or business property treated as similar or related in service to involuntarily converted property in disaster areas.
Sec. 3135. Repeal of rollover of publicly traded securities gain into specialized small business investment companies.
Sec. 3136. Termination of special rules for gain from certain small business stock.
Sec. 3137. Certain self-created property not treated as a capital asset.
Sec. 3138. Repeal of special rule for sale or exchange of patents.
Sec. 3139. Depreciation recapture on gain from disposition of certain depreciable realty.
Sec. 3140. Common deduction conforming amendments.
Subtitle C—Reform of business credits
Sec. 3201. Repeal of credit for alcohol, etc., used as fuel.
Sec. 3202. Repeal of credit for biodiesel and renewable diesel used as fuel.
Sec. 3203. Research credit modified and made permanent.
Sec. 3204. Low-income housing tax credit.
Sec. 3205. Repeal of enhanced oil recovery credit.
Sec. 3206. Phaseout and repeal of credit for electricity produced from certain renewable resources.
Sec. 3207. Repeal of Indian employment credit.
Sec. 3208. Repeal of credit for portion of employer Social Security taxes paid with respect to employee cash tips.
Sec. 3209. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions.
Sec. 3210. Repeal of credit for small employer pension plan startup costs.
Sec. 3211. Repeal of employer-provided child care credit.
Sec. 3212. Repeal of railroad track maintenance credit.
Sec. 3213. Repeal of credit for production of low sulfur diesel fuel.
Sec. 3214. Repeal of credit for producing oil and gas from marginal wells.
Sec. 3215. Repeal of credit for production from advanced nuclear power facilities.
Sec. 3216. Repeal of credit for producing fuel from a nonconventional source.
Sec. 3217. Repeal of new energy efficient home credit.
Sec. 3218. Repeal of energy efficient appliance credit.
Sec. 3219. Repeal of mine rescue team training credit.
Sec. 3220. Repeal of agricultural chemicals security credit.
Sec. 3221. Repeal of credit for carbon dioxide sequestration.
Sec. 3222. Repeal of credit for employee health insurance expenses of small employers.
Sec. 3223. Repeal of rehabilitation credit.
Sec. 3224. Repeal of energy credit.
Sec. 3225. Repeal of qualifying advanced coal project credit.
Sec. 3226. Repeal of qualifying gasification project credit.
Sec. 3227. Repeal of qualifying advanced energy project credit.
Sec. 3228. Repeal of qualifying therapeutic discovery project credit.
Sec. 3229. Repeal of work opportunity tax credit.
Sec. 3230. Repeal of deduction for certain unused business credits.
Subtitle D—Accounting methods
Sec. 3301. Limitation on use of cash method of accounting.
Sec. 3302. Rules for determining whether taxpayer has adopted a method of accounting.
Sec. 3303. Certain special rules for taxable year of inclusion.
Sec. 3304. Installment sales.
Sec. 3305. Repeal of special rule for prepaid subscription income.
Sec. 3306. Repeal of special rule for prepaid dues income of certain membership organizations.
Sec. 3307. Repeal of special rule for magazines, paperbacks, and records returned after close of the taxable year.
Sec. 3308. Modification of rules for long-term contracts.
Sec. 3309. Nuclear decommissioning reserve funds.
Sec. 3310. Repeal of last-in, first-out method of inventory.
Sec. 3311. Repeal of lower of cost or market method of inventory.
Sec. 3312. Modification of rules for capitalization and inclusion in inventory costs of certain expenses.
Sec. 3313. Modification of income forecast method.
Sec. 3314. Repeal of averaging of farm income.
Sec. 3315. Treatment of patent or trademark infringement awards.
Sec. 3316. Repeal of redundant rules with respect to carrying charges.
Sec. 3317. Repeal of recurring item exception for spudding of oil or gas wells.
Subtitle E—Financial Instruments
Part 1—Derivatives and hedges
Sec. 3401. Treatment of certain derivatives.
Sec. 3402. Modification of certain rules related to hedges.
Part 2—Treatment of debt instruments
Sec. 3411. Current inclusion in income of market discount.
Sec. 3412. Treatment of certain exchanges of debt instruments.
Sec. 3413. Coordination with rules for inclusion not later than for financial accounting purposes.
Sec. 3414. Rules regarding certain government debt.
Part 3—Certain rules for determining gain and loss
Sec. 3421. Cost basis of specified securities determined without regard to identification.
Sec. 3422. Wash sales by related parties.
Sec. 3423. Nonrecognition for derivative transactions by a corporation with respect to its stock.
Part 4—Tax favored bonds
Sec. 3431. Termination of private activity bonds.
Sec. 3432. Termination of credit for interest on certain home mortgages.
Sec. 3433. Repeal of advance refunding bonds.
Sec. 3434. Repeal of tax credit bond rules.
Subtitle F—Insurance reforms
Sec. 3501. Exception to pro rata interest expense disallowance for corporate-owned life insurance restricted to 20-percent owners.
Sec. 3502. Net operating losses of life insurance companies.
Sec. 3503. Repeal of small life insurance company deduction.
Sec. 3504. Computation of life insurance tax reserves.
Sec. 3505. Adjustment for change in computing reserves.
Sec. 3506. Modification of rules for life insurance proration for purposes of determining the dividends received deduction.
Sec. 3507. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account.
Sec. 3508. Modification of proration rules for property and casualty insurance companies.
Sec. 3509. Repeal of special treatment of Blue Cross and Blue Shield organizations, etc.
Sec. 3510. Modification of discounting rules for property and casualty insurance companies.
Sec. 3511. Repeal of special estimated tax payments.
Sec. 3512. Capitalization of certain policy acquisition expenses.
Sec. 3513. Tax reporting for life settlement transactions.
Sec. 3514. Clarification of tax basis of life insurance contracts.
Sec. 3515. Exception to transfer for valuable consideration rules.
Subtitle G—Pass-Thru and certain other entities
Part 1—S Corporations
Sec. 3601. Reduced recognition period for built-in gains made permanent.
Sec. 3602. Modifications to S corporation passive investment income rules.
Sec. 3603. Expansion of qualifying beneficiaries of an electing small business trust.
Sec. 3604. Charitable contribution deduction for electing small business trusts.
Sec. 3605. Permanent rule regarding basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 3606. Extension of time for making S corporation elections.
Sec. 3607. Relocation of C corporation definition.
Part 2—Partnerships
Sec. 3611. Repeal of rules relating to guaranteed payments and liquidating distributions.
Sec. 3612. Mandatory adjustments to basis of partnership property in case of transfer of partnership interests.
Sec. 3613. Mandatory adjustments to basis of undistributed partnership property.
Sec. 3614. Corresponding adjustments to basis of properties held by partnership where partnership basis adjusted.
Sec. 3615. Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss.
Sec. 3616. Revisions related to unrealized receivables and inventory items.
Sec. 3617. Repeal of time limitation on taxing precontribution gain.
Sec. 3618. Partnership interests created by gift.
Sec. 3619. Repeal of technical termination.
Sec. 3620. Publicly traded partnership exception restricted to mining and natural resources partnerships.
Sec. 3621. Ordinary income treatment in the case of partnership interests held in connection with performance of services.
Sec. 3622. Partnership audits and adjustments.
Part 3—REITs and RICs
Sec. 3631. Prevention of tax-free spinoffs involving REITs.
Sec. 3632. Extension of period for prevention of REIT election following revocation or termination.
Sec. 3633. Certain short-life property not treated as real property for purposes of REIT provisions.
Sec. 3634. Repeal of special rules for timber held by REITs.
Sec. 3635. Limitation on fixed percentage rent and interest exceptions for REIT income tests.
Sec. 3636. Repeal of preferential dividend rule for publicly offered REITs.
Sec. 3637. Authority for alternative remedies to address certain REIT distribution failures.
Sec. 3638. Limitations on designation of dividends by REITs.
Sec. 3639. Non-REIT earnings and profits required to be distributed by REIT in cash.
Sec. 3640. Debt instruments of publicly offered REITs and mortgages treated as real estate assets.
Sec. 3641. Asset and income test clarification regarding ancillary personal property.
Sec. 3642. Hedging provisions.
Sec. 3643. Modification of REIT earnings and profits calculation to avoid duplicate taxation.
Sec. 3644. Reduction in percentage limitation on assets of REIT which may be taxable REIT subsidiaries.
Sec. 3645. Treatment of certain services provided by taxable REIT subsidiaries.
Sec. 3646. Study relating to taxable REIT subsidiaries.
Sec. 3647. C corporation election to become, or transfer assets to, a RIC or REIT.
Sec. 3648. Interests in RICs and REITs not excluded from definition of United States real property interests.
Sec. 3649. Dividends derived from RICs and REITs ineligible for deduction for United States source portion of dividends from certain foreign corporations.
Part 4—Personal holding companies
Sec. 3661. Exclusion of dividends from controlled foreign corporations from the definition of personal holding company income for purposes of the personal holding company rules.
Subtitle H—Taxation of foreign persons
Sec. 3701. Prevention of avoidance of tax through reinsurance with non-taxed affiliates.
Sec. 3702. Taxation of passenger cruise gross income of foreign corporations and nonresident alien individuals.
Sec. 3703. Restriction on insurance business exception to passive foreign investment company rules.
Sec. 3704. Modification of limitation on earnings stripping.
Sec. 3705. Limitation on treaty benefits for certain deductible payments.
Subtitle I—Provisions related to compensation
Part 1—Executive compensation
Sec. 3801. Nonqualified deferred compensation.
Sec. 3802. Modification of limitation on excessive employee remuneration.
Sec. 3803. Excise tax on excess tax-exempt organization executive compensation.
Sec. 3804. Denial of deduction as research expenditure for stock transferred pursuant to an incentive stock option.
Part 2—Worker classification
Sec. 3811. Determination of worker classification.
Subtitle J—Zones and Short-Term Regional Benefits
Sec. 3821. Repeal of provisions relating to Empowerment Zones and Enterprise Communities.
Sec. 3822. Repeal of DC Zone provisions.
Sec. 3823. Repeal of provisions relating to renewal communities.
Sec. 3824. Repeal of various short-term regional benefits.
Title IV—Participation exemption system for the taxation of foreign income
Subtitle A—Establishment of exemption system
Sec. 4001. Deduction for dividends received by domestic corporations from certain foreign corporations.
Sec. 4002. Limitation on losses with respect to specified 10-percent owned foreign corporations.
Sec. 4003. Treatment of deferred foreign income upon transition to participation exemption system of taxation.
Sec. 4004. Look-thru rule for related controlled foreign corporations made permanent.
Subtitle B—Modifications related to foreign tax credit system
Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis.
Sec. 4102. Foreign tax credit limitation applied by allocating only directly allocable deductions to foreign source income.
Sec. 4103. Passive category income expanded to include other mobile income.
Sec. 4104. Source of income from sales of inventory determined solely on basis of production activities.
Subtitle C—Rules related to passive and mobile income
Part 1—Modification of subpart F provisions
Sec. 4201. Subpart F income to only include low-taxed foreign income.
Sec. 4202. Foreign base company sales income.
Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income.
Sec. 4204. Active financing exception extended with limitation for low-taxed foreign income.
Sec. 4205. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment.
Part 2—Prevention of base erosion
Sec. 4211. Foreign intangible income subject to taxation at reduced rate; intangible income treated as subpart F income.
Sec. 4212. Denial of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness.
Title V—Tax Exempt Entities
Subtitle A—Unrelated Business Income Tax
Sec. 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section
501(a).Sec. 5002. Name and logo royalties treated as unrelated business taxable income.
Sec. 5003. Unrelated business taxable income separately computed for each trade or business activity.
Sec. 5004. Exclusion of research income limited to publicly available research.
Sec. 5005. Parity of charitable contribution limitation between trusts and corporations.
Sec. 5006. Increased specific deduction.
Sec. 5007. Repeal of exclusion of gain or loss from disposition of distressed property.
Sec. 5008. Qualified sponsorship payments.
Subtitle B—Penalties
Sec. 5101. Increase in information return penalties.
Sec. 5102. Manager-level accuracy-related penalty on underpayment of unrelated business income tax.
Subtitle C—Excise Taxes
Sec. 5201. Modification of intermediate sanctions.
Sec. 5202. Modification of taxes on self-dealing.
Sec. 5203. Excise tax on failure to distribute within 5 years contribution to donor advised fund.
Sec. 5204. Simplification of excise tax on private foundation investment income.
Sec. 5205. Repeal of exception for private operating foundation failure to distribute income.
Sec. 5206. Excise tax based on investment income of private colleges and universities.
Subtitle D—Requirements for Organizations Exempt From Tax
Sec. 5301. Repeal of tax-exempt status for professional sports leagues.
Sec. 5302. Repeal of exemption from tax for certain insurance companies and co-op health insurance issuers.
Sec. 5303. In-State requirement for workmen’s compensation insurance organization.
Sec. 5304. Repeal of Type II and Type III supporting organizations.
Title VI—Tax administration and compliance
Subtitle A—IRS Investigation-Related Reforms
Sec. 6001. Organizations required to notify Secretary of intent to operate as
501(c)(4).Sec. 6002. Declaratory judgments for
501(c)(4) organizations.Sec. 6003. Restriction on donation reporting for certain
501(c)(4) organizations.Sec. 6004. Mandatory electronic filing for annual returns of exempt organizations.
Sec. 6005. Duty to ensure that IRS employees are familiar with and act in accord with certain taxpayer rights.
Sec. 6006. Termination of employment of IRS employees for taking official actions for political purposes.
Sec. 6007. Release of information regarding the status of certain investigations.
Sec. 6008. Review of IRS examination selection procedures.
Sec. 6009. IRS employees prohibited from using personal email accounts for official business.
Sec. 6010. Moratorium on IRS conferences.
Sec. 6011. Applicable standard for determinations of whether an organization is operated exclusively for the promotion of social welfare.
Subtitle B—Taxpayer Protection and Service Reforms
Sec. 6101. Extension of IRS authority to require truncated Social Security numbers on Form W–2.
Sec. 6102. Free electronic filing.
Sec. 6103. Pre-populated returns prohibited.
Sec. 6104. Form 1040SR for seniors.
Sec. 6105. Increased refund and credit threshold for Joint Committee on Taxation review of C corporation return.
Subtitle C—Tax return due date simplification
Sec. 6201. Due dates for returns of partnerships, S corporations, and C corporations.
Sec. 6202. Modification of due dates by regulation.
Sec. 6203. Corporations permitted statutory automatic 6-month extension of income tax returns.
Subtitle D—Compliance Reforms
Sec. 6301. Penalty for failure to file.
Sec. 6302. Penalty for failure to file correct information returns and provide payee statements.
Sec. 6303. Clarification of 6-year statute of limitations in case of overstatement of basis.
Sec. 6304. Reform of rules related to qualified tax collection contracts.
Sec. 6305. 100 percent continuous levy on payments to Medicare providers and suppliers.
Sec. 6306. Treatment of refundable credits for purposes of certain penalties.
Title VII—Excise taxes
Sec. 7001. Repeal of medical device excise tax.
Sec. 7002. Modifications relating to oil spill liability trust fund.
Sec. 7003. Modification relating to inland waterways trust fund financing rate.
Sec. 7004. Excise tax on systemically important financial institutions.
Sec. 7005. Clarification of orphan drug exception to annual fee on branded prescription pharmaceutical manufacturers and importers.
Title VIII—Deadwood and technical provisions
Subtitle A—Repeal of Deadwood
Sec. 8001. Repeal of Puerto Rico economic activity credit.
Sec. 8002. Repeal of making work pay credit.
Sec. 8003. General business credit.
Sec. 8004. Environmental tax.
Sec. 8005. Annuities; certain proceeds of endowment and life insurance contracts.
Sec. 8006. Unemployment compensation.
Sec. 8007. Flexible spending arrangements.
Sec. 8008. Certain combat zone compensation of members of the armed forces.
Sec. 8009. Qualified group legal services plans.
Sec. 8010. Certain reduced uniformed services retirement pay.
Sec. 8011. Great plains conservation program.
Sec. 8012. State legislators’ travel expenses away from home.
Sec. 8013. Treble damage payments under the antitrust law.
Sec. 8014. Phase-in of limitation on investment interest.
Sec. 8015. Charitable, etc., contributions and gifts.
Sec. 8016. Amortizable bond premium.
Sec. 8017. Repeal of deduction for clean-fuel vehicles and certain refueling property.
Sec. 8018. Repeal of deduction for capital costs incurred in complying with environmental protection agency sulfur regulations.
Sec. 8019. Activities not engaged in for profit.
Sec. 8020. Dividends received on certain preferred stock; and dividends paid on certain preferred stock of public utilities.
Sec. 8021. Acquisitions made to evade or avoid income tax.
Sec. 8022. Distributions of property.
Sec. 8023. Effect on earnings and profits.
Sec. 8024. Basis to corporations.
Sec. 8025. Tax credit employee stock ownership plans.
Sec. 8026. Employee stock purchase plans.
Sec. 8027. Transition rules.
Sec. 8028. Limitation on deductions for certain farming.
Sec. 8029. Deductions limited to amount at risk.
Sec. 8030. Passive activity losses and credits limited.
Sec. 8031. Adjustments required by changes in method of accounting.
Sec. 8032. Exemption from tax on corporations, certain trusts, etc.
Sec. 8033. Requirements for exemption.
Sec. 8034. Repeal of special treatment for religious broadcasting company.
Sec. 8035. Repeal of exclusion of gain or loss from disposition of brownfield property.
Sec. 8036. Accumulated taxable income.
Sec. 8037. Certain provisions related to depletion.
Sec. 8038. Amounts received by surviving annuitant under joint and survivor annuity contract.
Sec. 8039. Income taxes of members of armed forces on death.
Sec. 8040. Special rules for computing reserves.
Sec. 8041. Insurance company taxable income.
Sec. 8042. Capitalization of certain policy acquisition expenses.
Sec. 8043. Repeal of provision on expatriation to avoid tax.
Sec. 8044. Repeal of certain transition rules on income from sources without United States.
Sec. 8045. Repeal of Puerto Rico and possession tax credit.
Sec. 8046. Basis of property acquired from decedent.
Sec. 8047. Property on which lessee has made improvements.
Sec. 8048. Involuntary conversion.
Sec. 8049. Property acquired during affiliation.
Sec. 8050. Repeal of special holding period rules for certain commodity futures transactions.
Sec. 8051. Holding period of property.
Sec. 8052. Property used in the trade or business and involuntary conversions.
Sec. 8053. Sale of patents.
Sec. 8054. Gain from disposition of farmland.
Sec. 8055. Transition rules related to the treatment of amounts received on retirement or sale or exchange of debt instruments.
Sec. 8056. Certain rules with respect to debt instruments issued before July 2, 1982.
Sec. 8057. Certain rules with respect to stripped bonds purchased before July 2, 1982.
Sec. 8058. Amount and method of adjustment.
Sec. 8059. Old-age, survivors, and disability insurance.
Sec. 8060. Hospital insurance.
Sec. 8061. Ministers, members of religious orders, and christian science practitioners.
Sec. 8062. Affiliated group defined.
Sec. 8063. Credit for state death taxes.
Sec. 8064. Family-owned business interest.
Sec. 8065. Property within the united states.
Sec. 8066. Repeal of deadwood provisions relating to employment taxes.
Sec. 8067. Luxury passenger automobiles.
Sec. 8068. Transportation by air.
Sec. 8069. Taxes on failure to distribute income.
Sec. 8070. Taxes on taxable expenditures.
Sec. 8071. Definitions and special rules.
Sec. 8072. Returns.
Sec. 8073. Information returns.
Sec. 8074. Abatements.
Sec. 8075. Failure by corporation to pay estimated income tax.
Sec. 8076. Repeal of 2008 recovery rebates.
Sec. 8077. Repeal of advance payment of portion of increased child credit for 2003.
Sec. 8078. Repeal of provisions related to COBRA premium assistance.
Sec. 8079. Retirement.
Sec. 8080. Annuities to surviving spouses and dependent children of judges.
Sec. 8081. Merchant marine capital construction funds.
Sec. 8082. Valuation tables.
Sec. 8083. Definition of employee.
Sec. 8084. Effective date.
Subtitle B—Conforming Amendments Related to Multiple Sections
Sec. 8101. Conforming amendments related to multiple sections.
Tax Reform for Individuals
Individual income tax rate reform
Simplification of individual income tax rates
In general
Section 1 is amended to read as follows:
Tax imposed
In general
There is hereby imposed on the income of every individual a tax equal to the sum of—
10 percent bracket
10 percent of so much of the taxable income as does not exceed the 25-percent bracket threshold amount,
25 percent bracket
25 percent of so much of the taxable income as exceeds the 25-percent bracket threshold amount, plus
35 percent bracket
10 percent of so much of the modified adjusted gross income (as defined in section 2) as exceeds the 35-percent bracket threshold amount.
Bracket threshold amounts
For purposes of this section—
25-percent bracket threshold amount
The term 25-percent bracket threshold amount
means—
in the case of a joint return or surviving spouse, $71,200,
in the case of any other individual (other than an estate or trust), one-half of the dollar amount in effect under subparagraph (A), and
in the case of an estate or trust, zero.
35-percent bracket threshold amount
The term 35-percent bracket threshold amount
means—
in the case of a joint return or surviving spouse, $450,000,
in the case of any other individual (other than an estate or trust), $400,000, and
in the case of an estate or trust, $12,000.
Inflation adjustment
In general
In the case of any taxable year beginning after 2014, each dollar amount in subsections (b)(1)(A), (b)(2)(A), (b)(2)(B), (b)(2)(C), (e)(3)(A), and (e)(3)(B) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under this subsection for the calendar year in which the taxable year begins.
Cost-of-living adjustment
For purposes of this subsection—
In general
The cost-of-living adjustment for any calendar year is the percentage (if any) by which—
the C-CPI-U for the preceding calendar year, exceeds
the normalized CPI for calendar year 2012.
Special rule for adjustments with a base year after 2012
For purposes of any provision which provides for the substitution of a year after 2012 for 2012
in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting C-CPI-U
for normalized CPI
in clause (ii).
Normalized CPI
For purposes of this subsection, the normalized CPI for any calendar year is the product of—
the CPI for such calendar year, multiplied by
the C-CPI-U transition multiple.
C-CPI-U transition multiple
For purposes of this subsection, the term C-CPI-U transition multiple
means the amount obtained by dividing—
the C-CPI-U for calendar year 2013, by
the CPI for calendar year 2013.
C-CPI-U
For purposes of this subsection—
In general
The term C-CPI-U
means the Chained Consumer Price Index for All Urban Consumers (as published by the Bureau of
Labor Statistics of the Department of Labor). The values of the Chained
Consumer Price Index for All Urban Consumers taken into account for
purposes of determining the cost-of-living adjustment for any calendar
year under this subsection shall be the latest values so published as of
the date on which such Bureau publishes the initial value of the Chained
Consumer Price Index for All Urban Consumers for the month of August for
the preceding calendar year.
Determination for calendar year
The C-CPI-U for any calendar year is the average of the C-CPI-U as of the close of the 12-month period ending on August 31 of such calendar year.
CPI
For purposes of this subsection—
In general
The term Consumer Price Index
means the last Consumer Price Index for All Urban Consumers published by the Department of Labor.
For purposes of the preceding sentence, the revision of the Consumer Price
Index which is most consistent with the Consumer Price Index for calendar
year 1986 shall be used.
Determination for calendar year
The CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year.
Special rules for certain children with unearned income
In general
In the case of any child to whom this subsection applies for any taxable year—
the 25-percent bracket threshold amount shall not be more than the taxable income of such child for the taxable year reduced by the net unearned income of such child, and
the 35-percent bracket threshold amount shall not be more than the sum of—
the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus
the dollar amount in effect under subsection (b)(2)(C) for the taxable year.
Child to whom subsection applies
This subsection shall apply to any child for any taxable year if—
such child—
has not attained age 18 before the close of the taxable year, or
has attained age 18 before the close of the taxable year and is described in paragraph (3),
either parent of such child is alive at the close of the taxable year, and
such child does not file a joint return for the taxable year.
Certain children whose earned income does not exceed one-half of individual’s support
A child is described in this paragraph if—
such child—
has not attained age 19 before the close of the taxable year, or
is a student (within the meaning of section 7705(f)(2)) who has not attained age 24 before the close of the taxable year, and
such child’s earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual’s support (within the meaning of section 7705(c)(1)(D) after the application of section 7705(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year.
Net unearned income
For purposes of this subsection—
In general
The term net unearned income
means the excess of—
the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over
the sum of—
the amount in effect for the taxable year under section 63(c)(4)(A) (relating to limitation on standard deduction in the case of certain dependents), plus
the greater of the amount described in subclause (I) or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i).
Limitation based on taxable income
The amount of the net unearned income for any taxable year shall not exceed the individual’s taxable income for such taxable year.
Phaseout of 10-Percent rate
In general
The amount of tax imposed by this section (determined without regard to this subsection) shall be increased by 5 percent of the excess (if any) of—
modified adjusted gross income, over
the applicable dollar amount.
Limitation
The increase determined under paragraph (1) with respect to any taxpayer for any taxable year shall not exceed 15 percent of the lesser of—
the taxpayer’s taxable income for such taxable year, or
the 25-percent bracket threshold amount in effect with respect to the taxpayer for such taxable year.
Applicable dollar amount
For purposes of this subsection, the term applicable dollar amount
means—
in the case of a joint return or a surviving spouse, $300,000,
in the case of any other individual, $250,000.
Estates and trusts
Paragraph (1) shall not apply in the case of an estate or trust.
Determination of highest rate
For purposes of any provision of law which refers to the highest rate of tax specified in this section (or any subsection of this section), such highest rate shall be treated as being 35 percent.
.
Modified adjusted gross income
Section 2 is amended by striking subsection (b), by redesignating subsections (c), (d), and (e), as subsections (d), (e), and (f), respectively, and by inserting after subsection (a) the following new subsections:
Modified adjusted gross income
For purposes of section 1—
In general
The term modified adjusted gross income
means adjusted gross income—
increased by—
any amount excluded from gross income under sections 911, 931, and 933,
the excess (if any) of—
amounts of interest received or accrued by the taxpayer during the taxable year which are exempt from tax, over
amounts disallowed as a deduction by reason of section 163(d)(1)(A) or 171(a)(2),
any exclusion from gross income with respect to the cost described in section 6051(a)(14) (without regard to subparagraphs (A) and (B) thereof),
any deduction allowable under section 162(l) (relating to special rules for health insurance costs of self-employed individuals),
any annual addition (as defined in section 415(c)(2)) to a defined contribution plan which is not includible in, or which is deductible from, the gross income of the individual for the taxable year,
any deduction allowable under section 223, and
the excess (if any) of—
the social security benefits of the individual for the taxable year (as defined in section 86(d)), over
the amount included in the gross income of such individual for such taxable year under section 86, and
decreased by—
any deduction allowed under section 170 (and in the case of an estate or trust, any deduction allowed under section 642(c)), and
qualified domestic manufacturing income.
Determination of adjusted gross income in case of estates and trusts
For purposes of this subsection, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that—
the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and
the deductions allowable under sections 642(b), 651, and 661,
Qualified domestic manufacturing income
In general
For purposes of subsection (b), the term qualified domestic manufacturing income
for any taxable year means an amount equal to the excess (if any) of—
the taxpayer’s domestic manufacturing gross receipts for such taxable year, over
the sum of—
the cost of goods sold that are allocable to such receipts, and
other expenses, losses, or deductions, which are properly allocable to such receipts.
Allocation method
The Secretary shall prescribe rules for the proper allocation of items described in paragraph (1) for purposes of determining qualified domestic manufacturing income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic manufacturing gross receipts.
Special rules for determining costs
In general
For purposes of determining costs under clause (i) of paragraph (1)(B), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic manufacturing gross receipts.
Exports for further manufacture
In the case of any property described in subparagraph (A) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph (A) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.
Domestic manufacturing gross receipts
For purposes of this subsection—
In general
The term domestic manufacturing gross receipts
means the gross receipts of the taxpayer which are derived from—
any lease, rental, license, sale, exchange, or other disposition of tangible personal property which was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States, or
in the case of a taxpayer engaged in the active conduct of a construction trade or business, construction of real property performed in the United States by the taxpayer in the ordinary course of such trade or business if such real property is placed in service after December 31, 2014.
Exceptions
Such term shall not include gross receipts of the taxpayer which are derived from—
the sale of food and beverages prepared by the taxpayer at a retail establishment,
the transmission or distribution of electricity, natural gas, or potable water, and
the lease, rental, license, sale, exchange, or other disposition of land.
Special rule for certain government contracts
Gross receipts derived from the manufacture or production of any property described in subparagraph (A)(i) shall be treated as meeting the requirements of subparagraph (A)(i) if—
such property is manufactured or produced by the taxpayer pursuant to a contract with the Federal Government, and
the Federal Acquisition Regulation requires that title or risk of loss with respect to such property be transferred to the Federal Government before the manufacture or production of such property is complete.
Treatment of activities in Puerto Rico
In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 for such taxable year, then this paragraph shall be applied by treating each reference in subparagraph (A) to the United States as including the Commonwealth of Puerto Rico.
Tangible personal property
The term tangible personal property
shall not include computer software or any property described in paragraph (3) or (4) of section
168(f).
Related persons
In general
The term domestic manufacturing gross receipts
shall not include any gross receipts of the taxpayer derived from property leased, licensed, or
rented by the taxpayer for use by any related person.
Related person
For purposes of clause (i), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563(b).
Certain income not qualified
Net earnings from self employment
Domestic manufacturing gross receipts shall not include any amount which is properly allocable to the taxpayer’s net earnings from self employment (determined after any reduction provided under section 1402(m)).
Certain accounting method adjustments
Domestic manufacturing gross receipts shall not include any amount attributable to—
a qualified change in method of accounting (as defined in section 3301(d)(2) of the Tax Reform Act of 2014), or
any other change in method of accounting which is required by the amendments made by such Act.
Application of section to pass-through entities
Partnerships and s corporations
Except as provided in subparagraph (B), in the case of a partnership or S corporation, each partner or shareholder shall take into account such person’s allocable share of each item described in subparagraph (A) or (B) of paragraph (1) (determined without regard to whether the items described in such subparagraph (A) exceed the items described in such subparagraph (B)).
Publicly traded partnerships
In the case of a publicly traded partnership described in section 7704(c), each partner shall not take into account any allocable share of any item referred to in subparagraph (A).
Trusts and estates
In the case of a trust or estate, the items referred to in subparagraph (A) (as determined therein) shall be apportioned between the beneficiaries and the fiduciary (and among the beneficiaries) under regulations prescribed by the Secretary.
Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—
which prevent more than 1 taxpayer from taking into account the same qualified domestic manufacturing income, and
which require or restrict the allocation of items under paragraph (6) and require such reporting for purposes of carrying out such paragraph as the Secretary determines appropriate.
Phase-in of exclusion
In the case of any taxable year beginning before January 1, 2017, the term qualified domestic manufacturing income
shall be an amount equal to the product of the qualified domestic manufacturing income determined
without regard to this paragraph, multiplied by—
in the case of any taxable year beginning in 2015, 33 percent, and
in the case of any taxable year beginning in 2016, 67 percent.
.
Application of section 15
In general
Subsection (a) of section 15 is amended by striking this chapter
and inserting section 11
.
Conforming amendments
Section 15 is amended by striking subsections (d) and (f) and by redesignating subsection (e) as subsection (d).
Section 15(d), as redesignated by subparagraph (A), is amended by striking section 1 or 11(b)
and inserting section 11(b)
.
Subchapter A of chapter 1 is amended—
by redesignating section 12 as section 13,
by redesignating section 15 (as amended by this subsection) as section 12 and moving such section from part III of such subchapter to after section 11 in part II of such subchapter,
by striking part III, and
by amending the table of sections for part II of such subchapter by redesignating the item relating to section 12 as an item relating to section 13 and by inserting after the item relating to section 11 the following new item:
Sec. 12. Effect of changes.
.
Section 6013(c) is amended by striking sections 15, 443, and 7851(a)(1)(A)
and inserting sections 443 and 7851(a)(1)(A)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Deduction for adjusted net capital gain
In general
Part VI of subchapter B of chapter 1, as amended by section 3105, is amended by inserting after section 168 the following new section:
Adjusted net capital gain
In general
If for any taxable year a taxpayer other than a corporation has an adjusted net capital gain, 40 percent of the amount of the adjusted net capital gain shall be allowed as a deduction from gross income.
Adjusted net capital gain
For purposes of this section, the term adjusted net capital gain
means the sum of—
net capital gain reduced (but not below zero) by the net collectibles gain, plus
qualified dividend income.
Net capital gain reduced by amounts taken into account as investment income
For purposes of this section, the net capital gain for any taxable year shall be reduced (but not below zero) by the amount which the taxpayer takes into account as investment income under section 163(d)(4)(B)(iii).
Net collectibles gain
For purposes of this section—
In general
The term net collectibles gain
means the excess (if any) of—
collectibles gain, over
collectibles loss.
Collectibles gain and loss
The terms collectibles gain
and collectibles loss
mean gain or loss (respectively) from the sale or exchange of a collectible (as defined in section
408(m) without regard to paragraph (3) thereof) which is a capital asset
held for more than 1 year but only to the extent such gain is taken into
account in computing gross income and such loss is taken into account in
computing taxable income.
Partnerships, etc
For purposes of paragraph (2), any gain from the sale of an interest in a partnership, S corporation, or trust which is attributable to unrealized appreciation in the value of collectibles shall be treated as gain from the sale or exchange of a collectible. Rules similar to the rules of section 751 shall apply for purposes of the preceding sentence.
Qualified dividend income
For purposes of this section—
In general
The term qualified dividend income
means dividends received during the taxable year from—
domestic corporations, and
qualified foreign corporations.
Certain dividends excluded
Such term shall not include—
any dividend from a corporation which for the taxable year of the corporation in which the distribution is made, or the preceding taxable year, is a corporation exempt from tax under section 501 or 521,
any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.), and
any dividend described in section 404(k).
Coordination with section 246(c)
Such term shall not include any dividend on any share of stock—
with respect to which the holding period requirements of section 246(c) are not met (determined
without regard to paragraph (5) of section 246(c) and by substituting in
section 246(c) 60 days
for 45 days
each place it appears and by substituting 121-day period
for 91-day period
), or
to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
Qualified foreign corporations
In general
Except as otherwise provided in this subparagraph, the term qualified foreign corporation
means any foreign corporation if—
such corporation is incorporated in a possession of the United States, or
such corporation is eligible as a qualified resident for all of the benefits provided under a comprehensive income tax treaty with the United States which the Secretary determines is satisfactory for purposes of this paragraph and which includes an exchange of information program.
Dividends on stock readily tradable on United States securities market
A foreign corporation not otherwise treated as a qualified foreign corporation under subparagraph (A) shall be so treated with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States.
Exclusion of dividends of certain foreign corporations
The term qualified foreign corporation
shall not include any foreign corporation which for the taxable year of the corporation in which
the dividend was paid, or the preceding taxable year, is a passive foreign
investment company (as defined in section 1297).
Treatment of dividends from regulated investment companies and real estate investment trusts
A dividend received from a regulated investment company or a real estate investment trust shall be subject to the limitations prescribed in sections 854 and 857.
.
Deduction allowed whether or not individual itemizes deductions
Section 62(a) is amended by inserting after paragraph (7) the following new paragraph:
Adjusted net capital gain
The deduction allowed by section 169.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Conforming amendments related to simplification of individual income tax rates
Amendments related to modification of inflation adjustment
Section 25B(b)(3)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting
and inserting calendar year 2005
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
.calendar year 2005
for calendar year 2012
in clause (ii) thereof
Subclause (II) of section 36B(b)(3)(A)(ii) is amended by striking consumer price index
and inserting C-CPI-U (as defined in section 1(c))
.
Section 41(e)(5)(C) is amended to read as follows:
Cost-of-living adjustment defined
In general
The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such
calendar year determined under section 1(c)(2)(A), by substituting calendar year 1987
for calendar year 2012
in clause (ii) thereof.
Special rule where base period ends in a calendar year other than 1983 or 1984
If the base period of any taxpayer does not end in 1983 or 1984, clause (i) shall be applied by substituting the calendar year in which such base period ends for 1987.
.
Section 125(i)(2) is amended—
by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting
in subparagraph (B) and inserting calendar year 2012
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins
, and
by striking $50
both places it appears in the last sentence and inserting $100
.
Section 137(f) is amended—
by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting
in paragraph (2) and inserting calendar year 2001
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
, andcalendar year 2001
for calendar year 2012
in clause (ii) thereof
in the last sentence thereof—
by striking $10
the first place it appears and inserting $100
, and
by striking nearest multiple of $10
and inserting next lowest multiple of $100
.
Section 162(o)(3) is amended by inserting as in effect before enactment of the Tax Reform Act of 2014
after section 1(f)(5)
.
Section 220(g)(2) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting
and inserting calendar year 1997
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
.calendar year 1997
for calendar year 2012
in clause (ii) thereof
Section 223(g)(1) is amended by striking all that follows subparagraph (A) and inserting the following:
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined—
by substituting for calendar year 2012
in clause (ii) thereof—
except as provided in clause (ii), calendar year 1997
, and
in the case of each dollar amount in subsection (c)(2)(A), calendar year 2003
, and
by substituting March 31
for August 31
in paragraphs (5)(B) and (6)(B) of section 1(c).
.
Section 430(c)(7)(D)(vii)(II) is amended by striking section 1(f)(3) for the calendar year, determined by substituting
and inserting calendar year 2009
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year, determined by substituting
.calendar year 2009
for calendar year 2012
in clause (ii) thereof
Section 512(d)(2)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, by substituting
and inserting calendar year 1994
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
.calendar year 1994
for calendar year 2012
in clause (ii) thereof
Section 513(h)(2)(C)(ii) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting
and inserting calendar year 1987
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
.calendar year 1987
for calendar year 2012
in clause (ii) thereof
Section 877A(a)(3)(B)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, by substituting
and inserting calendar year 2007
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
.calendar year 2007
for calendar year 2012
in clause (ii) thereof
Section 911(b)(2)(D)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting
and inserting 2004
for 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by
substituting
.calendar year 2004
for calendar year 2012
in clause (ii) thereof
Section 1274A(d)(2) is amended to read as follows:
Inflation adjustment
In general
In the case of any debt instrument arising out of a sale or exchange during any calendar year after 2014, each adjusted dollar amount shall be increased by an amount equal to—
such adjusted dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year,
determined by substituting calendar year 2013
for calendar year 2012
in clause (ii) thereof.
Adjusted dollar amounts
For purposes of this paragraph, the term adjusted dollar amount
means the dollar amounts in subsections (b) and (c), in each case as in effect for calendar year
2014.
Rounding
Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.
.
Section 2010(c)(3)(B)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting
and inserting calendar year 2010
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year, determined by substituting
.calendar year 2010
for calendar year 2012
in clause (ii) thereof
Section 2032A(a)(3)(B) is amended by striking section 1(f)(3) for such calendar year by substituting
and inserting calendar year 1997
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year, determined by substituting
.calendar year 1997
for calendar year 2012
in clause (ii) thereof
Section 2503(b)(2)(B) is amended by striking section 1(f)(3) for such calendar year by substituting
and inserting calendar year 1997
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year, determined by substituting
.calendar year 1997
for calendar year 2012
in clause (ii) thereof
Section 4161(b)(2)(C)(i)(II) is amended by striking section 1(f)(3) for such calendar year, determined by substituting
and inserting 2004
for 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year, determined by substituting
.calendar year 2004
for calendar year 2012
in clause (ii) thereof
Section 4261(e)(4)(A)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting the year before the last nonindexed year for
and inserting calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year, determined by substituting the year before the last
nonindexed year for
.calendar year 2012
in clause (ii) thereof
Section 4980I(b)(3)(C)(v)(II) is amended
by striking section 1(f)(3)
and inserting section 1(c)(2)(A)
,
by striking subparagraph (B)
and inserting clause (ii)
, and
by striking 1992
and inserting 2012
.
Section 5000A(c)(3)(D)(ii) is amended—
by striking section 1(f)(3)
and inserting section 1(c)(2)(A)
,
by striking subparagraph (B)
and inserting clause (ii)
, and
by striking 1992
and inserting 2012
.
Section 6039F(d) is amended by striking section 1(f)(3), except that subparagraph (B) thereof
and inserting section 1(c)(2)(A), except that clause (ii) thereof
.
Section 6323(i)(4)(B) is amended by striking section 1(f)(3) for the calendar year, determined by substituting
and inserting calendar year 1996
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year, determined by substituting
.calendar year 1996
for calendar year 2012
in clause (ii) thereof
Section 6334(g)(1)(B) is amended by striking section 1(f)(3) for such calendar year, by substituting
and inserting calendar year 1998
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year, determined by substituting
.calendar year 1999
for calendar year 2012
in clause (ii) thereof
Section 6721(f)(1) is amended—
by striking section 1(f)(3)
and inserting section 1(c)(2)(A)
,
by striking subparagraph (B)
and inserting clause (ii)
, and
by striking 1992
and inserting 2012
.
Section 6722(f)(1) is amended—
by striking section 1(f)(3)
and inserting section 1(c)(2)(A)
,
by striking subparagraph (B)
and inserting clause (ii)
, and
by striking 1992
and inserting 2012
.
Section 7430(c)(1) is amended by striking section 1(f)(3) for such calendar year, by substituting
in the flush text at the end and inserting calendar year 1995
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year, determined by substituting
.calendar year 1995
for calendar year 2012
in clause (ii) thereof
Section 7872(g)(5) is amended to read as follows:
Inflation adjustment
In general
In the case of any loan made during any calendar year after 2014 to which paragraph (1) applies, the adjusted dollar amount shall be increased by an amount equal to—
such adjusted dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year,
determined by substituting calendar year 2013
for calendar year 2012
in clause (ii) thereof.
Adjusted dollar amount
For purposes of this paragraph, the term adjusted dollar amount
means the dollar amount in paragraph (2) as in effect for calendar year 2014.
Rounding
Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.
.
Amendments related to deduction for adjusted net capital gain
Section 163(d)(4)(B) is amended by striking section 1(h)(11)(B)
and inserting section 169(e)
.
Section 172(d)(2)(B) is amended by inserting the deduction allowable under section 169 and
before the exclusion
.
Section 301(f)(4) is amended by striking section 1(h)(11)
and inserting section 169(e)
.
Section 306(a)(1)(D) is amended by striking section 1(h)(11)
and inserting section 169(e)
.
The last sentence of section 453A(c)(3) is amended by striking capital gain
and all that follows and inserting capital gain, the deduction under section 169 shall be taken into account.
.
Sections 531 and 541 are each amended by striking 20 percent
and inserting 21 percent
.
Section 584(c) is amended by striking and to which section 1(h)(11) applies
in the last sentence and inserting which is qualified dividend income (as defined in section 169(e)) in the hands of such common trust
fund
.
Section 641(c)(2)(C) (prior to redesignation by title II) is amended by adding at the end the following new clause:
The deduction allowed by section 169.
.
The first sentence of section 642(c)(4) is amended by striking consists of
and all that follows and inserting consists of long-term capital gain or gain described in section 1202(a), proper adjustments shall
be made for any deduction allowable to the trust or estate under section
169 and for any exclusion allowable under section 1202.
.
The last sentence of section 643(a)(3) is amended to read as follows: The deduction under section 169 and the exclusion under section 1202 shall not be taken into
account.
.
Section 691(c)(4) is amended by striking 1(h)
and inserting 169
.
Section 702(a)(5) is amended by striking section 1(h)(11)
and inserting section 169
.
Section 854 is amended—
by striking section 1(h)(11) (relating to maximum rate of tax on dividends)
in subsection (a) and inserting section 169 (relating to adjusted net capital gain)
,
by striking Maximum rate under section 1(h)
in the heading of subsection (b)(1)(B) and inserting Determination of adjusted net capital gain
, and
by striking section 1(h)(11)(B)
in subsection (b)(4) and inserting section 169(e)
.
Section 857(c)(2) is amended—
by striking section 1(h)(11)(B)
in subparagraph (D) and inserting section 169(e)
, and
by striking Section 1(h)(11)
in the heading and inserting Section 169(e)
.
Section 904(b) is amended—
by amending paragraph (2) to read as follows:
Capital gains
For purposes of this section, taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets (including gain so treated under section 1231) only to the extent of the lesser of—
capital gain net income from sources without the United States, or
capital gain net income.
, and
by striking paragraph (3).
Section 1260(a) is amended by striking long-term capital gain
the first place such term appears and all that follows and inserting long-term capital gain, such gain shall be treated as ordinary income to the extent such gain
exceeds the net underlying long-term capital gain.
.
Section 1411(c)(1)(B) is amended by inserting (other than section 169)
after this subtitle
.
Section 4985(a)(1) is amended by striking the rate of tax specified in section 1(h)(1)(C)
and inserting 21 percent
.
Section 7518(g)(6)(A) is amended by striking all that follows clause (i) and inserting the following:
by increasing the tax imposed by chapter 1 by the product of the amount of such withdrawal, multiplied by—
in the case of a taxpayer other than a corporation, 60 percent of the highest rate of tax specified in section 1, and
in the case of a corporation, the highest rate of tax specified in section 11.
.
Section 53511(f) of title 46, United States Code, is amended by—
by amending paragraph (1)(B) to read as follows:
increasing the tax imposed by chapter 1 of such Code by the product of the amount of such withdrawal, multiplied by—
in the case of a taxpayer other than a corporation, the highest rate of tax specified in section 1 (60 percent of such highest rate in the case of so much of such withdrawal as is made from the capital gain account), and
in the case of a corporation, the highest rate of tax specified in section 11.
, and
by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 168 the following new item:
.
Other conforming amendments
Section 25B(b)(2) is amended by striking In the case of—
and all that follows through any taxpayer not described in paragraph (1) or subparagraph (A),
and inserting In the case of any taxpayer not described in paragraph (1),
.
Section 36B(b)(3)(B)(ii)(I)(aa) is amended to read as follows:
who is described in section 1(b)(1)(B) and who does not have any dependents for the taxable year,
.
Section 486B(b)(1) is amended—
by striking maximum rate in effect
and inserting highest rate specified
, and
by striking section 1(e)
and inserting section 1
.
Section 511(b)(1) is amended to read as follows:
Imposition of tax
There is hereby imposed for each taxable year on the unrelated business taxable income of every
trust described in paragraph (2) a tax computed as provided in section 1.
In making such computation for purposes of this section, the terms taxable income
and modified adjusted gross income
as used in section 1 shall both be read as unrelated business taxable income
as defined in section 512.
.
Section 641(a) is amended by striking section 1(e) shall apply to the taxable income
and inserting section 1 shall apply to the income
.
Section 641(c)(2)(A) is amended to read as follows:
The dollar amount in effect under section 1(b)(2)(C) shall be treated as being zero.
.
Section 646(b) is amended to read as follows:
Taxation of income of trust
Except as provided in subsection (f)(1)(B)(ii), there is hereby imposed on the taxable income of an electing Settlement Trust a tax at the rate specified in section 1(a)(1). Such tax shall be in lieu of the income tax otherwise imposed by this chapter on such income.
.
Section 685(c) is amended by striking Section 1(e)
and inserting Section 1
.
Section 1398(c) is amended by striking paragraphs (1) and (2), by redesignating paragraph (3) as paragraph (2), and by inserting before paragraph (2) as so redesignated the following new paragraph:
Computation and payment of tax
Except as otherwise provided in this section or part I of subchapter A, the taxable income and modified adjusted gross income of the estate shall be computed in the same manner as for an individual. The tax shall be computed under section 1 and shall be paid by the trustee.
.
Section 3402(p)(1)(B) is amended by striking any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c),
and inserting 10 percent, 25 percent, 35 percent,
.
Section 3402(q)(1) is amended by striking the third lowest rate of tax applicable under section 1(c)
and inserting the highest rate of tax specified in section 1
.
Section 3402(r)(3) is amended by striking the amount of tax which would be imposed by section 1(c) (determined without regard to any rate of
tax in excess of the fourth lowest rate of tax applicable under section
1(c)) on an amount of taxable income equal to
and inserting an amount equal to the product of the highest rate of tax specified in section 1 multiplied by
.
Section 3406(a)(1) is amended by striking the fourth lowest rate of tax applicable under section 1(c)
and inserting the highest rate of tax specified in section 1
.
Section 6103(e)(1)(A)(iii) is amended by striking section 1(g)
and inserting section 1(d)
.
Withholding from supplemental wage payments
In general
If an employer elects under Treasury Regulation section 31.3402(g)–1 to determine the amount to be deducted and withheld from any supplemental wage payment by using a flat percentage rate, the rate to be used in determining such amount shall not be less than 35 percent.
Repeal of superceded provision
The American Jobs Creation Act of 2004 is amended by striking section 904.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Withholding from supplemental wage payments
The provisions of, and amendments made by, subsection (d) shall apply to payments made after December 31, 2014.
Simplification of tax benefits for families
Standard deduction
Increase in standard deduction
Subsection (c) of section 63 is amended to read as follows:
Standard deduction
For purposes of this subtitle—
In general
Except as otherwise provided in this subsection, the term standard deduction
means—
$22,000, in the case of a joint return, and
one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case.
Phaseout of standard deduction
The amount of the standard deduction determined under this subsection (without regard to this paragraph and after the application of paragraph (4)) shall be reduced (but not below zero) by an amount equal to 20 percent of the excess (if any) of—
the taxpayer’s modified adjusted gross income (as defined in section 2(b)) for the taxable year, over
the joint return standard deduction phaseout threshold for the taxable year, in the case of a taxpayer described in paragraph (1)(A), and
the non-joint return standard deduction phaseout threshold for the taxable year, in any other case.
Standard deduction phaseout thresholds
Joint return standard deduction phaseout threshold
The term joint return standard deduction phaseout threshold
means, with respect to any taxable year—
the dollar amount in effect under section 1(e)(3)(A) for such taxable year, plus
the product of—
the dollar amount in effect under section 1(b)(1)(A) for such taxable year, multiplied by
3.
Non-joint return standard deduction phaseout threshold
The term non-joint return standard deduction phaseout threshold
means, with respect to any taxable year—
the dollar amount in effect under section 1(e)(3)(B) for such taxable year, plus
the product of—
the dollar amount in effect under section 1(b)(1)(B) for such taxable year, multiplied by
3.
Limitation on standard deduction in the case of certain dependents
In the case of an individual who is a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the standard deduction applicable to such individual for such individual’s taxable year shall not exceed the greater of—
$500, or
the sum of $250 and such individual’s earned income (as defined in section 24(d)(2)).
Certain individuals, etc., not eligible for standard deduction
In the case of—
a married individual filing a separate return where such individual’s spouse elects to itemize deductions,
a nonresident alien individual,
an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or
an estate or trust, common trust fund, or partnership,
Inflation adjustments
In the case of any taxable year beginning after 2014, each of the dollar amounts in paragraphs (1)(A) and (4) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined—
in the case of the dollar amount in paragraph (1)(A), under section 1(c)(2)(A) for the calendar year in which the taxable year begins,
in the case of the dollar amount in paragraph (4)(A), under section 1(c)(2)(A) for the calendar
year in which the taxable year begins determined by substituting calendar year 1987
for calendar year 2012
in clause (ii) thereof, and
in the case of the dollar amount in paragraph (4)(B), under section 1(c)(2)(A) for the calendar
year in which the taxable year begins determined by substituting calendar year 1997
for calendar year 2012
in clause (ii) thereof.
.
Additional deduction for unmarried individuals with at least one qualifying child
In general
Part VII of subchapter B of chapter 1 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:
Deduction for unmarried individuals with at least one qualifying child
In general
In the case of an unmarried individual with at least one qualifying child (within the meaning of section 7705), there shall be allowed as a deduction an amount equal to $5,500.
Phaseout of deduction
The amount of the deduction determined under subsection (a) (without regard to this subsection) shall be reduced (but not below zero) by an amount equal to the excess (if any) of—
the taxpayer’s adjusted gross income (determined without regard to this section) for the taxable year, over
$30,000.
Unmarried individual
For purposes of this section, the term unmarried individual
means any individual who—
is not married as of the close of the taxable year (as determined by applying section 7703),
is not a surviving spouse (as defined in section 2(a)) for the taxable year, and
is not a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins.
Inflation adjustments
Deduction amount
In the case of any taxable year beginning after 2014, the dollar amount in subsection (a) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.
Phaseout threshold
In the case of any taxable year beginning after 2015, the dollar amount in subsection (b)(2) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which
the taxable year begins determined by substituting calendar year 2014
for calendar year 2012
in clause (ii) thereof.
Rounding
If any increase determined under paragraph (1) or (2) is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.
.
Deduction allowed whether or not taxpayer itemizes deductions
Section 62(a) is amended by adding at the end the following new paragraph:
Deduction for unmarried individuals with at least one qualifying child
The deduction allowed by section 224.
.
Application of standard deduction phaseout to itemized deductions
Subsection (f) of section 63 is amended to read as follows:
Application of phaseout of standard deduction to itemized deductions
In general
In the case of an individual whose modified adjusted gross income (as defined in section 2(b)) exceeds the amount in effect under subsection (c)(2)(B) with respect to the taxpayer for the taxable year, the amount of the itemized deductions otherwise allowable for the taxable year shall be reduced by the lesser of—
20 percent of the excess described in subsection (c)(2) with respect to such taxpayer for such taxable year, or
the amount of the taxpayer’s standard deduction for such taxable year (determined without regard to subsection (c)(2) and without regard to any election to itemize deductions).
Coordination with other limitations
This subsection shall be applied after the application of any other limitation on the allowance of any itemized deduction.
Exception for estates and trusts
This subsection shall not apply to any estate or trust.
.
Conforming amendments
Sections 86(b)(2)(A) and 137(b)(3)(A) are each amended by inserting 224,
before 911,
.
Section 199(d)(2)(B) is amended by inserting section 224 and
before this section
.
Section 469(i)(3)(F)(iii) is amended by inserting and 224
after 219,
.
Section 1398(c), as amended by section 1003(c), is amended—
by striking Basic
in the heading thereof,
by striking Basic standard
in the heading of paragraph (2) and inserting Standard
, and
by striking basic
in paragraph (2).
Section 3402(m)(3) is amended by striking (including the additional standard deduction under section 63(c)(3) for the aged and blind)
.
Section 6014(b)(4) is amended by striking section 63(c)(5)
and inserting section 63(c)(4)
.
The table of sections for part VII of subchapter B of chapter 1 is amended by redesignating the item relating to section 224 as an item relating to section 225 and by inserting after the item relating to section 223 the following new item:
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Increase and expansion of child tax credit
In general
Section 24 is amended to read as follows:
Child and dependent tax credit
Allowance of credit
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each dependent of the taxpayer an amount equal to $500 ($1,500 in the case of a qualifying child).
Phaseout of credit
In general
The credit allowed under subsection (a) (determined without regard to this subsection) shall be reduced (but not below zero) by 5 percent of the excess (if any) of—
the taxpayer’s modified adjusted gross income (as defined in section 2(b)), over
the joint return child credit phaseout threshold, in the case of a joint return or a surviving spouse (as defined in section 2(a)), or
the non-joint return child credit phaseout threshold, in any other case.
Joint return child credit phaseout threshold
For purposes of this section, the term joint return child credit phaseout threshold
means, with respect to any taxable year, the sum of—
the joint return standard deduction phaseout threshold (as defined in section 63(c)(3)(A)), plus
an amount equal to—
the dollar amount in effect under section 63(c)(1)(A) for such taxable year, divided by
0.2.
Non-joint return child credit phaseout threshold
For purposes of this section, the term non-joint return child credit phaseout threshold
means, with respect to any taxable year, the sum of—
the non-joint return standard deduction phaseout threshold (as defined in section 63(c)(3)(B)), plus
an amount equal to—
the dollar amount in effect under section 63(c)(1)(B) for such taxable year, divided by
0.2.
Qualifying child
For purposes of this section—
In general
Except as provided in paragraph (2), the term qualifying child
has the meaning given such term by section 7705.
Exception for certain noncitizens
The term qualifying child
shall not include any individual who would not be a dependent if subparagraph (A) of section
7705(b)(3) were applied without regard to all that follows resident of the United States
.
Portion of credit refundable
In general
The aggregate credits allowed under subpart C shall be increased by the lesser of—
the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a), or
the amount by which the aggregate amount of credits allowed under the subpart (determined without regard to this subsection) would increase if the limitation under section 26(a) were increased by 25 percent of the taxpayer’s earned income for the taxable year.
Earned income
For purposes of this subsection—
In general
The term earned income
means—
the taxpayer’s wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus
the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402(a)) determined with regard to the deduction allowed to the taxpayer by section 164(f).
Special rules
For purposes of subparagraph (A)—
the earned income of an individual shall be computed without regard to any community property laws,
no amount received as a pension or annuity shall be taken into account,
no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account,
no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account,
no amount described in subparagraph (A) received for service performed in work activities as defined in paragraph (4) or (7) of section 407(d) of the Social Security Act to which the taxpayer is assigned under any State program under part A of title IV of such Act shall be taken into account, but only to the extent such amount is subsidized under such State program, and
amounts excluded from gross income by reason of section 112 shall be taken into account as earned income.
Special rule for taxable years beginning before 2018
In the case of any taxable year beginning before January 1, 2018, the earned income of the taxpayer taken into account under paragraph (1) shall be reduced (but not below zero) by $3,000.
Exception for taxpayers excluding foreign earned income
Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.
Inflation adjustment
In the case of any taxable year beginning after 2014, each dollar amount in subsection (a) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.
Identification requirements
In general
No credit shall be allowed under this section to a taxpayer with respect to any dependent unless the taxpayer includes the name and taxpayer identification number of such dependent on the return of tax for the taxable year.
Additional identification requirement with respect to refundable credit
In general
Subsection (d) shall not apply to any taxpayer for any taxable year unless the taxpayer includes the taxpayer’s Social Security number on the return of tax for such taxable year.
Joint returns
In the case of a joint return, the requirement of subparagraph (A) shall be treated as met if the Social Security number of either spouse is included on such return.
Taxable year must be full taxable year
Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.
.
Omission of identification information treated as mathematical or clerical error
Subparagraph (I) of section 6213(g)(2) of such Code is amended to read as follows:
an omission of a correct TIN under section 24(f)(1) (relating to the child and dependent tax credit), or a correct Social Security number under section 24(f)(2) (relating to the refundable portion of child and dependent tax credit), to be included on a return,
.
Application of rule for short taxable years
Section 443(c) is amended to read as follows:
Adjustment in child and dependent tax credit
If a return is made for a short period by reason of subsection (a)(1) and if the tax is not computed under subsection (b)(2), then the credit allowed under section 24 shall be reduced to an amount which bears the same ratio to the full amount of such credit as the number of months in the short period bears to 12.
.
Clerical amendment
The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 24 and inserting the following new item:
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Modification of earned income tax credit
In general
Section 32 is amended to read as follows:
Earned income
In general
In the case of an individual who is an eligible individual for any taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to the taxpayer’s employment-related taxes for such taxable year.
Limitations
Dollar limitation
The credit allowed under subsection (a) shall not exceed—
in the case of a taxpayer with 2 or more qualifying children, $3,000 ($4,000 in the case of a joint return), and
in the case of a taxpayer with 1 qualifying child, $2,400.
Phase-out of credit
The credit allowed under subsection (a) (determined after application of paragraph (1)) shall be reduced (but not below zero) by the sum of—
19 percent of so much of the taxpayer’s adjusted gross income (reduced by the amount of any excess described in subparagraph (B)) as exceeds $20,000 ($27,000 in the case of a joint return), plus
so much of the taxpayer’s investment income for the taxable year as exceeds $3,300.
Definitions
For purposes of this section—
Eligible individual
In general
The term eligible individual
means any individual who has a qualifying child for the taxable year.
Qualifying child ineligible
If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.
Exception for individual claiming benefits under section 911
The term eligible individual
does not include any individual who claims the benefits of section 911 (relating to citizens or
residents living abroad) for the taxable year.
Limitation on eligibility of nonresident aliens
The term eligible individual
shall not include any individual who is a nonresident alien individual for any portion of the
taxable year unless such individual is treated for such taxable year as a
resident of the United States for purposes of this chapter by reason of an
election under subsection (g) or (h) of section 6013.
Employment-related taxes
The term employment-related taxes
means, with respect to any taxpayer for any taxable year, the sum of—
any tax imposed under sections 3101 or 3111 on the wages (as defined in section 3121(a)) received by the taxpayer during the calendar year in which the taxable year begins,
any tax imposed under sections 3201(a), 3211(a), or 3221(a) on the compensation (as defined in section 3231(e)) received by the taxpayer during the calendar year in which the taxable year begins, and
any tax imposed under section 1401 on the self-employment income of the taxpayer for the taxable year.
Qualifying child
In general
The term qualifying child
means a qualifying child of the taxpayer (within the meaning of section 7705, determined without
regard to subsections (c)(1)(D) and (e) thereof).
Place of abode
For purposes of subparagraph (A), the requirements of section 7705(c)(1)(B) shall be met only if the principal place of abode is in the United States.
Treatment of military personnel stationed outside the United States
For purposes of subparagraph (B), the principal place of abode of a member of the Armed Forces of
the United States shall be treated as in the United States during any
period during which such member is stationed outside the United States
while serving on extended active duty with the Armed Forces of the United
States. For purposes of the preceding sentence, the term extended active duty
means any period of active duty pursuant to a call or order to such duty for a period in excess of
90 days or for an indefinite period.
Investment income
For purposes of paragraph (1), the term investment income
means—
interest or dividends to the extent includible in gross income for the taxable year,
interest received or accrued during the taxable year which is exempt from tax imposed by this chapter,
the excess (if any) of—
gross income from rents or royalties not derived in the ordinary course of a trade or business, over
the sum of—
the deductions (other than interest) which are clearly and directly allocable to such gross income, plus
interest deductions properly allocable to such gross income,
the capital gain net income (as defined in section 1222) of the taxpayer for such taxable year, and
the excess (if any) of—
the aggregate income from all passive activities for the taxable year (determined without regard to any amount with respect to which a tax described in subsection (c)(2) is imposed or an amount described in a preceding subparagraph), over
the aggregate losses from all passive activities for the taxable year (as so determined).
passive activityhas the meaning given such term by section 469.
Identification requirements
In general
No credit shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year—
the taxpayer’s Social Security number, and
the name, age, and Social Security number of each qualifying child taken into account under subsection (b)(1).
Joint returns
In the case of a joint return, the requirement of paragraph (1)(A) shall be treated as met if the Social Security number of either spouse is included on such return.
Other methods of providing children’s information
The Secretary may prescribe other methods for providing the information described in paragraph (1)(B).
Restrictions on taxpayers who improperly claimed credit in prior year
Taxpayers making prior fraudulent or reckless claims
In general
No credit shall be allowed under this section for any taxable year in the disallowance period.
Disallowance period
For purposes of paragraph (1), the disallowance period is—
the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and
the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).
Taxpayers making improper prior claims
In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.
Other special rules
For purposes of this section—
Married individuals
In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013.
Taxable year must be full taxable year
Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.
Coordination with certain means-tested programs
For purposes of—
the United States Housing Act of 1937,
title V of the Housing Act of 1949,
section 101 of the Housing and Urban Development Act of 1965,
sections 221(d)(3), 235, and 236 of the National Housing Act, and
the Food and Nutrition Act of 2008,
Coordination with payroll tax credits
The credit allowed under subsection (a) with respect to any taxpayer for any taxable year shall be reduced by the sum of the credits allowed under sections 3103 and 3203 with respect to such taxpayer for such taxable year.
Application to certain individuals without qualifying children
For purposes of this section and sections 3103 and 3203—
In general
In the case of an individual described in paragraph (2)—
such individual shall be treated as an eligible individual,
notwithstanding subsection (i), the dollar limitation applicable to such individual under subsection (b)(1) shall be $100 (twice such amount in the case of a joint return),
subsection (b)(2)(A) shall be applied by substituting $8,000 ($13,000
for $20,000 ($27,000
, and
subsection (i)(1) shall not apply and the employment-related taxes with respect to such individual for any taxable year shall not exceed the sum of—
any tax imposed under section 3101 on the wages (as defined in section 3121(a)) received by the taxpayer during the calendar year in which the taxable year begins,
any tax imposed under sections 3201(a) (and so much of the tax imposed by section 3211(a) as is attributable to the rates of tax under subsections (a) and (b) of section 3101) on the compensation (as defined in section 3231(e)) received by the taxpayer during the calendar year in which the taxable year begins, and
50 percent of any tax imposed under section 1401 on the self-employment income of the taxpayer for the taxable year.
Individual to whom subsection applies
An individual is described in this paragraph for any taxable year if—
such individual does not have a qualifying child for the taxable year,
such individual’s principal place of abode is in the United States for more than one-half of such taxable year,
such individual (or, if the individual is married (within the meaning of section 7703), either the individual or the individual’s spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and
such individual is not a dependent of another taxpayer for any taxable year beginning in the same calendar year as such taxable year.
Inflation adjustment
In the case of any taxable year beginning after 2014, both dollar amounts in subsection (b)(1)(A), the dollar amount in subsection (b)(1)(B), both dollar amounts in subsection (b)(2)(A), the dollar amount in subsection (b)(2)(B), the $100 amount in subsection (g)(1)(B), the $8,000 and $13,000 amounts in subsection (g)(1)(C), the $4,000 amount in subsection (i)(2), and the $3,000 amount in subsection (i)(3), shall each be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.
Special rules for taxable years beginning before 2018
In the case of any taxable year beginning before January 1, 2018—
subsection (a) shall be applied by substituting 200 percent of the taxpayer’s employment-related taxes
for the taxpayer’s employment-related taxes
,
subsection (b)(1)(A) shall be applied by substituting $4,000
for $3,000 ($4,000 in the case of a joint return)
, and
subsection (b)(1)(B) shall be applied by substituting $3,000
for $2,400
.
.
Credit allowed against payroll taxes
FICA tax
Subchapter A of chapter 21 is amended by adding at the end the following new section:
Credit against tax
In general
In the case of an individual who is allowed a credit under section 32 (determined without regard to subsection (f)(4) thereof) for a taxable year, there shall be allowed as a credit against the tax imposed by section 3101 with respect to wages received by such individual during the calendar year ending with or within such taxable year the lesser of—
the amount of tax so imposed, or
the amount of the credit allowed under section 32 (as so determined) for such taxable year.
Application of credit
The credit determined under subsection (a) shall be taken into account under this title in the same manner as a credit or refund to which the taxpayer is entitled under section 6413(c)(1). Such credit shall not be taken into account for purposes of determining any amount deducted and withheld under section 3102.
.
Railroad retirement tax
Subchapter A of chapter 22 is amended by adding at the end the following new section:
Credit against tax
In general
In the case of an individual who is allowed a credit under section 32 (determined without regard to subsection (f)(4) thereof) for a taxable year, there shall be allowed as a credit against the tax imposed by section 3201(a) (and so much of the tax imposed by section 3211(a) as is attributable to the rates of tax under subsections (a) and (b) of section 3101) with respect to compensation received by such individual during the calendar year ending with or within such taxable year the lesser of—
the amount of tax so imposed, or
the excess of—
the amount of the credit allowed under section 32 (as so determined) for such taxable year, over
the amount of the credit allowed under section 3103.
Application of credit
The credit determined under subsection (a) shall be taken into account under this title in the same manner as a credit or refund to which the taxpayer is entitled under section 6413(c)(1). Such credit shall not be taken into account for purposes of determining any amount deducted and withheld under section 3202.
.
Conforming amendments
Section 86(f)(2) is amended by striking section 32(c)(2)
and inserting section 24(d)(2)
.
Section 129(e)(2) is amended by striking section 32(c)(2)
and inserting section 24(d)(2)
Section 6051(a)(10) is amended by striking for purposes of section 32 (relating to earned income credit)
and inserting under section 24(d)(2)
.
Section 6211(b)(4)(A) is amended by inserting (determined without regard to subsection (f)(4) thereof)
after 32
.
Section 6213(g)(2)(F) is amended by striking taxpayer identification number
and inserting Social Security number
.
Section 6213(g)(2)(G) is amended by striking with respect to
and all that follows and inserting with respect to the tax imposed under section 1401 (relating to self-employment tax) to the extent
such tax has not been paid,
.
Section 6213(g)(2)(K) is amended by striking section 32(k)(2)
and inserting section 32(e)(2)
.
Section 7705(f)(6)(B), as redesignated by this Act, is amended by striking clause (iv), by striking , and
at the end of clause (iii) and inserting a period, and by inserting and
at the end of clause (ii).
The table of sections for subchapter A of chapter 21 is amended by adding at the end the following new item:
.
The table of sections for subchapter A of chapter 22 is amended by adding at the end the following new item:
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Treatment of taxpayers who improperly claimed credit in prior years
A claim of credit under section 32 of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) shall not fail to be taken into account under subsection (e) of such section (as amended by this section) merely because such claim is for a taxable year beginning before January 1, 2015.
Treasury report on making credit advanceable
Not later than the date which is 180 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s designee) shall submit a report to Congress making recommendations regarding the best method for providing for advance payment of the credits established by the amendments made by this section. The recommendations in such report shall seek to—
provide for the payment of such credits to taxpayers as promptly as is feasible, including on a weekly, biweekly, or monthly basis, and
minimize any administrative burdens on employers and the Internal Revenue Service.
Repeal of deduction for personal exemptions
In general
Part V of subchapter B of chapter 1 is hereby repealed.
Definition of dependent retained
In general
Section 152, prior to repeal by subsection (a), is hereby redesignated as section 7705 and moved to the end of chapter 79.
Modification of age requirements
Section 7705(c)(3)(A), as redesignated by paragraph (1), is amended by striking as a qualifying child and—
and all that follows and inserting is a qualifying child and has not attained the age of 18 as of the close of the calendar year in
which the taxable year of the taxpayer begins.
.
Application to estates and trusts
Subsection (b) of section 642 is amended—
by striking paragraph (2)(C),
by striking paragraph (3), and
by striking Deduction for personal exemption
in the heading thereof and inserting Basic deduction
.
Application to nonresident aliens
Section 873(b) is amended by striking paragraph (3).
Modification of wage withholding rules
In general
Section 3402(a)(2) is amended by striking the amount of one personal exemption provided in section 151(b)
and inserting $3,900
.
Inflation adjustment
Section 3402(a) is amended by adding at the end the following new paragraph:
Inflation adjustment
In the case of any calendar year beginning after 2014, the $3,900 amount in paragraph (2) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year.
.
Number of exemptions
Section 3402(f)(1) is amended—
in subparagraph (A), by striking an individual described in section 151(d)(2)
and inserting a dependent of any other taxpayer
, and
in subparagraph (C), by striking with respect to whom, on the basis of facts existing at the beginning of such day, there may
reasonably be expected to be allowable an exemption under section 151(c)
and inserting who, on the basis of facts existing at the beginning of such day, is reasonably expected to be a
dependent of the employee
.
Modification of return requirement
In general
Paragraph (1) of section 6012(a) is amended to read as follows:
Every individual who has gross income for the taxable year, except that a return shall not be required of—
an individual who is not married (determined by applying section 7703) and who has gross income for the taxable year which does not exceed the standard deduction applicable to such individual for such taxable year under section 63, or
an individual entitled to make a joint return if—
the gross income of such individual, when combined with the gross income of such individual’s spouse, for the taxable year does not exceed the standard deduction which would be applicable to the taxpayer for such taxable year under section 63 if such individual and such individual’s spouse made a joint return,
such individual and such individual’s spouse have the same household as their home at the close of the taxable year,
such individual’s spouse does not make a separate return, and
neither such individual nor such individual’s spouse is an individual described in section 63(c)(4) who has income (other than earned income) in excess of the amount in effect under section 63(c)(4)(A).
.
Bankruptcy estates
Paragraph (8) of section 6012(a) is amended by striking the sum of the exemption amount plus the basic standard deduction under section 63(c)(2)(D)
and inserting the standard deduction in effect under section 63(c)(1)(B)
.
Conforming amendments
Section 2(a)(1)(B) is amended by striking a dependent
and all that follows through section 151
and inserting a dependent who (within the meaning of section 7705, determined without regard to subsections
(b)(1), (b)(2) and (d)(1)(B) thereof) is a son, stepson, daughter, or
stepdaughter of the taxpayer
.
Section 36B(b)(2)(A) is amended by striking section 152
and inserting section 7705
.
Section 36B(b)(3)(B) is amended by striking unless a deduction is allowed under section 151 for the taxable year with respect to a dependent
in the flush matter at the end and inserting unless the taxpayer has a dependent for the taxable year
.
Section 36B(c)(1)(D) is amended by striking with respect to whom a deduction under section 151 is allowable to another taxpayer
and inserting who is a dependent of another taxpayer
.
Section 36B(d)(1) is amended by striking equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151
(relating to allowance of deduction for personal exemptions) for the
taxable year
and inserting the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the
taxable year
.
Section 36B(e)(1) is amended by striking 1 or more individuals for whom a taxpayer is allowed a deduction under section 151 (relating to
allowance of deduction for personal exemptions) for the taxable year
(including the taxpayer or his spouse)
and inserting 1 or more of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer
.
Section 42(i)(3)(D)(ii)(I) is amended—
by striking section 152
and inserting section 7705
, and
by striking the period at the end and inserting a comma.
Section 63(b) is amended by striking minus—
and all that follows and inserting minus the standard deduction.
.
Section 63(d) is amended by striking other than—
and all that follows and inserting other than the deductions allowable in arriving at adjusted gross income.
.
Section 72(t)(2)(D)(i)(III) is amended by striking section 152
and inserting section 7705
.
Section 72(t)(7)(A)(iii) is amended by striking section 152(f)(1)
and inserting section 7705(f)(1)
.
Section 105(b) is amended—
by striking as defined in section 152
and inserting as defined in section 7705
,
by striking section 152(f)(1)
and inserting section 7705(f)(1)
and
by striking section 152(e)
and inserting section 7705(e)
.
Section 105(c)(1) is amended by striking section 152
and inserting section 7705
.
Section 125(e)(1)(D) is amended by striking section 152
and inserting section 7705
.
Section 129(c) is amended—
by striking with respect to whom, for such taxable year, a deduction is allowable under section 151(c)
(relating to personal exemptions for dependents) to
in paragraph (1) and inserting who is a dependent of
, and
by striking section 152(f)(1)
in paragraph (2) and inserting section 7705(f)(1)
.
Section 132(h)(2)(B) is amended—
by striking section 152(f)(1)
and inserting section 7705(f)(1)
, and
by striking section 152(e)
and inserting section 7705(e)
.
Section 139D(c)(5) is amended by striking section 152
and inserting section 7705
.
Section 162(l)(1)(D) is amended by striking section 152(f)(1)
and inserting section 7705(f)(1)
.
Section 170(g)(1) is amended by striking section 152
and inserting section 7705
.
Section 170(g)(3) is amended by striking section 152(d)(2)
and inserting section 7705(d)(2)
.
Section 172(d) is amended by striking paragraph (3).
Section 220(b)(6) is amended by striking with respect to whom a deduction under section 151 is allowable to
and inserting who is a dependent of
.
Section 220(d)(2)(A) is amended by striking section 152
and inserting section 7705
.
Section 223(b)(6) is amended by striking with respect to whom a deduction under section 151 is allowable to
and inserting who is a dependent of
.
Section 223(d)(2)(A) is amended by striking section 152
and inserting section 7705
.
Section 401(h) is amended by striking section 152(f)(1)
in the last sentence and inserting section 7705(f)(1)
.
Section 402(l)(4)(D) is amended by striking section 152
and inserting section 7705
.
Section 409A(a)(2)(B)(ii)(I) is amended by striking section 152(a)
and inserting section 7705(a)
.
Section 501(c)(9) is amended by striking section 152(f)(1)
and inserting section 7705(f)(1)
.
Section 529(e)(2)(B) is amended by striking section 152(d)(2)
and inserting section 7705(d)(2)
.
Section 703(a)(2) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) through (F) as subparagraphs (A) through (E), respectively.
Section 874 is amended by striking subsection (b) and by redesignating subsection (c) as subsection (b).
Section 891 is amended by striking under section 151 and
.
Section 904(b) is amended by striking paragraph (1).
Section 931(b)(1) is amended by striking (other than the deduction under section 151, relating to personal exemptions)
.
Section 933 is amended—
by striking (other than the deduction under section 151, relating to personal exemptions)
in paragraph (1), and
by striking (other than the deduction for personal exemptions under section 151)
in paragraph (2).
Section 1212(b)(2)(B)(ii) is amended to read as follows:
in the case of an estate or trust, the deduction allowed for such year under section 642(b).
.
Section 1361(c)(1)(C) is amended by striking section 152(f)(1)(C)
and inserting section 7705(f)(1)(C)
.
Section 1402(a) is amended by striking paragraph (7).
Section 2032A(c)(7)(D) is amended by striking section 152(f)(2)
and inserting section 7705(f)(2)
.
Section 3402(m)(1) is amended by striking other than the deductions referred to in section 151 and
.
Section 3402(r)(2) is amended by striking the sum of—
and all that follows and inserting the standard deduction in effect under section 63(c)(1)(B).
.
Section 5000A(b)(3)(A) is amended by striking section 152
and inserting section 7705
.
Section 5000A(c)(4)(A) is amended by striking the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating
to allowance of deduction for personal exemptions) for the taxable year
and inserting the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the
taxable year
.
Section 6013(b)(3)(A) is amended—
by striking had less than the exemption amount of gross income
in clause (ii) and inserting had no gross income
,
by striking had gross income of the exemption amount or more
in clause (iii) and inserting had any gross income
, and
by striking the flush language following clause (iii).
Section 6103(l)(21)(A)(iii) is amended to read as follows:
the number of the taxpayer’s dependents,
.
Section 6213(g)(2) is amended by striking subparagraph (H).
Section 6334(d)(2) is amended to read as follows:
Exempt amount
In general
For purposes of paragraph (1), the term exempt amount
means an amount equal to—
the sum of the standard deduction and the personal exemption amount, divided by
52.
Personal exemption amount
For purposes of subparagraph (A), the personal exemption amount is $3,900 multiplied by the number of the taxpayer’s dependents for the taxable year in which the levy occurs.
Inflation adjustment
In the case of any taxable year beginning after 2014, the $3,900 amount in subparagraph (B) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.
Verified statement
Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with no dependents.
.
Section 7702B(f)(2)(C)(iii) is amended by striking section 152(d)(2)
and inserting section 7705(d)(2)
.
Section 7703(a) is amended by striking part V of subchapter B of chapter 1 and
.
Section 7703(b)(1) is amended by striking section 152(f)(1)
and all that follows and inserting section 7705(f)(1),
.
Section 7705(a), as redesignated by this section, is amended by striking this subtitle
and inserting subtitle A
.
Section 7705(d)(1)(B), as redesignated by this section, is amended by striking the exemption amount (as defined in section 151(d))
and inserting $3,900
.
Section 7705(d), as redesignated by this section, is amended by adding at the end the following new paragraph:
Inflation adjustment
In the case of any calendar year beginning after 2014, the $3,900 amount in paragraph (1)(B) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year.
.
The table of sections for chapter 79 is amended by adding at the end the following new item:
Sec. 7705. Dependent defined.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Simplification of education incentives
American opportunity tax credit
In general
Section 25A is amended to read as follows:
American opportunity tax credit
In general
In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to any eligible student for whom an election is in effect under this section for such taxable year during any academic period beginning in such taxable year) as does not exceed $2,000, plus
25 percent of so much of such expenses so paid as exceeds the dollar amount in effect under paragraph (1) but does not exceed twice such dollar amount.
Portion of credit refundable
So much of the credit allowable under subsection (a) (determined without regard to this subsection and section 26(a) and after application of all other provisions of this section) as does not exceed $1,500 shall be treated as a credit allowable under subpart C (and not under this part). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom section 1(d) applies for such taxable year.
Limitation based on modified adjusted gross income
In general
The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this subsection and subsection (b) but after application of all other provisions of this section) as—
the excess of—
the taxpayer’s modified adjusted gross income for such taxable year, over
$43,000 (twice such amount in the case of a joint return), bears to
$20,000 (twice such amount in the case of a joint return).
Modified adjusted gross income
For purposes of this subsection, the term modified adjusted gross income
means the adjusted gross income of the taxpayer for the taxable year increased by any amount
excluded from gross income under section 911, 931, or 933.
Other limitations
Credit allowed only for 4 taxable years
An election to have this section apply may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 4 prior taxable years.
Credit allowed only for first 4 years of postsecondary education
No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 4 years of postsecondary education at an eligible educational institution.
Definitions
For purposes of this section—
Eligible student
The term eligible student
means, with respect to any academic period, a student who—
meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on August 5, 1997, and
is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.
Qualified tuition and related expenses
In general
The term qualified tuition and related expenses
means tuition, fees, and course materials, required for enrollment or attendance of—
the taxpayer,
the taxpayer’s spouse, or
any dependent of the taxpayer,
Exception for education involving sports, etc
Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program.
Exception for nonacademic fees
Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction.
Eligible educational institution
The term eligible educational institution
means an institution—
which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on August 5, 1997, and
which is eligible to participate in a program under title IV of such Act.
Special rules
Identification requirement
No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual, and the employer identification number of any institution to which such expenses were paid, on the return of tax for the taxable year.
Adjustment for certain scholarships, etc
In general
The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsection (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—
a qualified scholarship which is excludable from gross income under section 117,
an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and
a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual's educational expenses, or attributable to such individual's enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States.
Coordination with Pell Grants not used for qualified tuition and related expenses
For purposes of subparagraph (A), the amount of any Federal Pell Grant under section 401 of the Higher Education Act of 1965 (20 U.S.C. 1070a) shall be reduced (but not below zero) by the amount of expenses (other than qualified tuition and related expenses) which are taken into account in determining the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the date of the enactment of this paragraph) of such individual at an eligible educational institution for the academic period for which the credit under this section is being determined.
Treatment of expenses paid by dependent
If an individual is a dependent of another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins—
no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and
qualified tuition and related expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer.
Treatment of certain prepayments
If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year.
Denial of double benefit
No credit shall be allowed under this section for any amount for which a deduction is allowed under any other provision of this chapter.
No credit for married individuals filing separate returns
If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
Nonresident aliens
If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.
Inflation adjustment
In general
In the case of a taxable year beginning after 2018, the $2,000 amount in subsection (a)(1), the $1,500 amount in subsection (b), and the $43,000 amount in subsection (c)(1)(A)(ii) shall each be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which
the taxable year begins, determined by substituting calendar year 2017
for calendar year 2012
in clause (ii) thereof.
Rounding
If any amount as adjusted under paragraph (1) is not a multiple of $100 ($1,000 in the case of the amount in subsection (c)(1)(A)(ii)), such amount shall be rounded to the next lowest multiple of $100 ($1,000 in the case of the amount in subsection (c)(1)(A)(ii)).
Regulations
The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit.
.
Requirement To report tuition paid rather than tuition billed
Section 6050S(b)(2)(B)(i) is amended by striking or the aggregate amount billed
.
Conforming amendments
Section 72(t)(7)(B) of such Code is amended by striking section 25A(g)(2)
and inserting section 25A(f)(2)
.
Section 529(c)(3)(B)(v)(I) of such Code is amended by striking section 25A(g)(2)
and inserting section 25A(f)(2)
.
Section 529(e)(3)(B)(i) of such Code is amended by striking section 25A(b)(3)
and inserting section 25A(d)
.
Section 530(d)(2)(C) of such Code is amended—
by striking section 25A(g)(2)
in clause (i)(I) and inserting section 25A(f)(2)
, and
by striking Hope and Lifetime Learning credits
in the heading and inserting American opportunity tax credit
.
Section 530(d)(4)(B)(iii) of such Code is amended by striking section 25A(g)(2)
and inserting section 25A(d)(4)(B)
.
Section 6050S(e) of such Code is amended by striking subsection (g)(2)
and inserting subsection (f)(2)
.
Section 6211(b)(4)(A) of such Code is amended by striking subsection (i)(6)
and inserting subsection (b)
.
Section 6213(g)(2)(J) of such Code is amended by striking TIN required under section 25A(g)(1)
and inserting TIN, and employer identification number, required under section 25A(f)(1)
.
Section 1004(c) of division B of the American Recovery and Reinvestment Tax Act of 2009 is amended—
in paragraph (1)—
by striking section 25A(i)(6)
each place it appears and inserting section 25A(b)
, and
by striking with respect to taxable years beginning after 2008 and before 2018
each place it appears and inserting with respect to each taxable year
,
in paragraph (2), by striking Section 25A(i)(6)
and inserting Section 25A(b)
, and
in paragraph (3)(C), by striking subsection (i)(6)
and inserting subsection (b)
.
The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 25A and inserting the following new item:
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Expansion of Pell Grant exclusion from gross income
In general
Paragraph (1) of section 117(b) of the Internal Revenue Code of 1986 is amended—
by striking the period at the end and inserting , or
,
by striking received by an individual as a scholarship
and inserting the following:
received by an individual—
as a scholarship
, and
by adding at the end the following new subparagraph:
as a Federal Pell Grant under section 401 of the Higher Education Act of 1965 (20 U.S.C. 1070a).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exclusion of income from United States savings bonds used to pay higher education tuition and fees
In general
Part III of subchapter B of chapter 1 is amended by striking section 135 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of deduction for interest on education loans
In general
Part VII of subchapter B of chapter 1 is amended by striking section 221 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendment
Section 62(a) is amended by striking paragraph (17).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of deduction for qualified tuition and related expenses
In general
Part VII of subchapter B of chapter 1 is amended by striking section 222 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendment
Section 62(a) is amended by striking paragraph (18).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2013.
No new contributions to Coverdell education savings accounts
In general
Section 530(b)(1)(A) is amended to read as follows:
Except in the case of rollover contributions, no contribution will be accepted after December 31, 2014.
.
Rollovers to qualified tuition programs permitted
Section 530(d)(5) is amended by inserting , or into (by purchase or contribution) a qualified tuition program (as defined in section 529),
after into another Coverdell education savings account
.
Effective dates
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions made after December 31, 2014.
Rollovers to qualified tuition programs
The amendments made by subsection (b) shall apply to distributions after December 31, 2014.
Repeal of exclusion for discharge of student loan indebtedness
In general
Section 108 is amended by striking subsection (f).
Conforming amendments
Section 3121(a)(20) is amended by striking 108(f)(4),
.
Section 209(a)(17) of the Social Security Act is amended by striking 108(f)(4),
.
Section 3231(e)(5) is amended by striking 108(f)(4),
.
Section 3306(b)(16) is amended by striking 108(f)(4),
.
Section 3401(a)(19) is amended by striking 108(f)(4),
.
Effective date
The amendments made by this section shall apply to amounts discharged after December 31, 2014.
Repeal of exclusion for qualified tuition reductions
In general
Section 117 is amended by striking subsection (d).
Conforming amendments
Section 117(c)(1) is amended—
by striking subsections (a) and (d)
and inserting subsection (a)
, and
by striking or qualified tuition reduction
.
Section 414(n)(3)(C) is amended by striking 117(d),
.
Section 414(t)(2) is amended by striking 117(d),
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exclusion for education assistance programs
In general
Part III of subchapter B of chapter 1 is amended by striking section 127 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 125(f)(1) is amended by striking 127,
.
Section 132(j)(8) is amended by striking which are not excludable from gross income under section 127
.
Section 137(c) is amended to read as follows:
Adoption assistance program
In general
For purposes of this section, an adoption assistance program is a separate written plan of an employer for the exclusive benefit of such employer’s employees under which the employer provides such employees with adoption assistance. Except as provided in paragraph (6), such program must meet the requirements of paragraphs (2), (3), and (4).
Eligibility
The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414(q)) or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that adoption assistance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
Principal shareholders or owners
Not more than 5 percent of the amounts paid or incurred by the employer for adoption assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.
Notification of employees
Reasonable notification of the availability and terms of the program must be provided to eligible employees.
No funding required
A program referred to in paragraph (1) is not required to be funded.
Certain Federal programs
An adoption reimbursement program operated under section 1052 of title 10, United States Code (relating to armed forces) or section 514 of title 14, United States Code (relating to members of the Coast Guard) shall be treated as an adoption assistance program for purposes of this section.
.
Section 414(n)(3)(C) is amended by striking 127,
.
Section 414(t)(2) is amended by striking 127,
.
Section 3121(a)(18) is amended by striking 127,
.
Section 209(a)(15) of the Social Security Act is amended by striking 127 or
.
Section 3231(e) is amended by striking paragraph (6).
Section 3306(b)(13) is amended by striking 127,
.
Section 3401(a)(18) is amended by striking 127,
.
Section 6039D(d)(1) is amended by striking 127,
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Repeal of exception to 10-percent penalty for higher education expenses
In general
Section 72(t)(2) is amended by striking subparagraph (E).
Conforming amendment
Section 72(t) is amended by striking paragraph (7).
Effective date
The amendments made by this section shall apply to distributions after December 31, 2014.
Repeal of certain credits for individuals
Repeal of dependent care credit
In general
Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 21 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 129(a)(2) is amended by striking subparagraph (C).
Section 129(e) is amended by adding at the end the following new paragraph:
Marital status
Rules similar to the rules of subsections (a) and (b) of section 7703 shall apply for purposes of this section.
.
Section 129(e)(1) is amended to read as follows:
Dependent care assistance
In general
The term dependent care assistance
means employment-related expenses and the provision of services which constitute
employment-related expenses.
Employment-related expenses
The term employment-related expenses
means amounts paid for the following expenses, but only if such expenses are incurred to enable
the employee to be gainfully employed for any period for which there are 1
or more qualifying individuals with respect to the employee:
expenses for household services, and
expenses for the care of a qualifying individual.
Exception
Employment-related expenses described in subparagraph (A) which are incurred for services outside the employee’s household shall be taken into account only if incurred for the care of—
a qualifying individual described in subparagraph (D)(i), or
a qualifying individual (not described in subparagraph (D)(i)) who regularly spends at least 8 hours each day in the employee’s household.
Qualifying individual
The term qualifying individual
means—
a dependent of the taxpayer (as defined in section 7705(a)(1)) who has not attained age 13,
a dependent of the taxpayer (as defined in section 7705, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or
the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.
Dependent care centers
Employment-related expenses described in subparagraph (A) which are incurred for services provided outside the employee’s household by a dependent care center shall be taken into account only if—
such center complies with all applicable laws and regulations of a State or unit of local government, and
the requirements of subparagraph (B) are met.
Dependent care center defined
For purposes of this paragraph, the term dependent care center
means any facility which—
provides care for more than six individuals (other than individuals who reside at the facility), and
receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).
Place of abode
For purposes of this paragraph, an individual shall not be treated as having the same principal place of abode as the taxpayer if at any time during the taxable year of the taxpayer the relationship between the individual and the taxpayer is in violation of local law.
Special dependency test in case of divorced parents, etc.
If—
section 7705(e) applies to any child with respect to any calendar year, and
such child is under the age of 13 or is physically or mentally incapable of caring for himself, in the case of any taxable year beginning in such calendar year,
.
Section 6213(g)(2)(L) is amended by striking 21,
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of credit for adoption expenses
In general
Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 23 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 137 is amended by striking subsections (d) and (e).
Subsections (d) and (e) of section 23 (prior to being stricken by subsection (a)) are each moved to section 137 (after amendment by paragraph (1)) and inserted after subsection (c) as new subsections (d) and (e), respectively.
Section 137(d)(1)(D), as amended by paragraphs (1) and (2), is amended by inserting (determined without regard to reimbursements under this section)
before the period at the end.
Section 137(e), as amended by paragraphs (1) and (2), is amended by striking (as defined in section 217(h)(3))
and inserting (or any possession of the United States)
.
Section 137 is amended by redesignating subsection (f) as subsection (h), and by inserting before subsection (h) (as so redesignated) the following new subsections:
Filing requirements
Married couples must file joint return
In general
If the taxpayer is married at the close of the taxable year, subsection (a) shall apply to the taxpayer only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
Marital status
Rules similar to the rules of subsections (a) and (b) of section 7703 shall apply for purposes of this section.
Taxpayer must include TIN
In general
Subsection (a) shall apply with respect to any child only if the taxpayer includes (if known) the name, age, and TIN of such child on the return of tax for the taxable year.
Other methods
The Secretary may, in lieu of the information referred to in subparagraph (A), require other information meeting the purposes of subparagraph (A), including identification of an agent assisting with the adoption.
Basis adjustments
For purposes of this subtitle, if the amount of any expenditure with respect to any property is excluded from gross income under this section, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of such expenditure which is so excluded.
.
Section 1016(a)(26) is amended by striking sections 23(g) and 137(e)
and inserting section 137(g)
.
Effective date
In general
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Special needs adoptions
For purposes of paragraph (1), any amount treated as paid by the taxpayer under section 23(a)(3) of the Internal Revenue Code of 1986 (as in effect before its repeal by subsection (a)) shall be treated as paid on the date that the adoption referred to in such section becomes final.
Repeal of credit for nonbusiness energy property
In general
Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 25C (and by striking the item relating to such section in the table of sections of such subpart).
Conforming amendment
Section 1016(a) is amended by striking paragraph (33).
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2013.
Repeal of credit for residential energy efficient property
In general
Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 25D (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 1016(a) is amended by striking paragraph (34).
Effective date
The amendment made by this section shall apply to property placed in service after December 31, 2014.
Repeal of credit for qualified electric vehicles
In general
Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30 (and by striking the item relating to such section in the table of sections of such subpart).
Conforming amendments
Section 1016(a) is amended by striking paragraph (25).
Section 6501(m) is amended by striking section 30(e)(6),
.
Effective date
The amendments made by this section shall apply to vehicles acquired after December 31, 2011.
Repeal of alternative motor vehicle credit
In general
Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30B (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (25).
Section 1016(a) is amended by striking paragraph (35).
Section 6501(m) is amended by striking 30B(h)(9),
.
Effective date
The amendment made by this section shall apply to property purchased after December 31, 2014.
Repeal of alternative fuel vehicle refueling property credit
In general
Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30C (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (26).
Section 1016(a) is amended by striking paragraph (36).
Section 6501(m) is amended by striking 30C(e)(5),
.
Effective date
The amendment made by this section shall apply to property placed in service after December 31, 2014.
Repeal of credit for new qualified plug-in electric drive motor vehicles
In general
Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30D (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (35).
Section 1016(a) is amended by striking paragraph (37).
Section 6501(m) is amended by striking 30D(e)(4),
.
Effective date
The amendments made by this section shall apply to vehicles acquired after December 31, 2014.
Repeal of credit for health insurance costs of eligible individuals
In general
Subpart C of part IV of subchapter A of chapter 1 is amended by striking section 35 (and by striking the item relating to such section in the table of sections of such subpart).
Conforming amendments
Chapter 77 is amended by striking section 7527 (and by striking the item relating to such section in the table of sections of such chapter).
Section 4980B(f)(5)(C)(iv)(II) is amended by inserting as in effect before its repeal
after section 35(c)
.
Section 6211(b)(4)(A) is amended by striking 35,
.
Effective date
The amendments made by this section shall apply to months beginning after December 31, 2013.
Repeal of first-time homebuyer credit
In general
Subpart C of part IV of subchapter A of chapter 1 is amended by striking section 36 (and by striking the item relating to such section in the table of sections of such subpart).
Conforming amendments
Section 26(b)(2) is amended by striking subparagraph (W).
Section 1400C(e) is amended by striking paragraph (4).
Section 6211(b)(4)(A) is amended by striking 36,
.
Section 6213(g)(2) is amended by striking subparagraphs (O) and (P).
Effective date
The amendments made by this section shall apply to residences purchased after June 30, 2011.
Deductions, exclusions, and certain other provisions
Exclusion of gain from sale of a principal residence
Requirement that residence be principal residence for 5 years during 8-Year period
Subsection (a) of section 121 is amended—
by striking 5-year period
and inserting 8-year period
, and
by striking 2 years
and inserting 5 years
.
Application to only 1 sale or exchange every 5 years
Paragraph (3) of section 121(b) is amended to read as follows:
Application to only 1 sale or exchange every 5 years
Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 5-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.
.
Phaseout based on modified adjusted gross income
Section 121 is amended by adding at the end the following new subsection:
Phaseout based on modified adjusted gross income
In general
If the modified adjusted gross income of the taxpayer for the taxable year exceeds $250,000 (twice such amount in the case of a joint return), the amount which would (but for this subsection) be excluded from gross income under subsection (a) for such taxable year shall be reduced (but not below zero) by the amount of such excess.
Modified adjusted gross income
For purposes of this subsection, the term modified adjusted gross income
has the meaning given such term by section 2 determined after the application of this section but
without regard to this subsection.
.
Conforming amendments
The last paragraph of section 121(b) (relating to exclusion of gain allocated to nonqualified use) is redesignated as paragraph (5).
The following provisions of section 121 are each amended by striking 5-year period
each place it appears therein and inserting 8-year period
:
Subsection (b)(5)(C)(ii)(I) (as redesignated by paragraph (1)).
Subsection (c)(1)(B)(i)(I).
Subsection (d)(7)(B).
Subparagraphs (A) and (B) of subsection (d)(9).
Subsection (d)(10)
Subsection (d)(12)(A).
Section 121(c)(1)(B)(ii) is amended by striking 2 years
and inserting 5 years
:
Effective date
The amendments made by this section shall apply to sales and exchanges after December 31, 2014.
Mortgage interest
Modification of limitations
In general
Paragraph (3) of section 163(h) is amended to read as follows:
Qualified residence interest
For purposes of this subsection—
In general
The term qualified residence interest
means any interest which is paid or accrued during the taxable year on indebtedness which—
is incurred in acquiring, constructing, or substantially improving any qualified residence (determined as of the time the interest is accrued) of the taxpayer, and
is secured by such residence.
Limitation
In general
The aggregate amount of indebtedness taken into account under subparagraph (A) for any period shall not exceed $500,000 (half of such amount in the case of a married individual filing a separate return).
Phase-in of decreased limitation
For purposes of applying clause (i) with respect to any indebtedness incurred during a calendar year after 2014 and before 2018, the $500,000 amount in clause (i) shall be increased by the phase-in amount determined in accordance with the following table:
| In the case of indebtedness incurred during: | The phase-in amount is: |
| 2015 | $375,000 |
| 2016 | $250,000 |
| 2017 | $125,000 |
Treatment of refinancings of indebtedness incurred during phase-in period
In the case of any indebtedness which is incurred to refinance indebtedness to which clause (ii) applies (or to which this clause applies), such refinanced indebtedness shall be treated for purposes of clause (ii) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
Treatment of indebtedness incurred before January 1, 2015
In general
In the case of any pre-January 1, 2015, indebtedness, this paragraph shall apply as in effect immediately before the enactment of the Tax Reform Act of 2014.
Reduction in dollar limitation
The limitation of subparagraph (B) (after application of clause (ii) thereof) shall be reduced (but not below zero) by the aggregate amount of outstanding pre-January 1, 2015, indebtedness of the taxpayer with respect to which interest is allowable as a deduction by reason of this subparagraph.
Pre-January 1, 2015, indebtedness
For purposes of this subparagraph, the term pre-January 1, 2015, indebtedness
means—
any indebtedness incurred before January 1, 2015, and
any indebtedness incurred on or after such date to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
Limitation on period of refinancing
Subparagraphs (B)(iii) and (C)(iii)(II) shall not apply to any indebtedness after—
the expiration of the term of the original indebtedness, or
if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
Coordination with certain exclusions
The amount otherwise treated as qualified residence interest (determined without regard to this subparagraph) with respect to any residence of the taxpayer for any taxable year shall be reduced by the sum of the amounts excludable from the gross income of such taxpayer under sections 107 and 119 with respect to such residence.
.
Conforming amendments
Section 108(h)(2) is amended to read as follows:
Qualified principal residence indebtedness
For purposes of this section, the term qualified principal residence indebtedness
means indebtedness described in section 163(h)(3) applied without regard to clauses (ii) and (iii)
of subparagraph (B) thereof and by substituting $2,000,000
for $500,000
in subparagraph (B)(i) thereof.
.
Section 163(h) is amended—
by striking subparagraph (E) in paragraph (3),
by striking subparagraphs (E) and (F) in paragraph (4), and
by striking paragraph (5).
Section 265(a)(6) is amended—
by striking an amount as—
and all that follows and inserting an amount as a military housing allowance.
, and
by striking parsonage and
in the heading thereof.
Modification of reporting requirements
Information return requirements
Paragraph (2) of section 6050H(b) is amended by striking and
at the end of subparagraph (C), by redesignating subparagraph (D) as subparagraph (F) and by
inserting after subparagraph (C) the following new subparagraphs:
the amount of outstanding principal on the mortgage as of the beginning of such calendar year,
the date of the origination of the mortgage, and
.
Statements to individuals
Paragraph (2) of section 6050H(d) is amended by striking subsection (b)(2)(C)
and inserting subparagraphs (C), (D), and (E) of subsection (b)(2)
.
Effective dates
Modification of limitations
In general
The amendments made by subsection (a) shall apply to interest paid or accrued in taxable years beginning after December 31, 2014, with respect to indebtedness incurred before, on, or after such date.
Treatment of grandfathered indebtedness
For application of the amendments made by subsection (a) to grandfathered indebtedness, see section 163(h)(3)(C) of the Internal Revenue Code of 1986 as amended by this section.
Modification of reporting requirements
The amendments made by subsection (b) shall apply to returns and statements for calendar years after December 31, 2014.
Charitable contributions
2 percent floor on charitable deduction for individuals
Paragraph (3) of section 170(b) is amended to read as follows:
2 percent floor on charitable deduction for individuals
The amount of charitable contributions taken into account under this section as made by any individual during a taxable year (determined without regard to subsection (d)) shall be reduced by 2 percent of the taxpayer’s contribution base for such taxable year. Such reduction shall apply—
first, to charitable contributions to which paragraph (1)(B) applies to the extent thereof,
second, to charitable contributions to which paragraph (1)(C) applies to the extent thereof, and
third, to charitable contributions to which paragraph (1)(A) applies to the extent thereof.
.
Extension of time for making charitable contributions
Subsection (a) of section 170 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph:
Treatment of charitable contributions made by individuals before due date of return
If any charitable contribution is made by an individual after the close of a taxable year but not later than the due date (determined without regard to extensions) for the return of tax for such taxable year, then the taxpayer may elect to treat such charitable contribution as made in such taxable year. Such election may be made only at the time of the filing of such return of tax and shall be signified in such manner as the Secretary may provide.
.
Deduction for contributions of property generally limited to adjusted basis
In general
Subsection (e) of section 170 is amended—
by striking paragraphs (1) and (6),
by redesignating paragraphs (2), (3), (4), and (5) as paragraphs (3), (4), (5), and (6), respectively, and
by inserting before paragraph (3) (as so redesignated) the following new paragraphs:
In general
Except in the case of property to which paragraph (2) applies, the amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the amount of gain which would have been realized if the property contributed had been sold by the taxpayer for its fair market value (determined at the time of such contribution).
Special rule for certain property
In general
In the case of property to which this paragraph applies, the amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).
Property to which this paragraph applies
This paragraph shall apply to—
any contribution of tangible personal property if the use of such property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)),
any qualified conservation contribution (as defined in subsection (h)(1)),
any qualified contribution (as defined in paragraph (4)(A)),
any qualified research contribution (as defined in paragraph (5)(B)), and
any qualified appreciated stock (as defined in subsection (e)(6)).
Special rules for determining long-term capital gain
In general
For purposes of applying this paragraph (other than in the case of gain to which section 1245(a), 1250(a), 1252(a), or 1254(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset.
Contributions of stock in S corporations
For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.
.
Repeal of special rules for food and book inventory
Paragraph (4) of section 170(e), as redesignated by paragraph (1), is amended by striking subparagraphs (C) and (D) and by redesignating subparagraph (E) as subparagraph (C).
Conforming amendments
Section 170(e)(3), as redesignated by paragraph (1), is amended by striking paragraph (1)
and inserting paragraphs (1) and (2)
.
Paragraphs (4) and (5) of section 170(e), as redesignated by paragraph (1), are each amended by
striking paragraph (1)(A)
each place it appears and inserting paragraph (2)(A)
.
Section 170(e)(6), as redesignated by paragraph (1), is amended—
by striking all that precedes for purposes of this paragraph
in subparagraph (B) and inserting the following:
Qualified appreciated stock
In general
Except as provided in subparagraph (B),
,
by redesignating subparagraph (C) as subparagraph (B), and
by striking in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this
paragraph)
in subparagraph (B) as so redesignated.
Modification of income based contribution limitations
In general
Section 170(b)(1) is amended—
by striking 30 percent
in subparagraph (B)(i) and inserting 25 percent
, and
by striking 50 percent
and inserting 40 percent
in—
the flush matter at the end of subparagraph (A),
subparagraph (B)(ii), and
clauses (i), (iv)(I), and (v) of subparagraph (C) (as redesignated by paragraph (2)).
Repeal of special limitations for certain capital gain property
In general
Paragraph (1) of section 170(b) is amended by striking subparagraphs (C) and (D) and by redesignating subparagraphs (E), (F), and (G) as subparagraphs (C), (D), and (E), respectively.
Conforming amendments
Section 170(b)(1)(A)(vii) is amended by striking subparagraph (F)
and inserting subparagraph (D)
Section 170(b)(1)(B)(ii) is amended by striking (determined without regard to subparagraph (C))
.
Section 170(b)(1)(C)(iii), as redesignated by paragraph (1), is amended by striking subparagraph (A), (B), (C) or (D)
and inserting subparagraph (A) or (B)
.
Section 170(b)(2)(B)(i)(I) is amended by striking paragraph (1)(E)(v)
and inserting paragraph (1)(C)(v)
.
Section 545(b)(2) is amended by striking (D), and (E)
and inserting and (C)
.
Qualified conservation contributions
Rules made permanent
In general
Subparagraph (C) of section 170(b)(1), as redesignated by subsection (d), is amended by striking clause (vi).
Corporate farmers and ranchers
Subparagraph (B) of section 170(b)(2) is amended by striking clause (iii).
Treatment of golf course easements
Subsection (h) of section 170 is amended by adding at the end the following new paragraph:
Special rule with respect to golf courses
An interest in real property shall not be treated as a qualified real property interest for purposes of this subsection if (at the time of the contribution of such interest) such property is, or is reasonably expected to be, used as a golf course.
.
Conforming amendments
Section 170(b)(1)(C)(iv)(II), as redesignated by subsection (d), is amended by striking made after the date of the enactment of this subparagraph
.
Section 170(b)(2)(B)(i)(II) is amended by striking , in the case of contributions made after the date of the enactment of this subparagraph,
.
Repeal of special rule for college athletic event seating rights
Section 170 is amended by striking subsection (l).
Repeal of special rule treating donee income from intellectual property as an additional charitable contribution
In general
Section 170 is amended by striking subsection (m).
Conforming amendments
Section 6050L is amended—
by striking subsection (b) and redesignating subsection (c) as subsection (b), and
by striking or (b)
in subsection (b) (as redesignated by subparagraph (A)).
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2014.
Qualified conservation contributions
The amendments made by subsection (e) shall apply to contributions made in taxable years beginning after December 31, 2013.
Denial of deduction for expenses attributable to the trade or business of being an employee
In general
Part IX of subchapter B of chapter 1 is amended by inserting after the item relating to section 262 the following new item:
Expenses attributable to being an employee
In general
Except as otherwise provided in this section, no deduction shall be allowed with respect to any trade or business of the taxpayer which consists of the performance of services by the taxpayer as an employee.
Exception for above-the-Line deductions
Subsection (a) shall not apply to any deduction allowable (determined without regard to subsection (a)) in determining adjusted gross income.
.
Repeal of certain above-the-Line trade and business deductions of employees
In general
Paragraph (2) of section 62(a) is amended—
by striking subparagraphs (B), (C), and (D), and
by redesignating subparagraph (E) as subparagraph (B).
Conforming amendments
Section 62 is amended by striking subsections (b) and (d) and by redesignating subsections (c) and (e) as subsections (b) and (c), respectively.
Section 62(a)(20) is amended by striking subsection (e)
and inserting subsection (c)
.
Continued exclusion of working condition fringe benefits
Section 132(d) is amended by inserting (determined without regard to section 262A)
after section 162
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of deduction for taxes not paid or accrued in a trade or business
In general
Subsection (b) of section 164 is amended by striking paragraphs (5) and (6) and inserting the following new paragraph:
Limitation in case of individuals
In the case of a taxpayer other than a corporation—
paragraphs (1) and (2) of subsection (a) shall only apply to taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212, and
paragraph (3) of subsection (a) shall not apply to State and local taxes.
.
Conforming amendments
Section 164(a) is amended by striking paragraph (6).
Section 216(a) is amended by striking proportionate share of—
and all that follows and inserting
proportionate share of the interest allowable as a deduction to the corporation under section 163 which is paid or incurred by the corporation on its indebtedness contracted—
in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or
in the acquisition of the land on which the houses (or apartment building) are situated.
.
Section 216(b)(3)(B)(i) is amended—
by striking a share of such corporation’s real estate taxes described in subsection (a)(1) or
in subclause (I), and
by striking of such taxes, or of such interest,
in subclause (II) and inserting of such interest
.
Section 216(d) is amended by striking subsections (a)(1) and (a)(2)
and inserting subsection (a)
.
Section 274(f) is amended by striking taxes,
in the heading thereof.
Section 280A(b) is amended by striking taxes,
in the heading thereof.
Section 911(c)(3)(A)(ii) is amended—
by striking and taxes
, and
by striking or 164
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of deduction for personal casualty losses
In general
Subsection (c) of section 165 is amended by inserting and
at the end of paragraph (1), by striking ; and
at the end of paragraph (2) and inserting a period, and by striking paragraph (3).
Conforming amendments
Section 165 is amended by striking subsections (h) and (k).
Subsection (i) of section 165 is amended—
in paragraph (1)—
by striking (as defined by clause (ii) of subsection (h)(3)(C))
, and
by striking (as defined by clause (i) of such subsection)
,
by striking (as defined by subsection (h)(3)(C)(i)
in paragraph (4), and
by adding at the end the following new paragraph:
Federally declared disaster
For purposes of this subsection—
Federally declared disaster
The term federally declared disaster
means any disaster subsequently determined by the President of the United States to warrant
assistance by the Federal Government under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act.
Disaster area
The term disaster area
means the area so determined to warrant such assistance.
.
Section 165(l)(1) is amended by striking a loss described in subsection (c)(3)
and inserting an ordinary loss described in subsection (c)(2)
.
Section 165(l) is amended—
by striking paragraph (5),
by redesignating paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), respectively, and
by inserting after paragraph (1) the following new paragraph:
Limitations
Deposit may not be federally insured
No election may be made under paragraph (1) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.
Dollar limitation
With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under paragraph (1) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.
.
Section 172(b)(1)(F)(ii), prior to redesignation under title III, is amended—
by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively, and
by striking subsection (h)(3)(C)(i)
and inserting section 165(i)(5)
.
Section 172(d)(4)(C) is amended by striking paragraph (2) or (3) of section 165(c)
and inserting section 165(c)(2)
.
Section 274(f) is amended by striking casualty losses,
in the heading thereof.
Section 280A(b) is amended by striking casualty losses,
in the heading thereof.
Section 873(b), as amended by the preceding provisions of this Act, is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Limitation on wagering losses
In general
Section 165(d) is amended by adding at the end the following: For purposes of the preceding sentence, the term
.losses from wagering transactions
includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering
transaction.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of deduction for tax preparation expenses
In general
Section 212 is amended by adding or
at the end of paragraph (1), by striking ; or
at the end of paragraph (2) and inserting a period, and by striking paragraph (3).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of deduction for medical expenses
In general
Part VII of subchapter B of chapter 1 is amended by striking section 213 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 223 is amended by redesignating subsections (e), (f), (g), and (h) as subsections (f), (g), (h), and (i), respectively, and by inserting after subsection (d) the following new subsection:
Medical care
For purposes of this section—
In general
The term medical care
means amounts paid—
for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,
for transportation primarily for and essential to medical care referred to in subparagraph (A),
for qualified long-term care services (as defined in section 7702B(c)), or
for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)).
Amounts paid for certain lodging away from home treated as paid for medical care
Amounts paid for lodging (not lavish or extravagant under the circumstances) while away from home primarily for and essential to medical care referred to in paragraph (1)(A) shall be treated as amounts paid for medical care if—
the medical care referred to in paragraph (1)(A) is provided by a physician in a licensed hospital (or in a medical care facility which is related to, or the equivalent of, a licensed hospital), and
there is no significant element of personal pleasure, recreation, or vacation in the travel away from home.
Physician
The term physician
has the meaning given to such term by section 1861(r) of the Social Security Act (42 U.S.C.
1395x(r)).
Contracts covering other than medical care
In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A), (B) and (C) of paragraph (1)—
no amount shall be treated as paid for insurance to which paragraph (1)(D) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement,
the amount taken into account as the amount paid for such insurance shall not exceed such charge, and
no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract.
Certain pre-paid contracts
Subject to the limitations of paragraph (4), premiums paid during the taxable year by a taxpayer before he attains the age of 65 for insurance covering medical care (within the meaning of subparagraphs (A), (B), and (C) of paragraph (1)) for the taxpayer, his spouse, or a dependent after the taxpayer attains the age of 65 shall be treated as expenses paid during the taxable year for insurance which constitutes medical care if premiums for such insurance are payable (on a level payment basis) under the contract for a period of 10 years or more or until the year in which the taxpayer attains the age of 65 (but in no case for a period of less than 5 years).
Cosmetic surgery
In general
The term medical care
does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is
necessary to ameliorate a deformity arising from, or directly related to,
a congenital abnormality, a personal injury resulting from an accident or
trauma, or disfiguring disease.
Cosmetic surgery defined
For purposes of this paragraph, the term cosmetic surgery
means any procedure which is directed at improving the patient's appearance and does not
meaningfully promote the proper function of the body or prevent or treat
illness or disease.
Eligible long-term care premiums
In general
For purposes of this section, the term eligible long-term care premiums
means the amount paid during a taxable year for any qualified long-term care insurance contract
(as defined in section 7702B(b)) covering an individual, to the extent
such amount does not exceed the limitation determined under the following
table:
| In the case of an individual with an attained age before the close of the taxable year of: | The limitation is: |
| 40 or less | $200 |
| More than 40 but not more than 50 | $375 |
| More than 50 but not more than 60 | $750 |
| More than 60 but not more than 70 | $2,000 |
| More than 70 | $2,500 |
Indexing
In general
In the case of any taxable year beginning after 1997, each dollar amount in subparagraph (A) shall be increased by the medical care cost adjustment of such amount for such calendar year. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $10.
Medical care cost adjustment
For purposes of clause (i), the medical care cost adjustment for any calendar year is the adjustment prescribed by the Secretary, in consultation with the Secretary of Health and Human Services, for purposes of such clause. To the extent that CPI (as defined section 1(c)), or any component thereof, is taken into account in determining such adjustment, such adjustment shall be determined by taking into account C-CPI-U (as so defined), or the corresponding component thereof, in lieu of such CPI (or component thereof), but only with respect to the portion of such adjustment which relates to periods after December 31, 2014.
Certain payments to relatives treated as not paid for medical care
An amount paid for a qualified long-term care service (as defined in section 7702B(c)) provided to an individual shall be treated as not paid for medical care if such service is provided—
by the spouse of the individual or by a relative (directly or through a partnership, corporation, or other entity) unless the service is provided by a licensed professional with respect to such service, or
by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual.
relativemeans an individual bearing a relationship to the individual which is described in any of subparagraphs (A) through (G) of section 7705(d)(2). This paragraph shall not apply for purposes of section 105(b) with respect to reimbursements through insurance.
.
Section 72(t)(2)(D)(i)(III) is amended by striking section 213(d)(1)(D)
and inserting section 223(e)(1)(D)
.
Section 104(a) is amended by striking section 213(d)(1)
in the last sentence and inserting section 223(e)(1)
.
Section 105(b) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 139D is amended by striking section 213
and inserting section 223
.
Section 162(l)(2) is amended by striking section 213(d)(10)
and inserting section 223(e)(7)
.
Section 220(d)(2)(A) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 223(d)(2)(A) is amended by striking section 213(d)
and inserting subsection (e))
.
Section 419A(f)(2) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 501(c)(26)(A) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 2503(e) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 4980B(c)(4)(B)(i)(I) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 6041(f) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 7702B(a)(2) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 7702B(a)(4) is amended by striking section 213(d)(1)(D)
and inserting section 223(e)(1)(D)
.
Section 7702B(d)(5) is amended by striking section 213(d)(10)
and inserting section 223(e)(7)
.
Section 9832(d)(3) is amended by striking section 213(d)
and inserting section 223(e)
.
Section 72(t)(2)(B) is amended to read as follows:
Medical expenses
Distributions made to an individual (other than distributions described in subparagraph (A), (C), or (D) to the extent such distributions do not exceed the excess of—
the expenses paid by the taxpayer during the taxable year, not compensated for by insurance or otherwise, for medical care (as defined in 223(e)) of the taxpayer, his spouse, or a dependent (as defined in section 7705, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), over
10 percent of the taxpayer’s adjusted gross income.
.
Section 105 is amended by striking subsection (f).
Section 162(l) is amended by striking paragraph (3).
Section 402(l) is amended by striking paragraph (7) and redesignating paragraph (8) as paragraph (7).
Section 220(f) is amended by striking paragraph (6).
Section 223(f) is amended by striking paragraph (6).
Section 7702B(e) is amended by striking paragraph (2).
Section 7705(f)(7), as redesignated by this Act, is amended by striking sections 105(b), 132(h)(2)(B), and 213(d)(5)
and inserting sections 105(b) and 132(h)(2)(B)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of disqualification of expenses for over-the-counter drugs under certain accounts and arrangements
HSAs
Subparagraph (A) of section 223(d)(2) is amended by striking the last sentence.
Archer MSAs
Subparagraph (A) of section 220(d)(2) is amended by striking the last sentence.
Health flexible spending arrangements and health reimbursement arrangements
Section 106 is amended by striking subsection (f).
Effective date
The amendments made by this section shall apply to expenses incurred after December 31, 2014.
Repeal of deduction for alimony payments and corresponding inclusion in gross income
In general
Part VII of subchapter B of chapter 1 is amended by striking section 215 (and by striking the item relating to such section in the table of sections for such part).
Corresponding repeal of provisions providing for inclusion of alimony in gross income
Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively.
Part II of subchapter B of chapter 1 is amended by striking section 71 (and by striking the item relating to such section in the table of sections for such part).
Subpart F of part I of subchapter J of chapter 1 is amended by striking section 682 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Related to repeal of section 215
Section 62(a) is amended by striking paragraph (10).
Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof)
.
Related to repeal of section 71
Section 121(d)(3) is amended—
by striking (as defined in section 71(b)(2))
in subparagraph (B), and
by adding at the end the following new subparagraph:
Divorce or separation instrument
For purposes of this paragraph, the term divorce or separation instrument
means—
a decree of divorce or separate maintenance or a written instrument incident to such a decree,
a written separation agreement, or
a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.
.
Section 220(f)(7) is amended by striking subparagraph (A) of section 71(b)(2)
and inserting clause (i) of section 121(d)(3)(C)
.
Section 223(f)(7) is amended by striking subparagraph (A) of section 71(b)(2)
and inserting clause (i) of section 121(d)(3)(C)
.
Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2)
and inserting section 121(d)(3)(C)
.
Section 408(d)(6) is amended by striking subparagraph (A) of section 71(b)(2)
and inserting clause (i) of section 121(d)(3)(C)
.
Effective date
The amendments made by this section shall apply to—
any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2014, and
any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification.
Repeal of deduction for moving expenses
In general
Part VII of subchapter B of chapter 1 is amended by striking section 217 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 62(a) is amended by striking paragraph (15).
Section 132(a) is amended by striking paragraph (6).
Section 82 is amended by striking Except as provided in section 132(a)(6), there
and inserting There
.
Section 132 is amended by striking subsection (g).
Section 132(l) is amended by striking by striking subsections (e) and (g)
and inserting subsection (e)
.
Section 274(m)(3) is amended by striking (other than section 217)
.
Section 3121(a) is amended by striking paragraph (11).
Section 209(a) of the Social Security Act is amended by striking paragraph (9).
Section 3306(b) is amended by striking paragraph (9).
Section 3401(a) is amended by striking paragraph (15).
Section 7872(f) is amended by striking paragraph (11).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Termination of deduction and exclusions for contributions to medical savings accounts
Termination of income tax deduction
Section 220 is amended by adding at the end the following new subsection:
Termination
No deduction shall be allowed under subsection (a) with respect to any taxable year beginning after December 31, 2014.
.
Termination of exclusion for employer-Provided contributions
Section 106 is amended by striking subsection (b).
Conforming amendments
Section 62(a) is amended by striking paragraph (16).
Section 106(d) is amended by striking paragraph (2), by redesignating paragraph (3) as paragraph (6), and by inserting after paragraph (1) the following new paragraphs:
No constructive receipt
No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer.
Special rule for deduction of employer contributions
Any employer contribution to a health savings account (as so defined), if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid.
Employer health savings account contribution required to be shown on return
Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the health savings accounts (as so defined) of such individual or such individual’s spouse for such taxable year.
Health savings account contributions not part of COBRA coverage
Paragraph (1) shall not apply for purposes of section 4980B.
.
Section 223(b)(4) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.
Section 3231(e) is amended by striking paragraph (10) and by redesignating paragraphs (11) and (12) as paragraphs (10) and (11), respectively.
Section 3306(b) is amended by striking paragraph (17).
Section 3401(a) is amended by striking paragraph (21).
Chapter 43 is amended by striking section 4980E (and by striking the item relating to such section in the table of sections for such chapter).
Section 4980G is amended to read as follows:
Failure of employer to make comparable health savings account contributions
In general
In the case of an employer who makes a contribution to the health savings account of any employee during a calendar year, there is hereby imposed a tax on the failure of such employer to meet the requirements of subsection (d) for such calendar year.
Amount of tax
The amount of the tax imposed by subsection (a) on any failure for any calendar year is the amount equal to 35 percent of the aggregate amount contributed by the employer to health savings accounts of employees for taxable years of such employees ending with or within such calendar year.
Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.
Employer required To make comparable health savings account contributions for all participating employees
In general
An employer meets the requirements of this subsection for any calendar year if the employer makes available comparable contributions to the health savings accounts of all comparable participating employees for each coverage period during such calendar year.
Comparable contributions
In general
For purposes of paragraph (1), the term comparable contributions
means contributions—
which are the same amount, or
which are the same percentage of the annual deductible limit under the high deductible health plan covering the employees.
Part-year employees
In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the health savings account of such employee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount (determined without regard to this subparagraph) as such portion bears to the entire calendar year.
Comparable participating employees
In general
For purposes of paragraph (1), the term comparable participating employees
means all employees—
who are eligible individuals covered under any high deductible health plan of the employer, and
who have the same category of coverage.
Categories of coverage
For purposes of subparagraph (B), the categories of coverage are self-only and family coverage.
Part-time employees
In general
Paragraph (3) shall be applied separately with respect to part-time employees and other employees.
Part-time employee
For purposes of subparagraph (A), the term part-time employee
means any employee who is customarily employed for fewer than 30 hours per week.
Special rule for non-highly compensated employees
For purposes of applying this section to a contribution to a health savings account of an employee who is not a highly compensated employee (as defined in section 414(q)), highly compensated employees shall not be treated as comparable participating employees.
Controlled groups
For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.
Definitions
Terms used in this section which are also used in section 223 have the respective meanings given such terms in section 223.
Regulations
The Secretary shall issue regulations to carry out the purposes of this section.
.
Section 6051(a) is amended by striking paragraph (11).
Section 6051(a)(14)(A) is amended by striking paragraphs (11) and (12)
and inserting paragraph (12)
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of 2-percent floor on miscellaneous itemized deductions
In general
Part 1 of subchapter B of chapter 1 is amended by striking section 67 (and the item relating to such section in the table of sections for such part).
Conforming amendments
Section 642(b)(2)(C)(i)(II) is amended to read as follows:
by determining the adjusted gross income of the trust under the rules of section 2(b)(2) (without the reference to section 642(b)).
.
Section 162(o) is amended by striking paragraph (2).
Section 302(b)(5) is amended by striking section 67(c)(2)(B)
and inserting section 562(c)(2)
.
Section 562(c) is amended—
by striking (as defined in section 67(c)(2)(B))
,
by striking (as so defined)
,
by striking Except in the case of
and inserting the following:
In general
Except in the case of
, and
by adding at the end the following new paragraph:
Publicly offered regulated investment company
For purposes of this subsection—
In general
The term publicly offered regulated investment company
means a regulated investment company the shares of which are—
continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)),
regularly traded on an established securities market, or
held by or for no fewer than 500 persons at all times during the taxable year.
Secretary may reduce 500 person requirement
The Secretary may by regulation decrease the minimum shareholder requirement of clause (i)(III) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of overall limitation on itemized deductions
In general
Part 1 of subchapter B of chapter 1 is amended by striking section 68 (and the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Deduction for amortizable bond premium allowed in determining adjusted gross income
In general
Subsection (a) of section 62, as amended by section 1411, is amended by inserting after paragraph (9) the following new paragraph:
Amortizable bond premium
The deduction allowed under section 171(a)(1).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exclusion, etc., for employee achievement awards
In general
Section 74 is amended by striking subsection (c).
Repeal of limitation on deduction
Section 274 is amended by striking subsection (j).
Conforming amendments
Section 102(c)(2) is amended by striking the first sentence.
Section 414(n)(3)(C) is amended by striking 274(j),
.
Section 414(t)(2) is amended by striking 274(j),
.
Section 3121(a)(20) is amended by striking 74(c),
.
Section 209(a)(17) of the Social Security Act is amended by striking 74(c),
.
Section 3231(e)(5) is amended by striking 74(c),
.
Section 3306(b)(16) is amended by striking 74(c),
.
Section 3401(a)(19) is amended by striking 74(c),
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Clarification of special rule for certain governmental plans
Treatment of beneficiaries
Section 105(j)(1) is amended—
by striking the taxpayer
and inserting an employee, spouse, dependent (as defined for purposes of subsection (b)), or child (as so
defined)
, and
by striking deceased plan participant’s beneficiary
and inserting deceased employee’s beneficiary who is not a surviving spouse, dependent (as so defined), or child
(as so defined)
.
Application to political subdivisions of States
Section 105(j)(2) is amended—
by inserting or established by or on behalf of a State or political subdivision thereof
after public retirement system
, and
by inserting or 501(c)(9)
after section 115
in subparagraph (B) thereof.
Effective date
The amendments made by this section shall apply to payments after the date of the enactment of this Act.
Limitation on exclusion for employer-provided housing
In general
Section 119 is amended by adding at the end the following new subsection:
Limitation on exclusion of lodging
In general
The aggregate amount excluded from gross income of the taxpayer under subsections (a) and (d) with respect to lodging for any taxable year shall not exceed $50,000 (half such amount in the case of a married individual filing a separate return).
Limitation to 1 home
Subsections (a) and (d) (separately and in combination) shall not apply with respect to more than 1 residence of the taxpayer at any given time. In the case of a joint return, the preceding sentence shall apply separately to each spouse for any period during which each spouse resides separate from the other spouse in a residence which is provided in connection with the employment of each spouse, respectively.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Fringe benefits
Repeal of special rule for air transportation by parent of employee
Subsection (h) of section 132 is amended by striking paragraph (3).
Transportation and parking
Freeze at current levels
In general
Paragraph (2) of section 132(f) is amended—
in subparagraph (A) by striking $100
and inserting $130
, and
in subparagraph (B) by striking $175
and inserting $250
.
Inflation adjustment
Subsection (f) of such section is amended by striking paragraph (6) and redesignating paragraph (7) as paragraph (6).
Repeal of bicycle benefit
In general
Paragraph (1) of section 132(f) is amended by striking subparagraph (D).
Conforming amendments
Section 132(f)(2) is amended by inserting and
at the end of subparagraph (A), by striking and
at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).
Section 132(f)(4) is amended by striking (other than a qualified bicycle commuting reimbursement)
.
Section 132(f)(5) is amended by striking subparagraph (F).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exclusion of net unrealized appreciation in employer securities
In general
Section 402(e) is amended by striking paragraph (4).
Conforming amendments
Section 401(k)(10) is amended by striking subparagraph (B) and inserting the following new subparagraphs:
Distributions must be lump sum distributions
A termination shall not be treated as described in subparagraph (A) with respect to any employee unless the employee receives a lump sum distribution by reason of the termination.
Lump-sum distribution defined
For purposes of this paragraph—
In general
The term lump sum distribution
means the distribution or payment within one taxable year of the recipient of the balance to the
credit of an employee which becomes payable to the recipient from a trust
which forms a part of a plan described in section 401(a) and which is
exempt from tax under section 501 or from a plan described in section
403(a). Such term includes a distribution of an annuity contract from—
a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501(a), or
an annuity plan described in section 403(a).
Aggregation of certain trusts and plans
For purposes of determining the balance to the credit of an employee under clause (i)—
all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and
trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.
Community property laws
The provisions of this subparagraph shall be applied without regard to community property laws.
Balance to credit of employee not to include amounts payable under qualified domestic relations order
The balance to the credit of an employee shall not include any amount payable to an alternate payee under a qualified domestic relations order (within the meaning of section 414(p)).
Transfers to cost-of-living arrangement not treated as distribution
The balance to the credit of an employee under a defined contribution plan shall not include any amount transferred from such defined contribution plan to a qualified cost-of-living arrangement (within the meaning of section 415(k)(2)) under a defined benefit plan. (vii)
Lump-sum distributions of alternate payees
If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution, then, for purposes of this paragraph, the payment under a qualified domestic relations order (within the meaning of section 414(p)) of the balance to the credit of an alternate payee who is the spouse or former spouse of the employee shall be treated as a lump-sum distribution. For purposes of this clause, the balance to the credit of the alternate payee shall not include any amount payable to the employee.
Exclusion of accumulate deductible employee contributions
For purposes of this subparagraph, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5)).
.
Section 3405(e) is amended by striking paragraph (8).
Effective date
The amendments made by this section shall apply to distributions after December 31, 2014.
Consistent basis reporting between estate and person acquiring property from decedent
Property acquired from a decedent
Section 1014 is amended by adding at the end the following new subsection:
Basis must be consistent with estate tax return
For purposes of this section—
In general
The basis of any property to which subsection (a) applies shall not exceed—
in the case of property the final value of which has been determined for purposes of the tax imposed by chapter 11 on the estate of such decedent, such value, and
in the case of property not described in subparagraph (A) and with respect to which a statement has been furnished under section 6035(a) identifying the value of such property, such value.
Exception
Paragraph (1) shall only apply to any property whose inclusion in the decedent’s estate increased the liability for the tax imposed by chapter 11 (reduced by credits allowable against such tax) on such estate.
Regulations
The Secretary may by regulations provide exceptions to the application of this subsection.
.
Information reporting
In general
Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6034A the following new section:
Basis information to persons acquiring property from decedent
Information with respect to property acquired from decedents
In general
The executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent’s gross estate for Federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.
Statements by beneficiaries
Each person required to file a return under section 6018(b) shall furnish to the Secretary and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described in paragraph (1).
Time for furnishing statement
In general
Each statement required to be furnished under paragraph (1) or (2) shall be furnished at such time as the Secretary may prescribe, but in no case at a time later than the earlier of—
the date which is 30 days after the date on which the return under section 6018 was required to be filed (including extensions, if any), or
the date which is 30 days after the date such return is filed.
Adjustments
In any case in which there is an adjustment to the information required to be included on a statement filed under paragraph (1) or (2) after such statement has been filed, a supplemental statement under such paragraph shall be filed not later than the date which is 30 days after such adjustment is made.
Regulations
The Secretary shall prescribe such regulations as necessary to carry out this section, including regulations relating to—
the application of this section to property with regard to which no estate tax return is required to be filed, and
situations in which the surviving joint tenant or other recipient may have better information than the executor regarding the basis or fair market value of the property.
.
Penalty for failure to file
Return
Section 6724(d)(1) is amended by striking and
at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and
inserting , and
, and by adding at the end the following new subparagraph:
any statement required to be filed with the Secretary under section 6035.
.
Statement
Section 6724(d)(2) is amended by striking or
at the end of subparagraph (GG), by striking the period at the end of subparagraph (HH) and
inserting , or
, and by adding at the end the following new subparagraph:
section 6035 (other than a statement described in paragraph (1)(D)).
.
Clerical amendment
The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6034A the following new item:
.
Penalty for inconsistent reporting
In general
Subsection (b) of section 6662 is amended by inserting after paragraph (7) the following new paragraph:
Any inconsistent estate basis.
.
Inconsistent basis reporting
Section 6662 is amended by adding at the end the following new subsection:
Inconsistent estate basis reporting
For purposes of this section, the term inconsistent estate basis
means the portion of the understatement which is attributable to in the case of property acquired
from a decedent, a basis determination with respect to such property which
is not consistent with the value of such property as determined under
section 1014(f).
.
Effective date
The amendments made by this section shall apply to transfers for which an estate tax return is filed after the date of the enactment of this Act.
Employment tax modifications
Modifications of deduction for Social Security taxes in computing net earnings from self-employment
In general
Paragraph (12) of section 1402(a) is amended to read as follows:
in lieu of the deduction allowable under section 164(f) (relating to deduction for one-half of self-employment taxes), there shall be allowed as a deduction an amount equal to the sum of—
7.1064 percent of so much of the individual’s net earnings from self-employment for the taxable year (determined without regard to this paragraph) as does not exceed an amount equal to the product of 1.0765 and the excess (if any) of—
the contribution and benefit base (as determined under section 230 of the Social Security Act) in effect for the calendar year in which the taxable year begins, over
the wages (within the meaning of subsection (b)(1)) paid to the individual during such taxable year, plus
1.4293 percent of the excess (if any) of the individual’s net earnings from self-employment for the taxable year (determined without regard to this paragraph) over the amount of such net earnings taken into account under subparagraph (A);
.
Coordination with benefits
Paragraph (11) of section 211(a) of the Social Security Act is amended to read as follows:
in lieu of the deduction allowable under section 164(f) of the Internal Revenue Code of 1986 (relating to deduction for one-half of self-employment taxes), there shall be allowed as a deduction an amount equal to the sum of—
7.1064 percent of so much of the individual's net-earnings from self-employment for the taxable year (determined without regard to this paragraph) as does not exceed an amount equal to the product of 1.0765 and the excess (if any) of—
the contribution and benefit base (as determined under section 230) in effect for the calendar year in which the taxable year begins,
the wages (within the meaning of section 1402(b)(1) of the Internal Revenue Code of 1986) paid to the individual during such taxable year, plus
1.4293 percent of the excess (if any) of such net earnings over the amount of such net earnings taken into account under subparagraph (A);
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Determination of net earnings from self-employment
Pro rata share of S corporation items included as net earnings from self-Employment
In general
Section 1402(a) is amended by inserting , plus (notwithstanding subsection (c)(2)) his pro rata share of nonseparately computed income or
loss (as defined in section 1366(a)(2)) from any trade or business carried
on by an S corporation in which he is a shareholder
before ; except that
in the matter preceding paragraph (1).
Application of adjustments
Section 1402(a) is amended by inserting and such pro rata share of S corporation nonseparately computed income or loss
after such distributive share of partnership ordinary income or loss
in the matter preceding paragraph (1).
Conforming amendments
Section 211(a) of the Social Security Act is amended in the matter preceding paragraph (1)—
by inserting , plus (notwithstanding subsection (c)(2)) his pro rata share of nonseparately computed income or
loss (as defined in section 1366(a)(2) of the Internal Revenue Code of
1986)from any trade or business carried on by an S corporation in which he
is a shareholder
before ; except that
, and
by inserting and such pro rata share of S corporation nonseparately computed income or loss
after such distributive share of partnership ordinary income or loss
.
Repeal of exception for limited partners
In general
Section 1402(a) is amended by striking paragraph (13).
Conforming amendment
Section 211(a) of the Social Security Act is amended by striking paragraph (12).
Deduction for return on invested capital
In general
Section 1402 is amended by adding at the end the following new subsection:
Deduction for return on invested capital
In general
An individual’s net earnings from self-employment shall be reduced (but not below zero) by the lesser of—
30 percent of the sum of—
such individual’s pass-through net earnings from self-employment, and
such individual’s wages (as defined in section 3121) paid with respect to any trade or business carried on by an S corporation in which he is a shareholder, or
such individual’s pass-through net earnings from self-employment.
Pass-through net earnings from self-employment
For purposes of this subsection, the term pass-through net earnings from self-employment
means net earnings from self-employment (as computed under subsection (a) without regard to this
subsection) determined without regard to any trade or business carried on
by the individual.
100 percent deduction where no material participation
In general
If an individual does not have material participation with respect to an entity (as determined under subparagraph (B)), in lieu of the reduction provided under paragraph (1) such individual’s net earnings from self-employment shall be reduced (but not below zero) by the sum of—
the reduction determined under paragraph (1) applied—
by substituting 100 percent
for 30 percent
in subparagraph (A) thereof, and
by determining pass-through net earnings from self-employment by only taking into account distributive and pro rata shares from non-participation entities, and
by only taking into account under subparagraph (A)(ii) thereof wages paid with respect to trades or businesses carried on by S corporations which are non-participation entities, plus
the reduction determined under paragraph (1) applied—
by determining pass-through net earnings from self-employment by not taking into account any distributive or pro rata share from a non-participation entity, and
by not taking into account under subparagraph (A)(ii) thereof any wages paid with respect to trades or businesses carried on by an S corporation which is a non-participation entity.
Material participation
For purposes of this paragraph—
In general
An individual does not have material participation with respect to an entity (hereafter referred to as the top-tier entity) if such individual demonstrates to the satisfaction of the Secretary that such individual—
does not materially participate (as determined under section 469(h) without regard to paragraph (2) thereof) in any activity carried on by such top-tier entity, and
does not materially participate (as so determined) in any activity carried on by any entity in which such top-tier entity holds (directly or indirectly) any interest.
Family attribution
For purposes of applying clause (i), the participation of any individual in any activity shall also be treated as performed by such individual’s spouse and the lineal descendants of such individual and such individual’s spouse.
Non-participation entity
For purposes of this paragraph, the term non-participation entity
means, with respect to any individual, any entity with respect to which such individual does not
have material participation (as determined under subparagraph (B)).
.
Conforming amendment
Section 211 of the Social Security Act is amended by adding at the end the following new subsection:
Deduction for return on invested capital
In general
An individual’s net earnings from self-employment shall be reduced (but not below zero) by the lesser of—
30 percent of the sum of—
such individual’s pass-through net earnings from self-employment, and
such individual’s wages (as defined in section 209) paid with respect to any trade or business carried on by an S corporation in which he is a shareholder, or
such individual’s pass-through net earnings from self-employment.
Pass-through net earnings from self-employment
For purposes of this subsection, the term pass-through net earnings from self-employment
means net earnings from self-employment (as computed under subsection (a) without regard to this
subsection) determined without regard to any trade or business carried on
by the individual.
100 percent deduction where no material participation
In general
If an individual does not have material participation with respect to an entity (as determined under subparagraph (B)), in lieu of the reduction provided under paragraph (1) such individual’s net earnings from self-employment shall be reduced (but not below zero) by the sum of—
the reduction determined under paragraph (1) applied—
by substituting 100 percent
for 30 percent
in subparagraph (A) thereof, and
by determining pass-through net earnings from self-employment by only taking into account distributive and pro rata shares from non-participation entities, and
by only taking into account under subparagraph (A)(ii) thereof wages paid with respect to trades or businesses carried on by S corporations which are non-participation entities, plus
the reduction determined under paragraph (1) applied—
by determining pass-through net earnings from self-employment by not taking into account any distributive or pro rata share from a nonparticipation entity, and
by not taking into account under subparagraph (A)(ii) thereof any wages paid with respect to trades or businesses carried on by an S corporation which is a nonparticipation entity.
Material participation
For purposes of this paragraph—
In general
An individual does not have material participation with respect to an entity (hereafter referred to as the top-tier entity) if such individual demonstrates to the satisfaction of the Secretary of the Treasury under section 1402(m) of the Internal Revenue Code of 1986 that such individual—
does not materially participate (as determined under section 469(h) of the Internal Revenue Code of 1986 without regard to paragraph (2) thereof) in any activity carried on by such top-tier entity, and
does not materially participate (as so determined) in any activity carried on by any entity in which such top-tier entity holds (directly or indirectly) any interest.
Family attribution
For purposes of applying clause (i), the participation of any individual in any activity shall also be treated as performed by such individual’s spouse and the lineal descendants of such individual and such individual’s spouse.
Nonparticipation entity
For purposes of this paragraph, the term nonparticipation entity
means, with respect to any individual, any entity with respect to which such individual does not
have material participation (as determined under subparagraph (B)).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exemption from FICA taxes for certain foreign workers
In general
Subsection (b) of section 3121 is amended by striking paragraphs (1) and (19).
Coordination with benefits
Subsection (a) of section 210 of the Social Security Act is amended by striking paragraphs (1) and (19).
Railroad retirement tax
Paragraph (1) of section 3231(e) is amended by striking the third sentence.
Effective date
The amendments made by this section shall apply to remuneration received for services performed after December 31, 2014.
Repeal of exemption from FICA taxes for certain students
In general
Paragraph (10) of section 3121(b) is amended—
by inserting during any calendar year
after service performed
in the matter preceding subparagraph (A), and
by inserting , and the remuneration paid by the employer with respect to such service during such calendar year
is less than the dollar amount in effect under section 213(d) of the
Social Security Act (relating to amount required for a quarter of
coverage) with respect to such year
before the semicolon at the end.
College clubs, fraternities, and sororities
Paragraph (2) of section 3121(b) is amended—
by inserting during any calendar year
after domestic service performed
, and
by inserting , if the remuneration paid by the employer with respect to such service during such calendar year
is less than the dollar amount in effect under section 213(d) of the
Social Security Act (relating to amount required for a quarter of
coverage) with respect to such year
before the semicolon at the end.
Deduction of tax from wages
Subsection (a) of section 3102 is amended by inserting ; and an employer who in any calendar year pays to an employee remuneration to which paragraph (2)
or (10) of section 3121(b) is applicable may deduct an amount equivalent
to such tax from any such payment of remuneration, even though at the time
of payment the total amount of such remuneration paid to the employee by
the employer in the calendar year is less than the dollar amount in effect
under section 213(d) of the Social Security Act with respect to such year
before the period at the end.
Coordination with benefits
Paragraph (10) of section 210(a) of the Social Security Act is amended—
by inserting during any calendar year
after Service performed
in the matter preceding subparagraph (A), and
by inserting , and the remuneration paid by the employer with respect to such service during such calendar year
is less than the dollar amount in effect under section 213(d) (relating to
amount required for a quarter of coverage) with respect to such year
before the semicolon at the end.
Paragraph (2) of section 210(a) of the Social Security Act is amended—
by inserting during any calendar year
after Domestic service performed
, and
by inserting , if the remuneration paid by the employer with respect to such service during such calendar year
is less than the dollar amount in effect under section 213(d) (relating to
amount required for a quarter of coverage) with respect to such year
before the semicolon at the end.
Effective date
The amendments made by this section shall apply to remuneration received for services performed after December 31, 2014.
Override of Treasury guidance providing that certain employer-provided supplemental unemployment benefits are not subject to employment taxes
In general
Effective with respect to amounts paid after December 31, 2014—
Revenue Ruling 56–249,
Revenue Ruling 58–128,
Revenue Ruling 60–330,
so much of the holding of Revenue Ruling 77–347 as relates to Plan (1) and Plan (2),
Revenue Ruling 90–72, and
any other ruling, regulation, or other guidance provided by the Secretary of the Treasury, or his designee, to the extent that such ruling, regulation, or guidance provides that any payment made by an employer by reason of involuntary termination of employment shall not be treated as wages or compensation for purposes of any provision of the Internal Revenue Code of 1986,
Repeal of withholding requirement
In general
Section 3402(o)(1) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.
Conforming amendments
Section 3402(o)(2) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.
Section 3402(o)(5)(A) is amended by striking paragraph (1)(C)
and inserting paragraph (1)(B)
.
Effective date
In general
The amendments made by this subsection shall apply to amounts paid after December 31, 2013.
No inference
No amendment made by this subsection shall be construed to create any inference with respect to any amounts paid before January 1, 2014.
Certified professional employer organizations
Employment taxes
Chapter 25 is amended by adding at the end the following new section:
Certified professional employer organizations
General rules
For purposes of the taxes and other obligations imposed by this subtitle—
a certified professional employer organization shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization, but only with respect to remuneration remitted by such organization to such work site employee, and
the exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
Successor employer status
For purposes of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)—
a certified professional employer organization entering into a service contract with a customer with respect to a work site employee shall be treated as a successor employer and the customer shall be treated as a predecessor employer during the term of such service contract, and
a customer whose service contract with a certified professional employer organization is terminated with respect to a work site employee shall be treated as a successor employer and the certified professional employer organization shall be treated as a predecessor employer.
Liability of certified professional employer organization
Solely for purposes of its liability for the taxes and other obligations imposed by this subtitle—
a certified professional employer organization shall be treated as the employer of any work site employee (other than a person described in subsection (e)) who is performing services covered by a contract meeting the requirements of section 7706(e)(2), but only with respect to remuneration remitted by such organization to such individual, and
exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
Special rule for related party
This section shall not apply in the case of a customer which bears a relationship to a certified
professional employer organization described in section 267(b) or 707(b).
For purposes of the preceding sentence, such sections shall be applied by
substituting 10 percent
for 50 percent
.
Special rule for certain individuals
For purposes of the taxes imposed under this subtitle, an individual with net earnings from self-employment derived from the customer’s trade or business (including a partner in a partnership that is a customer), is not a work site employee with respect to remuneration paid by a certified professional employer organization.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
.
Certified professional employer organization defined
Chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new section:
Certified professional employer organizations
In general
For purposes of this title, the term certified professional employer organization means a person who applies to be treated as a certified professional employer organization for purposes of section 3511 and who has been certified by the Secretary as meeting the requirements of subsection (b).
Certification requirements
A person meets the requirements of this subsection if such person—
demonstrates that such person (and any owner, officer, and such other persons as may be specified in regulations) meets such requirements as the Secretary shall establish with respect to tax status, background, experience, business location, and annual financial audits,
agrees that it will satisfy the bond and independent financial review requirements of subsections (c) on an ongoing basis,
agrees that it will satisfy such reporting obligations as may be imposed by the Secretary,
computes its taxable income using an accrual method of accounting unless the Secretary approves another method,
agrees to verify on such periodic basis as the Secretary may prescribe that it continues to meet the requirements of this subsection, and
agrees to notify the Secretary in writing, within such time as the of Secretary may prescribe, of any change that materially affects the continuing accuracy of any agreement or information which was previously made or provided.
Bond and independent financial review
In general
An organization meets the requirements of this paragraph if such organization—
meets the bond requirements of paragraph (2), and
meets the independent financial review requirements of paragraph (3).
Bond
In general
A certified professional employer organization meets the requirements of this paragraph if the organization has posted a bond for the payment of taxes under subtitle C (in a form acceptable to the Secretary) that is in an amount at least equal to the amount specified in subparagraph (B).
Amount of bond
In general
For the period April 1 of any calendar year through March 31 of the following calendar year, the amount of the bond required is equal to the greater of—
5 percent of the organization’s liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year (but not to exceed $1,000,000), or
$50,000.
Special rule for newly created professional employer organizations
During the first three full calendar years that an organization is in existence, subclause (I) of clause (i) shall not apply. For this purpose—
under rules provided by the Secretary, an organization is treated as in existence as of the date that such organization began providing services to any customer which were comparable to the services being provided with respect to work site employees, regardless of whether such date occurred before or after the organization is certified under subsection (b), and
an organization with liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year in excess of $5,000,000 shall no longer be described in this clause (ii) as of April 1 of the year following such calendar year.
Independent financial review requirements
A certified professional employer organization meets the requirements of this paragraph if such organization—
has, as of the most recent audit date, caused to be prepared and provided to the Secretary (in such manner as the Secretary may prescribe) an opinion of an independent certified public accountant as to whether the certified professional employer organization’s financial statements are presented fairly in accordance with generally accepted accounting principles, and
provides to the Secretary an assertion regarding Federal employment tax payments and an examination level attestation on such assertion from an independent certified public accountant not later than the last day of the second month beginning after the end of each calendar quarter. Such assertion shall state that the organization has withheld and made deposits of all taxes imposed by chapters 21, 22, and 24 of the Internal Revenue Code in accordance with regulations imposed by the Secretary for such calendar quarter and such examination level attestation shall state that such assertion is fairly stated, in all material respects.
Controlled group rules
For purposes of the requirements of paragraphs (2) and (3), all professional employer organizations that are members of a controlled group within the meaning of sections 414(b) and (c) shall be treated as a single organization.
Failure to file assertion and attestation
If the certified professional employer organization fails to file the assertion and attestation required by paragraph (3) with respect to any calendar quarter, then the requirements of paragraph (3) with respect to such failure shall be treated as not satisfied for the period beginning on the due date for such attestation.
Audit date
For purposes of paragraph (3)(A), the audit date shall be six months after the completion of the organization’s fiscal year.
Suspension and revocation authority
The Secretary may suspend or revoke a certification of any person under subsection (b) for purposes of section 3511 if the Secretary determines that such person is not satisfying the agreements or requirements of subsections (b) or (c), or fails to satisfy applicable accounting, reporting, payment, or deposit requirements.
Work site employee
For purposes of this title—
In general
The term work site employee means, with respect to a certified professional employer organization, an individual who—
performs services for a customer pursuant to a contract which is between such customer and the certified professional employer organization and which meets the requirements of paragraph (2), and
performs services at a work site meeting the requirements of paragraph (3).
Service contract requirements
A contract meets the requirements of this paragraph with respect to an individual performing services for a customer if such contract is in writing and provides that the certified professional employer organization shall—
assume responsibility for payment of wages to the individual, without regard to the receipt or adequacy of payment from the customer for such services,
assume responsibility for reporting, withholding, and paying any applicable taxes under subtitle C, with respect to the individual’s wages, without regard to the receipt or adequacy of payment from the customer for such services,
assume responsibility for any employee benefits which the service contract may require the certified professional employer organization to provide, without regard to the receipt or adequacy of payment from the customer for such services,
assume responsibility for hiring, firing and for recruiting workers in addition to the customer’s responsibility for recruiting, hiring, and firing workers,
maintain employee records relating to the individual, and
agree to be treated as a certified professional employer organization for purposes of section 3511 with respect to such individual.
Work site coverage requirement
The requirements of this paragraph are met with respect to an individual if at least 85 percent of the individuals performing services for the customer at the work site where such individual performs services are subject to 1 or more contracts with the certified professional employer organization which meet the requirements of paragraph (2) (but not taking into account those individuals who are excluded employees within the meaning of section 414(q)(5)).
Determination of employment status
Except to the extent necessary for purposes of section 3511, nothing in this section shall be construed to affect the determination of who is an employee or employer for purposes of this title.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
.
Conforming amendments
Section 3302 is amended by adding at the end the following new subsection:
Treatment of certified professional employer organizations
If a certified professional employer organization (as defined in section 7706), or a customer of such organization, makes a contribution to the State’s unemployment fund with respect to a work site employee, such organization shall be eligible for the credits available under this section with respect to such contribution.
.
Section 3303(a) is amended—
by striking the period at the end of paragraph (3) and inserting ; and
and by inserting after paragraph (3) the following new paragraph:
if the taxpayer is a certified professional employer organization (as defined in section 7706) that is treated as the employer under section 3511, such certified professional employer organization is permitted to collect and remit, in accordance with paragraphs (1), (2), and (3), contributions during the taxable year to the State unemployment fund with respect to a work site employee.
, and
in the last sentence—
by striking paragraphs (1), (2), and (3)
and inserting paragraphs (1), (2), (3), and (4)
, and
by striking paragraph (1), (2), or (3)
and inserting paragraph (1), (2), (3), or (4)
.
Section 6053(c) is amended by adding at the end the following new paragraph:
Certified professional employer organizations
For purposes of any report required by this subsection, in the case of a certified professional employer organization that is treated, under section 3511, as the employer of a work site employee, the customer with respect to whom a work site employee performs services shall be the employer for purposes of reporting under this section and the certified professional employer organization shall furnish to the customer any information necessary to complete such reporting no later than such time as the Secretary shall prescribe.
.
Clerical amendments
The table of sections for chapter 25 is amended by adding at the end the following new item:
Sec. 3511. Certified professional employer organizations.
.
The table of sections for chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new item:
Sec. 7706. Certified professional employer organizations.
.
Reporting requirements and obligations
The Secretary of the Treasury shall develop such reporting and recordkeeping rules, regulations, and procedures as the Secretary determines necessary or appropriate to ensure compliance with the amendments made by this section with respect to entities applying for certification as certified professional employer organizations or entities that have been so certified. Such rules shall be designed in a manner which streamlines, to the extent possible, the application of requirements of such amendments, the exchange of information between a certified professional employer organization and its customers, and the reporting and recordkeeping obligations of the certified professional employer organization.
User fees
Subsection (b) of section 7528 is amended by adding at the end thereof the following new paragraph:
Certified professional employer organizations
The fee charged under the program in connection with the certification by the Secretary of a professional employer organization under section 7706 shall be an annual fee not to exceed $1,000 per year.
.
Effective dates
In general
The amendments made by this section shall apply with respect to wages for services performed on or after January 1 of the first calendar year beginning more than 12 months after the date of the enactment of this Act.
Certification program
The Secretary of the Treasury shall establish the certification program described in section 7706(b) of the Internal Revenue Code of 1986, as added by this section, not later than 6 months before the effective date determined under paragraph (1).
No inference
Nothing contained in this section or the amendments made by this section shall be construed to create any inference with respect to the determination of who is an employee or employer—
for Federal tax purposes (other than the purposes set forth in the amendments made by this section), or
for purposes of any other provision of law.
Pensions and Retirement
Individual Retirement Plans
Elimination of income limits on contributions to Roth IRAs
In general
Subsection (c) of section 408A is amended by striking paragraph (3).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
No new contributions to traditional IRAs
In general
Individual retirement accounts
Paragraph (1) of section 408(a) is amended by striking in excess of the amount
and all that follows through the end and inserting the following: unless it is a contribution under a simplified employee pension described in subsection (k) not in
excess of the amount of the limitation in effect for such taxable year
under section 415(c)(1)(A), a contribution to a simple retirement account
described in subsection (p) not in excess of the amount described in
section 408(p)(8) for such taxable year, or a contribution to a Roth IRA
described in section 408A not in excess of the amount in effect for the
taxable year with respect to such individual under section
408A(c)(1)(A)(i).
.
Individual retirement annuities
In general
Subparagraph (B) of section 408(b)(2) is amended to read as follows:
any amount paid as a premium on behalf of any individual for a taxable year would meet the requirements of subsection (a)(1) if it were paid as a contribution to an individual retirement account, and
.
Endowment contract requirement
The last sentence of section 408(b) is amended by striking the dollar amount in effect under section 219(b)(1)(A)
and inserting the amounts described in paragraph (2)(B)
.
Conforming amendments
Amendments relating to deductibility
Section 219(a) is amended by striking equal to the qualified retirement contributions of the individual
and inserting equal to the amounts contributed on behalf of the individual to a plan described in section
501(c)(18)
.
Section 219(b) is amended—
by striking Maximum amount of deduction
and all that follows through Notwithstanding paragraph (1), the amount allowable as a deduction
and inserting Maximum amount of deduction.—The amount allowable as a deduction
, and
by striking paragraphs (4) and (5).
Section 219 is amended by striking subsections (c), (d), (e), (g), and (h) and by redesignating subsection (f) as subsection (c).
Section 219(c), as so redesignated, is amended—
by striking Other definitions and special rules
and inserting Special rules
,
by striking paragraphs (1), (3), (4), (5), (6), (7), and (8), and
by inserting before paragraph (2) the following new paragraph:
Beneficiary must be under age 701/2
No deduction shall be allowed under this section with respect to any amount contributed on behalf of an individual to a plan described in section 501(c)(18) if such individual has attained age 701/2 before the close of such individual’s taxable year for which the contribution was made.
.
Section 4973(b)(2)(C) is amended by striking (determined without regard to section 219(f)(6))
.
Amendments relating to Roth IRA contribution limits
Section 408A(c), as amended by this Act, is amended—
by striking paragraphs (1) and (2) and inserting the following new paragraphs:
Maximum contribution
In general
The aggregate amount of contributions for any taxable year to all Roth IRAs maintained for the benefit of an individual shall not exceed the lesser of—
$5,500, or
an amount equal to the compensation includible in the individual’s gross income for such taxable year.
Catch-up contributions for individuals 50 or older
In the case of an individual who has attained the age of 50 before the close of the taxable year, the amount in effect under subparagraph (A)(i) for such taxable year shall be increased by $1,000.
Special rule for certain married individuals
In the case of an individual to whom this paragraph applies for the taxable year, the limitation of paragraph (1) shall be equal to the lesser of—
the dollar amount in effect under paragraph (1)(A)(i) for the taxable year, or
the sum of—
the compensation includible in such individual’s gross income for the taxable year, plus
the compensation includible in the gross income of such individual’s spouse for the taxable year reduced by—
the amount allowed as a deduction under section 219(a) to such spouse for such taxable year,
the amount of any contribution on behalf of such spouse to a Roth IRA for such taxable year.
Individuals to whom paragraph (2) applies
Paragraph (2) shall apply to any individual if—
such individual files a joint return for the taxable year, and
the amount of compensation (if any) includible in such individual’s gross income for the taxable year is less than the compensation includible in the gross income of such individual's spouse for the taxable year.
.
by striking paragraph (2)
in paragraph (6) and inserting paragraph (1)
,
by striking the rule of section 219(f)(3) shall apply
in paragraph (7) and inserting the following: a taxpayer shall be deemed to have made a contribution to a Roth IRA on the last day of the
preceding taxable year if the contribution is made on account of such
taxable year and is made not later than the time prescribed by law for
filing the return for such taxable year (not including extensions thereof)
, and
by adding at the end the following new paragraphs:
Compensation
For purposes of this section, the term compensation
includes earned income (as defined in section 401(c)(2)). The term compensation
does not include any amount received as a pension or annuity and does not include any amount
received as deferred compensation. For purposes of this paragraph, section
401(c)(2) shall be applied as if the term trade or business for purposes
of section 1402 included service described in subsection (c)(6) thereof.
The term compensation includes any differential wage payment (as defined
in section 3401(h)(2)).
Married individuals
The limitation under this subsection shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.
Special rule for compensation earned by members of Armed Forces for services in combat zone
For purposes of paragraphs (1)(A)(ii) and (2), the amount of compensation includible in an individual’s gross income shall be determined without regard to section 112.
.
Section 408A(d)(3)(A) is amended—
by inserting and
at the end of clause (i),
by striking , and
at the end of clause (ii) and inserting a period,
by striking clause (iii), and
by striking the last sentence.
Amendments relating to traditional IRAs
Section 408(d)(4) is amended—
by striking subparagraph (B) and inserting the following:
in the case of simplified employee pension, such contribution is not excluded from gross income under section 402(h),
.
by adding at the end the following: This paragraph shall not apply to any contribution to a simple retirement account.
.
Section 408(d)(5)(A) is amended—
by striking in effect under section 219(b)(1)(A)
and inserting in effect with respect to the taxpayer for the taxable year under section 408A(c)(1)(A)(i)
,
by striking the amount allowable as a deduction
and all that follows through such excess contribution.
and inserting the amount that may be contributed under section 408A(c)(1) for the taxable year for which the
contribution was made if such distribution is received after the date
described in paragraph (4).
,
by adding at the end of subparagraph (A) the following: This paragraph shall not apply to any contribution to a simple retirement account.
, and
by striking the last sentence.
Section 408 is amended by striking subsection (o).
Amendments relating to simple retirement accounts
Section 408(p)(2)(D)(ii) is amended by striking means a plan, contract
and all that follows through the period at the end and inserting the following:
means—
a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
an annuity plan described in section 403(a),
an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A)),
an annuity contract described in section 403(b),
a simplified employee pension (within the meaning of section 408(k)),
any simple retirement account (within the meaning of section 408(p)), or
a trust described in section 501(c)(18).
.
Section 408(p)(8) is amended to read as follows:
Coordination with maximum limitation under subsection (a)
In the case of a simple retirement account, for purposes of subsections (a)(1) and (b)(2), contributions may not exceed the sum of—
the dollar amount in effect under paragraph (2)(A)(ii), and
the employer contribution required under subparagraph (A)(iii) or (B)(i) of paragraph (2), whichever is applicable.
.
Amendments relating to SEPs
Section 408 is amended by striking subsection (j).
Amendments relating to excise tax on excess contributions
Traditional IRAs
Subsection (b) of section 4973 is amended—
by striking paragraph (1) and inserting the following:
the amounts contributed for the taxable year to the accounts or for the annuities or bonds (other than any contributions to a Roth IRA) which are not permitted contributions under subsection (a)(1) or (b)(2) of section 408, and
.
in paragraph (2)(C), by striking the maximum amount allowable
and all that follows through without regard to section 219(f)(6))
and inserting the permitted contributions under subsection (a)(1) or (b)(2) of section 408 for the taxable year
over the amount contributed
, and
by striking the last sentence and inserting the following: Paragraph (2) shall be determined separately with respect to any simplified employee pension
(within the meaning of section 408(k)) and any simple retirement account
(within the meaning of section 408(p)).
.
Roth IRAs
Section 4973(f) is amended by striking sections 408A(c)(2) and (c)(3)
each place it appears and inserting section 408A(c)(1)
.
Amendments relating to saver’s credit
Section 25B(d)(1)(A) is amended to read as follows:
the amounts—
paid in cash for the taxable year by or on behalf of an individual to all Roth IRAs maintained for such individual’s benefit, and
contributed on behalf of the individual to a plan described in section 501(c)(18),
.
Other conforming amendments
Section 86(f)(3) is amended by striking 219(f)(1)
and inserting section 408A(c)(8)
.
Section 132(m)(3) is amended by striking section 219(g)(5)
and inserting section 408(p)(2)(D)(ii)
.
Section 223(d) is amended—
by redesignating paragraph (4) as paragraph (7),
by inserting after paragraph (3) the following new paragraphs:
Recontributed amounts
No deduction shall be allowed under this section with respect to a rollover contribution described in subsection (f)(5).
Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to have made a contribution to a health savings account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).
Employer payments
Except as provided in section 106(d), for purposes of this title, any amount paid by an employer to a health savings account shall be treated as payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1)) includible in his gross income in the taxable year for which the amount was contributed, whether or not a deduction for such payment is allowable under this section to the employee.
.
Section 223(d)(7), as so redesignated, is amended by striking subparagraphs (A), (B), and (C), and redesignating subparagraphs (D) and (E) as subparagraphs (A) and (B), respectively.
Section 409A(d)(2)(A) is amended by striking subparagraph (A) or (B) of section 219(g)(5) (without regard to subparagraph (A)(iii))
and inserting section 408(p)(2)(D)(ii) (without regard to subclause (III) thereof)
.
Section 501(c)(18)(D)(i) is amended by striking section 219(b)(3)
and inserting section 219(a)
.
Section 877A(d)(4)(A) is amended by striking section 219(g)(5)
and inserting 408(p)(2)(D)(ii)
.
Section 6652 is amended by striking subsection (g).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Inflation adjustment for Roth IRA contributions
In general
Subsection (c) of section 408A, as amended by this Act, is amended by adding at the end the following new paragraph:
Cost-of-living adjustment
In the case of any taxable year beginning after 2023, the dollar amount in paragraph (1)(A)(i) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which
the taxable year begins, determined by substituting calendar year 2022
for calendar year 2012
in clause (ii) thereof.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions
In general
Section 408A(d) is amended by striking paragraph (6) and by redesignating paragraph (7) as paragraph (6).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exception to 10-percent penalty for first home purchases
In general
Section 72(t)(2) is amended by striking subparagraph (F).
Roth IRAs
Subparagraph (A) of section 408A(d)(2) is amended by inserting or
at the end of clause (ii), and by striking , or
at the end of clause (iii) and inserting a period, and by striking clause (iv).
Conforming amendment
Section 72(t) is amended by striking paragraph (8).
Section 408A(d), as amended by this Act, is amended by striking paragraph (5) and by redesignating paragraph (6) as paragraph (5).
Effective date
The amendments made by this section shall apply to distributions after December 31, 2014.
Employer-Provided Plans
Termination for new SEPs
In general
Section 408(k) is amended by redesignating paragraph (9) as paragraph (10) and by inserting after paragraph (8) the following new paragraph:
Termination
This subsection shall not apply to years beginning after December 31, 2014. The preceding sentence shall not apply to any simplified employee pension of an employer if such simplified employee pension, and the terms thereof, meet the requirements of this subsection on and after such date.
.
Section 402(h) is amended by adding at the end the following new paragraph:
Termination
This subsection shall not apply to any simplified employee pension the arrangement for which is established after December 31, 2014.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Termination for new SIMPLE 401(k)s
Amendments relating to SIMPLE 401(k)s
Section 401(k)(11) is amended by adding at the end the following new subparagraph:
Termination
This paragraph shall apply to a cash or deferred arrangement for any plan year beginning after December 31, 2014, only if such arrangement meets the requirements of this paragraph for the last plan year beginning before January 1, 2015, and for each plan year thereafter.
.
Effective date
The amendment made by this section shall apply to plan years beginning after December 31, 2014.
Rules related to designated Roth contributions
Applicable retirement plans which permit elective deferrals required To accept designated Roth contributions
In general
Paragraph (30) of section 401(a) is amended—
by striking deferrals.—
and all that follows through In the case of a trust
and inserting the following:
deferrals.—
In general
In the case of a trust
,
by striking unless the plan provides that
and inserting the following:
unless the plan—
provides that
,
by striking the period at the end and inserting , and
, and
by adding at the end the following:
except as provided in subparagraph (B), includes a qualified Roth contribution program (as defined in section 402A(b)).
Exception for certain small plans
Subparagraph (A)(ii) shall not apply to any plan of an eligible employer (as defined in section 408(p)(2)(C)).
.
Conforming amendments
Section 402A(b)(1) is amended by striking all that follows designated Roth contributions
and inserting a period.
The heading of section 402A (and the item relating to such section in the table of sections for
part I of subchapter D of chapter 1) is amended by striking Optional treatment of elective deferrals as Roth contributions
and inserting Designated Roth contributions
.
Restriction on portion of elective deferral limitation which may apply to traditional elective deferrals
In general
Subparagraph (A) of section 402(g)(1) is amended by striking the applicable dollar amount
and inserting 50 percent (100 percent in the case of elective deferrals with respect to any plan of an eligible
employer (as defined in section 408(p)(2)(C)) of the applicable dollar
amount
.
Government 457(b) plans
In general
Subsection (b) of section 457 is amended by striking and
at the end of paragraph (5), by redesignating paragraph (6) as paragraph (7), and by inserting
after paragraph (5) the following new paragraph:
which, in the case of a plan maintained by an employer described in subsection (e)(1)(A), meets requirements similar to the requirements of section 401(a)(30), and
.
Conforming amendment
Section 402(g)(1)(A) is amended by inserting and section 457(a)(1)
after (h)(1)(B)
.
Cross-reference
For treatment of amounts deferred under an eligible compensation plan of a governmental employer as elective deferrals, see section 1618(b)(1) of this Act.
Roth elective deferrals permitted to extent of full limitation amount
In general
Section 402A(c)(2)(A) is amended to read as follows:
the applicable dollar amount in effect under section 402(g)(1)(B) with respect to the employee for the taxable year, over
.
Conforming amendments
Section 401(a)(30) is amended—
by inserting (including contributions treated as elective deferrals under section 402A(a)(1))
after section 402(g)(3)
, and
by striking section 402(g)(1)(A)
and inserting section 402(g)(1)(B), and that the amount of elective deferrals not included in gross income may
not exceed the amount of the limitation in effect under section
402(g)(1)(A),
.
Section 402(g)(1)(C) is amended—
by striking In addition to subparagraph (A)
and inserting For purposes of subparagraph (A)
.
by striking gross income shall not include
and all that follows through does not exceed
and inserting the applicable dollar amount in effect for the taxable year under subparagraph (B) shall be
increased by
.
So much of section 402(g)(2)(A) as precedes clause (i) is amended to read as follows:
In general
If an individual’s aggregate elective deferrals for a taxable year exceed the applicable dollar
amount under paragraph (1) (hereinafter in this paragraph referred to as excess total deferrals
) or if an individual’s aggregate elective deferrals (disregarding designated Roth contributions
and simple Roth contributions) exceed the amount excludable under
paragraph (1)(A) (hereinafter in this paragraph referred to as excess non-Roth deferrals
)—
.
Section 402(g)(2)(A)(i) is amended by striking such excess deferrals
and inserting such excess total deferrals or excess non-Roth deferrals
.
Section 402(g)(2)(C)(ii) is amended by striking the excess deferral
and inserting the excess total deferral or excess non-Roth deferral
.
Section 402A(d)(2)(C) is amended by striking excess deferral
and inserting excess total deferral
.
Section 402A(d)(3) is amended by striking excess deferral
each place it appears and inserting excess total deferral
.
Section 402(g)(1)(A) is amended by striking the second sentence.
Section 402A(c)(1)(A) is amended by striking without regard to this section
and inserting (determined without regard to this section and section 402(g))
.
Reporting by employers
Section 6051(a)(8) is amended by inserting after (as defined in section 402A)
the following: , and the type of plan under which amounts are deferred or contributed
.
SIMPLE Roth retirement accounts permitted
In general
Subsection (p) of section 408 is amended by adding at the end the following new paragraph:
Roth contributions
For purposes of this section—
In general
If a qualified salary reduction arrangement with respect to a simple retirement account includes a simple Roth contribution program, any simple Roth contribution made by an employer pursuant to such program shall be treated as an elective employer contribution, except that such contribution shall be paid to a Roth IRA and shall not be excludable from gross income.
Simple Roth contribution program
The term simple Roth contribution program
means a program under which an employee may elect to make simple Roth contributions.
Simple Roth contribution
The term simple Roth contribution
means any elective employer contribution which—
is excludable from gross income of an employee without regard to this paragraph, and
the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.
Limitation
In the case of an eligible employer which elects the application of this subparagraph with respect to the simple retirement accounts established pursuant to a qualified salary reduction arrangement of such employer, notwithstanding paragraph (2)(E), the applicable dollar amount for purposes of paragraph (2)(A)(ii), shall be equal to—
in the case of any such account which is not designated as a Roth IRA, 50 percent of the applicable dollar amount in effect under section 402(g)(1)(B) for the taxable year, and
in the case of any such account which is designated as a Roth IRA, the excess (if any) of—
the applicable dollar amount in effect under section 402(g)(1)(B) for the taxable year, over
the aggregate amount of elective employer contributions to any account described in clause (i).
.
Coordination with maximum Roth limitation
Subsection (c) of section 408A, as amended by this Act, is amended by adding at the end the following new paragraph:
Increase in maximum limitation for SIMPLE Roth
In the case of any simple retirement account, subparagraphs (A)(i) and (B) of paragraph (1) shall be applied by disregarding any contributions made to a simple retirement account and any qualified rollover contributions.
.
Conforming amendments
Section 408A(f)(1) is amended by striking or a simple retirement account
.
Section 6051(a)(8), as amended by this Act, is amended by inserting after (as defined in section 402A)
the following: and simple Roth contributions (as defined in section 408(p)(11)(C))
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to plan years and taxable years beginning after December 31, 2014.
Subsection (c)
The amendments made by subsection (c) shall apply to calendar years beginning after December 31, 2014.
Modifications of required distribution rules for pension plans
In general
Section 401(a)(9)(B) of the Internal Revenue Code of 1986 is amended to read as follows:
Required distributions where employee dies before entire interest is distributed
5-year general rule
A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee's interest (whether or not such distribution has begun in accordance with subparagraph (A)), the entire interest of the employee will be distributed within 5 years after the death of such employee.
Exception for eligible designated beneficiaries
If—
any portion of the employee's interest is payable to (or for the benefit of) an eligible designated beneficiary,
such portion will be distributed (in accordance with regulations) over the life of such eligible designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
such distributions begin not later than 1 year after the date of the employee's death or such later date as the Secretary may by regulations prescribe,
Special rule for surviving spouse of employee
If the eligible designated beneficiary referred to in clause (ii)(I) is the surviving spouse of the employee—
the date on which the distributions are required to begin under clause (ii)(III) shall not be earlier than the date on which the employee would have attained age 701/2, and
if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee.
Rules upon death of eligible designated beneficiary
If an eligible designated beneficiary dies before the portion of an employee's interest described in clause (ii) is entirely distributed, clause (ii) shall not apply to any beneficiary of such eligible designated beneficiary and the remainder of such portion shall be distributed within 5 years after the death of such beneficiary.
.
Definition of eligible designated beneficiary
Section 401(a)(9)(E) of such Code is amended to read as follows:
Definitions and rules relating to designated beneficiary
For purposes of this paragraph—
Designated beneficiary
The term designated beneficiary
means any individual designated as a beneficiary by the employee.
Eligible designated beneficiary
The term eligible designated beneficiary
means, with respect to any employee, any designated beneficiary who, as of the date of death of
the employee, is—
the surviving spouse of the employee,
subject to clause (iii), a child of the employee who has not attained age 22,
disabled (within the meaning of section 72(m)(7)),
a chronically ill individual (within the meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one that is reasonably expected to be lengthy in nature), or
an individual not described in any of the preceding subparagraphs who is not more than 10 years younger than the employee.
Special rule for children
Subject to subparagraph (F), an individual described in clause (ii)(II) shall cease to be an eligible designated beneficiary as of the date the individual attains age 22 and the requirement of subparagraph (B)(i) shall not be treated as met with respect to any remaining portion of an employee’s interest payable to the individual unless such portion is distributed within 5 years after such date.
.
Required beginning date
Section 401(a)(9)(C) of such Code is amended by adding at the end the following new clause:
Employees becoming 5-percent owners after age 701/2
If an employee becomes a 5-percent owner (as defined in section 416) with respect to a plan year ending in a calendar year after the calendar year in which the employee attains age 701/2, then clause (i)(II) shall be applied by substituting the calendar year in which the employee became such an owner for the calendar year in which the employee retires.
.
Effective dates
In general
Except as provided in this subsection, the amendments made by this section shall apply to distributions with respect to employees who die after December 31, 2014.
Required beginning date
The amendment made by subsection (c) shall apply to employees becoming a 5-percent owner with respect to plan years ending in calendar years beginning before, on, or after the date of the enactment of this Act, except that—
if, without regard to such amendment, an employee’s required beginning date occurs before April 1, 2015, such amendment shall not result in an earlier required beginning date for such employee, and
if, solely by reason of such amendment, an employee’s required beginning date would occur before April 1, 2015, such employee's required beginning date shall occur on April 1, 2015.
Exception for certain beneficiaries
If a designated beneficiary of an employee who dies before January 1, 2015, dies after December 31, 2014—
the amendments made by this section shall apply to any beneficiary of such designated beneficiary, and
the designated beneficiary shall be treated as an eligible designated beneficiary for purposes of applying section 401(a)(9)(B)(iv) of such Code (as in effect after the amendments made by this section).
Exception for certain existing annuity contracts
In general
The amendments made by this section shall not apply to a qualified annuity which is a binding annuity contract in effect on the date of the enactment of this Act and at all times thereafter.
Qualified annuity contract
For purposes of this paragraph, the term qualified annuity means, with respect to an employee, an annuity—
which is a commercial annuity (as defined in section 3405(e)(6) of such Code) or payable by a defined benefit plan,
under which the annuity payments are substantially equal periodic payments (not less frequently than annually) over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary) in accordance with the regulations described in section 401(a)(9)(A)(ii) of such Code (as in effect before such amendments) and which meets the other requirements of this section 401(a)(9) of such Code (as so in effect) with respect to such payments, and
with respect to which—
annuity payments to the employee have begun before January 1, 2015, and the employee has made an irrevocable election before such date as to the method and amount of the annuity payments to the employee or any designated beneficiaries, or
if subclause (I) does not apply, the employee has made an irrevocable election before the date of the enactment of this Act as to the method and amount of the annuity payments to the employee or any designated beneficiaries.
Reduction in minimum age for allowable in-service distributions
In general
Section 401(a)(36) is amended by striking age 62
and inserting age 591/2
.
Application to governmental section 457(b) plans
Clause (i) of section 457(d)(1)(A) is amended by inserting (in the case of a plan maintained by an employer described in subsection (e)(1)(A), age 591/2)
before the comma at the end.
Effective date
The amendments made by this section shall apply to distributions made after December 31, 2014.
Modification of rules governing hardship distributions
In general
Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall modify Treasury Regulation section 1.401(k)–1(d)(3)(iv)(E) to—
delete the 6-month prohibition on contributions imposed by paragraph (2) thereof, and
to make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986.
Effective date
The revised regulations under this section shall apply to plan years beginning after December 31, 2014.
Extended rollover period for the rollover of plan loan offset amounts in certain cases
In general
Paragraph (3) of section 402(c) is amended by adding at the end the following new subparagraph:
Rollover of certain plan loan offset amounts
In general
In the case of a qualified plan loan offset amount, paragraph (1) shall not apply to any transfer of such amount made after the due date (including extensions) for filing the return of tax for the taxable year in which such amount is treated as distributed from a qualified employer plan.
Qualified plan loan offset amount
For purposes of this subparagraph, the term qualified plan loan offset amount means a plan loan offset amount which is treated as distributed from a qualified employer plan to a participant or beneficiary solely by reason of—
the termination of the qualified employer plan, or
the failure to meet the repayment terms of the loan from such plan because of the separation from service of the participant (whether due to layoff, cessation of business, termination of employment, or otherwise).
Plan loan offset amount
For purposes of clause (ii), the term plan loan offset amount means the amount by which the participant's accrued benefit under the plan is reduced in order to repay a loan from the plan.
Limitation
This subparagraph shall not apply to any plan loan offset amount unless such plan loan offset amount relates to a loan to which section 72(p)(1) does not apply by reason of section 72(p)(2).
Qualified employer plan
For purposes of this subsection, the term qualified employer plan has the meaning given such term by section 72(p)(4).
.
Conforming amendment
Subparagraph (A) of section 402(c)(3) is amended by striking subparagraph (B)
and inserting subparagraphs (B) and (C)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans
403(b) plans
Elimination of special catch-up rule
Subsection (g) of section 402 is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7).
Elimination of post termination non-elective contributions
Subsection (b) of section 403 is amended—
in paragraph (3), by striking for the most recent period
and all that follows through more than five years
, and
by striking paragraph (4).
Elimination of increased contribution limit for church plans
Subsection (c) of section 415 is amended by striking paragraph (7).
Elimination of separate 415(c) limits
Paragraph (4) of section 415(k) is amended by striking each employer with respect to which the participant has the control required
and inserting the employer and each employer which is part of a controlled group or under common control
.
457(b) plans
Elimination of separate deferral limit
Paragraph (3) of section 402(g) is amended by striking and
at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and
inserting , and
, and by inserting after subparagraph (D) the following new subparagraph:
any amount deferred under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
.
Taken into account under limitation for defined contribution plans
In general
Paragraph (2) of section 415(a) is amended by striking or
at the end of subparagraph (B), by inserting or
at the end of subparagraph (C), and by inserting after subparagraph (C) the following new
subparagraph:
an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A),
.
Definition
Paragraph (1) of section 415(k) is amended by striking or
at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and
inserting , or
, and by adding at the end the following new subparagraph:
an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
.
Elimination of special catch-up rule
Paragraph (3) of section 457(b) is amended by inserting , in the case of an eligible employer described in subsection (e)(1)(B),
after which
.
Conforming amendments
Section 25B(d)(1)(B) is amended—
by striking clause (ii), and
by striking the amount of—
and all that follows through any elective deferrals
and inserting the following: the amount of any elective deferrals
.
Section 402A(e)(2) is amended—
by striking , and
and all that follows and inserting a period, and
by striking means—
and all that follows through any elective deferral described in subparagraph (A) or (C)
and inserting the following: means any elective deferral described in (A), (C), or (E)
.
Section 457(e) is amended by striking paragraph (18).
Section 414(u)(2)(C) is amended by inserting by an eligible employer described in section 457(e)(1)(B)
after (as defined in section 457(b))
.
Section 414(v)(2)(D) is amended—
by striking clauses (i), (ii), and (iv) of
, and
by striking , and plans described in clause (iii)
and all that follows through the end and inserting a period.
Section 414(v)(3)(A)(i) is amended by striking (determined without regard to section 457(b)(3))
.
Section 414(v)(6)(B) is amended by striking subsection (u)(2)(C)
and inserting section 402(g)(3)
.
Section 414(v)(6) is amended by striking subparagraph (C).
Effective date
The amendments made by this section shall apply to plan years and taxable years beginning after December 31, 2014.
Application of 10-percent early distribution tax to governmental 457 plans
In general
Paragraph (1) of section 72(t) is amended by inserting or an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer
described in section 457(e)(1)(A),
after section 4974(c)),
.
Effective date
The amendment made by this section shall apply to withdrawals on or after February 26, 2014.
Inflation adjustments for qualified plan benefit and contribution limitations
Defined benefit plans
Current limit
Subparagraph (A) of section 415(b)(1) is amended by striking $160,000
and inserting $210,000
.
Inflation adjustment
Section 415(d) is amended—
in paragraph (1)(A)—
by striking $160,000
and inserting $210,000
, and
by inserting for calendar years beginning after 2023
after subsection (b)(1)(A)
,
paragraph (3)(A), by striking July 1, 2001
and inserting July 1, 2022
.
Defined contribution plans
Current limit
Subparagraph (A) of section 415(c)(1) is amended by striking $40,000
and inserting $52,000
.
Inflation adjustment
Subsection (d) of section 415 is amended—
in paragraph (1)(C)—
by striking $40,000
and inserting $52,000
,
by inserting for calendar years beginning after 2023
after subsection (c)(1)(A)
,
in paragraph (3)(D), by striking July 1, 2001
and inserting July 1, 2022
.
Conforming amendments
Section 415(b)(2) is amended by striking $160,000
each place it appears in subparagraphs (C) and (D) and inserting $210,000
.
Section 415(b) is amended by striking $160,000
in the fourth sentence of paragraph (7) and inserting $210,000
.
The headings for subparagraphs (C) and (D) of section 415(b)(2) are each amended by striking $160,000
and inserting $210,000
.
The heading for subparagraph (A) of section 415(d)(3) is amended by striking $160,000
and inserting $210,000
.
The heading for subparagraph (D) of section 415(d)(3) is amended by striking $40,000
and inserting $52,000
.
The heading for subparagraph (A) of section 415(d)(4) is amended by striking $160,000
and inserting $210,000
.
The heading for subparagraph (B) of section 415(d)(4) is amended by striking $40,000
and inserting $52,000
.
Effective date
The amendments made by this section shall apply to years ending with or within a calendar year beginning after 2014.
Inflation adjustments for qualified plan elective deferral limitations
Current limit
Subparagraph (B) of section 402(g)(1) is amended by striking shall be
and all that follows and inserting is $17,500.
Inflation adjustment
Paragraph (4) of section 402(g) is amended—
by striking December 31, 2006
and inserting December 31, 2023
,
by striking $15,000
and inserting $17,500
, and
by striking 2005
and inserting 2022
.
Effective date
The amendments made by this section shall apply to plan years and taxable years beginning after December 31, 2014.
Inflation adjustments for SIMPLE retirement accounts
Current limit
Clause (i) of section 408(p)(2)(E) is amended by striking shall be
and all that follows and inserting shall be $12,000
.
Inflation adjustment
Clause (ii) of section 408(p)(2)(E) is amended—
by striking December 31, 2005
and inserting December 31, 2023
,
by striking $10,000
and inserting $12,000
,
by striking 2004
and inserting 2022
.
Effective date
The amendments made by this section shall apply to calendar years beginning after 2014.
Inflation adjustments for catch-up contributions for certain employer plans
Current limit
Plans other than simple 401(k) and simple retirement accounts
Clause (i) of section 414(v)(2)(B) is amended by striking determined in accordance with the following table
and all that follows through the period at the end and inserting $5,500.
.
Simple 401(k) and simple retirement accounts
Clause (ii) of section 414(v)(2)(B) is amended by striking determined in accordance with the following table
and all that follows through the period at the end and inserting $2,500.
.
Inflation adjustment
Subparagraph (C) of section 414(v)(2) is amended—
by striking December 31, 2006
and inserting December 31, 2023
,
by striking $5,000
and inserting $5,500
, and
by striking 2005
and inserting 2022
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Inflation adjustments for governmental and tax-exempt organization plans
Current limit
Subparagraph (A) of section 457(b)(2) is amended by striking the applicable dollar amount
and inserting $17,500
.
Inflation adjustment
Paragraph (15) of section 457(e) is amended—
by striking Applicable dollar amount.—
and all that follows through Cost-of-living adjustments.—In the case of taxable years beginning after December 31, 2006
and inserting the following: Cost-of-living adjustments.—In the case of taxable years beginning after December 31, 2023
,
by striking the $15,000 amount under subparagraph (A)
and inserting the $17,500 amount under subsection (b)(2)(A)
, and
by striking 2005
and inserting 2022
.
Conforming amendment
Section 457(f)(4)(A) is amended by striking twice the applicable dollar limit determined under subsection (e)(15)
and inserting twice the amount in effect under subsection (b)(2)(A)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Certain provisions related to members of Indian tribes
Indian general welfare benefits
In general
Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section:
Indian general welfare benefits
In general
Gross income does not include the value of any Indian general welfare benefit.
Indian general welfare benefit
For purposes of this section, the term Indian general welfare benefit
includes any payment made or services provided to or on behalf of a member of an Indian tribe (or
any spouse or dependent of such a member) pursuant to an Indian tribal
government program, but only if—
the program is administered under specified written guidelines and does not discriminate in favor of members of the governing body of the tribe, and
the benefits provided under such program—
are available to any tribal member who meets such guidelines,
are for the promotion of general welfare,
are not lavish or extravagant, and
are not compensation for services.
Definitions and special rules
For purposes of this section—
Indian tribal government
For purposes of this section, the term Indian tribal government
includes any agencies or instrumentalities of an Indian tribal government and any Alaska Native
regional or village corporation, as defined in, or established pursuant
to, the Alaska Native Claims Settlement Act (43 U.S.C. 1601, et seq.).
Dependent
The term dependent
has the meaning given such term by section 7705, determined without regard to subsections (b)(1),
(b)(2), and (d)(1)(B).
Lavish or extravagant
The Secretary shall, in consultation with the Tribal Advisory Committee (as established under section 1702 of the Tax Reform Act of 2014), establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian tribal government programs.
Establishment of tribal government program
A program shall not fail to be treated as an Indian tribal government program solely by reason of the program being established by tribal custom or government practice.
.
Conforming amendment
The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item:
Sec. 139E. Indian general welfare benefits.
.
Effective date
In general
The amendments made by this section shall apply to taxable years for which the period of limitation on refund or credit under section 6511 of the Internal Revenue Code of 1986 has not expired.
One-year waiver of statute of limitations
If the period of limitation on a credit or refund resulting from the amendments made by subsection (a) expires before the end of the 1-year period beginning on the date of the enactment of this Act, refund or credit of such overpayment (to the extent attributable to such amendments) may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period.
Tribal Advisory Committee
Establishment
The Secretary of the Treasury shall establish a Tribal Advisory Committee (hereinafter in this
subsection referred to as the Committee
).
Duties
Implementation
The Committee shall advise the Secretary on matters relating to the taxation of Indians.
Education and training
The Secretary shall, in consultation with the Committee, establish and require—
training and education for internal revenue field agents who administer and enforce internal revenue laws with respect to Indian tribes on Federal Indian law and the Federal Government’s unique legal treaty and trust relationship with Indian tribal governments, and
training of such internal revenue field agents, and provision of training and technical assistance to tribal financial officers, about implementation of this Act and the amendments made thereby.
Membership
In general
The Committee shall be composed of 7 members appointed as follows:
Three members appointed by the Secretary of the Treasury.
One member appointed by the Chairman, and one member appointed by the Ranking Member, of the Committee on Ways and Means of the House of Representatives.
One member appointed by the Chairman, and one member appointed by the Ranking Member, of the Committee on Finance of the Senate.
Term
In general
Except as provided in subparagraph (B), each member’s term shall be 4 years.
Initial staggering
The first appointments made by the Secretary under paragraph (1)(A) shall be for a term of 2 years.
Other relief for Indian tribes
Waiver of penalties and interest
The Secretary of the Treasury may waive any interest and penalties imposed under the Internal Revenue Code of 1986 on any Indian tribal government or member of an Indian tribe (or any spouse or dependent of such a member) to the extent such interest and penalties relate to excluding a payment or benefit from gross income under the general welfare exclusion.
Definitions
For purposes of this section—
Indian tribal government
The term Indian tribal government
shall have the meaning given such term by section 139E of such Code, as added by this Act.
Indian tribe
The term Indian tribe
shall have the meaning given such term by section 139D(c)(1) of such Code, as amended by this Act.
Alternative Minimum Tax Repeal
Repeal of alternative minimum tax
In general
Subchapter A of chapter 1 is amended by striking part VI (and by striking the item relating to such part in the table of parts for subchapter A).
Credit for prior year minimum tax liability
Limitation
Subsection (c) of section 53 is amended to read as follows:
Limitation
The credit allowed under subsection (a) shall not exceed the regular tax liability of the taxpayer reduced by the sum of the credits allowed under subparts A, B, and D.
.
Credits treated as refundable
Subsection (e) of section 53 is amended to read as follows:
Portion of credit treated as refundable
In general
In the case of any taxable year beginning in 2016, 2017, 2018, or 2019, the limitation under subsection (c) shall be increased by the AMT refundable credit amount for such year.
AMT refundable credit amount
For purposes of paragraph (1), the AMT refundable credit amount is an amount equal to 50 percent (100 percent in the case of a taxable year beginning in 2019) of the excess (if any) of—
the minimum tax credit determined under subsection (b) for the taxable year, over
the minimum tax credit allowed under subsection (a) for such year (before the application of this subsection for such year).
Credit refundable
For purposes of this title (other than this section), the credit allowed by reason of this subsection shall be treated as a credit allowed under subpart C (and not this subpart).
Short taxable years
In the case of any taxable year of less than 365 days, the AMT refundable credit amount determined under paragraph (2) with respect to such taxable year shall be the amount which bears the same ratio to such amount determined without regard to this paragraph as the number of days in such taxable year bears to 365.
.
Treatment of references
Section 53(d) is amended by adding at the end the following new paragraph:
AMT term references
Any references in this subsection to section 55, 56, or 57 shall be treated as a reference to such section as in effect before its repeal by the Tax Reform Act of 2014.
.
Repeal of special rules with respect to treatment of incentive stock options
Section 53 is amended by striking subsection (f).
Conforming amendments related to AMT repeal
Section 2(e), as redesignated by section 1001, is amended by striking sections 1 and 55
and inserting section 1
.
Section 5(a) is amended by striking paragraph (4).
Section 11(d) is amended by striking the taxes imposed by subsection (a) and section 55
and inserting the tax imposed by subsection (a)
.
Section 13, as redesignated by title I, is amended by striking paragraph (7).
Section 26(a) is amended to read as follows:
Limitation based on amount of tax
The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer’s regular tax liability for the taxable year.
.
Section 26(b)(2) is amended by striking subparagraph (A).
Section 26 is amended by striking subsection (c).
Section 38(c) is amended—
by striking paragraphs (1) through (5),
by redesignating paragraph (6) as paragraph (2),
by inserting before paragraph (2) (as so redesignated) the following new paragraph:
In general
The credit allowed under subsection (a) for any taxable year shall not exceed the excess of—
the sum of—
so much of the regular tax liability as does not exceed $25,000, plus
75 percent of so much of the regular tax liability as exceeds $25,000, over
the sum of the credits allowable under subparts A and B of this part.
, and
by striking subparagraph (B) of paragraph (1)
each place it appears in paragraph (2) (as so redesignated) and inserting clauses (i) and (ii) of paragraph (1)(A)
.
Section 45D(g)(4)(B) is amended by striking or for purposes of section 55
.
Section 54(c)(1) is amended to read as follows:
regular tax liability (as defined in section 26(b)), over
.
Section 54A(c)(1)(A) is amended to read as follows:
regular tax liability (as defined in section 26(b)), over
.
Section 108(b)(2) is amended by striking subparagraph (C) and by redesignating subparagraphs (D) through (G) as subparagraphs (C) through (F), respectively.
Section 108(b)(3)(B) is amended—
by striking subparagraphs (B), (C), and (G)
and inserting subparagraphs (B) and (F) of paragraph (2)
, and
by striking subparagraph (F)
and inserting paragraph (2)(E)
.
Section 108(b)(4)(B) is amended by striking subparagraph (A) or (D)
in the heading and text thereof and inserting subparagraph (A) or (C)
.
Section 108(b)(4)(C) is amended by striking subparagraphs (B) and (G)
in the heading and text thereof and inserting subparagraphs (B) and (F)
.
Section 168(k)(2) is amended by striking subparagraph (G).
Section 173 is amended by striking subsection (b).
Section 174(f) is amended to read as follows:
Cross reference
For adjustments to basis of property for amounts allowed as deductions as deferred expenses under subsection (b), see section 1016(a)(14).
.
Section 263A(c) is amended by striking paragraph (6).
Section 382(l) is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7).
Section 443 (relating to returns for a period of less than 12 months) adjustment in computing minimum tax and tax preferences) is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).
Section 641(c) is amended—
in paragraph (2) by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, and
in paragraph (3), by striking paragraph (2)(C)
and inserting paragraph (2)(B)
.
Subsections (b) and (c) of section 666 are each amended by striking (other than the tax imposed by section 55)
.
Section 815(c)(2) is amended by striking the last sentence.
Section 847 is amended—
by striking the last sentence of paragraph (9), and
in paragraph (10), by inserting and
at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph
(C) as subparagraph (B).
Section 848 is amended by striking subsection (i) and by redesignating subsection (j) as subsection (i).
Section 860E(a) is amended by striking paragraph (4).
Section 871(b)(1) is amended by striking or 55
.
Section 882(a)(1) is amended by striking 55,
.
Section 897(a) is amended to read as follows:
Treatment as effectively connected with united states trade or business
For purposes of this title, gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account—
in the case of a nonresident alien individual, under section 871(b)(1), or
in the case of a foreign corporation, under section 882(a)(1), as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business.
.
Section 904(k) is amended to read as follows:
Cross reference
For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b).
.
Section 911(f) is amended to read as follows:
Determination of tax liability
If, for any taxable year, any amount is excluded from gross income of a taxpayer under subsection (a), then, notwithstanding section 1, if such taxpayer has taxable income for such taxable year, the tax imposed by section 1 for such taxable year shall be equal to the excess (if any) of—
the tax which would be imposed by section 1 for such taxable year if the taxpayer’s taxable income were increased by the amount excluded under subsection (a) for such taxable year, over
the tax which would be imposed by section 1 for such taxable year if the taxpayer’s taxable income were equal to the amount excluded under subsection (a) for such taxable year.
.
Section 962(a)(1) is amended—
by striking sections 1 and 55
and inserting section 1
, and
by striking sections 11 and 55
and inserting section 11
.
Section 1016(a) is amended by striking paragraph (20).
Section 1202(a)(4) is amended by inserting and
at the end of subparagraph (A), by striking , and
and inserting a period at the end of subparagraph (B), and by striking subparagraph (C).
Section 1374(b)(3)(B) is amended by striking the last sentence thereof.
Section 1397E(c)(1) is amended to read as follows:
regular tax liability (as defined in section 26(b), over
.
Section 1561(a) is amended—
by inserting and
at the end of paragraph (1), by striking the comma at the end of paragraph (2) and inserting a
period, and by striking paragraphs (3) and (4), and
by striking the last sentence.
Section 6015(d)(2)(B) is amended by striking or 55
.
Section 6425(c)(1)(A) is amended—
by adding plus
at the end of clause (i), and
by striking clause (ii) and by redesignating clause (iii) as clause (ii).
Section 6654(d)(2) is amended—
in clause (i) of subparagraph (B), by striking , alternative minimum taxable income,
, and
in clause (i) of subparagraph (C), by striking , alternative minimum taxable income,
.
Section 6655(e)(2)(B) is amended—
by striking The taxable income, alternative minimum taxable income, and modified alternative taxable income
shall
and inserting Taxable income shall
, and
by striking clause (iii).
Section 6655(g)(1)(A) is amended—
by striking clause (ii), and
by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively.
Section 6662(e)(3)(C) is amended by striking the regular tax (as defined in section 55(c))
and inserting the regular tax liability (as defined in section 26(b))
.
Effective dates
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Prior elections with respect to certain tax preferences
So much of the amendment made by subsection (a) as relates to the repeal of section 59(e) of the Internal Revenue Code of 1986 shall apply to amounts paid or incurred after December 31, 2014.
Treatment of net operating loss carrybacks
For purposes of section 56(d) of the Internal Revenue Code of 1986 (as in effect before its repeal), the amount of any net operating loss which may be carried back from a taxable year beginning after December 31, 2014, to taxable years beginning before January 1, 2015, shall be determined without regard to any adjustments under section 56(d)(2)(A) of such Code (as so in effect).
Business Tax Reform
Tax Rates
25-percent corporate tax rate
In general
Subsection (b) of section 11 is amended to read as follows:
Amount of tax
In general
Except as provided in paragraph (2), the amount of the tax imposed by subsection (a) shall be 25 percent of taxable income.
Phase-in for taxable years beginning before 2019
In general
In the case of taxable years beginning before 2019, the amount of tax imposed by subsection (a) shall be the sum of—
25 percent of so much of the taxable income as does not exceed $75,000, and
the applicable percentage of so much of taxable income as exceeds $75,000.
Applicable percentage
For purposes of this paragraph, the applicable percentage shall be determined in accordance with the following table:
| In the case of taxable years beginning during calendar year | The applicable percentage is: |
| 2015 | 33% |
| 2016 | 31% |
| 2017 | 29% |
| 2018 | 27% |
.
Conforming amendments
Paragraphs (2)(B) and (6)(A)(ii) of section 860E(e) are each amended by striking section 11(b)(1)
and inserting section 11(b)
.
Part I of subchapter P of chapter 1 is amended by striking section 1201 (and by striking the item relating to such section in the table of sections for such part).
Section 13, as amended and redesignated by the preceding provisions of this Act, is amended by striking paragraphs (4) and (6), and by redesignating paragraph (5) as paragraph (4).
Section 527(b) is amended—
by striking paragraph (2), and
by striking all that precedes is hereby imposed
and inserting:
Tax imposed
A tax
.
Sections 594(a) is amended by striking taxes imposed by section 11 or 1201(a)
and inserting tax imposed by section 11
.
Section 691(c)(4) is amended by striking 1201,
.
Section 801(a) is amended—
by striking paragraph (2), and
by striking all that precedes is hereby imposed
and inserting:
Tax imposed
A tax
.
Section 831(d) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.
Sections 832(c)(5) and 834(b)(1)(D) are each amended by striking sec. 1201 and following,
.
Section 852(b)(3)(A) is amended by striking section 1201(a)
and inserting section 11(b)
.
Section 857(b)(3) is amended—
by striking subparagraph (A) and redesignating subparagraphs (B) through (F) as subparagraphs (A) through (E), respectively,
in subparagraph (C), as so redesignated—
by striking subparagraph (A)(ii)
in clause (i) thereof and inserting paragraph (1)
,
by striking the tax imposed by subparagraph (A)(ii)
in clauses (ii) and (iv) thereof and inserting the tax imposed by paragraph (1) on undistributed capital gain
,
in subparagraph (E), as so redesignated, by striking subparagraph (B) or (D)
and inserting subparagraph (A) or (C)
, and
by adding at the end the following new subparagraph:
Undistributed capital gain
For purposes of this paragraph, the term undistributed capital gain
means the excess of the net capital gain over the deduction for dividends paid (as defined in
section 561) determined with reference to capital gain dividends only.
.
Section 882(a)(1) is amended by striking , or 1201(a)
.
Section 1374(b) is amended by striking paragraph (4).
Section 1381(b) is amended by striking taxes imposed by section 11 or 1201
and inserting tax imposed by section 11
.
Sections 6425(c)(1)(A)(i) and 6655(g)(1)(A)(i) are each amended by striking or 1201(a),
.
Section 1445(e)(1) is amended—
by striking 35 percent
and inserting the highest rate of tax in effect for the taxable year under section 11(b)
, and
by striking of the gain
and inserting multiplied by the gain
.
Section 1445(e)(2) is amended by striking 35 percent of the amount
and inserting the highest rate of tax in effect for the taxable year under section 11(b) multiplied by the amount
.
Section 1445(e)(6) is amended—
by striking 35 percent
and inserting the highest rate of tax in effect for the taxable year under section 11(b)
, and
by striking of the amount
and inserting multiplied by the amount
.
Section 1446(b)(2)(B) is amended by striking section 11(b)(1)
and inserting section 11(b)
.
Section 852(b)(1) is amended by striking the last sentence.
Part I of subchapter B of chapter 5 is amended by striking section 1551 (and by striking the item relating to such section in the table of sections for such part).
Section 535(c)(5) is amended to read as follows:
Cross reference
For limitation on credit provided in paragraph (2) or (3) in the case of certain controlled corporations, see section 1561.
.
Section 1561, as amended by the preceding provisions of this Act, is amended to read as follows:
Limitation on accumulated earnings credit in the case of certain controlled corporations
In general
The component members of a controlled group of corporations on a December 31 shall, for their taxable years which include such December 31, be limited for purposes of this subtitle to one $250,000 ($150,000 if any component member is a corporation described in section 535(c)(2)(B)) amount for purposes of computing the accumulated earnings credit under section 535(c)(2) and (3). Such amount shall be divided equally among the component members of such group on such December 31 unless the Secretary prescribes regulations permitting an unequal allocation of such amount.
Certain short taxable years
If a corporation has a short taxable year which does not include a December 31 and is a component member of a controlled group of corporations with respect to such taxable year, then for purposes of this subtitle, the amount to be used in computing the accumulated earnings credit under section 535(c)(2) and (3) of such corporation for such taxable year shall be the amount specified in subsection (a) with respect to such group, divided by the number of corporations which are component members of such group on the last day of such taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were substituted for December 31.
.
The table of sections for part II of subchapter B of chapter 5 is amended by striking the item relating to section 1561 and inserting the following new item:
Sec. 1561. Limitation on accumulated earnings credit in the case of certain controlled corporations.
.
Section 7874(e)(1)(B) is amended by striking section 11(b)(1)
and inserting section 11(b)
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Withholding
The amendments made by subsection (b)(3) shall apply to distributions made after December 31, 2014.
Certain transfers
The amendments made by subsection (b)(5) shall apply to transfers made after December 31, 2018.
Certain other amendments related to single rate of tax
The amendments made by paragraphs (4) and (6) of subsection (b) shall apply to taxable years beginning after December 31, 2018.
Reform of business-Related exclusions and deductions
Revision of treatment of contributions to capital
Inclusion of contributions to capital
Part II of subchapter B of chapter 1 is amended by inserting after section 75 the following new section:
Contributions to capital
In general
Gross income includes—
any contribution to the capital of any entity, and
any premium received by such entity with respect to any option on any interest in such entity.
Treatment of contributions in exchange for stock, etc
In general
In the case of any contribution of money or other property to a corporation in exchange for stock of such corporation—
such contribution shall not be treated for purposes of subsection (a) as a contribution to the capital of such corporation (and shall not be includible in the gross income of such corporation), and
no gain or loss shall be recognized to such corporation upon the issuance of such stock.
Treatment limited to value of stock
For purposes of this subsection, a contribution of money or other property to a corporation shall be treated as being in exchange for stock of such corporation only to the extent that the fair market value of such money and other property does not exceed the fair market value of such stock.
Application to entities other than corporations
In the case of any entity other than a corporation, rules similar to the rules of paragraphs (1) and (2) shall apply in the case of any contribution of money or other property to such entity in exchange for any interest in such entity.
Treasury stock treated as stock
Any reference in this section to stock shall be treated as including a reference to treasury stock.
.
Basis of corporation in contributed property
Contributions to capital
Subsection (c) of section 362 is amended to read as follows:
Contributions to capital
If property other than money is transferred to a corporation as a contribution to the capital of such corporation (within the meaning of section 76) then the basis of such property shall be the greater of—
the basis determined in the hands of the transferor, increased by the amount of gain recognized to the transferor on such transfer, or
the amount included in gross income by such corporation under section 76 with respect to such contribution.
.
Contributions in exchange for stock
Paragraph (2) of section 362(a) is amended by striking contribution to capital
and inserting contribution in exchange for stock of such corporation (determined under rules similar to the rules
of paragraphs (2) and (3) of section 76(b))
.
Conforming amendments
Section 108(e) is amended by striking paragraph (6).
Part III of subchapter B of chapter 1 is amended by striking section 118 (and by striking the item relating to such section in the table of sections for such part).
The table of sections for part II of subchapter B of chapter 1 is amended by inserting after the item relating to section 75 the following new item:
.
Effective date
The amendments made by this section shall apply to contributions made, and transactions entered into, after the date of the enactment of this Act.
Repeal of deduction for local lobbying expenses
In general
Section 162(e) is amended by striking paragraphs (2) and (7) and by redesignating paragraphs (3), (4), (5), (6), and (8) as paragraphs (2), (3), (4), (5), and (6), respectively.
Conforming amendment
Section 6033(e)(1)(B)(ii) is amended by striking section 162(e)(5)(B)(ii)
and inserting section 162(e)(4)(B)(ii)
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Expenditures for repairs in connection with casualty losses
In general
Section 165, as amended by the preceding provisions of this Act, is amended by inserting after subsection (g) the following new subsection:
Special rule for casualty losses
Expenditures for repairs in connection with casualty losses
If a deduction is allowable under this section for any casualty loss with respect to any property, any expenditure made for any repair of damage to such property in connection with such casualty loss shall be treated as a permanent improvement made to increase the value of such property for purposes of section 263(a)(1).
Election to expense repair in lieu of deducting casualty loss
If the taxpayer elects the application of this paragraph with respect to any property with respect to which there is a casualty loss, no deduction shall be allowable under this section for the casualty loss with respect to such property and paragraph (1) shall not apply to expenditures made for repair of damage to such property in connection with such casualty loss. Any election under this paragraph shall be made not later than the due date for the return of tax (including extensions) for the taxable year in which the casualty loss occurs and, once made, may be revoked only with the consent of the Secretary.
.
Effective date
The amendment made by this section shall apply to losses sustained after December 31, 2014.
Reform of accelerated cost recovery system
Applicable depreciation method
Subsection (b) of section 168 is amended to read as follows:
Applicable depreciation method
For purposes of this section—
In general
The applicable depreciation method is the straight line method.
Salvage value treated as zero
Salvage value shall be treated as zero.
.
Applicable recovery period
Subsection (c) of section 168 is amended to read as follows:
Applicable recovery period
For purposes of this section—
In general
Except as provided in paragraph (2), the applicable recovery period for any property is the class life of such property.
Special rules for determining class life of certain property
Property with no class life
In the case of personal property with no class life, the recovery period is 12 years.
Certain horses
In the case of any race horse, and any horse other than a race horse which is more than 12 years old at the time it is placed in service, 3 years.
Semi-Conductor manufacturing equipment
In the case of any semi-conductor manufacturing equipment, the recovery period is 5 years.
Qualified technological equipment
In the case of any qualified technological equipment, the recovery period is 5 years.
Automobile or light general purpose truck
In the case of any automobile or light general purpose truck, the recovery period is 5 years.
Qualified rent-to-own property
In the case of any qualified rent-to-own property, the recovery period is 9 years.
Certain telephone switching equipment
In the case of any computer-based telephone central office switching equipment, the recovery period is 9.5 years.
Railroad track
In the case of any railroad track, the recovery period is 10 years.
Smart electric distribution property
In the case of qualified smart electric meters and qualified smart electric grid systems, the recovery period is 10 years.
Airplanes
In the case of any fixed-wing aircraft (including any fixed-wing airframe or engine), the recovery period is 12 years.
Natural gas gathering line
In the case of any natural gas gathering line, the recovery period is 14 years.
Tree or vine bearing fruit or nuts
In the case of any tree or vine bearing fruit or nuts, the recovery period is 20 years.
Telephone distribution plant
In the case of any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications by cable, the recovery period is 24 years.
Real property
In the case of nonresidential real property, residential rental property, and any section 1245 property (as defined in section 1245(a)(3)) which is real property with no class life, the recovery period is 40 years.
Water treatment and utility property
In the case of any municipal wastewater treatment plant or water utility property, the recovery period is 50 years.
Clearing and grading improvements; tunnel bore
In the case of any clearing and grading land improvements or tunnel bore, the recovery period is 50 years.
Tax-exempt use property subject to lease
In the case of any tax-exempt use property subject to a lease, the recovery period used for purposes of paragraph (2) shall (notwithstanding any other subparagraph of this paragraph) in no event be less than 125 percent of the lease term.
.
Neutral cost recovery system
Section 168, as amended by subsection (f), is amended by adding at the end the following new subsection:
Neutral cost recovery system
In general
In the case of any property (to which this section applies) placed in service by the taxpayer in a taxable year for which such taxpayer has elected the application of this subsection, the deduction determined under subsection (a) with respect to such property for any taxable year shall be increased by an amount equal to the product of—
the modified adjusted basis of such property determined as of the close of such taxable year (determined without regard to this subsection but after taking all other adjustments for such taxable year into account), multiplied by
the inflation adjustment percentage for the calendar year in which such taxable year begins.
Modified adjusted basis
For purposes of this subsection, the term modified adjusted basis
means, with respect to any property, the adjusted basis which would be determined with respect to
such property if this subsection never applied to such property.
Inflation adjustment percentage
For purposes of this subsection, the term inflation adjustment percentage
means, with respect to any calendar year, the cost-of-living adjustment which would be determined
under section 1(c)(2)(A) for such calendar year if clause (ii) thereof
were applied by substituting the C-CPI-U for the calendar year preceding the calendar year referred to in clause (i)
for the normalized CPI for calendar year 2012
.
Increase for first taxable year reduced to take into account placed in service convention
In the case of the taxable year in which any property is placed in service, the increase determined under paragraph (1) with respect to such property shall be equal to—
in the case of any property to which subsection (d)(3) applies, 1/8 of the amount of such increase determined without regard to this paragraph, and
in the case of any other property, 1/2 of the amount of such increase determined without regard to this paragraph.
Overall depreciation allowance not to exceed basis
The deduction determined under subsection (a) (after any increase determined under this subsection) with respect to any property for any taxable year shall not exceed the adjusted basis of such property determined as of the beginning of such taxable year.
Certain property excluded
Paragraph (1) shall not apply to any specified property used outside the United States or to any property described in subsection (d)(2).
Election
In general
An election under paragraph (1) for any taxable year shall be made not later than the due date (including extensions) for the return of tax for such taxable year. Such election, once made, shall be irrevocable. Such election shall apply with respect to all property placed in service during the taxable for which made (and shall apply for subsequent taxable years but only with respect to such property).
Taxpayer engaged in more than one business
A taxpayer engaged in more than one trade or business may make separate elections under paragraph (1) with respect to each such trade or business.
.
Application of mid-Month convention
In general
Subparagraphs (A), (B) and (C) of section 168(d)(2) are amended to read as follows:
real property,
water treatment and utility property, and
any clearing and grading land improvements or tunnel bore,
.
Conforming amendment
Clause (i) of section 168(d)(3)(B) is amended to read as follows:
any property described in paragraph (2),
.
Definitions
Subsection (e) of section 168 is amended to read as follows:
Definitions
For purposes of this section—
Class life
In general
Except as provided in this section, the term class life
means the class life (if any) which would be applicable with respect to any property as of January
1, 1986, under subsection (m) of section 167 (determined without regard to
paragraph (4) and as if the taxpayer had made an election under such
subsection). The reference in this paragraph to subsection (m) of section
167 shall be treated as a reference to such subsection as in effect on the
day before the date of the enactment of the Revenue Reconciliation Act of
1990.
Secretarial authority to modify Rev. Proc. 87–56
In general
The Secretary, through the Office of Tax Analysis and in consultation with the Bureau of Economic Analysis of the Department of Commerce, shall—
determine, and develop a schedule of, the economic depreciation of the major categories of depreciable property (other than property with a specified class life under subsection (c)(2)) to approximate constant straight-line depreciation, and
develop recommendations regarding the proper economic depreciation for property with a specified class life under subsection (c)(2).
Report
Not later than December 31, 2017, the Secretary shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate—
the schedule developed under clause (i)(I), and
the recommendations developed under clause (i)(II).
Residential rental property
In general
The term residential rental property
means any building or structure if 80 percent or more of the gross rental income from such
building or structure for the taxable year is rental income from dwelling
units.
Dwelling unit
For purposes of subparagraph (A)—
the term dwelling unit
means a house or apartment used to provide living accommodations in a building or structure, but
does not include a unit in a hotel, motel, or other establishment more
than one-half of the units in which are used on a transient basis, and
if any portion of the building or structure is occupied by the taxpayer, the gross rental income from such building or structure shall include the rental value of the portion so occupied.
Nonresidential real property
The term nonresidential real property
means section 1250 property which is not—
residential rental property, or
property with a class life of less than 27.5 years.
Water utility property
The term water utility property
means property—
which is an integral part of the gathering, treatment, or commercial distribution of water, and
any municipal sewer.
Qualified rent-to-own property
In general
The term qualified rent-to-own property
means any property held by a rent-to-own dealer for purposes of being subject to a rent-to-own
contract.
Rent-to-own dealer
The term rent-to-own dealer
means a person that, in the ordinary course of business, regularly enters into rent-to-own
contracts with customers for the use of consumer property, if a
substantial portion of those contracts terminate and the property is
returned to such person before the receipt of all payments required to
transfer ownership of the property from such person to the customer.
Consumer property
The term consumer property
means tangible personal property of a type generally used within the home for personal use.
Rent-to-own contract
The term rent-to-own contract
means any lease for the use of consumer property between a rent-to-own dealer and a customer who
is an individual which—
is titled Rent-to-Own Agreement
or Lease Agreement with Ownership Option
, or uses other similar language,
provides for level (or decreasing where no payment is less than 40 percent of the largest payment), regular periodic payments (for a payment period which is a week or month),
provides that legal title to such property remains with the rent-to-own dealer until the customer makes all the payments described in clause (ii) or early purchase payments required under the contract to acquire legal title to the item of property,
provides a beginning date and a maximum period of time for which the contract may be in effect that does not exceed 156 weeks or 36 months from such beginning date (including renewals or options to extend),
provides for payments within the 156-week or 36-month period that, in the aggregate, generally exceed the normal retail price of the consumer property plus interest,
provides for payments under the contract that, in the aggregate, do not exceed $10,000 per item of consumer property,
provides that the customer does not have any legal obligation to make all the payments referred to in clause (ii) set forth under the contract, and that at the end of each payment period the customer may either continue to use the consumer property by making the payment for the next payment period or return such property to the rent-to-own dealer in good working order, in which case the customer does not incur any further obligations under the contract and is not entitled to a return of any payments previously made under the contract, and
provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, encumber, or otherwise dispose of the consumer property until all the payments stated in the contract have been made.
Qualified technological equipment
In general
The term qualified technological equipment
means—
any computer or peripheral equipment,
any high technology telephone station equipment installed on the customer’s premises, and
any high technology medical equipment.
Computer or peripheral equipment defined
For purposes of this paragraph—
In general
The term computer or peripheral equipment
means—
any computer, and
any related peripheral equipment.
Computer
The term computer
means a programmable electronically activated device which—
is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and
consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.
High technology medical equipment
For purposes of this paragraph, the term high technology medical equipment
means any electronic, electromechanical, or computer-based high technology equipment used in the
screening, monitoring, observation, diagnosis, or treatment of patients in
a laboratory, medical, or hospital environment.
Natural gas gathering line
The term natural gas gathering line
means—
the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and
the pipe, equipment, and appurtenances used to deliver natural gas from the wellhead or a commonpoint to the point at which such gas first reaches—
a gas processing plant,
an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the Federal Energy Regulatory Commission,
an interconnection with an intrastate transmission pipeline, or
a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer.
Qualified smart electric meters
In general
The term qualified smart electric meter
means any smart electric meter which—
is placed in service by a taxpayer that is a supplier of electric energy or a provider of electric energy services, and
does not have a class life (determined without regard to subsection (c)) of less than 10 years.
Smart electric meter
For purposes of subparagraph (A), the term smart electric meter
means any time-based meter and related communication equipment which is capable of being used by
the taxpayer as part of a system that—
measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day,
provides for the exchange of information between supplier or provider and the customer’s electric meter in support of time-based rates or other forms of demand response,
provides data to such supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and
provides net metering.
Qualified smart electric grid systems
In general
The term qualified smart electric grid system
means any smart grid property which—
is used as part of a system for electric distribution grid communications, monitoring, and management placed in service by a taxpayer who is a supplier of electric energy or a provider of electric energy services, and
does not have a class life (determined without regard to subsection (c)) of less than 10 years.
Smart grid property
For the purposes of subparagraph (A), the term smart grid property
means electronics and related equipment that is capable of—
sensing, collecting, and monitoring data of or from all portions of a utility’s electric distribution grid,
providing real-time, two-way communications to monitor or manage such grid, and
providing real time analysis of and event prediction based upon collected data that can be used to improve electric distribution system reliability, quality, and performance.
Specified property used outside the United States
In general
The term specified property used outside the United States
means—
any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States or is operated under contract with the United States,
rolling stock which is used within and without the United States and which is—
of a rail carrier subject to part A of subtitle IV of title 49, or
of a United States person (other than a corporation described in subclause (I)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period,
any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States,
any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States,
any container of a United States person which is used in the transportation of property to and from the United States,
any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented (43 U.S.C. 1331)),
any property which is owned by a domestic corporation or by a United States citizen (other than a citizen entitled to the benefits of section 931 or 933) and which is used predominantly in a possession of the United States by such a corporation, or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States,
any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962, 47 U.S.C. 702(3)), or any interest therein, of a United States person,
any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(e)(10)(C) applies (or of a wholly owned domestic subsidiary of such a corporation), if such cable is part of a submarine cable system which constitutes part of a communication link exclusively between the United States and one or more foreign countries,
any property (other than a vessel or an aircraft) of a United States person which is used in international or territorial waters within the northern portion of the Western Hemisphere for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or deposits under such waters,
any property described in section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States, and
any satellite (not described in clause (viii)) or other spacecraft (or any interest therein) held by a United States person if such satellite or other spacecraft was launched from within the United States.
Northern portion of the Western Hemisphere
For purposes of subparagraph (A)(x), the term northern portion of the Western Hemisphere
means the area lying west of the 30th meridian west of Greenwich, east of the international
dateline, and north of the Equator, but not including any foreign country
which is a country of South America.
.
Conforming amendments
Amendments to section 168
Section 168 is amended by striking subsections (g), (j), (k), (l), (m), and (n), and by redesignating subsections (h) and (i) as subsections (g) and (h), respectively.
Section 168(h), as redesignated by subparagraph (A), is amended—
by striking paragraphs (1), (2), (11), (12), (13), (14), (15), (16), (17), (18), and (19) and by redesignating paragraphs (3) through (10) as paragraphs (1) through (8), respectively, and
by striking Definitions and
in the heading thereof.
Section 168(h)(8), as redesignated by subparagraphs (A) and (B), is moved to the end of section 168(e) (as amended by subsection (e)) and redesignated as paragraph (11).
Other conforming amendments
Section 50(b)(4) is amended—
in subparagraph (A)(ii)—
by striking section 168(h)(2)(C)
and inserting section 168(g)(2)(C)
,
by striking section 168(h)(2)(A)(iii)
and inserting section 168(g)(2)(A)(iii)
, and
by striking section 168(h)(2)(B)
and inserting section 168(g)(2)(B)
,
in subparagraph (B), by striking section 168(i)(3)
and inserting section 168(h)(1)
, and
in subparagraphs (D) and (E), by striking section 168(h)
each place it appears and inserting section 168(g)
.
Section 50(b)(1)(B) is amended by striking any property described in section 168(g)(4)
and inserting any specified property used outside the United States (as defined in section 168(e)(10)
.
Section 865(c)(3)(B) is amended by striking property of a kind described in section 168(g)(4)
and inserting specified property used outside the United States (as defined in section 168(e)(10)
.
Section 179(e)(2) is amended by inserting as in effect before its repeal by the Tax Reform Act of 2014
after section 168(n)(2)
.
Section 179(f), as amended by section 3111, is amended—
by striking paragraph (2), and
by inserting after paragraph (1) the following new paragraphs:
Qualified real property
For purposes of this subsection, the term qualified real property
means qualified leasehold improvement property, qualified restaurant property, and qualified
retail improvement property.
Qualified leasehold improvement property
For purposes of this subsection—
In general
The term qualified leasehold improvement property
means any improvement to an interior portion of a building which is nonresidential real property
if—
such improvement is made under or pursuant to a lease (as defined in section 168(g)(7))—
by the lessee (or any sublessee) of such portion, or
by the lessor of such portion,
such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and
such improvement is placed in service more than 3 years after the date the building was first placed in service.
Certain improvements not included
Such term shall not include any improvement for which the expenditure is attributable to—
the enlargement of the building,
any elevator or escalator,
any structural component benefitting a common area, and
the internal structural framework of the building.
Definitions and special rules
For purposes of this paragraph—
Commitment to lease treated as lease
A commitment to enter into a lease shall be treated as a lease, and the parties to such commitment shall be treated as lessor and lessee, respectively.
Related persons
A lease between related persons shall not be considered a lease. For purposes of the preceding
sentence, the term related persons
means—
members of an affiliated group (as defined in section 1504), and
persons having a relationship described in subsection (b) of section 267; except that, for purposes
of this subclause, the phrase 80 percent or more
shall be substituted for the phrase more than 50 percent
each place it appears in such subsection.
Improvements made by lessor
In the case of an improvement made by the person who was the lessor of such improvement when such improvement was placed in service, such improvement shall be qualified leasehold improvement property (if at all) only so long as such improvement is held by such person.
Exception for changes in form of business
Property shall not cease to be qualified leasehold improvement property by reason of—
death,
a transaction to which section 381(a) applies,
a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in such trade or business,
the acquisition of such property in an exchange described in section 1031 (as in effect before its repeal by the Tax Reform Act of 2014), 1033, or 1038 to the extent that the basis of such property includes an amount representing the adjusted basis of other property owned by the taxpayer or a related person, or
the acquisition of such property by the taxpayer in a transaction described in section 332, 351, 361, 721, or 731 (or the acquisition of such property by the taxpayer from the transferee or acquiring corporation in a transaction described in such section), to the extent that the basis of the property in the hands of the taxpayer is determined by reference to its basis in the hands of the transferor or distributor.
Qualified restaurant property
For purposes of this subsection, the term qualified restaurant property
means any section 1250 property which is—
a building, or
an improvement to a building,
Qualified retail improvement property
In general
The term qualified retail improvement property
means any improvement to an interior portion of a building which is nonresidential real property
if—
such portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and
such improvement is placed in service more than 3 years after the date the building was first placed in service.
Improvements made by owner
In the case of an improvement made by the owner of such improvement, such improvement shall be qualified retail improvement property (if at all) only so long as such improvement is held by such owner. Rules similar to the rules under paragraph (3)(E) shall apply for purposes of the preceding sentence.
Certain improvements not included
Such term shall not include any improvement for which the expenditure is attributable to—
the enlargement of the building,
any elevator or escalator,
any structural component benefitting a common area, or
the internal structural framework of the building.
.
Section 280F(b) is amended—
by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively, and
by striking , and the depreciation deduction
and all that follows through alternative depreciation system)
in paragraph (1) (as redesignated by clause (i)).
Section 280F(d)(4)(A)(iv) is amended by striking section 168(i)(2)(B)
and inserting section 168(e)(6)(B)
.
Section 312(k)(3) is amended by striking Exception for tangible property
and all that follows through For purposes of computing the earnings and profits
and inserting Exception for certain tangible property.—For purposes of computing the earnings and profits
.
Section 460(c) is amended by striking paragraph (6).
Section 460(d)(2) is amended by striking section 168(h)(2)(D)
and inserting section 168(g)(2)(D)
.
Section 460(e)(6) is amended by striking section 168(e)(2)(A)(ii)
each place it appears and inserting section 168(e)(2)(B)
.
Subparagraphs (A) and (C) of section 470(c)(2) are each amended by striking section 168(h)
and inserting section 168(g).
Section 470(c)(2)(B) is amended by striking section 168(h)(6)
and inserting section 168(g)(6)
.
Section 512(b)(17)(B)(ii)(I) is amended by striking section 168(h)(4)(B)
and inserting section 168(g)(4)(B)
.
Section 514(c)(9)(B)(vi)(II) is amended by striking section 168(h)(6)
and inserting section 168(g)(6)
.
Section 527(i)(3)(D) is amended by striking section 168(h)(4)
and inserting section 168(g)(4)
.
The second sentence of section 860E(e)(5) is amended by striking section 168(h)(2)(D)
and inserting section 168(g)(2)(D)
.
Section 1245(a) is amended—
in paragraph (3)(D), by striking section 168(i)(13)
and inserting paragraph (4)
, and
by adding at the end the following new paragraph:
Single purpose agricultural or horticultural structure
For purposes of this subsection—
In general
The term single purpose agricultural or horticultural structure
means—
a single purpose livestock structure, and
a single purpose horticultural structure.
Definitions
For purposes of this paragraph—
Single purpose livestock structure
The term single purpose livestock structure
means any enclosure or structure specifically designed, constructed, and used—
for housing, raising, and feeding a particular type of livestock and their produce, and
for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I).
Single purpose horticultural structure
The term single purpose horticultural structure
means—
a greenhouse specifically designed, constructed, and used for the commercial production of plants, and
a structure specifically designed, constructed, and used for the commercial production of mushrooms.
Structures which include work space
An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for—
the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce,
the maintenance of the enclosure or structure, and
the maintenance or replacement of the equipment or stock enclosed or housed therein.
Livestock
The term “livestock” includes poultry.
.
Section 1245(a)(3)(F) is amended to read as follows:
any clearing and grading land improvements or tunnel bore (within the meaning of section 168(c)(2)(P)).
.
Section 6050V(d)(3) is amended by striking section 168(h)(2)(A)(iv)
and inserting section 168(g)(2)(A)(iv)
.
Section 6211(b)(4)(A) is amended by striking 168(k)(4),
.
The second sentence of section 7701(e)(4)(A) is amended by striking section 168(h)
and inserting section 168(g)
.
Section 7871(f)(3) is amended—
by striking (as defined in section 168(j)(6))
in subparagraph (B)(ii), and
by adding at the end the following new subparagraph:
Indian reservation
For purposes of this paragraph, the term Indian reservation
means a reservation, as defined in—
section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 1452(d)), or
section 4(10) of the Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10)).
former Indian reservations in Oklahomaas including only lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the Secretary of the Interior) and are recognized by such Secretary as eligible for trust land status under 25 CFR Part 151 (as in effect on August 5, 1997).
.
Normalization requirements
In general
A normalization method of accounting shall not be treated as being used with respect to any public utility property for purposes of section 167 or 168 of the Internal Revenue Code of 1986 if the taxpayer, in computing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, reduces the excess tax reserve more rapidly or to a greater extent than such reserve would be reduced under the average rate assumption method.
Alternative Method for Certain Taxpayers
If, as of the first day of the taxable year that includes the date of enactment of this Act—
the taxpayer was required by a regulatory agency to compute depreciation for public utility property on the basis of an average life or composite rate method, and
the taxpayer’s books and underlying records did not contain the vintage account data necessary to apply the average rate assumption method,
Definitions
For purposes of this subsection—
Excess tax reserve
The term excess tax reserve
means the excess of—
the reserve for deferred taxes (as described in section 168(i)(9)(A)(ii) of the Internal Revenue Code of 1986 as in effect on the day before the date of the enactment of this Act), over
the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act were in effect for all prior periods.
Average rate assumption method
The average rate assumption method is the method under which the excess in the reserve for deferred taxes is reduced over the remaining lives of the property as used in its regulated books of account which gave rise to the reserve for deferred taxes. Under such method, if timing differences for the property reverse, the amount of the adjustment to the reserve for the deferred taxes is calculated by multiplying—
the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by
the amount of the timing differences which reverse during such period.
Alternative method
The alternative method
is the method in which the taxpayer—
computes the excess tax reserve on all public utility property included in the plant account on the basis of the weighted average life or composite rate used to compute depreciation for regulatory purposes, and
reduces the excess tax reserve ratably over the remaining regulatory life of the property.
Tax increased for normalization violation
If, for any taxable year ending after the date of the enactment of this Act, the taxpayer does not use a normalization method of accounting, the taxpayer’s tax for the taxable year shall be increased by the amount by which it reduces its excess tax reserve more rapidly than permitted under a normalization method of accounting.
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2016.
Repeal of amortization of pollution control facilities
In general
Part VI of subchapter B of chapter 1 is amended by striking section 169 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 642(f) is amended by striking the deductions for amortization provided by sections 169 and 197
and inserting the deduction for amortization provided by section 197
.
Section 1250(b)(3) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after 169
.
Effective date
The amendments made by this section shall apply to facilities placed in service after December 31, 2014.
Net operating loss deduction
Limitation on net operating losses of corporations
In general
Section 172(a) is amended to read as follows:
Deduction allowed
In general
There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of—
the net operating loss carryovers to such year, plus
the net operating loss carrybacks to such year.
Limitation in case of corporations
In the case of a corporation—
the deduction allowed under paragraph (1) for the taxable year shall not exceed 90 percent of the taxable income for such year computed without regard to the deduction allowable under this section, and
appropriate adjustments in the application of subsection (b)(2) shall be made to take into account the limitation of subparagraph (A).
Net operating loss deduction defined
For purposes of this subtitle, the term net operating loss deduction
means the deduction allowed by this subsection.
.
Coordination with limitation on deduction for charitable contributions
In general
Section 170(b)(2)(C) is amended by redesignating clauses (iv) and (v) as clauses (v) and (vi), respectively, and by inserting after clause (iii) the following new clause:
the limitation imposed under section 172(a)(2)(A),
.
Life insurance companies
Section 805(b)(2)(A) is amended by redesignating clauses (ii) through (v) as clauses (iii) through (vi), respectively, and by inserting after clause (i) the following new clause:
the limitation imposed under section 172(a)(2)(A),
.
Repeal of special carryback provisions
In general
Section 172(b)(1) is amended by striking subparagraphs (C), (D), (E), (G), (H), (I), and (J) and by redesignating subparagraph (F) as subparagraph (C).
Conforming amendments
Section 172(b)(1)(C), as redesignated by paragraph (1), is amended—
in clause (ii), by striking the last sentence, and
in clause (iv), by striking in a manner similar to the manner in which a specified liability loss is treated
and inserting as a separate net operating loss for such taxable year to be taken into account after the remaining
portion of the net operating loss for such taxable year
.
Section 172 is amended by striking subsections (f), (g), (h), (i), and (j) and by redesignating subsection (k) as subsection (f).
Effective dates
Limitation on NOLs of corporations
The amendments made by subsection (a) shall apply to—
taxable years beginning after December 31, 2014, and
to carrybacks of losses arising in taxable years beginning after December 31, 2014, to taxable years beginning on or before such date.
Repeal of special carrybacks
In general
Except as otherwise provided in this paragraph, the amendments made by subsection (b) shall apply to losses arising in taxable years beginning after December 31, 2014.
Expired provisions
So much of the amendments made by subsection (b) as relate to striking subparagraphs (D), (H), (I), and (J) of section 172(b)(1) of the Internal Revenue Code of 1986 shall take effect on the date of the enactment of this Act.
Circulation expenditures
In general
Section 173 is amended to read as follows:
Circulation expenditures
In general
In the case of a taxpayer’s specified circulation expenditures—
except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
the taxpayer shall—
charge such expenditures to capital account, and
be allowed an amortization deduction of such expenditures ratably over the 36-month period beginning with the midpoint of the month in which such expenditures are paid or incurred.
Specified circulation expenditures
For purposes of this section, the term specified circulation expenditures
means all expenditures (other than expenditures for the purchase of land or depreciable property
or for the acquisition of circulation through the purchase of any part of
the business of another publisher of a newspaper, magazine, or other
periodical) to establish, maintain, or increase the circulation of a
newspaper, magazine, or other periodical.
Treatment upon abandonment
If any property with respect to which specified circulation expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.
Phase-In for taxable years beginning before 2019
In general
In the case of specified circulation expenditures paid or incurred in taxable years beginning before 2019—
notwithstanding subsection (a), the applicable percentage of such expenditures shall be allowed as a deduction for the taxable year in which paid or incurred, and
subsection (a) shall apply to the remainder of such expenditures.
Applicable percentage
For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table:
| In the case of taxable years beginning in: | The applicable percentage is: |
| 2016 | 75% |
| 2017 | 50% |
| 2018 | 25% |
Election out of phase-in
The taxpayer may elect, at such time and in such form and manner as the Secretary shall prescribe, for paragraph (1) not to apply for all taxable years beginning before 2019. Such election, once made, shall be irrevocable.
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2015.
Amortization of research and experimental expenditures
In general
Section 174 is amended to read as follows:
Amortization of research and experimental expenditures
In general
In the case of a taxpayer’s specified research or experimental expenditures for any taxable year—
except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
the taxpayer shall—
charge such expenditures to capital account, and
be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
Specified research or experimental expenditures
For purposes of this section, the term specified research or experimental expenditures
means, with respect to any taxable year, research or experimental expenditures which are paid or
incurred by the taxpayer during such taxable year in connection with the
taxpayer’s trade or business.
Special rules
Land and other property
This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
Exploration expenditures
This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
Software development
For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
Treatment upon disposition, retirement, or abandonment
If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.
Special rules for expenditures for domestic research during taxable years beginning before 2021
In general
In the case of domestic research or experimental expenditures paid or incurred during any taxable year beginning before 2021—
notwithstanding subsection (a), the applicable percentage of such expenditures shall be allowed as a deduction in the taxable year in which paid or incurred, and
subsection (a) shall apply to the remainder of such expenditures by substituting the applicable
period for the 5-year period
.
Domestic research or experimental expenditures
For purposes of this subsection, the term domestic research or experimental expenditures
means any expenditures—
to which subsection (a) applies (determined without regard to this subsection), and
which are not attributable to foreign research (within the meaning of section 41(d)(4)(F)).
Applicable percentage
For purposes of this subsection, the applicable percentage shall be determined in accordance with the following table:
| In the case of taxable years beginning in: | The applicable percentage is: |
| 2015 | 60% |
| 2016 or 2017 | 40% |
| 2018, 2019, or 2020 | 20% |
Applicable period
For purposes of this subsection, the applicable period shall be determined in accordance with the following table:
| In the case of taxable years beginning in: | The applicable period is the: |
| 2015 | 2-year period |
| 2016 or 2017 | 3-year period |
| 2018, 2019, or 2020 | 4-year period |
Election out of phase-in
The taxpayer may elect, at such time and in such form and manner as the Secretary shall prescribe, for paragraph (1) not to apply to all domestic research or experimental expenditures of the taxpayer for any taxable years beginning before 2021. Such election, once made, shall be irrevocable.
.
Clerical amendment
The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item:
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2014.
Repeal of deductions for soil and water conservation expenditures and endangered species recovery expenditures
In general
Part VI of subchapter B of chapter 1 is amended by striking section 175 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Paragraphs (1)(A) and (2) of section 1252(a) are each amended by striking relating to soil and water conservation expenditures
and inserting as in effect before its repeal by the Tax Reform Act of 2014
.
Effective date
In general
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Assessments treated as paid or incurred
In the case of any amount paid or incurred before December 31, 2014, and treated as paid or incurred in any succeeding taxable year by reason of section 175(f) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act), paragraph (1) shall not apply.
Amortization of certain advertising expenses
In general
Part VI of subchapter B of chapter 1 is amended by inserting after section 176 the following new section:
Amortization of certain advertising expenses
In general
In the case of a taxpayer’s amortizable advertising expenses for any taxable year—
except as provided in paragraph (2), no deduction shall be allowed for such expenses, and
the taxpayer shall—
charge such expenses to capital account, and
be allowed an amortization deduction of such expenses ratably over the 10-year period beginning with the midpoint of the taxable year in which such expenses are paid or incurred.
Exemption
In general
So much of the taxpayer’s otherwise deductible advertising expenses for any taxable year as do not exceed $1,000,000 shall not be taken into account in determining such taxpayer’s amortizable advertising expenses for such taxable year.
Phaseout of exemption
In the case of a taxpayer whose otherwise deductible advertising expenses for any taxable year exceed $1,500,000, the dollar amount in effect under paragraph (1) with respect to such taxpayer for such taxable year shall be reduced (but not below zero) by twice such excess.
Aggregation; short taxable years
For purposes of this subsection, rules similar to the rules of paragraphs (2) and (3)(B) of section 448(b) shall apply.
Amortizable advertising expenses
In general
For purposes of this section, the term amortizable advertising expenses
means, with respect to any taxpayer for any taxable year, the applicable percentage of the
taxpayer’s otherwise deductible advertising expenses for such taxable
year.
Applicable percentage
For purposes of this subsection, the term applicable percentage
means (with respect to the taxpayer’s otherwise deductible advertising expenses for any taxable
year) the percentage determined in accordance with the following table:
| For taxable years beginning in: | The applicable percentage is: |
| 2015 | 20 percent |
| 2016 | 30 percent |
| 2017 | 40 percent |
| 2018 or thereafter | 50 percent. |
Election out of phase-in
The taxpayer may elect, at such time and in such form and manner as the Secretary shall prescribe, to treat the applicable percentage as being equal to 50 percent for all taxable years beginning before 2018. Such election, once made, shall be irrevocable.
Otherwise deductible advertising expenses
For purposes of this section—
In general
The term otherwise deductible advertising expenses
means, with respect to any taxpayer for any taxable year, the deductions which would (but for this
section) be allowable to the taxpayer for such taxable year with respect
to specified advertising expenses.
Specified advertising expenses
The term specified advertising expenses
means any amount paid or incurred for the development, production, or placement (including any
form of transmission, broadcast, publication, display, or distribution) of
any communication to the general public (or portions thereof) which is
intended to promote the taxpayer or a trade or business of the taxpayer
(or any service, facility, or product provided pursuant to such trade or
business).
Exceptions
The term specified advertising expenses
shall not include—
Certain wages
Wages paid or incurred to any employee unless the services rendered by such employee are primarily related to—
an activity described in paragraph (2) (other than the direct sale of goods or services to customers of the taxpayer), or
the direct supervision of employees rendering services primarily related to such an activity.
Depreciation of tangible property
In the case of any tangible property, any amount for which a deduction is allowed for depreciation under section 167.
Amortizable section 197 intangibles
Any amount for which a deduction is allowed for amortization under section 197.
Discounts, etc
Any discount, coupon, rebate, slotting allowance, sample, prize, loyalty reward point, or any item determined by the Secretary to be similar to any of the foregoing (other than any amount paid or incurred to promote any of the foregoing).
Certain communications on taxpayer’s property
Any amount paid or incurred with respect to any communication appearing on tangible property of the taxpayer which—
is of a character subject to the allowance for depreciation, or
is properly treated as inventory for purposes of section 471.
Creation of logos, trade names, etc
Any amount paid or incurred for the creation of any logo, trademark, or trade name.
Package design
Any amount to which section 263A(i) applies.
Marketing research
Any amount paid or incurred for marketing research.
Business meals
Any amount paid or incurred for meals.
Qualified sponsorship payments
Any amount paid or incurred as a qualified sponsorship payment (as defined in section 513(i)(2)) with respect to an organization subject to the tax imposed by section 511.
Treatment upon abandonment
If any property with respect to which specified advertising expenses are paid or incurred is disposed, retired, or abandoned during the period during which such expenses are allowed as an amortization deduction under this section, no deduction shall be allowed with respect such expenses on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenses.
Inflation adjustment
In general
In the case of any taxable year beginning after 2015, each of the dollar amounts in subsection (b) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year,
determined by substituting calendar year 2014
for calendar year 2012
in clause (ii) thereof.
Rounding
The amount of any increase under paragraph (1) shall be rounded to the nearest multiple of $10,000.
.
Capitalization of package design expenses
Section 263A is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:
Capitalization of package design expenses
For purposes of this section, in the case of any amount paid or incurred for package design, such amounts shall be treated as an indirect cost described in subsection (a)(2)(B) with respect to packages which utilize such design.
.
Clerical amendment
The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 176 the following new item:
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2014.
Expensing certain depreciable business assets for small business
In general
Dollar limitation
Paragraph (1) of section 179(b) is amended by striking shall not exceed—
and all that follows and inserting shall not exceed $250,000.
.
Reduction in limitation
Paragraph (2) of section 179(b) is amended by striking exceeds—
and all that follows and inserting exceeds $800,000.
.
Computer software
Clause (ii) of section 179(d)(1)(A) is amended by striking to which section 167 applies, and which is placed in service in a taxable year beginning after 2002
and before 2014
and inserting and to which section 167 applies
.
Election
Paragraph (2) of section 179(c) is amended—
by striking may not be revoked
and all that follows through and before 2014
, and
by striking irrevocable
in the heading thereof.
Air conditioning and heating units
Paragraph (1) of section 179(d) is amended by striking and shall not include air conditioning or heating units
.
Qualified real property
Section 179(f) is amended—
by striking beginning in 2010, 2011, 2012, or 2013
in paragraph (1), and
by striking paragraphs (3) and (4).
Inflation adjustment
Subsection (b) of section 179 is amended by adding at the end the following new paragraph:
Inflation adjustment
In general
In the case of any taxable year beginning after 2014, the dollar amounts in paragraphs (1) and (2) shall each be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year,
determined by substituting calendar year 2013
for calendar year 2012
in clause (ii) thereof.
Rounding
The amount of any increase under subparagraph (A) shall be rounded to the nearest multiple of $10,000.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2013.
Repeal of election to expense certain refineries
In general
Part VI of subchapter B of chapter 1 is amended by striking section 179C (and by striking the item relating to such section in the table of sections for such part).
Conforming amendment
Section 312(k)(3), as amended by the preceding provisions of this Act, is amended by striking , 179C
each place it appears.
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2013.
Repeal of deduction for energy efficient commercial buildings
In general
Part VI of subchapter B of chapter 1 is amended by striking section 179D (and by striking the item relating to such section in the table of sections for such part).
Conforming amendment
Section 1016(a) is amended by striking paragraph (31).
Section 312(k)(3), as amended by the preceding provisions of this Act, is amended by striking , 179D
each place it appears.
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2013.
Repeal of election to expense advanced mine safety equipment
In general
Part VI of subchapter B of chapter 1 is amended by striking section 179E (and by striking the item relating to such section in the table of sections for such part).
Conforming amendment
Section 312(k)(3), as amended by the preceding provisions of this Act, is amended—
by striking , or 179E, as the case may be
, and
by striking , or 179E
each place it appears.
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2013.
Repeal of deduction for expenditures by farmers for fertilizer, etc
In general
Part VI of subchapter B of chapter 1 is amended by striking section 180 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to expenses paid or incurred in taxable years beginning after December 31, 2014.
Repeal of special treatment of certain qualified film and television productions
In general
Part VI of subchapter B of chapter 1 is amended by striking section 181 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to productions commencing after December 31, 2013.
Repeal of special rules for recoveries of damages of antitrust violations, etc
In general
Part VI of subchapter B of chapter 1 is amended by striking section 186 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Treatment of reforestation expenditures
Elimination of expensing election
Section 194 is amended by striking subsections (a) and (b), by redesignating subsection (c) and (d) as subsections (b) and (c), respectively, and by inserting before subsection (b) (as so redesignated) the following new subsection:
In general
In the case of a taxpayer’s qualified reforestation expenditures for any taxable year—
except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
the taxpayer shall—
charge such expenditures to capital account, and
be allowed an amortization deduction of such expenditures ratably over the 7-year period beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
.
Qualified reforestation expenditures
Section 194(b), as redesignated by subsection (a), is amended by striking paragraph (2), by redesignating paragraph (1) as paragraph (2), and by inserting before paragraph (2) (as so redesignated the following new paragraph:
Qualified reforestation expenditures
The term qualified reforestation expenditures
means, with respect to any taxable year, the reforestation expenditures paid or incurred by the
taxpayer during such taxable year with respect to qualified timber
property.
.
Qualified timber property limited to ornamental trees
Section 194(b)(2), as redesignated by subsections (a) and (b), is amended to read as follows:
Qualified timber property
The term qualified timber property
means a woodlot or other site located in the United States which—
will contain evergreen trees in significant commercial quantities which are reasonably expected to be more than 6 years old at the time severed from the roots, and
is held by the taxpayer for the planting, cultivating, caring for, and cutting of such trees for sale for ornamental purposes.
.
Determination of recomputed basis
Section 1245(b) is amended by striking paragraph (7).
Effective date
The amendments made by this section shall apply to expenditures paid or incurred in taxable years beginning after December 31, 2014.
20-year amortization of goodwill and certain other intangibles
In general
Subsection (a) of section 197 is amended by striking 15-year period
and inserting 20-year period
.
Mortgage servicing rights
Subsection (e) of section 197 is amended by striking paragraph (6) and by redesignating paragraph (7) as paragraph (6).
Conforming amendments
Clause (i) of section 197(e)(4)(D) is amended by striking 15 years
and inserting 20 years
.
Section 167(f) is amended by striking paragraph (3).
Effective date
The amendments made by this section shall apply to property acquired after December 31, 2014.
Treatment of environmental remediation costs
In general
Subsection (a) of section 198 is amended to read as follows:
In general
In the case of a taxpayer’s qualified environmental remediation expenditures for any taxable year—
except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
the taxpayer shall—
charge such expenditures to capital account, and
be allowed an amortization deduction of such expenditures ratably over the 40-year period beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
.
Made permanent
Section 198 is amended by striking subsection (h).
Conforming amendments
Section 198, as amended by subsection (b), is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f).
Section 198 (and the item relating to such section in the table of sections for part VI of
subchapter B of chapter 1) is amended by striking Expensing
in the heading thereof and inserting Amortization
.
Effective date
The amendments made by this section shall apply to expenditures paid or incurred after December 31, 2014.
Repeal of expensing of qualified disaster expenses
In general
Part VI of subchapter B of chapter 1 is amended by striking section 198A (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Phaseout and repeal of deduction for income attributable to domestic production activities
Phaseout
In general
Subsection (a) of section 199 is amended by adding at the end the following new paragraph:
Phaseout
In the case of any taxable year beginning after 2014, paragraph (1) shall be applied by substituting for the percentage contained therein the phaseout percentage determined under the following table:
| For taxable years beginning in: | The phaseout percentage is: |
| 2015 | 6% |
| 2016 | 3% |
.
Coordination with oil related qualified production activities income
Section 199(d) is amended by striking paragraph (9).
Effective date
The amendments made by this subsection shall apply to taxable years beginning after December 31, 2014.
Repeal
In general
Part VI of subchapter B of chapter 1 is amended by striking section 199 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Sections 86(b)(2)(A), 137(b)(3)(A), 246(b)(1), and 469(i)(3)(F)(iii) are each amended by striking 199,
.
Section 163(j)(6)(A)(i), as amended by the preceding provisions of this Act, is amended by striking subclause (III) and by redesignating subclauses (IV) and (V) as subclauses (III) and (IV), respectively.
Section 170(b)(2)(C), as amended by the preceding provisions of this Act, is amended by striking
clause (v), by redesignating clause (vi) as clause (v), and by inserting and
at the end of clause (iv).
Section 172(d) is amended by striking paragraph (7).
Section 1402(a) is amended by adding and
at the end of paragraph (15) and by striking paragraph (16).
Effective date
The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016.
Unification of deduction for organizational expenditures
In general
Subsections (a) and (b) of section 195 is amended by inserting and organizational
after start-up
each place it appears.
Organizational expenditures
Subsection (c) of section 195 is amended by adding at the end the following new paragraph:
Organizational expenditures
The term organizational expenditures
means any expenditure which—
is incident to the creation of a corporation or a partnership,
is chargeable to capital account, and
is of a character which, if expended incident to the creation of a corporation or a partnership having a limited life, would be amortizable over such life.
.
Dollar amounts
Clause (ii) of section 195(b)(1)(A) is amended—
by striking $5,000
and inserting $10,000
, and
by striking $50,000
and inserting $60,000
.
Mid-Year convention
Subparagraph (B) of section 195(b)(1), as amended by subsection (a), is amended to read as follows:
the remainder of such start-up and organizational expenditures shall be charged to capital account and allowed as an amortization deduction determined by amortizing such expenditures ratably over the 15-year period beginning with the midpoint of the taxable year in which the active trade or business begins.
.
Conforming amendments
Section 195(b)(1) is amended—
by inserting (or, in the case of a partnership, the partnership elects)
after If a taxpayer elects
, and
by inserting (or the partnership, as the case may be)
after the taxpayer
in subparagraph (A).
Section 195(b)(2) is amended—
by striking amortization period.—In any case
and inserting the following:
amortization period.—
In general
In any case
, and
by adding at the end the following new subparagraph:
Special partnership rule
In the case of a partnership, subparagraph (A) shall be applied at the partnership level.
.
Section 195(b) is amended by striking paragraph (3).
Part VIII of subchapter B of chapter 1 is amended by striking section 248 (and by striking the item relating to such section in the table of sections for such part).
Section 170(b)(2)(C)(ii) is amended by striking (except section 248)
.
Section 312(n)(3) is amended by striking Sections 173 and 248
and inserting Section 173
.
Section 535(b)(3) is amended by striking (except section 248)
.
Section 545(b)(3) is amended by striking (except section 248)
.
Section 834(c)(7) is amended by striking (except section 248)
.
Section 852(b)(2)(C) is amended by striking (except section 248)
.
Section 857(b)(2)(A) is amended by striking (except section 248)
.
Section 1363(b) is amended by inserting and
at the end of paragraph (2), by striking paragraph (3), and by redesignating paragraph (4) as
paragraph (3).
Section 1375(b)(1)(B)(i) is amended by striking (other than the deduction allowed by section 248, relating to organization expenditures)
.
Part I of subchapter K of chapter 1 is amended by striking section 709 (and by striking the item relating to such section in the table of sections for such part).
The heading of section 195 (and the item relating to such section in the table of sections for part
VI of subchapter B of chapter 1) are each amended by inserting and organizational
after Start-up
.
Effective date
The amendments made by this section shall apply to expenses paid or incurred in taxable years beginning after December 31, 2014.
Prevention of arbitrage of deductible interest expense and tax-exempt interest income
Pro rata allocation rules applicable to financial institutions modified and made applicable to all C corporations
Application to corporations
So much of section 265(b) as precedes paragraph (3) is amended to read as follows:
Pro rata allocation of interest expense of corporations and financial institutions to tax-Exempt interest
In general
In the case of a C corporation or a financial institution, no deduction shall be allowed for that portion of the taxpayer’s interest expense which is allocable to tax-exempt interest.
Allocation
For purposes of paragraph (1), the portion of the taxpayer’s interest expense which is allocable to tax-exempt interest is an amount which bears the same ratio to such interest expense as—
the taxpayer’s average adjusted bases (within the meaning of section 1016) of tax-exempt obligations acquired on or after February 26, 2014 (August 7, 1986, in the case of a financial institution), bears to
such average adjusted bases for all assets of the taxpayer.
.
Repeal of exceptions
Section 265(b) is amended by striking paragraphs (3) and (7).
Limitation on investment interest
In general
Section 163(d)(1) is amended to read as follows:
In general
In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest for any taxable year—
shall be reduced by the amount of tax-exempt interest received by the taxpayer during such taxable year, and
shall not (after any reduction under subparagraph (A)) exceed the net investment income of the taxpayer for such taxable year.
.
Reductions for tax-exempt interest not carried forward
Section 163(d)(2) is amended by striking paragraph (1)
and inserting paragraph (1)(B)
.
Clarification that property held for investment includes property producing tax-exempt interest
Section 163(d)(5)(A) is amended by striking and
at the end of clause (i), by striking the period at the end of clause (ii)(II) and inserting , and
, and by adding at the end the following new clause:
any property held for the production of tax-exempt interest (including any shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends).
.
Coordination with section 265
In general
Section 265(a) is amended by—
striking paragraph (2) and inserting the following new paragraph:
Interest
Corporations and financial institutions
For pro rata allocation rules in the case of corporations and financial institutions, see subsection (b).
Other taxpayers
For limitation on investment interest in the case of other taxpayers, see section 163(d).
, and
by striking paragraphs (4) and (5) and by redesignating paragraph (6) as paragraph (4).
Conforming amendments
Section 265(b), as amended by subsection (a), is amended by inserting after paragraph (2) the following new paragraph:
Special rules for short sales
In general
For purposes of this subsection, interest includes any amount paid or incurred—
by any person making a short sale in connection with personal property used in such short sale, or
by any other person for the use of any collateral with respect to such short sale.
Exception where no return on cash collateral
If—
the taxpayer provides cash as collateral for any short sale, and
the taxpayer receives no material earnings on such cash during the period of the sale,
.
Section 265(b)(6) is amended to read as follows:
Coordination with section 263A
This section shall be applied before the application of section 263A (relating to capitalization of certain expenses where taxpayer produces property).
.
Section 163(n)(2) is amended to read as follows:
For disallowance of deduction for interest relating to tax-exempt income, see sections 163(d) and 265(b)
.
Effective dates
Application of pro rata allocation rules
Application to C corporations
The amendments made by subsection (a)(1) shall apply to taxable years ending on or after February 26, 2014.
Repeal of exceptions
The amendments made by subsection (a)(2) shall apply to obligations issued on or after February 26, 2014.
Limitation on investment interest
The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 2014.
Prevention of transfer of certain losses from tax indifferent parties
In general
Section 267(d) is amended to read as follows:
Amount of gain where loss previously disallowed
In general
If—
in the case of a sale or exchange of property to the taxpayer a loss sustained by the transferor is not allowable to the transferor as a deduction by reason of subsection (a)(1), and
the taxpayer sells or otherwise disposes of such property (or of other property the basis of which in the taxpayer’s hands is determined directly or indirectly by reference to such property) at a gain,
Exception for wash sales
Paragraph (1) shall not apply if the loss sustained by the transferor is not allowable to the transferor as a deduction by reason of section 1091 (relating to wash sales).
Exception for transfers from tax indifferent parties
Paragraph (1) shall not apply to the extent any loss sustained by the transferor (if allowed) would not be taken into account in determining a tax imposed under section 1 or 11 or a tax computed as provided by either of such sections.
.
Effective date
The amendment made by this section shall apply to sales and exchanges after December 31, 2014.
Entertainment, etc. expenses
Denial of deduction
Subsection (a) of section 274 is amended to read as follows:
Entertainment, amusement, or recreation
In general
No deduction otherwise allowable under this chapter shall be allowed for amounts paid or incurred for any of the following items:
Activity
With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation.
Membership dues
With respect to membership in any club organized for business, pleasure, recreation or other social purposes.
Amenity
With respect to a de minimis fringe (as defined in section 132(e)(1)) that is primarily personal in nature and involving property or services that are not directly related to the taxpayer’s trade or business.
Facility
With respect to a facility or portion thereof used in connection with an activity referred to in subparagraph (A), membership dues or similar amounts referred to in subparagraph (B), or an amenity referred to in subparagraph (C).
Qualified transportation fringe and parking facility
Which is a qualified transportation fringe (as defined in section 132(f)) or which is a parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)).
Special rules
For purposes of applying paragraph (1), an activity described in section 212 shall be treated as a trade or business.
Regulations
Under the regulations prescribed to carry out this section, the Secretary shall include regulations—
defining entertainment, amenities, recreation, amusement, and facilities for purposes of this subsection,
providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking, and
specifying arrangements a primary purpose of which is the avoidance of this subsection.
.
Exception for certain expenses includible in income of recipient
Expenses treated as compensation
Paragraph (2) of section 274(e) is amended to read as follows:
Expenses treated as compensation
Expenses for goods, services, and facilities, to the extent that the expenses do not exceed the amount of the expenses which are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recreation, as compensation to an employee on the taxpayer’s return of tax under this chapter and as wages to such employee for purposes of chapter 24 (relating to withholding of income tax at source on wages).
.
Expenses includible in income of persons who are not employees
Paragraph (9) of section 274(e) is amended by striking to the extent that the expenses
and inserting to the extent that the expenses do not exceed the amount of the expenses that
.
Exceptions for reimbursed expenses
Paragraph (3) of section 274(e) is amended to read as follows:
Reimbursed expenses
In general
Expenses paid or incurred by the taxpayer, in connection with the performance by him of services for another person (whether or not such other person is the taxpayer’s employer), under a reimbursement or other expense allowance arrangement with such other person, but this paragraph shall apply—
where the services are performed for an employer, only if the employer has not treated such expenses in the manner provided in paragraph (2), or
where the services are performed for a person other than an employer, only if the taxpayer accounts (to the extent provided by subsection (d)) to such person.
Exception
Except as provided by the Secretary, subparagraph (A) shall not apply—
in the case of an arrangement in which the person other than the employer is an entity described in section 168(g)(2)(A), or
to any other arrangement designated by the Secretary as having the effect of avoiding the limitation under subparagraph (A).
.
50-Percent limitation on meals and entertainment expenses
Subsection (n) of section 274 is amended to read as follows:
Limitation on certain expenses
In general
The amount allowable as a deduction under this chapter for any expense for food or beverages (pursuant to subsection (e)(1)) or business meals (pursuant to subsection (k)(1)) shall not exceed 50 percent of the amount of such expense or item which would (but for this paragraph) be allowable as a deduction under this chapter.
Exceptions
Paragraph (1) shall not apply to any expense if—
such expense is described in paragraph (2), (3), (6), (7), or (8) of subsection (e),
in the case of an expense for food or beverages, such expense is excludable from the gross income of the recipient under section 132 by reason of subsection (e) thereof (relating to de minimis fringes) or under section 119 (relating to meals and lodging furnished for convenience of employer), or
in the case of an employer who pays or reimburses moving expenses of an employee, such expenses are includible in the income of the employee under section 82.
Special rule for individuals subject to Federal hours of service
In the case of any expenses for food or beverages consumed while away from home (within the meaning
of section 162(a)(2)) by an individual during, or incident to, the period
of duty subject to the hours of service limitations of the Department of
Transportation, paragraph (1) shall be applied by substituting 80 percent
for 50 percent
.
.
Conforming amendments
Section 274(d) is amended—
by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and
in the flush material following paragraph (3) (as so redesignated)—
by striking , entertainment, amusement, recreation, or
in item (B), and
by striking (D) the business relationship to the taxpayer of persons entertained, using the facility or
property, or receiving the gift
and inserting (D) the business relationship to the taxpayer of the person receiving the benefit
.
Section 274(e) is amended by striking paragraph (4) and redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), (6), (7), and (8), respectively.
Section 274(k)(2)(A) is amended by striking (4), (7), (8), or (9)
and inserting (6), (7), or (8)
.
Section 274 is amended by striking subsection (l).
Section 274(m)(1)(B)(ii) is amended by striking (4), (7), (8), or (9)
and inserting (6), (7), or (8)
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Repeal of limitation on corporate acquisition indebtedness
In general
Part IX of subchapter B of chapter 1 is amended by striking section 279 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to interest paid or incurred with respect to indebtedness incurred after December 31, 2014.
Denial of deductions and credits for expenditures in illegal businesses
In general
Section 280E is amended to read as follows:
Expenditures in connection with illegal businesses
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if—
such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted, or
the carrying out of such trade or business is a felony under Federal law or the law of any State in which such trade or business is conducted.
.
Clerical amendment
The table of sections for part IX of subchapter B of chapter 1 is amended by striking the item relating to section 280E and inserting the following new item:
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act in taxable years ending after the date of the enactment of this Act.
Limitation on deduction for FDIC premiums
In general
Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:
Disallowance of FDIC premiums paid by certain large financial institutions
In general
No deduction shall be allowed for the applicable percentage of any FDIC premium paid or incurred by the taxpayer.
Exception for small institutions
Paragraph (1) shall not apply to any taxpayer for any taxable year if the total consolidated assets of such taxpayer (determined as of the close of such taxable year) do not exceed $10,000,000,000.
Applicable percentage
For purposes of this subsection, the term applicable percentage
means, with respect to any taxpayer for any taxable year, the ratio (expressed as a percentage but
not greater than 100 percent) which—
the excess of—
the total consolidated assets of such taxpayer (determined as of the close of such taxable year), over
$10,000,000,000, bears to
$40,000,000,000.
FDIC premiums
For purposes of this subsection, the term FDIC premium
means any assessment imposed under section 7(b) of the Federal Deposit Insurance Act (12 U.S.C.
1817(b)).
Total consolidated assets
For purposes of this subsection, the term total consolidated assets
has the meaning given such term under section 165 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 5365).
Aggregation rule
In general
Members of an expanded affiliated group shall be treated as a single taxpayer for purposes of applying this subsection.
Expanded affiliated group
For purposes of this paragraph, the term expanded affiliated group
means an affiliated group as defined in section 1504(a), determined—
by substituting more than 50 percent
for at least 80 percent
each place it appears, and
without regard to paragraphs (2) and (3) of section 1504(b).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of percentage depletion
In general
Part I of subchapter I of chapter 1 is amended by striking sections 613 and 613A (and by striking the items relating to such sections in the table of sections for such part).
Conforming amendments
Such part is amended by redesignating section 614 as section 613 (and, in the table of sections for such part, by redesignating the item relating to section 614 as an item relating to section 613).
Clauses (iv) and (v) of section 465(c)(2)(A) are each amended by striking section 614
and inserting section 613
.
Section 1016(e) is amended by striking section 614
and inserting section 613
.
Section 1254(a)(3) is amended by striking section 614
and inserting section 613
.
Section 45(c)(4) is amended to read as follows:
Geothermal energy
In general
The term geothermal energy
means energy derived from a geothermal deposit.
Geothermal deposit
The term geothermal deposit
means a geothermal reservoir consisting of natural heat which is stored in rocks or in an aqueous
liquid or vapor (whether or not under pressure).
.
Section 48(a)(3)(A)(iii) is amended by striking section 613(e)(2)
and inserting section 45(c)(4)(B)
Section 381(c) is amended by striking paragraph (18).
Section 465(c)(1)(E) is amended by striking section 613(e)(2)
and inserting section 45(c)(4)(B)
.
Section 468(d)(3) is amended by striking section 614
and inserting section 613
.
Section 611(a) is amended by striking the second sentence.
Section 613(d), as redesignated by paragraph (1), is amended by striking includes only
and all that follows and inserting includes only an interest burdened by the costs of production.
.
Section 636(a) is amended by striking (for purposes of section 613)
.
Section 636(d) is amended by striking section 614(a)
and inserting section 613(a)
.
Section 705(a) is amended—
in paragraph (1), by adding and
at the end of subparagraph (A), by striking ; and
at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C),
in paragraph (2), by striking ; and
at the end of subparagraph (B) and inserting a period, and
by striking paragraph (3).
Section 901(e)(1)(A) is amended by striking (or, if smaller
and all that follows through under section 613)
.
Section 993(c)(2)(C) is amended by inserting (as each such section was in effect before its repeal by the Tax Reform Act of 2014)
after section 613 or 613A
.
Section 1202(e)(3)(D) is amended by inserting (as each such section was in effect before its repeal by the Tax Reform Act of 2014)
after section 613 or 613A
.
Section 1367(a) is amended—
in paragraph (1), by adding and
at the end of subparagraph (A), by striking , and
at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C), and
in paragraph (2), by adding and
at the end of subparagraph (C), by striking , and
at the end of subparagraph (D) and inserting a period, and by striking subparagraph (E).
Section 1446(c) is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
Section 4612(a)(7) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 613
.
Section 4940(c)(3)(B) is amended—
by striking clause (ii), and
by striking all that precedes The deduction provided
and inserting the following:
Modifications
For purposes of subparagraph (A), the deduction provided
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of passive activity exception for working interests in oil and gas property
In general
Subsection (c) of section 469 is amended by striking paragraph (3).
Conforming amendments
Section 469 is amended—
by striking paragraph (4) and by redesignating paragraphs (5), (6), and (7) as paragraphs (3), (4), and (5), respectively, and
in paragraph (2)—
by striking paragraph (7)
and inserting paragraph (5)
, and
by inserting , without regard to whether or not the taxpayer materially participates in the activity
before the period at the end.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of special rules for gain or loss on timber, coal, or domestic iron ore
In general
Subchapter I of chapter 1 is amended by striking part III (and by striking the item relating to such part in the table of parts for such subchapter).
Conforming amendments
Section 512(b)(5) is amended by striking the last sentence.
Section 871(a)(1)(B) is amended by striking gains described in section 631(b) or (c), and
.
Section 871(d)(1)(A) is amended—
by striking , (ii) rents
and inserting and (ii) rents
, and
by striking , and (iii) gains described in section 631(b) or (c)
.
Section 881(a) is amended by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
Section 1442(a) is amended—
by striking 881(a)(3) and (4)
and inserting 881(a)(2) and (3)
,
by striking 881(a)(3),
and inserting 881(a)(2),
, and
by striking 881(a)(4)
and inserting 881(a)(3)
.
Section 882(d)(1)(A) is amended—
by striking , (ii) rents
and inserting and (ii) rents
, and
by striking , and (iii) gains described in section 631(b) or (c)
.
Section 1231(b) is amended by striking paragraph (2).
Section 1402(a)(3) is amended by inserting or
at the end of subparagraph (A) and by striking subparagraph (B) and redesignating subparagraph (C)
as subparagraph (B).
Section 1441 is amended—
in subsection (b), by striking , gains described in section 631(b) or (c)
, and
in subsection (c)(5), by striking gains described in section 631(b) or (c), gains subject to tax under section 871(a)(1)(D),
and inserting gains subject to tax under section 871(a)(1)(D)
.
Part IX of subchapter B of chapter 1 is amended by striking section 272 (and by striking the item relating to such section in the table of sections for such subpart).
Section 1016(a) is amended by striking paragraph (15).
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Basis adjustments
The amendment made by subsection (b)(9)(B) shall apply to deductions determined for taxable years beginning after December 31, 2014.
Repeal of like-kind exchanges
In general
Part III of subchapter O of chapter 1 is amended by striking section 1031 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 121(d)(10) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 1031
.
Section 197(f)(2)(B)(i) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after 1031
.
Section 453(f) is amended by striking paragraph (6).
Section 470(e)(4) is amended—
by striking Sections 1031(a) and
in subparagraph (A) and inserting Section
,
by striking 1031 or
in subparagraph (B), and
by striking sections 1031 and
in the heading thereof and inserting section
.
Section 501(c)(12)(C)(v) is amended by striking asset exchange or conversion transaction
and inserting specified involuntary conversion
.
Section 501(c)(12)(G) is amended—
by striking asset exchange or conversion transaction
and inserting specified involuntary conversion
,
by striking voluntary exchange or
, and
by striking 1031 or
.
Section 704(c) is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
Section 704(c)(2), as so redesignated, is amended by striking or (2)
.
Section 857(e)(2) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.
Section 1035 is amended by striking subsection (d) and inserting the following new subsections:
Gain from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
Loss from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
Basis
If property was acquired on an exchange described in this section, section 1036(a), or section 1037(a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1036(a), or section 1037(a), to be received without the recognition of gain or loss, and in part of other property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section and section 1036(a), where as part of the consideration to the taxpayer another party to the exchange assumed (as determined under section 357(d)) a liability of the taxpayer, such assumption shall be considered as money received by the taxpayer on the exchange.
.
Section 1036(c) is amended—
in paragraph (1), by striking subsections (b) and (c) of section 1031
and inserting subsections (d) and (e) of section 1035
, and
in paragraph (2), by striking subsection (d) of section 1031
and inserting subsection (f) of section 1035
.
Section 1037(c) is amended—
in paragraph (1), by striking subsections (b) and (c) of section 1031
and inserting subsections (d) and (e) of section 1035
, and
in paragraph (2), by striking subsection (d) of section 1031
and inserting subsection (f) of section 1035
.
Section 83(g) is amended by striking section 1031
and inserting section 1035
.
Section 424(b) is amended by striking section 1031
and inserting section 1035
.
Section 424(c)(1)(B) is amended by striking section 1031
and inserting section 1035
.
Section 1060(c) is amended by striking the second sentence thereof.
Section 1245(b)(4) is amended—
by striking Like kind exchanges; involuntary
and inserting Involuntary
, and
by striking 1031 or
.
Section 1250(d)(4) is amended—
by striking Like kind exchanges; involuntary
and inserting Involuntary
,
by striking 1031 or
in subparagraph (A), and
by striking 1031 or
in subparagraph (E).
Section 2032A(e)(14)(C) is amended—
in clause (i)(I), by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 1031
, and
in clause (ii)(I), by inserting (as so in effect)
after section 1031
.
Section 4940(c)(4) is amended by striking subparagraph (D).
Effective date
In general
The amendments made by this section shall apply to transfers after December 31, 2014.
Exception for transfers pursuant to binding contracts
Notwithstanding paragraph (1), the amendments made by this section shall not apply to any transfer if—
such transfer is pursuant to a written binding contract entered into before January 1, 2015, and
the exchange of which such transfer is a part is completed before January 1, 2017.
Restriction on trade or business property treated as similar or related in service to involuntarily converted property in disaster areas
Class life of replacement property not To exceed converted property
Section 1033(h)(2) is amended by inserting if the class life of such tangible property does not exceed the class life of the property so
converted
before the period at the end.
Effective date
The amendment made by this section shall apply to disasters declared after December 31, 2014.
Repeal of rollover of publicly traded securities gain into specialized small business investment companies
In general
Part III of subchapter O of chapter 1 is amended by striking section 1044 (and by striking the item relating to such section in the table of sections of such part).
Conforming amendments
Section 45D(c)(2)(A) is amended to read as follows:
any partnership or corporation which is licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958 (as in effect on May 13, 1993), and
.
Section 1016(a)(23) is amended—
by striking 1044,
, and
by striking 1044(d),
.
Effective date
The amendments made by this section shall apply to sales after December 31, 2014.
Termination of special rules for gain from certain small business stock
Termination of partial exclusion
Section 1202 is amended—
by inserting and before the date of the enactment of the Tax Reform Act of 2014
after Revenue Reconciliation Act of 1993
in subsection (c)(1), and
by adding at the end the following new subsection:
Termination
For termination with respect to qualified small business stock issued after the date of the enactment of the Tax Reform Act of 2014, see subsection (c)(1).
.
Repeal of rollover rules
In general
Part III of subchapter O of chapter 1 is amended by striking section 1045 (and by striking the item relating to such section in the table of sections of such part).
Conforming amendments
Section 1016(a)(23) is amended—
by striking 1045,
, and
by striking 1045(b)(3),
.
Section 1223 is amended by striking paragraph (13).
Effective dates
Termination of partial exclusion
The amendments made by subsection (a) shall apply to sales and exchanges after the date of the enactment of this Act.
Repeal of rollover rules
In general
Except as provided in subparagraph (B), the amendments made by subsection (b) shall apply to sales after the date of the enactment of this Act.
Savings provision
The amendments made by subsection (b)(2) shall not apply with respect to property the acquisition of which was before the date of the enactment of this Act.
Certain self-created property not treated as a capital asset
Patents, etc
Section 1221(a)(3) is amended by inserting a patent, invention, model or design (whether or not patented), a secret formula or process,
before a copyright
.
Self-Created musical works
Section 1221(b) is amended by striking paragraph (3).
Effective date
The amendments made by this section shall apply to dispositions after December 31, 2014.
Repeal of special rule for sale or exchange of patents
In general
Part IV of subchapter P of chapter 1 is amended by striking section 1235 (and by striking the item relating to such section in the table of sections of such part).
Conforming amendments
Section 483(d) is amended by striking paragraph (4).
Section 871(a)(1), as amended by the preceding provisions of this Act, is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.
Section 871(g)(3) is amended by striking (a)(1)(C)
and inserting (a)(1)(B)
.
Subsections (h)(1) and (i)(1) of section 871 are each amended by striking (1)(C)
and inserting (1)(B)
.
Section 1441, as amended by the preceding provisions of this Act, is amended—
in subsections (b) and (c)(8), by striking 871(a)(1)(C)
and inserting 871(a)(1)(B)
, and
in subsections (b) and (c)(5), by striking 871(a)(1)(D)
and inserting 871(a)(1)(C)
.
Section 1442(a), as amended by the preceding provisions of this Act, is amended—
by striking 871(a)(1)(C) and (D)
and inserting 871(a)(1)(B) and (C)
, and
by striking 871(a)(1)(D)
and inserting 871(a)(1)(C)
.
Section 901(l)(5) is amended by striking without regard to section 1235 or any similar rule
and inserting without regard to any provision which treats a disposition as a sale or exchange of a capital asset
held for more than 1 year or any similar provision
.
Section 1274(c)(3) is amended by striking subparagraph (E) and redesignating subparagraph (F) as subparagraph (E).
Subsections (b) and (c)(5) of section 1441, as amended by the preceding provisions of this Act, are
each amended by striking gains subject to tax under section 871(a)(1)(C), and gains on transfers described in section 1235
made on or before October 4, 1966
and inserting and gains subject to tax under section 871(a)(1)(C)
.
Effective date
The amendments made by this section shall apply to dispositions after December 31, 2014.
Depreciation recapture on gain from disposition of certain depreciable realty
In general
Subsection (a) of section 1250 is amended to read as follows:
In general
Except as otherwise provided in this section, if section 1250 property is disposed of after December 31, 2014, the amount of gain with respect to such property which is treated as ordinary income shall be an amount equal to the lesser of—
the sum of—
the amount of additional depreciation attributable to periods before January 1, 2015, in respect of such property, and
the amount of depreciation adjustments attributable to periods after December 31, 2014, in respect of such property, or
the excess of the amount realized (or, in the case of a disposition other than a sale, exchange, or involuntary conversion, the fair market value of such property), over the adjusted basis of such property.
.
Conforming amendments
Section 267(e)(5)(D)(i) is amended to read as follows:
any interest in—
any section 1250 property with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of State or local laws and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990),
dwelling units which, on the average, were held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of State or local law authorizing similar levels of subsidy for lower-income families,
any section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167(k), or
any section 1250 property with respect to which a loan is made or insured under title V of the Housing Act of 1949, and
.
Section 1250(b) is amended by striking paragraph (4) and by redesignating paragraph (5) as paragraph (4).
Section 1250(c) is amended by striking For purposes of this section
and inserting For purposes of this title
Section 1250(d)(5)(B)(i) is amended by striking and the applicable percentage for the property had been 100 percent
.
Section 1250(d)(5)(B)(ii) is amended to read as follows:
the amount of such gain (if any) to which section 751(b) applied.
.
Section 1250(d) is amended by striking paragraph (7).
Section 1250 is amended by striking subsections (e) and (f) and by redesignating subsections (g) and (h) as subsections (e) and (f), respectively.
Effective date
The amendments made by this section shall apply to dispositions after December 31, 2014.
Common deduction conforming amendments
In general
Section 1245(a)(2)(C) is amended by striking section 179,
and all that follows through or 194
and inserting section 179 or (as in effect before repeal by the Tax Reform Act of 2014) section 179A, 179B, 179C, 179D, 179E, 181, 190, 193, or 194,
Section 1245(a)(3)(C) is amended by striking section 169
and all that follows through or 194
and inserting section 179, 185, 188 (as in effect before its repeal by the Revenue Reconciliation Act of 1990),
or (as in effect before repeal by the Tax Reform Act of 2014) section 169, 179A, 179B, 179C, 179D, 179E, 190, 193, or 194
.
Section 263(a)(1) is amended by striking subparagraphs (C), (D), (F), (H), (I), (J), (K), and (L) and by redesignating subparagraphs (E) and (G) as subparagraphs (C) and (D), respectively.
Section 280C, as amended by the preceding provisions of this Act, is amended by redesignating subsections (c) and (g) as subsections (b) and (c), respectively.
Effective date
Each portion of each amendment made by this section shall take effect as if included in the provision of this subtitle to which such portion relates.
Reform of business credits
Repeal of credit for alcohol, etc., used as fuel
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 40 (and by striking the item relating to such section in the table of sections for such subpart).
Repeal of corresponding excise tax credits
Credit
Subchapter B of chapter 65 is amended by striking section 6426 (and by striking the item relating to such section in the table of sections for such subchapter).
Payment
Section 6427 is amended by striking subsection (e).
Conforming amendments
Section 38(b) is amended by striking paragraph (3).
Section 6416(a)(4)(C) is amended—
by striking section 6427(i)(4)
and inserting section 6427(i)(3)
, and
by striking section 6427(i)(3)(B)
and inserting subparagraph (B) thereof
.
Section 6427(i) is amended by striking paragraph (3) and by redesignating paragraph (4) as paragraph (3).
Section 6427(i)(3), as redesignated by paragraph (2), is amended—
by striking the sentence at the end of subparagraph (A),
by redesignating subparagraph (B) as subparagraph (C), and
by inserting after subparagraph (A) the following new subparagraph:
Payment of claim
Notwithstanding subsection (l)(1), if the Secretary has not paid pursuant to a claim filed under subsection (b)(4), (l)(4)(C)(ii), or (l)(5) within 45 days of the date of the filing of such claim (20 days in the case of an electronic claim), the claim shall be paid with interest from such date determined by using the overpayment rate and method under section 6621.
.
Subpart B of part III of subchapter A of chapter 32 is amended by striking section 4104 (and by striking the item relating to such section in the table of sections for such subpart).
Section 6501(m) is amended by striking 40(f),
.
Section 9503(b)(1) is amended by striking the second sentence.
Effective date
The amendments made by this section shall apply to fuels sold or used after December 31, 2013.
Repeal of credit for biodiesel and renewable diesel used as fuel
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 40A (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (17).
Part II of subchapter B of chapter 1 is amended by striking section 87 (and by striking the item relating to such section in the table of sections for such subpart).
Section 4101(a)(1) is amended by striking , every person producing
and all that follows through section 40(b)(6)(E))
.
Effective date
The amendments made by this section shall apply to fuels sold or used after December 31, 2013.
Research credit modified and made permanent
Permanent simplification of incremental research credit and elimination of credit for energy research consortium payments
In general
Subsection (a) of section 41 is amended to read as follows:
In general
For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of—
15 percent of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined, plus
15 percent of so much of the basic research payments for the taxable year as exceeds 50 percent of the average basic research payments for the 3 taxable years preceding the taxable year for which the credit is being determined.
.
Repeal of termination
Section 41 is amended by striking subsection (h).
Conforming amendments
Subsection (c) of section 41 is amended to read as follows:
Determination of average research expenses for prior years
Special rule in case of no qualified research expenditures in any of 3 preceding taxable years
In any case in which the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding the taxable year for which the credit is being determined, the amount determined under subsection (a)(1) for such taxable year shall be equal to 10 percent of the qualified research expenses for the taxable year.
Consistent treatment of expenses
In general
Notwithstanding whether the period for filing a claim for credit or refund has expired for any taxable year taken into account in determining the average qualified research expenses, or average basic research payments, taken into account under subsection (a), the qualified research expenses and basic research payments taken into account in determining such averages shall be determined on a basis consistent with the determination of qualified research expenses and basic research payments, respectively, for the credit year.
Prevention of distortions
The Secretary may prescribe regulations to prevent distortions in calculating a taxpayer’s qualified research expenses or basic research payments caused by a change in accounting methods used by such taxpayer between the current year and a year taken into account in determining the average qualified research expenses or average basic research payments taken into account under subsection (a).
.
Section 41(e) is amended—
by striking all that precedes paragraph (6) and inserting the following:
Basic research payments
For purposes of this section—
In general
The term basic research payment
means, with respect to any taxable year, any amount paid in cash during such taxable year by a
corporation to any qualified organization for basic research but only if—
such payment is pursuant to a written agreement between such corporation and such qualified organization, and
such basic research is to be performed by such qualified organization.
Exception to requirement that research be performed by the organization
In the case of a qualified organization described in subparagraph (C) or (D) of paragraph (3), subparagraph (B) of paragraph (1) shall not apply.
,
by redesignating paragraphs (6) and (7) as paragraphs (3) and (4), respectively, and
in paragraph (4) as so redesignated, by striking subparagraphs (B) and (C) and by redesignating subparagraphs (D) and (E) as subparagraphs (B) and (C), respectively.
Section 41(f)(1) is amended by striking , basic research payments, and amounts paid or incurred to energy research consortiums,
in subparagraphs (A)(ii) and (B)(ii) and inserting and basic research payments
.
Section 41(f) is amended by striking paragraph (6).
Effective date
In general
Except as provided in subparagraph (B), the amendments made by this subsection shall apply to taxable years beginning after December 31, 2013.
Paragraph (2)
The amendment made by paragraph (2) shall apply to amounts paid or incurred after December 31, 2013.
Other reforms
Elimination of credit for computer software
Subparagraph (E) of section 41(d)(4) is amended—
by striking Except to the extent provided in regulations, any research
and inserting Any research
, and
by striking which is developed by
and all that follows through the end and inserting a period.
Elimination of increased credit for amounts paid to certain entities
Paragraph (3) of section 41(b) is amended by striking subparagraphs (C) and (D).
Elimination of credit for supplies
Subparagraph (A) of section 41(b)(2) is amended by inserting and
at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause
(ii).
Elimination of election of reduced credit
Section 280C(c) is amended by striking paragraphs (3) and (4).
Conforming amendments
The second sentence of section 41(b)(2)(A) is amended by striking Clause (iii)
and inserting Clause (ii)
.
Section 41(b)(2) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C).
Section 41(d)(2)(B) is amended by striking , computer software
.
Effective date
The amendments made by this subsection shall apply to taxable years beginning after December 31, 2013.
Low-income housing tax credit
Reform of limitation and allocation rules
Allocations of eligible basis amounts rather than credit amounts; elimination of national reallocations
Subsection (h) of section 42 is amended to read as follows:
Limitation on qualified basis with respect to projects located in a State
Qualified basis may not exceed limitation amount allocated to building
In general
The qualified basis of any building which is taken into account under subsection (a) for any taxable year shall not exceed the limitation amount allocated to such building under this subsection.
Time for making allocation
Except in the case of an allocation which meets the requirements of subparagraph (C), (D), (E), or (F), an allocation shall be taken into account under subparagraph (A) only if it is made not later than the close of the calendar year in which the building is placed in service.
Exception where binding commitment
An allocation meets the requirements of this subparagraph if there is a binding commitment (not later than the close of the calendar year in which the building is placed in service) by the housing credit agency to allocate a specified limitation amount to such building beginning in a specified later taxable year.
Exception where increase in qualified basis
In general
An allocation meets the requirements of this subparagraph if such allocation is made not later than the close of the calendar year in which ends the taxable year to which it will 1st apply but only to the extent the amount of such allocation does not exceed the limitation under clause (ii).
Limitation
The limitation under this clause is the excess of—
the qualified basis of such building as of the close of the 1st taxable year to which such allocation will apply, over
the qualified basis of such building as of the close of the 1st taxable year to which the most recent prior allocation with respect to such building applied.
Housing credit basis limitation reduced by full allocation
Notwithstanding clause (i), the full amount of the allocation shall be taken into account under paragraph (2).
Exception where 10 percent of cost incurred
In general
An allocation meets the requirements of this subparagraph if such allocation is made with respect to a qualified building which is placed in service not later than the close of the second calendar year following the calendar year in which the allocation is made.
Qualified building
For purposes of clause (i), the term qualified building
means any building which is part of a project if the taxpayer's basis in such project (as of the
date which is 1 year after the date that the allocation was made) is more
than 10 percent of the taxpayer's reasonably expected basis in such
project (as of the close of the second calendar year referred to in clause
(i)). Such term does not include any existing building unless a credit is
allowable under subsection (e) for rehabilitation expenditures paid or
incurred by the taxpayer with respect to such building for a taxable year
ending during the second calendar year referred to in clause (i) or the
prior taxable year.
Allocation of credit on a project basis
In general
In the case of a project which includes (or will include) more than 1 building, an allocation meets the requirements of this subparagraph if—
the allocation is made to the project for a calendar year during the project period,
the allocation only applies to buildings placed in service during or after the calendar year for which the allocation is made, and
the portion of such allocation which is allocated to any building in such project is specified not later than the close of the calendar year in which the building is placed in service.
Project period
For purposes of clause (i), the term project period
means the period—
beginning with the 1st calendar year for which an allocation may be made for the 1st building placed in service as part of such project, and
ending with the calendar year the last building is placed in service as part of such project.
Allocated limitation amount to apply to all taxable years ending during or after allocation year
Any limitation amount allocated to any building for any calendar year—
shall apply to such building for all taxable years in the compliance period ending during or after such calendar year, and
shall reduce the aggregate limitation amount of the allocating agency only for such calendar year.
Limitation amount for agencies
In general
The limitation amount which a housing credit agency may allocate for any calendar year is the portion of the State limitation allocated under this paragraph for such calendar year to such agency.
State limitation initially allocated to State housing credit agencies
Except as provided in subparagraph (F), the State limitation for each calendar year shall be allocated to the housing credit agency of such State. If there is more than 1 housing credit agency of a State, all such agencies shall be treated as a single agency.
State limitation
The State limitation applicable to any State for any calendar year shall be an amount equal to the sum of—
the unused State limitation (if any) of such State for the preceding calendar year,
the greater of—
$31.20 multiplied by the State population, or
$36,300,000, plus
the amount of State limitation returned in the calendar year.
Unused State limitation
For purposes of subparagraph (C)(i), the unused State limitation for any calendar year is the excess (if any) of the sum of the amounts described in clauses (ii) and (iii) of subparagraph (C) over the aggregate limitation amount allocated for such year.
State limitation returned in the calendar year
For purposes of subparagraph (C)(iii), the amount of State limitation returned in the calendar year equals the limitation amount previously allocated within the State to any project—
which fails to meet the 10 percent test under paragraph (1)(E)(ii) on a date after the close of the calendar year in which the allocation was made,
which does not become a qualified low-income housing project within the period required by this section or the terms of the allocation, or
with respect to which an allocation is cancelled by mutual consent of the housing credit agency and the allocation recipient.
State may provide for different allocation
For purposes of this paragraph, a State may by law provide (or a Governor of a State may proclaim) a different formula for allocating the State limitation among the State housing credit agencies in such State.
Population
For purposes of this paragraph, determinations of the population of any State shall be made with respect to any calendar year on the basis of the most recent census estimate of the resident population of such State released by the Bureau of Census before the beginning of such calendar year.
Cost-of-living adjustment
In general
In the case of a calendar year after 2015, the dollar amounts in subparagraph (C)(ii) shall each be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year,
determined by substituting calendar year 2014
for calendar year 2012
in clause (ii) thereof.
Rounding
In the case of the dollar amount in subparagraph (C)(ii)(I), any increase under clause (i) which is not a multiple of 20 cents shall be rounded to the next lowest multiple of 20 cents.
In the case of the dollar amount in subparagraph (C)(ii)(II), any increase under clause (i) which is not a multiple of $100,000 shall be rounded to the next lowest multiple of $100,000.
Portion of State limitation set-aside for certain projects involving qualified nonprofit organizations
In general
Not more than 90 percent of the State limitation for any State for any calendar year shall be allocated to projects other than qualified low-income housing projects described in subparagraph (B).
Projects involving qualified nonprofit organizations
For purposes of subparagraph (A), a qualified low-income housing project is described in this subparagraph if a qualified nonprofit organization is to own an interest in the project (directly or through a partnership) and materially participate (within the meaning of section 469(h)) in the development and operation of the project throughout the credit period.
Qualified nonprofit organization
For purposes of this paragraph, the term qualified nonprofit organization
means any organization if—
such organization is described in paragraph (3) or (4) of section 501(c) and is exempt from tax under section 501(a),
such organization is determined by the State housing credit agency not to be affiliated with or controlled by a for-profit organization; and
1 of the exempt purposes of such organization includes the fostering of low-income housing.
Treatment of certain subsidiaries
In general
For purposes of this paragraph, a qualified nonprofit organization shall be treated as satisfying the ownership and material participation test of subparagraph (B) if any qualified corporation in which such organization holds stock satisfies such test.
Qualified corporation
For purposes of clause (i), the term qualified corporation
means any corporation if 100 percent of the stock of such corporation is held by 1 or more
qualified nonprofit organizations at all times during the period such
corporation is in existence.
State may not override set-aside
Nothing in subparagraph (F) of paragraph (3) shall be construed to permit a State not to comply with subparagraph (A) of this paragraph.
Buildings eligible for credit only if minimum long-term commitment to low-income housing
In general
No credit shall be allowed by reason of this section with respect to any building for the taxable year unless an extended low-income housing commitment is in effect as of the end of such taxable year.
Extended low-income housing commitment
For purposes of this paragraph, the term extended low-income housing commitment
means any agreement between the taxpayer and the housing credit agency—
which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement and which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii),
which allows individuals who meet the income limitation applicable to the building under subsection (g) (whether prospective, present, or former occupants of the building) the right to enforce in any State court the requirement and prohibitions of clause (i),
which prohibits the disposition to any person of any portion of the building to which such agreement applies unless all of the building to which such agreement applies is disposed of to such person,
which prohibits the refusal to lease to a holder of a voucher or certificate of eligibility under section 8 of the United States Housing Act of 1937 because of the status of the prospective tenant as such a holder,
which is binding on all successors of the taxpayer, and
which, with respect to the property, is recorded pursuant to State law as a restrictive covenant.
Allocation of limitation amount may not exceed amount necessary to support commitment
The limitation amount allocated to any building may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building.
Extended use period
For purposes of this paragraph, the term extended use period
means the period—
beginning on the 1st day in the credit period on which such building is part of a qualified low-income housing project, and
ending on the later of—
the date specified by such agency in such agreement, or
the date which is 15 years after the close of the credit period.
Exceptions if foreclosure or if no buyer willing to maintain low-income status
In general
The extended use period for any building shall terminate—
on the date the building is acquired by foreclosure (or instrument in lieu of foreclosure) unless the Secretary determines that such acquisition is part of an arrangement with the taxpayer a purpose of which is to terminate such period, or
on the last day of the period specified in subparagraph (I) if the housing credit agency is unable to present during such period a qualified contract for the acquisition of the low-income portion of the building by any person who will continue to operate such portion as a qualified low-income building.
Eviction, etc., of existing low-income tenants not permitted
The termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination—
the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit, or
any increase in the gross rent with respect to such unit not otherwise permitted under this section.
Qualified contract
For purposes of subparagraph (E), the term qualified contract
means a bona fide contract to acquire (within a reasonable period after the contract is entered
into) the nonlow-income portion of the building for fair market value and
the low-income portion of the building for an amount not less than the
applicable fraction (specified in the extended low-income housing
commitment) of—
the sum of—
the outstanding indebtedness secured by, or with respect to, the building,
the adjusted investor equity in the building, plus
other capital contributions not reflected in the amounts described in subclause (I) or (II), reduced by
cash distributions from (or available for distribution from) the project.
Adjusted investor equity
In general
For purposes of subparagraph (F), the term adjusted investor equity
means, with respect to any calendar year, the aggregate amount of cash taxpayers invested with
respect to the project increased by the amount equal to—
such amount, multiplied by
the cost-of-living adjustment for such calendar year, determined under section 1(c)(2)(A) by
substituting the base calendar year for calendar year 2012
in clause (ii) thereof.
Cost-of-living increases in excess of 5 percent not taken into account
Under regulations prescribed by the Secretary, if the C-CPI-U for any calendar year (within the meaning of section 1(c)) exceeds the C-CPI-U for the preceding calendar year by more than 5 percent, the C-CPI-U for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i).
Base calendar year
For purposes of this subparagraph, the term base calendar year
means the calendar year with or within which the 1st taxable year of the credit period ends.
Low-income portion
For purposes of this paragraph, the low-income portion of a building is the portion of such building equal to the applicable fraction specified in the extended low-income housing commitment for the building.
Period for finding buyer
The period referred to in this subparagraph is the 1-year period beginning on the date (after the 14th year of the credit period) the taxpayer submits a written request to the housing credit agency to find a person to acquire the taxpayer’s interest in the low-income portion of the building.
Effect of noncompliance
If, during a taxable year, there is a determination that an extended low-income housing agreement was not in effect as of the beginning of such year, such determination shall not apply to any period before such year and subparagraph (A) shall be applied without regard to such determination if the failure is corrected within 1 year from the date of the determination.
Projects which consist of more than 1 building
The application of this paragraph to projects which consist of more than 1 building shall be made under regulations prescribed by the Secretary.
Special rules
Building must be located within jurisdiction of credit agency
A housing credit agency may allocate its limitation amount only to buildings located in the jurisdiction of the governmental unit of which such agency is a part.
Agency allocations in excess of limit
If the limitation amounts allocated by a housing credit agency for any calendar year exceed the portion of the State limitation allocated to such agency for such calendar year, the limitation amounts so allocated shall be reduced (to the extent of such excess) for buildings in the reverse of the order in which the allocations of such amounts were made.
Credit reduced if credit is less than credit which would be allowable without regard to placed in service convention, etc
In general
The amount of the credit determined under this section with respect to any building shall not exceed the clause (ii) percentage of the amount of the credit which would (but for this subparagraph) be determined under this section with respect to such building.
Determination of percentage
For purposes of clause (i), the clause (ii) percentage with respect to any building is the percentage which—
the credit amount which would be determined under this section with respect to the building if the limitation amount allocated to such building were equal to the qualified basis of such building, bears to
the credit amount determined in accordance with clause (iii).
Determination of credit amount
The credit amount determined in accordance with this clause is the amount of the credit which would (but for this subparagraph) be determined under this section with respect to the building if this section were applied without regard to subsection (f)(2)(A).
Other definitions
For purposes of this subsection—
Housing credit agency
The term housing credit agency
means any agency authorized to carry out this subsection.
Possessions treated as States
The term State
includes a possession of the United States.
.
Conforming amendments
Section 42(f) is amended by striking paragraph (3).
Section 42(i)(3)(B)(iii)(II) is amended by striking subsection (h)(5)
and inserting subsection (h)(4)
.
Section 42(i)(7)(A) is amended by striking subsection (h)(5)(C)
and inserting subsection (h)(4)(C)
.
Section 42(i)(8) is amended by striking the last sentence.
Section 42(i) is amended by striking paragraph (9).
Section 42(k)(2)(A) is amended by striking subsection (h)(5)
and inserting subsection (h)(4)
.
Section 42(l)(3) is amended by striking housing credit amount
both places it appears and inserting limitation amount
.
Section 42(m)(1)(A) is amended by striking housing credit dollar amount
both places it appears and inserting limitation amount
.
Section 42(m)(1)(B)(ii) is amended by striking housing credit dollar amounts
and inserting limitation amounts
.
Section 42(m)(1) is amended by striking subparagraph (D).
Subparagraphs (A), (B)(iii), (C)(i)(I), and (C)(i)(II) of section 42(m)(2) are each amended by
striking housing credit dollar amount
and inserting limitation amount
.
Section 42(m)(2) is amended by striking subparagraph (D).
15-Year credit period
In general
Section 42(f)(1) is amended by striking 10 taxable years
and inserting 15 taxable years
.
Repeal of recapture
Section 42 is amended by striking subsection (j).
Conforming amendments
Section 42(d)(7) is amended—
by striking compliance period
in the heading thereof and inserting credit period
, and
by striking compliance period
in subparagraph (B)(ii) and inserting credit period
.
Section 42(f)(4) is amended by striking the last sentence thereof.
Section 42(i) is amended by striking paragraph (1).
Section 42(i)(6) is amended by striking and any increase in tax under subsection (j)
.
Section 42(k)(4)(C) is amended to read as follows:
Special rules
Tax benefit rule
The tax for the taxable year shall be increased under subparagraph (A) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
No credits against tax
Any increase in tax under this paragraph shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter.
.
Determination of applicable percentage
Elimination of 30 percent credit; modification of discount rate
Subsection (b) of section 42 is amended to read as follows:
Applicable percentage
In general
For purposes of this section, the term applicable percentage
means with respect to any building, the appropriate percentage prescribed by the Secretary for the
earlier of—
the month in which such building is placed in service, or
at the election of the taxpayer, the month in which the taxpayer and the housing credit agency enter into an agreement with respect to such building (which is binding on such agency, the taxpayer, and all successors in interest) as to the limitation amount to be allocated to such building.
Method of prescribing percentages
The percentages prescribed by the Secretary for any month shall be percentages which will yield over a 15-year period amounts of credit under subsection (a) which have a present value equal to 70 percent of the qualified basis of the building.
Method of discounting
In general
The present value under paragraph (2) shall be determined—
as of the last day of the 1st year of the 15-year period referred to in paragraph (2),
by using a discount rate equal to the applicable discount percentage of the average of the annual Federal mid-term rate and the annual Federal long-term rate applicable under section 1274(d)(1) to the month applicable under subparagraph (A) or (B) of paragraph (1) and compounded annually, and
by assuming that the credit allowable under this section for any year is received on the last day of such year.
Applicable discount percentage
For purposes of this paragraph, the term applicable discount percentage
means, with respect to any month referred to in subparagraph (A)(ii) the number of percentage
points by which 100 percent exceeds the highest rate of tax in effect
under section 11 for a taxable year which begins in such month.
Cross reference
For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e).
.
Existing and Federally subsidized buildings ineligible for credit
Section 42(d) is amended—
by striking paragraphs (1), (2), and (6), and redesignating paragraphs (3), (4), (5), and (7) as paragraphs (2), (3), (4), and (5), respectively, and
by inserting before paragraph (2) (as so redesignated) the following new paragraph:
In general
The eligible basis of any building is—
in the case a new building which is not Federally subsidized for the taxable year, its adjusted basis as of the close of the 1st taxable year of the credit period, and
zero in any other case.
.
Conforming amendments
Section 42(e) is amended—
in paragraph (2)(B), by striking paragraph (3) or (4)
and inserting paragraph (2) or (3)
.
in paragraph (3), by striking subparagraph (B) and redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively,
in paragraph (4), by striking the last sentence thereof, and
by striking paragraph (5) and redesignating paragraph (6) as paragraph (5).
Section 42(f) is amended by striking paragraph (5).
Section 42(i)(2)(A) is amended by striking for purposes of subsection (b)(1),
.
Section 42(i)(3) is amended—
by striking (as defined in subsection (d)(2)(D)(iii))
in subparagraph (C)(ii) and inserting (within the meaning of subparagraph (F))
, and
by adding at the end the following new subparagraph:
Related person
For purposes of subparagraph (C), a person (hereinafter in this subparagraph referred to as the related person
) is related to any person if the related person bears a relationship to such person specified in
section 267(b) or 707(b)(1), or the related person and such person are
engaged in trades or businesses under common control (within the meaning
of subsections (a) and (b) of section 52).
.
Section 42(i) is amended by striking paragraph (5).
Section 42(k)(2)(B) is amended by striking , except that
and all that follows and inserting a period.
Repeal of special rules for buildings in high cost and difficult development areas
In general
Paragraph (4) of section 42(d), as redesignated by subsection (c)(2), is amended to read as follows:
Federal grants not taken into account in determining eligible basis
The eligible basis of a building shall not include any costs financed with the proceeds of a federally funded grant.
.
Conforming amendments
Paragraph (3) of section 42(d), as redesignated by subsection (c)(2), is amended—
by striking (as defined in paragraph (5)(C))
in subparagraph (C)(i), and
by adding at the end the following new subparagraph:
Qualified census tract
For purposes of this paragraph—
In general
The term qualified census tract
means any census tract which is designated by the Secretary of Housing and Urban Development and,
for the most recent year for which census data are available on household
income in such tract, either in which 50 percent or more of the households
have an income which is less than 60 percent of the area median gross
income for such year or which has a poverty rate of at least 25 percent.
If the Secretary of Housing and Urban Development determines that
sufficient data for any period are not available to apply this
subparagraph on the basis of census tracts, such Secretary shall apply
this subparagraph for such period on the basis of enumeration districts.
Limit on MSA's designated
The portion of a metropolitan statistical area which may be designated for purposes of this subparagraph shall not exceed an area having 20 percent of the population of such metropolitan statistical area.
Determination of areas
For purposes of this subparagraph, each metropolitan statistical area shall be treated as a separate area and all nonmetropolitan areas in a State shall be treated as 1 area.
.
Clause (i) of section 42(d)(5)(A), as redesignated by subsection (c)(2), is amended to read as follows:
such building shall be treated as a new building, but
.
Repeal of certain exceptions to rules against preferential treatment
Section 42(g)(9) is amended—
by adding or
at the end of subparagraph (A), and
by striking subparagraphs (B) and (C) and inserting the following new subparagraph:
who are veterans (as defined in section 101 of title 38, United States Code).
.
Modification of selection criteria
Section 42(m)(1)(C) is amended—
by adding and
at the end of clause (vii),
by striking the comma at the end of clause (viii) and inserting a period, and
by striking clauses (ix) and (x).
Effective date
In general
The amendments made by this section shall apply with respect to State limitation amounts determined for calendar years after 2014 (and to determinations with respect to allocations of such limitation amounts).
Transition rule
For purposes of determining the State limitation amount for calendar year 2015 under section 42(h)(3)(C) of the Internal Revenue Code of 1986, as amended by this section, the amount described in clause (i) of such section shall be treated as being equal to the quotient of—
the amount which would be described in section 42(h)(3)(C)(i) of such Code (determined without regard to the amendments made by this section), divided by
the applicable percentage determined under section 42(b)(1)(B)(i) for December 2014 (determined without regard to the amendments made by this section).
Repeal of enhanced oil recovery credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 43 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (6).
Section 6501(m) is amended by striking 43,
.
Effective date
The amendments made by this section shall take effect on the date of the enactment of this Act.
Phaseout and repeal of credit for electricity produced from certain renewable resources
Reduction of credit and phaseout amounts
In general
Section 45(b) is amended by striking paragraph (2).
Conforming amendments
Section 45(e)(2) is amended—
by striking the inflation adjustment factor and
in subparagraph (A), and
by striking subparagraph (B) and redesignating subparagraph (C) as subparagraph (B).
Effective date
The amendments made by this subsection shall apply to electricity, and refined coal, produced and sold after December 31, 2014.
Special rule for determining beginning of construction
In general
Section 45(e) is amended by adding at the end the following new paragraph:
Special rule for determining beginning of construction
For purposes of subsection (d) and section 48(a)(5), the construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service.
.
Effective date
The amendment made by this subsection shall apply to taxable years beginning before, on, or after the date of the enactment of this Act.
Repeal of credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (8).
Effective date
The amendments made by this subsection shall apply to electricity, and refined coal, produced and sold after December 31, 2024.
Repeal of Indian employment credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45A (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (10).
Section 139D(c)(1) is amended to read as follows:
Indian tribe
The term Indian tribe
means any Indian tribe, band, nation, pueblo, or other organized group or community, including any
Alaska Native village or regional or village corporation, as defined in,
or established pursuant to, the Alaska Native Claims Settlement Act (43
U.S.C. 1601 et seq.) which is recognized as eligible for the special
programs and services provided by the United States to Indians because of
their status as Indians.
.
Section 280C(a) is amended by striking 45A,
.
Section 5000A(e)(3) is amended by striking section 45A(c)(6)
and inserting section 139D(c)(1)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2013.
Repeal of credit for portion of employer Social Security taxes paid with respect to employee cash tips
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45B (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (11).
Section 6501(m) is amended by striking 45B,
.
Effective date
The amendments made by this section shall apply with respect to tips received for services performed after December 31, 2014.
Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45C (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (12).
Section 280C is amended by striking subsection (b).
Section 6501(m) is amended by striking 45C(d)(4),
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2014.
Repeal of credit for small employer pension plan startup costs
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45E (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (14).
Effective date
The amendments made by this section shall apply to costs paid or incurred after December 31, 2014, with respect to qualified employer plans first effective after such date.
Repeal of employer-provided child care credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45F (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (15).
Section 1016(a) is amended by striking paragraph (28).
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Basis adjustments
The amendment made by subsection (b)(2) shall apply to credits determined for taxable years beginning after December 31, 2014.
Repeal of railroad track maintenance credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45G (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (16).
Section 1016(a) is amended by striking paragraph (29).
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2013.
Basis adjustments
The amendment made by subsection (b)(2) shall apply to credits determined for taxable years beginning after December 31, 2013.
Repeal of credit for production of low sulfur diesel fuel
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45H (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (18).
Section 280C is amended by striking subsection (d).
Section 6501(m) is amended by striking 45H(g),
.
Section 6720A is amended—
by striking (as defined in section 45H(c)(3))
in subsection (a), and
by adding at the end the following new subsection:
Applicable EPA regulations
The term applicable EPA regulations
means the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency.
.
Effective date
The amendments made by this section shall apply to expenses paid or incurred in taxable years beginning after December 31, 2014.
Repeal of credit for producing oil and gas from marginal wells
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45I (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (19).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of credit for production from advanced nuclear power facilities
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45J (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (21).
Effective date
The amendments made by this section shall apply to electricity produced and sold after December 31, 2014.
Repeal of credit for producing fuel from a nonconventional source
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45K (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (22).
Section 45(e)(9) is amended—
in subparagraph (A)—
by inserting , as in effect before its repeal
after within the meaning of section 45K
, and
by inserting (as in effect before its repeal)
after under section 45K
, and
in subparagraph (B), by inserting (as in effect before its repeal)
after section 45K
.
Section 4041(a)(2) is amended—
by striking (as defined in section 45K(c)(3))
in subparagraph (B)(ii), and
by adding at the end the following new subparagraph:
Biomass
The term “biomass” means any organic material other than—
oil and natural gas (or any product thereof), and
coal (including lignite) or any product thereof.
.
Effective date
The amendments made by this section shall apply to fuel produced and sold after December 31, 2013.
Repeal of new energy efficient home credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45L (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (23).
Section 1016(a) is amended by striking paragraph (32).
Effective date
The amendments made by this section shall apply to homes acquired after December 31, 2013.
Repeal of energy efficient appliance credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45M (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (24).
Effective date
The amendments made by this section shall apply to appliances produced after December 31, 2013.
Repeal of mine rescue team training credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45N (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (31).
Section 280C is amended by striking subsection (e).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2013.
Repeal of agricultural chemicals security credit
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45O (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (32).
Section 280C is amended by striking subsection (f).
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2012.
Repeal of credit for carbon dioxide sequestration
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45Q (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (34).
Effective date
The amendments made by this section shall apply to credits determined for taxable years beginning after December 31, 2014.
Repeal of credit for employee health insurance expenses of small employers
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45R (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 38(b) is amended by striking paragraph (36).
Section 280C is amended by striking subsection (h).
Section 6055(b)(2) is amended by inserting and
at the end of subparagraph (A), by striking , and
at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).
Effective date
The amendments made by this section shall apply to amounts paid or incurred for taxable years beginning after December 31, 2014.
Repeal of rehabilitation credit
In general
Subpart E of part IV of subchapter A of chapter 1 is amended by striking section 47 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 170(f)(14)(A) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 47
.
Section 170(h)(4) is amended—
by striking (as defined in section 47(c)(3)(B))
in subparagraph (C)(ii), and
by adding at the end the following new subparagraph:
Registered historic district
The term registered historic district
means—
any district listed in the National Register, and
any district—
which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and
which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register.
.
Section 469(i)(3) is amended by striking subparagraph (B).
Section 469(i)(6)(B) is amended—
by striking in the case of—
and all that follows and inserting in the case of any credit determined under section 42 for any taxable year.
, and
by striking , rehabilitation credit,
in the heading thereof.
Section 469(k)(1) is amended by striking , or any rehabilitation credit determined under section 47,
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to amounts paid after December 31, 2014.
Transition rule
In the case of qualified rehabilitation expenditures (within the meaning of section 47 of the Internal Revenue Code of 1986 as in effect before its repeal) with respect to any building—
acquired by the taxpayer before January 1, 2015, and
with respect to which the 24-month period selected by the taxpayer under section 47(c)(1)(C) of such Code begins not later than January 1, 2015,
Repeal of energy credit
Termination
Section 48 is amended by adding at the end the following new subsection:
Application of section
This section shall not apply to any energy property placed in service after December 31, 2016.
.
Conforming amendments
Paragraph (2)(A)(i)(II), and clauses (ii) and (vii) of paragraph (3)(A), of section 48(a) are each
amended by striking but only with respect to periods ending before January 1, 2017
.
Paragraph (1) of section 48(c) is amended by striking subparagraph (D).
Paragraph (2) of section 48(c) is amended by striking subparagraph (D).
Subparagraph (A) of section 48(c)(3) is amended by inserting and
at the end of clause (ii), by striking , and
at the end of clause (iii) and inserting a period, and by striking clause (iv).
Paragraph (4) of section 48(c) is amended by striking subparagraph (C).
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2016.
Repeal of qualifying advanced coal project credit
In general
Subpart E of part IV of subchapter A of chapter 1 is amended by striking section 48A (and by striking the item relating to such section in the table of sections for such subpart).
Effective date
The amendments made by this section shall apply to allocations and reallocations after December 31, 2014.
Repeal of qualifying gasification project credit
In general
Subpart E of part IV of subchapter A of chapter 1 is amended by striking section 48B (and by striking the item relating to such section in the table of sections for such subpart).
Effective date
The amendments made by this section shall apply to allocations and reallocations after December 31, 2014.
Repeal of qualifying advanced energy project credit
In general
Subpart E of part IV of subchapter A of chapter 1 is amended by striking section 48C (and by striking the item relating to such section in the table of sections for such subpart).
Effective date
The amendments made by this section shall apply to allocations and reallocations after December 31, 2014.
Repeal of qualifying therapeutic discovery project credit
In general
Subpart E of part IV of subchapter A of chapter 1 is amended by striking section 48D (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 280C is amended by striking the second subsection (g) (as added by the Patient Protection and Affordable Care Act).
Effective date
The amendments made by this section shall apply to allocations and reallocations after December 31, 2014.
Repeal of work opportunity tax credit
In general
Subpart F of part IV of subchapter A of chapter 1 is amended by striking section 51 (and by striking the item relating to such section in the table of sections for such subpart).
Clerical amendment
The heading of such subpart F (and the item relating to such subpart in the table of subparts for
part IV of subchapter A of chapter 1) are each amended by striking Rules for Computing Work Opportunity Credit
and inserting Special Rules
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred to individuals who begin work for the employer after December 31, 2013.
Repeal of deduction for certain unused business credits
In general
Part VI of subchapter B of chapter 1 is amended by striking section 196 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Accounting methods
Limitation on use of cash method of accounting
In general
Section 448 is amended to read as follows:
Limitation on use of cash method of accounting
In general
The cash receipts and disbursements method of accounting may only be used by—
a natural person,
a farming business, and
any other entity which meets the gross receipts test of subsection (b) for the taxable year.
Gross receipts test
For purposes of this section—
In general
An entity meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $10,000,000.
Aggregation rules
All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as one entity for purposes of paragraph (1).
Special rules
For purposes of this subsection—
Not in existence for entire 3-year period
If the entity was not in existence for the entire 3-year period referred to in paragraph (1), such paragraph shall be applied on the basis of the period during which such entity (or trade or business) was in existence.
Short taxable years
Gross receipts for any taxable year of less than 12 months shall be annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period.
Gross receipts
Gross receipts for any taxable year shall be reduced by returns and allowances made during such year.
Treatment of predecessors
Any reference in this subsection to an entity shall include a reference to any predecessor of such entity.
Farming business
For purposes of this section—
In general
The term farming business
means the trade or business of farming.
Certain trades and businesses included
In general
The term farming business
shall include the trade or business of—
operating a nursery or sod farm, or
the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees.
Certain evergreen trees not treated as ornamental
For purposes of subparagraph (A)(ii), an evergreen tree which is more than 6 years old at the time severed from the roots shall not be treated as an ornamental tree.
Tax shelter defined
For purposes of this section, the term tax shelter
has the meaning given such term by section 461(i)(2) (determined after application of paragraph
(3) thereof). An S corporation shall not be treated as a tax shelter for
purposes of this section merely by reason of being required to file a
notice of exemption from registration with a State agency described in
section 461(i)(2)(A), but only if there is a requirement applicable to all
corporations offering securities for sale in the State that to be exempt
from such registration the corporation must file such a notice.
Special rules
For purposes of this section—
Coordination with section 481
In the case of any person required by this section to change its method of accounting for any taxable year—
such change shall be treated as initiated by such person, and
such change shall be treated as made with the consent of the Secretary.
Use of related parties, etc
The Secretary shall prescribe such regulations as may be necessary to prevent the use of related parties, pass-thru entities, or intermediaries to avoid the application of this section.
.
Conforming amendments
Section 446(c)(1) is amended by inserting to the extent provided in section 448,
before the cash receipts
.
Section 451 is amended by adding at the end the following new subsection:
Special rule for losses of certain service providers on accrual method of accounting
In general
In the case of any person using an accrual method of accounting with respect to amounts to be received for the performance of services by such person, such person shall not be required to accrue any portion of such amounts which (on the basis of such person’s experience) will not be collected if such services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other field identified by the Secretary for purposes of this subsection.
Exception
Paragraph (1) shall not apply to any amount if interest is required to be paid on such amount or there is any penalty for failure to timely pay such amount.
Regulations
The Secretary shall prescribe regulations to permit taxpayers to determine amounts referred to in paragraph (1) using computations or formulas which, based on experience, accurately reflect the amount of income that will not be collected by such person. A taxpayer may adopt, or request consent of the Secretary to change to, a computation or formula that clearly reflects the taxpayer’s experience. A request under the preceding sentence shall be approved if such computation or formula clearly reflects the taxpayer’s experience.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Change in method of accounting
In general
In the case of any qualified change in method of accounting for the taxpayer’s first taxable year beginning after December 31, 2014—
such change shall be treated as initiated by the taxpayer,
such change shall be treated as made with the consent of the Secretary of the Treasury, and
if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 by reason of such change is positive—
such amount shall be taken into account during the 4-taxable year period beginning with the earlier of the taxpayer’s elected taxable year or the taxpayer’s first taxable year beginning after December 31, 2018, as follows:
10 percent of such amount in the first taxable year in such period,
15 percent of such amount in the second taxable year in such period,
25 percent of such amount in the third taxable year in such period, and
50 percent of such amount in the fourth taxable year in such period, and
for purposes of applying the regulations and other guidance issued under such section (including any provisions which require accelerated inclusion), the period beginning with the taxpayer’s first taxable year beginning after December 31 2014, and ending with the taxable year before the first taxable year referred to in clause (i) shall not fail to be taken into account as part of the period of the adjustment merely because such amount is not otherwise taken into account under clause (i) during such period.
Qualified change in method of accounting
For purposes of this subsection, the term qualified change in method of accounting
means any change in method of accounting which—
is required by the amendments made by this section, or
was prohibited under the Internal Revenue Code of 1986 prior to such amendments and is permitted under such Code after such amendments.
Elected taxable year
For purposes of this subsection, the term elected taxable year
means such taxable year as the taxpayer may elect (at such time and in such form and manner as the
Secretary may provide) which begins after December 31, 2014, and is before
the taxpayer’s second taxable year beginning after December 31, 2018.
Rules for determining whether taxpayer has adopted a method of accounting
In general
Section 446 is amended by adding at the end the following new subsection:
Rules for treating accounting method as adopted by taxpayer
If the taxpayer uses a method of accounting with respect to any item on any return of tax—
in the case of any method of accounting which the taxpayer is permitted to use with respect to such item, such method shall be treated as having been adopted by the taxpayer with respect to such item, and
in the case of any method of accounting which the taxpayer is not permitted to use with respect to such item, such method shall be treated as having been adopted by the taxpayer with respect to such item if the taxpayer used the same method with respect to such item on the return of tax for the preceding taxable year.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Certain special rules for taxable year of inclusion
Inclusion not later than for financial accounting purposes
Section 451 is amended by redesignating subsections (b) through (j) as subsection (c) through (k), respectively, and by inserting after subsection (a) the following new subsection:
Inclusion not later than for financial accounting purposes
In general
In the case of a taxpayer the taxable income of which is computed under the accrual method of accounting, the amount of any portion of any item of income shall be included in gross income not later than the taxable year with respect to which such amount is taken into account as income in—
an audited financial statement of the taxpayer described in section 1221(b)(3)(B), or
such other financial statement as the Secretary may specify for purposes of this subsection.
Coordination with special rules for long-term contracts
Paragraph (1) shall not apply with respect to any item of income to which section 460 applies.
.
Treatment of advance payments
Section 451, as amended by subsection (a), is amended by redesignating subsections (c) through (k) as subsections (d) through (l), respectively, and by inserting after subsection (b) the following new subsection:
Treatment of advance payments
In general
A taxpayer which computes taxable income under the accrual method of accounting, and receives any advance payment during the taxable year, shall—
except as provided in subparagraph (B), include such advance payment in gross income for such taxable year, or
if the taxpayer elects the application of this subparagraph with respect to the category of advance payments to which such advance payment belongs, the taxpayer shall—
to the extent that any portion of such advance payment is required under subsection (b) to be included in gross income in the taxable year in which such payment is received, so include such portion, and
include the remaining portion of such advance payment in gross income in the taxable year following the taxable year in which such payment is received.
Election
In general
Except as otherwise provided in this paragraph, the election under paragraph (1)(B) shall be made at such time, in such form and manner, and with respect to such categories of advance payments, as the Secretary may provide.
Period to which election applies
An election under paragraph (1)(B) shall be effective for the taxable year with respect to which it is first made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to revoke such election. For purposes of this title, the computation of taxable income under an election made under paragraph (1)(B) shall be treated as a method of accounting.
Advance payment
For purposes of this subsection—
In general
The term advance payment
means any payment—
the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting under this section (determined without regard to this subsection), and
which is for goods, services, or such other items as may be identified by the Secretary for purposes of this clause.
Exclusions
Except as otherwise provided by the Secretary, such term shall not include—
rent,
insurance premiums,
payments with respect to financial instruments,
payments with respect to warranty or guarantee contracts under which a third party is the primary obligor,
payments subject to section 871(a), 881, 1441, or 1442,
payments in property to which section 83 applies, and
any other payment identified by the Secretary for purposes of this subparagraph.
.
Crop insurance proceeds and disaster payments
Section 451, as amended by subsections (a) and (b), is amended by striking subsection (f).
Livestock sold on account of drought, flood, and other weather-Related conditions
Section 451, as amended by subsections (a) and (b), is amended by striking subsection (g).
Sales or dispositions To implement Federal Energy Regulatory Commission or State electric restructuring policy
Section 451, as amended by subsections (a) and (b), is amended by striking subsection (k).
Conforming amendments
Section 451, as amended by subsections (a), (b), (c), (d), and (e), is amended by redesignating subsections (h), (i), (j), and (l) as subsections (f), (g), (h), and (i), respectively.
Effective dates
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Crop insurance proceeds and disaster payments
—
In general
Except as provided in subparagraph (B), the amendments made by subsection (c) shall apply to destruction and damage of crops occurring after December 31, 2014.
Inability to plant
In the case of inability to plant crops because of a natural disaster, the amendments made by subsection (c) shall apply to natural disasters occurring after December 31, 2014.
Livestock
The amendments made by subsection (d) shall apply to sales and exchanges after December 31, 2014.
Sales or dispositions to implement electric restructuring policy
The amendments made by subsection (e) shall apply to sales and dispositions after December 31, 2013.
Change in method of accounting
In the case of any taxpayer required by the amendments made by subsections (a) and (b) to change its method of accounting for its first taxable year beginning after December 31, 2014—
such change shall be treated as initiated by the taxpayer, and
such change shall be treated as made with the consent of the Secretary of the Treasury.
Installment sales
Repeal of exceptions to treatment as dealer dispositions
Section 453(l) is amended to read as follows:
Dealer dispositions
For purposes of subsection (b)(2)(A), the term dealer disposition
means any of the following dispositions:
Personal property
Any disposition of personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan.
Real property
Any disposition of real property which is held by the taxpayer for sale to customers in the ordinary course of the taxpayer’s trade or business.
.
Modification of rules for nondealers
Repeal of special rule for interest payments
Section 453A(b)(2) is amended to read as follows:
Interest payment exception for obligations not outstanding at close of taxable year
Subsection (a)(1) shall apply to an obligation described in paragraph (1) arising during any taxable year only if such obligation is outstanding as of the close of such taxable year.
.
Repeal of exception for farm property
Section 453A(b)(3) is amended—
by striking from the disposition—
and all that follows and inserting from the disposition by an individual of personal use property (within the meaning of section
1275(b)(3)).
, and
by striking and farm
in the heading.
Repeal of special rule for timeshares and residential lots
Section 453A(b) is amended by striking paragraph (4) and by redesignating paragraph (5) as paragraph (4).
Conforming amendment
Section 453A(c) is amended—
by striking the applicable percentage of
in paragraph (2)(A), and
by striking paragraph (4) and by redesignating paragraphs (5) and (6) as paragraphs (4) and (5), respectively.
Effective date
The amendments made by this section shall apply to sales and other dispositions after December 31, 2014.
Repeal of special rule for prepaid subscription income
In general
Subpart B of part II of subchapter E of chapter 1 is amended by striking section 455 (and by striking the item relating to such section in the table of sections for such subpart).
Effective date
The amendments made by this section shall apply to payments received after December 31, 2014.
Repeal of special rule for prepaid dues income of certain membership organizations
In general
Subpart B of part II of subchapter E of chapter 1 is amended by striking section 456 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 277(b)(2) is amended by inserting (as in effect before its repeal)
after section 456(c)
.
Effective date
The amendments made by this section shall apply to payments received after December 31, 2014.
Repeal of special rule for magazines, paperbacks, and records returned after close of the taxable year
In general
Subpart B of part II of subchapter E of chapter 1 is amended by striking section 458 (and by striking the item relating to such section in the table of sections for such subpart).
Effective date
In general
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Change in method of accounting
In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after December 31, 2014—
such change shall be treated as initiated by the taxpayer, and
such change shall be treated as made with the consent of the Secretary of the Treasury.
Modification of rules for long-term contracts
Repeal of exception for home construction contracts
Paragraph (1) of section 460(e) is amended to read as follows:
Exception for certain construction contracts
Subsections (a), (b), and (c)(1) and (2) shall not apply to any construction contract entered into by a taxpayer—
who estimates (at the time such contract is entered into) that such contract will be completed within the 2-year period beginning on the contract commencement date of such contract, and
whose average annual gross receipts for the 3 taxable years preceding the taxable year in which such contract is entered into do not exceed $10,000,000.
.
Repeal of special rule for other residential construction contracts
Section 460(e) is amended by striking paragraphs (5) and (6).
Repeal of special rules for qualified ship contracts
In general
Section 10203(b) of the Revenue Act of 1987 is amended by striking paragraph (2).
Qualified naval ship contracts
The American Jobs Creation Act of 2004 is amended by striking section 708.
Conforming amendments
Section 460(e) is amended by striking paragraphs (2) and (3) and by redesignating paragraph (4) as paragraph (2).
Effective date
The amendments made by this section shall apply to contracts entered into after December 31, 2014.
Nuclear decommissioning reserve funds
Gross income on nuclear decommissioning reserve funds taxed at corporate rate
Section 468A(e)(2) is amended by striking at the rate of 20 percent
and inserting at a rate equal to the maximum rate in effect for such taxable year under section 11
.
Income inclusion upon disqualified distribution
Section 468A(c)(1) is amended by striking and
at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and
inserting , and
, and by adding at the end the following new subparagraph:
if any distribution is made from the Fund during such taxable year which is not used as provided in subsection (e)(4), the balance of the Fund determined immediately before such distribution.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of last-in, first-out method of inventory
In general
Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
Last-In, first-Out method not permissible
The last-in, first-out method of determining inventories shall in no event be treated as clearly reflecting income.
.
Conforming amendments
Subpart D of part II of subchapter E of chapter 1 is amended by striking sections 472, 473, and 474 (and by striking the items relating to such sections in the table of sections for such subpart).
Section 312(n), as amended by the preceding provisions of this Act, is amended by striking paragraph (3) and by redesignating paragraphs (4) through (7) as paragraphs (3) through (6), respectively.
Section 312(n)(6), as amended by the preceding provisions of this Act, is amended—
by striking paragraphs (4) and (6)
in subparagraph (A) and inserting paragraph (4)
, and
by striking paragraph (5)
in subparagraph (B) and inserting paragraph (3)
.
Section 301(e)(3), as amended by the preceding provisions of this Act, is amended—
by striking paragraph (6)
and inserting paragraph (5)
, and
by striking section 312(n)(6)
in the heading and inserting section 312(n)(5)
.
Section 952(c)(3), as amended by the preceding provisions of this Act, is amended by striking paragraphs (3), (4), and (5)
and inserting paragraphs (2), (3), and (4)
.
Section 1293(e)(3), as amended by the preceding provisions of this Act, is amended by striking paragraphs (3), (4), and (5)
and inserting paragraphs (2), (3), and (4)
.
Section 1503(e)(2)(C), as amended by the preceding provisions of this Act, is amended—
by striking paragraph (6)
and inserting paragraph (5)
, and
by striking section 312(n)(6)
in the heading and inserting section 312(n)(5)
.
Section 1363 is amended by striking subsection (d).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Change in method of accounting
In general
In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after December 31, 2014—
such change shall be treated as initiated by the taxpayer,
such change shall be treated as made with the consent of the Secretary of the Treasury, and
if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 by reason of such change is positive—
such amount shall be taken into account during the 4-taxable year period beginning with the earlier of the taxpayer’s elected taxable year or the taxpayer’s first taxable year beginning after December 31, 2018, as follows:
10 percent of such amount in the first taxable year in such period,
15 percent of such amount in the second taxable year in such period,
25 percent of such amount in the third taxable year in such period, and
50 percent of such amount in the fourth taxable year in such period, and
for purposes of applying the regulations and other guidance issued under such section (including any provisions which require accelerated inclusion), the period beginning with the taxpayer’s first taxable year beginning after December 31 2014, and ending with the taxable year before the first taxable year referred to in clause (i) shall not fail to be taken into account as part of the period of the adjustment merely because such amount is not otherwise taken into account under clause (i) during such period.
Elected taxable year
For purposes of this subsection, the term elected taxable year
means such taxable year as the taxpayer may elect (at such time and in such form and manner as the
Secretary may provide) which begins after December 31, 2014, and is before
the taxpayer’s second taxable year beginning after December 31, 2018.
Reduction in amount of adjustment for closely-held entities
In general
In the case of any closely-held entity, paragraph (1)(C) shall be applied by treating any reference
to such amount
as a reference to 20 percent (28 percent in the case of a C corporation) of such amount.
Closely-held entity
For purposes of this paragraph—
In general
The term closely-held entity
means any domestic corporation or domestic partnership which—
is not an ineligible entity,
does not have more than 100 shareholders or partners (as the case may be), and
does not have as a shareholder or partner a person (other than an estate, a trust described in section 1361(c)(2) of the Internal Revenue Code of 1986, or an organization described section 1361(c)(6) of such Code) who is not an individual.
Certain subsidiaries
An entity shall not fail to be treated as a closely-held entity by reason of clause (i)(III) if all of the interests in such entity are held by a single closely-held entity (determined without regard to this clause) and individuals taken into account under clause (i)(II) with respect to such entity. In the case of tiered entities (other than the top tier entity), the preceding sentence shall be applied—
by substituting (determined after application of this clause)
for (determined without regard to this clause)
, and
by substituting with respect to the top tier entity
for with respect to such entity
.
Ineligible entity
The term ineligible entity
means any entity described in section 1361(b)(2) of the Internal Revenue Code of 1986 applied by
substituting corporation or partnership
for corporation
each place it appears.
Date of determination
The status of any entity as a closely-held entity shall be determined as of February 26, 2014.
Sole proprietors
An individual operating a trade or business shall be treated as a closely-held entity.
Certain transfers disregarded
In general
In the case of any specified inventory transfer, the adjustments referred to in paragraph (1)(C) shall be determined—
with respect to the transferor, as though the property transferred continued to be held at all times by such transferor, and
with respect to the transferee, as though such property was never transferred to such transferee.
Specified inventory transfer
The term specified inventory transfer
means any transfer of property described in section 1221(a)(1) if—
such transfer is to a closely-held entity from any person who is not a closely-held entity,
such transfer is on or after February 26, 2014, and before the beginning of the transferor’s first taxable year beginning after December 31, 2014, and
the basis of such property in the hands of the transferee immediately after such transfer is either determined by reference to the basis of such property in the hands of the transferor or is less than the fair market value of such property at the time of such transfer.
Repeal of lower of cost or market method of inventory
In general
Section 471, as amended by the preceding provisions of this Act, is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection:
Lower of cost or market method not permissible
The lower of cost or market method of determining inventories shall in no event be treated as clearly reflecting income. For purposes of the preceding sentence, the lower of cost or market shall include the lower of cost or bona fide net selling price.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Change in method of accounting
In general
In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after December 31, 2014—
such change shall be treated as initiated by the taxpayer,
such change shall be treated as made with the consent of the Secretary of the Treasury, and
if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 by reason of such change is positive—
such amount shall be taken into account during the 4-taxable year period beginning with the earlier of the taxpayer’s elected taxable year or the taxpayer’s first taxable year beginning after December 31, 2018, as follows:
10 percent of such amount in the first taxable year in such period,
15 percent of such amount in the second taxable year in such period,
25 percent of such amount in the third taxable year in such period, and
50 percent of such amount in the fourth taxable year in such period, and
for purposes of applying the regulations and other guidance issued under such section (including any provisions which require accelerated inclusion), the period beginning with the taxpayer’s first taxable year beginning after December 31 2014, and ending with the taxable year before the first taxable year referred to in clause (i) shall not fail to be taken into account as part of the period of the adjustment merely because such amount is not otherwise taken into account under clause (i) during such period.
Elected taxable year
For purposes of this subsection, the term elected taxable year
means such taxable year as the taxpayer may elect (at such time and in such form and manner as the
Secretary may provide) which begins after December 31, 2014, and is before
the taxpayer’s second taxable year beginning after December 31, 2018.
Modification of rules for capitalization and inclusion in inventory costs of certain expenses
$10,000,000 gross receipts exception To apply to property produced by the taxpayer
Section 263A(b) is amended by striking all that follows paragraph (1) and inserting the following new paragraphs:
Property acquired for resale
Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale.
Exception for taxpayer with gross receipts of $10,000,000 or less
This section shall not apply to any property produced or acquired by the taxpayer during any taxable year if the average annual gross receipts of the taxpayer (or any predecessor) for the 3-taxable year period ending with the taxable year preceding such taxable year do not exceed $10,000,000. For purposes of this paragraph, rules similar to the rules of paragraphs (2) and (3) of section 448(b) shall apply.
Films, sound recordings, books, etc
For purposes of this subsection, the term tangible personal property
shall include a film, sound recording, video tape, book, or similar property.
.
Repeal of exceptions for timber and certain ornamental trees
Section 263A(c) is amended by striking paragraph (5).
Repeal of exception for qualified creative expenses
Section 263A is amended by striking subsection (h).
Effective date
In general
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Change in method of accounting
In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after December 31, 2014—
such change shall be treated as initiated by the taxpayer, and
such change shall be treated as made with the consent of the Secretary of the Treasury.
Modification of income forecast method
Extension of forecast period
In general
Paragraph (1) of section 167(g) is amended by striking 10th
each place it appears and inserting 20th
.
Modification of recomputation years
Paragraph (4) of section 167(g) is amended by striking the 3d and the 10th
and inserting the 5th, 10th, 15th, and 20th
.
Modification of rules for treatment of participations and residuals
Paragraph (7) of section 167(g) is amended to read as follows:
Treatment of participations and residuals
In general
In the case of any participation or residual with respect to any property to which this subsection applies (including any property to which section 168 applies by reason of paragraph (8)), the taxpayer—
shall exclude such participation or residual from the adjusted basis of such property, and
shall be allowed a deduction for such participation or residual in the taxable year in which such participation or residual is paid.
Participations and residuals
For purposes of this paragraph, the term participation or residual
means, with respect to any property, any cost the amount of which by contract varies with the
amount of income earned in connection with such property.
.
Election To utilize 20-Year straight line recovery
Subsection (g) of section 167 is amended by redesignating (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph:
Election to utilize 20-year straight line recovery
If the taxpayer elects the application of this paragraph for any taxable year, the depreciation deduction allowable with respect to any property placed in service by the taxpayer during such taxable year which would otherwise be determined under paragraph (1) shall be determined under section 168—
by treating the straight line method as the applicable depreciation method, and
by treating 20 years as the applicable recovery period.
.
Repeal of special rules for certain musical works and copyrights
Subsection (g) of section 167, as amended by subsection (c), is amended by striking paragraph (9).
Safe harbor amortization of certain intangible assets
Effective for property placed in service after December 31, 2014, the Secretary of the Treasury, or the Secretary’s designee, shall revise Treasury Regulation section 1.167(a)–3(b) (and such regulation shall be applied) such that the safe harbor amortization for certain intangible assets to which such regulation applies shall allow the taxpayer to treat such asset as having a useful life equal to 20 years (and not 15 years).
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2014.
Repeal of averaging of farm income
In general
Subchapter Q of chapter 1 is amended by striking part I (and by striking the item relating to such part in the table of parts for such subchapter).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Treatment of patent or trademark infringement awards
In general
Part II of subchapter B of chapter 1 is amended by adding at the end the following new section:
Patent or trademark infringement awards
In general
Except as provided in subsection (b), any payment received for infringement of any patent or trademark (whether by reason of judgment or settlement) shall be included in gross income as ordinary income.
Impairment of capital
If the taxpayer demonstrates to the satisfaction of the Secretary that a payment described in subsection (a) constitutes damages received by reason of the reduction in value of property of the taxpayer caused by the infringement referred to in subsection (a)—
the taxpayer’s basis in such property shall be reduced (but not below zero) by the amount of such payment, and
subsection (a) shall apply to so much of such payment as exceeds the amount of the reduction under paragraph (1).
.
Conforming amendments
Section 1016(a) is amended by adding at the end the following new paragraph:
to the extent provided in section 91(b)(1),
.
The table of sections for part II of subchapter B of chapter 1 is amended by adding at the end the following new item:
.
Effective date
The amendments made by this section shall apply to payments received pursuant to judgments and settlements after December 31, 2014.
Repeal of redundant rules with respect to carrying charges
In general
Part IX of subchapter B of chapter 1 is amended by striking section 266 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 163(n) is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.
Section 1016(a)(1)(A)(i), as amended by section 3514, is amended by striking described in section 266
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.
Repeal of recurring item exception for spudding of oil or gas wells
In general
Section 461(i) is amended by striking paragraph (2) and by redesignating paragraphs (3), (4), and (5) as paragraphs (2), (3), and (4), respectively.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Financial Instruments
Derivatives and hedges
Treatment of certain derivatives
In General
Subchapter E of chapter 1 is amended by adding at the end the following new part:
Derivatives
Sec. 485. Treatment of certain derivatives.
Sec. 486. Derivative defined.
Treatment of certain derivatives
In general
For purposes of this subtitle—
any derivative held by a taxpayer at the close of the taxable year shall be treated as sold for its fair market value on the last business day of such taxable year (and any gain or loss shall be taken into account for the taxable year), and
proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account by reason of paragraph (1).
Treatment as ordinary income or loss; allowance as net operating loss
All items of income, gain, loss, and deduction with respect to any derivative—
shall be treated as ordinary income or loss, and
shall be treated for purposes of section 172(d)(4) as attributable to a trade or business of the taxpayer.
Mark to market of certain offsetting positions
In general
In the case of any straddle which includes any derivative, subsections (a) and (b) shall apply to all positions comprising such straddle in the same manner as such subsections apply to such derivative.
Application to built-in gain positions
In general
In the case of any built-in gain position to which subsection (a) applies by reason of paragraph (1)—
in addition to any other time at which such position is treated as sold under subsection (a)(1), such position shall be treated as sold for its fair market value at the time that the straddle is established with respect to such position,
proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain taken into account by reason of clause (i), and
subsection (b) shall not apply to any gain taken into account by reason of clause (i).
Built-in gain position
For purposes of this subsection, the term built-in gain position
means any position (other than a derivative to which subsection (a) applies) with respect to which
a gain would be realized if such position were sold for its fair market
value at the time that the straddle is established with respect to such
position.
Exception for straight debt
Subparagraph (A) shall not apply to any position with respect to debt if—
the interest payments (or other similar amounts) with respect to such position meet the requirements of section 860G(a)(1)(B)(i), and
such position is not convertible (directly or indirectly) into stock of the issuer or any related person.
Exception for straddles consisting of qualified covered call options and the optioned stock
Subparagraph (A) shall not apply to any position which is part of a straddle if—
all the offsetting positions which are part of such straddle consist of 1 or more qualified covered call options (as defined in paragraph (6)) and the stock to be purchased from the taxpayer under such options, and
such straddle is not part of a larger straddle.
Application to built-in loss positions
In general
In the case of any built-in loss position to which subsection (a) applies by reason of paragraph (1), any gain or loss realized under subsection (a)(1) shall be properly adjusted so as not to take into account the loss referred to in subparagraph (B) with respect to such position.
Built-in loss position
For purposes of subparagraph (A), the term built-in loss position
means any position (other than a derivative to which subsection (a) applies) with respect to which
a loss would be realized if such position were sold for its fair market
value at the time that the straddle is established with respect to such
position.
Holding period of non-derivatives
For purposes of section 1222, in the case of any position to which subsection (a) applies by reason of paragraph (1), the holding period of such position shall not include—
the period during which subsection (a) applies to such position, and
in the case of a built-in gain position, the period before such position is treated as sold under paragraph (2)(A).
Straddle
For purposes of this section—
the term straddle
has the meaning given such term by section 1092(c) applied by treating all offsetting positions as
being with respect to personal property, and
the term position
includes any derivative.
Qualified covered call options
In general
For purposes of paragraph (2)(D), the term qualified covered call option
means any option granted by the taxpayer to purchase stock held by the taxpayer (or stock acquired
by the taxpayer in connection with the granting of the option) but only
if—
such option is traded on a national securities exchange which is registered with the Securities and Exchange Commission or other market which the Secretary determines has rules adequate to carry out the purposes of this paragraph,
such option is granted—
more than 30 days before the day on which the option expires, and
not more than 90 days before the day on which the option expires,
such option is not granted by an options dealer (as defined in subparagraph (B)) in connection with such dealer’s activity of dealing in options, and
gain or loss with respect to such option would not be ordinary income or loss if determined without regard to this section.
Options dealer
For purposes of subparagraph (A), the term options dealer
means—
any person registered with an appropriate national securities exchange as a market maker or specialist in listed options, and
to the extent provided by the Secretary consistent with the purposes of this paragraph, any person whom the Secretary determines performs functions similar to the persons described in clause (i).
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph and paragraph (2)(D). Such regulations may include modifications to the provisions of this paragraph and paragraph (2)(D) which are appropriate to take account of changes in the practices of option exchanges or to prevent the use of options for tax avoidance purposes.
Terminations, etc
In general
The rules of subsections (a) and (b) shall also apply to the termination (or transfer) during the taxable year of the taxpayer’s obligation (or rights) with respect to a derivative by offsetting, by taking or making delivery, by exercise or being exercised, by assignment or being assigned, by lapse, by expiration, by settlement, or otherwise.
Mark to market of all positions in straddle if any position terminated or transferred
If paragraph (1) applies with respect to any position which is part of a straddle, the rules of subsections (a) and (b) shall apply to every position which is part of such straddle.
Determination of fair market value
For purposes of this section—
Terminations, etc
For purposes of subsection (d), fair market value shall be determined at the time of the termination (or transfer).
Blockage factor not taken into account
To the extent provided in regulations prescribed by the Secretary, fair market value shall be determined without regard to any premium or discount based on the proportion of the total available trading units which are held.
Coordination with certain rules
The rules of sections 263(g) and 263A shall not apply to any derivative or other position to which subsection (a) applies, and section 1091 shall not apply (and section 1092 shall apply) to any loss recognized under subsection (a).
Derivative defined
In general
For purposes of this part, except as otherwise provided in this section, the term derivative means any contract (including any option, forward contract, futures contract, short position, swap, or similar contract) the value of which, or any payment or other transfer with respect to which, is (directly or indirectly) determined by reference to one or more of the following:
Any share of stock in a corporation.
Any partnership or beneficial ownership interest in a partnership or trust.
Any evidence of indebtedness.
Except as provided in subsection (d), any real property.
Any commodity which is actively traded (within the meaning of section 1092(d)(1)).
Any currency.
Any rate, price, amount, index, formula, or algorithm.
Any other item as the Secretary may prescribe.
Exceptions
Certain real property
In general
For purposes of subsection (a)(4), the term real property
shall not include—
a tract of real property (as defined in section 1237(c)), or
any real property which would be property described in section 1221(a)(1) with respect to the taxpayer if held directly by the taxpayer.
Regulations
The Secretary shall prescribe regulations or other guidance under which multiple tracts of real property may be treated as a single tract of real property for purposes of subparagraph (A)(i) if the contract referred to in subsection (a) is of a type which is designed to facilitate the acquisition or disposition of such real property.
Hedging transactions
In general
For purposes of this part, the term derivative
shall not include any contract which is part of a hedging transaction (as defined in section
1221(b)).
Section 988 hedging transactions
For exception for section 988 hedging transactions, see section 988(d)(1).
Securities lending, sale-repurchase, and similar financing transactions
To the extent provided by the Secretary, for purposes of this part, the term derivative
shall not include the right to the return of the same or substantially identical securities
transferred in a securities lending transaction, sale-repurchase
transaction, or similar financing transaction.
Options received in connection with the performance of services
For purposes of this part, the term derivative
shall not include any option described in section 83(e)(3) received in connection with the
performance of services.
Insurance contracts, annuities, and endowments
For purposes of this part, the term derivative
shall not include any insurance, annuity, or endowment contract issued by an insurance company to
which subchapter L applies (or issued by any foreign corporation to which
such subchapter would apply if such foreign corporation were a domestic
corporation).
Derivatives with respect to stock of members of same worldwide affiliated group
For purposes of this part, the term derivative
shall not include, and subsections (c) and (d)(2) of section 485 shall not apply to, any
derivative (determined without regard to this subsection) with respect to
stock issued by any member of the same worldwide affiliated group (as
defined in section 864(f)) in which the taxpayer is a member.
Commodities used in normal course of trade or business
For purposes of this part, the term derivative
shall not include any contract with respect to any commodity if—
such contract requires physical delivery with the option of cash settlement only in unusual and exceptional circumstances, and
such commodity is used (and is used in quantities with respect to which such derivative relates) in the normal course of the taxpayer’s trade or business (or, in the case of an individual, for personal consumption).
Contracts with embedded derivative components
In general
If a contract has derivative and nonderivative components, then each derivative component shall be treated as a derivative for purposes of this part. If the derivative component cannot be separately valued, then the entire contract shall be treated as a derivative for purposes of this part.
Exception for certain embedded derivative components of debt instruments
A debt instrument shall not be treated as having a derivative component merely because—
such debt instrument is denominated in a nonfunctional currency (as defined in section 988(c)(1)(C)(ii)),
payments with respect to such debt instrument are determined by reference to the value of a nonfunctional currency (as so defined), or
such debt instrument is a convertible debt instrument, contingent payment debt instrument, a variable rate debt instrument, an integrated debt instrument, an investment unit, a debt instrument with alternative payment schedules, or other debt instrument with respect to which the regulations under section 1275(d) apply.
Treatment of American Depository Receipts and similar instruments
Except as otherwise provided by the Secretary, for purposes of this part, American depository receipts (and similar instruments) with respect to shares of stock in foreign corporations shall be treated as shares of stock in such foreign corporations.
.
Coordination with rules for dealers and traders
Derivatives not treated as securities
Section 475(c)(2) is amended—
by adding and
at the end of subparagraph (C),
by striking subparagraphs (D) and (E) and by redesignating subparagraph (F) as subparagraph (D),
by striking subparagraph (A), (B), (C), (D), or (E)
in subparagraph (D)(i), as so redesignated, and inserting subparagraph (A), (B), or (C)
, and
by amending the last sentence to read as follows: Such term shall not include any position to which section 485(a) applies.
Derivatives not treated as commodities
Section 475(e)(2) is amended—
by adding and
at the end of subparagraph (A),
by striking subparagraphs (B) and (C) and by redesignating subparagraph (D) as subparagraph (B), and
by striking subparagraph (A), (B) or (C)
in subparagraph (B)(i), as so redesignated, and inserting subparagraph (A)
.
Conforming amendments
Section 475(b) is amended by striking paragraph (4).
Section 475(d)(2)(B) is amended—
by striking subsection (c)(2)(F)(iii)
and inserting subsection (c)(2)(D)(iii)
, and
by striking subsection (c)(2)(F)
and inserting subsection (c)(2)(D)
.
Section 475(f)(1)(D) is amended by striking subsections (b)(4) and (d)
and inserting subsection (d)
.
Coordination with straddle rules
In general
Section 1092(e) is amended to read as follows:
Exception for hedging transactions and straddles with derivatives
This section shall not apply in the case of—
any hedging transaction (as defined in section 1221(b)), and
any straddle (as defined in section 485) which includes any derivative (as defined in section 486).
.
Conforming amendments
Section 263(g)(3) is amended to read as follows:
Exception for hedging transactions and straddles with derivatives
This subsection shall not apply in the case of—
any hedging transaction (as defined in section 1221(b)), and
any straddle (as defined in section 485) which includes any derivative (as defined in section 486).
.
Section 1092(b) is amended—
by striking paragraph (2), and
by striking all that precedes The Secretary shall
and inserting the following:
Regulations
The Secretary shall
.
Section 1092(c) is amended by striking paragraph (4).
Section 1092 is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f).
Treatment of convertible debt instruments
The Secretary of the Treasury, or the Secretary’s designee, shall modify the regulations issued under section 1275(d) of the Internal Revenue Code of 1986 to provide that convertible debt instruments are treated in a manner similar to contingent payment debt instruments.
Repeal of certain other superceded rules for determining capital gains and losses
In general
Part IV of subchapter P of chapter 1 is amended by striking sections 1233, 1234, 1234A, 1234B, 1236, 1256, 1258, 1259, and 1260 (and by striking the items relating to such sections in the table of sections for such part).
Conforming amendments related to repeal of section 1233
Section 1092(b) is amended by inserting (as in effect before their repeal)
after section 1233
.
Conforming amendments related to repeal of section 1234
Section 6045(h)(2) is amended—
by striking (as defined in section 1234(b)(2)(A)
, and
by adding at the end the following: For purposes of the preceding sentence, the term
.closing transaction
means any termination of the taxpayer’s obligation under an option in property other than through
the exercise or lapse of the option.
Conforming amendments related to repeal of section 1236
Section 475(d)(3)(A) is amended by striking or section 1236(b)
.
Section 512(b)(5) is amended by striking section 1236(c)
and inserting section 1058(c)
.
Section 1058 is amended—
by striking (as defined in section 1236(c))
in subsection (a), and
by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
Securities
For purposes of this section, the term security
means any share of stock in any corporation, certificate of stock or interest in any corporation,
note, bond, debenture, or evidence of indebtedness, or any evidence of an
interest in or right to subscribe to or purchase any of the foregoing.
.
Conforming amendments related to repeal of section 1256
Section 461(i)(2)(B), as amended by the preceding provisions of this Act, is amended to read as follows:
any partnership or other entity (other than a corporation which is not an S corporation) if more than 35 percent of the losses of such entity during the taxable year are allocable to limited partners or limited entrepreneurs (within the meaning of section 461(j)(4)), and
.
Section 475(d)(1) is amended by striking sections 263(g), 263A, and 1256(a)
and inserting sections 263(g) and 263A
.
Section 988(c)(1) is amended by striking subparagraphs (D) and (E).
Section 1092(a)(3)(C)(ii)(II) is amended by striking section 1256(e)
and inserting section 1221(b)
.
Section 1092(d) is amended by striking paragraphs (5) and (6) and by redesignating paragraphs (7) and (8) as paragraphs (5) and (6), respectively.
Section 1212 is amended by striking subsection (c).
Section 1223 is amended by striking paragraphs (7) and (14).
Section 1281(b)(1)(E) is amended to read as follows:
is a hedging transaction (as defined in section 1221(b)), or
.
Section 1402 is amended by striking subsection (i).
Section 4982(e)(6)(B) is amended by striking sections 1256 and 1296
and inserting sections 485 and 1296
.
Conforming amendments related to repeal of section 1259
Section 475(f)(1) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C).
Other conforming amendments
Section 355(g)(2)(B)(i)(V) is amended to read as follows:
any derivative (as defined in section 486),
.
Section 856(n)(4) is amended by inserting or derivatives (as defined in section 486)
after securities (as defined in section 475(c)(2))
.
Section 857(e)(2)(B)(i), as amended by the preceding provisions of this Act, is amended by striking section 860E or 1272
and inserting section 485, 860E, or 1272
.
Section 988(d)(1) is amended—
by striking or 1256
and inserting or 485
, and
by striking 1092, and 1256
and inserting 485, and 1092
.
Section 1091(e) is amended to read as follows:
Coordination with mark to market of derivatives
Notwithstanding any other provision of this section, a derivative (as defined in section 486) shall not be treated as a security for purposes of this section.
.
Section 1221(a)(6) is amended to read as follows:
any derivative (as defined in section 486),
.
Section 1221(b) is amended by striking paragraph (1).
Section 4975(f)(11)(D) is amended by striking clauses (i) and (ii) and inserting the following:
Security
The term security
means any security described in section 475(c)(2) (without regard to subparagraph (D)(iii)
thereof) and any derivative with respect to such a security (within the
meaning of section 486).
Commodity
The term commodity
means any commodity described in section 475(e)(2) (without regard to subparagraph (B)(iii)
thereof) and any derivative with respect to such a commodity (within the
meaning of section 486).
.
The table of parts for subchapter E of chapter 1 is amended by adding at the end the following new item:
Part IV. Derivatives
.
Effective dates
The amendments made by this section shall apply to—
taxable years ending after December 31, 2014, in the case of property acquired and positions established after December 31, 2014, and
taxable years ending after December 31, 2019, in the case of any other property or position.
Modification of certain rules related to hedges
Treatment of hedges identified for financial accounting purposes
In general
Section 1221(b), as amended by the preceding provisions of this Act, is amended to read as follows:
Hedging transaction
For purposes of this section—
In general
The term hedging transaction
means any transaction described in paragraph (2) and identified under paragraph (3).
Transaction described
A transaction is described in this paragraph if such transaction is entered into by the taxpayer in the normal course of the taxpayer’s trade or business primarily—
to manage risk of price changes or currency fluctuations with respect to ordinary property which is held or to be held by the taxpayer,
to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the taxpayer, or
to manage such other risks as the Secretary may prescribe in regulations.
Identification
A transaction is identified under this paragraph if—
such transaction is clearly identified as a hedging transaction for purposes of this paragraph before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe), or
such transaction is treated as a hedging transaction (within the meaning of generally accepted accounting principles) for purposes of an audited financial statement of the taxpayer which—
is certified as being prepared in accordance with generally accepted accounting principles, and
is used for the purposes of a statement or report—
to shareholders, partners, or other proprietors, or to beneficiaries, or
for credit purposes.
Treatment of nonidentification or improper identification of hedging transactions
The Secretary shall prescribe regulations to properly characterize any income, gain, expense, or loss arising from a transaction—
which would be a hedging transaction if identified under paragraph (3), or
which is identified under paragraph (3) but is not a transaction described in paragraph (2).
Bonds held by an insurance company
For purposes of paragraph (2)(A), in the case of an insurance company to which subchapter L applies, any bond, debenture, note, certificate, or other evidence of indebtedness held by the taxpayer shall be treated as ordinary property.
Regulations
The Secretary shall prescribe such regulations as are appropriate to carryout the purposes of this subsection and subsection (a)(7) in the case of transactions involving related parties.
.
Conforming amendments
Section 856(c)(5)(G)(i) is amended by striking (as defined in clause (ii) or (iii) of section 1221(b)(2)(A)) which is clearly identified pursuant
to section 1221(a)(7)
and inserting (as defined in section 1221(b) (determined without regard to paragraph (2)(A) thereof)
.
Section 954(c)(5)(A) is amended to read as follows:
Commodity hedging transactions
In general
For purposes of paragraph (1)(C)(i), the term commodity hedging transaction
means any transaction with respect to a commodity if such transaction would be a hedging
transaction under section 1221(b) if—
the only transactions described in paragraph (2) thereof were transactions described in clause (ii), and
paragraphs (3) and (4) thereof were applied by substituting controlled foreign corporation
for taxpayer
each place it appears.
Transaction described
A transaction is described in this clause if such transaction is entered into by the controlled foreign corporation in the normal course of the controlled foreign corporation’s trade or business primarily—
to manage risk of price changes or currency fluctuations with respect to ordinary property or property described in section 1231(b) which is held or to be held by the controlled foreign corporation, or
to manage such other risks as the Secretary may prescribe in regulations.
.
Section 1221(a)(7) is amended by striking which is clearly
and all that follows through regulations prescribe)
.
Special rule for commodity hedging transactions involving related controlled foreign corporations
Section 954(c)(5)(A), as amended by subsection (a), is amended by adding at the end the following new clause:
Application to related controlled foreign corporations
In general
In the case of qualified property, clause (ii)(I) shall be applied by substituting the controlled foreign corporation or another controlled foreign corporation which is a related
person (within the meaning of subsection (d)(3))
for the controlled foreign corporation
.
Qualified property
For purposes of this clause, the term qualified property
means ordinary property or property described in section 1231(b) (if disposed of at a gain) the
income from the disposition of which would be neither subpart F income nor
income treated as effectively connected with the conduct of a trade or
business in the United States.
.
Effective date
The amendments made by this section shall apply to transactions entered into after December 31, 2014.
Treatment of debt instruments
Current inclusion in income of market discount
In general
Subpart B of part V of subchapter P of chapter 1 is amended by redesignating section 1278 as section 1279 and by inserting after section 1277 the following new section:
Current inclusion in income of market discount on bonds acquired after 2014
In general
There shall be included in the gross income of the holder of any market discount bond acquired after December 31, 2014, an amount equal to the sum of the daily portions of the market discount for each day during the taxable year on which such holder held such bond.
Determination of daily portions
In general
For purposes of subsection (a), the daily portion of the market discount on any market discount bond shall be an amount equal to the daily portion of original issue discount which would be includible in gross income under section 1272(a) (determined without regard to paragraph (2) thereof) if such bond had been—
originally issued on the date on which such bond was acquired by the taxpayer,
for an issue price equal to the basis of such bond immediately after such acquisition.
Coordination where bond has original issue discount
In the case of any bond having original issue discount, the daily portion determined under paragraph (1) shall be reduced by the daily portion of original issue discount includible in gross income under section 1272(a) (determined without regard to paragraph (2) thereof) with respect to such bond.
Special rule where partial principal payments
In the case of a bond the principal of which may be paid in 2 or more payments, the daily portions of market discount shall be determined under regulations prescribed by the Secretary.
Limitation
In general
The amount of market discount allocable to any accrual period for purposes of determining the sum of the daily portions under subsection (a) shall not exceed the excess (if any) of—
the product of—
the maximum accrual rate determined under paragraph (2), properly adjusted for the length of the accrual period, multiplied by
the adjusted basis of such bond at the beginning of such accrual period, over
the sum of the qualified stated interest and original issue discount allocable to such accrual period.
Maximum accrual rate
The maximum accrual rate determined under this paragraph with respect to any bond is the greater of—
such bonds’s yield to maturity (determined as of the date of the issuance of such bond) plus 5 percentage points, or
the applicable Federal rate for such bond (determined under section 1274(d) as of the date of the acquisition of such bond and on the basis of the remaining term of such bond as of such date) plus 10 percentage points.
Application to pools
In the case of debt instruments to which section 1272(a)(6) applies, rules similar to the rules of such section shall apply for purposes of determining the daily portions of market discount.
Accrual period
For purposes of this subsection, the term accrual period
has the meaning given such term in section 1272(a)(5).
Special rules
Accruals treated as interest
Except for purposes of sections 103, 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount included in gross income under this section shall be treated as interest for purposes of this title.
Basis adjustment
The basis of any market discount bond in the hands of the taxpayer shall be increased by the amount included in gross income pursuant to this section.
Treatment of loss on disposition
So much of any loss recognized by the taxpayer on the disposition of a market discount bond as does not exceed the aggregate amounts included in the taxpayer’s gross income under subsection (a) with respect to such bond shall be treated for purposes of this title as an ordinary loss.
.
Treatment of market discount on short-Term nongovernmental bonds
Accrual basis taxpayers, etc
Section 1283 is amended by striking subsection (c) and redesignating subsection (d) as subsection (c).
Other taxpayers
Section 1271(a)(3) is amended—
by striking all that precedes subparagraph (C) and inserting the following:
Certain short-term obligations
In general
On the sale or exchange of any short-term obligation (as defined in section 1283(a)(1)), any gain realized which does not exceed an amount equal to the ratable share of the acquisition discount shall be treated as ordinary income.
, and
by redesignating subparagraphs (C), (D), and (E) as subparagraphs (B), (C), and (D), respectively.
Section 1271(a) is amended by striking paragraph (4).
Section 1283(c)(3), as redesignated by paragraph (1), is amended by striking paragraphs (3) and (4) of section 1271(a)
and inserting section 1271(a)(3)
.
Coordination with rules related To treating market discount as ordinary income upon disposition
In general
Section 1276 is amended by adding at the end the following new subsection:
Coordination with rules for current inclusion of market discount
This section shall not apply to any market discount bond to which section 1278 applies.
.
Coordination with deferral of interest deduction
Section 1277 is amended by adding at the end the following new subsection:
Coordination with rules for current inclusion of market discount
This section shall not apply to any market discount bond to which section 1278 applies.
.
Coordination with election to include market discount currently
Section 1279(b), as redesignated by subsection (a), is amended by adding at the end the following new paragraph:
Coordination with rules for current inclusion of market discount
This subsection shall not apply to any market discount bond to which section 1278 applies.
.
Treatment of certain bonds held by partnerships
Transfers of partnership interests
Section 1279(a), as redesignated by subsection (a), is amended by adding at the end the following new paragraph:
Transfers of partnership interests
In the case of a transfer described in section 743 of an interest in a partnership holding a bond, the partnership shall be treated as acquiring the transferee partner’s proportionate share of such bond at the time of such transfer.
.
Distribution of bonds by partnerships
Section 1279(a)(2), as redesignated by subsection (a), is amended by adding at the end the following new subparagraph:
Distribution by partnership
If the basis of the taxpayer in a bond is determined under section 734(a)(2) or (b), for purposes of subparagraph (A)(ii), the basis of such bond shall not be less than its fair market value immediately after its acquisition by the taxpayer.
.
Modernization of certain definitions
Repeal of superceded exception for market discount bonds acquired at issue
Section 1279(a)(1), as redesignated by subsection (a), is amended by striking subparagraph (D)
Revised issue price
Section 1279(a)(4), as redesignated by subsection (a), is amended—
by redesignating subparagraphs (A) and (B) as clauses (i) and (ii) and by indenting such clauses appropriately,
by striking means the sum of—
and inserting
means the excess of—
the sum of—
,
by striking the period at the end and inserting , over
, and
by adding at the end the following new subparagraph:
the sum of—
any payments other than qualified stated interest made under the bond during periods before the acquisition of the bond by the taxpayer, and
any premium which has accrued during such periods (determined as if owned at all times by the original holder).
.
Redemption price
In general
Section 1273(a)(2) is amended to read as follows:
Redemption price
In general
The term redemption price
means the sum of all payments provided by the debt instrument other than qualified stated
interest.
Qualified stated interest
The term qualified stated interest
means stated interest that is unconditionally payable in money and other property (other than a
debt instrument of the issuer) at least annually at a fixed rate (or to
the extent provided by regulations, at a variable rate).
Basis adjustment
The basis of any debt instrument shall be reduced by the amount of any payment received other than qualified stated interest.
.
Conforming amendments
Each of the following provisions is amended by striking stated redemption price at maturity
and inserting redemption price
:
Section 1271(a)(3)(B) (as redesignated by subsection (b)).
Section 1273(a)(1)(A).
Section 1273(a)(3).
Section 1273(b)(4).
Section 1274(c)(1)(A).
Section 1279(a)(5) (as redesignated by subsection (a)).
Section 1283(a)(2)(A).
Section 1286(a)(1).
The heading and text of section 1286(e)(4).
Section 108(e)(10)(B) is amended by striking stated
both places it appears.
Section 1272(a)(6)(A)(i) is amended by striking stated
.
Subparagraphs (A)(i) and (C) of section 1279(a)(2) (as redesignated by subsection (a)) are each
amended by striking the stated redemption price of the bond at maturity
and inserting the redemption price of the bond
.
Section 1279(a)(2)(B) (as redesignated by subsection (a)) is amended by striking the stated redemption price of such bond at maturity
and inserting the redemption price of such bond
.
Adjusted issue price
Section 1275(a) is amended by adding at the end the following new paragraph:
Adjusted issue price
In general
For purposes of this part, the adjusted issue price of any debt instrument is its issue price—
increased by the aggregate of the original issue discount includible in the gross income of all holders for prior periods (determined without regard to paragraph (7) of section 1272(a)), or, in the case of a tax-exempt obligation, the aggregate amount which accrued in the manner provided by this subsection (determined without regard to such paragraph (7)) for all prior periods, and
reduced by the sum of—
any payments other than qualified stated interest previously made on the debt instrument, and
in the case of a debt instrument which was issued with amortizable bond premium (as defined in section 171(b)), the aggregate amount by which the basis of such instrument would have been reduced under section 1016(a)(5) for prior periods if the instrument had been held by the original holder at all times.
De minimis rule
The adjusted issue price of the issuer shall be properly adjusted to take into account that section 1273(a)(3) does not apply to the deduction under section 163 for original issue discount.
.
Certain other terms
Paragraphs (3), (4), and (5) of section 1272(a) are amended to read as follows:
Determination of daily portions
For purposes of paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable share of the original issue discount allocable to such accrual period. For purposes of the preceding sentence, the original issue discount allocable to any accrual period is the excess (if any) of—
the product of—
the adjusted issue price of the debt instrument at the beginning of such accrual period, multiplied by
the yield to maturity of the debt instrument properly adjusted for the length of the accrual period, over
the amount of any qualified stated interest allocable to such accrual period.
Yield to maturity
For purposes of this subsection, the term yield to maturity
means the discount rate that, when used in computing the present value of all principal and
interest payments to be made under the debt instrument produces an amount
equal to the issue price of the debt instrument.
Accrual period
For purposes of this subsection, the term accrual period
shall be determined under regulations prescribed by the Secretary, provided that an accrual period
shall in no event be longer than one year.
.
Broker reporting of includible discount on bonds
In general
Section 6045 is amended by adding at the end the following new subsection:
Discount on bonds
In general
If any customer of a broker holds a covered bond in an account with such broker at any time during a calendar year—
such broker shall file a return under subsection (a) for such calendar year, and
such return shall include with respect to each such covered bond—
the amount (if any) includible in the gross income of such customer as original issue discount with respect to such bond under section 1272 for periods during such calendar year, and.
the amount (if any) includible in the gross income of such customer as market discount with respect to such bond under section 1278(a) for periods during such calendar year.
Covered bond
For purposes of this subsection, the term covered bond
means any obligation to which section 1272 or 1278(a) applies if such obligation—
was acquired after December 31, 2014, through a transaction in the account in which such obligation is held, or
was transferred to such account from an account in which such obligation was a covered bond, but only if the broker received a statement under section 6045A with respect to the transfer.
Statements to customers
The requirements of subsections (b) shall apply with respect to any return filed under subsection (a) by reason of this subsection.
.
Information required in connection with transfers of covered bonds to brokers
Subsection (a) of section 6045A is amended—
by inserting or a covered bond (as defined in section 6045(i)(2))
after covered security (as defined in section 6045(g)(3))
, and
by striking section 6045(g)
and inserting subsections (g) and (i) of section 6045
.
Coordination with reporting by issuer of original issue discount
Paragraph (6) of section 6049(d) is amended by adding at the end the following new subparagraph:
Prevention of double reporting
Except as otherwise provided by the Secretary, original issue discount with respect to any obligation shall not be required to be reported under this section if such original issue discount is required to be reported with respect to such obligation under section 6045(i).
.
Conforming amendments
Section 857(e)(2)(B)(i), as amended by the preceding provisions of this Act, is amended by striking or 1272
and inserting 1272, or 1278
.
Section 1042(d) is amended by striking section 1278(a)(2)(A)(ii)
in the matter following paragraph (2) and inserting section 1279(a)(2)(A)(ii)
.
Section 1016(a), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph:
in the case of any debt instrument, to extend provided in sections 1272(d)(1), 1273(a)(2)(C), and 1278(d)(2).
.
Section 1276 is amended by inserting on bonds not subject to current inclusion
after accrued market discount
in the heading thereof.
Section 1277 is amended by inserting on bonds not subject to current inclusion
after accrued market discount
in the heading thereof.
Section 1281 is amended by striking subsection (c).
Section 1282 is amended by striking subsection (d).
The table of sections for subpart B of part V of subchapter P of chapter 1 is amended to read as follows:
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to obligations acquired after December 31, 2014.
Modernization of terms
The amendments made by subsection (e) shall take effect on January 1, 2015.
Treatment of certain exchanges of debt instruments
Determination of issue price
In general
Subpart A of part V of subchapter P is amended by inserting after section 1274A the following new section:
Determination of issue price in the case of an exchange of debt instruments
In general
In the case of an exchange (including by significant modification) by an issuer of a new debt instrument for an existing debt instrument issued by the same issuer, the issue price of the new debt instrument shall be the least of—
the adjusted issue price of the existing debt instrument,
the stated principal amount of the new debt instrument, or
the imputed principal amount of the new debt instrument.
Applicable rate
The discount rate used to determine the imputed principal amount of the new debt instrument under subsection (a)(3) shall be the lesser of—
the applicable Federal rate determined under section 1274(d) with respect to the new debt instrument, or
the greater of—
the rate of qualified stated interest with respect to the existing debt instrument, or
the applicable Federal rate determined under section 1274(d) with respect to the existing debt instrument.
Treatment of investment units
Rules similar to the rules of section 1273(c)(2) shall apply for purposes of this section.
.
Conforming amendments
Section 108(e)(10)(B) is amended by striking and 1274
and inserting , 1274, and 1274B
.
Section 1274(c)(3), as amended by the preceding provisions of this Act, is amended by adding at the end the following new subparagraph:
Certain modified debt
Any debt instrument the issue price of which is determined under section 1274B.
.
The table of sections for subpart A of part V of subchapter P is amended by inserting after the item relating to section 1274A the following new item:
.
Nonrecognition of gain or loss by holder
In general
Section 1037 is amended to read as follows:
Certain exchanges of debt instruments
Nonrecognition of gain or loss
No gain or loss shall be recognized to the holder of a debt instrument if such existing debt instrument is exchanged solely for a new debt instrument (whether by exchange or significant modification) issued by the same issuer.
Property attributable to accrued interest
Subsection (a) shall not apply to the extent that any property received is attributable to interest which accrued on the existing debt instrument on or after the beginning of the holder’s holding period of such instrument.
Limitation on gain recognition in case of exchange not solely for a new debt instrument
In the case of an exchange of a debt instrument to which section 1035(d) applies, the amount of gain recognized shall not exceed the amount of gain which would have been recognized if section 1274B did not apply.
Cross references
For rules relating to securities exchanged or distributed in a reorganization, etc., see sections 354, 355, and 356.
For rules relating to recognition of gain or loss where exchange was not made solely for another debt instrument of the issuer, see subsections (d) and (e) of section 1035.
For rules relating to basis of obligations acquired in an exchange described in subsection (a), see subsection (f) of section 1035.
.
Clerical amendment
The table of sections for part III of subchapter O of chapter 1 is amended by striking the item relating to section 1037 and inserting the following new item:
.
Application to excess principal rules for corporate reorganizations
Exchanges of securities in reorganizations
In general
Section 354(a)(2)(A)(i) is amended to read as follows:
the issue price of any such securities received exceeds the adjusted issue price of any such securities surrendered, or
.
Definitions
Section 354(a)(2) is amended by inserting after subparagraph (C) the following new subparagraph:
Definitions
For purposes of this paragraph—
Issue price
The issue price of any security shall be determined under sections 1273, 1274, and 1274B.
Adjusted issue price
The adjusted issue price of any security shall be determined under section 1275(a)(5).
.
Section 355 transactions
Section 355(a)(3)(A)(i) is amended to read as follows:
the issue price (as defined in section 354(a)(2)(D)) of the securities in the controlled corporation which are received exceeds the adjusted issue price (as so defined) of the securities which are surrendered in connection with such distribution, or
.
Section 356 transactions
In general
Section 356(d)(2)(B)(ii) is amended to read as follows:
the issue price (as defined in section 354(a)(2)(D)) of such securities received exceeds the adjusted issue price (as so defined) of such securities surrendered,
.
Conforming amendments
Section 356(d)(2)(B) is amended in the matter following clause (ii)—
by striking “the fair market value of such excess” and inserting “the amount of such excess”, and
by striking “the entire principal amount” and inserting “the entire issue price (as so defined)”.
Section 356(d)(2)(C) is amended to read as follows:
Greater principal amount in section 355 transaction
If, in an exchange or distribution described in section 355, the issue price (as defined in section
354(a)(2)(D)) of the securities in the controlled corporation which are
received exceeds the adjusted issue price (as so defined) of the
securities in the distributing corporation which are surrendered, then,
with respect to such securities received, the term other property
means only the amount of such excess.
.
Effective date
The amendments made by this section shall apply to transactions after December 31, 2014.
Coordination with rules for inclusion not later than for financial accounting purposes
In general
Section 451(b), as amended by the preceding provisions of this Act, is amended by inserting
immediately after the heading thereof (and before paragraph (1) thereof)
the following: Notwithstanding any other provision of law (including part V of subchapter P)—
.
Effective date; change in method of accounting
The amendment made by subsection (a) shall be treated for purposes of section 3303(g) as though such amendment were made by section 3303(a).
Rules regarding certain government debt
Repeal of certain superceded rules
Subpart B of part II of subchapter E of chapter 1 is amended by striking section 454 (and by striking the item relating to such section in the table of sections for such subpart).
Preservation of rules related to United States savings bonds
Subpart A of part V of subchapter P of chapter 1 is amended by inserting after section 1272 the following new section:
United States savings bonds
Election To include increase in redemption price in income
A taxpayer holding a United States savings bond may elect (on the taxpayer’s return for the taxable year) to treat any increase in the redemption price as income received in the taxable year. If any such election is made with respect to any such obligation, it shall apply also to all such obligations owned by the taxpayer at the beginning of the first taxable year to which it applies and to all such obligations thereafter acquired by the taxpayer and shall be binding for all subsequent taxable years, unless revoked with the consent of the Secretary. In the case of any such obligations owned by the taxpayer at the beginning of the first taxable year to which the taxpayer’s election applies, the increase in the redemption price of such obligations occurring between the date of acquisition and the first day of such taxable year shall also be treated as income received in such taxable year.
Treatment upon redemption or final maturity
The increase in redemption value of a United States savings bond (to the extent not previously included in gross income) in excess of the adjusted basis of such bond shall be included in gross income in the earlier of the taxable year in which the bond is redeemed or in the taxable year of final maturity.
Cross references
For exception from current inclusion of original issue discount, see section 1272(a)(2)(B).
For exception from market discount rules, see section 1279(a)(1)(B)(iii).
.
Conforming amendments
Section 852(b)(2), as amended by the preceding provisions of this Act, is amended by striking subparagraph (E) and redesignating subparagraphs (F) and (G) as subparagraphs (E) and (F), respectively.
Section 1283(c)(3), as amended by the preceding provisions of this Act, is amended by striking all
that precedes shall not apply
and inserting the following:
Coordination with section 1271
Section 1271(a)(3)
.
Section 7871(a)(6) is amended by adding and
at the end of subparagraph (A) and by striking subparagraph (C).
The table of sections for subpart A of part V of subchapter P of chapter 1 is amended by inserting after the item relating to section 1272 the following new item:
.
Effective date
The amendments made by this section shall take effect on the date of the enactment of this Act.
Certain rules for determining gain and loss
Cost basis of specified securities determined without regard to identification
In general
Section 1012 is amended by adding at the end the following new subsection:
Cost basis of specified securities determined without regard to identification
Except to the extent otherwise provided in this section or in regulations thereunder permitting the use of an average basis method for determining cost, in the case of the sale, exchange, or other disposition of a specified security (within the meaning of section 6045(g)(3)(B)), the basis (and holding period) of such security shall be determined on a first-in first-out basis.
.
Conforming amendments
Section 1012(c)(1) is amended by striking the conventions prescribed by regulations under this section
and inserting the method applicable for determining the cost of such security
.
Section 1012(c)(2)(A) is amended by striking section 1012
and inserting this section (as in effect prior to the enactment of the Tax Reform Act of 2014)
.
Section 6045(g)(2)(B)(i)(I) is amended by striking unless the customer notifies the broker by means of making an adequate identification of the stock
sold or transferred
.
Effective date
The amendments made by this section shall apply to sales, exchanges, and other dispositions after December 31, 2014.
Wash sales by related parties
Application of wash sale rules to related parties
Subsection (a) of section 1091 is amended by striking the taxpayer has acquired
and inserting the taxpayer (or a related party) has acquired
.
Modification of basis adjustment rule To prevent transfer of losses to related parties
Subsection (d) of section 1091 is amended to read as follows:
Adjustment to basis in case of wash sale
If the taxpayer (or the taxpayer’s spouse) acquires substantially identical stock or securities during the period which—
begins 30 days before the disposition with respect to which a deduction was disallowed under subsection (a), and
ends with the close of the taxpayer’s first taxable year which begins after such disposition,
.
Related party
Section 1091 is amended by adding at the end the following new subsection:
Related party
For purposes of this section—
In general
The term related party
means—
the taxpayer’s spouse,
any dependent of the taxpayer and any other taxpayer with respect to whom the taxpayer is a dependent,
any individual, corporation, partnership, trust, or estate which controls, or is controlled by, (within the meaning of section 954(d)(3)) the taxpayer or any individual described in subparagraph (A) or (B) with respect to the taxpayer (or any combination thereof),
any individual retirement plan, Archer MSA (as defined in section 220(d)), or health savings account (as defined in section 223(d)), of the taxpayer or of any individual described in subparagraph (A) or (B) with respect to the taxpayer,
any account under a qualified tuition program described in section 529 or a Coverdell education savings account (as defined in section 530(b)) if the taxpayer, or any individual described in subparagraph (A) or (B) with respect to the taxpayer, is the designated beneficiary of such account or has the right to make any decision with respect to the investment of any amount in such account, and
any account under—
a plan described in section 401(a),
an annuity plan described in section 403(a),
an annuity contract described in section 403(b), or
an eligible deferred compensation plan described in section 457(b) and maintained by an employer described in section 457(e)(1)(A),
Rules for determining status
Relationships determined at time of acquisition
Determinations under paragraph (1) shall be made as of the time of the purchase or exchange referred to in subsection (a) except that determinations under subparagraphs (A) and (B) of paragraph (1) shall be made for the taxable year which includes such purchase or exchange.
Determination of marital status
In general
Except as provided in clause (ii), marital status shall be determined under section 7703.
Special rule for married individuals filing separately and living apart
A husband and wife who—
file separate returns for any taxable year, and
live apart at all times during such taxable year,
Regulations
The Secretary shall issue such regulations or other guidance as may be necessary to prevent the avoidance of the purposes of this subsection, including regulations which treat persons as related parties if such persons are formed or availed of to avoid the purposes of this subsection.
.
Effective date
The amendments made by this section shall apply to sales and other dispositions after December 31, 2014.
Nonrecognition for derivative transactions by a corporation with respect to its stock
In general
Section 1032 is amended to read as follows:
Derivative transactions by a corporation with respect to its stock
In general
Except as otherwise provided in this section or section 76, section 1032 derivative items of a corporation shall not be taken into account in determining such corporation’s liability for tax under this subtitle.
Income recognition on certain forward contracts
In general
If—
a corporation acquires its stock, and
such acquisition is part of a plan (or series of related transactions) pursuant to which the corporation enters into a forward contract with respect to its stock,
Plan presumed to exist
If a corporation enters into a forward contract with respect to its stock within the 60-day period beginning on the date which is 30 days before the date that the corporation acquires its stock, such acquisition shall be treated as pursuant to a plan described in paragraph (1)(B) unless it is established that entering into such contract and such acquisition are not pursuant to a plan or series of related transactions.
Section 1032 derivative items
For purposes of this section, the term section 1032 derivative item means any item of income, gain, loss, or deduction if—
such item arises out of the rights or obligations under any derivative (as defined in section 486) to the extent such derivative relates to the corporation’s stock (or is attributable to any transfer or extinguishment of any such right or obligation), or
such item arises under any other contract or position but only to the extent that such item reflects (or is determined by reference to) changes in the value of such stock or distributions thereon.
Treasury stock treated as stock
Any reference in this section to stock shall be treated as including a reference to treasury stock.
Regulations
The Secretary shall prescribe such regulations or other guidance as may be appropriate to carry out the purposes of this section, including regulations or other guidance which—
treat the portion of an instrument which is described in subsection (c)(1) separately from the portion of such instrument which is not so described, and
treat section 1032 derivative items as contributions to the capital of the corporation to the extent that the application of this section would be inconsistent with the purposes of section 76(b).
.
Clerical amendment
The item relating to section 1032 in the table of sections for part III of subchapter O of chapter 1 is amended to read as follows:
.
Effective date
The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.
Tax favored bonds
Termination of private activity bonds
In general
Paragraph (1) of section 103(b) is amended—
by striking which is not a qualified bond (within the meaning of section 141)
, and
by striking which is not a qualified bond
in the heading thereof.
Conforming amendments
Section 141 is amended by striking subsection (e).
Subpart A of part IV of subchapter B of chapter 1 is amended by striking sections 142, 143, 144, 145, 146, and 147 (and by striking each of the items relating to such sections in the table of sections for such subpart).
Section 25 is amended by adding at the end the following new subsection:
Coordination with repeal of private activity bonds
Any reference to section 143, 144, or 146 shall be treated as a reference to such section as in effect before its repeal by the Tax Reform Act of 2014.
.
Section 26(b)(2) is amended by striking subparagraph (D).
Section 141(b) is amended by striking paragraphs (5) and (9) and by redesignating paragraphs (6), (7), and (8) as paragraphs (5), (6), and (7), respectively.
Section 141(d) is amended by striking paragraph (5) and by redesignating paragraphs (6) and (7) as paragraphs (5) and (6).
Section 148(b)(2)(E) is amended by striking in the case of a bond other than a private activity bond,
.
Section 148(b)(3) is amended to read as follows:
Tax-exempt bonds not treated as investment property
The term investment property
does not include any tax-exempt bond.
.
Section 148(f)(3) is amended by striking or is a private activity bond
in the fourth sentence.
Section 148(f)(4) is amended—
by striking (determined in accordance with section 147(b)(2)(A))
in the flush matter following subparagraph (A)(ii),
by striking the last sentence of subparagraph (D)(v), and
by adding at the end the following new subparagraph:
Average maturity
For purposes of this paragraph, the average maturity of any issue shall be determined by taking into account the respective issue prices of the bonds issued as part of such issue.
.
Section 148(f)(4)(A) is amended in the flush matter after clause (ii) by striking In the case of an issue no bond of which is a private activity bond, clause
and inserting Clause
.
Section 148(f)(4)(B)(ii) is amended—
by striking subclause (II), and
by striking certain bonds.—
and all that follows through issue described in subclause (II)
and inserting certain bonds.—In the case of an issue no bond of which is a tax or revenue anticipation bond
.
Section 148(f)(4)(C)(iv) is amended to read as follows:
Construction issue
For purposes of this subparagraph, the term construction issue
means any issue if at least 75 percent of the available construction proceeds of such issue are to
be used for construction expenditures with respect to property which is to
be owned by a governmental unit.
.
Section 148(f)(4)(C) is amended by redesignating clauses (v) through (xvii) as clauses (viii) through (xx), respectively, and by inserting after clause (iv) the following new clauses:
Construction
For purposes of this subparagraph, the term construction
includes reconstruction and rehabilitation.
Safe harbor for leases and management contracts
For purposes of this subparagraph, property leased by a governmental unit shall be treated as owned by such governmental unit if—
the lessee makes an irrevocable election (binding on the lessee and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to such property,
the lease term (as defined in section 168(h)(1)) is not more than 80 percent of the reasonably expected economic life of the property, and
the lessee has no option to purchase the property other than at fair market value (as of the time such option is exercised).
Determination of economic life
For purposes of clause (vi), the reasonably expected economic life of any facility shall be determined as of the later of—
the date on which the bonds are issued, or
the date on which the facility is placed in service (or expected to be placed in service).
.
Section 148(f)(4)(D) is amended by striking subparagraph (C)(iv)
each place it appears and inserting subparagraph (C)(v)
.
Section 148(f)(4)(D)(i) is amended—
by striking subclause (II),
by striking (other than private activity bonds)
in subclause (IV), and
by redesignating subclauses (III) and (IV) (as amended by subparagraph (B)) as subclauses (II) and (III).
Section 148(f)(4)(D)(ii) is amended by striking subclause (IV)
both places it appears and inserting subclause (III)
.
Section 148(f)(4)(D)(iii) is amended by striking subclause (IV)
and inserting subclause (III)
.
Section 148(f)(4)(D)(iv)(II) is amended by striking clause (i)(IV)
and inserting clause (i)(III)
.
Section 148(f)(4)(D)(vi) is amended by striking the last sentence.
Section 148(f)(7) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B).
Section 149(b)(3) is amended—
by striking subparagraph (C) and by redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), and
by striking subparagraph (E)
in subparagraph (A)(iv) and inserting subparagraph (D)
.
Section 149(e)(2) is amended—
by striking subparagraphs (C), (D), and (F) and by redesignating subparagraphs (E) and (G) as subparagraphs (C) and (D), respectively, and
by striking the second sentence.
Section 149(f)(6) is amended—
by striking subparagraph (B), and
by striking For purposes of this subsection
and all that follows through The term
and inserting the following: For purposes of this subsection, the term
.
Section 150 is amended by striking subsections (b) and (c) and by redesignating subsections (d) and (e) as subsections (b) and (c), respectively.
Section 150(e)(3) is amended to read as follows:
Public approval requirement
A bond shall not be treated as part of an issue which meets the requirements of paragraph (1) unless such bond satisfies the requirements of section 147(f)(2) (as in effect before its repeal by the Tax Reform Act of 2014).
.
Section 269A(b)(3) is amended by striking 144(a)(3)
and inserting 414(n)(6)(A)
.
Section 414(m)(5) is amended by striking section 144(a)(3)
and inserting subsection (n)(6)(A)
.
Section 414(n)(6)(A) is amended to read as follows:
Related persons
A person is a related person to another person if—
the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or
such persons are members of the same controlled group of corporations (as defined in section
1563(a), except that more than 50 percent
shall be substituted for at least 80 percent
each place it appears therein).
.
Section 6045(e)(4)(B) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 143(m)(3)
.
Section 6654(f)(1) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 143(m)
.
Section 7871(c) is amended—
by striking paragraphs (2) and (3), and
by striking tax-exempt bonds.—
and all that follows through Subsection (a) of section 103
and inserting the following: tax-exempt bonds.—Subsection (a) of section 103
.
Effective date
The amendments made by this section shall apply to bonds issued after December 31, 2014.
Termination of credit for interest on certain home mortgages
In general
Section 25, as amended by the preceding provisions of this Act, is amended by adding at the end the following new subsection:
Termination
No credit shall be allowed under this section with respect to any mortgage credit certificate issued after December 31, 2014.
.
Effective date
The amendments made by this section shall apply to taxable years ending after December 31, 2014.
Repeal of advance refunding bonds
In general
Paragraph (1) of section 149(d) is amended by striking as part of an issue described in paragraph (2), (3), or (4).
and inserting to advance refund a bond.
.
Conforming amendments
Section 149(d) is amended by striking paragraphs (2), (3), (4), and (6) and by redesignating paragraphs (5) and (7) as paragraphs (2) and (3).
Section 148(f)(4)(C), as amended by the preceding provisions of this Act, is amended by striking clause (xvii) and by redesignating clauses (xviii), (xix), and (xx) as clauses (xvii), (xviii), and (xix), respectively.
Effective date
The amendments made by this section shall apply to advance refunding bonds issued after December 31, 2014.
Repeal of tax credit bond rules
In general
Part IV of subchapter A of chapter 1 is amended by striking subparts H, I, and J (and by striking the items relating to such subparts in the table of subparts for such part).
Payments to issuers
Subchapter B of chapter 65 is amended by striking section 6431 (and by striking the item relating to such section in the table of sections for such subchapter).
Conforming amendments
Section 6211(b)(4)(A) is amended by striking and 6431
.
Section 6401(b)(1) is amended by striking G, H, I, and J
and inserting and G
.
Effective date
The amendments made by this section shall apply to bonds issued after the date of the enactment of this Act.
Insurance reforms
Exception to pro rata interest expense disallowance for corporate-owned life insurance restricted to 20-percent owners
In general
Subparagraph (A) of section 264(f)(4) is amended—
by striking policy or contract)—
and all that follows through A policy or contract
and inserting policy or contract) a 20-percent owner of such entity. A policy or contract
, and
by striking , officers, directors, and employees
in the heading.
Conforming amendment
Section 264(f)(4) is amended by striking subparagraph (E).
Effective date
The amendment made by this section shall apply to contracts issued after December 31, 2014. For purposes of the preceding sentence, any material increase in the death benefit or other material change in the contract shall be treated as a new contract.
Net operating losses of life insurance companies
In general
Paragraph (5) of section 805(a) is amended to read as follows:
Net operating loss deduction
The deduction allowed under section 172, determined—
by treating the net operating loss for any taxable year as equal to the excess (if any) of—
the life insurance deductions for such taxable year, over
the life insurance gross income for such taxable year, and
by applying subsection (d)(5) thereof with the modifications described in paragraph (4) of this subsection.
.
Conforming amendments
Part I of subchapter L of chapter 1 is amended by striking section 810 (and by striking the item relating to such section in the table of sections for such part).
Part III of subchapter L of chapter 1 is amended by striking section 844 (and by striking the item relating to such section in the table of sections for such part).
Section 381 is amended by striking subsection (d).
Section 805(a)(4)(B)(i), as redesignated by the preceding provisions of this Act, is amended to read as follows:
the net operating loss deduction provided by paragraph (5),
.
Section 805(b)(2)(A)(iii), as redesignated by the preceding provisions of this Act, is amended to read as follows:
any net operating loss carryback to the taxable year under section 172 (as applied pursuant to subsection (a)(5)), and
.
Section 805(b) is amended by striking paragraph (4) and redesignating paragraph (5) as paragraph (4).
Section 953(b)(1)(A), as redesignated by the preceding provisions of this Act, is amended by
striking operations
and inserting net operating
.
Section 1351(i)(3) is amended by striking or the operations loss deduction under section 810,
.
Effective date
The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2014.
Repeal of small life insurance company deduction
In general
Part I of subchapter L of chapter 1 is amended by striking section 806 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 453B(e) is amended—
by striking (as defined in section 806(b)(3))
in paragraph (2)(B), and
by adding at the end the following new paragraph:
Noninsurance business
In general
For purposes of this subsection, the term noninsurance business
means any activity which is not an insurance business.
Certain activities treated as insurance businesses
For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if—
it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or
it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.
.
Section 465(c)(7)(D)(v)(II) is amended by striking section 806(b)(3)
and inserting section 453B(e)(3)
.
Section 801(a)(2) is amended by striking subparagraph (C).
Section 804 is amended by striking means—
and all that follows and inserting means the general deductions provided in section 805.
.
Section 805(a)(4)(B) is amended by striking clause (i) and by redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
Section 805(b)(2)(A) is amended by striking clause (iii) and by redesignating clauses (iv) and (v) as clauses (iii) and (iv), respectively.
Section 815(c)(2)(A) is amended by inserting and
at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause
(ii).
Section 842(c) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.
Section 953(b)(1) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Computation of life insurance tax reserves
In general
Subparagraph (B) of section 807(d)(2) is amended to read as follows:
an interest rate equal to the sum of—
the applicable Federal interest rate, plus
3.5 percentage points, and
.
Conforming amendments
Paragraph (4) of section 807(d) is amended to read as follows:
Applicable Federal interest rate
In general
Except as provided in subparagraph (B), the term applicable Federal interest rate means the annual rate determined by the Secretary under subparagraph (C) for the calendar year in which the contract was issued.
Election to recompute Federal interest rate every 5 years
For purposes of this subsection—
In general
In computing the amount of the reserve with respect to any contract to which an election under this subparagraph applies for periods during any recomputation period, the applicable Federal interest rate shall be the annual rate determined by the Secretary under subparagraph (C) for the 1st year of such period. No change in the applicable Federal interest rate shall be made under the preceding sentence unless such change would equal or exceed 1/2 of 1 percentage point.
Recomputation period
For purposes of clause (i), the term recomputation period means, with respect to any contract, the 5 calendar year period beginning with the 5th calendar year beginning after the calendar year in which the contract was issued (and each subsequent 5 calendar year period).
Election
An election under this subparagraph shall apply to all contracts issued during the calendar year for which the election was made or during any subsequent calendar year unless such election is revoked with the consent of the Secretary.
Spread not available
Subsection (f) shall not apply to any adjustment required under this paragraph.
Rate of interest
In general
For purposes of this paragraph, the rate of interest determined under this subparagraph shall be the annual rate determined by the Secretary under clause (ii).
Determination of annual rate
In general
The annual rate determined by the Secretary under this clause for any calendar year shall be a rate equal to the average of the applicable Federal mid-term rates (as defined in section 1274(d) but based on annual compounding) effective as of the beginning of each of the calendar months in the test period.
Test period
For purposes of subclause (I), the test period is the most recent 60-calendar-month period ending before the beginning of the calendar year for which the determination is made.
.
The first sentence following paragraph (6) in section 807(c) is amended by striking the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed
interest rate under subsection (d)(2)(B)(ii),
and inserting the interest rate determined under subsection (d)(2)(B)
.
Section 808 is amended by adding at the end the following new subsection:
Prevailing State assumed interest rate
For purposes of this subchapter—
In general
The term prevailing State assumed interest rate means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account.
When rate determined
The prevailing State assumed interest rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued.
.
Paragraph (1) of section 811(d) is amended by striking the greater of the prevailing State assumed interest rate or applicable Federal interest rate in
effect under section 807
and inserting the interest rate in effect under section 807(d)(2)(B)
.
Subparagraph (A) of section 846(f)(6) is amended by striking except that
and all that follows and inserting except that the limitation of subsection (a)(3) shall apply in lieu of the limitation of the last
sentence of section 807(d)(1), and
.
Subparagraph (B) of section 954(i)(5) is amended by striking shall be substituted for the prevailing State assumed interest rate
and inserting shall, if higher, be substituted for the interest rate in effect under section 807(d)(2)(B)
.
Effective date
In general
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Transition rule
For the first taxable year beginning after December 31, 2014, the reserve with respect to any contract (as determined under section 807(d)(2) of the Internal Revenue Code of 1986) at the end of the preceding taxable year shall be determined as if the amendments made by this section had applied to such reserve in such preceding taxable year and by using the interest rate applicable to such reserves under section 807(d)(2) of the Internal Revenue Code of 1986 for calendar year 2015. For subsequent taxable years, such amendments shall be applied with respect to such reserve by using the interest rate applicable under such section for calendar year 2015.
Transition relief
In general
If—
the reserve determined under section 807(d)(2) of the Internal Revenue Code of 1986 with respect to any contract as of the close of the year preceding the first taxable year beginning after December 31, 2014, differs from
the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2),
Method
The method provided in this subparagraph is as follows:
if the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) of such Code, or
if the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) of such Code.
Adjustment for change in computing reserves
In general
Paragraph (1) of section 807(f) is amended to read as follows:
Treatment as change in method of accounting
If the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between—
the amount of the item at the close of the taxable year, computed on the new basis, and
the amount of the item at the close of the taxable year, computed on the old basis,
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Modification of rules for life insurance proration for purposes of determining the dividends received deduction
In general
Section 812 is amended to read as follows:
Determination of company’s and policyholder’s share on account by account basis
Determination on account by account basis
Sections 805(a)(4) and 807 shall be applied on an account by account basis.
Company’s share
For purposes of section 805(a)(4), the term company’s share
means, with respect to any account for any taxable year, the ratio (expressed as a percentage) of—
the excess of—
the mean assets of such account for such taxable year, over
the mean reserves with respect to such account for such taxable year, divided by
the mean assets of such account for such taxable year.
Policyholder’s share
For purposes of section 807, the term policyholder’s share
means, with respect to any account for any taxable year, the excess of 100 percent over the
percentage determined under paragraph (2).
Mean assets and mean reserves defined
For purposes of this subsection—
Mean assets
The term mean assets
means, with respect to any account for any taxable year, 50 percent of the sum of—
the fair market value of the assets of such account determined as of the beginning of such taxable year, and
the fair market value of the assets of such account determined as of the close of such taxable year.
Mean reserves
The term mean reserves
means, with respect to any account for any taxable year, 50 percent of the sum of—
the reserves with respect to such account as determined under section 807 as of the beginning of such taxable year, and
the reserves with respect to such account as determined under section 807 as of the close of such taxable year.
Certain dividends not taken into account
Dividends described in section 246(c) shall not be taken into account for purposes of determining mean assets or mean reserves.
Fees and expenses not taken into account
Fees and expenses shall not be taken into account for purposes of determining mean assets or mean reserves.
.
Conforming amendment
Section 817A(e)(2) is amended by striking , 807(d)(2)(B), and 812
and inserting and 807(d)(2)(B)
Clerical amendment
The table of sections for subpart D of part I of subchapter L of chapter 1 is amended by striking the item relating to section 812 and inserting the following:
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account
In general
Subpart D of part I of subchapter L is amended by striking section 815 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 801 is amended by striking subsection (c).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Phased inclusion of remaining balance of policyholders surplus accounts
In the case of any stock life insurance company which has a balance (determined as of the close of such company’s last taxable year beginning before January 1, 2015) in an existing policyholders surplus account (as defined in section 815 of the Internal Revenue Code of 1986, as in effect before its repeal), the tax imposed by section 801 of such Code for the first 8 taxable years beginning after December 31, 2014, shall be the amount which would be imposed by such section for such year on the sum of—
life insurance company taxable income for such year (within the meaning of such section 801 but not less than zero), plus
1/8 of such balance.
Modification of proration rules for property and casualty insurance companies
In general
Section 832(b)(5)(B) is amended by striking 15 percent
and inserting the percentage determined under subparagraph (F))
.
Determination of percentage
Section 832(b)(5) is amended by adding at the end the following new subparagraph:
Determination of percentage
In general
For purposes of subparagraph (B), the percentage determined under this subparagraph is the ratio (expressed as a percentage) of—
the average adjusted bases (within the meaning of section 1016) of tax-exempt assets of the company, to
such average adjusted bases of all assets of the company.
Tax-exempt assets
For purposes of clause (i)(I), the term tax-exempt assets means assets of the type which give rise to income described in subparagraph (B).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of special treatment of Blue Cross and Blue Shield organizations, etc
Transitional repeal of special rules
In general
Section 833 is amended by striking subsection (b), by redesignating subsection (c) as subsection (b), and by amending subsection (a) to read as follows:
In general
An organization to which this section applies shall be taxable under this part in the same manner as if it were a stock insurance company.
.
Tax status not dependent on medical loss ratio
Subsection (b) of section 833, as redesignated by subsection (a), is amended by striking paragraph (5).
Effective date
The amendments made by this subsection shall apply to taxable years beginning after December 31, 2014.
Repeal of statutory treatment as a stock insurance company
In general
Part II of subchapter L of chapter is amended by striking section 833 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016.
Modification of discounting rules for property and casualty insurance companies
Modification of rate of interest used To discount unpaid losses
Paragraph (2) of section 846(c) is amended to read as follows:
Determination of annual rate
The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate determined on the basis of the corporate bond yield curve (as defined in section 430(h)(2)(D)(i)).
.
Modification of computational rules for loss payment patterns
Section 846(d)(3) is amended by striking subparagraphs (B) through (G) and inserting the following new subparagraphs:
Treatment of certain losses
Losses which would have been treated as paid in the last year of the period applicable under subparagraph (A)(i) or (A)(ii) shall be treated as paid in the following manner:
3-year loss payment pattern
In general
The period taken into account under subparagraph (A)(i) shall be extended to the extent required under subclause (II).
Computation of extension
The amount of losses which would have been treated as paid in the 3d year after the accident year shall be treated as paid in such 3d year and each subsequent year in an amount equal to the amount of the losses treated as paid in the 2d year after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account).
10-year loss payment pattern
In general
The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II).
Computation of extension
The amount of losses which would have been treated as paid in the 10th year after the accident year shall be treated as paid in such 10th year and each subsequent year in an amount equal to the amount of the losses treated as paid in the 9th year after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account).
Special rule for international and reinsurance lines of business
Except as otherwise provided by regulations, any determination made under subsection (a) with respect to unpaid losses relating to the international or reinsurance lines of business shall be made using, in lieu of the loss payment pattern applicable to the respective lines of business, a pattern determined by the Secretary under paragraphs (1) and (2) based on the combined losses for all lines of business described in subparagraph (A)(ii).
Special rule for 2d or 9th year if negative or zero
3-year loss payment pattern
If the amount of the losses treated as paid in the 2d year after the accident year is zero or a negative amount, subparagraph (B)(i)(II) shall be applied by substituting the average of the losses treated as paid in the 1st and 2d years after the accident year for the losses treated as paid in the 2d year after the accident year.
10-year loss payment pattern
If the amount of the losses treated as paid in the 9th year after the accident year is zero or a negative amount, subparagraph (B)(ii)(II) shall be applied by substituting the average of the losses treated as paid in the 7th, 8th, and 9th years after the accident year for the losses treated as paid in the 9th year after the accident year.
.
Repeal of historical payment pattern election
Section 846 is amended by striking subsection (e) and by redesignating subsections (f) and (g) as subsections (e) and (f), respectively.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Transitional rule
For the first taxable year beginning after December 31, 2014—
the unpaid losses and the expenses unpaid (as defined in paragraphs (5)(B) and (6) of section 832(b) of the Internal Revenue Code of 1986) at the end of the preceding taxable year, and
the unpaid losses as defined in sections 807(c)(2) and 805(a)(1) of such Code at the end of the preceding taxable year,
Repeal of special estimated tax payments
In general
Part III of subchapter L of chapter 1 is amended by striking section 847 (and by striking the item relating to such section in the table of sections for such part).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Capitalization of certain policy acquisition expenses
In general
Paragraph (1) of section 848(c) is amended by striking subparagraphs (A), (B), and (C) and inserting the following new subparagraphs:
5 percent of the net premiums for such taxable year on specified insurance contracts which are group contracts, and
12 percent of the net premiums for such taxable year on specified insurance contracts not described in subparagraph (A).
.
Group contracts
So much of paragraph (2) of section 848(e) as precedes subparagraph (A) thereof is amended to read as follows:
Group contract
The term group contract
means any specified insurance contract—
.
Conforming amendments
Section 848(e) is amended by striking paragraphs (3) and (6) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Tax reporting for life settlement transactions
In general
Subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new section:
Returns relating to certain life insurance contract transactions
Requirement of reporting of certain payments
In general
Every person who acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth—
the name, address, and TIN of such person,
the name, address, and TIN of each recipient of payment in the reportable policy sale,
the date of such sale,
the name of the issuer of the life insurance contract sold and the policy number of such contract, and
the amount of each payment.
Statement to be furnished to persons with respect to whom information is required
Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing—
the name, address, and phone number of the information contact of the person required to make such return, and
the information required to be shown on such return with respect to such person, except that in the case of an issuer of a life insurance contract, such statement is not required to include the information specified in paragraph (1)(E).
Requirement of reporting of seller's basis in life insurance contracts
In general
Upon receipt of the statement required under subsection (a)(2) or upon notice of a transfer of a life insurance contract to a foreign person, each issuer of a life insurance contract shall make a return (at such time and in such manner as the Secretary shall prescribe) setting forth—
the name, address, and TIN of the seller who transfers any interest in such contract in such sale,
the investment in the contract (as defined in section 72(e)(6)) with respect to such seller, and
the policy number of such contract.
Statement to be furnished to persons with respect to whom information is required
Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing—
the name, address, and phone number of the information contact of the person required to make such return, and
the information required to be shown on such return with respect to each seller whose name is required to be set forth in such return.
Requirement of reporting with respect to reportable death benefits
In general
Every person who makes a payment of reportable death benefits during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth—
the name, address, and TIN of the person making such payment,
the name, address, and TIN of each recipient of such payment,
the date of each such payment, and
the amount of each such payment.
Statement to be furnished to persons with respect to whom information is required
Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing—
the name, address, and phone number of the information contact of the person required to make such return, and
the information required to be shown on such return with respect to each recipient of payment whose name is required to be set forth in such return.
Definitions
For purposes of this section:
Payment
The term payment means the amount of cash and the fair market value of any consideration transferred in a reportable policy sale.
Reportable policy sale
The term reportable policy sale has the meaning given such term in section 101(a)(3)(B).
Issuer
The term issuer means any life insurance company that bears the risk with respect to a life insurance contract on the date any return or statement is required to be made under this section.
Reportable death benefits
The term reportable death benefits means amounts paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale.
.
Clerical amendment
The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6050W the following new item:
Sec. 6050X. Returns relating to certain life insurance contract transactions.
.
Conforming amendments
Subsection (d) of section 6724 is amended—
by striking or
at the end of clause (xxiv) of paragraph (1)(B), by striking and
at the end of clause (xxv) of such paragraph and inserting or
, and by inserting after such clause (xxv) the following new clause:
section 6050X (relating to returns relating to certain life insurance contract transactions), and
, and
by striking or
at the end of subparagraph (GG) of paragraph (2), by striking the period at the end of
subparagraph (HH) of such paragraph and inserting , or
, and by inserting after such subparagraph (HH) the following new subparagraph:
subsection (a)(2), (b)(2), or (c)(2) of section 6050X (relating to returns relating to certain life insurance contract transactions).
.
Section 6047 is amended—
by redesignating subsection (g) as subsection (h),
by inserting after subsection (f) the following new subsection:
Information relating to life insurance contract transactions
This section shall not apply to any information which is required to be reported under section 6050X.
, and
by adding at the end of subsection (h), as so redesignated, the following new paragraph:
For provisions requiring reporting of information relating to certain life insurance contract transactions, see section 6050X.
.
Effective date
The amendments made by this section shall apply to—
reportable policy sales (as defined in section 6050X(d)(2) of the Internal Revenue Code of 1986 (as added by subsection (a)) after December 31, 2014, and
reportable death benefits (as defined in section 6050X(d)(4) of such Code (as added by subsection (a)) paid after December 31, 2014.
Clarification of tax basis of life insurance contracts
Clarification with respect to adjustments
Paragraph (1) of section 1016(a) is amended by striking subparagraph (A) and all that follows and inserting the following:
for—
taxes or other carrying charges described in section 266; or
expenditures described in section 173 (relating to circulation expenditures),
for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract;
.
Effective date
The amendment made by this section shall apply to transactions entered into after August 25, 2009.
Exception to transfer for valuable consideration rules
In general
Subsection (a) of section 101 is amended by inserting after paragraph (2) the following new paragraph:
Exception to valuable consideration rules for commercial transfers
In general
The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale.
Reportable policy sale
For purposes of this paragraph, the term reportable policy sale means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term indirectly applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.
.
Conforming amendment
Paragraph (1) of section 101(a) is amended by striking paragraph (2)
and inserting paragraphs (2) and (3)
.
Effective date
The amendments made by this section shall apply to transfers after December 31, 2014.
Pass-Thru and certain other entities
S Corporations
Reduced recognition period for built-in gains made permanent
In general
Paragraph (7) of section 1374(d) (relating to definitions and special rules) is amended to read as follows:
Recognition period
In general
The term recognition period means the 5-year period beginning with the 1st day of the 1st taxable year for which the
corporation was an S corporation. For purposes of applying this section to
any amount includible in income by reason of distributions to shareholders
pursuant to section 593(e), the preceding sentence shall be applied
without regard to the phrase 5-year
.
Installment sales
If an S corporation sells an asset and reports the income from the sale using the installment method under section 453, the treatment of all payments received shall be governed by the provisions of this paragraph applicable to the taxable year in which such sale was made.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2013.
Modifications to S corporation passive investment income rules
Increased percentage limit
Paragraph (2) of section 1375(a) is amended by striking 25 percent
and inserting 60 percent
.
Repeal of excessive passive income as a termination event
Section 1362(d) is amended by striking paragraph (3).
Conforming amendments
Subsection (b) of section 1375 is amended by striking paragraphs (3) and (4) and inserting the following new paragraph:
Passive investment income defined
In general
Except as otherwise provided in this paragraph, the term passive investment income
means gross receipts derived from royalties, rents, dividends, interest, and annuities.
Exception for interest on notes from sales of inventory
The term passive investment income
shall not include interest on any obligation acquired in the ordinary course of the corporation’s
trade or business from its sale of property described in section
1221(a)(1).
Treatment of certain lending or finance companies
If the S corporation meets the requirements of section 542(c)(6) for the taxable year, the term passive investment income
shall not include gross receipts for the taxable year which are derived directly from the active
and regular conduct of a lending or finance business (as defined in
section 542(d)(1)).
Treatment of certain dividends
If an S corporation holds stock in a C corporation meeting the requirements of section 1504(a)(2),
the term passive investment income
shall not include dividends from such C corporation to the extent such dividends are attributable
to the earnings and profits of such C corporation derived from the active
conduct of a trade or business.
Exception for banks, etc
In the case of a bank (as defined in section 581) or a depository institution holding company (as
defined in section 3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1)), the term passive investment income
shall not include—
interest income earned by such bank or company, or
dividends on assets required to be held by such bank or company, including stock in the Federal Reserve Bank, the Federal Home Loan Bank, or the Federal Agricultural Mortgage Bank or participation certificates issued by a Federal Intermediate Credit Bank.
Gross receipts from the sales of certain assets
For purposes of this paragraph—
Capital assets other than stock and securities
In the case of dispositions of capital assets (other than stock and securities), gross receipts from such dispositions shall be taken into account only to the extent of capital gain net income therefrom.
Stock and securities
In the case of sales or exchanges of stock or securities, gross receipts shall be taken into account only to the extent of the gain therefrom.
Coordination with section 1374
The amount of passive investment income shall be determined by not taking into account any recognized built-in gain or loss of the S corporation for any taxable year in the recognition period. Terms used in the preceding sentence shall have the same respective meanings as when used in section 1374.
.
Subparagraph (J) of section 26(b)(2) is amended by striking 25 percent
and inserting 60 percent
.
Clause (i) of section 1375(b)(1)(A) is amended by striking 25 percent
and inserting 60 percent
.
The heading for section 1375 is amended by striking 25 percent
and inserting 60 percent
.
The item relating to section 1375 in the table of sections for part III of subchapter S of chapter
1 is amended by striking 25 percent
and inserting 60 percent
.
Subparagraph (B) of section 1362(f)(1) is amended by striking paragraph (2) or (3) of subsection (d)
and inserting subsection (d)(2)
.
Effective Date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Expansion of qualifying beneficiaries of an electing small business trust
No look-Through for eligibility purposes
Subparagraph (C) of section 1361(b)(1) is amended by inserting (determined without regard to subsection (c)(2)(B)(v))
after shareholder
.
Effective date
The amendment made by this section shall take effect on January 1, 2015.
Charitable contribution deduction for electing small business trusts
In general
Paragraph (2) of section 641(c), as amended by the preceding provisions of this Act, is amended by inserting after subparagraph (C) the following new subparagraph:
Section 642(c) shall not apply.
For purposes of section 170(b)(1)(E), adjusted gross income shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Permanent rule regarding basis adjustment to stock of S corporations making charitable contributions of property
In general
Section 1367(a)(2) (relating to decreases in basis) is amended by striking the last sentence.
Effective date
The amendment made by this section shall apply to contributions made in taxable years beginning after December 31, 2013.
Extension of time for making S corporation elections
In general
Subsection (b) of section 1362 is amended to read as follows:
When made
In general
An election under subsection (a) may be made by a small business corporation for any taxable year not later than the due date for filing the return of the S corporation for such taxable year (including extensions).
Certain elections treated as made for next taxable year
If—
an election under subsection (a) is made for any taxable year within the period described in paragraph (1), but
either—
on 1 or more days in such taxable year and before the day on which the election was made the corporation did not meet the requirements of subsection (b) of section 1361, or
1 or more of the persons who held stock in the corporation during such taxable year and before the election was made did not consent to the election,
Authority to treat late elections, etc., as timely
If—
an election under subsection (a) is made for any taxable year after the date prescribed by this subsection for making such election for such taxable year or no such election is made for any taxable year, and
the Secretary determines that there was reasonable cause for the failure to timely make such election,
Election on timely filed returns
Except as otherwise provided by the Secretary, an election under subsection (a) for any taxable year may be made on a timely filed return of the S corporation for such taxable year.
Secretarial authority
The Secretary may prescribe such regulations, rules, or other guidance as may be necessary or appropriate for purposes of applying this subsection.
.
Coordination with certain other provisions
Qualified subchapter S subsidiaries
Section 1361(b)(3)(B) is amended by adding at the end the following flush sentence:
Rules similar to the rules of section 1362(b) shall apply with respect to any election under clause (ii).
.
Qualified subchapter S trusts
Section 1361(d)(2) is amended by striking subparagraph (D).
Revocations
Paragraph (1) of section 1362(d) is amended—
by striking subparagraph (D)
in subparagraph (C) and inserting subparagraphs (D) and (E)
, and
by adding at the end the following new subparagraph:
Authority to treat late revocations as timely
If—
a revocation under subparagraph (A) is made for any taxable year after the date prescribed by this paragraph for making such revocation for such taxable year or no such revocation is made for any taxable year, and
the Secretary determines that there was reasonable cause for the failure to timely make such revocation,
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to elections for taxable years beginning after December 31, 2014.
Revocations
The amendments made by subsection (c) shall apply to revocations after December 31, 2014.
Relocation of C corporation definition
In general
Subsection (a) of section 1361 is amended—
by striking paragraph (2), and
by striking S corporation defined.—
and all that follows through For purposes of this title, the term
and inserting the following: S corporation
meansIn general.—For purposes of this title, the term
.S corporation
means
Conforming amendment
Section 7701(a)(3) is amended—
by striking Corporation.—The term
and inserting the following:corporation
means
Corporations.—
In general
The term corporation
means
, and
by adding at the end the following new paragraph:
C corporations
The term C corporation
means, with respect to any taxable year, a corporation which is not an S corporation for such
year.
.
Effective date
The amendments made by this section shall take effect on the date of the enactment of this Act.
Partnerships
Repeal of rules relating to guaranteed payments and liquidating distributions
Payment to partner for services or use of capital
In general
Section 707 is amended by striking subsection (c).
Conforming amendments
Section 267(e) is amended by striking paragraph (4).
Section 706(a) is amended by striking and 707(c)
.
Section 1402(a) is amended, in the matter following paragraph (17)—
by striking (after such gross income has been reduced by the sum of all payments to which section 707(c)
applies)
in clauses (iii) and (iv), and
by striking (after such gross income has been so reduced)
in clause (iv).
Section 2701(c)(1)(B) is amended by inserting or
at the end of clause (i), by striking , or
at the end of clause (ii) and inserting a period, and by striking clause (iii).
Section 7519(d) is amended by striking paragraph (5).
Effective dates
In general
Except as otherwise provided in this paragraph, the amendments made by this subsection shall apply to partnership taxable years beginning after December 31, 2014.
Transfers
The amendment made by paragraph (2)(E) shall apply to transfers after December 31, 2014.
Payments made in liquidation of retiring or deceased partner
In general
Subpart B of part II of subchapter K of chapter 1 is amended by striking section 736 (and by striking the item relating to such section in the table of sections for such subpart).
Retired partners and successors in interest of deceased partners treated as partners until liquidation
Section 761(d) is amended by adding at the end the following: For purposes of this subchapter, any retired partner or a deceased partner’s successor in interest
shall be treated as a partner until the complete liquidation of such
interest.
Conforming amendment
Section 357(c)(3)(A) is amended by striking payment of which either—
and all that follows through then, for purposes of
and inserting payment of which would give rise to a deduction, then, for purposes of
.
Section 731(d) is amended—
by striking section 736 (relating to payments to a retiring partner or a deceased partner’s successor in
interest),
, and
by striking items), and
and inserting items) and
.
Section 751(b)(2) is amended—
by striking subparagraph (B), and
by striking shall not apply to—
and all that follows through a distribution of property
and inserting the following: shall not apply to a distribution of property
.
Section 753 is amended by striking The amount includible
and all that follows and inserting For treatment of income in respect of a decedent, see section 691.
Section 691 is amended by striking subsection (e).
Effective date
The amendments made by this subsection shall apply to partners retiring or dying after December 31, 2014.
Mandatory adjustments to basis of partnership property in case of transfer of partnership interests
In general
Section 743 is amended—
by striking subsections (a), (c), (d), (e), and (f) and by redesignating subsection (b) as subsection (a),
in subsection (a) (as so redesignated) by striking with respect to which the election provided in section 754 is in effect or which has a substantial
built-in loss immediately after such transfer
, and
by adding at the end the following new subsection:
Allocation of basis
General rule
Any increase or decrease in the adjusted basis of partnership property under subsection (a) shall, except as provided in paragraph (2), be allocated—
in a manner which has the effect of reducing the difference between the fair market value and the adjusted basis of partnership properties, or
in any other manner permitted by regulations prescribed by the Secretary.
Special rule
In applying the allocation rules provided in paragraph (1), increases or decreases in the adjusted basis of partnership property arising from a transfer of an interest attributable to property consisting of—
capital assets and property described in section 1231(b), or
any other property of the partnership,
.
Conforming amendments
Section 704(c)(1) is amended—
by adding and
at the end of subparagraph (A),
by striking , and
at the end of subparagraph (B) and inserting a period, and
by striking all that follows subparagraph (B).
Section 732 is amended by striking subsection (d) and by redesignating subsections (e) and (f) as subsections (d) and (e), respectively.
Section 761(e)(2) is amended by striking optional
.
Section 6031 is amended by striking subsection (f).
The heading for section 743 is amended to read as follows: Adjustment to basis of partnership property.
The heading for subsection (a) (as redesignated by the preceding provisions of this Act) of section
743 is amended by striking Adjustment to basis of partnership property
and inserting In general
.
Effective date
The amendments made by this section shall apply to transfers after December 31, 2014.
Mandatory adjustments to basis of undistributed partnership property
In general
Section 734 is amended to read as follows:
Adjustment to basis of undistributed partnership property
In general
In the case of any distribution to a partner, the partnership shall adjust the basis of partnership property such that each remaining partner’s net liquidation amount immediately after such distribution is equal to such partner’s net liquidation amount immediately before such distribution.
Distributions other than in liquidation of a partner’s interest
In the case of any distribution to a partner other than in liquidation of such partner’s interest, proper adjustment shall be made under subsection (a) with respect to such partner to take into account—
the amount of any gain recognized by such partner with respect to such distribution under section 731(a), and
the amount of any gain or loss which would be recognized by such partner if such partner sold the property distributed at fair market value immediately after such distribution.
Net liquidation amount
For purposes of this section, the term net liquidation amount
means, with respect to any partner, the net amount of gain or loss (if any) which would be taken
into account by the partner under section 702 if the partnership sold all
of its assets at fair market value (and no other amounts were taken into
account under such section).
Allocation of basis
Decreases in basis
Any decrease in the adjusted basis of partnership property which is required under this section—
shall be made in accordance with paragraph (3) of section 732(c), and
shall be made first with respect to property other than unrealized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)) to the extent thereof.
Increases in basis
Any increase in the adjusted basis of partnership property which is required under this section—
shall be made in accordance with paragraph (2) of section 732(c), and
shall be made only with respect to property other than unrealized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)).
No allocation of basis decrease to stock of corporate partner
In making an allocation under subsection (d) of any decrease in the adjusted basis of partnership property required under subsection (a)—
no allocation may be made to stock in a corporation (or any person related (within the meaning of section 267(b) or 707(b)(1)) to such corporation) which is a partner in the partnership, and
any amount not allocable to stock by reason of paragraph (1) shall be allocated under subsection (d) to other partnership property.
.
Conforming amendments
Subpart D of part II of subchapter K of chapter 1 is amended by striking sections 754 and 755 (and by striking items relating to such sections in the table of sections of such subpart).
Clause (ii) of section 706(d)(2)(D) is amended by striking section 755
and inserting section 743(b)
.
Subsection (d) of section 1060 is amended—
by striking section 755
in paragraph (1) and inserting sections 734 and 743
, and
by striking section 755
in paragraph (2) and inserting section 734 or 743
.
Effective date
The amendments made by this section shall apply to distributions after December 31, 2014.
Corresponding adjustments to basis of properties held by partnership where partnership basis adjusted
In general
Subpart B of part II of subchapter K of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after section 735 the following new section:
Corresponding adjustment to basis of properties held by lower-tier partnership in case of upper-tier partnership basis adjustments
Distributions by upper-Tier partnership
In the case of any distribution of property to a partner by an upper-tier partnership, if such distribution results in an adjustment in the upper-tier partnership’s adjusted basis in an interest in a lower-tier partnership under section 734, then such lower-tier partnership shall make a corresponding adjustment to the adjusted basis of its partnership property.
Distributions of interests in lower-Tier partnership
In the case of any distribution of an interest in a lower-tier partnership by an upper-tier partnership—
if the adjusted basis of such interest in the hands of the upper-tier partnership (determined immediately before such distribution) exceeds the adjusted basis of such interest in the hands of the distributee partner (determined immediately after such distribution), then such lower-tier partnership shall decrease the adjusted basis of its partnership property by the amount of such excess, or
if the adjusted basis of such interest in the hands of the distributee partner (determined immediately after such distribution) exceeds the adjusted basis of such interest in the hands of the upper-tier partnership (determined immediately before such distribution), then such lower-tier partnership shall increase the adjusted basis of its partnership property by the amount of such excess.
Dispositions of interests in upper-Tier partnership
In the case of a disposition of an interest in an upper-tier partnership which holds an interest in a lower-tier partnership, if there is an adjustment to the adjusted basis of the lower-tier partnership under section 743, then such lower-tier partnership shall make a corresponding adjustment to the adjusted basis of its partnership property.
Multi-Tiered partnerships
In the case of any adjustment under subsection (a), (b), or (c) in the adjusted basis of an interest in another partnership, such other partnership shall make a corresponding adjustment in the adjusted basis of its partnership property.
Allocation of basis; recognition of gain
In the case of any adjustment in the adjusted basis of partnership property—
under subsection (a), (b), (c), or (d), such adjustment shall be made only with respect to the upper-tier partnership’s proportionate share (as determined under section 743(a)) of the adjusted basis of the lower-tier partnership’s property,
under subsection (a) or (b) (or so much of subsection (d) as relates to either such subsection), rules similar to the rules of section 734(d) shall apply, and
under subsection (c) (or so much of subsection (d) as relates to such subsection), rules similar to the rules of section 743(b) shall apply.
Reporting
In the case of any adjustment in the adjusted basis of partnership property by a lower-tier partnership under this section by reason of a distribution by, or a disposition of an interest in, an upper-tier partnership, such upper-tier partnership shall furnish (in such manner as the Secretary shall prescribe) to such lower-tier partnership such information as is necessary to enable such lower-tier partnership to make such adjustment.
Upper- and lower-Tier partnerships
For purposes of this section—
Upper-tier partnership
The term upper-tier partnership
means a partnership owning an interest in another partnership.
Lower-tier partnership
The term lower-tier partnership
means the partnership referred to in paragraph (1) an interest in which is owned by the upper-tier
partnership.
.
Effective dates
The amendments made by this section shall apply to distributions and transfers after December 31, 2014.
Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss
In general
Subsection (d) of section 704 is amended—
by striking A partner’s distributive share
and inserting the following:
In general
A partner’s distributive share
,
by striking Any excess of such loss
and inserting the following:
Carryover
Any excess of such loss
, and
by adding at the end the following new paragraph:
Special rules
In determining the amount of any loss under paragraph (1), there shall be taken into account as a deduction the partner’s distributive share of—
the adjusted basis of charitable contributions described in paragraph (4) of section 702(a), and
the amount of taxes described in paragraph (6) of such section.
.
Effective date
The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2014.
Revisions related to unrealized receivables and inventory items
Repeal of requirement that inventory be substantially appreciated in certain partnership distributions treated as sale or exchange
In general
Clause (ii) of section 751(b)(1)(A) is amended by striking which have appreciated substantially in value
.
Conforming amendment
Section 751(b) is amended by striking paragraph (3).
Effective date
The amendments made by this subsection shall apply to distributions after December 31, 2014.
Revision of regulations relating to treatment of unrealized receivables and inventory items
The Secretary of the Treasury shall revise regulations issued under section 751(b) of the Internal Revenue Code of 1986 to take into account the partner’s share of income and gain rather than the partner’s share of partnership assets.
Simplification of definition of unrealized receivables
In general
Section 751(c) is amended by striking all that follows paragraph (2) and inserting the following:
For purposes of this section and sections 731, 732, 734, and 741, such term also includes any property other than inventory items, but only to the extent of the amount which would be treated as ordinary income if (at the time of the transaction described in the applicable section) such property had been sold by the partnership for its fair market value.
.
Effective date
The amendment made by this subsection shall apply to partnership taxable years beginning after December 31, 2014.
Repeal of time limitation on taxing precontribution gain
In general
Subparagraph (B) of section 704(c)(1) is amended by striking within 7 years of being contributed
.
Conforming amendment
Paragraph (1) of section 737(b) is amended by striking within 7 years of the distribution
.
Effective date
The amendments made by this section shall apply to property contributed to a partnership after December 31, 2014.
Partnership interests created by gift
In general
Section 761(b) is amended by adding at the end the following: In the case of a capital interest in a partnership in which capital is a material income-producing
factor, whether a person is a partner with respect to such interest shall
be determined without regard to whether such interest was derived by gift
from any other person.
.
Conforming amendments
Section 704(e) is amended—
by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively,
by striking this section
in paragraph (2) (as so redesignated) and inserting this subsection
, and
by striking Family partnerships
in the heading and inserting Partnership interests created by gift
.
Effective date
The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2014.
Repeal of technical termination
In general
Paragraph (1) of section 708(b) is amended—
by striking , or
and all that follows and inserting a period, and
by striking only if—
and all that follows through no part of any business
and inserting the following: only if no part of any business
.
Effective date
The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2014.
Publicly traded partnership exception restricted to mining and natural resources partnerships
In general
Subsection (d) of section 7704 is amended to read as follows:
Qualifying income
For purposes of this section, the term qualifying income
means—
income and gains derived 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 geothermal energy and excluding fertilizer and timber) or industrial source carbon dioxide, and
any gain from the sale or disposition of a capital asset (or property described in section 1231(b)) held for the production of income described in paragraph (1).
mineral or natural resourcemeans any product of a character with respect to which a deduction for depletion is allowable under section 611 (other than minerals from sea water or the air (or similar inexhaustible sources), soil, sod, dirt, turf, water, or mosses).
.
Conforming amendments
Section 988(c)(1)(E) is amended—
by striking income or gains described in subparagraph (A), (B), or (G) of section 7704(d)(1)
in clause (iii)(III) and inserting qualifying income or gains
,
by striking subclause (III) of clause (vi) and by redesignating subclause (IV) as subclause (III),
by redesignating clause (vi) (as amended by this subparagraph) as clause (viii), and
by inserting after clause (v) the following new clauses:
Qualifying income or gains
The term qualifying income or gains
means—
interest,
dividends, and
in the case of a partnership described in the second sentence of section 7704(c)(3), income and gains from commodities (not described in section 1221(a)(1)) or futures, forwards, and options with respect to commodities.
Inadvertent terminations
If—
A partnership fails to meet the gross income requirements of this subparagraph,
the Secretary determines that such failure was inadvertent,
no later than a reasonable time after the discovery of such failure, steps are taken so that such partnership once more meets such gross income requirements, and
such partnership agrees to make such adjustments (including adjustments with respect to the partners) or to pay such amounts as may be required by the Secretary with respect to such period,
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2016.
Ordinary income treatment in the case of partnership interests held in connection with performance of services
In general
Part IV of subchapter O of chapter 1 is amended—
by redesignating section 1061 as section 1062, and
by inserting after section 1060 the following new section:
Partnership interests held in connection with performance of services
In general
If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, so much of—
the taxpayer’s net capital gain with respect to such interests for such taxable year, as does not exceed
the taxpayer’s recharacterization account balance for such taxable year,
Net capital gain
In general
For purposes of subsection (a)(1), net capital gain shall be determined under section 1222, except that such section shall be applied—
without regard to the recharacterization of any item as ordinary income under this section,
by only taking into account items of gain and loss—
taken into account by the taxpayer under section 702 with respect to any applicable partnership interest,
recognized by the taxpayer on the disposition of any such interest, or
recognized by the taxpayer under paragraph (4) on a distribution of property with respect to such interest, and
in the case of a taxable year for which section 1231 gains (as defined in section 1231(a)(3)(A)) exceed section 1231 losses (as defined in section 1231(a)(3)(B)), by treating property which is taken into account in determining such gains and losses as capital assets held for more than 1 year.
Allocation to items of gain
The amount treated as ordinary income under subsection (a) shall be allocated ratably among the items of long-term capital gain taken into account in determining net capital gain under paragraph (1).
Recognition of gain on disposition of applicable partnership interests
Any gain on the disposition of any applicable partnership interest shall be recognized notwithstanding any other provision of this title.
Recognition of gain on distributions of partnership property
In general
In the case of any distribution of property by a partnership with respect to any applicable partnership interest, the partner receiving such property shall recognize gain equal to the excess (if any) of—
the fair market value of such property at the time of such distribution, over
the adjusted basis of such property in the hands of such partner (determined without regard to subparagraph (B)).
Adjustment of basis
In the case of a distribution to which subparagraph (A) applies, the basis of the distributed property in the hands of the distributee partner shall be the amount determined under subparagraph (A)(i).
Recharacterization account balance
In general
For purposes of this section, the term recharacterization account balance
means, with respect to any taxpayer for any taxable year, the excess (if any) of—
the sum of—
the taxpayer’s aggregate annual recharacterization amounts with respect to applicable partnership interests for such taxable year, plus
the taxpayer’s recharacterization account balance for the taxable year preceding such taxable year, over
the sum of—
the taxpayer’s net ordinary income with respect to applicable partnership interests for such taxable year (determined without regard to this section), plus
the amount treated as ordinary income of the taxpayer under this section for the taxable year preceding such taxable year.
Annual recharacterization amount
For purposes of this subsection—
In general
The term annual recharacterization amount means, with respect to any applicable partnership interest for any partnership taxable year, an amount equal to the product of—
the specified rate determined under subparagraph (B) for the calendar year in which such taxable year begins, multiplied by
the excess (if any) of—
an amount equal to the applicable percentage of the partnership’s aggregate invested capital for such taxable year, over
the specified capital contribution of the partner with respect to the applicable partnership interest for such taxable year.
Specified rate
For purposes of subparagraph (A), the term specified rate means, with respect to any calendar year, a percentage equal to—
the Federal long-term rate determined under section 1274(d)(1) for the last month of the calendar year, plus
10 percentage points.
Applicable percentage
In general
The term applicable percentage means, with respect to any applicable partnership interest, the highest percentage of profits of the partnership that could be allocated with respect to such interest for the taxable year (consistent with the partnership agreement and assuming such facts and circumstances with respect to such taxable year as would result in such highest percentage).
Secretarial authority
The Secretary shall prescribe rules for the determination of the applicable percentage in cases in which the percentage of profits of a partnership that are to be allocated with respect to an applicable partnership interest varies on the basis of the aggregate amount of such profits. Such rules may provide a percentage which may be used in lieu of the highest percentage determined under clause (i) in cases where such other percentage is consistent with the purposes of this section.
Aggregate invested capital
In general
The term aggregate invested capital means, with respect to any taxable year, the average daily amount of invested capital of the partnership for such taxable year.
Invested capital
The term invested capital means, with respect to any partnership as of any day, the total cumulative value, determined at the time of contribution, of all money or other property contributed to the partnership on or before such day.
Reduction for liquidation of partnership interests
The invested capital of a partnership shall be reduced by the aggregate amount distributed in liquidation of interests in the partnership.
Treatment of certain indebtedness as invested capital
The following amounts shall be treated as invested capital:
Partner loans
The aggregate value (determined as of the time of the loan) of money or other property which a partner loans to the partnership.
Indebtedness eligible to share in equity of the partnership
The face amount of any convertible debt of the partnership or any debt obligation providing equity participation in the partnership.
Specified capital contribution
In general
The term specified capital contribution
means, with respect to any applicable partnership interest for any taxable year, the average daily
amount of contributed capital with respect to such interest for such year.
Contributed capital
The term contributed capital
means, with respect to applicable partnership interest as of any day, the excess (if any) of—
the total cumulative value, determined at the time of contribution, of all money or other property contributed by the partner to the partnership with respect to such interest as of such day, over
the total cumulative value, determined at the time of distribution, of all money or other property distributed by the partnership to the partner with respect to such interest as of such day.
Treatment of related party borrowings
Any amount borrowed directly or indirectly from the partnership or any other partner of the
partnership or any person related to such other partner or such
partnership shall not be taken into account under this subparagraph. For
purposes of the preceding sentence, a person shall be treated as related
to another person if the relationship between such persons would be
described in section 267(b) or 707(b) if such sections and section 267(f)
were applied by substituting 10 percent
for 50 percent
each place it appears.
Multiple interests
If at any time during a taxable year a taxpayer holds directly or indirectly more than 1 applicable partnership interest in a single partnership, such interests shall be treated as 1 applicable partnership interest for purposes of applying this paragraph.
Net ordinary income
For purposes of this subsection, the net ordinary income with respect to applicable partnership interests for any taxable year is the excess (if any) of—
the taxpayer’s distributive share of items of income and gain under section 702 with respect to applicable partnership interests for such taxable year (determined without regard to any items of gain taken into account in determining net capital gain under subsection (b)(1)), over
the taxpayer’s distributive share of items of deduction and loss under section 702 with respect to such interests for such taxable year (determined without regard to any items of loss taken into account in determining net capital gain under subsection (b)(1)).
Applicable partnership interest
For purposes of this section—
In general
The term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of services by the taxpayer, or any other person, in any applicable trade or business.
Applicable trade or business
In general
The term applicable trade or business
means any trade or business conducted on a regular, continuous, and substantial basis which,
regardless of whether the activities are conducted in one or more
entities, consists, in whole or in part, of—
raising or returning capital,
investing in (or disposing of) trades or businesses (or identifying trades or businesses for such investing or disposition), and
developing such trades or businesses.
Treatment of research and experimentation activities
Any activity involving research or experimentation (within the meaning of section 469(c)(4)) shall be treated as a trade or business for purposes of clauses (ii) and (iii) of subparagraph (A).
Transfer of applicable partnership interest to related person
In general
If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as ordinary income) so much of the taxpayer’s recharacterization account balance for such taxable year as is allocable to such interest (determined in such manner as the Secretary may provide and reduced by any amount treated as ordinary income under subsection (a) with respect to the transfer of such interest).
Related person
For purposes of this paragraph, a person is related to the taxpayer if—
the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or
the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service.
Reporting by entity of taxpayer’s annual recharacterization amount
A partnership shall report to the Secretary, and include with the information required to be furnished under section 6031(b) to each partner, the amount of the partner’s annual recharacterization amount for the taxable year, if any. A similar rule applies to any entity that receives a report of an annual recharacterization amount for the taxable year.
Regulations
The Secretary shall issue such regulations or other guidance as necessary to carry out this section, including regulations—
to prevent the abuse of the purposes of this section, including through—
the allocation of income to tax indifferent parties, or
a reduction in the invested capital of the partnership (including attempts to undervalue contributed or loaned property),
which provide that partnership interests shall not fail to be treated as transferred or held in connection with the performance of services merely because the taxpayer also made contributions to the partnership,
which provide for the application of this section in cases where the taxpayer has more than 1 applicable interest in a partnership, and
which provide for the application of this section in cases of tiered structures of entities.
.
Coordination with section 83
Subsection (e) of section 83 is amended by striking or
at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting , or
, and by adding at the end the following new paragraph:
a transfer of a partnership interest to which section 1061 applies.
.
Clerical amendment
The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items:
Sec. 1061. Partnership interests held in connection with performance of services.
Sec. 1062. Cross references.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Partnership audits and adjustments
Repeal of TEFRA partnership audit rules
Chapter 63 is amended by striking subchapter C (and by striking the item relating to such subchapter in the table of subchapters for such chapter).
Repeal of electing large partnership rules
In general
Subchapter K of chapter 1 is amended by striking part IV (and by striking the item relating to such part in the table of parts for such subchapter).
Assessment rules relating to electing large partnerships
Chapter 63 is amended by striking subchapter D (and by striking the item relating to such subchapter in the table of subchapters for such chapter).
Effective date
The amendments made by this section shall apply to returns filed after December 31, 2014.
Partnership audit reform
In general
Chapter 63, as amended by the preceding provisions of this Act, is amended by inserting after subchapter B the following new subchapter:
Treatment of partnerships
Part I—In general
Part II—Partnership adjustments
Part III—Procedure
Part IV—Definitions and special rules
In general
Sec. 6221. Determination at partnership level.
Sec. 6222. Partner’s return must be consistent with partnership return.
Sec. 6223. Designation of partnership representative.
Determination at partnership level
In general
Items of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year (and any partner’s distributive share thereof) shall be audited, any tax attributable thereto shall be assessed and collected, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to any such item or share shall be determined, at the partnership level pursuant to this subchapter.
Election out for certain partnerships with 100 or fewer partners
This subchapter shall not apply with respect to any partnership for any taxable year if—
the partnership elects the application of this subsection for such taxable year,
the partnership has 100 or fewer partners on the last day of such taxable year,
each of the partners of such partnership is an individual, a C corporation (other than a real estate investment trust or a regulated investment company), any foreign entity that would be treated as a C corporation were it domestic, or an estate of a deceased partner,
the election—
is made with a timely filed return for such taxable year, and
includes (in the manner prescribed by the Secretary) a disclosure of the name and taxpayer identification number of each partner of such partnership, and
the partnership notifies each such partner of such election in the manner prescribed by the Secretary.
Partner’s return must be consistent with partnership return
In general
A partner of any partnership shall, on the partner’s return, treat each item of income, gain, loss, deduction, or credit attributable to such partnership in a manner which is consistent with the treatment of such income, gain, loss, deduction, or credit on the partnership return.
Underpayment due to inconsistent treatment assessed as math error
Any underpayment of tax by a partner by reason of failing to comply with the requirements of subsection (a) shall be assessed and collected in the same manner as if such underpayment were on account of a mathematical or clerical error appearing on the partner’s return. Paragraph (2) of section 6213(b) shall not apply to any assessment of an underpayment referred to in the preceding sentence.
Addition to tax for failure To comply with section
For addition to tax in the case of partner’s disregard of the requirements of this section, see part II of subchapter A of chapter 68.
Partners bound by actions of partnership
Designation of partner
Each partnership shall designate (in the manner prescribed by the Secretary) a partner (or other person) as the partnership representative who shall have the sole authority to act on behalf of the partnership under this subchapter. In any case in which such a designation is not in effect, the Secretary may select any partner as the partnership representative.
Binding effect
A partnership and all partners of such partnership shall be bound—
by actions taken under this subchapter by the partnership, and
by any decision in a proceeding brought under this subchapter.
Partnership adjustments
Sec. 6225. Partnership adjustment by Secretary.
Sec. 6226. Administrative adjustment request by partnership.
Partnership adjustment by Secretary
In general
In the case of any adjustment by the Secretary in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share thereof—
the partnership shall pay any imputed underpayment with respect to such adjustment in the adjustment year as provided in section 6232, and
any imputed overpayment shall be taken into account by the partnership in the adjustment year as a reduction in non-separately stated income or an increase in non-separately stated loss (whichever is appropriate) under section 702(a)(8).
Determination of imputed underpayments and overpayments
For purposes of this subchapter—
In general
Except as provided in subsection (c), any imputed underpayment or imputed overpayment with respect to any partnership adjustment for any reviewed year shall be determined—
by netting all adjustments of items of income, gain, loss, or deduction and multiplying such net amount by the highest rate of tax in effect for the reviewed year under section 1 or 11,
by treating any net increase or decrease in loss under subparagraph (A) as a decrease or increase, respectively, in income, and
by taking into account any adjustments to items of credit as an increase or decrease, as the case may be, in the amount determined under subparagraph (A).
Adjustments to distributive shares of partners not netted
In the case of any adjustment which reallocates the distributive share of any item from one partner to another, such adjustment shall be taken into account under paragraph (1) by disregarding—
any decrease in any item of income or gain, and
any increase in any item of deduction, loss, or credit.
Modification of imputed underpayments
Method in general
The Secretary shall establish procedures under which the imputed underpayment amount may be modified consistent with the requirements of this subsection.
Amended returns of partners
Such procedures shall provide that if—
one or more partners file returns for the taxable year of the partners which includes the end of the reviewed year of the partnership,
such returns take into account all adjustments under subsection (a) properly allocable to such partners (and for any other taxable year with respect to which any tax attribute is affected by reason of such adjustments), and
payment of any tax due is included with such return,
Reallocation of distributive share
In the case of any adjustment which reallocates the distributive share of any item from one partner to another, paragraph (2) shall apply only if returns are filed by all partners affected by such adjustment.
Year and day for submission to Secretary
Anything required to be submitted pursuant to paragraph (1) shall be submitted to the Secretary not later than the close the 180-day period beginning on the date on which the notice of a proposed partnership adjustment is mailed under section 6231 unless such period is extended with the consent of the Secretary.
Decision of Secretary
Any modification of the imputed underpayment amount under this subsection shall be made only upon approval of such modification by the Secretary.
Definitions and special rule
For purposes of this subchapter—
Reviewed year
The term reviewed year
means the partnership taxable year to which the item being adjusted relates.
Adjustment year
The term adjustment year
means the partnership taxable year in which—
in the case of an adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final,
in the case of an administrative adjustment request under section 6226, such administrative adjustment request is made, or
in any other case, notice of the final partnership adjustment is mailed under section 6231.
Administrative adjustment request by partnership
In general
A partnership may file a request for an administrative adjustment in the amount of any item of income, gain, loss, deduction, or credit of the partnership for any partnership taxable year, but only to the extent such adjustment results in an imputed underpayment.
Adjustment
Any adjustment under subsection (a) shall be determined and taken into account by the partnership under rules similar to the rules of section 6225 (other than subsection (c) thereof) for the partnership taxable year in which the administrative adjustment request is made.
Period of limitations
A partnership may not file such a request—
more than 3 years after the later of—
the date on which the partnership return for such year is filed, or
the last day for filing the partnership return for such year (determined without regard to extensions), and
after any notice of an administrative proceeding with respect to the taxable year is mailed under section 6231.
Procedure
Sec. 6231. Notice of proceedings and adjustment.
Sec. 6232. Assessment, collection, and payment.
Sec. 6233. Penalties and interest.
Sec. 6234. Judicial review of partnership adjustment.
Sec. 6235. Period of limitations on making adjustments.
Notice of proceedings and adjustment
In general
The Secretary shall mail to the partnership and the partnership representative—
notice of any administrative proceeding initiated at the partnership level with respect to an adjustment of any item of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year, or any partner’s distributive share thereof,
notice of any proposed partnership adjustment resulting from such proceeding, and
notice of any final partnership adjustment resulting from such proceeding.
Further notices restricted
If the Secretary mails a notice of a final partnership adjustment to any partnership for any partnership taxable year and the partnership files a petition under section 6234 with respect to such notice, in the absence of a showing of fraud, malfeasance, or misrepresentation of a material fact, the Secretary shall not mail another such notice to such partnership with respect to such taxable year.
Authority To rescind notice with partnership consent
The Secretary may, with the consent of the partnership, rescind any notice of a partnership adjustment mailed to such partnership. Any notice so rescinded shall not be treated as a notice of a partnership adjustment for purposes of this subchapter, and the taxpayer shall have no right to bring a proceeding under section 6234 with respect to such notice.
Assessment, collection, and payment
In general
Any imputed underpayment—
shall be assessed and collected in the same manner as if it were a tax imposed for the adjustment year by subtitle A, and
shall be paid on or before the return due date for the adjustment year.
Limitation on assessment
Except as otherwise provided in this chapter, no assessment of a deficiency may be made (and no levy or proceeding in any court for the collection of any amount resulting from such adjustment may be made, begun or prosecuted) before—
the close of the 90th day after the day on which a notice of a final partnership adjustment was mailed, and
if a petition is filed under section 6234 with respect to such notice, the decision of the court has become final.
Premature action may be enjoined
Notwithstanding section 7421(a), any action which violates subsection (b) may be enjoined in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction to enjoin any action under this subsection unless a timely petition has been filed under section 6234 and then only in respect of the adjustments that are the subject of such petition.
Exceptions to restrictions on adjustments
Adjustments arising out of math or clerical errors
In general
If the partnership is notified that, on account of a mathematical or clerical error appearing on the partnership return, an adjustment to a partnership item is required, rules similar to the rules of paragraphs (1) and (2) of section 6213(b) shall apply to such adjustment.
Special rule
If a partnership is a partner in another partnership, any adjustment on account of such partnership’s failure to comply with the requirements of section 6222(a) with respect to its interest in such other partnership shall be treated as an adjustment referred to in subparagraph (A), except that paragraph (2) of section 6213(b) shall not apply to such adjustment.
Partnership may waive restrictions
The partnership may at any time (whether or not any notice of partnership adjustment has been issued), by a signed notice in writing filed with the Secretary, waive the restrictions provided in subsection (b) on the making of any partnership adjustment.
Limit where no proceeding begun
If no proceeding under section 6234 is begun with respect to any notice of a final partnership adjustment during the 90-day period described in subsection (b) thereof, the amount for which the partnership is liable under section 6225 shall not exceed the amount determined in accordance with such notice.
Penalties and interest
Penalties and interest determined from reviewed year
In general
In the case of an imputed underpayment with respect to a partnership adjustment for a reviewed year, the partnership—
shall pay to the Secretary interest computed under paragraph (2), and
shall be liable for any penalty, addition to tax, or additional amount as provided in paragraph (3).
Determination of amount of interest
The interest computed under this paragraph with respect to any partnership adjustment is the interest which would be determined under chapter 67—
on the imputed underpayment determined with respect to such adjustment,
for the period beginning on the day after the return due date for the reviewed year and ending on the return due date for the adjustment year (or, if earlier, the date payment of the imputed underpayment is made).
Penalties
A partnership shall be liable for any penalty, addition to tax, or additional amount for which it would have been liable if such partnership had been an individual subject to tax under chapter 1 for the reviewed year and the imputed underpayment were an actual underpayment (or understatement) for such year.
Interest and penalties with respect to adjustment year return
In general
In the case of any failure to pay an imputed underpayment on the date prescribed therefor, the partnership shall be liable—
for interest as determined under paragraph (2), and
for any penalty, addition to tax, or additional amount as determined under paragraph (3).
Interest
Interest determined under this paragraph is the interest that would be determined by treating the imputed underpayment as an underpayment of tax imposed in the adjustment year.
Penalties
Penalties, additions to tax, or additional amounts determined under this paragraph are the penalties, additions to tax, or additional amounts that would be determined—
by applying section 6651(a)(2) to such failure to pay.
by treating the imputed underpayment as an underpayment of tax for purposes of part II of subchapter A of chapter 68.
Judicial review of partnership adjustment
In general
Within 90 days after the date on which a notice of a final partnership adjustment is mailed under section 6231 with respect to any partnership taxable year, the partnership may file a petition for a readjustment for such taxable year with—
the Tax Court,
the district court of the United States for the district in which the partnership’s principal place of business is located, or
the Claims Court.
Jurisdictional requirement for bringing action in district court or Claims Court
In general
A readjustment petition under this section may be filed in a district court of the United States or the Claims Court only if the partnership filing the petition deposits with the Secretary, on or before the date the petition is filed, the amount of the imputed underpayment (as of the date of the filing of the petition) if the partnership adjustment was made as provided by the notice of final partnership adjustment. The court may by order provide that the jurisdictional requirements of this paragraph are satisfied where there has been a good faith attempt to satisfy such requirement and any shortfall of the amount required to be deposited is timely corrected.
Interest payable
Any amount deposited under paragraph (1), while deposited, shall not be treated as a payment of tax for purposes of this title (other than chapter 67).
Scope of judicial review
A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all items of income, gain, loss, deduction, or credit of the partnership for the partnership taxable year to which the notice of final partnership adjustment relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount for which the partnership may be liable under this subchapter.
Determination of court reviewable
Any determination by a court under this section shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Claims Court, as the case may be, and shall be reviewable as such. The date of any such determination shall be treated as being the date of the court’s order entering the decision.
Effect of decision dismissing action
If an action brought under this section is dismissed other than by reason of a rescission under section 6231(c), the decision of the court dismissing the action shall be considered as its decision that the notice of final partnership adjustment is correct, and an appropriate order shall be entered in the records of the court.
Period of limitations on making adjustments
In general
Except as otherwise provided in this section, no adjustment under this subpart for any partnership taxable year may be made after the date which is 3 years after the latest of—
the date on which the partnership return for such taxable year was filed,
the return due date for the taxable year, or
the date on which the partnership filed an administrative adjustment request with respect to such year under section 6226.
Extension by agreement
The period described in subsection (a) (including an extension period under this subsection) may be extended by an agreement entered into by the Secretary and the partnership before the expiration of such period.
Special rule in case of fraud, etc
False return
In the case of a false or fraudulent partnership return with intent to evade tax, the adjustment may be made at any time.
Substantial omission of income
If any partnership omits from gross income an amount properly includible therein and such amount is
described in section 6501(e)(1)(A), subsection (a) shall be applied by
substituting 6 years
for 3 years
.
No return
In the case of a failure by a partnership to file a return for any taxable year, the adjustment may be made at any time.
Return filed by Secretary
For purposes of this section, a return executed by the Secretary under subsection (b) of section 6020 on behalf of the partnership shall not be treated as a return of the partnership.
Suspension when Secretary mails notice of adjustment
If notice of a final partnership adjustment with respect to any taxable year is mailed under section 6231, the running of the period specified in subsection (a) (as modified by the other provisions of this section) shall be suspended—
for the period during which an action may be brought under section 6234 (and, if a petition is filed under such section with respect to such notice, until the decision of the court becomes final), and
for 1 year thereafter.
Definitions and special rules
Sec. 6241. Definitions and special rules.
Definitions and special rules
Definitions and special rules
For purposes of this subchapter—
Partnership
The term partnership
means any partnership required to file a return under section 6031(a).
Partner
The term partner
means—
a partner in the partnership, and
any other person whose income tax liability under subtitle A is determined in whole or in part by taking into account directly or indirectly income, gain, deduction, or loss of the partnership.
Partnership adjustment
The term partnership adjustment
means any adjustment in the amount of any item of income, gain, loss, deduction, or credit of a
partnership, or any partner’s distributive share thereof.
Return due date
The term return due date
means, with respect to the taxable year, the date prescribed for filing the partnership return for
such taxable year (determined without regard to extensions).
Joint and several liability
In general
The partnership and any partner of the partnership shall be jointly and severally liable for any imputed underpayment and any penalty, addition to tax, or additional amount attributable thereto.
Period for assessment of partners
The period for assessment of an imputed underpayment with respect to a partner of a partnership shall not expire earlier than 3 years after the date on which an assessment of such imputed underpayment was made with respect to the partnership.
Determining partners
A person shall be treated as partner of the partnership if such person is a partner of such partnership at any time during the reviewed or adjustment year.
Payments nondeductible
No deduction shall be allowed under subtitle A for any payment required to be made by a partnership under this subchapter.
Special rule for deductions, losses, and credits of foreign partnerships
Except to the extent otherwise provided in regulations, in the case of any partnership the partnership representative of which resides outside the United States or the books of which are maintained outside the United States, no deduction, loss, or credit shall be allowable to any partner unless section 6031 is complied with for the partnership’s taxable year in which such deduction, loss, or credit arose at such time as the Secretary prescribes by regulations.
Partnerships having principal place of business outside United States
For purposes of sections 6234, a principal place of business located outside the United States shall be treated as located in the District of Columbia.
Partnerships in cases under title 11 of United States Code
Suspension of period of limitations on making adjustment, assessment, or collection
The running of any period of limitations provided in this subchapter on making a partnership adjustment (or provided by section 6501 or 6502 on the assessment or collection of any imputed underpayment determined under this subchapter) shall, in a case under title 11 of the United States Code, be suspended during the period during which the Secretary is prohibited by reason of such case from making the adjustment (or assessment or collection) and—
for adjustment or assessment, 60 days thereafter, and
for collection, 6 months thereafter.
Suspension of period of limitation for filing for judicial review
The running of the period specified in section 6234 shall, in a case under title 11 of the United States Code, be suspended during the period during which the partnership is prohibited by reason of such case from filing a petition under section 6234 and for 60 days thereafter.
.
Clerical amendment
The table of subchapters for chapter 63 is amended by inserting after the item relating to subchapter B the following new items:
Subchapter C. Treatment of partnerships.
.
Conforming amendments
Section 6422 is amended by striking paragraph (12).
Section 6501(n) is amended by striking paragraphs (2) and (3) and by striking Cross references
and all that follows through For period of limitations
and inserting Cross reference.—For period of limitations
.
Section 6503(a)(1) is amended by striking (or section 6229
and all that follows through of section 6230(a))
.
Section 6504 is amended by striking paragraph (11).
Section 6511 is amended by striking subsection (g).
Section 6512(b)(3) is amended by striking the second sentence.
Section 6515 is amended by striking paragraph (6).
Section 6601(c) is amended by striking the last sentence.
Section 7421(a) is amended by striking 6225(b), 6246(b)
and inserting 6232(c)
.
Section 7422 is amended by striking subsection (h).
Section 7459(c) is amended by striking section 6226
and all that follows through or 6252
and inserting section 6234
.
Section 7482(b)(1) is amended—
in subparagraph (E), by striking section 6226, 6228, 6247, or 6252
and inserting section 6234
,
by striking subparagraph (F), by striking or
at the end of subparagraph (E) and inserting a period, and by inserting or
at the end of subparagraph (D), and
in the last sentence, by striking section 6226, 6228(a), or 6234(c)
and inserting section 6234
.
Section 7485(b) is amended by striking section 6226, 6228(a), 6247, or 6252
and inserting section 6234
.
Effective date
The amendments made by this section shall apply to returns filed for partnership taxable years ending after December 31, 2014, except that a partnership may elect (at such time and in such form and manner as the Secretary of the Treasury may prescribe) for such amendments to apply to any return of the partnership filed for partnership taxable years ending after the date of the enactment of this Act and before January 1, 2015.
REITs and RICs
Prevention of tax-free spinoffs involving REITs
In general
Section 355 is amended by adding at the end the following new subsection:
Section not To apply to distributions involving real estate investment trusts
This section (and so much of section 356 as relates to this section) shall not apply to any distribution if either the distributing corporation or controlled corporation is a real estate investment trust.
.
Prevention of REIT election following tax-Free spin off
Section 856(c) is amended by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph:
Election after tax-free reorganization
If a corporation was a distributing corporation or a controlled corporation with respect to any distribution to which section 355 applied, such corporation (and any successor corporation) shall not be eligible to make any election under subsection (c)(1) for any taxable year prior to the 10th taxable year which begins after the taxable year in which such distribution was made.
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to distributions on or after February 26, 2014.
Transition rule
The amendments made by this section shall not apply to any distribution made pursuant to an agreement which was binding on February 26, 2014, and at all times thereafter.
Extension of period for prevention of REIT election following revocation or termination
In general
Section 856(g)(3) is amended by striking fifth
and inserting 10th
.
Effective date
The amendments made by this section shall apply to terminations and revocations after December 31, 2014.
Certain short-life property not treated as real property for purposes of REIT provisions
In general
Section 856(c)(5) is amended by adding at the end the following new subparagraph:
Real property
The term real property
shall not include any tangible property with a class life of less than 27.5 years. For purposes of
the preceding sentence, class life of tangible property for any taxable
year shall be the greater of—
the class life of such property in the hands of the real estate investment trust, or
the class life which would be applicable to such property if such property was placed in service in the taxable year.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2016.
Repeal of special rules for timber held by REITs
In general
Section 856(c)(5)(L), as added by this Act, is amended by inserting timber or
after shall not include
.
Conforming amendments
Section 856(c)(2) is amended by inserting and
at the end of subparagraph (G), by striking and
at the end of subparagraph (H), and by striking subparagraph (I).
Section 856(c)(5), as amended by the preceding provisions of this Act, is amended by striking subparagraphs (H) and (I) and by redesignating subparagraphs (J), (K), and (L) as subparagraphs (H), (I) and (J), respectively.
Section 856(c), as amended by the preceding provisions of this Act, is amended by striking paragraph (9).
Section 857(b)(6) is amended by striking subparagraphs (D), (G), and (H), and by redesignating subparagraphs (E) and (F) as subparagraphs (D) and (E), respectively.
Section 857(b)(6)(D), as redesignated by paragraph (4), is amended by striking subparagraphs (C) and (D)
and inserting subparagraph (C)
.
Section 857(b)(6)(E), as redesignated by paragraph (4), is amended—
by striking subparagraph (C) or (D)
and inserting subparagraph (C)
, and
by striking subparagraphs (C), (D), and (E)
and inserting subparagraphs (C) and (D)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2016.
Limitation on fixed percentage rent and interest exceptions for REIT income tests
In general
Section 856 is amended by adding at the end the following new subsection:
Limitation on fixed percentage rent and interest exceptions
In general
If the fixed percentage rent and interest income received or accrued by a real estate investment trust from a single C corporation (other than a taxable REIT subsidiary of such real estate investment trust) for any taxable year exceeds either—
25 percent of the fixed percentage rent income received or accrued by such real estate investment trust for such taxable year, or
25 percent of the fixed percentage interest income received or accrued by such real estate investment trust for such taxable year,
Fixed percentage rent and interest income
For purposes of this subsection—
Fixed percentage rent and interest income
The term fixed percentage rent and interest income
means the sum of the fixed percentage rent income plus the fixed percentage interest income.
Fixed percentage rent income
The term fixed percentage rent income
means amounts described in subsection (d)(2)(A) which are based on a fixed percentage or
percentages of receipts or sales.
Fixed percentage interest income
The term fixed percentage interest income
means amounts described in subsection (f)(1) which are based on a fixed percentage or percentages
of receipts or sales.
Aggregation rule
Members of the same affiliated group (as defined in section 1504, applied by substituting 50 percent
for 80 percent
each place it appears therein) shall be treated as 1 corporation for purposes of paragraph (1).
Treatment of modifications
For purposes of paragraph (1), any material modification (including any extension of the term) of a lease or debt instrument shall be treated as a new lease or debt instrument, as the case may be, entered into on the date of such modification.
.
Effective date
The amendment made by this section shall apply to taxable years ending after December 31, 2014.
Repeal of preferential dividend rule for publicly offered REITs
In general
Paragraph (1) of section 562(c), as amended by the preceding provisions of this Act, is amended by
inserting or a publicly offered REIT
after a publicly offered regulated investment company
.
Publicly offered REIT
Subsection (c) of section 562, as so amended, is amended by adding at the end the following new paragraph:
Publicly offered REIT
For purposes of this subsection, the term publicly offered REIT
means a real estate investment trust which is required to file annual and periodic reports with
the Securities and Exchange Commission under the Securities Exchange Act
of 1934.
.
Effective date
The amendment made by this section shall apply to distributions in taxable years beginning after December 31, 2014.
Authority for alternative remedies to address certain REIT distribution failures
In general
Subsection (e) of section 562 is amended—
by striking In the case of a real estate investment trust
and inserting the following:
Determination of earnings and profits for purposes of dividends paid deduction
In the case of a real estate investment trust
, and
by adding at the end the following new paragraph:
Authority to provide alternative remedies for certain failures
In the case of a failure of a distribution by a real estate investment trust to comply with the requirements of subsection (c), the Secretary may provide an appropriate remedy to cure such failure in lieu of not considering the distribution to be a dividend for purposes of computing the dividends paid deduction if—
the Secretary determines that such failure is inadvertent or is due to reasonable cause and not due to willful neglect, or
such failure is of a type of failure which the Secretary has identified for purposes of this paragraph as being described in subparagraph (A).
.
Effective date
The amendments made by this section shall apply to distributions in taxable years beginning after December 31, 2014.
Limitations on designation of dividends by REITs
In general
Section 857 is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:
Limitations on designation of dividends
Overall limitation
The aggregate amount of dividends designated by a real estate investment trust under subsections (b)(3)(C) and (c)(2)(A) with respect to any taxable year may not exceed the dividends paid by such trust with respect to such year. For purposes of the preceding sentence, dividends paid after the close of the taxable year described in section 858 shall be treated as paid with respect to such year.
Proportionality
The Secretary may prescribe regulations or other guidance requiring the proportionality of the designation of particular types of dividends among shares or beneficial interests of a real estate investment trust.
.
Effective date
The amendments made by this section shall apply to distributions in taxable years beginning after December 31, 2014.
Non-REIT earnings and profits required to be distributed by REIT in cash
In general
Section 857, as amended by the preceding provisions of this Act, is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:
Determination of earnings and profits accumulated in non-REIT years
In general
For purposes of subsection (a)(2)(B), distributions during the transition period shall be taken into account in determining accumulated earning and profits only if such distributions are made in cash.
Transition period
For purposes of this subsection, the term transition period
means the period of taxable years beginning with the last taxable year (other than a short taxable
year) which was a non-REIT year (as defined in subsection (a)) and ending
with the first taxable year to which the provisions of this part apply.
.
Conforming amendment
Section 857(a)(2)(B) is amended by inserting (determined as provided in subsection (h))
before the period at the end.
Effective date
The amendments made by this section shall apply to distributions made on or after February 26, 2014.
Debt instruments of publicly offered REITs and mortgages treated as real estate assets
Debt instruments of publicly offered REITs treated as real estate assets
In general
Subparagraph (B) of section 856(c)(5) is amended—
by striking and shares
and inserting , shares
, and
by inserting , and debt instruments issued by publicly offered REITs
before the period at the end of the first sentence.
Income from nonqualified debt instruments of publicly offered REITs not qualified for purposes of satisfying the 75 percent gross income test
Subparagraph (H) of section 856(c)(3) is amended by inserting (other than a nonqualified publicly offered REIT debt instrument)
after real estate asset
.
25 percent asset limitation on holding of nonqualified debt instruments of publicly offered REITs
Subparagraph (B) of section 856(c)(4) is amended by redesignating clause (iii) as clause (iv) and by inserting after clause (ii) the following new clause:
not more than 25 percent of the value of its total assets is represented by nonqualified publicly offered REIT debt instruments, and
.
Definitions related to debt instruments of publicly offered REITs
Paragraph (5) of section 856(c), as amended by the preceding provisions of this Act, is amended by adding at the end the following new subparagraph:
Definitions related to debt instruments of publicly offered REITs
Publicly offered REIT
The term publicly offered REIT
has the meaning given such term by section 562(c)(3).
Nonqualified publicly offered REIT debt instrument
The term nonqualified publicly offered REIT debt instrument
means any real estate asset which would cease to be a real estate asset if subparagraph (B) were
applied without regard to the reference to debt instruments issued by publicly offered REITs
.
.
Interests in mortgages on interests in real property treated as real estate assets
Subparagraph (B) of section 856(c)(5) is amended by inserting or on interests in real property
after interests in mortgages on real property
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Asset and income test clarification regarding ancillary personal property
In general
Subsection (c) of section 856 is amended by adding at the end the following new paragraph:
Special rules for certain personal property which is ancillary to real property
Certain personal property leased in connection with real property
Personal property shall be treated as a real estate asset for purposes of paragraph (4)(A) to the extent that rents attributable to such personal property are treated as rents from real property under subsection (d)(1)(C).
Certain personal property mortgaged in connection with real property
In the case of an obligation secured by a mortgage on both real property and personal property, if the fair market value of such personal property does not exceed 15 percent of the total fair market value of all such property, such personal property shall be treated as real property for purposes of applying paragraphs (3)(B) and (4)(A). For purposes of the preceding sentence, the fair market value of all such property shall be determined in the same manner as the fair market value of real property is determined for purposes of apportioning interest income between real property and personal property under paragraph (3)(B).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Hedging provisions
Modification To permit the termination of a hedging transaction using an additional hedging instrument
Subparagraph (G) of section 856(c)(5) is amended by striking and
at the end of clause (i), by striking the period at the end of clause (ii) and inserting , and
, and by adding at the end the following new clause:
if—
a real estate investment trust enters into one or more positions described in clause (i) with respect to indebtedness described in clause (i) or one or more positions described in clause (ii) with respect to property which generates income or gain described in paragraph (2) or (3),
any portion of such indebtedness is extinguished or any portion of such property is disposed of, and
in connection with such extinguishment or disposition, such trust enters into one or more transactions which would be hedging transactions described in subparagraph (B) or (C) of section 1221(b)(2) with respect to any position referred to in subclause (I) if such position were ordinary property,
.
Identification requirements
In general
Subparagraph (G) of section 856(c)(5), as amended by subsection (a), is amended by striking and
at the end of clause (ii), by striking the period at the end of clause (iii) and inserting , and
, and by adding at the end the following new clause:
clauses (i), (ii), and (iii) shall not apply with respect to any transaction unless such transaction satisfies the identification requirement described in section 1221(b)(3)(A) (determined after taking into account any curative provisions provided under the regulations referred to therein).
.
Conforming amendments
Subparagraph (G) of section 856(c)(5) is amended—
by striking which is clearly identified pursuant to section 1221(a)(7)
in clause (i), and
by striking , but only if such transaction is clearly identified as such before the close of the day on which
it was acquired, originated, or entered into (or such other time as the
Secretary may prescribe)
in clause (ii).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Modification of REIT earnings and profits calculation to avoid duplicate taxation
Earnings and profits not increased by amounts allowed in computing taxable income in prior years
In general
Paragraph (1) of section 857(d) is amended to read as follows:
In general
The earnings and profits of a real estate investment trust for any taxable year (but not its accumulated earnings) shall not be reduced by any amount which—
is not allowable in computing its taxable income for such taxable year, and
was not allowable in computing its taxable income for any prior taxable year.
.
Exception for purposes of determining dividends paid deduction
Paragraph (1) of section 562(e), as amended by the preceding provisions of this Act, is amended—
by striking deduction, the earnings
and inserting the following:
deduction—
the earnings
,
by striking the period at the end and inserting , and
, and
by adding at the end the following new subparagraph:
section 857(d)(1) shall be applied without regard to subparagraph (B) thereof.
.
Conforming amendments
Subsection (d) of section 857 is amended by adding at the end the following new paragraphs:
Real estate investment trust
For purposes of this subsection, the term real estate investment trust
includes a domestic corporation, trust, or association which is a real estate investment trust
determined without regard to the requirements of subsection (a).
Special rules for determining earnings and profits for purposes of the deduction for dividends paid
For special rules for determining the earnings and profits of a real estate investment trust for purposes of the deduction for dividends paid, see section 562(e)(1).
.
Treatment of gain on sales of real property
Subparagraph (A) of section 562(e)(1), as amended by the preceding provisions of this Act, is amended to read as follows:
the earnings and profits of such trust for any taxable year (but not its accumulated earnings) shall be increased by the amount of gain (if any) on the sale or exchange of real property which is taken into account in determining the taxable income of such trust for such taxable year (and not otherwise taken into account in determining such earnings and profits), and
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Reduction in percentage limitation on assets of REIT which may be taxable REIT subsidiaries
In general
Section 856(c)(4)(B)(ii) is amended by striking 25 percent
and inserting 20 percent
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2016.
Treatment of certain services provided by taxable REIT subsidiaries
Taxable REIT subsidiaries treated in same manner as independent contractors for certain purposes
Marketing and development expenses under rental property safe harbor
Clause (v) of section 857(b)(6)(C) is amended by inserting or by a taxable REIT subsidiary
before the period at the end.
Foreclosure property grace period
Subparagraph (C) of section 856(e)(4) is amended by inserting or through a taxable REIT subsidiary
after receive any income
.
Tax on redetermined TRS service income
In general
Subparagraph (A) of section 857(b)(7) is amended by striking and excess interest
and inserting excess interest, and redetermined TRS service income
.
Redetermined TRS service income
Paragraph (7) of section 857(b) is amended by redesignating subparagraphs (E) and (F) as subparagraphs (F) and (G), respectively, and inserting after subparagraph (D) the following new subparagraph:
Redetermined TRS service income
In general
The term redetermined TRS service income
means gross income of a taxable REIT subsidiary of a real estate investment trust attributable to
services provided to, or on behalf of, such trust (less deductions
properly allocable thereto) to the extent the amount of such income (less
such deductions) would (but for subparagraph (F)) be increased on
distribution, apportionment, or allocation under section 482.
Coordination with redetermined rents
Clause (i) shall not apply with respect to gross income attributable to services furnished or rendered to a tenant of the real estate investment trust (or to deductions properly allocable thereto).
.
Conforming amendments
Subparagraphs (B)(i) and (C) of section 857(b)(7) are each amended by striking subparagraph (E)
and inserting subparagraph (F)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Study relating to taxable REIT subsidiaries
The Secretary of the Treasury (or the Secretary’s designee) shall, biannually—
conduct a study to determine—
how many taxable REIT subsidiaries are in existence and the aggregate amount of taxes paid by such subsidiaries, and
the amount by which transactions between a REIT and a taxable REIT subsidiary reduce taxable income of the taxable REIT subsidiary (whether or not such transactions are conducted at arms length), and
submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate describing the results of such study.
C corporation election to become, or transfer assets to, a RIC or REIT
In general
Part IV of subchapter O of chapter 1, as amended by the preceding provisions of this Act, is amended by redesignating section 1062 as section 1063 and by inserting after section 1061 the following new section:
Recognition of gain or loss upon C corporation election to become, or transfer assets to, a regulated investment company or a real estate investment trust
In general
If a C corporation elects to become a regulated investment company or a real estate investment trust for a taxable year, such corporation shall recognize gain or loss as if all its assets were sold by such corporation at their fair market value immediately before the close of the last taxable year before such corporation becomes a regulated investment company or real estate investment trust (as the case may be).
Application to transfers of assets
In the case of a C corporation which transfers to a regulated investment company or a real estate investment trust one or more assets the basis of which is determined (in whole or in part) by reference to the basis of such asset or assets in the hands of the C corporation, such corporation shall recognize gain or loss as if such assets were sold by such corporation at their fair market value as of the end of the day before the day of the transfer.
Nonapplication to net loss
Subsections (a) and (b) shall not apply if their application would result in the recognition of a
net loss. For purposes of the preceding sentence, the term net loss
means the excess of aggregate losses over aggregate gains (including items of income) without
regard to character.
Basis adjustment
If any asset is treated as sold under subsection (a) or (b), the basis of such asset immediately after such deemed sale shall be equal to the fair market value of such asset as determined under such subsection.
C corporation
For purposes of this section, the term C corporation
does not include a regulated investment company or a real estate investment trust.
.
Clerical amendment
The table of sections for part IV of subchapter O of chapter 1 is amended by redesignating the item relating to section 1062 as an item relating to section 1063 and by inserting after the item relating to section 1061 the following new item:
Sec. 1062. Recognition of gain or loss upon C corporation election to become, or transfer assets to, a regulated investment company or a real estate investment trust.
.
Effective date
The amendment made by this section shall apply to elections and transfers on or after February 26, 2014.
Interests in RICs and REITs not excluded from definition of United States real property interests
In general
Section 897(c)(1)(B) is amended by striking and
at the end of clause (i), by striking the period at the end of clause (ii)(II) and inserting , and
, and by adding at the end the following new clause:
neither such corporation nor any predecessor of such corporation was a regulated investment company or a real estate investment company at any time during the period described in subparagraph (A)(ii).
.
Effective date
The amendment made by this section shall apply to dispositions after December 31, 2014.
Dividends derived from RICs and REITs ineligible for deduction for United States source portion of dividends from certain foreign corporations
In general
Section 245(a) is amended by adding at the end the following new paragraph:
Dividends derived from RICs and REITs ineligible for deduction
Regulated investment companies and real estate investment trusts shall not be treated as domestic corporations for purposes of paragraph (5)(B).
.
Effective date
The amendment made by this section shall apply to dividends received from regulated investment companies and real estate investment trusts on or after February 26, 2014.
Personal holding companies
Exclusion of dividends from controlled foreign corporations from the definition of personal holding company income for purposes of the personal holding company rules
In general
Paragraph (1) of section 543(a) is amended—
by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively, and
by inserting after subparagraph (B) the following:
dividends received by a United States shareholder (as defined in section 951(b)) from a controlled foreign corporation (as defined in section 957(a)),
.
Effective date
The amendments made by this Act shall apply to taxable years beginning after December 31, 2014.
Taxation of foreign persons
Prevention of avoidance of tax through reinsurance with non-taxed affiliates
In general
Part III of subchapter L of chapter 1 is amended by adding at the end the following new section:
Special rules for reinsurance of non-life contracts with non-taxed affiliates
In general
The taxable income under section 831(a) or the life insurance company taxable income under section 801(b) (as the case may be) of an insurance company shall be determined by not taking into account—
any non-taxed reinsurance premium,
any additional amount paid by such insurance company with respect to the reinsurance for which such non-taxed reinsurance premium is paid, to the extent such additional amount is properly allocable to such non-taxed reinsurance premium, and
any return premium, ceding commission, reinsurance recovered, or other amount received by such insurance company with respect to the reinsurance for which such non-taxed reinsurance premium is paid, to the extent such return premium, ceding commission, reinsurance recovered, or other amount is properly allocable to such non-taxed reinsurance premium.
Non-Taxed reinsurance premiums
For purposes of this section—
In general
The term non-taxed reinsurance premium means any reinsurance premium paid directly or indirectly to an affiliated corporation with respect to reinsurance of risks (other than excepted risks), to the extent that the income attributable to the premium is not subject to tax under this subtitle (either as the income of the affiliated corporation or as amounts included in gross income by a United States shareholder under section 951).
Excepted risks
The term excepted risks
means any risk with respect to which reserves described in section 816(b)(1) are established.
Affiliated corporations
For purposes of this section, a corporation shall be treated as affiliated with an insurance company if both corporations would be members of the same controlled group of corporations (as defined in section 1563(a)) if section 1563 were applied—
by substituting at least 50 percent
for at least 80 percent
each place it appears in subsection (a)(1), and
without regard to subsections (a)(4), (b)(2)(C), (b)(2)(D), and (e)(3)(C).
Election To treat reinsurance income as effectively connected
In general
A specified affiliated corporation may elect for any taxable year to treat specified reinsurance income as—
income effectively connected with the conduct of a trade or business in the United States, and
for purposes of any treaty between the United States and any foreign country, income attributable to a permanent establishment in the United States.
Effect of election
In the case of any specified reinsurance income with respect to which the election under this subsection applies—
Deduction allowed for reinsurance premiums
For exemption from subsection (a), see definition of non-taxed reinsurance premiums in subsection (b).
Exception from excise tax
The tax imposed by section 4371 shall not apply with respect to any income treated as effectively connected with the conduct of a trade or business in the United States under paragraph (1).
Taxation under this subchapter
Such income shall be subject to tax under this subchapter to the same extent and in the same manner as if such income were the income of a domestic insurance company.
Coordination with foreign tax credit provisions
For purposes of subpart A of part III of subchapter N and sections 78 and 960—
such specified reinsurance income shall be treated as derived from sources without the United States, and
subsections (a), (b), and (c) of section 904, and section 960, shall be applied separately with respect to each item of such income.
Specified affiliated corporation
For purposes of this subsection, the term specified affiliated corporation means any affiliated corporation which is a foreign corporation and which meets such requirements as the Secretary shall prescribe to ensure that tax on the specified reinsurance income of such corporation is properly determined and paid.
Specified reinsurance income
For purposes of this paragraph, the term specified reinsurance income means all income of a specified affiliated corporation which is attributable to reinsurance with respect to which subsection (a) would (but for the election under this subsection) apply.
Rules related to election
Any election under paragraph (1) shall—
be made at such time and in such form and manner as the Secretary may provide, and
apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
Exception for amounts subject to foreign tax
An amount shall not be treated as described in paragraph (1), (2), or (3) of subsection (a) if the taxpayer demonstrates to the satisfaction of the Secretary that such amount was subject to an effective rate of income tax imposed by a foreign country which is not less than 100 percent of the maximum rate of tax specified in section 11.
Regulations
The Secretary shall prescribe such regulations or other guidance as may be appropriate to carry out, or to prevent the avoidance of the purposes of, this section, including regulations or other guidance which provide for the application of this section to alternative reinsurance transactions, fronting transactions, conduit and reciprocal transactions, and any economically equivalent transactions.
.
Clerical amendment
The table of sections for part III of subchapter L of chapter 1 is amended by adding at the end the following new item:
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Taxation of passenger cruise gross income of foreign corporations and nonresident alien individuals
In general
Section 882 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:
Treatment of passenger cruise gross income
In general
For purposes of this title, the effectively connected passenger cruise gross income of a foreign corporation shall be treated as gross income which is effectively connected with the conduct of a trade or business in the United States.
Effectively connected passenger cruise gross income
For purposes of this subsection, the term effectively connected passenger cruise gross income
means, with respect to the operation of any ship in a covered voyage, the United States
territorial waters percentage of the gross income (determined without
regard to section 883(a)(1)) derived from such operation, including any
amount received with respect to the provision of any on- or off-board
activities, services, or sales, with respect to passengers incidental to
such operation (or with respect to any agreement with any person with
respect to the provision of any such activities, services, or sales).
United States territorial waters percentage
For purposes of this subsection—
In general
The term United States territorial waters percentage
means, with respect to the operation of any ship in any covered voyage, the ratio (expressed as a
percentage) of—
the number of days during such voyage such ship was operated in the territorial waters of the United States, divided by
the total number of days of such voyage.
Calendar day rule
If a ship—
is operated in a covered voyage, or
is operated in the territorial waters of the United States during a covered voyage,
Territorial waters
The territorial waters of the United States shall be treated as consisting of those waters which are—
within the international boundary line between the United States and any contiguous foreign country, or
within 12 nautical miles from low tide on the coastline of the United States.
Covered voyage
For purposes of this subsection—
In general
The term covered voyage
has the meaning given such term by section 4472(1).
Anti-abuse rule
Except as otherwise provided by the Secretary, if passengers embark a ship in the United States and more than 10 percent of such passengers disembark in the United States, the operation of such ship at all times between such events shall be treated as a covered voyage. Nothing in the preceding sentence shall preclude any operation of a ship (including any operation of a ship before or after such events) which would otherwise be treated as part of a covered voyage from being so treated.
Treatment of otherwise effectively connected income
Gross income which would, without regard to this subsection, be gross income which is effectively connected with the conduct of a trade or business in the United States—
shall be so treated, and
shall not be taken into account as gross income under paragraph (2).
.
Application to nonresident alien individuals
Section 871 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
Treatment of passenger cruise gross income
In general
For purposes of this title, the effectively connected passenger cruise gross income of a nonresident alien individual shall be treated as gross income which is effectively connected with the conduct of a trade or business in the United States.
Definitions and special rules
For purposes of this subsection—
Definitions
Terms used in this subsection which are also used in section 882(f) shall have the same meaning as
when used in such section, except that section 882(f)(2) shall be applied
by substituting section 872(b)(1)
for section 883(a)(1)
.
Treatment of otherwise effectively connected income
Rules similar to the rules of section 882(f)(5) shall apply for purposes of this subsection.
.
Coordination with reciprocal exemptions for shipping income
In general
Section 883(a)(1) is amended by striking Gross income
and inserting Except as provided in section 882(f), gross income
.
Nonresident alien individuals
Section 872(b)(1) is amended by striking Gross income
and inserting Except as provided in section 871(n), gross income
.
Coordination with tax on gross transportation income
Section 887(b)(4) is amended by adding at the end the following new flush text:
The preceding sentence shall not apply to any United States source gross transportation income which is effectively connected passenger cruise gross income (within the meaning of section 871(n) or 882(f)).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Restriction on insurance business exception to passive foreign investment company rules
In general
Section 1297(b)(2)(B) is amended to read as follows:
derived in the active conduct of an insurance business by a corporation if—
such corporation would be subject to tax under subchapter L if such corporation were a domestic corporation,
more than 50 percent of such corporation’s gross receipts for the taxable year consist of premiums, and
the applicable insurance liabilities of such corporation constitute more than 35 percent of its total assets as reported on the corporation’s applicable financial statement for the year with which or in which the taxable year ends,
.
Applicable insurance liabilities; applicable financial statement
In general
Section 1297(b) is amended by adding at the end the following new paragraph:
Definitions
For purposes of this subsection—
Applicable insurance liabilities
The term applicable insurance liabilities
means, with respect to any life or property and casualty insurance business—
loss and loss adjustment expenses,
unearned premiums, and
reserves (other than deficiency or contingency reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks (not to exceed the amount of such reserve that is required to be reported to the home country insurance regulatory body).
Applicable financial statement
The term applicable financial statement
means a statement for financial reporting purposes which—
is made on the basis of generally accepted accounting principles,
is made on the basis of international financial reporting standards, but only if there is no statement that meets the requirement of clause (i), or
except as otherwise provided by the Secretary in regulations, is the annual statement which is required to be filed with the home country insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii).
.
Conforming amendment
Section 1297(b) is amended—
by striking the last sentence in paragraph (2) thereof, and
by adding at the end of paragraph (3) thereof (as added by paragraph (1)), the following new subparagraph:
Related person
The term related person
has the meaning given such term by section 954(d)(3) determined by substituting foreign corporation
for controlled foreign corporation
each place it appears therein.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Modification of limitation on earnings stripping
In general
Section 163(j)(2)(B)(i)(II) is amended by striking 50 percent
and inserting 40 percent
.
No new excess limitation carryforwards
Section 163(j)(2)(B)(ii) is amended by striking for any taxable year
and inserting for any taxable year beginning before January 1, 2015
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Limitation on treaty benefits for certain deductible payments
In general
Section 894 of the Internal Revenue Code of 1986 (relating to income affected by treaty) is amended by adding at the end the following new subsection:
Limitation on treaty benefits for certain deductible payments
In general
In the case of any deductible related-party payment, any withholding tax imposed under chapter 3 (and any tax imposed under subpart A or B of this part) with respect to such payment may not be reduced under any treaty of the United States unless any such withholding tax would be reduced under a treaty of the United States if such payment were made directly to the foreign parent corporation.
Deductible related-party payment
For purposes of this subsection, the term deductible related-party payment means any payment made, directly or indirectly, by any person to any other person if the payment is allowable as a deduction under this chapter and both persons are members of the same foreign controlled group of entities.
Foreign controlled group of entities
For purposes of this subsection—
In general
The term foreign controlled group of entities means a controlled group of entities the common parent of which is a foreign corporation.
Controlled group of entities
The term controlled group of entities means a controlled group of corporations as defined in section 1563(a)(1), except that—
more than 50 percent
shall be substituted for at least 80 percent
each place it appears therein, and
the determination shall be made without regard to subsections (a)(4) and (b)(2) of section 1563.
Foreign parent corporation
For purposes of this subsection, the term foreign parent corporation means, with respect to any deductible related-party payment, the common parent of the foreign controlled group of entities referred to in paragraph (3)(A).
Regulations
The Secretary may prescribe such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provide for—
the treatment of two or more persons as members of a foreign controlled group of entities if such persons would be the common parent of such group if treated as one corporation, and
the treatment of any member of a foreign controlled group of entities as the common parent of such group if such treatment is appropriate taking into account the economic relationships among such entities.
.
Effective date
The amendment made by this section shall apply to payments made after the date of the enactment of this Act.
Provisions related to compensation
Executive compensation
Nonqualified deferred compensation
In general
Subpart A of part I of subchapter D of chapter 1 is amended by adding at the end the following new section:
Nonqualified deferred compensation
In general
Any compensation which is deferred under a nonqualified deferred compensation plan shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation.
Definitions
For purposes of this section—
Substantial risk of forfeiture
The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any individual.
Nonqualified deferred compensation plan
For purposes of this section:
Nonqualified deferred compensation plan
The term nonqualified deferred compensation plan
means any plan that provides for the deferral of compensation, other than—
a qualified employer plan,
any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan, and
any other plan or arrangement designated by the Secretary consistent with the purposes of this section.
Equity-based compensation
The term nonqualified deferred compensation plan
shall include any plan that provides a right to compensation based on the appreciation in value of
a specified number of equity units of the service recipient or stock
options.
Qualified employer plan
The term qualified employer plan
means any plan, contract, pension, account, or trust described in 408(p)(2)(D)(ii).
Plan includes arrangements, etc
The term plan
includes any agreement or arrangement, including an agreement or arrangement that includes one
person.
Exception
Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 6 months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.
Treatment of earnings
References to deferred compensation shall be treated as including references to income (whether actual or notional) attributable to such compensation or such income.
Aggregation rules
Except as provided by the Secretary, rules similar to the rules of subsections (b) and (c) of section 414 shall apply.
No inference on earlier income inclusion or requirement of later inclusion
Nothing in this section shall be construed to prevent the inclusion of amounts in gross income under any other provision of this chapter or any other rule of law earlier than the time provided in this section. Any amount included in gross income under this section shall not be required to be included in gross income under any other provision of this chapter or any other rule of law later than the time provided in this section.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.
.
Termination of certain other nonqualified deferred compensation rules
Nonqualified deferred compensation
In general
Subpart A of part I of subchapter D of chapter 1 is amended by striking section 409A (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 26(b)(2) is amended by striking subparagraph (V).
Section 3401(a) is amended by striking the flush sentence at the end.
Section 6041 is amended by striking subsection (g).
Section 6051(a), as amended by the preceding provisions of this Act, is amended by striking
paragraph (12), by inserting and
at the end of paragraph (11), and by redesignating paragraph (13) as paragraph (12).
457(b) plans of tax exempt organizations
Section 457 is amended by adding at the end the following new subsection:
Termination of certain plans
Tax-exempt organization plans
This section shall not apply to amounts deferred which are attributable to services performed after December 31, 2014, under a plan maintained by an employer described in subsection (e)(1)(B).
Ineligible deferred compensation plans
Subsection (f) shall not apply to amounts deferred which are attributable to services performed after December 31, 2014.
.
Nonqualified deferred compensation from certain tax indifferent parties
In general
Subpart B of part II of subchapter E of chapter 1 is amended by striking section 457A (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 26(b)(2) is amended by striking subparagraph (X).
Clerical amendment
The table of sections for part I of subchapter D of chapter 1 is amended by adding at the end the following new item:
Sec. 409B. Nonqualified deferred compensation.
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts which are attributable to services performed after December 31, 2014.
Application to existing deferrals
In the case of any amount deferred to which the amendments made by this section do no apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2015, to the extent such amount is not includible in gross income in a taxable year beginning before 2023, such amounts shall be includible in gross income in the later of—
the last taxable year beginning before 2023, or
the taxable year in which there is no substantial risk of forfeiture of the rights to such compensation (determined in the same manner as determined for purposes of section 409B of the Internal Revenue Code of 1986, as added by this section).
Accelerated payments
No later than 120 days after the date of the enactment of this Act, the Secretary shall issue guidance providing a limited period of time during which a nonqualified deferred compensation arrangement attributable to services performed on or before December 31, 2014, may, without violating the requirements of section 409A of the Internal Revenue Code of 1986, be amended to conform the date of distribution to the date the amounts are required to be included in income.
Certain back-to-back arrangements
If the taxpayer is also a service recipient and maintains one or more nonqualified deferred compensation arrangements for its service providers under which any amount is attributable to services performed on or before December 31, 2014, the guidance issued under paragraph (3) shall permit such arrangements to be amended to conform the dates of distribution under such arrangement to the date amounts are required to be included in the income of such taxpayer under this subsection.
Accelerated payment not treated as material modification
Any amendment to a nonqualified deferred compensation arrangement made pursuant to paragraph (3) or (4) shall not be treated as a material modification of the arrangement for purposes of section 409A of the Internal Revenue Code of 1986.
Modification of limitation on excessive employee remuneration
Repeal of performance-Based compensation and commission exceptions for limitation on excessive employee remuneration
In general
Paragraph (4) of section 162(m) is amended by striking subparagraphs (B) and (C) and by redesignating subparagraphs (D), (E), (F), and (G) as subparagraphs (B), (C), (D), and (E), respectively.
Conforming amendments
Paragraphs (5)(E) and (6)(D) of section 162(m) are each amended by striking subparagraphs (B), (C), and (D)
and inserting subparagraph (B)
.
Paragraphs (5)(G) and (6)(G) of section 162(m) are each amended by striking (F) and (G)
and inserting (D) and (E)
.
Modification of definition of covered employees
Paragraph (3) of section 162(m) is amended—
in subparagraph (A), by striking as of the close of the taxable year, such employee is the chief executive officer of the taxpayer
or is
and inserting such employee is the chief executive officer or the chief financial officer of the taxpayer at any
time during the taxable year, or was
,
in subparagraph (B)—
by striking 4
and inserting 3
, and
by striking (other than the chief executive officer)
and inserting (other than any individual described in subparagraph (A))
, and
by striking or
at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and
inserting , or
, and by adding at the end the following:
was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2013.
.
Special rule for remuneration paid to beneficiaries, etc
Paragraph (4) of section 162(m), as amended by subsection (a), is amended by adding at the end the following new subparagraph:
Special rule for remuneration paid to beneficiaries, etc
Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Excise tax on excess tax-exempt organization executive compensation
In general
Subchapter D of chapter 42 is amended by adding at the end the following new section:
Tax on excess tax-exempt organization executive compensation
Tax imposed
There is hereby imposed a tax equal to 25 percent of the sum of—
so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus
any excess parachute payment paid by such an organization to any covered employee.
Liability for tax
The employer shall be liable for the tax imposed under subsection (a).
Definitions and special rules
For purposes of this section—
Applicable tax-exempt organization
The term applicable tax-exempt organization
means any organization that for the taxable year—
is exempt from taxation under section 501(a),
is a farmers’ cooperative organization described in section 521(b)(1), or
has income excluded from taxation under section 115(1).
Covered employee
For purposes of this section, the term covered employee
means any employee (including any former employee) of an applicable tax-exempt organization if the
employee—
is one of the 5 highest compensated employees of the organization for the taxable year, or
was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2013.
Remuneration
For purposes of this section, the term remuneration
means wages (as defined in section 3401(a)), except that such term shall not include any
designated Roth contribution (as defined in section 402A(c)).
Remuneration from related organizations
In general
Remuneration of a covered employee by an applicable tax-exempt organization shall include any remuneration paid with respect to employment of such employee by any related person or governmental entity.
Related organizations
A person or governmental entity shall be treated as related to an applicable tax-exempt organization if such person or governmental entity—
controls, or is controlled by, the organization,
is controlled by one or more persons that control the organization,
is a supported organization (as defined in section 509(f)(2)) during the taxable year with respect to the organization,
is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or
in the case of an organization that is a voluntary employees’ beneficiary association described in section 501(a)(9), establishes, maintains, or makes contributions to such voluntary employees’ beneficiary association.
Liability for tax
In any case in which remuneration from more than one employer is taken into account under this paragraph in determining the tax imposed by subsection (a), each such employer shall be liable for such tax in an amount which bears the same ratio to the total tax determined under subsection (a) with respect to such remuneration as—
the amount of remuneration paid by such employer with respect to such employee, bears to
the amount of remuneration paid by all such employers to such employee.
Excess parachute payment
For purposes determining the tax imposed by subsection (a)(2)—
In general
The term excess parachute payment
means an amount equal to the excess of any parachute payment over the portion of the base amount
allocated to such payment.
Parachute payment
The term parachute payment
means any payment in the nature of compensation to (or for the benefit of) a covered employee if—
such payment is contingent on such employee’s separation from employment with the employer, and
the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to 3 times the base amount.
Base amount
Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount.
Property transfers; present value
Rules similar to the rules of paragraphs (3) and (4) of section 280G(d) shall apply.
Coordination with deduction limitation
Remuneration the deduction for which is not allowed by reason of section 162(m) shall not be taken into account for purposes of this section.
.
Clerical amendment
The table of sections for subchapter D of chapter 42 is amended by adding at the end the following new item:
Sec. 4960. Tax on excess exempt organization executive compensation.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Denial of deduction as research expenditure for stock transferred pursuant to an incentive stock option
In general
Paragraph (2) of section 421(a) is amended by striking under section 162 (relating to trade or business expenses)
.
Effective date
The amendment made by this section shall apply to stock transferred on or after February 26, 2014.
Worker classification
Determination of worker classification
In general
Chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new section:
Determination of worker classification
In general
For purposes of this title (and notwithstanding any provision of this title not contained in this section to the contrary), if the requirements of subsections (b), (c), and (d) are met with respect to any service performed by a service provider, then with respect to such service—
the service provider shall not be treated as an employee,
the service recipient shall not be treated as an employer,
any payor shall not be treated as an employer, and
the compensation paid or received for such service shall not be treated as paid or received with respect to employment.
General service provider requirements
In general
The requirements of this subsection are met with respect to any service if the service provider either—
meets the requirements of paragraph (2) with respect to such service, or
in the case a service provider engaged in the trade or business of selling (or soliciting the sale of) goods or services, meets the requirements of paragraph (3) with respect to such service.
General requirements
The requirements of this paragraph are met with respect to any service if the service provider, in connection with performing the service—
incurs significant unreimbursed expenses,
agrees to perform the service for a particular amount of time, to achieve a specific result, or to complete a specific task,
is primarily compensated on a basis not tied to the number of hours worked, and
at least one of the following:
has a significant investment in assets or training,
is not required to perform services exclusively for the service recipient, or
has not performed services for the service recipient as an employee during the 1-year period ending with the date of the commencement of services under the contract described in subsection (d).
Alternative requirements with respect to sales persons
In the case of a service provider engaged in the trade or business of selling (or soliciting the sale of) goods or services, the requirements of this paragraph are met with respect to any service provided in the ordinary course of such trade or business if—
the service provider is compensated primarily on a commission basis, and
substantially all the compensation for such service is directly related to sales of goods or services rather than to the number of hours worked.
Place of business or own equipment requirement
The requirement of this subsection is met with respect to any service if the service provider—
has a principal place of business,
does not primarily provide the service in the service recipient’s place of business,
pays a fair market rent for use of the service recipient’s place of business, or
provides the service primarily using equipment supplied by the service provider.
Written contract requirement
The requirements of this subsection are met with respect to any service if such service is performed pursuant to a written contract between the service provider and the service recipient (or payor) which meets the following requirements:
The contract includes each of the following:
The service provider’s name, taxpayer identification number, and address.
A statement that the service provider will not be treated as an employee with respect to the services provided pursuant to the contract for purposes of this title.
A statement that the service recipient (or the payor) will withhold upon and report to the Internal Revenue Service the compensation payable pursuant to the contract consistent with the requirements of this title.
A statement that the service provider is responsible for payment of Federal, State, and local taxes, including self-employment taxes, on compensation payable pursuant to the contract.
A statement that the contract is intended to be considered a contract described in this subsection.
The term of the contract does not exceed 1 year. The preceding sentence shall not prevent one or more subsequent written renewals of the contract from satisfying the requirements of this subsection if the term of each such renewal does not exceed 1 year and if the information required under paragraph (1)(A) is updated in connection with each such renewal.
The contract (or renewal) is signed by both the service recipient (or payor) and the service provider not later than the date on which the aggregate payments made by the service recipient to the service provider exceeds $600 for the year covered by the contract (or renewal).
Reporting requirements
If any service recipient or payor fails to meet the applicable reporting requirements of section 6041(a) or 6041A(a) for any taxable year with respect to any service provider, this section shall not apply for purposes of making any determination with respect to the liability of such service recipient or payor for any tax with respect to such service provider for such period. For purposes of the preceding sentence, such reporting requirements shall be treated as met if the failure to satisfy such requirements is due to reasonable cause and not willful neglect.
Exception for services provided by owner
This section shall not apply with respect to any service provided by a service provider to a service recipient if the service provider owns any interest in the service recipient or any payor with respect to the service provided. The preceding sentence shall not apply in the case of a service recipient the stock of which is regularly traded on an established securities market.
Exception for services not received in course of a trade or business
This section shall not apply with respect to any service unless such service is performed in the ordinary course of a trade or business of the service recipient.
Limitation on reclassification by Secretary
For purposes of this title—
Effect of reclassification on recipients and payors
A determination by the Secretary that a service recipient or a payor should have treated a service provider as an employee shall be effective with respect to the service recipient or payor no earlier than the notice date if—
the service recipient or the payor entered into a written contract with the service provider which meets the requirements of subsection (d),
the service recipient or the payor satisfied the applicable reporting requirements of section 6041(a) or 6041A(a) for all relevant taxable years with respect to the service provider,
the service recipient or the payor collected and paid over all applicable taxes imposed under subtitle C for all relevant taxable years with respect to the service provider,
the service recipient or the payor demonstrates a reasonable basis for having determined that the service provider should not be treated as an employee under this section and that such determination was made in good faith.
Effect of reclassification on service providers
A determination by the Secretary that a service provider should have been treated as an employee shall be effective with respect to the service provider no earlier than the notice date if—
the service provider entered into a written contract with the service recipient or payor which meets the requirements of subsection (d),
the service provider satisfied the applicable reporting requirements of sections 6012(a) and 6017 for all relevant taxable years with respect to the service recipient or payor, and
the service provider demonstrates a reasonable basis for determining that the service provider is not an employee under this section and that such determination was made in good faith.
Notice date
For purposes of this subsection, the term notice date
means the 30th day after the earliest of—
the date on which the first letter of proposed deficiency which allows the service provider, the service recipient, or the payor an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent,
the date on which a deficiency notice under section 6212 is sent, or
the date on which a notice of determination under section 7436(b)(2) is sent.
Reasonable cause exception
The requirements of paragraphs (1)(B) and (2)(B) shall be treated as met if the failure to satisfy such requirements is due to reasonable cause and not willful neglect.
No restriction on administrative or judicial review
Nothing in this subsection shall be construed as limiting any provision of law which provides an opportunity for administrative or judicial review of a determination by the Secretary.
Definitions
For purposes of this section—
Service provider
In general
The term service provider
means any qualified person who performs service for another person.
Qualified person
The term qualified person
means—
any natural person, and
any entity if any of the services referred to in subparagraph (A) are performed by one or more natural persons who directly own interests in such entity.
Service recipient
The term service recipient
means the person for whom the service provider performs such service.
Payor
The term payor
means any person who pays the service provider for performing such service.
Regulations
Notwithstanding section 530(d) of the Revenue Act of 1978, the Secretary shall issue such regulations as the Secretary determines are necessary to carry out the purposes of this section.
.
Withholding by payor in case of certain persons classified as not employees
Section 3402 is amended by redesignating subsection (s) as subsection (t) and inserting after subsection (r) the following new subsection:
Extension of withholding to payments to certain persons classified as not employees
In general
For purposes of this chapter and so much of subtitle F as relates to this chapter, compensation paid pursuant to a contract described in section 7707(d) shall be treated as if it were a payment of wages by an employer to an employee.
Amount withheld
Except as otherwise provided under subsection (i), the amount to be deducted and withheld pursuant to paragraph (1) with respect to compensation paid pursuant to any such contract during any calendar year shall be an amount equal to 5 percent of so much of the amount of such compensation as does not exceed $10,000.
.
Reporting
Section 6041A is amended by adding at the end the following new subsection:
Special rules for certain persons classified as not employees
In the case of any service recipient required to make a return under subsection (a) with respect to compensation to which section 7707(a) applies—
such return shall include—
the aggregate amount of such compensation paid to each person whose name is required to be included on such return,
the aggregate amount deducted and withheld under section 3402(s) with respect to such compensation, and
an indication of whether a copy of the contract described in section 7707(d) is on file with the service recipient or payor, and
the statement required to be furnished under subsection (e) shall include the information described in paragraph (1) with respect to the service provider to whom such statement is furnished.
.
Clerical amendment
The table of sections for chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new item:
.
Effective date
The amendments made by this section shall apply to services performed after December 31, 2014 (and to payments made for such services after such date).
Zones and Short-Term Regional Benefits
Repeal of provisions relating to Empowerment Zones and Enterprise Communities
In general
Chapter 1 is amended by striking subchapter U (and by striking the item relating to such subchapter in the table of subchapters for such chapter).
Conforming amendments
Section 38(b) is amended by striking paragraph (9).
Section 280C(a) is amended by striking 1396(a),
.
Section 179(e) is amended by striking paragraph (3) and by redesignating paragraph (4) as paragraph (3).
Section 1202(a)(2)(A) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after section 1397C(b)
.
Effective date
In general
Except as otherwise provided in this subsection, the amendment made by this section shall take effect on the date of the enactment of this Act.
Rollovers
So much of subsection (a) as relates to the repeal of section 1397B of the Internal Revenue Code of 1986 shall apply to sales after the date of the enactment of this Act.
Savings provision
The amendments made by this section shall not apply to obligations described in section 1394 of the Internal Revenue Code of 1986 (as in effect before its repeal) which were issued before January 1, 2014.
Repeal of DC Zone provisions
In general
Chapter 1 is amended by striking subchapter W (and by striking the item relating to such subchapter in the table of subchapters for such chapter).
Conforming amendments
Section 1202(a)(2)(B) is amended by inserting (as in effect before its repeal by the Tax Reform Act of 2014)
after 1400B(b)
.
Section 25(e)(1)(C) is amended by striking sections 23, 25D, and 1400C
and inserting section 23
.
Section 1016(a) is amended by striking paragraph (27).
Effective date
In general
Except as otherwise provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.
Savings provision
The amendments made by this section shall not apply to—
in the case of the repeal of section 1400A of the Internal Revenue Code of 1986, obligations described in section 1394 of such Code (as in effect before its repeal) which were issued before January 1, 2012,
in the case of the repeal of section 1400B of such Code, DC Zone assets (as defined in such section, as in effect before its repeal) which were acquired by the taxpayer before January 1, 2012, and
in the case of the repeal of section 1400C of such Code, principal residences acquired before January 1, 2012.
Repeal of provisions relating to renewal communities
In general
Chapter 1 is amended by striking subchapter X (and by striking the item relating to such subchapter in the table of subchapters for such chapter).
Conforming amendments
Section 469(i)(3), as amended by the preceding provisions of this Act, is amended by striking subparagraph (C) and by redesignating subparagraphs (D), (E), and (F) as subparagraphs (B), (C), and (D).
Section 469(i)(3)(C), as so redesignated, is amended to read as follows:
Ordering rule
If subparagraph (B) applies for a taxable year, paragraph (1) shall be applied—
first to the portion of the passive activity loss to which such subparagraph does not apply, and
then to the portion of such loss to which such subparagraph does apply.
.
Section 469(i)(6)(B), as amended by the preceding provisions of this Act, is amended—
by striking commercial revitalization deduction
in the heading,
by striking in the case of—
and all that follows through any credit
in clause (i),
by striking year, or
in clause (i) and inserting year.
, and
by striking clause (iii).
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.
Savings provision
The amendments made by this section shall not apply to—
in the case of the repeal of section 1400F of the Internal Revenue Code of 1986, qualified community assets (as defined in such section, as in effect before its repeal) which were acquired by the taxpayer before January 1, 2010,
in the case of the repeal section 1400H of such Code, wages paid or incurred before January 1, 2010,
in the case of the repeal of section 1400I of such Code, qualified revitalization buildings (as defined in such section, as in effect before its repeal) which were placed in service before January 1, 2010, and
in the case of the repeal of section 1400J of such Code, property acquired before January 1, 2010.
Repeal of various short-term regional benefits
In general
Chapter 1 is amended by striking subchapter Y (and by striking the item relating to such subchapter in the table of subchapters for such chapter).
Conforming amendments
Section 38(b) is amended by striking paragraphs (27), (28), (29) and (30).
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.
Savings provision
The amendments made by this section shall not apply to—
in the case of the repeal of section 1400L(a) of the Internal Revenue Code of 1986, qualified wages (as defined in such section, as in effect before its repeal) which were paid or incurred before January 1, 2004,
in the case of the repeal of subsections (b) and (f) of section 1400L of such Code, qualified New York Liberty Zone property (as defined in section 1400L(b) of such Code, as in effect before its repeal) placed in service before January 1, 2010,
in the case of the repeal of section 1400L(c) of such Code, qualified New York Liberty Zone leasehold improvement property (as defined in such section, as in effect before its repeal) placed in service before January 1, 2007,
in the case of the repeal of section 1400L(d) of such Code, qualified New York Liberty bonds (as defined in such section, as in effect before its repeal) issued before January 1, 2014,
in the case of the repeal of section 1400L(e) of such Code, advanced refundings before January 1, 2006,
in the case of the repeal of section 1400L(g) of such Code, property which is compulsorily or involuntarily converted as a result of the terrorist attacks on September 11, 2001,
in the case of the repeal of section 1400N(a) of such Code, obligations issued before January 1, 2012,
in the case of the repeal of section 1400N(b) of such Code, advanced refundings before January 1, 2011,
in the case of the repeal of section 1400N(d) of such Code, property placed in service before January 1, 2012,
in the case of the repeal of section 1400N(e) of such Code, property placed in service before January 1, 2009,
in the case of the repeal of subsections (f) and (g) of section 1400N of such Code, amounts paid or incurred before January 1, 2008,
in the case of the repeal of section 1400N(h) of such Code, amounts paid or incurred before January 1, 2012,
in the case of the repeal of section 1400N(l) of such Code, bonds issued before January 1, 2007,
in the case of the repeal of section 1400Q(a) of such Code, distributions before January 1, 2007,
in the case of the repeal of section 1400Q(b) of such Code, contributions before March 1, 2006,
in the case of the repeal of section 1400Q(c) of such Code, loans made before January 1, 2007,
in the case of the repeal of section 1400R of such Code, wages paid or incurred before January 1, 2006,
in the case of the repeal of section 1400S(a) of such Code, contributions paid before January 1, 2006,
in the case of the repeal of section 1400T of such Code, financing provided before January 1, 2011, and
in the case of the repeal of part III of subchapter Y of chapter 1 of such Code, obligations issued before January 1, 2011.
Participation exemption system for the taxation of foreign income
Establishment of exemption system
Deduction for dividends received by domestic corporations from certain foreign corporations
In general
Part VIII of subchapter B of chapter 1 is amended by inserting after section 245 the following new section:
Dividends received by domestic corporations from certain foreign corporations
In general
In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to 95 percent of the foreign-source portion of such dividend.
Specified 10-Percent owned foreign corporation
For purposes of this section, the term specified 10-percent owned foreign corporation
means any foreign corporation if any domestic corporation owns directly, or indirectly through a
chain of ownership described under section 958(a), 10 percent or more of
the voting stock of such foreign corporation.
Foreign-Source portion
For purposes of this section—
In general
The foreign-source portion of any dividend is an amount which bears the same ratio to such dividends as—
the post-1986 undistributed foreign earnings, bears to
the total post-1986 undistributed earnings.
Post-1986 undistributed earnings
The term post-1986 undistributed earnings
means the amount of the earnings and profits of the specified 10-percent owned foreign corporation
(computed in accordance with sections 964(a) and 986) accumulated in
taxable years beginning after December 31, 1986—
as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and
without diminution by reason of dividends distributed during such taxable year.
Post-1986 undistributed foreign earnings
The term post-1986 undistributed foreign earnings
means the portion of the post-1986 undistributed earnings which is attributable to neither—
income described in subparagraph (A) of section 245(a)(5), nor
dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)).
Treatment of distributions from earnings before 1987
In general
In the case of any dividend paid out of earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning before January 1, 1987—
paragraphs (1), (2), and (3) shall be applied without regard to the phrase post-1986
each place it appears, and
paragraph (2) shall be applied without regard to the phrase in taxable years beginning after December 31, 1986
.
Dividends paid first out of post-1986 earnings
Dividends shall be treated as paid out of post-1986 undistributed earnings to the extent thereof.
Disallowance of foreign tax credit, etc
In general
No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section.
Denial of deduction
No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).
Regulations
The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
.
Application of holding period requirement
Subsection (c) of section 246 is amended—
by striking or 245
in paragraph (1) and inserting 245, or 245A
, and
by adding at the end the following new paragraph:
Special rules for foreign source portion of dividends received from specified 10-percent owned foreign corporations
6-month holding period requirement
For purposes of section 245A—
paragraph (1)(A) shall be applied—
by substituting 180 days
for 45 days
each place it appears, and
by substituting 361-day period
for 91-day period
, and
paragraph (2) shall not apply.
Status must be maintained during holding period
For purposes of section 245A, the holding period requirement of this subsection shall be treated as met only if—
the specified 10-percent owned corporation referred to in section 245A(a) is a specified 10-percent owned corporation at all times during such period, and
the taxpayer is a United States shareholder with respect to such specified 10-percent owned corporation at all times during such period.
.
Application of rules generally applicable to deductions for dividends received
Treatment of dividends from certain corporations
Paragraph (1) of section 246(a) is amended by striking and 245
and inserting 245, and 245A
.
Assets generating tax-exempt portion of dividend not taken into account in allocating and apportioning deductible expenses
Paragraph (3) of section 864(e) is amended by striking or 245(a)
and inserting , 245(a), or 245A
.
Coordination with section 1059
Subparagraph (B) of section 1059(b)(2) is amended by striking or 245
and inserting 245, or 245A
.
Coordination with foreign tax credit limitation
Subsection (b) of section 904, as amended by the preceding provisions of this Act, is amended by redesignating paragraph (2) as paragraph (1) and by adding at the end the following new paragraph:
Treatment of dividends for which deduction is allowed under section 245A
For purposes of subsection (a), in the case of a domestic corporation which is a United States shareholder with respect to a specified 10-percent owned foreign corporation, such domestic corporation’s taxable income from sources without the United States shall be determined without regard to—
the foreign-source portion of any dividend received from such foreign corporation, and
any deductions properly allocable to such portion.
.
Conforming amendments
Paragraph (4) of section 245(a) is amended by striking section 902(c)(1)
and inserting section 245A(c)(2)
.
Subsection (b) of section 951 is amended by striking subpart
and inserting title
.
Subsection (a) of section 957 is amended by striking subpart
in the matter preceding paragraph (1) and inserting title
.
The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after the item relating to section 245 the following new item:
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Limitation on losses with respect to specified 10-percent owned foreign corporations
Basis in specified 10-Percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss
In general
Section 961 is amended by adding at the end the following new subsection:
Basis in specified 10-Percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss
If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition in such taxable year or any subsequent taxable year, the basis of such domestic corporation in the stock of such foreign corporation shall be reduced by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock.
.
Effective date
The amendments made by this subsection shall apply to dividends received in taxable years beginning after December 31, 2014.
Treatment of foreign branch losses transferred to specified 10-Percent owned foreign corporations
In general
Part II of subchapter B of chapter 1, as amended by the preceding provisions of this Act, is amended by adding at the end the following new section:
Certain foreign branch losses transferred to specified 10-percent owned foreign corporations
In general
If a domestic corporation transfers substantially all of the assets of a foreign branch (within the meaning of section 367(a)(3)(C)) to a specified 10-percent owned foreign corporation (as defined in section 245A) with respect to which it is a United States shareholder after such transfer, such domestic corporation shall include in gross income for the taxable year which includes such transfer an amount equal to the transferred loss amount with respect to such transfer.
Limitation and carryforward based on foreign-Source dividends received
In general
The amount included in the gross income of the taxpayer under subsection (a) for any taxable year shall not exceed the amount allowed as a deduction under section 245A for such taxable year (taking into account dividends received from all specified 10-percent owned foreign corporations with respect to which the taxpayer is a United States shareholder).
Amounts not included carried forward
Any amount not included in gross income for any taxable year by reason of paragraph (1) shall, subject to the application of paragraph (1) to the succeeding taxable year, be included in gross income for the succeeding taxable year.
Transferred loss amount
For purposes of this section, the term transferred loss amount
means, with respect to any transfer of substantially all of the assets of a foreign branch, the
excess (if any) of—
the sum of losses—
which were incurred by the foreign branch after December 31, 2014, and before the transfer, and
with respect to which a deduction was allowed to the taxpayer, over
the sum of—
any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and
any amount which is recognized under section 904(f)(3) on account of the transfer.
Reduction for recognized gains
In general
In the case of a transfer not described in section 367(a)(3)(C), the transferred loss amount shall be reduced (but not below zero) by the amount of gain recognized by the taxpayer on account of the transfer (other than amounts taken into account under subsection (c)(2)(B)).
Coordination with recognition under section 367
In the case of a transfer described in section 367(a)(3)(C), the transferred loss amount shall not exceed the excess (if any) of—
the excess of the amount described in section 367(a)(3)(C)(i) over the amount described in section 367(a)(3)(C)(ii) with respect to such transfer, over
the amount of gain recognized under section 367(a)(3)(C) with respect to such transfer.
Source of income
Amounts included in gross income under this section shall be treated as derived from sources within the United States.
Basis adjustments
Consistent with such regulations or other guidance as the Secretary may prescribe, proper adjustments shall be made in the adjusted basis of the taxpayer’s stock in the specified 10-percent owned foreign corporation to which the transfer is made, and in the transferee’s adjusted basis in the property transferred, to reflect amounts included in gross income under this section.
.
Amounts recognized under section 367 on transfer of foreign branch with previously deducted losses treated as United States source
Subparagraph (C) of section 367(a)(3) is amended by striking outside
in the last sentence and inserting within
.
Clerical amendment
The table of subparts for such part, as amended by the preceding provisions of this Act, is amended by adding at the end the following new item:
Sec. 92. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations.
.
Effective date
The amendments made by this subsection shall apply to transfers after December 31, 2014.
Treatment of deferred foreign income upon transition to participation exemption system of taxation
In general
Section 965 is amended to read as follows:
Treatment of deferred foreign income upon transition to participation exemption system of taxation
Treatment of deferred foreign income as subpart F income
In the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2015, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the accumulated post-1986 deferred foreign income of such corporation determined as of the close of such taxable year.
Reduction in amounts included in gross income of United States shareholders of specified foreign corporations with deficits in earnings and profits
In general
In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)(1) by reason of subsection (a) as such United States shareholder’s pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced (but not below zero) by the amount of such United States shareholder’s aggregate foreign E&P deficit which is allocated under paragraph (2) to such deferred foreign income corporation.
Allocation of aggregate foreign E&P deficit
The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as—
such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to
the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder.
Definitions related to E&P deficits
For purposes of this subsection—
Aggregate foreign E&P deficit
The term aggregate foreign E&P deficit
means, with respect to any United States shareholder, the aggregate of such shareholder’s pro rata
shares of the specified E&P deficits of the E&P deficit foreign corporations of such shareholder.
E&P deficit foreign corporation
The term E&P deficit foreign corporation
means, with respect to any taxpayer, any specified foreign corporation with respect to which such
taxpayer is a United States shareholder, if—
such specified foreign corporation has a deficit in post-1986 earnings and profits, and
as of February 26, 2014—
such corporation was a specified foreign corporation, and
such taxpayer was a United States shareholder of such corporation.
Specified E&P deficit
The term specified E&P deficit
means, with respect to any E&P deficit foreign corporation, the amount of the deficit referred to in subparagraph (B).
Application of participation exemption to included income
In general
In the case of a United States shareholder of a deferred foreign income corporation, there shall be allowed as a deduction for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section an amount equal to the sum of—
90 percent of the excess (if any) of—
the amount so included as gross income, over
the amount of such United States shareholder’s aggregate foreign cash position, plus
75 percent of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i).
Aggregate foreign cash position
For purposes of this subsection—
In general
The term aggregate foreign cash position
means, with respect to any United States shareholder, the greater of—
the aggregate of such United States shareholder’s pro rata share of the cash position of each specified foreign corporation of such United States shareholder determined as of the close of the last taxable year of such specified foreign corporation which begins before January 1, 2015, or
one half of the sum of—
the aggregate described in clause (i) determined as of the close of the last taxable year of each such specified foreign corporation which ends before February 26, 2014, plus
the aggregate described in clause (i) determined as of the close of the taxable year of each such specified foreign corporation which precedes the taxable year referred to in subclause (I).
Cash position
For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of—
cash and foreign currency held by such foreign corporation,
the net accounts receivable of such foreign corporation, plus
the fair market value of the following assets held by such corporation:
Actively traded personal property for which there is an established financial market.
Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government
Any obligation with a term of less than one year.
Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph.
Net accounts receivable
For purposes of this paragraph, the term net accounts receivable
means, with respect to any specified foreign corporation, the excess (if any) of—
such corporation’s accounts receivable, over
such corporation’s accounts payable (determined consistent with the rules of section 461).
Prevention of double counting
Cash positions of a specified foreign corporation described in clause (ii) or (iii)(III) of subparagraph (B) shall not be taken into account by a United States shareholder under subparagraph (A) to the extent that such United States shareholder demonstrates to the satisfaction of the Secretary that such amount is so taken into account by such United States shareholder with respect to another specified foreign corporation.
Cash positions of foreign pass-thru entities taken into account
Any foreign entity which would be a specified foreign corporation of a United States shareholder if such entity were a corporation shall be treated as a specified foreign corporation of such United States shareholder for purposes of determining such United States shareholder’s aggregate foreign cash position.
Anti-abuse
If the Secretary determines that the principal purpose of any transaction was to reduce the aggregate foreign cash position taken into account under this subsection, such transaction shall be disregarded for purposes of this subsection.
Deferred foreign income corporation; accumulated post-1986 deferred foreign income
For purposes of this section—
Deferred foreign income corporation
The term deferred foreign income corporation
means, with respect to any United States shareholder, any specified foreign corporation of such
United States shareholder which has accumulated post-1986 deferred foreign
income (as of the close of the taxable year referred to in subsection (a))
greater than zero.
Accumulated post-1986 deferred foreign income
The term accumulated post-1986 deferred foreign income
means the post-1986 earnings and profits except to the extent such earnings—
are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter,
if distributed, would—
in the case of a controlled foreign corporation, be excluded from the gross income of a United States shareholder under section 959, or
in the case of any passive foreign investment company (as defined in section 1297) other than a controlled foreign corporation, be treated as a distribution which is not a dividend, or
in the case of any passive foreign investment company (as so defined), is properly attributable to an unreversed inclusion of a United States person under section 1296.
Post-1986 earnings and profits
The term post-1986 earnings and profits
means the earnings and profits of the foreign corporation (computed in accordance with sections
964(a) and 986) accumulated in taxable years beginning after December 31,
1986, and determined—
as of the close the taxable year referred to in subsection (a), and
without diminution by reason of dividends distributed during such taxable year.
Specified foreign corporation
In general
For purposes of this section, the term specified foreign corporation
means—
any controlled foreign corporation, and
any section 902 corporation (as defined in section 909(d)(5) as in effect before the date of the enactment of the Tax Reform Act of 2014).
Application to section 902 corporations
For purposes of section 951, a section 902 corporation (as so defined) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)).
Determinations of pro rata share
For purposes of this section, the determination of any United States shareholder’s pro rata share of any amount with respect to any specified foreign corporation shall be determined under rules similar to the rules of section 951(a)(2) by treating such amount in the same manner as subpart F income (and by treating such specified foreign corporation as a controlled foreign corporation).
Disallowance of foreign tax credit, etc
In general
No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section.
Applicable percentage
For purposes of this subsection, the term applicable percentage
means the amount (expressed as a percentage) equal to the sum of—
0.9 multiplied by the ratio of—
the excess to which subsection (c)(1)(A) applies, divided by
the sum of such excess plus the amount to which subsection (c)(1)(B) applies, plus
0.75 multiplied by the ratio of—
the amount to which subsection (c)(1)(B) applies, divided by
the sum described in subparagraph (A)(ii).
Denial of deduction
No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).
Coordination with section 78
Section 78 shall not apply to any tax for which credit is not allowable under section 901 by reason of paragraph (1).
Election To pay liability in installments
In general
In the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder may elect to pay the net tax liability under this section in 8 installments of the following amounts:
8 percent of the net tax liability in the case of each of the first 5 of such installments,
15 percent of the net tax liability in the case of the 6th such installment,
20 percent of the net tax liability in the case of the 7th such installment, and
25 percent of the net tax liability in the case of the 8th such installment.
Date for payment of installments
If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection (b) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made.
Acceleration of payment
If there is an addition to tax for failure to pay timely assessed with respect to any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer.
Proration of deficiency to installments
If an election is made under paragraph (1) to pay the net tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.
Election
Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a) and shall be made in such manner as the Secretary may provide.
Net tax liability under this section
For purposes of this subsection—
In general
The net tax liability under this section with respect to any United States shareholder is the excess (if any) of—
such taxpayer’s net income tax for the taxable year described in subsection (a), over
such taxpayer’s net income tax for such taxable year determined without regard to this section.
Net income tax
The term net income tax
means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part
IV of subchapter A.
Special rules for S corporation shareholders
In general
In the case of any S corporation which is a United States shareholder of a deferred foreign income corporation, each shareholder of such S corporation may elect to defer payment of such shareholder’s net tax liability under this section with respect to such S corporation until the shareholder’s taxable year which includes the triggering event with respect to such liability.
Triggering event
In general
In the case of any shareholder’s net tax liability under this section with respect to any S corporation, the triggering event with respect to such liability is whichever of the following occurs first:
Such corporation ceases to be an S corporation (determined as of the first day of the first taxable year that such corporation is not an S corporation).
A liquidation or sale of substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance.
A transfer of any share of stock in such S corporation by the taxpayer (including by reason of death, or otherwise).
Partial transfers of stock
In the case of a transfer of less than all of the taxpayer’s shares of stock in the S corporation, such transfer shall only be a triggering event with respect to so much of the taxpayer’s net tax liability under this section with respect to such S corporation as is properly allocable to such stock.
Transfer of liability
A transfer described in clause (iii) shall not be treated as a triggering event if the transferee enters into an agreement with the Secretary under which such transferee is liable for net tax liability with respect to such stock in the same manner as if such transferee were the taxpayer.
Net tax liability
A shareholder’s net tax liability under this section with respect to any S corporation is the net tax liability under this section which would be determined under subsection (h)(6) if the only subpart F income taken into account by such shareholder by reason of this section were allocations from such S corporation.
Election to pay deferred liability in installments
In the case of a taxpayer which elects to defer payment under paragraph (1), subsection (h) shall be applied—
separately with respect to the liability to which such election applies,
an election under subsection (h) with respect to such liability shall be treated as timely made if made not later than the due date for the return of tax for the taxable year in which the triggering event with respect to such liability occurs,
the first installment under subsection (h) with respect to such liability shall be paid not later than such due date (but determined without regard to any extension of time for filing the return), and
if the triggering event with respect to any net tax liability is described in paragraph (2)(A)(ii), an election under subsection (h) with respect to such liability may be made only with the consent of the Secretary.
Joint and several liability of S corporation
If any shareholder of an S corporation elects to defer payment under paragraph (1), such S corporation shall be jointly and severally liable for such payment and any penalty, addition to tax, or additional amount attributable thereto.
Extension of limitation on collection
Notwithstanding any other provision of law, any limitation on the time period for the collection of a liability deferred under this subsection shall not be treated as beginning before the date of the triggering event with respect to such liability.
Election
Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a) and shall be made in such manner as the Secretary may provide.
Inclusion of deferred foreign income under this section not To trigger recapture of overall foreign loss
For purposes of section 904(f)(1), in the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder’s taxable income from sources without the United States shall be determined without regard to this section.
Regulations
The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
.
Dedication of revenues to highway trust fund
In general
Section 9503(f) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:
Appropriation to trust fund of net tax liabilities received under section 965
In general
Out of money in the Treasury not otherwise appropriated, there are hereby appropriated to the Highway Trust Fund amounts equivalent to the aggregate net tax liabilities under section 965 (as defined in such section) received in the Treasury.
Monthly transfers based on estimates
For rule providing for the monthly transfer of amounts appropriated under subparagraph (A) based on estimates of the Secretary, see section 9601.
.
Transfers to Mass Transit Account
Section 9503(e)(2) is amended by striking the mass transit portion
and inserting , 20 percent of the amounts appropriated to the Highway Trust Fund under subsection (f)(5), and the
mass transit portion
.
Clerical amendment
The table of section for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 965 and inserting the following:
Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation.
.
Look-thru rule for related controlled foreign corporations made permanent
In general
Paragraph (6) of section 954(c) is amended by striking subparagraph (C).
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2013, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Modifications related to foreign tax credit system
Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis
Repeal of section 902 indirect foreign tax credits
Subpart A of part III of subchapter N of chapter 1 is amended by striking section 902.
Determination of section 960 credit on current year basis
Section 960 is amended—
by striking subsection (c), by redesignating subsection (b) as subsection (c), by striking all that precedes subsection (c) (as so redesignated) and inserting the following:
Deemed paid credit for subpart F inclusions
In general
For purposes of this subpart, if there is included in the gross income of a domestic corporation any item of income under section 951(a)(1) with respect to any controlled foreign corporation with respect to which such domestic corporation is a United States shareholder, such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as are properly attributable to the item of income so included.
Special rules for distributions from previously taxed earnings and profits
For purposes of this subpart—
In general
If any portion of a distribution from a controlled foreign corporation to a domestic corporation which is a United States shareholder with respect to such controlled foreign corporation is excluded from gross income under section 959(a), such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as—
are properly attributable to such portion, and
have not been deemed to have to been paid by such domestic corporation under this section for any prior taxable year.
Tiered controlled foreign corporations
If section 959(b) applies to any portion of a distribution from a controlled foreign corporation to another controlled foreign corporation, such controlled foreign corporation shall be deemed to have paid so much of such other controlled foreign corporation’s foreign income taxes as—
are properly attributable to such portion, and
have not been deemed to have been paid by a domestic corporation under this section for any prior taxable year.
,
and by adding after subsection (c) (as so redesignated) the following new subsections:
Foreign income taxes
The term foreign income taxes
means any income, war profits, or excess profits taxes paid or accrued to any foreign country or
possession of the United States.
Regulations
The Secretary shall provide such regulations as may be necessary or appropriate to carry out the provisions of this section.
.
Conforming amendments
Section 78 is amended to read as follows:
Gross up for deemed paid foreign tax credit
If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under section 960 (relating to deemed paid credit for subpart F inclusions) for such taxable year shall be treated for purposes of this title (other than section 960) as an item of income required to be included in the gross income of such domestic corporation under section 951(a).
.
Section 245(a)(10) is amended by striking 902,
.
Sections 535(b)(1) and 545(b)(1) are each amended by striking section 902(a) or 960(a)(1)
and inserting section 960
.
Paragraph (1) of section 814(f) is amended—
by striking subparagraph (B), and
by striking all that precedes No income
and inserting the following:
Treatment of foreign taxes
.
Subparagraph (B) of section 864(h)(1) is amended by striking 902,
.
Subsection (a) of section 901 is amended by striking sections 902 and 960
and inserting section 960
.
Paragraph (2) of section 901(e) is amended by striking but is not limited to—
and all that follows through that portion
and inserting but is not limited to that portion
.
Subsection (f) of section 901 is amended by striking sections 902 and 960
and inserting section 960
.
Subparagraph (A) of section 901(j)(1) is amended by striking 902 or
.
Subparagraph (B) of section 901(j)(1) is amended by striking sections 902 and 960
and inserting section 960
.
Paragraph (2) of section 901(k) is amended by striking 902,
.
Paragraph (6) of section 901(k) is amended by striking 902 or
.
Subparagraph (A) of section 904(h)(10) is amended by striking sections 902, 907, and 960
and inserting sections 907 and 960
.
Section 904 is amended by striking subsection (k).
Paragraph (1) of section 905(c) is amended by striking the last sentence.
Subclause (I) of section 905(c)(2)(B)(i) is amended by striking section 902 or
.
Subsection (a) of section 906 is amended by striking (or deemed, under section 902, paid or accrued during the taxable year)
.
Subsection (b) of section 906 is amended by striking paragraphs (4) and (5).
Subparagraph (B) of section 907(b)(2) is amended by striking 902 or
.
Paragraph (3) of section 907(c) is amended—
by striking subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and
by striking section 960(a)
in subparagraph (A) (as so redesignated) and inserting section 960
.
Paragraph (5) of section 907(c) is amended by striking 902 or
.
Clause (i) of section 907(f)(2)(B) is amended by striking 902 or
.
Subsection (a) of section 908 is amended by striking 902 or
.
Subsection (b) of section 909 is amended—
by striking section 902 corporation
in the matter preceding paragraph (1) and inserting specified 10-percent owned foreign corporation
,
by striking 902 or
in paragraph (1),
by striking by such section 902 corporation
and all that follows in the matter following paragraph (2) and inserting by such specified 10-percent owned foreign corporation or a domestic corporation which is a United
States shareholder with respect to such specified 10-percent owned foreign
corporation.
, and
by striking section 902 corporations
in the heading thereof and inserting specified 10-percent owned foreign corporations
.
Subsection (d) of section 909 is amended by striking paragraph (5).
Paragraph (1) of section 958(a) is amended by striking 960(a)(1)
and inserting 960
.
Subsection (d) of section 959 is amended by striking Except as provided in section 960(a)(3), any
and inserting Any
.
Subsection (e) of section 959 is amended by striking and section 960(b)
.
Subparagraph (A) of section 1291(g)(2) is amended by striking any distribution—
and all that follows through but only if
and inserting any distribution, any withholding tax imposed with respect to such distribution, but only if
.
Section 1293 is amended by striking subsection (f).
Subparagraph (B) of section 6038(c)(1) is amended by striking sections 902 (relating to foreign tax credit for corporate stockholder in foreign corporation) and
960 (relating to special rules for foreign tax credit)
and inserting section 960
.
Paragraph (4) of section 6038(c) is amended by striking subparagraph (C).
The table of sections for subpart A of part III of subchapter N of chapter 1 is amended by striking the item relating to section 902.
The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 960 and inserting the following:
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Foreign tax credit limitation applied by allocating only directly allocable deductions to foreign source income
In general
Subsection (b) of section 904, as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph:
Deductions allocable to foreign source income only if directly allocable
For purposes of subsection (a), the taxpayer’s taxable income from sources without the United States shall be determined by allocating deductions to such income only if such deductions are directly allocable to such income.
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Passive category income expanded to include other mobile income
Treatment of foreign base company intangible income and foreign base company sales income as mobile category income
Clause (i) of section 904(d)(2)(A) is amended by striking and specified passive category income
and inserting specified passive category income, foreign base company sales income (as defined in section
954(d)), and foreign base company intangible income (as defined in section
954(f))
.
Repeal of special rules treating financial services income as general category income
Paragraph (2) of section 904(d) is amended by striking subparagraphs (C) and (D) and by redesignating subparagraphs (E) through (K) as subparagraphs (C) through (I), respectively.
Conforming amendments
Relating to references to passive income
Section 904(d)(1)(A) is amended by striking passive category income
and inserting mobile category income
.
Section 904(d)(2)(A)(i), as amended by subsection (a), is amended—
by striking Passive category income
in the heading thereof and inserting Mobile category income
,
by striking passive category income
and inserting mobile category income
,
by striking passive income
and inserting mobile income
, and
by striking specified passive category income
and inserting specified mobile category income
.
Section 904(d)(2)(A)(ii) is amended by striking passive category income
and inserting mobile category income
.
Section 904(d)(2)(B) is amended—
by striking Passive income
in the heading thereof and inserting Mobile income
,
by striking passive income
in clauses (i), (ii), and (iii) and inserting mobile income
,
by striking Specified passive category income
in the heading of clause (iv) and inserting Specified mobile category income
, and
by striking specified passive category income
in clause (iv) and inserting specified mobile category income
.
Section 904(d)(2)(D), as redesignated by subsection (b), is amended by striking passive income
and inserting mobile income
.
Section 904(d)(3)(A) is amended by striking passive category income
and inserting mobile category income
.
Section 904(d)(3)(B) is amended by striking passive category income
both places it appears and inserting mobile category income
.
Section 904(d)(3)(C) is amended by striking passive category income
both places it appears and inserting mobile category income
.
Section 904(d)(3)(D) is amended by striking passive category income
both places it appears and inserting mobile category income
.
Section 904(d)(3)(E) is amended—
by striking passive category income
both places it appears and inserting mobile category income
, and
by striking passive income
and inserting mobile income
.
Section 904(d)(3)(F) is amended by striking passive category income
both places it appears and inserting mobile category income
.
Other conforming amendments
Subparagraph (B) of section 864(f)(5) is amended by inserting (as in effect before its repeal)
after section 904(d)(2)(D)(ii)
.
Subparagraph (B) of section 954(c)(2) is amended by striking section 904(d)(2)(G)
and inserting section 904(d)(2)(E)
.
Effective date
In general
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Treatment of carryforwards and carrybacks
For purposes of section 904 of the Internal Revenue Code of 1986—
the amendments made by this section shall apply to any taxes carried from any taxable year beginning before January 1, 2015, to any taxable year beginning on or after such date, and
the Secretary of the Treasury, or his designee, may by regulations provide for the allocation of any carryback of taxes with respect to income from a taxable year beginning on or after January 1, 2015, to a taxable year beginning before such date for purposes of allocating such income among the separate categories in effect under section 904(d) for the taxable year to which carried.
Source of income from sales of inventory determined solely on basis of production activities
In general
Subsection (b) of section 863 is amended by adding at the end the following: Gains, profits, and income from the sale or exchange of inventory property described in paragraph
(2) shall be allocated and apportioned between sources within and without
the United States solely on the basis of the production activities with
respect to the property.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Rules related to passive and mobile income
Modification of subpart F provisions
Subpart F income to only include low-taxed foreign income
In general
Subsection (a) of section 954 is amended—
by redesignating paragraphs (1), (2), (3), and (5) as subparagraphs (A) through (D), respectively,
by striking For purposes of
and inserting the following:
In general
For purposes of
, and
by adding at the end the following new paragraph:
Application only to foreign base company income subject to a low foreign effective rate of tax
In general
Foreign base company income shall only include items of income received by a controlled foreign corporation which are subject to an effective rate of income tax imposed by a foreign country which is less than 100 percent of the maximum rate of tax specified in section 11.
Application to foreign base company income subject to reduced domestic rate of tax
Foreign base company sales income
In the case of foreign base company sales income, subparagraph (A) shall be applied by substituting 50 percent
for 100 percent
.
Foreign base company intangible income
In the case of foreign base company intangible income, subparagraph (A) shall be applied—
by substituting the applicable percentage of the foreign percentage (determined under section 250(c) with respect
to the controlled foreign corporation)
for 100 percent
, and
by treating the foreign base company intangible income as a single item of income.
Applicable percentage
For purposes of clause (ii)(I), the term applicable percentage
means, with respect to any taxable year of a controlled foreign corporation, the percentage
determined in accordance with the following table:
| In the case of any taxable year beginning in: | The applicable percentage is: |
| 2015 | 45 percent |
| 2016 | 48 percent |
| 2017 | 52 percent |
| 2018 | 56 percent |
| 2019 or thereafter | 60 percent. |
.
Insurance income
Subsection (a) of section 953 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph:
Application only to insurance income subject to a low foreign effective rate of tax
Insurance income shall only include items of income received by a controlled foreign corporation which are subject to an effective rate of income tax imposed by a foreign country which is less than the maximum rate of tax specified in section 11.
.
Conforming amendments
Section 954(b)(3)(B) is amended by striking paragraphs (4) and (5)
and inserting subsection (a)(2), section 953(a)(2), and paragraph (5)
Section 954(b) is amended by striking paragraph (4).
Section 954(c)(1) is amended by striking subsection (a)(1)
and inserting this section
.
Section 954(d)(1) is amended by striking subsection (a)(2)
and inserting this section
.
Section 954(e)(1) is amended by striking subsection (a)(3)
and inserting this section
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Foreign base company sales income
50-Percent exclusion for low-Taxed foreign base company sales income
In general
Subparagraph (B) of section 954(a)(1), as amended by the preceding provisions of this Act, is
amended by inserting 50 percent of
before the foreign base company sales income
.
Preservation of deemed paid foreign tax credit on low-taxed foreign base company income
Section 960, as amended by this Act, is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
Deemed paid credit determined without regard to certain exclusions from subpart F income
Solely for purposes of subsection (a), section 954(a)(1)(B) shall be applied by substituting 100 percent
for 50 percent
in determining amounts included under section 951(a)(1).
.
Exception from foreign base company sales income for foreign corporations eligible for benefits under comprehensive income tax treaties
Section 954(d) is amended by adding at the end the following new paragraph:
Exception for foreign corporations eligible for benefits under comprehensive income tax treaties
No portion of the gross income of a controlled foreign corporation shall be treated as foreign base company sales income if such controlled foreign corporation is eligible as a qualified resident for all of the benefits provided under a comprehensive income tax treaty with the United States.
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Inflation adjustment of de minimis exception for foreign base company income
In general
Paragraph (3) of section 954(b) is amended by adding at the end the following new subparagraph:
Inflation adjustment
In the case of any taxable year beginning after 2015, the dollar amount in subparagraph (A)(ii) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which
the taxable year begins, determined by substituting calendar year 2014
for calendar year 2012
in clause (ii) thereof.
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Active financing exception extended with limitation for low-taxed foreign income
Extension of active financing exception
In general
Paragraph (9) of section 954(h) is amended by striking January 1, 2014
and inserting January 1, 2019
.
Exempt insurance income
Paragraph (10) of section 953(e) is amended—
by striking January 1, 2014
and inserting January 1, 2019
, and
by striking December 31, 2013
and inserting December 31, 2018
.
Limitation for low-Taxed foreign income
In general
Paragraph (1) of section 954(h) is amended to read as follows:
In general
For purposes of subsection (c)(1), in the case of an eligible controlled foreign corporation, foreign personal holding company income shall not include—
qualified banking or financing income which is subject to an effective rate of income tax imposed by a foreign country which is at least 50 percent of the maximum rate of tax specified in section 11, and
50 percent of any other qualified banking or financing income of such eligible controlled foreign corporation.
.
Insurance business income
Paragraph (1) of section 954(i) is amended to read as follows:
In general
For purposes of subsection (c)(1), in the case of a qualifying insurance company, foreign personal holding company income shall not include—
any qualified insurance income which is subject to an effective rate of income tax imposed by a foreign country which is at least 50 percent of the maximum rate of tax specified in section 11, and
50 percent of any other qualified insurance income of such qualifying insurance company.
.
Preservation of deemed paid foreign tax credit on high-taxed foreign income
Subsection (c) of section 960, as amended by the preceding provisions of this Act, is amended by
striking Solely for purposes of subsection (a)
and all that following and inserting the following:
Solely for purposes of subsection (a)—
section 954(a)(1)(B) shall be applied by substituting 100 percent
for 50 percent
, and
the exclusions under subsections (h)(1)(B) and (i)(1)(B) of section 954 shall not apply,
in determining amounts included under section 951(a)(1).
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2013, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment
In general
Subpart F of part III of subchapter N of chapter 1 is amended by striking section 955.
Conforming amendments
Subparagraph (A) of section 951(a)(1), as amended by this Act, is amended to read as follows:
his pro rata share (determined under paragraph (2)) of the corporation’s subpart F income for such year, and
.
Paragraph (3) of section 851(b) is amended by striking section 951(a)(1)(A)(i)
in the flush language at the end and inserting section 951(a)(1)(A)
.
Clause (i) of section 952(c)(1)(B) is amended by striking section 951(a)(1)(A)(i)
and inserting section 951(a)(1)(A)
.
Subparagraph (C) of section 953(c)(1) is amended by striking section 951(a)(1)(A)(i)
and inserting section 951(a)(1)(A)
.
Subsection (a) of section 951 is amended by striking paragraph (3).
Subclause (II) of section 953(d)(4)(B)(iv) is amended by striking or amounts referred to in clause (ii) or (iii) of section 951(a)(1)(A)
.
Subsection (b) of section 964 is amended by striking , 955,
.
Section 970 is amended by striking subsection (b).
The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 955.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Prevention of base erosion
Foreign intangible income subject to taxation at reduced rate; intangible income treated as subpart F income
Foreign base company intangible income treated as subpart F income
Treatment as subpart F income
Paragraph (1) of section 954(a), as amended by the preceding provisions of this Act, is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph:
the foreign base company intangible income for the taxable year (determined under subsection (f) and reduced as provided in subsection (b)(5)), and
.
Foreign base company intangible income defined
Section 954 of such Code is amended by inserting after subsection (e) the following new subsection:
Foreign base company intangible income
For purposes of this section—
In general
The term foreign base company intangible income
means, with respect to any corporation for any taxable year, the excess of—
so much of the adjusted gross income of the corporation as exceeds 10 percent of the corporation’s qualified business asset investment, over
the applicable percentage of such corporation’s foreign personal holding company income, foreign base company sales income, foreign base company services income, and foreign base company oil related income.
Applicable percentage
For purposes of paragraph (1), the term applicable percentage
means, with respect to any corporation for any taxable year, the ratio (expressed as a percentage)
of—
the excess described in paragraph (1)(A), divided by
the adjusted gross income of the corporation.
Qualified business asset investment
In general
The term qualified business asset investment
means, with respect to any corporation for any taxable year, the aggregate of the corporation’s
adjusted bases (determined as of the close of such taxable year and after
any adjustments with respect to such taxable year) in specified tangible
property—
used in a trade or business of the corporation, and
of a type with respect to which a deduction is allowable under section 168.
Determination of adjusted basis
For purposes of subparagraph (A), the adjusted basis in any property shall be determined without regard to any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section.
Regulations
The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this paragraph, including regulations or other guidance which provide for the treatment of property if—
such property is transferred, or held, temporarily, or
the avoidance of the purposes of this paragraph is a factor in the transfer or holding of such property.
Adjusted gross income; specified tangible property
For purposes of this subsection—
Adjusted gross income
In general
The term adjusted gross income
means, with respect to any corporation, the gross income of such corporation reduced by such
corporation’s commodities gross income.
Commodities gross income
The term commodities gross income
means, with respect to any corporation, the gross income of such corporation which is derived from
commodities which are produced or extracted by such corporation.
Specified tangible property
The term specified tangible property
means any tangible property unless such property is used in the production of commodities gross
income. In the case of property which is used in the production of
commodities gross income and other gross income, such property shall be
treated as specified tangible property in the same proportion that the
adjusted gross income produced with respect to such property bears to the
total gross income produced with respect to such property.
Commodity
The term commodity
means any commodity described in section 475(e)(2).
.
Application only to foreign base company intangible income subject to a low foreign effective rate of tax
Paragraph (2) of section 954(a), as amended by preceding provisions of this Act, is amended by
inserting or foreign base company intangible income
after foreign base company sales income
.
Conforming amendment
Paragraph (5) of section 954(b) is amended by inserting the foreign base company intangible income,
before and the foreign base company oil related income
.
Deduction for foreign intangible income
In general
Part VIII of subchapter B of chapter 1 is amended by adding at the end the following new section:
Foreign intangible income
In general
In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the applicable percentage of the lesser of—
the sum of—
the foreign percentage multiplied by the net imputed intangible income of such domestic corporation for such taxable year, plus
in the case of a domestic corporation which is a United States shareholder with respect to any controlled foreign corporation, the foreign percentage (determined with respect to such controlled foreign corporation) multiplied by any foreign base company intangible income (as defined in section 954(f)) of such controlled foreign corporation which is included in the gross income of such domestic corporation under section 951 for such taxable year, or
taxable income of such domestic corporation (determined without regard to this section) for the taxable year.
Net imputed intangible income
For purposes of this subsection, the term net imputed intangible income
means the excess of—
the excess described in section 954(f)(1)(A), over
the deductions properly allocable to the amount described in paragraph (1).
Foreign percentage
For purposes of this section—
In general
The term foreign percentage
means, with respect to any corporation for any taxable year, the ratio (expressed as a percentage)
of—
the foreign-derived adjusted gross income of such corporation for such taxable year, over
the adjusted gross income of such corporation for such taxable year.
Foreign-derived adjusted gross income
In general
The term foreign-derived adjusted gross income
means, with respect to any corporation for any taxable year, any adjusted gross income of such
corporation which is derived in connection with—
property which is sold for use, consumption, or disposition outside the United States, or
services provided with respect to persons or property located outside the United States.
Special rules
Ultimate disposition
Property shall not be treated as sold for use, consumption, or disposition outside the United States if the taxpayer knew, or had reason to know, that such property would be ultimately sold for use, consumption, or disposition in the United States.
Sales to related parties
If property is sold to a related party, such sale shall not be treated as for use, consumption or disposition outside the United States unless—
such property is ultimately sold for use, consumption or disposition outside the United States, or
such property is resold to an unrelated party outside the United States and no related party knew or had reason to know that such property would be ultimately sold for use, consumption, or disposition in the United States.
Application to services
Rules similar to the rules of clauses (i) and (ii) shall apply with respect to services described in subparagraph (A)(ii).
Related party
For purposes of this paragraph, the term related party
means any member of an affiliated group as defined in section 1504(a), determined—
by substituting more than 50 percent
for at least 80 percent
each place it appears, and
without regard to paragraphs (2) and (3) of section 1504(b).
Adjusted gross income
The term adjusted gross income
has the meaning given such term by section 954(f)(4).
Applicable percentage
For purposes of this section, the term applicable percentage
means, with respect to any taxable year of the domestic corporation referred to in subsection (a),
the percentage determined in accordance with the following table:
| In the case of any taxable year beginning in: | The applicable percentage is: |
| 2015 | 55 percent |
| 2016 | 52 percent |
| 2017 | 48 percent |
| 2018 | 44 percent |
| 2019 or thereafter | 40 percent. |
Regulations
The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
.
Conforming amendments
Clause (i) of section 163(j)(6)(A), as amended by the preceding provisions of this Act, is amended
by striking and
at the end of subclause (II) and by adding at the end the following new subclause:
any deduction allowable under section 250, and
.
Subparagraph (C) of section 170(b)(2) is amended by striking and
at the end of clause (iv), by redesignating clause (v) as clause (vi), and by inserting after
clause (iv) the following new clause:
section 250, and
.
Subsection (d) of section 172, as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph:
Deduction for foreign intangible income
The deduction under section 250 shall not be allowed.
.
Paragraph (1) of section 246(b) is amended by striking and 247
and inserting 247, and 250
.
Clause (iii) of section 469(i)(3)(D), as amended by the preceding provisions of this Act, is
amended by striking and 222
and inserting 222, and 250
.
Effective date
Treatment as subpart F income
The amendments made by subsection (a) shall apply to taxable years of foreign corporations beginning after December 31, 2014, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Deduction for foreign intangible income
The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 2014.
Denial of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness
In general
Section 163 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
Disallowance of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness
In general
In the case of any domestic corporation which is a United States shareholder (as defined in section 951(b)) with respect to any foreign corporation both of which are members of the same worldwide affiliated group, the deduction allowed under this chapter for interest paid or accrued by such domestic corporation during the taxable year shall be reduced by the lesser of—
the product of—
the net interest expense of such domestic corporation, multiplied by
the debt-to-equity differential percentage of such worldwide affiliated group, or
the excess (if any) of—
such net interest expense, over
40 percent of the adjusted taxable income (as defined in subsection (j)(6)(A)) of such domestic corporation.
Carryforward
Any amount disallowed under paragraph (1) for any taxable year shall be treated as interest paid or accrued in the succeeding taxable year (and shall not be treated as disqualified interest for purposes of applying subsection (j)).
Debt-to-equity differential percentage
In general
For purposes of this subsection, the term debt-to-equity differential percentage
means, with respect to any worldwide affiliated group, the percentage which the excess domestic
indebtedness of such group bears to the total indebtedness of the domestic
corporations which are members of such group.
Excess domestic indebtedness
For purposes of subparagraph (A), the term excess domestic indebtedness
means, with respect to any worldwide affiliated group, the excess (if any) of—
the total indebtedness of the domestic corporations which are members of such group, over
110 percent of the amount which the total indebtedness of such domestic corporations would be if the ratio of such indebtedness to the total equity of such domestic corporations equaled the ratio which—
the total indebtedness of such group, bears to
the total equity of such group.
Total equity
For purposes of subparagraph (B), the term total equity
means, with respect to one or more corporations, the excess (if any) of—
the money and all other assets of such corporations, over
the total indebtedness of such corporations.
Special rules for determining debt and equity
For purposes of this paragraph—
Application of certain general rules
Rules similar to the rules of clauses (i), (ii), and (iii) of subsection (j)(2)(C) shall apply.
Intragroup debt and equity interests disregarded
The total indebtedness, and the assets, of any group of corporations shall be determined by treating all members of such group as one corporation.
Determination of assets of domestic group
The assets of the domestic corporations which are members of any worldwide affiliated group shall be determined by disregarding any interest held by any such domestic corporation in any foreign corporation which is a member of such group.
Other definitions
For purposes of this subsection—
Worldwide affiliated group
The term worldwide affiliated group
has the meaning which would be given such term by section 864(f)(1)(C) if section 1504(a) were
applied by substituting more than 50 percent
for at least 80 percent
each place it appears.
Net interest expense
The term net interest expense
has the meaning given such term by subsection (j)(6)(B).
Treatment of affiliated group
For purposes of this subsection, all members of the same affiliated group (within the meaning of
section 1504(a) applied by substituting more than 50 percent
for at least 80 percent
each place it appears) shall be treated as 1 taxpayer.
Regulations
The Secretary shall prescribe such regulations or other guidance as may be appropriate to carry out the purposes of this subsection, including regulations or other guidance—
to prevent the avoidance of the purposes of this subsection,
providing such adjustments in the case of corporations which are members of an affiliated group as may be appropriate to carry out the purposes of this subsection,
providing for the coordination of this subsection with section 884, and
providing for the reallocation of shares of partnership indebtedness, or distributive shares of the partnership’s interest income or interest expense.
.
Coordination with limitation on related party indebtedness
Paragraph (1) of section 163(j) is amended by adding at the end the following new subparagraph:
Coordination with limitation on excess domestic indebtedness
The amount disallowed under subparagraph (A) with respect to any corporation for any taxable year shall be reduced by any amount disallowed under subsection (n)(1) with respect to such corporation for such taxable year.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Tax Exempt Entities
Unrelated Business Income Tax
Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a)
In general
Subparagraph (A) of section 511(a)(2) is amended by adding at the end the following: For purposes of the preceding sentence, an organization shall not fail to be treated as exempt from
taxation under this subtitle by reason of section 501(a) solely because
such organization is also so exempt, or excludes amounts from gross
income, by reason of any other provision of this title.
.
Clerical amendment
The heading for subparagraph (A) of section 511(a)(2) is amended to read as follows: Organizations exempt from taxation by reason of section 501(a).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Name and logo royalties treated as unrelated business taxable income
In general
Section 513 is amended by adding at the end the following new subsection:
Name and logo royalties
Any sale or licensing by an organization of any name or logo of the organization (including any trademark or copyright relating to such name or logo) shall be treated as an unrelated trade or business regularly carried on by such organization.
.
Calculation of unrelated business taxable income
Subsection (b) of section 512 is amended by adding at the end the following new paragraph:
Special rule for name and logo royalties
Notwithstanding paragraph (1), (2), (3), or (5), any income derived from any sale or licensing described in section 513(k) shall be included as an item of gross income derived from an unrelated trade or business.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Unrelated business taxable income separately computed for each trade or business activity
In general
Subsection (a) of section 512 is amended by adding at the end the following new paragraph:
Special rule for organization with more than 1 unrelated trade or business
In the case of any organization with more than 1 unrelated trade or business—
unrelated business taxable income shall be computed separately with respect to each such trade or business and without regard to subsection (b)(12),
the unrelated business taxable income of such organization shall be the sum of the unrelated business taxable income so computed with respect to each such trade or business, less a specific deduction under subsection (b)(12), and
for purposes of subparagraph (B), unrelated business taxable income with respect to any such trade or business shall not be less than zero, and
the net operating loss deduction shall only be allowed with respect to the trade or business from which the net operating loss arose.
.
Effective date
In general
Except to the extent provided in paragraph (2), the amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Net operating losses
Certain carryovers
In the case of any net operating loss arising in a taxable year beginning before January 1, 2015, that is carried over to a taxable year beginning on or after such date, section 512(a)(6)(D) of the Internal Revenue Code of 1986, as added by this Act, shall not apply.
Certain carrybacks
In the case of any net operating loss arising in a taxable year beginning after December 31, 2014, and carried back to any taxable year beginning on or before such date, in computing unrelated business taxable income of an organization under section 512(a) of such Code for the taxable year, the net operating loss deduction shall be allowed only with respect to the trade or business from which the net operating loss arose.
Exclusion of research income limited to publicly available research
In general
Paragraph (9) of section 512(b) is amended by striking from research
and inserting from such research
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Parity of charitable contribution limitation between trusts and corporations
In general
Paragraph (11) of section 512(b) is amended by striking the second sentence and inserting the
following: The deduction allowed by this paragraph shall not exceed 10 percent of the unrelated business
taxable income computed without the benefit of this paragraph.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2014.
Increased specific deduction
In general
Paragraph (12) of section 512(b) is amended by striking $1,000
each place it appears and inserting $10,000
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exclusion of gain or loss from disposition of distressed property
In general
Subsection (b) of section 512 is amended by striking paragraph (16).
Effective date
The amendment made by this section shall apply to property acquired after December 31, 2014.
Qualified sponsorship payments
Repeal of use or acknowledgment of product lines for qualified sponsorship payments
Subparagraphs (A) and (B)(ii)(I) of section 513(i)(2) are each amended by striking (or product lines)
.
Use or acknowledgment limited in case of certain events
Subparagraph (B) of section 513(i)(2) is amended by adding at the end the following new clause:
Use or acknowledgment limited in case of certain events
In the case of an event with respect to which an organization receives an aggregate amount of qualified sponsorship payments greater than $25,000, a payment shall not be treated as a qualified sponsorship payment for purposes of paragraph (1) unless the use or acknowledgment of the sponsor’s name or logo appears with, and in substantially the same manner as, the names of a significant portion of other donors to the organization. For purposes of the preceding sentence, whether a number of donors is a significant portion shall be determined based on the total number of donors and the total contributed with respect to the event, but in no event shall fewer than 2 other donors be treated as a significant portion of other donors.
.
Clerical amendment
The heading for clause (ii) of section 513(i)(2)(B) is amended to read as follows: Periodicals and qualified convention and trade show activities.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Penalties
Increase in information return penalties
Failure To file return
Organization
Subparagraph (A) of section 6652(c)(1) is amended—
by striking $20
each place it appears and inserting $40
, and
by striking $100
and inserting $200
.
Managers
Clause (ii) of section 6652(c)(1)(B) is amended by striking $10
and inserting $20
.
Failure To make returns, reports, and applications available for public inspection
Subparagraphs (C) and (D) of section 6652(c)(1) are each amended by striking $20
and inserting $40
.
Failure To file returns under section 6034 or 6043
Paragraph (2) of section 6652(c) is amended—
by striking $10
each place it appears in subparagraphs (A) and (B) and inserting $20
, and
by striking substituting
in subparagraph (C)(ii) and inserting $100
for $20
,substituting
.$200
for $40
,
Failure To file disclosure under section 6033(a)(2)
Organization
Subparagraph (A) of section 6652(c)(3) is amended by striking $100
and inserting $200
.
Managers
Subparagraph (B) of section 6652(c)(3) is amended by striking $100
and inserting $200
.
Effective date
The amendments made by this section shall apply with respect to information returns required to be filed on or after January 1, 2015.
Manager-level accuracy-related penalty on underpayment of unrelated business income tax
In general
Section 6662 is amended by adding at the end the following new subsection:
Manager-Level penalty for substantial underpayment of unrelated business income tax
In general
In the case of any substantial underpayment of income tax which is attributable to the tax imposed by section 511 on the unrelated business taxable income of an organization for the taxable year, there is hereby imposed a tax with respect to such organization an amount equal to 5 percent of such underpayment to which the underpayment relates. Such tax shall be paid by any manager of the organization.
Manager
For purposes of this subsection, the term manager
means any officer, director, trustee, employee, or other individual who is under a duty to perform
an act in respect of which the underpayment relates.
Joint and several liability
If more than one person is liable under paragraph (1) with respect to an underpayment, all such persons shall be jointly and severally liable under such paragraph with respect to such underpayment
Limit
With respect to any substantial underpayment of income tax for a taxable year, the maximum amount of the tax added by paragraph (1) shall not exceed $20,000.
.
Reportable transactions
Section 6662A is amended by adding at the end the following new subsection:
Manager-Level penalty in case of unrelated business income tax
In general
In the case of any portion of a reportable transaction understatement of the tax imposed by section 511 to which this section applies, there is hereby imposed a tax in an amount equal to 10 percent of such portion of the underpayment to which the reportable transaction understatement occurs. Such tax shall be paid by any manager of the organization.
Manager
For purposes of this subsection, the term manager
means any officer, director, trustee, employee, or other individual who is under a duty to perform
an act in respect of which such understatement occurs.
Joint and several liability
If more than one person is liable under paragraph (1) with respect to an understatement, all such persons shall be jointly and severally liable under such paragraph with respect to such understatement.
Limit
With respect to any understatement of tax to which this section applies, the maximum amount of the tax added by paragraph (1) shall not exceed $40,000
.
Coordination
Section 6662 is amended—
by striking the flush matter at the end of subsection (b), and
by adding at the end the following new subsection:
Coordination with other penalties
This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 6663. Except as provided in paragraph (1) or (2)(B) of section 6662A(e), this section shall not apply to the portion of any underpayment which is attributable to a reportable transaction understatement on which a penalty is imposed under section 6662A.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Excise Taxes
Modification of intermediate sanctions
Organization level tax
Subsection (a) of section 4958 is amended by adding at the end the following new paragraph:
On the organization
In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the organization a tax equal to 10 percent of the excess benefit.
.
Minimum standards of organization due diligence
Subsection (d) of section 4958 is amended by adding at the end the following new paragraph:
Minimum standards of organization due diligence
In general
Subsection (a)(3) shall not apply to a transaction, if—
the organization establishes that the minimum standards of due diligence described in subparagraph (B) were met with respect to the transaction, or
the organization establishes to the satisfaction of the Secretary that such other reasonable procedures were used to ensure that no excess benefit was provided.
Minimum standards
An organization shall be treated as satisfying the minimum standards of due diligence described in this subparagraph with respect to any transaction, if—
the transaction was approved in advance by an authorized body of the organization composed entirely of individuals who did not have a conflict of interest with respect to the transaction,
the authorized body obtained and relied upon appropriate data as to comparability prior to approval of the transaction, and
the authorizing body adequately and concurrently documented the basis for approving the transaction.
No presumption as to reasonableness
Meeting the requirements of clause (i) or (ii) of subparagraph (A) with respect to a transaction shall not give rise to a presumption of reasonableness for purposes of the taxes imposed by paragraphs (1) or (2) of subsection (a) and shall not, by itself, support a conclusion that a manager did not act knowingly for purposes of subsection (a)(2).
.
Repeal of exception for manager reliance on professional advice
Section 4958 is amended by adding at the end the following new subsection:
No safe harbor for reliance on professional advice
An organization manager’s reliance on a written opinion of a professional with respect to elements of a transaction within the professional’s expertise shall not, by itself, preclude the manager from being treated as participating in the transaction knowingly.
.
Athletic coaches and investment managers treated as disqualified persons
Athletic coaches
In general
Paragraph (1) of section 4958(f) is amended by striking and
at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and
inserting , and
, and by adding at the end the following new subparagraph:
any person who performs services as an athletic coach for the organization.
.
Family members
Subparagraph (B) of section 4958(f)(1) is amended by inserting or (G)
after subparagraph (A)
.
Investment advisors
In general
Subparagraph (F) of section 4958(f)(1) is amended—
by striking which involves a sponsoring organization (as defined in section 4966(d)(1)),
, and
by striking such sponsoring organization (as so defined)
and inserting the organization
.
Investment advisor definition
Subparagraph (B) of section 4958(f)(8) is amended to read as follows:
Investment advisor defined
For purposes of subparagraph (A), the term investment advisor
means—
with respect to any organization, any person who is compensated by such organization and is primarily responsible for managing the investment of, or providing investment advice with respect to, assets of such organization, and
with respect to any sponsoring organization (as defined in section 4966(d)(1)), any person (other than an employee of such organization) compensated by such organization for managing the investment of, or providing investment advice with respect to, assets maintained in donor advised funds (as defined in section 4966(d)(2)) owned by such organization.
.
Application to unions and trade associations
Paragraph (1) of section 4958(e) is amended by inserting (5), (6),
after (4),
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Modification of taxes on self-dealing
Organization level tax
Subsection (a) of section 4941 is amended by adding at the end the following new paragraph:
On the foundation
In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the foundation a tax equal to 2.5 percent (10 percent in the case payment of compensation) of the amount involved with respect to the act of self-dealing for each year (or part thereof) in the taxable period.
.
Repeal of exception for manager reliance on advice from counsel
Section 4941 is amended by adding at the end the following new subsection:
No safe harbor for reliance on advice of counsel
A foundation manager’s reliance on a written legal opinion by legal counsel that an act is not an act of self-dealing shall not, by itself, preclude the manager from being treated as participating in the act knowingly.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Excise tax on failure to distribute within 5 years contribution to donor advised fund
In general
Subchapter G of chapter 42 is amended by adding at the end the following new section:
Failure to distribute contributions within 5 years
In general
In the case of a contribution which is held in a donor advised fund, there is hereby imposed a tax equal to 20 percent of so much of the portion of such contribution as has not been distributed by the sponsoring organization in an eligible distribution before the beginning of the 6th (or succeeding) taxable year beginning after the taxable year during which such contribution was made. The tax imposed by this subsection shall be paid by such sponsoring organization.
Treatment of distributions
For purposes of this section—
Eligible distribution
The term eligible distribution
means any distribution to an organization described in section 170(b)(1)(A) (other than an
organization described in section 509(a)(3) or any fund or account
described in section 4966(d)(2).
Accounting
Distributions shall be treated as made from contributions (and any earnings attributable thereto) on a first-in, first-out basis.
.
Conforming amendment
The table of sections for subchapter G of chapter 42 is amended by adding at the end the following new item:
Sec. 4968. Failure to distribute contributions within 5 years.
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to contributions made after December 31, 2014.
Transition rule
In the case of any contribution—
which was made before January 1, 2015, and
any portion of which (including any earnings attributable thereto) is held in a donor advised fund on such date,
Simplification of excise tax on private foundation investment income
Rate reduction
Subsection (a) of section 4940 is amended by striking 2 percent
and inserting 1 percent
.
Repeal of special rules for certain private foundations
Section 4940 is amended by striking subsections (d) and (e).
Conforming amendment
Section 4945(d)(4)(A) is amended by striking clause (iii) and by inserting or
at the end of clause (i).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exception for private operating foundation failure to distribute income
In general
Subsection (a) of section 4942 is amended—
by striking a private foundation—
and all that follows through (2) to the extent
and inserting a private foundation to the extent
, and
by redesignating subparagraphs (A), (B), (C), and (D) as paragraphs (1), (2), (3), and (4), respectively, and by moving such paragraphs, as so redesignated, two ems to the left.
Conforming amendments
Section 4942(j) is amended by striking paragraphs (3), (4), and (5).
Section 170(b)(1)(F)(i) is amended by striking (as defined in section 4942(j)(3))
,
Section 170(b)(1) is amended by adding at the end the following new subparagraphs:
Private operating foundation
For purposes of this paragraph, the term private operating foundation
means any organization—
which makes qualifying distributions (within the meaning of paragraph (1) or (2) of section 4942(g)) directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated equal to substantially all of the lesser of—
its adjusted net income (as defined in subsection section 4942(f)), or
its minimum investment return, and
substantially more than half of the assets of which are devoted directly to such activities or to functionally related businesses, or to both, or are stock of a corporation which is controlled by the foundation and substantially all of the assets of which are so devoted,
which normally makes qualifying distributions (within the meaning of paragraph (1) or (2) of section 4942(g)) directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated in an amount not less than two-thirds of its minimum investment return (as defined in section 4942(e)), or
substantially all of the support (other than gross investment income as defined in section 509(e)) of which is normally received from the general public and from 5 or more exempt organizations which are not described in section 4946(a)(1)(H) with respect to each other or the recipient foundation; not more than 25 percent of the support (other than gross investment income) of which is normally received from any one such exempt organization; and not more than half of the support of which is normally received from gross investment income.
Functionally related business
For purposes of subparagraph (H), the term functionally related business
means—
a trade or business which is not an unrelated trade or business (as defined in section 513), or
an activity which is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which is related (aside from the need of the organization for income or funds or the use it makes of the profits derived) to the exempt purposes of the organization.
.
Section 170(e)(3)(A) is amended by striking as defined in section 4942(j)(3)
and inserting as defined in subsection (b)(1)(H)
.
Section 150(b)(3)(F), as redesignated by this Act, is amended—
by striking 4942 (relating to the excise tax on a failure to distribute income) and
,
by striking section 4942(j)(4)
and inserting section 170(b)(1)(I)
.
Section 2055(e)(4)(D) is amended by striking section 4942(j)(3)
and inserting section 170(b)(1)(H)
.
Section 2503(g)(2)(B) is amended by striking section 4942(j)(3)
and inserting section 170(b)(1)(H)
.
Section 4942(g)(1)(A) is amended by striking which is not an operating foundation (as defined in subsection (j)(3))
.
Section 4942(g)(3)(A) is amended by striking which is not an operating foundation
.
Section 4942(g)(4)(A) is amended by striking which is not an operating foundation
.
Section 4943(d)(3)(A) is amended by striking section 4942(j)(4)
and inserting section 170(b)(1)(I)
.
Section 6110(l)(2)(A) is amended by striking section 4942(j)(3)
and inserting section 170(b)(1)(H)
.
Section 7428(a)(1)(C) is amended by striking section 4942(j)(3)
and inserting section 170(b)(1)(H)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Excise tax based on investment income of private colleges and universities
In general
Chapter 42 is amended by adding at the end the following new subchapter:
Excise tax based on investment income of private colleges and universities
Sec. 4969. Excise tax based on investment income of private colleges and universities.
Excise tax based on investment income of private colleges and universities
Tax imposed
There is hereby imposed on each applicable educational institution for the taxable year a tax equal to 1 percent of the net investment income of such institution for the taxable year.
Applicable educational institution
For purposes of this subchapter—
In general
The term applicable educational institution
means an eligible educational institution (as defined in section 25A(e)(3))—
which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities), and
the aggregate fair market value of the assets of which at the end of the preceding taxable year (other than those assets which are used (or held for use) directly in carrying out the institution’s exempt purpose) is at least $100,000 per student of the institution.
Students
For purposes of paragraph (1)(B), the number of students of an institution shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).
Net investment income
For purposes of this section, net investment income shall be determined under rules similar to the rules of section 4940(c).
.
Clerical amendment
The table of subchapters for chapter 42 is amended by adding at the end the following new item:
Subchapter H—Excise tax based on investment income of private colleges and universities
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Requirements for Organizations Exempt From Tax
Repeal of tax-exempt status for professional sports leagues
In general
Paragraph (6) of section 501(c) is amended—
by striking , boards of trade, or professional
and all that follows through players)
and inserting , or boards of trade
, and
by adding at the end the following: This paragraph shall not apply to any professional sports league (whether or not administering a
pension fund for players).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Repeal of exemption from tax for certain insurance companies and co-op health insurance issuers
In general
Section 501(c) is amended by striking paragraphs (15) and (29).
Conforming amendments
Section 831(d), as amended by the preceding provisions of this Act, is amended to read as follows:
Cross reference
For taxation of foreign corporations carrying on an insurance business within the United States, see section 842.
.
Section 4958(e)(1) is amended by striking (4), or (29)
and inserting or (4)
.
Section 6033 is amended by striking subsection (m) and redesignating subsection (n) as subsection (m).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2014.
Transition rules
In the case of any organization described in paragraph (15) or (29) of section 501(c) of the Internal Revenue Code of 1986 (as in effect immediately before the enactment of this Act)—
no adjustment shall be made under section 481 (or any other provision) of the Internal Revenue Code of 1986 on account of a change in its method of accounting for its 1st taxable year beginning after December 31, 2014, and
for purposes of determining gain or loss, the adjusted basis of any asset held on the 1st day of such taxable year shall be treated as equal to its fair market value as of such day.
In-State requirement for workmen’s compensation insurance organization
In general
Clause (ii) of section 501(c)(27)(B) is amended by inserting before the comma at the end the
following: , and must not offer any other insurance
.
Effective date
The amendment made by this section shall apply to insurance policies issued, and renewals, after December 31, 2014.
Repeal of Type II and Type III supporting organizations
In general
Subparagraph (B) of section 509(a)(3) is amended—
by inserting and
at the end of clause (i),
by striking clauses (ii) and (iii), and
by striking is—
and all that follows through operated, supervised, or controlled
and inserting is operated, supervised, or controlled
.
Conforming amendments
Section 170(f)(18)(A) is amended by striking is not—
and all that follows through , and
and inserting the following: is not described in paragraph (3), (4), or (5) of subsection (c), and
.
Section 509(f) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.
Section 4942(g)(4)(A)(ii)(I) is amended by striking section 509(f)(3)
and inserting section 509(f)(2)
.
Section 4958(c)(3)(C)(ii)(II) is amended by striking section 509(f)(3)
and inserting section 509(f)(2)
.
Section 4966(d)(4)(A)(ii)(I) is amended by striking section 509(f)(3)
and inserting section 509(f)(2)
.
Section 509(f)(1)(A), as so redesignated, is amended by striking shall not be considered to be—
and all that follows through if such organization
and inserting the following: shall not be considered to be operated, supervised, or controlled by any organization described in
paragraph (1) or (2) of subsection (a), if such organization
.
Section 2055(e)(5)(A) is amended by striking is not—
and all that follows through , and
and inserting the following: is not described in paragraph (3) or (4) of subsection (a), and
.
Section 2522(c)(5)(A) is amended by striking is not—
and all that follows through , and
and inserting the following: is not described in paragraph (3) or (4) of subsection (a), and
.
Section 4942(g)(4)(A), as amended by the preceding provision of this Act, is amended—
by redesignating subclauses (I) and (II) of clause (ii) as clauses (i) and (ii), respectively, and moving such redesignated clauses 2 ems to the left,
by striking paid by a private foundation to—
and all that follows through any organization which
and inserting the following: paid by a private foundation to any organization which
, and
by striking subparagraph (B) or (C)
and inserting subparagraph (B)
.
Section 4942(g)(4)(B) is amended—
by striking clause (ii),
by striking section 509(a), or
and inserting section 509(a).
,
by striking and is—
and all that follows through operated, supervised, or controlled by
and inserting the following: and is operated, supervised, or controlled by
, and
by striking Type I and type II
in the heading thereof.
Section 4942(g)(4) is amended by striking subparagraph (C).
Section 4945(d)(4)(A)(ii) is amended by striking clause (i) or (ii) of section 4942(g)(4)(A)
and inserting section 4942(g)(4)(A)
.
Section 4943 is amended by striking subsection (f).
Section 4966(d)(4)(A), as amended by this Act, is amended—
by redesignating subclauses (I) and (II) of clause (ii) as clauses (i) and (ii), respectively, and moving such redesignated clauses 2 ems to the left,
by striking with respect to any distribution—
and all that follows through any organization which
and inserting the following: with respect to any distribution, any organization which
, and
by striking subparagraph (B) or (C)
and inserting subparagraph (B)
.
Section 4966(d)(4)(B) is amended—
by striking clause (ii),
by striking section 509(a), or
and inserting section 509(a).
,
by striking and is—
and all that follows through operated, supervised, or controlled by
and inserting the following: and is operated, supervised, or controlled by
, and
by striking Type I and type II
in the heading thereof.
Section 4966(d)(4) is amended by striking subparagraph (C).
Section 6033(l) is amended by inserting and
at the end of paragraph (1), by striking paragraph (2), and by redesignating paragraph (3) as
paragraph (2).
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.
Delay for current supporting organizations
In the case of an organization which, as of the date of the enactment of this Act, meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) of the Internal Revenue Code of 1986 and is—
supervised or controlled in connection with one or more organizations described in paragraph (1) or (2) of section 509(a) of such Code, or
is operated in connection with one or more such organizations,
Tax administration and compliance
IRS Investigation-Related Reforms
Organizations required to notify Secretary of intent to operate as 501(c)(4)
In general
Part I of subchapter F of chapter 1 is amended by adding at the end the following new section:
Organizations required to notify Secretary of intent to operate as 501(c)(4)
In general
An organization described in section 501(c)(4) shall, not later than 60 days after the organization is established, notify the Secretary (in such manner as the Secretary shall by regulation prescribe) that it is operating as such.
Contents of notice
The notice required under subsection (a) shall include the following information:
The name, address, and taxpayer identification number of the organization.
The date on which, and the State under the laws of which, the organization was organized.
A statement of the purpose of the organization.
Acknowledgment of receipt
Not later than 60 days after receipt of such a notice, the Secretary shall send to the organization an acknowledgment of such receipt.
Extension for reasonable cause
The Secretary may, for reasonable cause, extend the 60-day period described in subsection (a).
User fee
The Secretary shall impose a reasonable user fee for submission of the notice under subsection (a).
Request for determination
Upon request by an organization to be treated as an organization described in section 501(c)(4), the Secretary may issue a determination with respect to such treatment. Such request shall be treated for purposes of section 6104 as an application for exemption from taxation under section 501(a).
.
Supporting information with first return
Paragraph (1) of section 6033(f) is amended—
by striking the period at the end and inserting , and
,
by striking include on the return required under subsection (a) the information
and inserting the following:
include on the return required under subsection (a)—
the information
, and
by adding at the end the following new paragraph:
in the case of the first such return filed by such an organization after submitting a notice to the Secretary under section 506(a), such information as the Secretary shall by regulation require in support of the organization’s treatment as an organization described in section 501(c)(4).
.
Failure To file initial notification
Subsection (c) of section 6652 is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6), respectively, and by inserting after paragraph (3) the following new paragraph:
Notices under section 506
Penalty on organization
In the case of a failure to submit a notice required under section 506(a) (relating to organizations required to notify Secretary of intent to operate as 501(c)(4)) on the date and in the manner prescribed therefor, there shall be paid by the organization failing to so submit $20 for each day during which such failure continues, but the total amount imposed under this subparagraph on any organization for failure to submit any one notice shall not exceed $5,000.
Managers
The Secretary may make written demand on an organization subject to penalty under subparagraph (A) specifying in such demand a reasonable future date by which the notice shall be submitted for purposes of this subparagraph. If such notice is not submitted on or before such date, there shall be paid by the person failing to so submit $20 for each day after the expiration of the time specified in the written demand during which such failure continues, but the total amount imposed under this subparagraph on all persons for failure to submit any one notice shall not exceed $5,000.
.
Clerical amendment
The table of sections for part I of subchapter F of chapter 1 is amended by adding at the end the following new item:
Sec. 506. Organizations required to notify Secretary of intent to operate as 501(c)(4).
.
Effective date
In general
The amendments made by this section shall apply to organizations which are described in section 501(c)(4) of the Internal Revenue Code of 1986 and organized after December 31, 2014.
Certain existing organizations
In the case of any other organization described in section 501(c)(4) of such Code, the amendments made by this section shall apply to such organization only if, on or before the date of the enactment of this Act—
such organization has not applied for a written determination of recognition as an organization described in section 501(c)(4) of such Code, and
such organization has not filed at least one annual return or notice required under subsection (a)(1) or (i) (as the case may be) of section 6033 of such Code.
Declaratory judgments for 501(c)(4) organizations
In general
Paragraph (1) of section 7428(a) is amended by striking or
at the end of subparagraph (C) and by inserting after subparagraph (D) the following new
subparagraph:
with respect to the initial classification or continuing classification of an organization described in section 501(c)(4) which is exempt from tax under section 501(a), or
.
Effective date
The amendments made by this section shall apply to pleadings filed after the date of the enactment of this Act.
Restriction on donation reporting for certain 501(c)(4) organizations
In general
Subsection (f) of section 6033, as amended by this Act, is amended—
by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively, and by moving such subparagraphs 2 ems to the right,
by striking in section 501(c)(4).—Every organization
and inserting the following:
in section 501(c)(4).—
In general
Every organization
, and
by adding at the end the following new paragraph:
Restriction on donation reporting
In the case of any such organization, information relating to contributions and gifts may only be required to be included on a return required under subsection (a) if the contribution or gift is made by an officer or director of the organization (or an individual having powers or responsibilities similar to those of officers or directors) or any covered employee (as defined in section 4960(c)(2)) of the organization.
.
Effective date
The amendments made by this section shall apply to returns for taxable years beginning after December 31, 2013.
Mandatory electronic filing for annual returns of exempt organizations
In general
Section 6033, as amended by the preceding provisions of this Act, is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:
Mandatory electronic filing
Any organization required to file a return under this section shall file such return in electronic form.
.
Inspection of electronically filed annual returns
Subsection (b) of section 6104 is amended by adding at the end the following: Any annual return required to be filed electronically under section 6033(m) shall be made available
by the Secretary to the public in machine readable format as soon as
practicable.
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Transitional relief
Small organizations
In general
In the case of any small organizations, or any other organizations for which the Secretary determines the application of the amendments made by subsection (a) would cause undue burden without a delay, the Secretary may delay the application of such amendments, but not later than taxable years beginning 2 years after the date of the enactment of this Act.
Small organization
For purposes of clause (i), the term small organization
means any organization—
the gross receipts of which for the taxable year are less than $200,000, and
the aggregate gross assets of which at the end of the taxable year are less than $500,000.
Organizations filing form 990–T
In the case of any organization described in section 511(a)(2) of the Internal Revenue Code of 1986 which is subject to the tax imposed by section 511(a)(1) of such Code on its unrelated business taxable income, or any organization required to file a return under section 6033 of such Code and include information under subsection (e) thereof, the Secretary may delay the application of the amendments made by this section, but not later than taxable years beginning 2 years after the date of the enactment of this Act.
Duty to ensure that IRS employees are familiar with and act in accord with certain taxpayer rights
Section 7803(a) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
Execution of Duties in Accord with Taxpayer Rights
In discharging his duties, the Commissioner shall ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title, including—
the right to be informed,
the right to be assisted,
the right to be heard,
the right to pay no more than the correct amount of tax,
the right of appeal,
the right to certainty,
the right to privacy,
the right to confidentiality,
the right to representation, and
the right to a fair and just tax system.
.
Termination of employment of IRS employees for taking official actions for political purposes
Paragraph (10) of section 1203(b) of the Internal Revenue Service Restructuring and Reform Act of 1998 is amended to read as follows:
performing, delaying, or failing to perform (or threatening to perform, delay, or fail to perform) any official action (including any audit) with respect to a taxpayer for purpose of extracting personal gain or benefit or for a political purpose.
.
Release of information regarding the status of certain investigations
In general
Subsection (e) of section 6103 is amended by adding at the end the following new paragraph:
Disclosure of information regarding status of investigation of violation of this section
In the case of a person who provides to the Secretary information indicating a violation of section 7213, 7213A, or 7214 with respect to any return or return information of such person, the Secretary may disclose to such person (or such person’s designee)—
whether an investigation based on the person’s provision of such information has been initiated and whether it is open or closed,
whether any such investigation substantiated such a violation by any individual, and
whether any action has been taken with respect to such individual (including whether a referral has been made for prosecution of such individual).
.
Effective date
The amendment made by this section shall take effect on the date of the enactment of this Act.
Review of IRS examination selection procedures
In general
The Comptroller General of the United States shall conduct a study of each Internal Revenue Service operating division to assess the process used for determining how enforcement cases are selected and processed. Such study shall include a review of the following:
The standards each such operating division has established for enforcement case selection (including any automated or discretionary selection processes) and case work, and whether such standards meet the objectives of impartiality, objectivity, compliance, and minimizing taxpayer burden.
The extent to which any cases are initiated by referrals or complaints from inside or outside of the operating division (including from outside of the Internal Revenue Service).
The Internal Revenue Service controls (including management reviews and regular updates) for assuring that its standards for enforcement cases (and handling of referrals and complaints) in each operating division are sufficient for achieving the objectives described in paragraph (1).
The Internal Revenue Service controls (including training, monitoring, and quality assessments) for assuring that its standards are adhered to by all division personnel and the effectiveness of such controls.
Whether the existing standards and controls provide reasonable assurance that each division’s enforcement processes meet the Internal Revenue Service objectives of impartiality, objectivity, compliance, and minimizing taxpayer burden.
Initial report
Not later than 1 year after the date of the enactment of this section, the Comptroller General shall submit to the Committee on Ways and Means of the House of Representatives, the Committee on Finance of the Senate, and the Secretary of the Treasury a report on the results of such study. Such report shall include such recommendations as the Comptroller General may deem advisable.
Follow-Up on recommendations
Not later than 180 days after a report is submitted with respect to an operating division under subsection (b), the Comptroller General shall conduct a follow-up study, and submit to the Committee on Ways and Means of the House of Representatives, the Committee on Finance of the Senate, and the Secretary of the Treasury a report, on whether any recommendations to improve case selection and case work processes have been implemented and are working as intended.
Continuing case management studies and reports
In general
After a report is submitted under subsection (b), the Comptroller General shall conduct follow-up studies and reports in the same manner as provided in subsections (a) and (b) with respect to each operating division of the Internal Revenue Service and shall include in such study and report a review of whether any previous recommendations to improve case selection and case work processes have been implemented and are working as intended.
Frequency
Each such report with respect to an operating division shall be submitted not later than 4 years after the date the most recent report was submitted with respect to such operating division under subsection (b) or this subsection. The Comptroller General shall submit no fewer than 1 such report each year.
IRS employees prohibited from using personal email accounts for official business
No officer or employee of the Internal Revenue Service may use a personal email account to conduct any official business of the Government.
Moratorium on IRS conferences
The Internal Revenue Service shall not hold any conference until the Treasury Inspector General for Tax Administration submits a report to Congress—
certifying that the Internal Revenue Service has implemented all of the recommendations set out in such Inspector General’s report titled Review of the August 2010 Small Business/Self-Employed Division’s Conference in Anaheim, California, and
describing such implementation.
Applicable standard for determinations of whether an organization is operated exclusively for the promotion of social welfare
In general
The standard and definitions as in effect on January 1, 2010, which are used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4) of the Internal Revenue Code of 1986 shall apply for purposes of determining the status of organizations under section 501(c)(4) of the Internal Revenue Code of 1986 after the date of the enactment of this Act.
Prohibition on modification of standard
The Secretary of the Treasury may not (nor may any delegate of such Secretary) issue, revise, or finalize any regulation (including the proposed regulations published at 78 Fed. Reg. 71535 (November 29, 2013)), revenue ruling, or other guidance not limited to a particular taxpayer relating to the standard and definitions specified in subsection (a).
Application to organizations
Except as provided in subsection (d), this section shall apply with respect to any organization claiming tax exempt status under section 501(c)(4) of the Internal Revenue Code of 1986 which was created on, before, or after the date of the enactment of this Act.
Sunset
This section shall not apply after the one-year period beginning on the date of the enactment of this Act.
Taxpayer Protection and Service Reforms
Extension of IRS authority to require truncated Social Security numbers on Form W–2
In general
Paragraph (2) of section 6051(a) is amended by striking his social security number
and inserting an identifying number for the employee
.
Effective date
The amendment made by this section shall take effect on the date of the enactment of this Act.
Free electronic filing
In general
The Secretary of the Treasury shall, in cooperation with the private sector technology industry, maintain a program that provides free individual income tax preparation and electronic filing services to low-income taxpayers and elderly taxpayers.
Requirements of program
The Secretary shall by regulation or other guidance prescribe with respect to the program—
the qualifications, selection process, and contract term for businesses participating in the program,
a process for periodic review of businesses participating in the program,
procedures for terminating business participation in the program for failure to comply with any program requirements, and
such other procedures as the Secretary determines are necessary or appropriate to carry out the purposes of the program.
Free File program
The Internal Revenue Service Free File program, as set forth in the notice published in the Federal Register on November 4, 2002 (67 Fed. Reg. 67247), shall be treated as meeting the requirements of subsection (a).
Pre-populated returns prohibited
Except to the extent provided in section 6014, 6020, or 6201(d) of the Internal Revenue Code of 1986, the Secretary of the Treasury shall not provide to any person a proposed final return or statement for use by such person to satisfy a filing or reporting requirement under such Code.
Form 1040SR for seniors
In general
The Secretary of the Treasury (or the Secretary’s delegate) shall make available a form, to be
known as Form 1040SR
, for use by individuals to file the return of tax imposed by chapter 1 of the Internal Revenue
Code of 1986. Such form shall be as similar as practicable to Form 1040EZ,
except that—
the form shall be available to individuals who have attained age 65 as of the close of the taxable year,
the form may be used even if income for the taxable year includes—
social security benefits (as defined in section 86(d) of the Internal Revenue Code of 1986),
distributions from qualified retirement plans (as defined in section 4974(c) of such Code), annuities or other such deferred payment arrangements,
interest and dividends, or
capital gains and losses taken into account in determining the deduction for adjusted net capital gain under section 169 of such Code, and
the form shall be available without regard to the amount of any item of taxable income or the total amount of taxable income for the taxable year.
Effective date
The form required by subsection (a) shall be made available for taxable years beginning after December 31, 2014.
Increased refund and credit threshold for Joint Committee on Taxation review of C corporation return
In general
Subsections (a) and (b) of section 6405 are each amended by inserting ($5,000,000 in the case of a C corporation)
after $2,000,000
.
Effective date
The amendment made by this section shall take effect on the date of the enactment of this Act, except that such amendment shall not apply with respect to any refund or credit with respect to a report that has been made before such date under section 6405 of the Internal Revenue Code of 1986.
Tax return due date simplification
Due dates for returns of partnerships, S corporations, and C corporations
Partnerships and S corporations
In general
So much of subsection (b) of 6072 as precedes the second sentence thereof is amended to read as follows:
Returns of partnerships and S corporations
Returns of partnerships under section 6031 and returns of S corporations under sections 6012 and 6037 made on the basis of the calendar year shall be filed on or before the 15th day of March following the close of the calendar year, and such returns made on the basis of a fiscal year shall be filed on or before the 15th day of the third month following the close of the fiscal year.
.
Conforming amendment
Section 6072(a) is amended by striking 6017, or 6031
and inserting or 6017
.
Conforming amendments relating to C corporation due date of 15th day of fourth month following taxable year
Section 170(a)(3)(B), as redesignated by the preceding provisions of this Act, is amended by
striking third month
and inserting fourth month
.
Section 563 is amended by striking third month
each place it appears and inserting fourth month
.
Section 1354(d)(1)(B)(i) is amended by striking 3d month
and inserting 4th month
.
Subsection (a) and (c) of section 6167 are each amended by striking third month
and inserting fourth month
.
Section 6425(a)(1) is amended by striking third month
and inserting fourth month
.
Subsections (b)(2)(A), (g)(3), and (h)(1) of section 6655 are each amended by striking 3rd month
and inserting 4th month
.
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to returns for taxable years beginning after December 31, 2014.
Special rule for c corporations with fiscal years ending on June 30
In the case of any C corporation with a fiscal year ending on June 30, the amendments made by this section shall not apply to any taxable year beginning in 2022.
Modification of due dates by regulation
In the case of returns for taxable years beginning after December 31, 2014, the Secretary of the Treasury, or the Secretary's designee, shall modify appropriate regulations to provide as follows:
The maximum extension for the returns of partnerships filing Form 1065 shall be a 6-month period ending on September 15 for calendar year taxpayers.
The maximum extension for the returns of trusts filing Form 1041 shall be a 5½-month period ending on September 30 for calendar year taxpayers.
The maximum extension for the returns of employee benefit plans filing Form 5500 shall be an automatic 3½-month period ending on November 15 for calendar year plans.
The maximum extension for the returns of organizations exempt from income tax filing Form 990 shall be an automatic 6-month period ending on November 15 for calendar year filers.
The due date of Form 3520–A (relating to the Annual Information Return of Foreign Trust with a United States Owner) for calendar year filers shall be April 15 with a maximum extension for a 6-month period ending on October 15.
The due date of Form TD F 90–22.1 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.
Corporations permitted statutory automatic 6-month extension of income tax returns
In general
Section 6081(b) is amended by striking 3 months
and inserting 6 months
.
Effective date
The amendments made by this section shall apply to returns for taxable years beginning after December 31, 2014.
Compliance Reforms
Penalty for failure to file
In general
Section 6651(a) is amended by striking $135
in the flush material at the end and inserting $400
.
Effective date
The amendments made by this section shall apply to returns the due date for the filing of which (including extension) is after December 31, 2014.
Penalty for failure to file correct information returns and provide payee statements
In general
Section 6721(a)(1) is amended—
by striking $100
and inserting $250
, and
by striking $1,500,000
and inserting $3,000,000
.
Reduction where correction in specified period
Correction within 30 days
Section 6721(b)(1) is amended—
by striking $30
and inserting $50
,
by striking $100
and inserting $250
, and
by striking $250,000
and inserting $500,000
.
Failures corrected on or before August 1
Section 6721(b)(2) is amended—
by striking $60
and inserting $100
,
by striking $100
(prior to amendment by subparagraph (A)) and inserting $250
, and
by striking $500,000
and inserting $1,500,000
.
Lower limitation for persons with gross receipts of not more than $5,000,000
Section 6721(d)(1) is amended—
in subparagraph (A)—
by striking $500,000
and inserting $1,000,000
, and
by striking $1,500,000
and inserting $3,000,000
,
in subparagraph (B)—
by striking $75,000
and inserting $175,000
, and
by striking $250,000
and inserting $500,000
, and
in subparagraph (C)—
by striking $200,000
and inserting $500,000
, and
by striking $500,000
(prior to amendment by subparagraph (A)) and inserting $1,500,000
.
Penalty in case of intentional disregard
Section 6721(e) is amended—
by striking $250
in paragraph (2) and inserting $500
, and
by striking $1,500,000
in paragraph (3)(A) and inserting $3,000,000
.
Failure To furnish correct payee statements
In general
Section 6722(a)(1) is amended—
by striking $100
and inserting $250
, and
by striking $1,500,000
and inserting $3,000,000
.
Reduction where correction in specified period
Correction within 30 days
Section 6722(b)(1) is amended—
by striking $30
and inserting $50
,
by striking $100
and inserting $250
, and
by striking $250,000
and inserting $500,000
.
Failures corrected on or before August 1
Section 6722(b)(2) is amended—
by striking $60
and inserting $100
,
by striking $100
(prior to amendment by clause (i)) and inserting $250
, and
by striking $500,000
and inserting $1,500,000
.
Lower limitation for persons with gross receipts of not more than $5,000,000
Section 6722(d)(1) is amended—
in subparagraph (A)—
by striking $500,000
and inserting $1,000,000
, and
by striking $1,500,000
and inserting $3,000,000
,
in subparagraph (B)—
by striking $75,000
and inserting $175,000
, and
by striking $250,000
and inserting $500,000
, and
in subparagraph (C)—
by striking $200,000
and inserting $500,000
, and
by striking $500,000
(prior to amendment by subparagraph (A)) and inserting $1,500,000
.
Penalty in case of intentional disregard
Section 6722(e) is amended—
by striking $250
in paragraph (2) and inserting $500
, and
by striking $1,500,000
in paragraph (3)(A) and inserting $3,000,000
.
Effective date
The amendments made by this section shall apply with respect to returns and statements required to be filed after December 31, 2014.
Clarification of 6-year statute of limitations in case of overstatement of basis
In general
Subparagraph (B) of section 6501(e)(1) is amended—
by striking and
at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after
clause (i) the following new clause:
An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income; and
, and
by inserting (other than in the case of an overstatement of unrecovered cost or other basis)
in clause (iii) (as so redesignated) after In determining the amount omitted from gross income
.
Effective date
The amendments made by this section shall apply to—
returns filed after the date of the enactment of this Act, and
returns filed on or before such date if the period specified in section 6501 of the Internal Revenue Code of 1986 (determined without regard to such amendments) for assessment of the taxes with respect to which such return relates has not expired as of such date.
Reform of rules related to qualified tax collection contracts
Requirement To collect certain inactive tax receivables under qualified tax collection contracts
Section 6306 is amended by redesignating subsections (c) through (f) as subsections (d) through (g), respectively, and by inserting after subsection (b) the following new subsection:
Collection of inactive tax receivables
In general
Notwithstanding any other provision of law, the Secretary shall enter into one or more qualified tax collection contracts for the collection of all outstanding inactive tax receivables.
Inactive tax receivables
For purposes of this section—
In general
The term inactive tax receivable
means any tax receivable if—
at any time after assessment, the Internal Revenue Service removes such receivable from the active inventory for lack of resources or inability to locate the taxpayer,
more than 1/3 of the period of the applicable statute of limitation has lapsed and no employee of the Internal Revenue Service has been assigned such receivable for collection, or
in the case of a receivable which has been assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection of such receivable.
Tax receivable
The term tax receivable
means any outstanding assessment which the Internal Revenue Service includes in potentially
collectible inventory.
.
Certain tax receivables not eligible for collection under qualified tax collection contracts
Section 6306, as amended by subsection (a), is amended by redesignating subsections (d) through (g) as subsections (e) through (h), respectively, and by inserting after subsection (c) the following new subsection:
Certain tax receivables not eligible for collection under qualified tax collections contracts
A tax receivable shall not be eligible for collection pursuant to a qualified tax collection contract if such receivable—
is subject to a pending or active offer-in-compromise or installment agreement,
is classified as an innocent spouse case,
involves a taxpayer identified by the Secretary as being—
deceased,
under the age of 18,
in a designated combat zone, or
a victim of identity theft,
is currently under examination, litigation, criminal investigation, or levy, or
is currently subject to a proper exercise of a right of appeal under this title.
.
Contracting priority
Section 6306, as amended by the preceding provisions of this section, is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:
Contracting priority
In contracting for the services of any person under this section, the Secretary shall give priority to private collection contractors and debt collection centers on the schedule required under section 3711(g) of title 31, United States Code, to the extent such private collection contractors and debt collection centers are appropriate to carry out the purposes of this section.
.
Disclosure of return information
Section 6103(k) is amended by adding at the end the following new paragraph:
Qualified tax collection contractors
Persons providing services pursuant to a qualified tax collection contract under section 6306 may, if speaking to a person who has identified himself or herself as having the name of the taxpayer to which a tax receivable (within the meaning of such section) relates, identify themselves as contractors of the Internal Revenue Service and disclose the business name of the contractor, and the nature, subject, and reason for the contact. Disclosures under this paragraph shall be made only in such situations and under such conditions as have been approved by the Secretary.
.
Taxpayers affected by federally declared disasters
Section 6306, as amended by the preceding provisions of this section, is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:
Taxpayers in Presidentially declared disaster areas
The Secretary may prescribe procedures under which a taxpayer determined to be affected by a federally declared disaster (as defined by section 165(i)(5)) may request—
relief from immediate collection measures by contractors under this section, and
a return of the inactive tax receivable to the Internal Revenue Service for collection.
.
Report to Congress
In general
Section 6306, as amended by the preceding provisions of this section, is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:
Report to Congress
Not later than 90 days after each fiscal year ending on September 30, the Secretary shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report with respect to qualified tax collection contracts under this section which shall include—
annually (with respect to each such fiscal year beginning with the first such fiscal year ending after the date of the enactment of this subsection)—
the total number and amount of tax receivables provided to each contractor for collection under this section,
the total amounts collected (and amounts of installment agreements entered into under subsection (b)(1)(B)) with respect to each contractor and the collection costs incurred (directly and indirectly) by the Internal Revenue Service with respect to such amounts,
the impact of such contracts on the total number and amount of unpaid assessments, and on the number and amount of assessments collected by Internal Revenue Service personnel after initial contact by a contractor,
the amount of fees retained by the Secretary under subsection (e) and a description of the use of such funds, and
a disclosure safeguard report in a form similar to that required under section 6103(p)(5), and
biannually (beginning with the second report submitted under this subsection)—
an independent evaluation of contractor performance; and
a measurement plan that includes a comparison of the best practices used by the private collectors to the collection techniques used by the Internal Revenue Service and mechanisms to identify and capture information on successful collection techniques used by the contractors that could be adopted by the Internal Revenue Service.
.
Repeal of existing reporting requirements with respect to qualified tax collection contracts
Section 881 of the American Jobs Creation Act of 2004 is amended by striking subsection (e).
Effective dates
In general
The amendments made by subsections (a) and (b) shall apply to tax receivables identified by the Secretary after the date of the enactment of this Act.
Contracting priority
The amendments made by subsection (c) shall apply to contracts and agreements entered into after the date of the enactment of this Act.
Disclosures
The amendments made by subsection (d) shall apply to disclosures made after the date of the enactment of this Act.
Procedures; Report to Congress
The amendments made by subsections (e) and (f) shall take effect on the date of the enactment of this Act.
100 percent continuous levy on payments to Medicare providers and suppliers
In general
Paragraph (3) of section 6331(h) is amended by striking the period at the end and inserting , or to a Medicare provider or supplier under title XVIII of the Social Security Act.
.
Effective date
The amendment made by this section shall apply to levies issued after the date of the enactment of this Act.
Treatment of refundable credits for purposes of certain penalties
Application of underpayment penalties
Section 6664(a) is amended by adding at the end the following: A rule similar to the rule of section 6211(b)(4) shall apply for purposes of this subsection.
.
Penalty for erroneous claim of credit made applicable to earned income credit
Section 6676(a) is amended by striking (other than a claim for a refund or credit relating to the earned income credit under section 32)
.
Effective dates
Underpayment penalties
The amendment made by subsection (a) shall apply to—
returns filed after February 26, 2014, and
returns filed on or before such date if the period specified in section 6501 of the Internal Revenue Code of 1986 for assessment of the taxes with respect to which such return relates has not expired as of such date.
Penalty for erroneous claim of credit
The amendment made by subsection (b) shall apply to claims filed after February 26, 2014.
Excise taxes
Repeal of medical device excise tax
In general
Chapter 32 is amended by striking subchapter E.
Conforming amendments
Subsection (a) of section 4221 is amended by striking the last sentence.
Paragraph (2) of section 6416(b) is amended by striking the last sentence.
Clerical amendment
The table of subchapters for chapter 32 is amended by striking the item relating to subchapter E.
Effective date
The amendments made by this section shall apply to sales after the date of the enactment of this Act.
Modifications relating to oil spill liability trust fund
Extension of Oil Spill Liability Trust Fund financing rate
Paragraph (2) of section 4611(f) is amended by striking December 31, 2017
and inserting December 31, 2023
.
Application with respect to bitumen and bituminous mixtures and shale oil
Paragraph (1) of section 4612(a) is amended to read as follows:
Crude oil
The term crude oil
includes crude oil condensates, natural gasoline, any bitumen or bituminous mixture, any oil
derived from a bitumen or bituminous mixture, shale oil, and any oil
derived from kerogen-bearing sources.
.
Conforming amendment
Paragraph (2) of section 4612(a) is amended by striking from a well located
.
Effective date
The amendments made by this section shall apply to oil and petroleum products received or entered during calendar quarters beginning more than 60 days after the date of the enactment of this Act.
Modification relating to inland waterways trust fund financing rate
In general
Section 4042(b)(2)(A) is amended to read as follows:
The Inland Waterways Trust Fund financing rate is 26 cents per gallon.
.
Effective date
The amendment made by this section shall apply to fuel used after December 31, 2014.
Excise tax on systemically important financial institutions
In general
Chapter 36 is amended by adding at the end the following new subchapter:
Tax on systemically important financial institutions
Sec. 4491. Tax on systemically important financial institutions.
Tax on systemically important financial institutions
In general
There is hereby imposed a tax on the excess total consolidated assets of any systemically important financial institution on the close of each calendar quarter.
Amount of tax
The rate of tax imposed by subsection (a) is 0.035 percent of such excess total consolidated assets.
By whom paid
The tax imposed by subsection (a) shall be paid by the systemically important financial institution.
Due date
The tax imposed by subsection (a) for a calendar quarter shall be due on the first day of the third month beginning after the close of such quarter.
Systemically important financial institution
For purposes of this section, the term systemically important financial institution
means any person subject to section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
Excess total consolidated assets
For purposes of this section, the term excess total consolidated assets
means the excess of—
total consolidated assets (within the meaning of section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act), over
$500,000,000,000.
Adjustment of dollar amount
In general
In the case of any calendar year beginning after 2015, there shall be substituted for the dollar amount in subsection (f)(2) a dollar amount which bears the same ratio to such amount (determined without regard to this subsection) as—
the GDP for the preceding calendar year, bears to
the GDP for 2014.
GDP
For purposes of this subsection, the GDP for any calendar year means the latest estimate of the gross domestic product published by the Department of Commerce for the preceding calendar year.
Treatment of certain references
Any reference in this section to any provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act shall be treated as a reference to such provision as in effect on the date of the enactment of this section.
.
Clerical amendment
The table of subchapters for chapter 36 is amended by adding at the end the following new item:
.
Effective date
The amendments made by this section shall apply to calendar quarters beginning after December 31, 2014.
Clarification of orphan drug exception to annual fee on branded prescription pharmaceutical manufacturers and importers
In general
Paragraph (3) of section 9008(e) of the Patient Protection and Affordable Care Act (Public Law 111–148) is amended to read as follows:
Exclusion of orphan drug sales
In general
The term branded prescription drug sales shall not include sales of any drug or biological product—
with respect to which a credit was allowed for any taxable year under section 45C of the Internal Revenue Code of 1986 (as in effect before its repeal by the Tax Reform Act of 2014); or
which is approved or licensed by the Food and Drug Administration for marketing solely for one or more rare diseases or conditions.
Limitation
Subparagraph (A) shall not apply with respect to any drug or biological product after the date on which the drug or biological product is approved or licensed by the Food and Drug Administration for marketing for any indication other than the treatment of a rare disease or condition.
Rare disease or condition
In general
For purposes of this paragraph, the term rare disease or condition means any disease or condition which—
affects less than 200,000 persons in the United States, or
affects more than 200,000 persons in the United States but for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biological product for such disease or condition will be recovered from sales in the United States of such drug or biological product.
Time of determination
Determinations under the preceding sentence with respect to any drug or biological product shall be made on the basis of the facts and circumstances as of—
in the case a drug or biological product that has been designated under section 526 of the Federal Food, Drug, and Cosmetic Act for a particular indication, the date of such designation, and
in any other case, the date such drug or biological product is approved or licensed by the Food and Drug Administration for marketing for the treatment of the disease or condition referred to in clause (i).
.
Effective date
The amendment made by this section shall apply to fees imposed under section 9008(a)(1) of the Patient Protection and Affordable Care Act with annual payment dates after 2013.
Deadwood and technical provisions
Repeal of Deadwood
Repeal of Puerto Rico economic activity credit
Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30A (and by striking the item relating to such section in the table of sections of such subpart).
Repeal of making work pay credit
In general
Subpart C of part IV of subchapter A of chapter 1 is amended by striking section 36A (and by striking the item relating to such section in the table of sections of such subpart).
Conforming amendments
Section 6211(b)(4)(A) is amended by striking 36A,
.
Section 6213(g)(2) is amended by striking subparagraph (N).
General business credit
Subsection (d) of section 38 is amended by striking paragraph (3).
Environmental tax
In general
Subchapter A of chapter 1 is amended by striking part VII (and the table of parts for such chapter is amended by striking the item relating to part VII).
Conforming amendments
Section 26(b)(2) is amended by striking subparagraph (B).
Section 164(a) is amended by striking paragraph (5).
Section 275(a) is amended by striking the last sentence.
Section 882(a)(1) is amended by striking 59A,
.
Section 6425(c)(1)(A), as amended by the preceding provisions of this Act, is amended to read as follows:
the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever is applicable, over
.
Section 6655(g)(1)(A), as amended by the preceding provisions of this Act, is amended by adding plus
at the end of clause (i) and by striking clause (ii).
Annuities; certain proceeds of endowment and life insurance contracts
Section 72 is amended—
in subsection (c)(4) by striking ; except that if such date was before January 1, 1954, then the annuity starting date is January 1,
1954
, and
in subsection (g)(3) by striking January 1, 1954, or
and , whichever is later
.
Unemployment compensation
Section 85 is amended by striking subsection (c).
Flexible spending arrangements
Section 106(c)(1) is amended by striking Effective on and after January 1, 1997, gross
and inserting Gross
.
Certain combat zone compensation of members of the armed forces
Subsection (c) of section 112 is amended—
by striking (after June 24, 1950)
in paragraph (2), and
striking such zone;
and all that follows in paragraph (3) and inserting such zone.
.
Qualified group legal services plans
In general
Part III of subchapter B of chapter 1 is amended by striking section 120 (and by striking the item relating to such section in the table of sections for such part).
Tax-Exemption of group legal services plans
Section 501(c) is amended by striking paragraph (20).
Conforming amendments
Section 414(n)(3)(C) is amended by striking 120,
.
Section 414(t)(2) is amended by striking 120,
.
Section 3121(a) is amended by striking paragraph (17).
Section 3231(e) is amended by striking paragraph (7).
Section 3306(b) is amended by striking paragraph (12).
Section 6039D(d)(1) is amended by striking 120,
.
Section 209(a)(14) of the Social Security Act is amended—
by striking subparagraph (B), and
by striking (14)(A)
and inserting (14)
.
Certain reduced uniformed services retirement pay
Section 122(b)(1) is amended by striking after December 31, 1965,
.
Great plains conservation program
Section 126(a) is amended by striking paragraph (6) and by redesignating paragraphs (7),(8), (9), and (10) as paragraphs (6), (7), (8), and (9), respectively.
State legislators’ travel expenses away from home
Paragraph (4) of section 162(h) is amended by striking For taxable years beginning after December 31, 1980, this
and inserting This
.
Treble damage payments under the antitrust law
Section 162(g) is amended by striking the last sentence.
Phase-in of limitation on investment interest
Section 163(d) is amended by striking paragraph (6).
Charitable, etc., contributions and gifts
Section 170 is amended by striking subsection (k).
Amortizable bond premium
In general
Subparagraph (B) of section 171(b)(1) is amended to read as follows:
with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period before the call date, with reference to the amount payable on the earlier call date), in the case of a bond described in subsection (a)(1), and
with reference to the amount payable on maturity or on an earlier call date, in the case of a bond described in subsection (a)(2).
.
Conforming amendments
Paragraphs (2)(B) and (3)(B) of section 171(b) are each amended by striking paragraph (1)(B)(ii)
and inserting paragraph (1)(B)(i)
.
Repeal of deduction for clean-fuel vehicles and certain refueling property
In general
Part VI of subchapter B of chapter 1 is amended by striking section 179A (and by striking the item relating to such section in the table of sections for such part).
Conforming amendment
Section 62(a) is amended by striking paragraph (14).
Section 280F(a)(1) is amended by striking subparagraph (C).
Section 312(k)(3), as amended by this Act, is amended by striking , 179A
each place it appears.
Section 1016(a) is amended by striking paragraph (24).
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2005.
Repeal of deduction for capital costs incurred in complying with environmental protection agency sulfur regulations
In general
Part VI of subchapter B of chapter 1 is amended by striking section 179B (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Section 312(k)(3), as amended by this Act, is amended by striking , 179B
each place it appears.
Section 1016(a) is amended by striking paragraph (30).
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2009.
Activities not engaged in for profit
Section 183(e)(1) is amended by striking the last sentence.
Dividends received on certain preferred stock; and dividends paid on certain preferred stock of public utilities
In general
Sections 244 and 247 are hereby repealed, and the table of sections for part VIII of subchapter B of chapter 1 is amended by striking the items relating to sections 244 and 247.
Conforming amendments
Paragraph (5) of section 172(d) is amended to read as follows:
Computation of deduction for dividends received
The deductions allowed by section 243 (relating to dividends received by corporations) and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) (relating to limitation on aggregate amount of deductions).
.
Paragraph (1) of section 243(c) is amended to read as follows:
In general
In the case of any dividend received from a 20-percent owned corporation, subsection (a)(1) shall
be applied by substituting 80 percent
for 70 percent
.’’.
Section 243(d) is amended by striking paragraph (4).
Section 246 is amended—
by striking , 244,
in subsection (a)(1),
in subsection (b)(1)—
by striking sections 243(a)(1), 244(a),
the first place it appears and inserting section 243(a)(1)
,
by striking 244(a),
the second place it appears, and
by striking subsection (a) or (b) of section 245, and 247,
and inserting and subsection (a) or (b) of section 245,
, and
by striking , 244,
in subsection (c)(1).
Section 246A is amended by striking , 244,
both places it appears in subsections (a) and (e).
Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2), 469(e)(4), 512(a)(3)(A), 805(a)(4)(A), (C), and (D),
805(b)(4) (as redesignated by this Act), 832(b)(5)(B)(ii), (D)(i), and
(D)(ii)(I), 833(b)(3)(E), and 1059(b)(2)(B) are each amended by striking , 244,
each place it appears.
Section 805(a)(4)(B) is amended by striking , 244(a),
each place it appears.
Section 810(c)(2)(B) is amended by striking 244 (relating to dividends on certain preferred stock of public utilities),
.
Section 1244(c)(2)(C) is amended by striking 244,
.
Acquisitions made to evade or avoid income tax
Paragraphs (1) and (2) of section 269(a) are each amended by striking or acquired on or after October 8, 1940,
.
Distributions of property
Paragraph (3) of section 301(c) is amended to read as follows:
Amounts in excess of basis
That portion of the distribution which is not a dividend, to the extent that it exceeds the adjusted basis of the stock, shall be treated as gain from the sale or exchange of property.
.
Effect on earnings and profits
Subsection (d) of section 312 is amended by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).
Basis to corporations
Section 362(a) is amended by striking on or after June 22, 1954,
.
Tax credit employee stock ownership plans
Section 409 is amended by striking subsection (q).
Employee stock purchase plans
Section 423(a) is amended by striking after December 31, 1963
.
Transition rules
Paragraph (5) of section 430(c) is amended by striking subparagraph (B) and by striking (A) In general.—
.
Paragraph (2) of section 430(h) is amended by striking subparagraph (G).
Paragraph (3) of section 436(j) is amended by striking subparagraphs (B) and (C) and by striking (A) In general.—
Section 436 is amended by striking subsection (m).
Limitation on deductions for certain farming
In general
Section 464 is amended by striking any farming syndicate (as defined in subsection (c))
both places it appears in subsections (a) and (b) and inserting any taxpayer to whom subsection (d) applies
.
Farming syndicate
Subsection (c) of section 464 is hereby moved to the end of section 461 and redesignated as subsection (j).
Such subsection (j) is amended—
by striking For purposes of this section
in paragraph (1) and inserting For purposes of subsection (i)(4)
, and
by adding at the end the following new paragraphs:
Farming
For purposes of this subsection, the term farming
has the meaning given to such term by section 464(e).
Limited entrepreneur
For purposes of this subsection, the term limited entrepreneur
means a person who—
has an interest in an enterprise other than as a limited partner, and
does not actively participate in the management of such enterprise.
.
Paragraph (4) of section 461(i) is amended by striking section 464(c)
and inserting subsection (j)
.
Section 464 is amended—
by striking subsections (e) and (g) and redesignating subsections (d) and (f) as subsections (c) and (d), respectively, and
by inserting after subsection (d) the following new subsection:
Farming
For purposes of this section, the term farming
means the cultivation of land or the raising or harvesting of any agricultural or horticultural
commodity including the raising, shearing, feeding, caring for, training,
and management of animals. For purposes of the preceding sentence, trees
(other than trees bearing fruit or nuts) shall not be treated as an
agricultural or horticultural commodity.
.
Subsection (d) of section 464 of such Code, as redesignated by subsection (c), is amended—
by striking paragraph (1) and redesignating paragraphs (2), (3), and (4) as paragraphs (1), (2), and (3), respectively, and
by striking SUBSECTIONS (a) AND (b) TO APPLY TO
in the subsection heading.
Subparagraph (A) of section 58(a)(2) is amended by striking section 464(c)
and inserting section 461(j)
.
Deductions limited to amount at risk
Paragraph (3) of section 465(c) is amended by striking In the case of taxable years beginning after December 31, 1978, this
and inserting This
.
Passive activity losses and credits limited
Section 469 is amended by striking subsection (m).
Adjustments required by changes in method of accounting
Section 481(b)(3) is amended by striking subparagraph (C).
Exemption from tax on corporations, certain trusts, etc
Section 501 is amended by striking subsection (s).
Requirements for exemption
Section 503(a)(1) is amended to read as follows:
General rule
An organization described in paragraph (17) or (18) of section 501(c) or described in section 401(a) and referred to in section 4975(g)(2) or (3) shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction.
.
Paragraph (2) of section 503(a) is amended by striking described in section 501(c)(17) or (18) or paragraph (a)(1)(B)
and inserting described in paragraph (1)
.
Subsection (c) of section 503 is amended by striking described in section 501(c)(17) or (18) or subsection (a)(1)(B)
and inserting described in subsection (a)(1)
.
Repeal of special treatment for religious broadcasting company
In general
Subsection (b) of section 512 is amended by striking paragraph (15).
Effective date
The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Repeal of exclusion of gain or loss from disposition of brownfield property
In general
Subsection (b) of section 512 is amended by striking paragraph (19).
Effective date
The amendment made by this section shall apply to property acquired after December 31, 2009.
Accumulated taxable income
Paragraph (1) of section 535(b) and paragraph (1) of section 545(b) are each amended by striking section 531
and all that follows and inserting section 531 or the personal holding company tax imposed by section 541.
.
Certain provisions related to depletion
Section 614(b)(3) (before being redesignated by title III) is amended by striking subparagraph (C).
Section 614(b)(4) (before being redesignated by title III) is amended by striking whichever of the following taxable years is the later: The first taxable year beginning after
December 31, 1963, or
.
Section 614(b) (before being redesignated by title III) is amended by striking paragraph (5).
Amounts received by surviving annuitant under joint and survivor annuity contract
Subparagraph (A) of section 691(d)(1) is amended by striking after December 31, 1953, and
.
Income taxes of members of armed forces on death
Section 692(a)(1) is amended by striking after June 24, 1950
.
Special rules for computing reserves
Paragraph (7) of section 807(e) is amended by striking subparagraph (B) and redesignating subparagraph (C) as subparagraph (B).
Insurance company taxable income
Section 832(e) is amended by striking of taxable years beginning after December 31, 1966,
.
Section 832(e)(6) is amended by striking In the case of any taxable year beginning after December 31, 1970, the
and inserting The
.
Capitalization of certain policy acquisition expenses
Section 848 (as amended by title II) is amended by striking subsection (i).
Repeal of provision on expatriation to avoid tax
In general
Subpart A of part II of subchapter N of chapter 1 is amended by striking section 877 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 2(d) is amended by striking or 877
.
Section 121 is amended by striking subsection (e).
Section 865(j)(3) is amended by inserting as in effect before its repeal
after section 877
.
Paragraph (2) of section 871(o) (as amended by this Act) is amended to read as follows:
For taxation of covered expatriates, see section 877A.
.
Section 877A(g)(1)(A) is amended to read as follows:
In general
The term covered expatriate
means any expatriate if—
the average annual net income tax of such individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $124,000,
the net worth of the individual as of such date is $2,000,000 or more, or
such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.
.
Section 877A(g)(1)(B) is amended by striking shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2)
and inserting shall not be treated as described in clause (i) or (ii) of subparagraph (A)
.
Section 877A(g)(1) is amended by redesignating subparagraph (C) as subparagraph (D) and inserting after subparagraph (B) the following new subparagraph:
Net income tax
For purposes of subparagraph (A), the term net income tax
means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part
IV of subchapter A.
.
Section 877A(g)(1), as amended by subparagraph (C), is amended by adding at the end the following new subparagraph:
Inflation adjustment
In the case of the loss of United States citizenship in any calendar year after 2007, the dollar amount in subparagraph (A)(i) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which
such loss of United States citizenship occurs determined by substituting calendar year 2003
for calendar year 2012
in clause (ii) thereof.
.
Section 877A(g)(5) is amended to read as follows:
Long-term resident
The term long-term resident
means any individual (other than a citizen of the United States) who is a lawful permanent
resident of the United States in at least 8 taxable years during the
period of 15 taxable years ending with the taxable year during which the
event described in subparagraph (A) or (B) of paragraph (2) occurs. For
purposes of the preceding sentence, an individual shall not be treated as
a lawful permanent resident for any taxable year if such individual is
treated as a resident of a foreign country for the taxable year under the
provisions of a tax treaty between the United States and the foreign
country and does not waive the benefits of such treaty applicable to
residents of the foreign country.
.
Section 894(b) is amended by striking the last sentence.
Section 2107 is amended by striking subsection (e).
Section 2501(a) is amended by striking paragraphs (3) and (5) and by redesignating paragraph (4) as paragraph (3).
Section 3405(e)(13)(B) is amended by striking that such person is not—
and all that follows and inserting that such person is not a United States citizen or a resident alien of the United States.
.
Section 6039G(a) is amended by striking section 877(b) or 877A
and inserting section 877A
.
Section 6039G(d) is amended by striking section 877(a) or 877A
and inserting section 877A
.
Section 7701(b) is amended by striking paragraph (10) and by redesignating paragraph (11) as paragraph (10).
Effective date
The amendments made by this subsection shall apply to individuals whose expatriation date (as defined in section 877A(g)(3) of the Internal Revenue Code of 1986) is on or after June 17, 2008.
Repeal of certain transition rules on income from sources without United States
Limitation on credit
Paragraph (2) of section 904(d) is amended by striking subparagraph (J).
Foreign earned income
Clause (i) of section 911(b)(2)(D) is amended to read as follows:
In general
The exclusion amount for any calendar year is $80,000.
.
Repeal of Puerto Rico and possession tax credit
In general
Subpart D of part III of subchapter N of chapter 1 is amended by striking section 936 (and by striking the item relating to such section in the table of sections of such subpart).
Conforming amendments
Section 27 is amended to read as follows:
Taxes of foreign countries and possessions of the United States
The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901.
.
The item relating to section 27 in the table of sections for subpart B of part IV of subchapter A of chapter 1 is amended to read as follows:
.
Section 243(b)(1)(B) is amended to read as follows:
if such dividend is distributed out of the earnings and profits of a taxable year of the distributing corporation which ends after December 31, 1963, and on each day of which the distributing corporation and the corporation receiving the dividend were members of such affiliated group.
.
Section 246 is amended by striking subsection (e).
Section 338(h)(6)(B)(i) is amended by striking , a DISC, or a corporation to which an election under section 936 applies
and inserting or a DISC
.
Section 861(a)(2) is amended—
by striking subparagraph (A) and by redesignating subparagraphs (B), (C), and (D) as subparagraphs (A), (B), and (C), respectively, and
by striking subparagraph (B)
each place it appears and inserting subparagraph (A)
.
Section 864(d)(5) is amended to read as follows:
Certain provisions not to apply
The following provisions shall not apply to any amount treated as interest under paragraph (1) or (6):
Section 904(d)(2)(B)(iii)(I) (relating to exceptions for export financing interest).
Subparagraph (A) of section 954(b)(3) (relating to exception where foreign base company income is less than 5 percent or $1,000,000).
Subparagraph (B) of section 954(c)(2) (relating to certain export financing).
Clause (i) of section 954(c)(3)(A) (relating to certain income received from related persons).
.
Section 865(j)(3) is amended by striking , 933, and 936
and inserting and 933
.
Section 901(g)(2) is amended by inserting (as in effect before its repeal)
after 936
.
Section 904(b) is amended by striking paragraph (4).
Section 1202(e)(4) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.
Section 1361(b)(2) is amended by adding or
at the end of subparagraph (B), by striking subparagraph (C), and by redesignating subparagraph
(D) as subparagraph (C).
Section 1504(b) is amended by striking paragraph (4).
Section 6091(b)(2)(B) is amended by striking clause (ii) and by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively.
Section 6654(d)(2)(D) is amended—
by striking 936(h) or
in clause (i), and
by striking “and section 936” in the heading.
Section 6655(e)(4) is amended—
by striking 936(h) or
in subparagraph (A), and
by striking “and section 936” in the heading.
Section 367(d) is amended by adding at the end the following new paragraph:
Intangible property
For purposes of this subsection, the term intangible property
means any—
patent, invention, formula, process, design, pattern, or know-how,
copyright, literary, musical, or artistic composition,
trademark, trade name, or brand name,
franchise, license, or contract,
method, program, system, procedure, campaign, survey, study, forecast, estimate, customer list, or technical data, or
any similar item,
.
Section 367(a)(3)(B)(iv) is amended by striking section 936(h)(3)(B)
and inserting subsection (d)(4)
.
Sections 482 and 1298(e)(2)(A) are each amended by striking section 936(h)(4)(B)
and inserting section 367(d)(4)
.
Basis of property acquired from decedent
Section 1014 is amended—
by striking either
and by striking or section 811(j) of the Internal Revenue Code of 1939 where the decedent died after October 21,
1942
in subsection (a)(2), and
by striking paragraphs (7) and (8) of subsection (b).
Property on which lessee has made improvements
Section 1019 is amended by striking the last sentence.
Involuntary conversion
Section 1033 is amended by striking subsection (j) and by redesignating subsection (k) as subsection (j).
Property acquired during affiliation
Section 1051 is hereby repealed, and the table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to section 1051.
Repeal of special holding period rules for certain commodity futures transactions
Section 1222 is amended by striking the last sentence.
Holding period of property
Paragraph (1) of section 1223 is amended by striking , in the case of such exchanges after March 1, 1954,
.
Paragraph (4) of section 1223 is amended by striking (or under so much of section 1052(c) as refers to section 113(a)(23) of the Internal Revenue Code
of 1939)
.
Paragraph (6) of section 1223 is repealed.
Paragraph (8) of section 1223 is repealed.
Property used in the trade or business and involuntary conversions
Subparagraph (A) of section 1231(c)(2) is amended by striking beginning after December 31, 1981
.
Sale of patents
Subsection (a) of section 1249 is amended by striking after December 31, 1962,
.
Gain from disposition of farmland
Paragraph (1) of section 1252(a), as amended by the preceding provisions of this Act, is amended—
by striking beginning after December 31, 1969
in the matter preceding subparagraph (A), and
by amending subparagraph (A) to read as follows:
the applicable percentage of the aggregate deductions allowed under section 175 (as in effect before its repeal by the Tax Reform Act of 2014) with respect to the farmland, or
.
Paragraph (2) of section 1252(a) is amended by striking sections 175
and all that follows and inserting section 175 (as in effect before its repeal by the Tax Reform Act of 2014).
.
Transition rules related to the treatment of amounts received on retirement or sale or exchange of debt instruments
Section 1271 is amended by striking subsection (c).
Section 1271(a)(2)(B) is amended by striking (and paragraph (2) of subsection (c))
.
Certain rules with respect to debt instruments issued before July 2, 1982
Section 1272 is amended by striking subsection (b).
Section 163(j)(2)(C)(ii) is amended by striking or (b)(4)
.
Section 1271(a)(2)(A)(ii) is amended by striking subsection (a)(7) or (b)(4) of section 1272
and inserting section 1272(a)(7)
.
Section 1271(b)(1) is amended to read as follows:
In general
This section shall not apply to any obligation issued by a natural person before June 9, 1997.
.
Section 1279(a)(4)(A)(ii), as amended by the preceding provisions of this Act, is amended by
striking or (b)(4)
.
The amendments made by this section shall apply to debt instruments issued after July 1, 1982.
Certain rules with respect to stripped bonds purchased before July 2, 1982
Section 1286 is amended by striking subsection (c).
Section 1286(e)(5) is amended by striking the last sentence.
Subsections (a) and (b) of section 1286 are each amended by striking after July 1, 1982,
.
The amendments made by this section shall apply to bonds and coupons purchased after July 1, 1982.
Amount and method of adjustment
Section 1314 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).
Old-age, survivors, and disability insurance
Subsection (a) of section 1401 is amended by striking the following percent
and all that follows and inserting 12.4 percent of the amount of the self-employment income for such taxable year.
.
Hospital insurance
Paragraph (1) of section 1401(b) is amended by striking the following percent
and all that follows and inserting 2.9 percent of the amount of the self-employment income for such taxable year.
.
Ministers, members of religious orders, and christian science practitioners
Paragraph (3) of section 1402(e) is amended by striking whichever of the following dates is later: (A)
and by striking ; or (B)
and all that follows and inserting a period.
Affiliated group defined
Subparagraph (A) of section 1504(a)(3) is amended by striking for a taxable year which includes any period after December 31, 1984
in clause (i) and by striking in a taxable year beginning after December 31, 1984
in clause (ii).
Credit for state death taxes
Part II of subchapter A of chapter 11 is amended by striking section 2011 (and by striking the item relating to such section in the table of sections for such subpart).
Subchapter A of chapter 13 is amended by striking section 2604 (and by striking the item relating to such section in the table of sections for such subpart).
Family-owned business interest
Part IV of subchapter A of chapter 11 is amended by striking section 2057 (and by striking the item relating to such section in the table of sections for such part).
Property within the united states
Subsection (c) of section 2104 is amended by striking With respect to estates of decedents dying after December 31, 1969, deposits
and inserting Deposits
.
Repeal of deadwood provisions relating to employment taxes
Tax on employees
Subsection (a) of section 3101 is amended by striking the following percentages
and all that follows and inserting 6.2 percent of the wages (as defined in section 3121(a)) received by him with respect to employment
(as defined in section 3121(b)).
.
Tax on employers
Subsection (a) of section 3111 is amended by striking the following percentages
and all that follows and inserting 6.2 percent of the wages (as defined in section 3121(a)) paid by him with respect to employment (as
defined in section 3121(b)).
Subsection (b) of section 3111 is amended by striking the following percentages
and all that follows and inserting 1.45 percent of the wages (as defined in section 3121(a)) paid by him with respect to employment
(as defined in section 3121(b)).
Section 3111 is amended by striking subsection (d) and redesignating subsection (e) as subsection (d).
Tier 2 tax on employees
Subsection (b) of section 3201 is amended to read as follows:
Tier 2 tax
In addition to other taxes, there is hereby imposed on the income of each employee a tax equal to the percentage determined under section 3241 for any calendar year of the compensation received during such calendar year by such employee for services rendered by such employee.
.
Rate of Tier 2 tax on employee representatives
Subsection (b) of section 3211 is amended to read as follows:
Tier 2 tax
In addition to other taxes, there is hereby imposed on the income of each employee representative a tax equal to the percentage determined under section 3241 for any calendar year of the compensation received during such calendar year by such employee representative for services rendered by such employee representative.
.
Tier 2 tax on employers
Subsection (b) of section 3221 is amended to read as follows:
Tier 2 tax
In addition to other taxes, there is hereby imposed on the income of each employer a tax equal to the percentage determined under section 3241 for any calendar year of the compensation paid during such calendar year by such employer for services rendered for such employer.
.
Section 3221 is amended by striking subsection (d) and redesignating subsection (e) as subsection (d).
Employee under Railroad Retirement System
Subsection (b) of section 3231 is amended by is amended by striking ; except
and all that follows and inserting a period.
Definition of wages
Section 3121(b) is amended by striking paragraph (17).
Section 210(a) of the Social Security Act is amended by striking paragraph (17).
Credits against unemployment tax
Paragraph (4) of section 3302(f) is amended—
by striking subsection—
and all that follows through (A) in general—The
and inserting subsection, the
,
by striking subparagraph (B),
by redesignating clauses (i) and(ii) as subparagraphs (A) and (B), respectively, and
by moving the text of such subparagraphs (as so redesignated) 2 ems to the left.
Paragraph (5) of section 3302(f) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D).
Domestic service employment taxes
Section 3510(b) is amended by striking paragraph (4).
Luxury passenger automobiles
In general
Chapter 31 is amended by striking subchapter A (and by striking the item relating to such subchapter in the table of sections for such chapter).
Conforming amendments
Section 4293 is amended by striking subchapter A of chapter 31,
.
Section 4221 is amended—
in subsections (a) and (d)(1), by striking subchapter A or
and inserting subchapter
,
in subsection (a), by striking In the case of taxes imposed by subchapter A of chapter 31, paragraphs (1), (3), (4), and (5) shall
not apply.
, and
in subsection (c), by striking 4001(c), 4001(d)
.
Section 4222 is amended by striking 4001(c), 4001(d),
.
Transportation by air
Section 4261(e) is amended—
in paragraph (1) by striking subparagraph (C), and
by striking paragraph (5).
Taxes on failure to distribute income
Paragraph (2) of section 4942(f) is amended by striking the semicolon at the end of subparagraph
(B) and inserting , and
, by striking ; and
at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D).
Subsection (g) of section 4942 (as amended by this Act) is amended—
by striking For all taxable years beginning on or after January 1, 1975, subject
in paragraph (2)(A) and inserting Subject
, and
by striking paragraph (4).
Section 4942(i)(2) is amended by striking beginning after December 31, 1969, and
.
Taxes on taxable expenditures
Section 4945(f) is amended by striking (excluding therefrom any preceding taxable year which begins before January 1, 1970)
.
Definitions and special rules
Section 4682 is amended by striking subsection (h).
Returns
Subsection (a) of section 6039D is amended by striking beginning after December 31, 1984,
.
Information returns
Subsection (c) of section 6060 is amended by striking year
and all that follows and inserting year.
.
Abatements
Section 6404(f) is amended by striking paragraph (3).
Failure by corporation to pay estimated income tax
Clause (i) of section 6655(g)(4)(A) is amended by striking (or the corresponding provisions of prior law)
.
Repeal of 2008 recovery rebates
In general
Subchapter B of chapter 65 is amended by striking section 6428 (and by striking the item relating to such section in the table of sections for such subchapter).
Conforming amendments
Section 6211(b)(4)(A) is amended by striking 6428,
.
Section 6213(g)(2)(L) is amended by striking 32, or 6428
and inserting or 32
.
Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by striking or 6428
.
Repeal of advance payment of portion of increased child credit for 2003
Subchapter B of chapter 65 is amended by striking section 6429 (and by striking the item relating to such section in the table of sections for such subchapter).
Repeal of provisions related to COBRA premium assistance
In general
Subchapter B of chapter 65 is amended by striking section 6432 (and by striking the item relating to such section in the table of sections for such subchapter).
Notification requirement
Part I of subchapter B of chapter 68 is amended by striking section 6720C (and by striking the item relating to such section in the table of sections for such part).
Exclusion from gross income
Part III of subchapter B of chapter 1 is amended by striking section 139C (and by striking the item relating to such section in the table of sections for such part).
Retirement
Section 7447(i)(3)(B)(ii) is amended by striking at 4 percent per annum to December 31, 1947, and at 3 percent per annum thereafter
, and inserting at 3 percent per annum
.
Annuities to surviving spouses and dependent children of judges
Paragraph (2) of section 7448(a) is amended by striking or under section 1106 of the Internal Revenue Code of 1939
and by striking or pursuant to section 1106(d) of the Internal Revenue Code of 1939
.
Subsection (g) of section 7448 is amended by striking or other than pursuant to section 1106 of the Internal Revenue Code of 1939
.
Subsections (g), (j)(1), and (j)(2) of section 7448 are each amended by striking at 4 percent per annum to December 31, 1947, and at 3 percent per annum thereafter
and inserting at 3 percent per annum
.
Merchant marine capital construction funds
Paragraph (4) of section 7518(g) is amended by striking any nonqualified withdrawal
and all that follows through shall be determined
and inserting any nonqualified withdrawal shall be determined
.
Valuation tables
Subsection (c) of section 7520 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
Paragraph (2) of section 7520(c) of such Code, as so redesignated, is amended—
by striking Not later than December 31, 1989, the
and inserting The
, and
by striking thereafter
in the last sentence thereof.
Definition of employee
Section 7701(a)(20) is amended by striking chapter 21
and all that follows and inserting chapter 21.
.
Effective date
General Rule
Except as otherwise provided in subsection (b) of this section and the preceding sections of this subtitle, the amendments made by this subtitle shall take effect on the date of enactment of this Act.
Savings provision
If—
any provision amended or repealed by the amendments made by this subtitle applied to—
any transaction occurring before the date of the enactment of this Act,
any property acquired before such date of enactment, or
any item of income, loss, deduction, or credit taken into account before such date of enactment, and
the treatment of such transaction, property, or item under such provision would (without regard to the amendments or repeals made by this subtitle) affect the liability for tax for periods ending after such date of enactment,
Conforming Amendments Related to Multiple Sections
Conforming amendments related to multiple sections
General business credit
Section 38(b), as amended by the preceding provisions of this Act, is amended—
by redesignating paragraphs (4), (5), (7), (8), (13), (20), and (33) as paragraphs (3), (4), (5), (6), (7), (8), and (9), respectively,
by adding plus
at the end of paragraph (8) (as so redesignated), and
by striking the comma at the end of paragraph (9) (as so redesignated) and inserting a period.
Adjustments to basis
Section 1016(a), as amended by the preceding provisions of this Act, is amended—
by striking the last two sentences of paragraph (2),
in paragraph (4) by striking (not including
and all that follows through 1921)
,
by striking paragraph (12),
by redesignating paragraphs (11), (14), (16), (17), (18), (21), (23), (26), (38), and (39) as paragraphs (9), (10), (11), (12), (13), (14), (15), (16), (17), and (18), respectively, and
by adding and
at the end of paragraph (17) (as so redesignated).
Holding period of property
Section 1223, as amended by the preceding provisions of this Act, is amended by redesignating paragraphs (9), (10), (11), (12), and (15) as paragraphs (6), (7), (8), (9) and (10), respectively.
Corporate preference items
In general
Subchapter B of chapter 1, as amended by this Act, is amended by striking part XI (and by striking the item relating to such part from the table of parts for such subchapter).
Preservation of special rule for treatment of intangible drilling costs
Section 263(c) is amended—
by striking all that precedes and except as provided in subsection (i)
and inserting the following:
Intangible drilling and development costs in the case of oil and gas wells and geothermal wells
In general
Notwithstanding subsection (a),
, and
by adding at the end the following new paragraph:
Reduction for integrated oil companies
In general
In the case of a corporation which is an integrated oil company, the amount allowable as a deduction for any taxable year (determined without regard to this paragraph) under paragraph (1) shall be reduced by 30 percent.
Amortization of disallowed amounts
The amount not allowable as a deduction under paragraph (1) for any taxable year by reason of subparagraph (A) shall be allowable as a deduction ratably over the 60-month period beginning with the month in which the costs are paid or incurred.
Dispositions
For purposes of section 1254, any deduction under subparagraph (B) shall be treated as a deduction allowable under paragraph (1).
Integrated oil company
For purposes of this paragraph, the term integrated oil company
means, with respect to any taxable year, any producer of crude oil to whom subsection (c) of
section 613A does not apply by reason of paragraph (2) or (4) of section
613A(d) (as such provisions were in effect before their repeal by the Tax Reform Act of 2014).
Coordination with cost depletion
The portion of the adjusted basis of any property which is attributable to amounts to which subparagraph (A) applied shall not be taken into account for purposes of determining depletion under section 611.
.
Preservation of limitation on certain interest on indebtedness of financial institutions
In general
Section 163 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
Limitation on certain interest on indebtedness of financial institutions
In general
For purposes of this subtitle, in the case of a corporation, the amount allowable as a deduction under this chapter (determined without regard to this subsection) with respect to the amount described in paragraph (2) shall be reduced by 20 percent.
Interest on debt to carry tax-exempt obligations acquired after December 31, 1982, and before August 8, 1986
In general
In the case of a financial institution which is a bank (as defined in section 585(a)(2)), the amount described in this paragraph is the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982, and before August 8, 1986, the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph or section 265(b)) be allowable with respect to such interest for such taxable year.
Determination of interest allocable to indebtedness on tax-exempt obligations
Unless the taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under subparagraph (A) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section and section 265(b)) to the taxpayer as a deduction for interest for the taxable year as—
the taxpayer’s average adjusted basis (within the meaning of section 1016) of obligations described in subparagraph (A), bears to
such average adjusted basis for all assets of the taxpayer.
Interest
For purposes of this paragraph, the term interest
includes amounts (whether or not designated as interest) paid in respect of deposits, investment
certificates, or withdrawable or repurchasable shares.
Application of subparagraph to certain obligations issued after August 7, 1986
For application of this subparagraph to certain obligations issued after August 7, 1986, see section 265(b)(3) (as in effect before the enactment of the Tax Reform Act of 2014). That portion of any obligation not taken into account under paragraph (2)(A) of section 265(b) (as so in effect) by reason of paragraph (7) of such section shall be treated for purposes of this section as having been acquired on August 7, 1986.
.
Conforming amendments
Section 1277(c) is amended by striking section 291(e)(1)(B)(ii)
and inserting section 163(n)(2)(B)
.
Section 1363(b)(3), as amended by the preceding provisions of this Act, is amended by striking section 291
and inserting section 163(n)
.
Effective date
Except as otherwise provided in this Act with respect to amendments made to section 291 of the Internal Revenue Code of 1986, the amendments made this subsection shall apply to taxable years beginning after December 31, 2014.