I
115th CONGRESS
1st Session
H. R. 1
IN THE HOUSE OF REPRESENTATIVES
AN ACT
To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.
Short title; etc
Short title
This Act may be cited as the Tax Cuts and Jobs Act
.
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 for this Act is as follows:
Sec. 1. Short title; etc.
Title I—Tax reform for individuals
Subtitle A—Simplification and reform of rates, standard deduction, and exemptions
Sec. 1001. Reduction and simplification of individual income tax rates.
Sec. 1002. Enhancement of standard deduction.
Sec. 1003. Repeal of deduction for personal exemptions.
Sec. 1004. Maximum rate on business income of individuals.
Sec. 1005. Conforming amendments related to simplification of individual income tax rates.
Subtitle B—Simplification and reform of family and individual tax credits
Sec. 1101. Enhancement of child tax credit and new family tax credit.
Sec. 1102. Repeal of nonrefundable credits.
Sec. 1103. Refundable credit program integrity.
Sec. 1104. Procedures to reduce improper claims of earned income credit.
Sec. 1105. Certain income disallowed for purposes of the earned income tax credit.
Subtitle C—Simplification and reform of education incentives
Sec. 1201. American opportunity tax credit.
Sec. 1202. Consolidation of education savings rules.
Sec. 1203. Reforms to discharge of certain student loan indebtedness.
Sec. 1204. Repeal of other provisions relating to education.
Sec. 1205. Rollovers between qualified tuition programs and qualified ABLE programs.
Subtitle D—Simplification and reform of deductions
Sec. 1301. Repeal of overall limitation on itemized deductions.
Sec. 1302. Mortgage interest.
Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business.
Sec. 1304. Repeal of deduction for personal casualty losses.
Sec. 1305. Limitation on wagering losses.
Sec. 1306. Charitable contributions.
Sec. 1307. Repeal of deduction for tax preparation expenses.
Sec. 1308. Repeal of medical expense deduction.
Sec. 1309. Repeal of deduction for alimony payments.
Sec. 1310. Repeal of deduction for moving expenses.
Sec. 1311. Termination of deduction and exclusions for contributions to medical savings accounts.
Sec. 1312. Denial of deduction for expenses attributable to the trade or business of being an employee.
Subtitle E—Simplification and reform of exclusions and taxable compensation
Sec. 1401. Limitation on exclusion for employer-provided housing.
Sec. 1402. Exclusion of gain from sale of a principal residence.
Sec. 1403. Repeal of exclusion, etc., for employee achievement awards.
Sec. 1404. Sunset of exclusion for dependent care assistance programs.
Sec. 1405. Repeal of exclusion for qualified moving expense reimbursement.
Sec. 1406. Repeal of exclusion for adoption assistance programs.
Subtitle F—Simplification and reform of savings, pensions, retirement
Sec. 1501. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions.
Sec. 1502. Reduction in minimum age for allowable in-service distributions.
Sec. 1503. Modification of rules governing hardship distributions.
Sec. 1504. Modification of rules relating to hardship withdrawals from cash or deferred arrangements.
Sec. 1505. Extended rollover period for the rollover of plan loan offset amounts in certain cases.
Sec. 1506. Modification of nondiscrimination rules to protect older, longer service participants.
Subtitle G—Estate, gift, and generation-skipping transfer taxes
Sec. 1601. Increase in credit against estate, gift, and generation-skipping transfer tax.
Sec. 1602. Repeal of estate and generation-skipping transfer taxes.
Title II—Alternative Minimum Tax Repeal
Sec. 2001. Repeal of alternative minimum tax.
Title III—Business tax reform
Subtitle A—Tax rates
Sec. 3001. Reduction in corporate tax rate.
Subtitle B—Cost recovery
Sec. 3101. Increased expensing.
Subtitle C—Small business reforms
Sec. 3201. Expansion of section 179 expensing.
Sec. 3202. Small business accounting method reform and simplification.
Sec. 3203. Small business exception from limitation on deduction of business interest.
Sec. 3204. Modification of treatment of S corporation conversions to C corporations.
Subtitle D—Reform of business-related exclusions, deductions, etc.
Sec. 3301. Interest.
Sec. 3302. Modification of net operating loss deduction.
Sec. 3303. Like-kind exchanges of real property.
Sec. 3304. Revision of treatment of contributions to capital.
Sec. 3305. Repeal of deduction for local lobbying expenses.
Sec. 3306. Repeal of deduction for income attributable to domestic production activities.
Sec. 3307. Entertainment, etc. expenses.
Sec. 3308. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed.
Sec. 3309. Limitation on deduction for FDIC premiums.
Sec. 3310. Repeal of rollover of publicly traded securities gain into specialized small business investment companies.
Sec. 3311. Certain self-created property not treated as a capital asset.
Sec. 3312. Repeal of special rule for sale or exchange of patents.
Sec. 3313. Repeal of technical termination of partnerships.
Sec. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services.
Sec. 3315. Amortization of research and experimental expenditures.
Sec. 3316. Uniform treatment of expenses in contingency fee cases.
Subtitle E—Reform of business credits
Sec. 3401. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions.
Sec. 3402. Repeal of employer-provided child care credit.
Sec. 3403. Repeal of rehabilitation credit.
Sec. 3404. Repeal of work opportunity tax credit.
Sec. 3405. Repeal of deduction for certain unused business credits.
Sec. 3406. Termination of new markets tax credit.
Sec. 3407. Repeal of credit for expenditures to provide access to disabled individuals.
Sec. 3408. Modification of credit for portion of employer social security taxes paid with respect to employee tips.
Subtitle F—Energy credits
Sec. 3501. Modifications to credit for electricity produced from certain renewable resources.
Sec. 3502. Modification of the energy investment tax credit.
Sec. 3503. Extension and phaseout of residential energy efficient property.
Sec. 3504. Repeal of enhanced oil recovery credit.
Sec. 3505. Repeal of credit for producing oil and gas from marginal wells.
Sec. 3506. Modifications of credit for production from advanced nuclear power facilities.
Subtitle G—Bond reforms
Sec. 3601. Termination of private activity bonds.
Sec. 3602. Repeal of advance refunding bonds.
Sec. 3603. Repeal of tax credit bonds.
Sec. 3604. No tax exempt bonds for professional stadiums.
Subtitle H—Insurance
Sec. 3701. Net operating losses of life insurance companies.
Sec. 3702. Repeal of small life insurance company deduction.
Sec. 3703. Surtax on life insurance company taxable income.
Sec. 3704. Adjustment for change in computing reserves.
Sec. 3705. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account.
Sec. 3706. Modification of proration rules for property and casualty insurance companies.
Sec. 3707. Modification of discounting rules for property and casualty insurance companies.
Sec. 3708. Repeal of special estimated tax payments.
Subtitle I—Compensation
Sec. 3801. Modification of limitation on excessive employee remuneration.
Sec. 3802. Excise tax on excess tax-exempt organization executive compensation.
Sec. 3803. Treatment of qualified equity grants.
Title IV—Taxation of foreign income and foreign persons
Subtitle A—Establishment of participation exemption system for taxation of foreign income
Sec. 4001. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations.
Sec. 4002. Application of participation exemption to investments in United States property.
Sec. 4003. Limitation on losses with respect to specified 10-percent owned foreign corporations.
Sec. 4004. Treatment of deferred foreign income upon transition to participation exemption system of taxation.
Subtitle B—Modifications related to foreign tax credit system
Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis.
Sec. 4102. Source of income from sales of inventory determined solely on basis of production activities.
Subtitle C—Modification of subpart F provisions
Sec. 4201. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment.
Sec. 4202. Repeal of treatment of foreign base company oil related income as subpart F income.
Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income.
Sec. 4204. Look-thru rule for related controlled foreign corporations made permanent.
Sec. 4205. Modification of stock attribution rules for determining status as a controlled foreign corporation.
Sec. 4206. Elimination of requirement that corporation must be controlled for 30 days before subpart F inclusions apply.
Subtitle D—Prevention of base erosion
Sec. 4301. Current year inclusion by United States shareholders with foreign high returns.
Sec. 4302. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group.
Sec. 4303. Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income.
Subtitle E—Provisions related to possessions of the United States
Sec. 4401. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 4402. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.
Sec. 4403. Extension of American Samoa economic development credit.
Subtitle F—Other international reforms
Sec. 4501. Restriction on insurance business exception to passive foreign investment company rules.
Title V—Exempt organizations
Subtitle A—Unrelated Business Income Tax
Sec. 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a).
Sec. 5002. Exclusion of research income limited to publicly available research.
Subtitle B—Excise Taxes
Sec. 5101. Simplification of excise tax on private foundation investment income.
Sec. 5102. Private operating foundation requirements relating to operation of art museum.
Sec. 5103. Excise tax based on investment income of private colleges and universities.
Sec. 5104. Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings.
Subtitle C—Requirements for organizations exempt from tax
Sec. 5201. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of activities.
Sec. 5202. Additional reporting requirements for donor advised fund sponsoring organizations.
Tax reform for individuals
Simplification and reform of rates, standard deduction, and exemptions
Reduction and simplification of individual income tax rates
In general
Section 1 is amended by striking subsection (i) and by striking all that precedes subsection (h) and inserting the following:
Tax imposed
In general
There is hereby imposed on the income of every individual a tax equal to the sum of—
12 percent bracket
12 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 but does not exceed the 35-percent bracket threshold amount, plus
35 percent bracket
35 percent of so much of taxable income as exceeds the 35-percent bracket threshold amount but does not exceed the 39.6 percent bracket threshold amount.
39.6 percent bracket
39.6 percent of so much of taxable income as exceeds the 39.6-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, $90,000,
in the case of an individual who is the head of a household (as defined in section 2(b)), $67,500,
in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under subparagraph (A), and
in the case of an estate or trust, $2,550.
35-percent bracket threshold amount
The term 35-percent bracket threshold amount
means—
in the case of a joint return or surviving spouse, $260,000,
in the case of a married individual filing a separate return, an amount equal to ½ of the amount in effect for the taxable year under subparagraph (A), and
in the case of any other individual (other than an estate or trust), $200,000, and
in the case of an estate or trust, $9,150.
39.6-percent bracket threshold amount
The term 39.6-percent bracket threshold amount
means—
in the case of a joint return or surviving spouse, $1,000,000,
in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under subparagraph (A), and
in the case of an estate or trust, $12,500.
Inflation adjustment
In general
In the case of any taxable year beginning after 2018, each dollar amount in subsections (b) and (e)(3) (other than any amount determined by reference to such a dollar amount) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under this subsection for the calendar year in which the taxable year begins by substituting 2017
for 2016
in paragraph (2)(A)(ii).
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 2016.
Special rule for adjustments with a base year after 2016
For purposes of any provision which provides for the substitution of a year after 2016 for 2016
in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting C-CPI-U
for normalized CPI
in clause (ii).
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 2016, by
the CPI for calendar year 2016.
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)(D) for the taxable year.
the 39.6-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)(3)(C).
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 7706(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 7706(c)(1)(D) after the application of section 7706(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)(2)(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 12-percent rate
In general
The amount of tax imposed by this section (determined without regard to this subsection) shall be increased by 6 percent of the excess (if any) of—
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 27.6 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, $1,200,000,
in the case of a married individual filing a separate return, an amount equal to 1/2 of the amount in effect for the taxable year under subparagraph (A), and
in the case of any other individual, $1,000,000.
Estates and trusts
Paragraph (1) shall not apply in the case of an estate or trust.
.
Application of current income tax brackets to capital gains brackets
In general
0-percent capital gains bracket
Section 1(h)(1) is amended by striking which would (without regard to this paragraph) be taxed at a rate below 25 percent
in subparagraph (B)(i) and inserting below the 15-percent rate threshold
.
15-percent capital gains bracket
Section 1(h)(1)(C)(ii)(I) is amended by striking which would (without regard to this paragraph) be taxed at a rate below 39.6 percent
and inserting below the 20-percent rate threshold
.
Rate thresholds defined
Section 1(h) is amended by adding at the end the following new paragraph:
Rate thresholds defined
For purposes of this subsection—
15-percent rate threshold
The 15-percent rate threshold shall be—
in the case of a joint return or surviving spouse, $77,200 (½ such amount in the case of a married individual filing a separate return),
in the case of an individual who is the head of a household (as defined in section 2(b)), $51,700,
in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under clause (i), and
in the case of an estate or trust, $2,600.
20-percent rate threshold
The 20-percent rate threshold shall be—
in the case of a joint return or surviving spouse, $479,000 (½ such amount in the case of a married individual filing a separate return),
in the case of an individual who is the head of a household (as defined in section 2(b)), $452,400,
in the case of any other individual (other than an estate or trust), $425,800, and
in the case of an estate or trust, $12,700.
Inflation adjustment
In the case of any taxable year beginning after 2018, each of the dollar amounts in subparagraphs (A) and (B) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under subsection (c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017
for calendar year 2016
in clause (ii) thereof.
.
Application of section 15
In general
Subsection (a) of section 15 is amended by striking by this chapter
and inserting by section 11 (or by reference to any such rates)
.
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)
.
Section 6013(c) is amended by striking sections 15, 443, and 7851(a)(1)(A)
and inserting sections 443 and 7851(a)(1)(A)
.
Application to this Act
Section 15 of the Internal Revenue Code of 1986 shall not apply to any change in a rate of tax imposed by chapter 1 of such Code which occurs by reason of any amendment made by this Act (other than the amendments made by section 3001).
Effective date
In general
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Subsection (c)
The amendments made by subsection (c) shall take effect on the date of the enactment of this Act.
Enhancement of standard deduction
Increase in standard deduction
Section 63(c) 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—
$24,400, in the case of a joint return (or a surviving spouse (as defined in section 2(a)),
three-quarters of the amount in effect under subparagraph (A) for the taxable year, in the case of the head of a household (as defined in section 2(b)), and
one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case.
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 (within the means of section 32).
Certain individuals, etc., not eligible for standard deduction
In the case of—
a married individual filing a separate return where either spouse itemizes 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,
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
Standard deduction amount
In the case of any taxable year beginning after 2019, the dollar amount in paragraph (1)(A) shall be increased by an amount equal to—
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 2018
for calendar year 2016
in clause (ii) thereof.
Limitation amount in case of certain dependents
In the case of any taxable year beginning after 2017, each of the dollar amounts in paragraph (2) shall be increased by an amount equal to—
such dollar amount, multiplied by
in the case of the dollar amount in paragraph (2)(A), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1987
for calendar year 2016
in clause (ii) thereof, and
in the case of the dollar amount in paragraph (2)(B), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1997
for calendar year 2016
in clause (ii) thereof.
.
Conforming amendments
Section 63(b) is amended by striking , minus—
and all that follows and inserting minus the standard deduction
.
Section 63 is amended by striking subsections (f) and (g).
Section 1398(c) is amended—
by striking Basic
in the heading thereof,
by striking Basic standard
in the heading of paragraph (3) and inserting Standard
, and
by striking basic
in paragraph (3).
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)(2)
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2017.
Repeal of deduction for personal exemptions
In general
Part V of subchapter B of chapter 1 is hereby repealed.
Definition of dependent retained
Section 152, prior to repeal by subsection (a), is hereby redesignated as section 7706 and moved to the end of chapter 79.
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) is amended by striking paragraph (2).
Conforming amendment
Section 3402(a) is amended—
by redesignating subparagraphs (A) and (B) of paragraph (1) as paragraphs (1) and (2) and moving such redesignated paragraphs 2 ems to the left, and
by striking all that precedes otherwise provided in this section
and inserting the following:
Requirement of withholding
Except as
.
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)(2) who has income (other than earned income) in excess of the amount in effect under section 63(c)(2)(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 7706, determined without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer
.
Section 36B(b)(2)(A) is amended by striking section 152
and inserting section 7706
.
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 7706
, and
by striking the period at the end and inserting a comma.
Section 72(t)(2)(D)(i)(III) is amended by striking section 152
and inserting section 7706
.
Section 72(t)(7)(A)(iii) is amended by striking section 152(f)(1)
and inserting section 7706(f)(1)
.
Section 105(b) is amended—
by striking as defined in section 152
and inserting as defined in section 7706
,
by striking section 152(f)(1)
and inserting section 7706(f)(1)
and
by striking section 152(e)
and inserting section 7706(e)
.
Section 105(c)(1) is amended by striking section 152
and inserting section 7706
.
Section 125(e)(1)(D) is amended by striking section 152
and inserting section 7706
.
Section 132(h)(2)(B) is amended—
by striking section 152(f)(1)
and inserting section 7706(f)(1)
, and
by striking section 152(e)
and inserting section 7706(e)
.
Section 139D(c)(5) is amended by striking section 152
and inserting section 7706
.
Section 162(l)(1)(D) is amended by striking section 152(f)(1)
and inserting section 7706(f)(1)
.
Section 170(g)(1) is amended by striking section 152
and inserting section 7706
.
Section 170(g)(3) is amended by striking section 152(d)(2)
and inserting section 7706(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 7706
.
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 7706
.
Section 401(h) is amended by striking section 152(f)(1)
in the last sentence and inserting section 7706(f)(1)
.
Section 402(l)(4)(D) is amended by striking section 152
and inserting section 7706
.
Section 409A(a)(2)(B)(ii)(I) is amended by striking section 152(a)
and inserting section 7706(a)
.
Section 501(c)(9) is amended by striking section 152(f)(1)
and inserting section 7706(f)(1)
.
Section 529(e)(2)(B) is amended by striking section 152(d)(2)
and inserting section 7706(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 7706(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 7706(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 7706
.
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 standard deduction, divided by
52.
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 7706(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 7706(f)(1),
.
Section 7706(a), as redesignated by this section, is amended by striking this subtitle
and inserting subtitle A
.
Section 7706(d)(1)(B), as redesignated by this section, is amended by striking the exemption amount (as defined in section 151(d))
and inserting $4,150
.
Section 7706(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 2018, the $4,150 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, determined by substituting calendar year 2017
for calendar year 2016
in clause (ii) thereof.
.
The table of sections for chapter 79 is amended by adding at the end the following new item:
Sec. 7706. Dependent defined.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Maximum rate on business income of individuals
In general
Part I of subchapter A of chapter 1 is amended by inserting after section 3 the following new section:
25 percent maximum rate on business income of individuals
Reduction in tax to achieve 25 percent maximum rate
The tax imposed by section 1 shall be reduced by the sum of—
10 percent of the lesser of—
qualified business income, or
the excess (if any) of—
taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), over
the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, and
4.6 percent of the excess (if any) of—
the lesser of—
qualified business income, or
the excess (if any) determined under paragraph (1)(B), over
the excess of—
the maximum dollar amount for the 35-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, over
the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year.
Qualified business income
For purposes of this section, the term qualified business income
means the excess (if any) of—
the sum of—
100 percent of any net business income derived from any passive business activity, plus
the capital percentage of any net business income derived from any active business activity, over
the sum of—
100 percent of any net business loss derived from any passive business activity,
except as provided in subsection (e)(3)(A), 30 percent of any net business loss derived from any active business activity, plus
any carryover business loss determined for the preceding taxable year.
Determination of net business income or loss
For purposes of this section—
In general
Net business income or loss shall be determined with respect to any business activity by appropriately netting items of income, gain, deduction, and loss with respect to such business activity.
Wages, etc
Any wages (as defined in section 3401), payments described in subsection (a) or (c) of section 707, or directors’ fees received by the taxpayer which are properly attributable to any business activity shall be taken into account under paragraph (1) as an item of income with respect to such business activity.
Exception for certain investment-related items
There shall not be taken into account under paragraph (1)—
any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss,
any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G),
any interest income other than interest income which is properly allocable to a trade or business,
any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting business activity
for controlled foreign corporation
),
any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)),
any amount received from an annuity which is not received in connection with the trade or business of the business activity, and
any item of deduction or loss properly allocable to an amount described in any of the preceding subparagraphs.
Application of restrictions applicable to determining taxable income
Net business income or loss shall be appropriately adjusted so as only to take into account any amount of income, gain, deduction, or loss to the extent such amount affects the determination of taxable income for the taxable year.
Carryover business loss
For purposes of subsection (b)(2)(C), the carryover business loss determined for any taxable year is the excess (if any) of the sum described in subsection (b)(2) over the sum described in subsection (b)(1) for such taxable year.
Passive and active business activity
For purposes of this section—
Passive business activity
The term passive business activity
means any passive activity as defined in section 469(c) determined without regard to paragraphs (3) and (6)(B) thereof.
Active business activity
The term active business activity
means any business activity which is not a passive business activity.
Business activity
The term business activity
means any activity (within the meaning of section 469) which involves the conduct of any trade or business.
Capital percentage
For purposes of this section—
In general
Except as otherwise provided in this section, the term capital percentage
means 30 percent.
Increased percentage for capital-intensive business activities
In the case of a taxpayer who elects the application of this paragraph with respect to any active business activity (other than a specified service activity), the capital percentage shall be equal to the applicable percentage (as defined in subsection (f)) for each taxable year with respect to which such election applies. Any election made under this paragraph shall apply to the taxable year for which such election is made and each of the 4 subsequent taxable years. Such election shall be made not later than the due date (including extensions) for the return of tax for the taxable year for which such election is made, and, once made, may not be revoked.
Treatment of specified service activities
In general
In the case of any active business activity which is a specified service activity—
the capital percentage shall be 0 percent, and
subsection (b)(2)(B) shall be applied by substituting 0 percent
for 30 percent
.
Exception for capital-intensive specified service activities
If—
the taxpayer elects the application of this subparagraph with respect to such activity for any taxable year, and
the applicable percentage (as defined in subsection (f)) with respect to such activity for such taxable year is at least 10 percent,
Specified service activity
The term specified service activity
means any activity involving the performance of services described in section 1202(e)(3)(A), including investing, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).
Reduction in capital percentage in certain cases
The capital percentage (determined after the application of paragraphs (2) and (3)) with respect to any active business activity shall not exceed 1 minus the quotient (not greater than 1) of—
any amounts described in subsection (c)(2) which are taken into account in determining the net business income derived from such activity, divided by
such net business income.
Applicable percentage
For purposes of this section—
In general
The term applicable percentage
means, with respect to any active business activity for any taxable year, the quotient (not greater than 1) of—
the specified return on capital with respect to such activity for such taxable year, divided by
the taxpayer’s net business income derived from such activity for such taxable year.
Specified return on capital
The term specified return on capital
means, with respect to any active business activity referred to in paragraph (1), the excess of—
the product of—
the deemed rate of return for the taxable year, multiplied by
the asset balance with respect to such activity for such taxable year, over
an amount equal to the interest which is paid or accrued, and for which a deduction is allowed under this chapter, with respect to such activity for such taxable year.
Deemed rate of return
The term deemed rate of return
means, with respect to any taxable year, the Federal short-term rate (determined under section 1274(d) for the month in which or with which such taxable year ends) plus 7 percentage points.
Asset balance
In general
The asset balance with respect to any active business activity referred to in paragraph (1) for any taxable year equals the taxpayer’s adjusted basis of any property described in section 1221(a)(2) which is used in connection with such activity as of the end of the taxable year (determined without regard to sections 168(k) and 179).
Application to activities carried on through partnerships and S corporations
In the case of any active business activity carried on through a partnership or S corporation, the taxpayer shall take into account such taxpayer’s distributive or pro rata share (as the case may be) of the asset balance with respect to such activity as determined with respect to such partnership or S corporation under subparagraph (A) (applied by substituting the partnership’s or S corporation’s adjusted basis
for the taxpayer’s adjusted basis
).
Reduced rate for small businesses with net active business income
In general
The tax imposed by section 1 shall be reduced by 3 percent of the excess (if any) of—
the least of—
qualified active business income,
taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), or
the 9-percent bracket threshold amount, over
the excess (if any) of taxable income over the applicable threshold amount.
Phase-in of rate reduction
In the case of any taxable year beginning before January 1, 2022, paragraph (1) shall be applied by substituting for 3 percent
—
in the case of any taxable year beginning after December 31, 2017, and before January 1, 2020, 1 percent
, and
in the case of any taxable year beginning after December 31, 2019, and before January 1, 2022, 2 percent
.
Qualified active business income
For purposes of this subsection, the term qualified active business income
means the excess (if any) of—
any net business income derived from any active business activity, over
any net business loss derived from any active business activity.
9-percent bracket threshold amount
For purposes of this subsection, the term 9-percent bracket threshold amount
means—
in the case of a joint return or surviving spouse, $75,000,
in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and
in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A).
Applicable threshold amount
For purposes of this subsection, the term applicable threshold amount
means—
in the case of a joint return or surviving spouse, $150,000,
in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and
in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A).
Estates and trusts
Paragraph (1) shall not apply to any estate or trust.
Inflation adjustment
In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (4)(A) and (5)(A) shall each be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under subsection (c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017
for calendar year 2016
in clause (ii) thereof.
Regulations
The Secretary may issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—
which ensures that no amount is taken into account under subsection (f)(4) with respect to more than one activity, and
which treats all specified service activities of the taxpayer as a single business activity for purposes of this section to the extent that such activities would be treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414.
References
Any reference in this title to section 1 shall be treated as including a reference to this section unless the context of such reference clearly indicates otherwise.
.
25 percent rate for certain dividends of real estate investment trusts and cooperatives
Section 1(h), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph:
25 percent rate for certain dividends of real estate investment trusts and cooperatives
In general
For purposes of this subsection, net capital gain (as defined in paragraph (11)) and unrecaptured section 1250 gain (as defined in paragraph (6)) shall each be increased by specified dividend income.
Specified dividend income
For purposes of this paragraph, the term specified dividend income
means—
in the case of any dividend received from a real estate investment trust, the portion of such dividend which is neither—
a capital gain dividend (as defined in section 852(b)(3)), nor
taken into account in determining qualified dividend income (as defined in paragraph (11)), and
any dividend which is includible in gross income and which is received from an organization or corporation described in section 501(c)(12) or 1381(a).
.
Clerical amendment
The table of sections for part I of subchapter A of chapter 1 is amended by inserting after the item relating to section 3 the following new item:
Sec. 4. 25 percent maximum rate on business income of individuals.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Transition rule
In the case of any taxable year which includes December 31, 2017, the amendment made by subsection (a) shall apply with respect to such taxable year adjusted—
so as to apply with respect to the rates of tax in effect under section 1 of the Internal Revenue Code of 1986 with respect to such taxable year (and so as to achieve a 25 percent effective rate of tax on the business income (determined without regard to paragraph (2)) in the same manner as such amendment applies to taxable years beginning after such date with respect to the rates of tax in effect for such years), and
by reducing the amount of the reduction in tax (as otherwise determined under paragraph (1)) by the amount which bears the same proportion to the amount of such reduction as the number of days in the taxable year which are before January 1, 2018, bears to the number of days in the entire taxable year.
Conforming amendments related to simplification of individual income tax rates
Amendments related to modification of inflation adjustment
Section 32(b)(2)(B)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting
and inserting calendar year 2008
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 2008
for calendar year 2016
in clause (ii) thereof
Section 32(j)(1)(B) is amended—
in the matter preceding clause (i), by striking section 1(f)(3)
and inserting section 1(c)(2)(A)
,
in clause (i), by striking for
and inserting calendar year 1992
in subparagraph (B) thereoffor
, andcalendar year 2016
in clause (ii) thereof
in clause (ii), by striking for
and inserting calendar year 1992
in subparagraph (B) of such section 1for
. calendar year 2016
in clause (ii) thereof
Section 36B(b)(3)(A)(ii)(II) is amended by striking consumer price index
and inserting C-CPI-U (as defined in section 1(c))
.
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 2016
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 42(e)(3)(D)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting
and inserting calendar year 2008
for calendar year 1992
in subparagraph (B) thereof section 1(c)(2)(A) for such calendar year by substituting
.calendar year 2008
for calendar year 2016
in clause (ii) thereof
Section 42(h)(3)(H)(i)(II) is amended by striking section 1(f)(3) for such calendar year by substituting
and inserting calendar year 2001
for calendar year 1992
in subparagraph (B) thereof section 1(c)(2)(A) for such calendar year by substituting
.calendar year 2001
for calendar year 2016
in clause (ii) thereof
Section 45R(d)(3)(B)(ii) is amended by striking section 1(f)(3) for the calendar year, determined by substituting
and inserting calendar year 2012
for calendar year 1992
in subparagraph (B) thereof
. section 1(c)(2)(A) for such calendar year, determined by substituting
calendar year 2012
for calendar year 2016
in clause (ii) thereof
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 162(o)(3) is amended by inserting as in effect before enactment of the Tax Cuts and Jobs Act
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 2016
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 2016
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 2016
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 2016
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 2016
in clause (ii) thereof
Section 831(b)(2)(D)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting
and inserting calendar year 2013
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for such calendar year by substituting
.calendar year 2013
for calendar year 2016
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 2016
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 2016
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 2018, 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 2017
for calendar year 2016
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 2018.
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 2016
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 2016
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 2016
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 2016
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 2016
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 2016
.
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 2016
.
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 2016
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 2016
in clause (ii) thereof
Section 6601(j)(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 by substituting
.calendar year 1997
for calendar year 2016
in clause (ii) thereof
Section 6651(i)(1) is amended by striking section 1(f)(3) determined by substituting
and inserting calendar year 2013
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) determined by substituting
. calendar year 2013
for calendar year 2016
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 2016
.
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 2016
.
Section 6652(c)(7)(A) is amended by striking section 1(f)(3) determined by substituting
and inserting calendar year 2013
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) determined by substituting
.calendar year 2013
for calendar year 2016
in clause (ii) thereof
Section 6695(h)(1) is amended by striking section 1(f)(3) determined by substituting
and inserting calendar year 2013
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) determined by substituting
.calendar year 2013
for calendar year 2016
in clause (ii) thereof
Section 6698(e)(1) is amended by striking section 1(f)(3) determined by substituting
and inserting calendar year 2013
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) determined by substituting
.calendar year 2013
for calendar year 2016
in clause (ii) thereof
Section 6699(e)(1) is amended by striking section 1(f)(3) determined by substituting
and inserting calendar year 2013
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) determined by substituting
.calendar year 2013
for calendar year 2016
in clause (ii) thereof
Section 7345(f)(2) is amended by striking section 1(f)(3) for the calendar year, determined by substituting
and inserting calendar year 2015
for calendar year 1992
in subparagraph (B) thereofsection 1(c)(2)(A) for the calendar year, determined by substituting
. calendar year 2015
for calendar year 2016
in clause (ii) thereof
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 2016
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 2018 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 2017
for calendar year 2016
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 2018.
Rounding
Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.
.
Section 219(b)(5)(C)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting
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 2016
in clause (ii) thereof
Section 219(g)(8)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting
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 2016
in clause (ii) thereof
Other conforming amendments
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 by striking section 1(e)
and inserting section 1
.
Section 641(a) is amended by striking section 1(e) shall apply to the taxable income
and inserting section 1 shall apply to the taxable income
.
Section 641(c)(2)(A) is amended to read as follows:
Except to the extent provided in section 1(h), the rate of tax shall be treated as being the highest rate of tax set forth in section 1(a).
.
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 904(b)(3)(E)(ii)(I) is amended by striking set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies)
and inserting the highest rate of tax specified in section 1
.
Section 1398(c)(2) is amended by striking subsection (d) of
.
Section 3402(p)(1)(B) is amended by striking any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c),
and inserting 12 percent, 25 percent,
.
Section 3402(q)(1) is amended by striking the product of third lowest rate of tax applicable under section 1(c) and
and inserting 25 percent of
.
Section 3402(r)(3) is amended by striking the amount of tax which would be imposed by section 1(c) (determined without regard to any rate of tax in excess of the fourth lowest rate of tax applicable under section 1(c)) on an amount of taxable income equal to
and inserting an amount equal to the product of 25 percent multiplied by
.
Section 3406(a)(1) is amended by striking the product of the fourth lowest rate of tax applicable under section 1(c) and
and inserting 25 percent of
.
Section 6103(e)(1)(A)(iii) is amended by inserting (as in effect on the day before the date of the enactment of the Tax Cuts and Jobs Act)
after section 1(g)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Simplification and reform of family and individual tax credits
Enhancement of child tax credit and new family tax credit
Increase in credit amount and addition of other dependents
In general
Section 24(a) is amended to read as follows:
Allowance of credit
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
with respect to each qualifying child of the taxpayer, $1,600, and
for taxable years beginning before January 1, 2023, with respect to the taxpayer (each spouse in the case of a joint return) and each dependent of the taxpayer to whom paragraph (1) does not apply, $300.
.
Conforming amendments
Section 24(c) is amended—
by redesignating paragraphs (1) and (2) as paragraphs (2) and (3), respectively,
by striking 152(c)
in paragraph (2) (as so redesignated) and inserting 7706(c)
,
by inserting before paragraph (2) (as so redesignated) the following new paragraph:
Dependent
In general
The term dependent
shall have the meaning given such term by section 7706.
Certain individuals not treated as dependents
In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the amount applicable to such individual under subsection (a) for such individual’s taxable year shall be zero.
,
in paragraph (3) (as so redesignated)—
by striking term
and inserting qualifying child
terms
, andqualifying child
and dependent
by striking 152(b)(3)
and inserting 7706(b)(3)
, and
in the heading by striking Qualifying
and inserting Dependent; qualifying
.
The heading for section 24 is amended by inserting and family
after Child
.
The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 24 and inserting the following new item:
Sec. 24. Child and family tax credit.
.
Elimination of marriage penalty
Section 24(b)(2) is amended—
by striking $110,000
in subparagraph (A) and inserting $230,000
,
by inserting and
at the end of subparagraph (A),
by striking $75,000 in the case of an individual who is not married
and all that follows through the period at the end and inserting one-half of the amount in effect under subparagraph (A) for the taxable year in the case of any other individual.
.
Credit refundable up to $1,000 per child
In general
Section 24(d)(1)(A) is amended by striking all that follows under this section
and inserting the following:
determined—
without regard to this subsection and the limitation under section 26(a),
without regard to subsection (a)(2), and
by substituting $1,000
for $1,600
in subsection (a)(1), or
.
Inflation adjustment
Section 24(d) is amended by inserting after paragraph (2) the following new paragraph:
Inflation adjustment
In the case of any taxable year beginning in a calendar year after 2017, the $1,000 amount in paragraph (1)(A)(iii) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment under section 1(c)(2)(A) for such calendar year.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Repeal of nonrefundable credits
Repeal of section 22
In general
Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 22 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 86(f) is amended by striking paragraph (1) and by redesignating paragraphs (2), (3), and (4) as paragraphs (1), (2), and (3), respectively.
Subsections (c)(3)(B) and (d)(4)(A) of section 7706, as redesignated by this Act, are each amended by striking (as defined in section 22(e)(3)
.
Section 7706(f), as redesignated by this Act, is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph:
Permanent and total disability defined
An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require.
.
Section 415(c)(3)(C)(i) is amended by striking 22(e)(3)
and inserting 7706(f)(7)
.
Section 422(c)(6) is amended by striking 22(e)(3)
and inserting 7706(f)(7)
.
Termination of section 25
Section 25, as amended by section 3601, 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, 2017.
.
Repeal of section 30D
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
In general
Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Subsection (b)
The amendment made by subsection (c) shall apply to taxable years ending after December 31, 2017.
Subsection (c)
The amendments made by subsection (d) shall apply to vehicles placed in service in taxable years beginning after December 31, 2017.
Refundable credit program integrity
Identification requirements for child and family tax credit
In general
Section 24(e) is amended to read as follows:
Identification requirements
Requirements for qualifying child
No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and social security number of such qualifying child on the return of tax for the taxable year. The preceding sentence shall not prevent a qualifying child from being treated as a dependent described in subsection (a)(2).
Other identification requirements
No credit shall be allowed under this section with respect to any individual unless the taxpayer identification number of such individual is included on the return of tax for the taxable year and such identifying number was issued before the due date for filing the return for the taxable year.
Social security number
For purposes of this subsection, the term social security number
means a social security number issued by the Social Security Administration (but only if the social security number is issued to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act)).
.
Omissions treated as mathematical or clerical error
In general
Section 6213(g)(2)(I) is amended to read as follows:
an omission of a correct social security number, or a correct TIN, required under section 24(e) (relating to child tax credit), to be included on a return,
.
Social security number must be provided
In general
Section 25A(f)(1)(A), as amended by section 1201 of this Act, is amended by striking taxpayer identification number
each place it appears and inserting social security number
.
Omission treated as mathematical or clerical error
Section 6213(g)(2)(J) is amended by striking TIN
and inserting social security number and employer identification number
.
Individuals prohibited from engaging in employment in United States not eligible for earned income tax credit
Section 32(m) is amended—
by striking (other than:
and all that follows through of the Social Security Act)
, and
by inserting before the period at the end the following: , but only if, in the case of subsection (c)(1)(E), the social security number is issued to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Procedures to reduce improper claims of earned income credit
Clarification regarding determination of self-employment income which is treated as earned income
Section 32(c)(2)(B) is amended by striking and
at the end of clause (v), by striking the period at the end of clause (vi) and inserting , and
, and by adding at the end the following new clause:
in determining the taxpayer’s net earnings from self-employment under subparagraph (A)(ii) there shall not fail to be taken into account any deduction which is allowable to the taxpayer under this subtitle.
.
Required quarterly reporting of wages of employees
Section 6011 is amended by adding at the end the following new subsection:
Employer reporting of wages
Every person required to deduct and withhold from an employee a tax under section 3101 or 3402 shall include on each return or statement submitted with respect to such tax, the name and address of such employee and the amount of wages for such employee on which such tax was withheld.
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.
Reporting
The Secretary of the Treasury, or his designee, may delay the application of the amendment made by subsection (b) for such period as such Secretary (or designee) determines to be reasonable to allow persons adequate time to modify electronic (or other) systems to permit such person to comply with the requirements of such amendment.
Certain income disallowed for purposes of the earned income tax credit
Substantiation requirement
Section 32 is amended by adding at the end the following new subsection:
Inconsistent income reporting
If the earned income of a taxpayer claimed on a return for purposes of this section is not substantiated by statements or returns under sections 6051, 6052, 6041(a), or 6050W with respect to such taxpayer, the Secretary may require such taxpayer to provide books and records to substantiate such income, including for the purpose of preventing fraud.
.
Exclusion of unsubstantiated amount from earned income
Section 32(c)(2) is amended by adding at the end the following new subparagraph:
Exclusion
In the case of a taxpayer with respect to which there is an inconsistency described in subsection (n) who fails to substantiate such inconsistency to the satisfaction of the Secretary, the term earned income
shall not include amounts to the extent of such inconsistency.
.
Effective date
The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.
Simplification and reform 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
40 percent of the credit allowable under subsection (a)(1) (determined without regard to this subsection and section 26(a) and after application of all other provisions of this section) shall be treated as a credit allowable under subpart C (and not under this part). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom section 1(d) applies for such taxable year.
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
$80,000 (twice such amount in the case of a joint return), bears to
$10,000 (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 5 taxable years
An election to have this section apply may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 5 prior taxable years.
Credit allowed only for first 5 years of postsecondary education
In general
No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 5 years of postsecondary education at an eligible educational institution.
Fifth year limitations
In the case of an eligible student with respect to whom an election has been in effect for 4 preceding taxable years for purposes of the fifth taxable year—
the amount of the credit allowed under this section for the taxable year shall not exceed an amount equal to 50 percent of the credit otherwise determined with respect to such student under this section (without regard to this subparagraph), and
the amount of the credit determined under subsection (b) and allowable under subpart C shall not exceed an amount equal to 40 percent of the amount determined with respect to such student under clause (i).
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 ½ 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 requirements
Student
No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year, and such taxpayer identification number was issued on or before the due date for filing such return.
Taxpayer
No credit shall be allowed under this section if the identifying number of the taxpayer was issued after the due date for filing the return for the taxable year.
Institution
No credit shall be allowed under this section unless the taxpayer includes the employer identification number of any institution to which qualified tuition and related expenses were paid with respect to the individual.
Adjustment for certain scholarships, etc
The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsection (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—
a 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.
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.
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 clause (i), 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.
Inflation adjustment
In general
In the case of a taxable year beginning after 2018, the $80,000 amount in subsection (c)(1)(A)(ii) shall each be increased by an amount equal to—
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 2016
in clause (ii) thereof.
Rounding
If any amount as adjusted under paragraph (1) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.
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.
.
Conforming amendments
Section 72(t)(7)(B) is amended by striking section 25A(g)(2)
and inserting section 25A(f)(2)
.
Section 529(c)(3)(B)(v)(I) is amended by striking section 25A(g)(2)
and inserting section 25A(f)(2)
.
Section 529(e)(3)(B)(i) is amended by striking section 25A(b)(3)
and inserting section 25A(d)
.
Section 530(d)(2)(C) 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) is amended by striking section 25A(g)(2)
and inserting section 25A(d)(4)(B)
.
Section 6050S(e) is amended by striking subsection (g)(2)
and inserting subsection (f)(2)
.
Section 6211(b)(4)(A) is amended by striking subsection (i)(6)
and inserting subsection (b)
.
Section 6213(g)(2)(J) is amended by striking TIN required under section 25A(g)(1)
and inserting TIN, and employer identification number, required under section 25A(f)(1)
.
Section 6213(g)(2)(Q) is amended to read as follows:
an omission of information required by section 25A(f)(8)(B) or an entry on the return claiming the credit determined under section 25A(a) for a taxable year for which the credit is disallowed under section 25A(f)(8)(A).
.
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 is amended by striking the item relating to section 25A and inserting the following new item:
Sec. 25A. American opportunity tax credit.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Consolidation of education savings rules
No new contributions to Coverdell education savings account
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, 2017.
.
Limited distribution allowed for elementary and secondary tuition
In general
Section 529(c) is amended by adding at the end the following new paragraph:
Treatment of elementary and secondary tuition
Any reference in this subsection to the term qualified higher education expense
shall include a reference to expenses for tuition in connection with enrollment at an elementary or secondary school.
.
Limitation
Section 529(e)(3)(A) is amended by adding at the end the following: The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year, shall, in the aggregate, include not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the beneficiary as an elementary or secondary school student at a public, private, or religious school.
.
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
.
Distributions from qualified tuition programs for certain expenses associated with registered apprenticeship programs
Section 529(e)(3) is amended by adding at the end the following new subparagraph:
Certain expenses associated with registered apprenticeship programs
The term qualified higher education expenses
shall include books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act (29 U.S.C. 50).
.
Unborn children allowed as account beneficiaries
Section 529(e) is amended by adding at the end the following new paragraph:
Treatment of unborn children
In general
Nothing shall prevent an unborn child from being treated as a designated beneficiary or an individual under this section.
Unborn child
For purposes of this paragraph—
In general
The term unborn child
means a child in utero.
Child in utero
The term child in utero
means a member of the species homo sapiens, at any stage of development, who is carried in the womb.
.
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, 2017.
Rollovers to qualified tuition programs
The amendments made by subsection (b) shall apply to distributions after December 31, 2017.
Reforms to discharge of certain student loan indebtedness
Treatment of student loans discharged on account of death or disability
Section 108(f) is amended by adding at the end the following new paragraph:
Discharges on account of death or disability
In general
In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income by reasons of the discharge (in whole or in part) of any loan described in subparagraph (B) if such discharge was—
pursuant to subsection (a) or (d) of section 437 of the Higher Education Act of 1965 or the parallel benefit under part D of title IV of such Act (relating to the repayment of loan liability),
pursuant to section 464(c)(1)(F) of such Act, or
otherwise discharged on account of the death or total and permanent disability of the student.
Loans described
A loan is described in this subparagraph if such loan is—
a student loan (as defined in paragraph (2)), or
a private education loan (as defined in section 140(7) of the Consumer Credit Protection Act (15 U.S.C. 1650(7))).
.
Exclusion from gross income for payments made under indian health service loan repayment program
In general
Section 108(f)(4) is amended by inserting under section 108 of the Indian Health Care Improvement Act,
after 338I of such Act,
.
Clerical amendment
The heading for section 108(f)(4) is amended by striking and certain
and inserting , indian health service loan repayment program, and certain
.
Effective dates
Subsection (a)
The amendment made by subsection (a)(1) shall apply to discharges of indebtedness after December 31, 2017.
Subsection (b)
The amendments made by subsection (b) shall apply to amounts received in taxable years beginning after December 31, 2017.
Repeal of other provisions relating to education
In general
Subchapter B of chapter 1 is amended—
in part VII by striking sections 221 and 222 (and by striking the items relating to such sections in the table of sections for such part),
in part VII by striking sections 135 and 127 (and by striking the items relating to such sections in the table of sections for such part), and
by striking subsection (d) of section 117.
Conforming amendment relating to section 221
Section 62(a) is amended by striking paragraph (17).
Section 74(d) is amended by striking 221,
.
Section 86(b)(2)(A) is amended by striking 221,
.
Section 219(g)(3)(A)(ii) is amended by striking 221,
.
Section 163(h)(2) is amended by striking subparagraph (F).
Section 6050S(a) is amended—
by inserting or
at the end of paragraph (1),
by striking or
at the end of paragraph (2), and
by striking paragraph (3).
Section 6050S(e) is amended by striking all that follows thereof)
and inserting a period.
Conforming amendments related to section 222
Section 62(a) is amended by striking paragraph (18).
Section 74(d)(2)(B) is amended by striking 222,
.
Section 86(b)(2)(A) is amended by striking 222,
.
Section 219(g)(3)(A)(ii) is amended by striking 222,
.
Conforming amendments relating to section 127
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 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 3231(e) is amended by striking paragraph (6).
Section 3306(b)(13) is amended by 127,
.
Section 3401(a)(18) is amended by striking 127,
.
Section 6039D(d)(1) is amended by striking , 127
.
Conforming amendments relating to section 117(d)
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),
.
Conforming amendments related to section 135
Section 74(d)(2)(B) is amended by striking 135,
.
Section 86(b)(2)(A) is amended by striking 135,
.
Section 219(g)(3)(A)(ii) is amended by striking 135,
.
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, 2017.
Amendments relating to section 117(d)
The amendments made by subsections (a)(3) and (e) shall apply to amounts paid or incurred after December 31, 2017.
Rollovers between qualified tuition programs and qualified ABLE programs
Rollovers from qualified tuition programs to qualified ABLE programs
Section 529(c)(3)(C)(i) is amended by striking or
at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or
, and by adding at the end the following new subclause:
to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary.
Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B).
.
Effective date
The amendments made by this section shall apply to distributions after December 31, 2017.
Simplification and reform of deductions
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, 2017.
Mortgage interest
Modification of limitations
In general
Section 163(h)(3) 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
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).
Treatment of indebtedness incurred on or before November 2, 2017
In general
In the case of any pre-November 2, 2017, indebtedness, this paragraph shall apply as in effect immediately before the enactment of the Tax Cuts and Jobs Act.
Pre-November 2, 2017, indebtedness
For purposes of this subparagraph, the term pre-November 2, 2017, indebtedness
means—
any principal residence acquisition indebtedness which was incurred on or before November 2, 2017, or
any principal residence acquisition indebtedness which is incurred after November 2, 2017, to refinance indebtedness described in clause (i) (or refinanced indebtedness meeting the requirements of this clause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
Limitation on period of refinancing
clause (ii)(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).
Binding contract exception
In the case of a taxpayer who enters into a written binding contract before November 2, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subparagraphs (A) and (B) shall be applied by substituting April 1, 2018
for November 2, 2017
.
.
Conforming amendments
Section 108(h)(2) is by striking for
and inserting $1,000,000 ($500,000
in clause (ii) thereoffor
.$500,000 ($250,000
in paragraph (2)(A), and $1,000,000
for $500,000
in paragraph (2)(B), thereof
Section 163(h) is amended by striking subparagraphs (E) and (F) in paragraph (4).
Taxpayers limited to 1 qualified residence
Section 163(h)(4)(A)(i) is amended to read as follows:
In general
The term qualified residence
means the principal residence (within the meaning of section 121) of the taxpayer.
.
Effective dates
In general
The amendments made by this section shall apply to interest paid or accrued in taxable years beginning after December 31, 2017, with respect to indebtedness incurred before, on, or after such date.
Treatment of grandfathered indebtedness
For application of the amendments made by this section to grandfathered indebtedness, see paragraph (3)(C) of section 163(h) of the Internal Revenue Code of 1986, as amended by this section.
Repeal of deduction for certain taxes not paid or accrued in a trade or business
In general
Section 164(b)(5) is amended to read as follows:
Limitation in case of individuals
In the case of a taxpayer other than a corporation—
foreign real property taxes (other than taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212) shall not be taken into account under subsection (a)(1),
the aggregate amount of taxes (other than taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212) taken into account under subsection (a)(1) for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return),
subsection (a)(2) shall only apply to taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212, and
subsection (a)(3) shall not apply to State and local taxes.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Repeal of deduction for personal casualty losses
In general
Section 165(c) is amended by inserting and
at the end of paragraph (1), by striking ; and
at the end of paragraph (2) and inserting a period, and by striking paragraph (3).
Conforming amendments
Section 165(h) is amended to read as follows:
Special rule where personal casualty gains exceed personal casualty losses
In general
If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year—
all such gains shall be treated as gains from sales or exchanges of capital assets, and
all such losses shall be treated as losses from sales or exchanges of capital assets.
Definitions of personal casualty gain and personal casualty loss
For purposes of this subsection—
Personal casualty loss
The term personal casualty loss
means any loss of property not connected with a trade or business or a transaction entered into for profit, if such loss arises from fire, storm, shipwreck, or other casualty, or from theft.
Personal casualty gain
The term personal casualty gain
means the recognized gain from any involuntary conversion of property which is described in subparagraph (A) arising from fire, storm, shipwreck, or other casualty, or from theft.
.
Section 165 is amended by striking subsection (k).
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)(E)(ii), prior to amendment under title III, is amended by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively.
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.
Section 504(b) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 is amended by adding at the end the following new paragraph:
Coordination with Tax Reform
This subsection shall be applied without regard to the amendments made by section 1304 of the Tax Cuts and Jobs Act.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
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, 2017.
Charitable contributions
Increased limitation for cash contributions
Section 170(b)(1) is amended by redesignating subparagraph (G) as subparagraph (H) and by inserting after subparagraph (F) the following new subparagraph:
Increased limitation for cash contributions
In general
In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year shall not exceed 60 percent of the taxpayer’s contribution base for such year.
Carryover
If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time.
Coordination with subparagraphs (A) and (B)
In general
Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A).
Limitation reduction
Subparagraphs (A) and (B) shall be applied by reducing (but not below zero) the aggregate contribution limitation allowed for the taxable year under each such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year.
.
Denial of deduction for college athletic event seating rights
Section 170(l)(1) is amended to read as follows:
In general
No deduction shall be allowed under this section for any amount described in paragraph (2).
.
Charitable mileage rate adjusted for inflation
Section 170(i) is amended by striking shall be 14 cents per mile
and inserting shall be a rate which takes into account the variable cost of operating an automobile
.
Repeal of substantiation exception in case of contributions reported by donee
Section 170(f)(8) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D).
Effective date
The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2017.
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, 2017.
Repeal of medical expense deduction
In general
Part VII of subchapter B is amended by striking by striking section 213 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
Section 105(f) is amended to read as follows:
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, 2017.
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 7706(d)(2). This paragraph shall not apply for purposes of subsection (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 105(f)(1)(D)
.
Section 104(a) is amended by striking section 213(d)(1)
in the last sentence and inserting section 105(f)(1)
.
Section 105(b) is amended by striking section 213(d)
and inserting section 105(f)
.
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 105(f)(7)
.
Section 220(d)(2)(A) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 223(d)(2)(A) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 419A(f)(2) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 501(c)(26)(A) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 2503(e) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 4980B(c)(4)(B)(i)(I) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 6041(f) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 7702B(a)(2) is amended by striking section 213(d)
and inserting section 105(f)
.
Section 7702B(a)(4) is amended by striking section 213(d)(1)(D)
and inserting section 105(f)(1)(D)
.
Section 7702B(d)(5) is amended by striking section 213(d)(10)
and inserting section 105(f)(7)
.
Section 9832(d)(3) is amended by striking section 213(d)
and inserting section 105(f)
.
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 105(f)) of the taxpayer, his spouse, or a dependent (as defined in section 7706, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), over
10 percent of the taxpayer’s adjusted gross income.
.
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 7706(f)(7), as redesignated by this Act, is amended by striking sections 105(b), 132(h)(2)(B), and 213(d)(5)
and inserting sections 105(b) and 132(h)(2)(B)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Repeal of deduction for alimony payments
In general
Part VII of subchapter B is amended by striking by striking section 215 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendments
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).
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, 2017, 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 is amended by striking by striking section 217 (and by striking the item relating to such section in the table of sections for such subpart).
Retention of moving expenses for members of Armed Forces
Section 134(b) is amended by adding at the end the following new paragraph:
Moving expenses
The term qualified military benefit
includes any benefit described in section 217(g) (as in effect before the enactment of the Tax Cuts And Jobs Act).
.
Conforming amendments
Section 62(a) is amended by striking paragraph (15).
Section 274(m)(3) is amended by striking (other than section 217)
.
Section 3121(a) is amended by striking paragraph (11).
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, 2017.
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, 2017.
.
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), by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and by striking the second sentence thereof.
Section 223(b)(5) is amended by striking under paragraph (3))
and all that follows through shall be divided equally between them
and inserting the following: under paragraph (3)) shall be divided equally between the spouses
.
Section 223(c) is amended by striking paragraph (5).
Section 3231(e) is amended by striking paragraph (10).
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, 2017.
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
Section 62(a)(2) 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, 2017.
Simplification and reform of exclusions and taxable compensation
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.
Limitation for highly compensated employees
Reduced for excess compensation
In the case of an individual whose compensation for the taxable year exceeds the amount in effect under section 414(q)(1)(B)(i) for the calendar in which such taxable year begins, the $50,000 amount under paragraph (1) shall be reduced (but not below zero) by an amount equal to 50 percent of such excess. For purposes of the preceding sentence, the term compensation
means wages (as defined in section 3121(a) (without regard to the contribution and benefit base limitation in section 3121(a)(1)).
Exclusion denied for 5-percent owners
In the case of an individual who is a 5-percent owner (as defined in section 416(i)(1)(B)(i)) of the employer at any time during the taxable year, the amount under paragraph (1) shall be zero.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2017.
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 average modified adjusted gross income of the taxpayer for the taxable year and the 2 preceding taxable years exceeds $250,000 (twice such amount in the case of a joint return), the amount which would (but for this subsection) be excluded from gross income under subsection (a) for such taxable year shall be reduced (but not below zero) by the amount of such excess.
Modified adjusted gross income
For purposes of this subsection, the term modified adjusted gross income
means, with respect to any taxable year, adjusted gross income determined after application of this section (but without regard to subsection (b)(1) and this subsection).
Special rule for joint returns
In the case of a joint return, the average modified adjusted gross income of the taxpayer shall be determined without regard to any taxable year with respect to which the taxpayer did not file a joint return.
.
Conforming amendments
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).
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, 2017.
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 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, 2017.
Sunset of exclusion for dependent care assistance programs
In general
Section 129 is amended by adding at the end the following new subsection:
Termination
Subsection (a) shall not apply to taxable years beginning after December 31, 2022.
.
Effective date
The amendment made by this section shall take effect on the date of the enactment of this Act.
Repeal of exclusion for qualified moving expense reimbursement
In general
Section 132(a) is amended by striking paragraph (6).
Conforming amendments
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)
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Repeal of exclusion for adoption assistance programs
In general
Part III of subchapter B of chapter 1 is amended by striking section 137 (and by striking the item relating to such section in the table of sections for such part).
Conforming amendments
Sections 414(n)(3)(C), 414(t)(2), 74(d)(2)(B), 86(b)(2)(A), 219(g)(3)(A)(ii) are each amended by striking , 137
.
Section 1016(a), as amended by the preceding provision of this Act, is amended by striking paragraph (26).
Section 6039D(d)(1), as amended by the preceding provisions of this Act, is amended—
by striking , or 137
, and
by inserting or
before 125
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Simplification and reform of savings, pensions, retirement
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, 2017.
Reduction in minimum age for allowable in-service distributions
In general
Section 401(a)(36) is amended by striking age 62
and inserting age 59 ½
.
Application to governmental section 457(b) plans
Clause (i) of section 457(d)(1)(A) is amended by inserting (in the case of a plan maintained by an employer described in subsection (e)(1)(A), age 59 ½)
before the comma at the end.
Effective date
The amendments made by this section shall apply to plan years beginning after December 31, 2017.
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
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, 2017.
Modification of rules relating to hardship withdrawals from cash or deferred arrangements
In general
Section 401(k) is amended by adding at the end the following:
Special rules relating to hardship withdrawals
For purposes of paragraph (2)(B)(i)(IV)—
Amounts which may be withdrawn
The following amounts may be distributed upon hardship of the employee:
Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies.
Qualified nonelective contributions (as defined in subsection (m)(4)(C)).
Qualified matching contributions described in paragraph (3)(D)(ii)(I).
Earnings on any contributions described in clause (i), (ii), or (iii).
No requirement to take available loan
A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.".
.
Conforming amendment
Section 401(k)(2)(B)(i)(IV) is amended to read as follows:
subject to the provisions of paragraph (14), upon hardship of the employee, or".
.
Effective date
The amendments made by this section shall apply to plan years beginning after December 31, 2017.
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, 2017.
Modification of nondiscrimination rules to protect older, longer service participants
In general
Section 401 is amended—
by redesignating subsection (o) as subsection (p), and
by inserting after subsection (n) the following new subsection:
Special rules for applying nondiscrimination rules to protect older, longer service and grandfathered participants
Testing of defined benefit plans with closed classes of participants
Benefits, rights, or features provided to closed classes
A defined benefit plan which provides benefits, rights, or features to a closed class of participants shall not fail to satisfy the requirements of subsection (a)(4) by reason of the composition of such closed class or the benefits, rights, or features provided to such closed class, if—
for the plan year as of which the class closes and the 2 succeeding plan years, such benefits, rights, and features satisfy the requirements of subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)),
after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
the class was closed before April 5, 2017, or the plan is described in subparagraph (C).
Aggregate testing with defined contribution plans permitted on a benefits basis
In general
For purposes of determining compliance with subsection (a)(4) and section 410(b), a defined benefit plan described in clause (iii) may be aggregated and tested on a benefits basis with 1 or more defined contribution plans, including with the portion of 1 or more defined contribution plans which—
provides matching contributions (as defined in subsection (m)(4)(A)),
provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or
consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)).
Special rules for matching contributions
For purposes of clause (i), if a defined benefit plan is aggregated with a portion of a defined contribution plan providing matching contributions—
such defined benefit plan must also be aggregated with any portion of such defined contribution plan which provides elective deferrals described in subparagraph (A) or (C) of section 402(g)(3), and
such matching contributions shall be treated in the same manner as nonelective contributions, including for purposes of applying the rules of subsection (l).
Plans described
A defined benefit plan is described in this clause if—
the plan provides benefits to a closed class of participants,
for the plan year as of which the class closes and the 2 succeeding plan years, the plan satisfies the requirements of section 410(b) and subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)),
after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
the class was closed before April 5, 2017, or the plan is described in subparagraph (C).
Plans described
A plan is described in this subparagraph if, taking into account any predecessor plan—
such plan has been in effect for at least 5 years as of the date the class is closed, and
during the 5-year period preceding the date the class is closed, there has not been a substantial increase in the coverage or value of the benefits, rights, or features described in subparagraph (A) or in the coverage or benefits under the plan described in subparagraph (B)(iii) (whichever is applicable).
Determination of substantial increase for benefits, rights, and features
In applying subparagraph (C)(ii) for purposes of subparagraph (A)(iii), a plan shall be treated as having had a substantial increase in coverage or value of the benefits, rights, or features described in subparagraph (A) during the applicable 5-year period only if, during such period—
the number of participants covered by such benefits, rights, or features on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or
such benefits, rights, and features have been modified by 1 or more plan amendments in such a way that, as of the date the class is closed, the value of such benefits, rights, and features to the closed class as a whole is substantially greater than the value as of the first day of such 5-year period, solely as a result of such amendments.
Determination of substantial increase for aggregate testing on benefits basis
In applying subparagraph (C)(ii) for purposes of subparagraph (B)(iii)(IV), a plan shall be treated as having had a substantial increase in coverage or benefits during the applicable 5-year period only if, during such period—
the number of participants benefitting under the plan on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or
the average benefit provided to such participants on the date such period ends is more than 50 percent greater than the average benefit provided on the first day of the plan year in which such period began.
Certain employees disregarded
For purposes of subparagraphs (D) and (E), any increase in coverage or value or in coverage or benefits, whichever is applicable, which is attributable to such coverage and value or coverage and benefits provided to employees—
who became participants as a result of a merger, acquisition, or similar event which occurred during the 7-year period preceding the date the class is closed, or
who became participants by reason of a merger of the plan with another plan which had been in effect for at least 5 years as of the date of the merger,
Rules relating to average benefit
For purposes of subparagraph (E)—
the average benefit provided to participants under the plan will be treated as having remained the same between the 2 dates described in subparagraph (E)(ii) if the benefit formula applicable to such participants has not changed between such dates, and
if the benefit formula applicable to 1 or more participants under the plan has changed between such 2 dates, then the average benefit under the plan shall be considered to have increased by more than 50 percent only if—
the total amount determined under section 430(b)(1)(A)(i) for all participants benefitting under the plan for the plan year in which the 5-year period described in subparagraph (E) ends, exceeds
the total amount determined under section 430(b)(1)(A)(i) for all such participants for such plan year, by using the benefit formula in effect for each such participant for the first plan year in such 5-year period, by more than 50 percent.
Treatment as single plan
For purposes of subparagraphs (E) and (G), a plan described in section 413(c) shall be treated as a single plan rather than as separate plans maintained by each participating employer.
Special rules
For purposes of subparagraphs (A)(i) and (B)(iii)(II), the following rules shall apply:
In applying section 410(b)(6)(C), the closing of the class of participants shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II).
2 or more plans shall not fail to be eligible to be aggregated and treated as a single plan solely by reason of having different plan years.
Changes in the employee population shall be disregarded to the extent attributable to individuals who become employees or cease to be employees, after the date the class is closed, by reason of a merger, acquisition, divestiture, or similar event.
Aggregation and all other testing methodologies otherwise applicable under subsection (a)(4) and section 410(b) may be taken into account.
Spun-off plans
For purposes of this paragraph, if a portion of a defined benefit plan described in subparagraph (A) or (B)(iii) is spun off to another employer and the spun-off plan continues to satisfy the requirements of—
subparagraph (A)(i) or (B)(iii)(II), whichever is applicable, if the original plan was still within the 3-year period described in such subparagraph at the time of the spin off, and
subparagraph (A)(ii) or (B)(iii)(III), whichever is applicable,
Testing of defined contribution plans
Testing on a benefits basis
A defined contribution plan shall be permitted to be tested on a benefits basis if—
such defined contribution plan provides make-whole contributions to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated,
for the plan year of the defined contribution plan as of which the class eligible to receive such make-whole contributions closes and the 2 succeeding plan years, such closed class of participants satisfies the requirements of section 410(b)(2)(A)(i) (determined by applying the rules of paragraph (1)(I)),
after the date as of which the class was closed, any plan amendment to the defined contribution plan which modifies the closed class or the allocations, benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
the class was closed before April 5, 2017, or the defined benefit plan under clause (i) is described in paragraph (1)(C) (as applied for purposes of paragraph (1)(B)(iii)(IV)).
Aggregation with plans including matching contributions
In general
With respect to 1 or more defined contribution plans described in subparagraph (A), for purposes of determining compliance with subsection (a)(4) and section 410(b), the portion of such plans which provides make-whole contributions or other nonelective contributions may be aggregated and tested on a benefits basis with the portion of 1 or more other defined contribution plans which—
provides matching contributions (as defined in subsection (m)(4)(A)),
provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or
consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)).
Special rules for matching contributions
Rules similar to the rules of paragraph (1)(B)(ii) shall apply for purposes of clause (i).
Special rules for testing defined contribution plan features providing matching contributions to certain older, longer service participants
In the case of a defined contribution plan which provides benefits, rights, or features to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated, the plan shall not fail to satisfy the requirements of subsection (a)(4) solely by reason of the composition of the closed class or the benefits, rights, or features provided to such closed class if the defined contribution plan and defined benefit plan otherwise meet the requirements of subparagraph (A) but for the fact that the make-whole contributions under the defined contribution plan are made in whole or in part through matching contributions.
Spun-off plans
For purposes of this paragraph, if a portion of a defined contribution plan described in subparagraph (A) or (C) is spun off to another employer, the treatment under subparagraph (A) or (C) of the spun-off plan shall continue with respect to the other employer if such plan continues to comply with the requirements of clauses (ii) (if the original plan was still within the 3-year period described in such clause at the time of the spin off) and (iii) of subparagraph (A), as determined for purposes of subparagraph (A) or (C), whichever is applicable.
Definitions
For purposes of this subsection—
Make-whole contributions
Except as otherwise provided in paragraph (2)(C), the term make-whole contributions
means nonelective allocations for each employee in the class which are reasonably calculated, in a consistent manner, to replace some or all of the retirement benefits which the employee would have received under the defined benefit plan and any other plan or qualified cash or deferred arrangement under subsection (k)(2) if no change had been made to such defined benefit plan and such other plan or arrangement. For purposes of the preceding sentence, consistency shall not be required with respect to employees who were subject to different benefit formulas under the defined benefit plan.
References to closed class of participants
References to a closed class of participants and similar references to a closed class shall include arrangements under which 1 or more classes of participants are closed, except that 1 or more classes of participants closed on different dates shall not be aggregated for purposes of determining the date any such class was closed.
Highly compensated employee
The term highly compensated employee
has the meaning given such term in section 414(q).".
.
Participation requirements
Paragraph (26) of section 401(a) is amended by adding at the end the following new subparagraph:
Protected participants
In general
A plan shall be deemed to satisfy the requirements of subparagraph (A) if—
the plan is amended—
to cease all benefit accruals, or
to provide future benefit accruals only to a closed class of participants,
the plan satisfies subparagraph (A) (without regard to this subparagraph) as of the effective date of the amendment, and
the amendment was adopted before April 5, 2017, or the plan is described in clause (ii).
Plans described
A plan is described in this clause if the plan would be described in subsection (o)(1)(C), as applied for purposes of subsection (o)(1)(B)(iii)(IV) and by treating the effective date of the amendment as the date the class was closed for purposes of subsection (o)(1)(C).
Special rules
For purposes of clause (i)(II), in applying section 410(b)(6)(C), the amendments described in clause (i) shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II).
Spun-off plans
For purposes of this subparagraph, if a portion of a plan described in clause (i) is spun off to another employer, the treatment under clause (i) of the spun-off plan shall continue with respect to the other employer.
.
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, without regard to whether any plan modifications referred to in such amendments are adopted or effective before, on, or after such date of enactment.
Special rules
Election of earlier application
At the election of the plan sponsor, the amendments made by this section shall apply to plan years beginning after December 31, 2013.
Closed classes of participants
For purposes of paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv) of section 401(o) of the Internal Revenue Code of 1986 (as added by this section), a closed class of participants shall be treated as being closed before April 5, 2017, if the plan sponsor’s intention to create such closed class is reflected in formal written documents and communicated to participants before such date.
Certain post-enactment plan amendments
A plan shall not be treated as failing to be eligible for the application of section 401(o)(1)(A), 401(o)(1)(B)(iii), or 401(a)(26) of such Code (as added by this section) to such plan solely because in the case of—
such section 401(o)(1)(A), the plan was amended before the date of the enactment of this Act to eliminate 1 or more benefits, rights, or features, and is further amended after such date of enactment to provide such previously eliminated benefits, rights, or features to a closed class of participants, or
such section 401(o)(1)(B)(iii) or section 401(a)(26), the plan was amended before the date of the enactment of this Act to cease all benefit accruals, and is further amended after such date of enactment to provide benefit accruals to a closed class of participants. Any such section shall only apply if the plan otherwise meets the requirements of such section and in applying such section, the date the class of participants is closed shall be the effective date of the later amendment.
Estate, gift, and generation-skipping transfer taxes
Increase in credit against estate, gift, and generation-skipping transfer tax
In general
Section 2010(c)(3) is amended by striking $5,000,000
and inserting $10,000,000
.
Effective date
The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2017.
Repeal of estate and generation-skipping transfer taxes
Estate tax repeal
In general
Subchapter C of chapter 11 is amended by adding at the end the following new section:
Termination
In general
Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after December 31, 2024.
Certain Distributions From Qualified Domestic Trusts
In applying section 2056A with respect to the surviving spouse of a decedent dying on or before December 31, 2024—
section 2056A(b)(1)(A) shall not apply to distributions made after the 10-year period beginning on such date, and
section 2056A(b)(1)(B) shall not apply after such date.
.
Conforming amendments
Section 1014(b) is amended—
in paragraph (6), by striking was includible in determining
and all that follows through the end and inserting was includible (or would have been includible without regard to section 2210) in determining the value of the decedent’s gross estate under chapter 11 of subtitle B
,
in paragraph (9), by striking required to be included
through Code of 1939
and inserting required to be included (or would have been required to be included without regard to section 2210) in determining the value of the decedent’s gross estate under chapter 11 of subtitle B
, and
in paragraph (10), by striking Property includible in the gross estate
and inserting Property includible (or which would have been includible without regard to section 2210) in the gross estate
.
Clerical amendment
The table of sections for subchapter C of chapter 11 is amended by adding at the end the following new item:
Sec. 2210. Termination.
.
Generation-skipping transfer tax repeal
In general
Subchapter G of chapter 13 of subtitle B of such Code is amended by adding at the end the following new section:
Termination
This chapter shall not apply to generation-skipping transfers after December 31, 2024.
.
Clerical amendment
The table of sections for subchapter G of chapter 13 of such Code is amended by adding at the end the following new item:
Sec. 2664. Termination.
.
Conforming amendments related to gift tax
Computation of gift tax
Section 2502 is amended by adding at the end the following new subsection:
Gifts made after 2024
In general
In the case of a gift made after December 31, 2024, subsection (a) shall be applied by substituting subsection (d)(2)
for section 2001(c)
and such subsection
for such section
.
Rate schedule
| If the amount with respect to which the tentative tax to be computed is: | The tentative tax is: |
| Not over $10,000 | 18% of such amount. |
| Over $10,000 but not over $20,000 | $1,800, plus 20% of the excess over $10,000. |
| Over $20,000 but not over $40,000 | $3,800, plus 22% of the excess over $20,000. |
| Over $40,000 but not over $60,000 | $8,200, plus 24% of the excess over $40,000. |
| Over $60,000 but not over $80,000 | $13,000, plus 26% of the excess over $60,000. |
| Over $80,000 but not over $100,000 | $18,200, plus 28% of the excess over $80,000. |
| Over $100,000 but not over $150,000 | $23,800, plus 30% of the excess over $100,000. |
| Over $150,000 but not over $250,000 | $38,800, plus 32% of the excess of $150,000. |
| Over $250,000 but not over $500,000 | $70,800, plus 34% of the excess over $250,000. |
| Over $500,000 | $155,800, plus 35% of the excess of $500,000. |
.
Lifetime gift exemption
Section 2505 is amended by adding at the end the following new subsection:
Gifts made after 2024
In general
In the case of a gift made after December 31, 2024, subsection (a)(1) shall be applied by substituting the amount of the tentative tax which would be determined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $10,000,000
for the applicable credit amount in effect under section 2010(c) which would apply if the donor died as of the end of the calendar year
.
Inflation adjustment
In general
In the case of any calendar year after 2024, the dollar amount in subsection (a)(1) (after application of this subsection) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2)(A) of such calendar year by substituting calendar year 2011
for calendar year 2016
in clause (ii) thereof.
Rounding
If any amount as adjusted under paragraph (1) is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.
.
Other conforming amendments related to gift tax
Section 2801 is amended by adding at the end the following new subsection:
Gifts received after 2024
In the case of a gift received after December 31, 2024, subsection (a)(1) shall be applied by substituting section 2502(a)(2)
for section 2001(c) as in effect on the date of such receipt
.
.
Effective date
The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2024.
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 allowable under subsection (a) shall not exceed the regular tax liability of the taxpayer reduced by the sum of the credits allowed under subparts A, B, and D.
.
Credits treated as refundable
Section 53 is amended by adding at the end the following new subsection:
Portion of credit treated as refundable
In general
In the case of any taxable year beginning in 2019, 2020, 2021, or 2022, the limitation under subsection (c) shall be increased by the AMT refundable credit amount for such year.
AMT refundable credit amount
For purposes of paragraph (1), the AMT refundable credit amount is an amount equal to 50 percent (100 percent in the case of a taxable year beginning in 2022) of the excess (if any) of—
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 Cuts and Jobs Act.
.
Conforming amendments related to AMT repeal
Section 2(d) 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 12 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 (if any) 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 39(a) is amended—
by striking or the eligible small business credits
in paragraph (3)(A), and
by striking paragraph (4).
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 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 168(k)(2) is amended by striking subparagraph (G).
Section 168(k) is amended by striking paragraph (4).
Section 168(k)(5) is amended by striking subparagraph (E).
Section 168(m)(2)(B)(i) is amended by striking (determined without regard to paragraph (4) thereof)
.
Section 168(m)(2) is amended by striking subparagraph (D).
Section 173 is amended by striking subsection (b).
Section 263(c) is amended by striking section 59(e) or 291
and inserting section 291
.
Section 263A(c) is amended by striking paragraph (6) and by redesignating paragraph (7) (as amended) as paragraph (6).
Section 382(l) is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7).
Section 443 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).
Section 616 is amended by striking subsection (e).
Section 617 is amended by striking subsection (i).
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 848 is amended by striking 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),
.
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
In general
If, for any taxable year, any amount is excluded from gross income of a taxpayer under subsection (a), then, notwithstanding section 1, if such taxpayer has taxable income for such taxable year, the tax imposed by section 1 for such taxable year shall be equal to the excess (if any) of—
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.
Treatment of capital gain excess
In general
In applying section 1(h) for purposes of determining the tax under paragraph (1)(A) for any taxable year in which, without regard to this subsection, the taxpayer’s net capital gain exceeds taxable income (hereafter in this subparagraph referred to as the capital gain excess)—
the taxpayer’s net capital gain (determined without regard to section 1(h)(11)) shall be reduced (but not below zero) by such capital gain excess,
the taxpayer’s qualified dividend income shall be reduced by so much of such capital gain excess as exceeds the taxpayer’s net capital gain (determined without regard to section 1(h)(11) and the reduction under clause (i)), and
adjusted net capital gain, unrecaptured section 1250 gain, and 28-percent rate gain shall each be determined after increasing the amount described in section 1(h)(4)(B) by such capital gain excess.
Definitions
Terms used in this paragraph which are also used in section 1(h) shall have the respective meanings given such terms by section 1(h).
.
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 1561(a) 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), and
by striking the last sentence.
Section 6015(d)(2)(B) is amended by striking or 55
.
Section 6211(b)(4)(A) is amended by striking, 168(k)(4)
.
Section 6425(c)(1)(A) is amended to read as follows:
the tax imposed under section 11 or subchapter L of chapter 1, whichever is applicable, over
.
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)(i) is amended by striking The taxable income and alternative minimum taxable income shall
and inserting Taxable income shall
.
Section 6655(g)(1)(A) is amended by adding plus
at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii).
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, 2017.
Prior elections with respect to certain tax preferences
So much of the amendment made by subsection (a) as relates to the repeal of section 59(e) of the Internal Revenue Code of 1986 shall apply to amounts paid or incurred after December 31, 2017.
Treatment of net operating loss carrybacks
For purposes of section 56(d) of the Internal Revenue Code of 1986 (as in effect before its repeal), the amount of any net operating loss which may be carried back from a taxable year beginning after December 31, 2017, to taxable years beginning before January 1, 2018, shall be determined without regard to any adjustments under section 56(d)(2)(A) of such Code (as so in effect).
Business tax reform
Tax rates
Reduction in corporate tax rate
In general
Section 11(b) is amended to read as follows:
Amount of tax
In general
Except as otherwise provided in this subsection, the amount of the tax imposed by subsection (a) shall be 20 percent of taxable income.
Special rule for personal service corporations
In general
In the case of a personal service corporation (as defined in section 448(d)(2)), the amount of the tax imposed by subsection (a) shall be 25 percent of taxable income.
References to corporate rate
Any reference to the rate imposed under this section or to the highest rate in effect under this section (or any similar reference) shall be determined without regard to the rate imposed with respect to personal service corporations (as so defined).
.
Conforming amendments
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 12 is amended by striking 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
.
Section 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(e) 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)(1)
.
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
.
Section 6655(g)(1)(A)(i) is amended by striking or 1201(a),
.
Section 7518(g)(6)(A) is amended by striking or 1201(a)
.
Section 1445(e)(1) is amended by striking 35 percent (or, to the extent provided in regulations, 20 percent)
and inserting 20 percent
.
Section 1445(e)(2) is amended by striking 35 percent
and inserting 20 percent
.
Section 1445(e)(6) is amended by striking 35 percent (or, to the extent provided in regulations, 20 percent)
and inserting 20 percent
.
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 12 is amended by striking paragraph (6).
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 7518(g)(6)(A) is amended—
by striking With respect to the portion
and inserting In the case of a taxpayer other than a corporation, with respect to the portion
, and
by striking (34 percent in the case of a corporation)
.
Reduction in dividend received deductions to reflect lower corporate income tax rates
Dividends received by corporations
In general
Section 243(a)(1) is amended by striking 70 percent
and inserting 50 percent
.
Dividends from 20-percent owned corporations
Section 243(c)(1) is amended—
by striking 80 percent
and inserting 65 percent
, and
by striking 70 percent
and inserting 50 percent
.
Conforming amendment
The heading for section 243(c) is amended by striking Retention of 80-percent dividend received deduction
and inserting Increased percentage
.
Dividends received from FSC
Section 245(c)(1)(B) is amended—
by striking 70 percent
and inserting 50 percent
, and
by striking 80 percent
and inserting 65 percent
.
Limitation on aggregate amount of deductions
Section 246(b)(3) is amended—
by striking 80 percent
in subparagraph (A) and inserting 65 percent
, and
by striking 70 percent
in subparagraph (B) and inserting 50 percent
.
Reduction in deduction where portfolio stock is debt-financed
Section 246A(a)(1) is amended—
by striking 70 percent
and inserting 50 percent
, and
by striking 80 percent
and inserting 65 percent
.
Income from sources within the United States
Section 861(a)(2) is amended—
by striking 100/70th
and inserting 100/50th
in subparagraph (B), and
in the flush sentence at the end—
by striking 100/80th
and inserting 100/65th
, and
by striking 100/70th
and inserting 100/50th
.
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, 2017.
Certain conforming amendments
The amendments made by paragraphs (2), (3), and (4) of subsection (b) shall apply to distributions after December 31, 2017.
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.
Cost recovery
Increased expensing
100 percent expensing
Section 168(k)(1)(A) is amended by striking 50 percent
and inserting 100 percent
.
Extension through January 1, 2023
Section 168(k)(2) is amended—
in subparagraph (A)(iii), by striking January 1, 2020
and inserting January 1, 2023
,
in subparagraph (B)(i)(II), by striking January 1, 2021
and inserting January 1, 2024
,
in subparagraph (B)(i)(III), by striking January 1, 2020
and inserting January 1, 2023
,
in subparagraph (B)(ii), by striking January 1, 2020
in each place it appears and inserting January 1, 2023
, and
in subparagraph (E)(i), by striking January 1, 2020
and replacing it with January 1, 2023
.
Application to used property
In general
Section 168(k)(2)(A)(ii) is amended to read as follows:
the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and
.
Acquisition requirements
Section 168(k)(2)(E)(ii) is amended to read as follows:
Acquisition requirements
An acquisition of property meets the requirements of this clause if—
such property was not used by the taxpayer at any time prior to such acquisition, and
the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
,
Anti-abuse rules
Section 168(k)(2)(E) is further amended by amending clause (iii)(I) to read as follows:
property is used by a lessor of such property and such use is the lessor’s first use of such property,
.
Exception for certain trades and businesses not subject to limitation on interest expense
Section 168(k)(2), as amended by section 2001, is amended by inserting after subparagraph (F) the following new subparagraph:
Exception for property of certain businesses not subject to limitation on interest expense
The term qualified property
shall not include any property used in—
a trade or business described in subparagraph (B) or (C) of section 163(j)(7), or
a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section.
.
Coordination with section 280F
Section 168(k)(2)(F) is amended—
by striking $8,000
in clauses (i) and (iii) and inserting $16,000
, and
in clause (iii)—
by striking placed in service by the taxpayer after December 31, 2017
and inserting acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017
, and
by redesignating subclauses (I) and (II) as subclauses (II) and (III) respectively, and inserting before clause (II), as so redesignated, the following new subclause:
in the case of a passenger automobile placed in service before January 1, 2018, $8,000
,
.
Conforming amendments
Section 168(k)(2)(B)(i)(III), as amended, is amended by inserting binding
before contract
.
Section 168(k)(5) is amended by—
by striking January 1, 2020
in subparagraph (A) and inserting January 1, 2023
,
by striking 50 percent
in subparagraph (A)(i) and inserting 100 percent
, and
by striking subparagraph (F).
Section 168(k)(6) is amended to read as follows:
Phase Down
In the case of qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (1)(A) shall be applied by substituting for 100 percent
—
50 percent
in the case of—
property placed in service before January 1, 2018, and
property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018,
40 percent
in the case of—
property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019, and
30 percent
in the case of—
property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020.
.
The heading of section 168(k) is amended by striking Special allowance for certain property acquired after December 31, 2007, and before January 1, 2020
and inserting Full expensing of certain property
.
Section 460(c)(6)(B)(ii) is amended by striking January 1, 2020 (January 1, 2021 in the case of property described in section 168(k)(2)(B))
and inserting January 1, 2023 (January 1, 2024 in the case of property described in section 168(k)(2)(B))
.
Effective date
In general
Except at provided by paragraph (2), the amendments made by this section shall apply to property which—
is acquired after September 27, 2017, and
is placed in service after such date.
Specified plants
The amendments made by subsection (f)(2) shall apply to specified plants planted or grafted after September 27, 2017.
Transition rule
In the case of any taxpayer’s first taxable year ending after September 27, 2017, the taxpayer may elect (at such time and in such form and manner as the Secretary of the Treasury, or his designee, may provide) to apply section 168 of the Internal Revenue Code of 1986 without regard to the amendments made by this section.
Limitation on net operating loss carrybacks attributable to full expensing
In the case of any taxable year which includes any portion of the period beginning on September 28, 2017, and ending on December 31, 2017, the amount of any net operating loss for such taxable year which may be treated as a net operating loss carryback (including any such carryback attributable to any specified liability loss under section 172(b)(1)(C), any corporate equity reduction interest loss under section 172(b)(1)(D), any eligible loss under section 172(b)(1)(E), and any farming loss under section 172(b)(1)(F)) shall be determined without regard to the amendments made by this section. For purposes of this paragraph, terms which are used in section 172 of the Internal Revenue Code of 1986 (determined without regard to the amendments made by section 3302) shall have the same meaning as when used in such section.
Small business reforms
Expansion of section 179 expensing
Increased dollar limitations
In general
Section 179(b) is amended—
by inserting ($5,000,000, in the case of taxable years beginning before January 1, 2023)
after $500,000
in paragraph (1), and
by inserting ($20,000,000, in the case of taxable years beginning before January 1, 2023)
after $2,000,000
in paragraph (2).
Inflation adjustment
Section 179(b)(6) is amended to read as follows:
Inflation adjustment
In general
In the case of a taxable year beginning after 2015 (2018 in the case of the $5,000,000 and $20,000,000 amounts in subsection (b)), each dollar amount in subsection (b) shall be increased by an amount equal to such dollar amount multiplied by—
in the case of the $500,000 and $2,000,000 amounts in subsection (b), the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, determined by substituting calendar year 2014
for calendar year 2016
in subparagraph (A)(ii) thereof, and
in the case of the $5,000,000 and $20,000,000 amounts in subsection (b), the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017
for calendar year 2016
in subparagraph (A)(ii) thereof.
Rounding
The amount of any increase under subparagraph (A) shall be rounded to the nearest multiple of $10,000 ($100,000 in the case of the $5,000,000 and $20,000,000 amounts in subsection (b)).
.
Application to qualified energy efficient heating and air-conditioning property
In general
Section 179(f)(2) is amended by striking and
at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting , and
, and by adding at the end the following new subparagraph:
qualified energy efficient heating and air-conditioning property.
.
Qualified energy efficient heating and air-conditioning property
Section 179(f) is amended by adding at the end the following new paragraph:
Qualified energy efficient heating and air-conditioning property
For purposes of this subsection—
In general
The term qualified energy efficient heating and air-conditioning property means any section 1250 property—
with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
which is installed as part of a building’s heating, cooling, ventilation, or hot water system, and
which is within the scope of Standard 90.1–2007 or any successor standard.
Standard 90.1–2007
The term Standard 90.1–2007 means Standard 90.1–2007 of the American Society of Heating, Refrigerating and Air-Conditioning Engineers and the Illuminating Engineering Society of North America (as in effect on the day before the date of the adoption of Standard 90.1–2010 of such Societies).
.
Effective date
Increased dollar limitations
The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2017.
Application to qualified energy efficient heating and air-conditioning property
The amendments made by subsection (b) shall apply to property acquired and placed in service after November 2, 2017. For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition.
Small business accounting method reform and simplification
Modification of limitation on cash method of accounting
Increased limitation
So much of section 448(c) as precedes paragraph (2) is amended to read as follows:
Gross receipts test
For purposes of this section—
In general
A corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000.
.
Application of exception on annual basis
Section 448(b)(3) is amended to read as follows:
Entities which meet gross receipts test
Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year.
.
Inflation adjustment
Section 448(c) is amended by adding at the end the following new paragraph:
Adjustment for inflation
In the case of any taxable year beginning after December 31, 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, by substituting calendar year 2017
for calendar year 2016
in subparagraph (A)(ii) thereof.
.
Coordination with section 481
Section 448(d)(7) is amended to read as follows:
Coordination with section 481
Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.
.
Application of exception to corporations engaged in farming
In general
Section 447(c) is amended—
by inserting for any taxable year
after not being a corporation
in the matter preceding paragraph (1), and
by amending paragraph (2) to read as follows:
a corporation which meets the gross receipts test of section 448(c) for such taxable year.
.
Coordination with section 481
Section 447(f) is amended to read as follows:
Coordination with section 481
Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.
.
Conforming amendments
Section 447 is amended—
by striking subsections (d), (e), (h), and (i), and
by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively.
Exemption from UNICAP requirements
In general
Section 263A is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:
Exemption for certain small businesses
In general
In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year.
Application of gross receipts test to individuals, etc
In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.
Coordination with section 481
Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.
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Conforming amendment
Section 263A(b)(2) is amended to read as follows:
Property acquired for resale
Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale.
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Exemption from inventories
Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
Exemption for certain small businesses
In general
In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year—
subsection (a) shall not apply with respect to such taxpayer for such taxable year, and
the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either—
treats inventory as non-incidental materials and supplies, or
conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable financial statement with respect to such taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures.
Applicable financial statement
For purposes of this subsection, the term applicable financial statement means—
a financial statement which is certified as being prepared in accordance with generally accepted accounting principles and which is—
a 10-K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission,
an audited financial statement of the taxpayer which is used for—
credit purposes,
reporting to shareholders, partners, or other proprietors, or to beneficiaries, or
any other substantial nontax purpose,
filed by the taxpayer with any other Federal or State agency for nontax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), or
a financial statement of the taxpayer which—
is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or
filed by the taxpayer with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary,
Application of gross receipts test to individuals, etc
In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.
Coordination with section 481
Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.
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Exemption from percentage completion for long-term contracts
In general
Section 460(e)(1)(B) is amended—
by inserting (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3))
after taxpayer
in the matter preceding clause (i), and
by amending clause (ii) to read as follows:
who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into.
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Conforming amendments
Section 460(e) is amended by striking paragraphs (2) and (3), by redesignating paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), respectively, and by inserting after paragraph (1) the following new paragraph:
Rules related to gross receipts test
Application of gross receipts test to individuals, etc
For purposes of paragraph (1)(B)(ii), in the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.
Coordination with section 481
Any change in method of accounting made pursuant to paragraph (1)(B)(ii) shall be treated as initiated by the taxpayer and made with the consent of the Secretary. Such change shall be effected on a cut-off basis for all similarly classified contracts entered into on or after the year of change.
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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, 2017.
Preservation of suspense account rules with respect to any existing suspense accounts
So much of the amendments made by subsection (a)(5)(C) as relate to section 447(i) of the Internal Revenue Code of 1986 shall not apply with respect to any suspense account established under such section before the date of the enactment of this Act.
Exemption from percentage completion for long-term contracts
The amendments made by subsection (d) shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date.
Small business exception from limitation on deduction of business interest
In general
Section 163(j)(2), as amended by section 3301, is amended to read as follows:
Exemption for certain small businesses
In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, paragraph (1) shall not apply to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if such taxpayer were a corporation or partnership.
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Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2017.
Modification of treatment of S corporation conversions to C corporations
Adjustments attributable to conversion from S corporation to C corporation
Section 481 is amended by adding at the end the following new subsection:
Adjustments attributable to conversion from S corporation to C corporation
In general
In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change.
Eligible terminated S corporation
For purposes of this subsection, the term eligible terminated S corporation
means any C corporation—
which—
was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act, and
during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and
the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment.
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Cash distributions following post-termination transition period from S corporation status
Section 1371 is amended by adding at the end the following new subsection:
Cash distributions following post-termination transition period
In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits.
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Reform of business-related exclusions, deductions, etc.
Interest
In general
Section 163(j) is amended to read as follows:
Limitation on business interest
In general
In the case of any taxpayer for any taxable year, the amount allowed as a deduction under this chapter for business interest shall not exceed the sum of—
the business interest income of such taxpayer for such taxable year,
30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus
the floor plan financing interest of such taxpayer for such taxable year.
Exemption for certain small businesses
For exemption for certain small businesses, see the amendment made by section 3203 of the Tax Cuts and Jobs Act.
Application to partnerships, etc
In general
In the case of any partnership—
this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership,
the adjusted taxable income of each partner of such partnership shall be determined without regard to such partner’s distributive share of the non-separately stated taxable income or loss of such partnership, and
the amount determined under paragraph (1)(B) with respect to each partner of such partnership shall be increased by such partner’s distributive share of such partnership’s excess amount.
Excess amount
The term excess amount
means, with respect to any partnership, the excess (if any) of—
30 percent of the adjusted taxable income of the partnership, over
the amount (if any) by which the business interest of the partnership, reduced by floor plan financing interest, exceeds the business interest income of the partnership.
Application to S corporations
Rules similar to the rules of subparagraphs (A) and (B) shall apply with respect to any S corporation and its shareholders.
Business interest
For purposes of this subsection, the term business interest
means any interest paid or accrued on indebtedness properly allocable to a trade or business. Such term shall not include investment interest (within the meaning of subsection (d)).
Business interest income
For purposes of this subsection, the term business interest income
means the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. Such term shall not include investment income (within the meaning of subsection (d)).
Adjusted taxable income
For purposes of this subsection, the term adjusted taxable income
means the taxable income of the taxpayer—
computed without regard to—
any item of income, gain, deduction, or loss which is not properly allocable to a trade or business,
any business interest or business interest income,
the amount of any net operating loss deduction under section 172, and
any deduction allowable for depreciation, amortization, or depletion, and
computed with such other adjustments as the Secretary may provide.
Trade or business
For purposes of this subsection, the term trade or business
shall not include—
the trade or business of performing services as an employee,
a real property trade or business (as such term is defined in section 469(c)(7)(C)), or
the trade or business of the furnishing or sale of—
electrical energy, water, or sewage disposal services,
gas or steam through a local distribution system, or
transportation of gas or steam by pipeline,
Carryforward of disallowed interest
For carryforward of interest disallowed under paragraph (1), see subsection (o).
Floor plan financing interest defined
For purposes of this subsection—
In general
The term floor plan financing interest
means interest paid or accrued on floor plan financing indebtedness.
Floor plan financing indebtedness
The term floor plan financing indebtedness
means indebtedness—
used to finance the acquisition of motor vehicles held for sale to retail customers, and
secured by the inventory so acquired.
Motor vehicle
The term motor vehicle
means a motor vehicle that is any of the following:
An automobile.
A truck.
A recreational vehicle.
A motorcycle.
A boat.
Farm machinery or equipment.
Construction machinery or equipment.
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Carryforward of disallowed business interest
Section 163, after amendment by section 4302(a) and before amendment by section 4302(b), is amended by inserting after subsection (n) the following new subsection:
Carryforward of disallowed business interest
The amount of any business interest not allowed as a deduction for any taxable year by reason of subsection (j) shall be treated as business interest paid or accrued in the succeeding taxable year. Business interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the 5th taxable year following such taxable year, determined by treating business interest as allowed as a deduction on a first-in, first-out basis.
.
Treatment of carryforward of disallowed business interest in certain corporate acquisitions
In general
Section 381(c) is amended by inserting after paragraph (19) the following new paragraph:
Carryforward of disallowed interest
The carryover of disallowed interest described in section 163(o) to taxable years ending after the date of distribution or transfer.
.
Application of limitation
Section 382(d) is amended by adding at the end the following new paragraph:
Application to carryforward of disallowed interest
The term pre-change loss
shall include any carryover of disallowed interest described in section 163(o) under rules similar to the rules of paragraph (1).
.
Conforming amendment
Section 382(k)(1) is amended by inserting after the first sentence the following: Such term shall include any corporation entitled to use a carryforward of disallowed interest described in section 381(c)(20).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Modification of net operating loss deduction
Indefinite carryforward of net operating losses
Section 172(b)(1)(A)(ii) is amended by striking to each of the 20 taxable years
and inserting to each taxable year
.
Repeal of net operating loss carrybacks other than 1-year carryback of eligible disaster losses
In general
Section 172(b)(1)(A)(i) is amended to read as follows:
in the case of any portion of a net operating loss for the taxable year which is an eligible disaster loss with respect to the taxpayer, shall be a net operating loss carryback to the taxable year preceding the taxable year of such loss, and
.
Conforming amendments
Section 172(b)(1) is amended by striking subparagraphs (B) through (F) and inserting the following:
Eligible disaster loss
In general
For purposes of subparagraph (A)(i), the term eligible disaster loss
means—
in the case of a taxpayer which is a small business, net operating losses attributable to federally declared disasters (as defined by section 165(i)(5)), and
in the case of a taxpayer engaged in the trade or business of farming, net operating losses attributable to such federally declared disasters.
Small business
For purposes of this subparagraph, the term small business
means a corporation or partnership which meets the gross receipts test of section 448(c) (determined by substituting $5,000,000
for $25,000,000
each place it appears therein) for the taxable year in which the loss arose (or, in the case of a sole proprietorship, which would meet such test if such proprietorship were a corporation).
Trade or business of farming
For purposes of this subparagraph, the trade or business of farming 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.
.
Section 172 is amended by striking subsections (f), (g), and (h).
Limitation of net operating loss to 90 percent of taxable income
In general
Section 172(a) is amended to read as follows:
Deduction allowed
There shall be allowed as a deduction for the taxable year an amount equal to the lesser of—
the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or
90 percent of taxable income computed without regard to the deduction allowable under this section.
net operating loss deductionmeans the deduction allowed by this subsection.
.
Coordination of limitation with carrybacks and carryovers
Section 172(b)(2) is amended by striking shall be computed—
and all that follows and inserting
shall—
be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
not be considered to be less than zero, and
not exceed the amount determined under subsection (a)(2) for such prior taxable year.
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Conforming amendment
Section 172(d)(6) is amended by striking and
at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ; and
, and by adding at the end the following new subparagraph:
subsection (a)(2) shall be applied by substituting real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))
for taxable income
.
.
Annual increase of indefinite carryover amounts
Section 172(b) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
Annual increase of indefinite carryover amounts
For purposes of paragraph (2)—
the amount of any indefinite net operating loss which is carried to the next succeeding taxable year after the loss year (within the meaning of paragraph (2)) shall be increased by an amount equal to—
the amount of the loss which may be so carried over to such succeeding taxable year (determined without regard to this paragraph), multiplied by
the sum of—
the annual Federal short-term rate (determined under section 1274(d)) for the last month ending before the beginning of such taxable year, plus
4 percentage points, and
the amount of any indefinite net operating loss which is carried to any succeeding taxable year (after such next succeeding taxable year) shall be an amount equal to—
the excess of—
the amount of the loss carried to the prior taxable year (after any increase under this paragraph with respect to such amount), over
the amount by which such loss was reduced under paragraph (2) by reason of the taxable income for such prior taxable year, multiplied by
a percentage equal to 100 percent plus the percentage determined under subparagraph (A)(ii) with respect to such succeeding taxable year.
indefinite net operating lossmeans any net operating loss arising in a taxable year beginning after December 31, 2017.
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Effective date
Carryforwards and carrybacks
The amendments made by subsections (a) and (b) shall apply to net operating losses arising in taxable years beginning after December 31, 2017.
Net operating loss limited to 90 percent of taxable income
The amendments made by subsection (c) shall apply to taxable years beginning after December 31, 2017.
Annual increase in carryover amounts
The amendments made by subsection (d) shall apply to amounts carried to taxable years beginning after December 31, 2017.
Special rule for net disaster losses
Notwithstanding paragraph (1), the amendments made by subsection (b) shall not apply to the portion of the net operating loss for any taxable year which is a net disaster loss to which section 504(b) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 applies.
Like-kind exchanges of real property
In general
Section 1031(a)(1) is amended by striking property
each place it appears and inserting real property
.
Conforming amendments
Paragraph (2) of section 1031(a) is amended to read as follows:
Exception for real property held for sale
This subsection shall not apply to any exchange of real property held primarily for sale.
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Section 1031 is amended by striking subsections (e) and (i).
Section 1031, as amended by paragraph (2), is amended by inserting after subsection (d) the following new subsection:
Application to certain partnerships
For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.
.
Section 1031(h) is amended to read as follows:
Special rules for foreign real property
Real property located in the United States and real property located outside the United States are not property of a like kind.
.
The heading of section 1031 is amended by striking property
and inserting real property
.
The table of sections for part III of subchapter O of chapter 1 is amended by striking the item relating to section 1031 and inserting the following new item:
Sec. 1031. Exchange of real property held for productive use or investment.
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to exchanges completed after December 31, 2017.
Transition rule
The amendments made by this section shall not apply to any exchange if—
the property disposed of by the taxpayer in the exchange is disposed of on or before December 31 2017, or
the property received by the taxpayer in the exchange is received on or before December 31, 2017.
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.
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:
Sec. 76. Contributions to capital.
.
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, 2017.
Repeal of deduction for income attributable to domestic production activities
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 74(d)(2)(B), 86(b)(2)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), and 246(b)(1) are each amended by striking 199,
.
Section 170(b)(2)(D), as amended by the preceding provisions of this Act, is amended by striking clause (iv), by redesignating clause (v) as clause (iv), and by inserting and
at the end of clause (iii).
Section 172(d) is amended by striking paragraph (7).
Section 613(a) is amended by striking and without the deduction under section 199
.
Section 613A(d)(1) is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) as subparagraphs (B), (C), and (D), respectively.
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 section shall apply to taxable years beginning after December 31, 2017.
Entertainment, etc. expenses
Denial of deduction
Subsection (a) of section 274 is amended to read as follows:
Entertainment, amusement, recreation, and other fringe benefits
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)).
On-premises athletic facility
Which is an on-premises athletic facility as defined in section 132(j)(4)(B).
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 or for on-premises athletic facilities, 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(h)(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, 2017.
Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed
In general
Section 512(a) is amended by adding at the end the following new paragraph:
Increase in unrelated business taxable income by disallowed fringe
Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises athletic facility (as defined in section 132(j)(4)(B)). The preceding sentence shall not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on by the organization. The Secretary may issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking or for on-premises athletic facilities.
.
Effective date
The amendment made by this section shall apply to amounts paid or incurred after December 31, 2017.
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, 2017.
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 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, 2017.
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
.
Conforming amendment
Section 1231(b)(1)(C) is amended by inserting a patent, invention, model or design (whether or not patented), a secret formula or process,
before a copyright
.
Effective date
The amendments made by this section shall apply to dispositions after December 31, 2017.
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 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).
Effective date
The amendments made by this section shall apply to dispositions after December 31, 2017.
Repeal of technical termination of partnerships
In general
Paragraph (1) of section 708(b) is amended—
by striking , or
at the end of subparagraph (A) 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, 2017.
Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment 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, the excess (if any) of—
the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over
the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years
for 1 year
,
Special rule
To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors.
Applicable partnership interest
For purposes of this section—
In general
Except as provided in this paragraph or paragraph (4), the term applicable partnership interest
means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity.
Applicable trade or business
The term applicable trade or business
means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of—
raising or returning capital, and
either—
investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or
developing specified assets.
Specified asset
The term specified asset
means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing.
Exceptions
The term applicable partnership interest
shall not include—
any interest in a partnership directly or indirectly held by a corporation, or
any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with—
the amount of capital contributed (determined at the time of receipt of such partnership interest), or
the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest.
Third party investor
The term third party investor
means a person who—
holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and
is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business.
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 short term capital gain) the excess (if any) of—
so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over
any amount treated as short term capital gain 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
The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section.
Regulations
The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section
.
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 an applicable 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, 2017.
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.
.
Clerical amendment
The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item:
Sec. 174. Amortization of research and experimental expenditures.
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2022.
Uniform treatment of expenses in contingency fee cases
In general
Section 162, as amended by the preceding provisions of this Act, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection:
Expenses in contingency fee cases
No deduction shall be allowed under subsection (a) to a taxpayer for any expense—
paid or incurred in the course of the trade or business of practicing law, and
resulting from a case for which the taxpayer is compensated primarily on a contingent basis,
.
Effective date
The amendment made by this section shall apply to expenses and costs paid or incurred in taxable years beginning after the date of the enactment of this Act.
Reform of business credits
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, 2017.
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, 2017.
Basis adjustments
The amendment made by subsection (b)(2) shall apply to credits determined for taxable years beginning after December 31, 2017.
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 Cuts and Jobs Act)
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 or incurred after December 31, 2017.
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—
owned or leased (as permitted by section 47 of the Internal Revenue Code of 1986 as in effect before its repeal) by the taxpayer at all times after December 31, 2017, and
with respect to which the 24-month period selected by the taxpayer under section 47(c)(1)(C) of such Code begins not later than the end of the 180-day period beginning on the date of the enactment of this Act,
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, 2017.
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, 2017.
Termination of new markets tax credit
In general
Section 45D(f) is amended—
by striking 2019
in paragraph (1)(G) and inserting 2017
, and
by striking 2024
in paragraph (3) and inserting 2022
.
Effective date
The amendments made by this section shall apply to calendar years beginning after December 31, 2017.
Repeal of credit for expenditures to provide access to disabled individuals
In general
Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 44 (and by striking the item relating to such section in the table of sections for such subpart).
Conforming amendment
Section 38(b) is amended by striking paragraph (7).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Modification of credit for portion of employer social security taxes paid with respect to employee tips
Credit determined with respect to minimum wage as in effect
Section 45B(b)(1)(B) is amended by striking as in effect on January 1, 2007, and
.
Information return requirement
Section 45B is amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new subsection:
Information return requirement
In general
No credit shall be determined under subsection (a) with respect to any food or beverage establishment of any taxpayer for any taxable year unless such taxpayer has, with respect to the calendar year which ends in or with such taxable year—
made a report to the Secretary showing the information described in section 6053(c)(1) with respect to such food or beverage establishment, and
furnished written statements to each employee of such food or beverage establishment showing the information described in section 6053(c)(2).
Allocation of 10 percent of gross receipts
For purposes of determining the information referred to in subparagraphs (A) and (B), section 6053(c)(3)(A)(i) shall be applied by substituting 10 percent
for 8 percent
. For purposes of section 6053(c)(5), any reference to section 6053(c)(3)(B) contained therein shall be treated as including a reference to this paragraph.
Food or beverage establishment
For purposes of this subsection, the term food or beverage establishment
means any trade or business (or portion thereof) which would be a large food or beverage establishment (as defined in section 6053(c)(4)) if such section were applied without regard to subparagraph (C) thereof.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Energy credits
Modifications to credit for electricity produced from certain renewable resources
Termination of inflation adjustment
Section 45(b)(2) is amended—
by striking The 1.5 cent amount
and inserting the following:
In general
The 1.5 cent amount
, and
by adding at the end the following new subparagraph:
Termination
Subparagraph (A) shall not apply with respect to any electricity or refined coal produced at a facility the construction of which begins after the date of the enactment of this subparagraph.
.
Special rule for determination of beginning of construction
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), 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 dates
Termination of inflation adjustment
The amendments made by subsection (a) shall apply to taxable years ending after the date of the enactment of this Act.
Special rule for determination of beginning of construction
The amendment made by subsection (b) shall apply to taxable years beginning before, on, or after the date of the enactment of this Act.
Modification of the energy investment tax credit
Extension of solar energy property
Section 48(a)(3)(A)(ii) is amended by striking periods ending before January 1, 2017
and inserting property the construction of which begins before January 1, 2022
.
Extension of qualified fuel cell property
Section 48(c)(1)(D) is amended by striking for any period after December 31, 2016
and inserting the construction of which does not begin before January 1, 2022
.
Extension of qualified microturbine property
Section 48(c)(2)(D) is amended by striking for any period after December 31, 2016
and inserting the construction of which does not begin before January 1, 2022
.
Extension of combined heat and power system property
Section 48(c)(3)(A)(iv) is amended by striking which is placed in service before January 1, 2017
and inserting the construction of which begins before January 1, 2022
.
Extension of qualified small wind energy property
Section 48(c)(4)(C) is amended by striking for any period after December 31, 2016
and inserting the construction of which does not begin before January 1, 2022
.
Extension of thermal energy property
Section 48(a)(3)(A)(vii) is amended by striking periods ending before January 1, 2017
and inserting property the construction of which begins before January 1, 2022
.
Phaseout of 30 percent credit rate for fuel cell and small wind energy property
Section 48(a) is amended by adding at the end the following new paragraph:
Phaseout for qualified fuel cell property and qualified small wind energy property
In general
In the case of qualified fuel cell property or qualified small wind energy property, the construction of which begins before January 1, 2022, the energy percentage determined under paragraph (2) shall be equal to—
in the case of any property the construction of which begins after December 31, 2019, and before January 1, 2021, 26 percent, and
in the case of any property the construction of which begins after December 31, 2020, and before January 1, 2022, 22 percent.
Placed in service deadline
In the case of any qualified fuel cell property or qualified small wind energy property, the construction of which begins before January 1, 2022, and which is not placed in service before January 1, 2024, the energy percentage determined under paragraph (2) shall be equal to 10 percent.
.
Phaseout for fiber-optic solar energy property
Subparagraphs (A) and (B) of section 48(a)(6) are each amended by inserting or (3)(A)(ii)
after paragraph (3)(A)(i)
.
Termination of solar energy property
Section 48(a)(3)(A)(i) is amended by inserting , the construction of which begins before January 1, 2028, and
after equipment
.
Termination of geothermal energy property
Section 48(a)(3)(A)(iii) is amended by inserting , the construction of which begins before January 1, 2028, and
after equipment
.
Special rule for determination of beginning of construction
Section 48(c) is amended by adding at the end the following new paragraph:
Special rule for determining beginning of construction
The construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service.
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to periods after December 31, 2016, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).
Extension of combined heat and power system property
The amendment made by subsection (d) shall apply to property placed in service after December 31, 2016.
Phaseouts and terminations
The amendments made by subsections (g), (h), (i), and (j) shall take effect on the date of the enactment of this Act.
Special rule for determination of beginning of construction
The amendment made by subsection (k) shall apply to taxable years beginning before, on, or after the date of the enactment of this Act.
Extension and phaseout of residential energy efficient property
Extension
Section 25D(h) is amended by striking December 31, 2016 (December 31, 2021, in the case of any qualified solar electric property expenditures and qualified solar water heating property expenditures)
and inserting December 31, 2021
.
Phaseout
In general
Paragraphs (3), (4), and (5) of section 25D(a) are amended by striking 30 percent
each place it appears and inserting the applicable percentage
.
Conforming amendment
Section 25D(g) of such Code is amended by striking paragraphs (1) and (2) of
.
Effective date
The amendments made by this section shall apply to property placed in service after December 31, 2016.
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 apply to taxable years beginning after December 31, 2017.
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, 2017.
Modifications of credit for production from advanced nuclear power facilities
Treatment of unutilized limitation amounts
Section 45J(b) is amended—
in paragraph (4), by inserting or any amendment to
after enactment of
; and
by adding at the end the following new paragraph:
Allocation of unutilized limitation
In general
Any unutilized national megawatt capacity limitation shall be allocated by the Secretary under paragraph (3) as rapidly as is practicable after December 31, 2020—
first to facilities placed in service on or before such date to the extent that such facilities did not receive an allocation equal to their full nameplate capacity; and
then to facilities placed in service after such date in the order in which such facilities are placed in service.
Unutilized national megawatt capacity limitation
The term unutilized national megawatt capacity limitation
means the excess (if any) of—
6,000 megawatts, over
the aggregate amount of national megawatt capacity limitation allocated by the Secretary before January 1, 2021, reduced by any amount of such limitation which was allocated to a facility which was not placed in service before such date.
Coordination with other provisions
In the case of any unutilized national megawatt capacity limitation allocated by the Secretary pursuant to this paragraph—
such allocation shall be treated for purposes of this section in the same manner as an allocation of national megawatt capacity limitation; and
subsection (d)(1)(B) shall not apply to any facility which receives such allocation.
.
Transfer of credit by certain public entities
In general
Section 45J is amended—
by redesignating subsection (e) as subsection (f); and
by inserting after subsection (d) the following new subsection:
Transfer of credit by certain public entities
In general
If, with respect to a credit under subsection (a) for any taxable year—
the taxpayer would be a qualified public entity; and
such entity elects the application of this paragraph for such taxable year with respect to all (or any portion specified in such election) of such credit,
Definitions
For purposes of this subsection—
Qualified public entity
The term qualified public entity
means—
a Federal, State, or local government entity, or any political subdivision, agency, or instrumentality thereof;
a mutual or cooperative electric company described in section 501(c)(12) or section 1381(a)(2); or
a not-for-profit electric utility which has or had received a loan or loan guarantee under the Rural Electrification Act of 1936.
Eligible project partner
The term eligible project partner
means—
any person responsible for, or participating in, the design or construction of the advanced nuclear power facility to which the credit under subsection (a) relates;
any person who participates in the provision of the nuclear steam supply system to the advanced nuclear power facility to which the credit under subsection (a) relates;
any person who participates in the provision of nuclear fuel to the advanced nuclear power facility to which the credit under subsection (a) relates; or
any person who has an ownership interest in such facility.
Special rules
Application to partnerships
In the case of a credit under subsection (a) which is determined at the partnership level—
for purposes of paragraph (1)(A), a qualified public entity shall be treated as the taxpayer with respect to such entity’s distributive share of such credit; and
the term eligible project partner
shall include any partner of the partnership.
Taxable year in which credit taken into account
In the case of any credit (or portion thereof) with respect to which an election is made under paragraph (1), such credit shall be taken into account in the first taxable year of the eligible project partner ending with, or after, the qualified public entity’s taxable year with respect to which the credit was determined.
Treatment of transfer under private use rules
For purposes of section 141(b)(1), any benefit derived by an eligible project partner in connection with an election under this subsection shall not be taken into account as a private business use.
.
Special rule for proceeds of transfers for mutual or cooperative electric companies
Section 501(c)(12) of such Code is amended by adding at the end the following new subparagraph:
In the case of a mutual or cooperative electric company described in this paragraph or an organization described in section 1381(a)(2), income received or accrued in connection with an election under section 45J(e)(1) shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.
.
Effective dates
Treatment of unutilized limitation amounts
The amendment made by subsection (a) shall take effect on the date of the enactment of this Act.
Transfer of credit by certain public entities
The amendments made by subsection (b) shall apply to taxable years beginning after the date of the enactment of this Act.
Bond reforms
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
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 Cuts and Jobs Act.
.
Section 26(b)(2) is amended by striking subparagraph (D).
Section 141(b) is amended by striking paragraphs (5) and (9).
Section 141(d) is amended by striking paragraph (5).
Section 141 is amended by striking subsection (e).
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) and inserting (determined by taking into account the respective issue prices of the bonds issued as part of the issue)
, and
by striking the last sentence of subparagraph (D)(v).
Clause (iv) of section 148(f)(4)(C) is amended to read as follows:
Construction issue
For purposes of this subparagraph—
In general
The term construction issue
means any issue if at least 75 percent of the available construction proceeds of such issue are to be used for construction expenditures.
Construction
The term construction
includes reconstruction and rehabilitation.
.
Section 149(b)(3) is amended by striking subparagraph (C).
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(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 Cuts and Jobs Act).
.
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 Cuts and Jobs Act)
after section 143(m)(3)
.
Section 6654(f)(1) is amended by inserting (as in effect before its repeal by the Tax Cuts and Jobs Act)
after section 143(m)
.
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, 2017.
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 another 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) is amended by striking clause (xiv) and by redesignating clauses (xv) to (xvii) as clauses (xiv) to (xvi).
Effective date
The amendments made by this section shall apply to advance refunding bonds issued after December 31, 2017.
Repeal of tax credit bonds
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
Part IV of subchapter U of chapter 1 is amended by striking section 1397E (and by striking the item relating to such section in the table of sections for such part).
Section 54(l)(3)(B) is amended by inserting (as in effect before its repeal by the Tax Cuts and Jobs Act)
after section 1397E(I)
.
Section 6211(b)(4)(A) is amended by striking , and 6431
and inserting and
before 36B
.
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 December 31, 2017.
No tax exempt bonds for professional stadiums
In general
Section 103(b), as amended by this Act, is further amended by adding at the end the following new paragraph:
Professional stadium bond
Any professional stadium bond.
.
Professional stadium bond defined
Subsection (c) of section 103 is amended by adding at the end the following new paragraph:
Professional stadium bond
The term professional stadium bond
means any bond issued as part of an issue any proceeds of which are used to finance or refinance capital expenditures allocable to a facility (or appurtenant real property) which, during at least 5 days during any calendar year, is used as a stadium or arena for professional sports exhibitions, games, or training.
.
Effective date
The amendments made by this section shall apply to bonds issued after November 2, 2017.
Insurance
Net operating losses of life insurance companies
In general
Section 805(b) is amended by striking paragraph (4) and by redesignating paragraph (5) as paragraph (4).
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)(ii) is amended to read as follows:
the deduction allowed under section 172,
.
Section 805(a) is amended by striking paragraph (5).
Section 953(b)(1)(B) is amended to read as follows:
So much of section 805(a)(8) as relates to the deduction allowed under section 172.
.
Effective date
The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2017.
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), as amended by section 3701, is amended by striking clause (i) and by redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
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 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), as amended by section 3701, 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, 2017.
Surtax on life insurance company taxable income
In general
Section 801(a)(1) is amended—
by striking consist of a tax
and insert
consist of the sum of—
a tax
, and
by striking the period at the end and inserting , and
, and
by adding at the end the following new subparagraph:
a tax equal to 8 percent of the life insurance company taxable income.
.
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, 2017.
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, 2017.
Phased inclusion of remaining balance of policyholders surplus accounts
In the case of any stock life insurance company which has a balance (determined as of the close of such company’s last taxable year beginning before January 1, 2018) in an existing policyholders surplus account (as defined in section 815 of the Internal Revenue Code of 1986, as in effect before its repeal), the tax imposed by section 801 of such Code for the first 8 taxable years beginning after December 31, 2017, shall be the amount which would be imposed by such section for such year on the sum of—
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 26.25 percent
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2017.
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 average of the losses treated as paid in the 1st and 2d years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 18th year after the accident year, they shall be treated as paid in such 18th year.
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 average of the losses treated as paid in the 7th, 8th, and 9th years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 25th year after the accident year, they shall be treated as paid in such 25th year.
.
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, 2017.
Transitional rule
For the first taxable year beginning after December 31, 2017—
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, 2017.
Compensation
Modification of limitation on excessive employee remuneration
Repeal of performance-based compensation and commission exceptions for limitation on excessive employee remuneration
In general
Section 162(m)(4) is amended by striking subparagraphs (B) and (C) and by redesignating subparagraphs (D), (E), (F), and (G) as subparagraphs (B), (C), (D), and (E), respectively.
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)
.
Expansion of applicable employer
Section 162(m)(2) is amended to read as follows:
Publicly held corporation
For purposes of this subsection, the term publicly held corporation
means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c))—
the securities of which are required to be registered under section 12 of such Act (15 U.S.C. 78l), or
that is required to file reports under section 15(d) of such Act (15 U.S.C. 78o(d)).
.
Modification of definition of covered employees
Section 162(m)(3) 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 principal executive officer or principal 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 the principal executive officer or principal financial officer)
, 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, 2016.
Such term shall include any employee who would be described in subparagraph (B) if the reporting described in such subparagraph were required as so described.
.
Special rule for remuneration paid to beneficiaries, etc
Section 162(m)(4), as amended by subsection (a), is amended by adding at the end the following new subparagraph:
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, 2017.
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 20 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),
has income excluded from taxation under section 115(1), or
is a political organization described in section 527(e)(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, 2016.
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 paid by an applicable tax-exempt organization shall include any remuneration paid with respect to employment of such employee by any related person or governmental entity.
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.
Regulations
The Secretary shall prescribe such regulations as may be necessary to prevent avoidance of the purposes of this section through the performance of services other than as an employee.
.
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, 2017.
Treatment of qualified equity grants
In general
Election to defer income
Section 83 is amended by adding at the end the following new subsection:
Qualified equity grants
In general
For purposes of this subtitle, if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection—
except as provided in subparagraph (B), no amount shall be included in income under subsection (a) for the first taxable year in which the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable, and
an amount equal to the amount which would be included in income of the employee under subsection (a) (determined without regard to this subsection) shall be included in income for the taxable year of the employee which includes the earliest of—
the first date such qualified stock becomes transferable (including transferable to the employer),
the date the employee first becomes an excluded employee,
the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection),
the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or
the date on which the employee revokes (at such time and in such manner as the Secretary may provide) the election under this subsection with respect to such stock.
Qualified stock
In general
For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if—
such stock is received—
in connection with the exercise of an option, or
in settlement of a restricted stock unit, and
such option or restricted stock unit was provided by the corporation—
in connection with the performance of services as an employee, and
during a calendar year in which such corporation was an eligible corporation.
Limitation
The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture.
Eligible corporation
For purposes of subparagraph (A)(ii)(II)—
In general
The term eligible corporation means, with respect to any calendar year, any corporation if—
no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and
such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock.
Same rights and privileges
For purposes of clause (i)(II)—
except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be determined in a similar manner as provided under section 423(b)(5),
employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and
rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit.
Employee
For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee.
Special rule for calendar years before 2018
In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same.
Qualified employee; excluded employee
For purposes of this subsection—
In general
The term qualified employee means any individual who—
is not an excluded employee, and
agrees in the election made under this subsection to meet such requirements as determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met.
Excluded employee
The term excluded employee means, with respect to any corporation, any individual—
who was a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the 10 preceding calendar years,
who is or has been at any prior time—
the chief executive officer of such corporation or an individual acting in such a capacity, or
the chief financial officer of such corporation or an individual acting in such a capacity,
who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or
who has been for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation).
Election
Time for making election
An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b).
Limitations
No election may be made under this section with respect to any qualified stock if—
the qualified employee has made an election under subsection (b) with respect to such qualified stock,
any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or
such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless—
not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and
the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis.
Definitions and special rules related to limitation on stock redemptions
Deferral stock
For purposes of this paragraph, the term deferral stock
means stock with respect to which an election is in effect under this subsection.
Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period
Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of clause (iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased.
Purchase of all outstanding deferral stock
The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock.
Reporting
Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary may require for purposes of administering this paragraph.
Controlled groups
For purposes of this subsection, all corporations which are members of the same controlled group of corporations (as defined in section 1563(a)) shall be treated as one corporation.
Notice requirement
Any corporation that transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee—
certify to such employee that such stock is qualified stock, and
notify such employee—
that the employee may elect to defer income on such stock under this subsection, and
that, if the employee makes such an election—
the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period,
the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and
the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding.
Restricted stock units
This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units.
.
Deduction by employer
Subsection (h) of section 83 is amended by striking or (d)(2)
and inserting (d)(2), or (i)
.
Withholding
Time of withholding
Section 3401 is amended by adding at the end the following new subsection:
Qualified stock for which an election is in effect under section 83(i)
For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages—
received on the earliest date described in section 83(i)(1)(B), and
in an amount equal to the amount included in income under section 83 for the taxable year which includes such date.
.
Amount of withholding
Section 3402 is amended by adding at the end the following new subsection:
Rate of withholding for certain stock
In the case of any qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i)—
the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and
such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit.
.
Coordination with other deferred compensation rules
Election to apply deferral to statutory options
Incentive stock options
Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option.
.
Employee stock purchase plans
Section 423(a) is amended by adding at the end the following flush sentence:
The preceding sentence shall not apply to any share of stock with respect to which an election is made under section 83(i).
.
Exclusion from definition of nonqualified deferred compensation plan
Subsection (d) of section 409A is amended by adding at the end the following new paragraph:
Treatment of qualified stock
An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i).
.
Information reporting
Section 6051(a) is amended by striking and
at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting a comma, and by inserting after paragraph (14) the following new paragraphs:
the amount excludable from gross income under subparagraph (A) of section 83(i)(1),
the amount includible in gross income under subparagraph (B) of section 83(i)(1) with respect to an event described in such subparagraph which occurs in such calendar year, and
the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year.
.
Penalty for failure of employer To provide notice of tax consequences
Section 6652 is amended by adding at the end the following new subsection:
Failure to provide notice under section 83(i)
In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000.
.
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017.
Requirement to provide notice
The amendments made by subsection (e) shall apply to failures after December 31, 2017.
Transition rule
Until such time as the Secretary (or the Secretary’s delegate) issue regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements.
Taxation of foreign income and foreign persons
Establishment of participation exemption system for taxation of foreign income
Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations
In general
Part VIII of subchapter B of chapter 1 is amended by inserting after section 245 the following new section:
Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned 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 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 with respect to which any domestic corporation is a United States shareholder. Such term shall not include any passive foreign investment company (within the meaning of subpart D of part VI of subchapter P) that is not a controlled foreign corporation.
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 dividend as—
the post-1986 undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to
the total post-1986 undistributed earnings of such foreign corporation.
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 by substituting after the date specified in section 316(a)(1)
for 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.
Treatment of certain dividends in excess of undistributed earnings
In the case of any dividend from the specified 10-percent owned foreign corporation which is in excess of undistributed earnings (as determined under paragraph (2) after taking into account the modifications described in clauses (i) and (ii) of paragraph (4)(A)), the foreign-source portion of such dividend is an amount which bears the same ratio to such dividend as—
the portion of the earnings and profits described in subparagraph (B) which is attributable to neither income described in paragraph (3)(A) nor dividends described in paragraph (3)(B), bears to
the earnings and profits of such corporation for the taxable year in which such distribution is made (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year).
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
Section 246(c) 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 applying paragraph (1) with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph (1) for any period only if—
the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation for such period, and
the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation for such period.
.
Application of rules generally applicable to deductions for dividends received
Treatment of dividends from certain corporations
Section 246(a)(1) is amended by striking and 245
and inserting 245, and 245A
.
Coordination with section 1059
Section 1059(b)(2)(B) is amended by striking or 245
and inserting 245, or 245A
.
Coordination with foreign tax credit limitation
Section 904(b) is amended 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 United States shareholder with respect to a specified 10-percent owned foreign corporation, such shareholder’s taxable income from sources without the United States (and entire taxable income) shall be determined without regard to—
the foreign-source portion of any dividend received from such foreign corporation, and
any deductions properly allocable or apportioned to—
income (other than subpart F income (as defined in section 952) and foreign high return amounts (as defined in section 951A(b)) with respect to stock of such specified 10-percent owned foreign corporation, or
such stock (to the extent income with respect to such stock is other than subpart F income (as so defined) or foreign high return amounts (as so defined)).
.
Conforming amendments
Section 245(a)(4) is amended by striking section 902(c)(1)
and inserting section 245A(c)(2) applied by substituting
.qualified 10-percent owned foreign corporation
for specified 10-percent owned foreign corporation
each place it appears
Section 951(b) is amended by striking subpart
and inserting title
.
Section 957(a) 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 section 245 the following new item:
Sec. 245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations.
.
Effective date
The amendments made by this section shall apply to distributions made after (and, in the case of the amendments made by subsection (d), deductions with respect to taxable years ending after) December 31, 2017.
Application of participation exemption to investments in United States property
In general
Section 956(a) is amended in the matter preceding paragraph (1) by inserting (other than a corporation)
after United States shareholder
.
Regulatory authority to prevent abuse
Section 956(e) is amended by striking including regulations to prevent
and inserting
including regulations—
to address United States shareholders that are partnerships with corporate partners, and
to prevent
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017.
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 of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable.
.
Effective date
The amendments made by this subsection shall apply to distributions made after December 31, 2017.
Treatment of foreign branch losses transferred to specified 10-percent owned foreign corporations
In general
Part II of subchapter B of chapter 1 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.
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, 2017, 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
Section 367(a)(3)(C) is amended by striking outside
in the last sentence and inserting within
.
Clerical amendment
The table of sections for part II of subchapter B of chapter 1 is amended by adding at the end the following new item:
Sec. 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations.
.
Effective date
The amendments made by this subsection shall apply to transfers after December 31, 2017.
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, 2018, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the greater of—
the accumulated post-1986 deferred foreign income of such corporation determined as of November 2, 2017, or
the accumulated post-1986 deferred foreign income of such corporation determined as of December 31, 2017.
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 November 2, 2017—
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).
Netting among United States shareholders in same affiliated group
In general
In the case of any affiliated group which includes at least one E&P net surplus shareholder and one E&P net deficit shareholder, the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by each such E&P net surplus shareholder shall be reduced (but not below zero) by such shareholder’s applicable share of the affiliated group’s aggregate unused E&P deficit.
E&P net surplus shareholder
For purposes of this paragraph, the term E&P net surplus shareholder
means any United States shareholder which would (determined without regard to this paragraph) take into account an amount greater than zero under section 951(a)(1) by reason of subsection (a).
E&P net deficit shareholder
For purposes of this paragraph, the term E&P net deficit shareholder
means any United States shareholder if—
the aggregate foreign E&P deficit with respect to such shareholder (as defined in paragraph (3)(A)), exceeds
the amount which would (but for this subsection) be taken into account by such shareholder under section 951(a)(1) by reason of subsection (a).
Aggregate unused E&P deficit
For purposes of this paragraph—
In general
The term aggregate unused E&P deficit
means, with respect to any affiliated group, the lesser of—
the sum of the excesses described in subparagraph (C), determined with respect to each E&P net deficit shareholder in such group, or
the amount determined under subparagraph (E)(ii).
Reduction with respect to E&P net deficit shareholders which are not wholly owned by the affiliated group
If the group ownership percentage of any E&P net deficit shareholder is less than 100 percent, the amount of the excess described in subparagraph (C) which is taken into account under clause (i)(I) with respect to such E&P net deficit shareholder shall be such group ownership percentage of such amount.
Applicable share
For purposes of this paragraph, the term applicable share
means, with respect to any E&P net surplus shareholder in any affiliated group, the amount which bears the same proportion to such group’s aggregate unused E&P deficit as—
the product of—
such shareholder’s group ownership percentage, multiplied by
the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by such shareholder, bears to
the aggregate amount determined under clause (i) with respect to all E&P net surplus shareholders in such group.
Group ownership percentage
For purposes of this paragraph, the term group ownership percentage
means, with respect to any United States shareholder in any affiliated group, the percentage of the value of the stock of such United States shareholder which is held by other includible corporations in such affiliated group. Notwithstanding the preceding sentence, the group ownership percentage of the common parent of the affiliated group is 100 percent. Any term used in this subparagraph which is also used in section 1504 shall have the same meaning as when used in such section.
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—
the United States shareholder’s 7 percent rate equivalent percentage 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
the United States shareholder’s 14 percent rate equivalent percentage of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i).
7 and 14 percent rate equivalent percentages
For purposes of this subsection—
7 percent rate equivalent percentage
The term 7 percent rate equivalent percentage
means, with respect to any United States shareholder for any taxable year, the percentage which would result in the amount to which such percentage applies being subject to a 7 percent rate of tax determined by only taking into account a deduction equal to such percentage of such amount and the highest rate of tax specified in section 11 for such taxable year. In the case of any taxable year of a United States shareholder to which section 15 applies, the highest rate of tax under section 11 before the effective date of the change in rates and the highest rate of tax under section 11 after the effective date of such change shall each be taken into account under the preceding sentence in the same proportions as the portion of such taxable year which is before and after such effective date, respectively.
14 percent rate equivalent percentage
The term 14 percent rate equivalent percentage
means, with respect to any United States shareholder for any taxable year, the percentage determined under subparagraph (A) applied by substituting 14 percent rate of tax
for 7 percent rate of tax
.
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, one-third of the sum 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 November 2, 2017,
the aggregate described in clause (i) determined as of the close of the last taxable year of each such specified foreign corporation which ends before November 2, 2017, and
the aggregate described in clause (i) determined as of the close of the taxable year of each such specified foreign corporation which precedes the taxable year referred to in clause (ii).
one-half (100 percent in the case that both clauses (ii) and (iii) are disregarded)for
one-third.
Cash position
For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of—
cash 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 foreign currency.
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
In general
The applicable percentage of each specified cash position of a specified foreign corporation shall not be taken into account by—
the United States shareholder referred to in clause (ii) with respect to such position, or
any United States shareholder which is an includible corporation in the same affiliated group as such United States shareholder referred to in clause (ii).
Specified cash position
For purposes of this subparagraph, the term specified cash position
means—
amounts described in subparagraph (B)(ii) to the extent such amounts are receivable from another specified foreign corporation with respect to any United States shareholder,
amounts described in subparagraph (B)(iii)(I) to the extent such amounts consist of an equity interest in another specified foreign corporation with respect to any United States shareholder, and
amounts described in subparagraph (B)(iii)(IV) to the extent that another specified foreign corporation with respect to any United States shareholder is obligated to repay such amount.
Applicable percentage
For purposes of this subparagraph, the term applicable percentage
means—
with respect to each specified cash position described in subclause (I) or (III) of clause (ii), the pro rata share of the United States shareholder referred to in clause (ii) with respect to the specified foreign corporation referred to in such clause, and
with respect to each specified cash position described in clause (ii)(II), the ratio (expressed as a percentage and not in excess of 100 percent) of the United States shareholder’s pro rata share of the cash position of the specified foreign corporation referred to in such clause divided by the amount of such specified cash position.
Reduction with respect to affiliated group members not wholly owned by the affiliated group
For purposes of clause (i)(II), in the case of an includible corporation the group ownership percentage of which is less than 100 percent (as determined under subsection (b)(4)(F)), the amount not take into account by reason of such clause shall be the group ownership percentage of such amount (determined without regard to this clause).
Certain blocked assets not taken into account
A cash position of a specified foreign corporation shall not be taken into account under subparagraph (A) if such position could not (as of the date that it would otherwise have been taken into account under clause (i), (ii), or (iii) of subparagraph (A)) have been distributed by such specified foreign corporation to United States shareholders of such specified foreign corporation because of currency or other restrictions or limitations imposed under the laws of any foreign country (within the meaning of section 964(b)).
Cash positions of certain non-corporate entities taken into account
An entity (other than a domestic corporation) shall be treated as a specified foreign corporation of a United States shareholder for purposes of determining such United States shareholder’s aggregate foreign cash position if any interest in such entity is held by a specified foreign corporation of such United States shareholder (determined after application of this subparagraph) and such entity would be a specified foreign corporation of such United States shareholder if such entity were a foreign corporation.
Time of certain determinations
For purposes of this paragraph, the determination of whether a person is a United States shareholder, whether a person is a specified foreign corporation, and the pro rata share of a United States shareholder with respect to a specified foreign corporation, shall be determined as of the end of the taxable year described in subsection (a).
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 date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation) 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, or
if distributed, would be excluded from the gross income of a United States shareholder under section 959.
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 date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation,
without diminution by reason of dividends distributed during the taxable year ending with or including such date, and
increased by the amount of any qualified deficit (within the meaning of section 952(c)(1)(B)(ii)) arising before January 1, 2018, which is treated as a qualified deficit (within the meaning of such section as amended by the Tax Cuts and Jobs Act) for purposes of such foreign corporation’s first taxable year beginning after December 31, 2017.
Specified foreign corporation
In general
For purposes of this section, the term specified foreign corporation
means—
any controlled foreign corporation, and
any foreign corporation with respect to which one or more domestic corporations is a United States shareholder (determined without regard to section 958(b)(4)).
Application to certain foreign corporations
For purposes of sections 951 and 961, a foreign corporation described in paragraph (1)(B) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)).
Exception for passive foreign investment companies
The term specified foreign corporation
shall not include any passive foreign investment company (within the meaning of subpart D of part VI of subchapter P) that is not a controlled foreign corporation.
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—
80 percent of 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
60 percent of 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
With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as—
the excess of—
the amounts which are includible in gross income of such domestic corporation by reason of this section, over
the deduction allowable under subsection (c) with respect to such amounts, bears to
such amounts.
Extension of foreign tax credit carryover period
With respect to any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section, section 904(c) shall be applied by substituting first 20 succeeding taxable years
for first 10 succeeding taxable years
.
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 equal installments.
Date for payment of installments
If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection (a) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made.
Acceleration of payment
If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer.
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 in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section, over
such taxpayer’s net income tax for such taxable year determined—
without regard to this section, and
without regard to any income, deduction, or credit, properly attributable to a dividend received by such United States shareholder from any deferred foreign income corporation.
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. Any net tax liability payment of which is deferred under the preceding sentence shall be assessed on the return as an addition to tax in the shareholder’s taxable year which includes such triggering event.
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.
Annual reporting of net tax liability
In general
Any shareholder of an S corporation which makes an election under paragraph (1) shall report the amount of such shareholder’s deferred net tax liability on such shareholder’s return of tax for the taxable year for which such election is made and on the return of tax for each taxable year thereafter until such amount has been fully assessed on such returns.
Deferred net tax liability
For purposes of this paragraph, the term deferred net tax liability
means, with respect to any taxable year, the amount of net tax liability payment of which has been deferred under paragraph (1) and which has not been assessed on a return of tax for any prior taxable year.
Failure to report
In the case of any failure to report any amount required to be reported under subparagraph (A) with respect to any taxable year before the due date for the return of tax for such taxable year, there shall be assessed on such return as an addition to tax 5 percent of such amount.
Election
Any election under paragraph (1)—
shall be made by the shareholder of the S corporation not later than the due date for such shareholder’s return of tax for the taxable year which includes the close of the taxable year of such S corporation in which the amount described in subsection (a) is taken into account, and
shall be made in such manner as the Secretary may provide.
Reporting by S corporation
Each S corporation which is a United States shareholder of a deferred foreign income corporation shall report in its return of tax under section 6037(a) the amount includible in its gross income for such taxable year by reason of this section and the amount of the deduction allowable by subsection (c). Any copy provided to a shareholder under section 6037(b) shall include a statement of such shareholder’s pro rata share of such amounts.
Inclusion of deferred foreign income under this section not to trigger recapture of overall foreign loss, etc
For purposes of sections 904(f)(1) and 907(c)(4), in the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder’s taxable income from sources without the United States and combined foreign oil and gas income shall be determined without regard to this section.
Regulations
The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
.
Clerical amendment
The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 965 and inserting the following:
Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation.
.
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 such item of income.
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 the taxable year or 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 the taxable year or 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 may prescribe such regulations or other guidance 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 subsections (a) and (b) of section 960 for such taxable year shall be treated for purposes of this title (other than sections 959, 960, and 961) as an item of income required to be included in the gross income of such domestic corporation under section 951(a) for such taxable year.
.
Section 245(a)(10)(C) is amended by striking sections 902, 907, and 960
and inserting sections 907 and 960
.
Sections 535(b)(1) and 545(b)(1) are each amended by striking section 902(a) or 960(a)(1)
and inserting section 960
.
Section 814(f)(1) is amended—
by striking subparagraph (B), and
by striking all that precedes No income
and inserting the following:
Treatment of foreign taxes
.
Section 865(h)(1)(B) is amended by striking sections 902, 907, and 960
and inserting sections 907 and 960
.
Section 901(a) is amended by striking sections 902 and 960
and inserting section 960
.
Section 901(e)(2) is amended by striking but is not limited to—
and all that follows through that portion
and inserting but is not limited to, that portion
.
Section 901(f) is amended by striking sections 902 and 960
and inserting section 960
.
Section 901(j)(1)(A) is amended by striking 902 or
.
Section 901(j)(1)(B) is amended by striking sections 902 and 960
and inserting section 960
.
Section 901(k)(2) is amended by striking section 853, 902, or 960
and inserting section 853 or 960
.
Section 901(k)(6) is amended by striking 902 or
.
Section 901(m)(1) is amended by striking relevant foreign assets—
and all that follows and inserting relevant foreign assets shall not be taken into account in determining the credit allowed under subsection (a).
.
Section 904(d)(1) is amended by striking sections 902, 907, and 960
and inserting sections 907 and 960
.
Section 904(d)(6)(A) is amended by striking sections 902, 907, and 960
and inserting sections 907 and 960
.
Section 904(h)(10)(A) is amended by striking sections 902, 907, and 960
and inserting sections 907 and 960
.
Section 904 is amended by striking subsection (k).
Section 905(c)(1) is amended by striking the last sentence.
Section 905(c)(2)(B)(i) is amended to read as follows:
shall be taken into account for the taxable year to which such taxes relate, and
.
Section 906(a) is amended by striking (or deemed, under section 902, paid or accrued during the taxable year)
.
Section 906(b) is amended by striking paragraphs (4) and (5).
Section 907(b)(2)(B) is amended by striking 902 or
.
Section 907(c)(3) 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
.
Section 907(c)(5) is amended by striking 902 or
.
Section 907(f)(2)(B)(i) is amended by striking 902 or
.
Section 908(a) is amended by striking 902 or
.
Section 909(b) is amended—
by striking section 902 corporation
in the matter preceding paragraph (1) and inserting 10/50 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 10/50 corporation or a domestic corporation which is a United States shareholder with respect to such 10/50 corporation.
, and
by striking section 902 corporations
in the heading thereof and inserting 10/50 corporations
.
Section 909(d)(5) is amended to read as follows:
10/50 corporation
The term 10/50 corporation
means any foreign corporation with respect to which one or more domestic corporations is a United States shareholder.
.
Section 958(a)(1) is amended by striking 960(a)(1)
and inserting 960
.
Section 959(d) is amended by striking Except as provided in section 960(a)(3), any
and inserting Any
.
Section 959(e) is amended by striking section 960(b)
and inserting section 960(c)
.
Section 1291(g)(2)(A) is amended by striking any distribution—
and all that follows through but only if
and inserting any distribution, any withholding tax imposed with respect to such distribution, but only if
.
Section 6038(c)(1)(B) is amended by striking sections 902 (relating to foreign tax credit for corporate stockholder in foreign corporation) and 960 (relating to special rules for foreign tax credit)
and inserting section 960
.
Section 6038(c)(4) 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:
Sec. 960. Deemed paid credit for subpart F inclusions.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Source of income from sales of inventory determined solely on basis of production activities
In general
Section 863(b) is amended by adding at the end the following: Gains, profits, and income from the sale or exchange of inventory property described in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2017.
Modification of subpart F provisions
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
Section 951(a)(1)(A) 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
.
Section 851(b)(3) is amended by striking section 951(a)(1)(A)(i)
in the flush language at the end and inserting section 951(a)(1)(A)
.
Section 952(c)(1)(B)(i) is amended by striking section 951(a)(1)(A)(i)
and inserting section 951(a)(1)(A)
.
Section 953(c)(1)(C) is amended by striking section 951(a)(1)(A)(i)
and inserting section 951(a)(1)(A)
.
Section 951(a) is amended by striking paragraph (3).
Section 953(d)(4)(B)(iv)(II) is amended by striking or amounts referred to in clause (ii) or (iii) of section 951(a)(1)(A)
.
Section 964(b) 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, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Repeal of treatment of foreign base company oil related income as subpart F income
In general
Section 954(a) is amended by striking paragraph (5), by striking the comma at the end of paragraph (3) and inserting a period, and by inserting and
at the end of paragraph (2).
Conforming amendments
Section 952(c)(1)(B)(iii) is amended by striking subclause (I) and by redesignating subclauses (II) through (V) as subclauses (I) through (IV), respectively.
Section 954(b)(4) is amended by striking the last sentence.
Section 954(b)(5) is amended by striking the foreign base company services income, and the foreign base company oil related income
and inserting and the foreign base company services income
.
Section 954(b) is amended by striking paragraph (6).
Section 954 is amended by striking subsection (g).
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Inflation adjustment of de minimis exception for foreign base company income
In general
Section 954(b)(3) is amended by adding at the end the following new subparagraph:
Inflation adjustment
In the case of any taxable year beginning after 2017, the dollar amount in subparagraph (A)(ii) shall be increased by an amount equal to—
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.
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
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, 2019, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Modification of stock attribution rules for determining status as a controlled foreign corporation
In general
Section 958(b) is amended—
by striking paragraph (4), and
by striking Paragraphs (1) and (4)
in the last sentence and inserting Paragraph (1)
.
Application of certain reporting requirements
Section 6038(e)(2) is amended by striking except that—
and all that follows through in applying subparagraph (C)
and inserting except that in applying subparagraph (C)
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Elimination of requirement that corporation must be controlled for 30 days before subpart F inclusions apply
In general
Section 951(a)(1) is amended by striking for an uninterrupted period of 30 days or more
and inserting at any time
.
Effective date
The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
Prevention of base erosion
Current year inclusion by United States shareholders with foreign high returns
In general
Subpart F of part III of subchapter N of chapter 1 is amended by inserting after section 951 the following new section:
Foreign high return amount included in gross income of United States shareholders
In general
Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income for such taxable year 50 percent of such shareholder’s foreign high return amount for such taxable year.
Foreign high return amount
For purposes of this section—
In general
The term foreign high return amount
means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—
such shareholder’s net CFC tested income for such taxable year, over
the excess (if any) of—
the applicable percentage of the aggregate of such shareholder’s pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over
the amount of interest expense taken into account under subsection (c)(2)(A)(ii) in determining the shareholder’s net CFC tested income for the taxable year.
Applicable percentage
The term applicable percentage
means, with respect to any taxable year, the Federal short-term rate (determined under section 1274(d) for the month in which or with which such taxable year ends) plus 7 percentage points.
Net CFC tested income
For purposes of this section—
In general
The term net CFC tested income
means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—
the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over
the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
Tested income; tested loss
For purposes of this section—
Tested income
The term tested income
means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of—
the gross income of such corporation determined without regard to—
any item of income which is effectively connected with the conduct by such corporation of a trade or business within the United States if subject to tax under this chapter,
any gross income taken into account in determining the subpart F income of such corporation,
except as otherwise provided by the Secretary, any amount excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of section 954(c)(6) but only to the extent that any deduction allowable for the payment or accrual of such amount does not result in a reduction in the foreign high return amount of any United States shareholder (determined without regard to this subclause),
any gross income excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of subsection (c)(2)(C), (h), or (i) of section 954,
any gross income excluded from the insurance income (as defined in section 953) of such corporation by reason of section 953(a)(2),
any gross income excluded from foreign base company income (as defined in section 954) or insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4),
any dividend received from a related person (as defined in section 954(d)(3)), and
any commodities gross income of such corporation, over
the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5) (or which would be so properly allocable if such corporation had such gross income).
Tested loss
The term tested loss
means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of the amount described in subparagraph (A)(ii) over the amount described in subparagraph (A)(i).
Qualified business asset investment
For purposes of this section—
In general
The term qualified business asset investment
means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the aggregate of the corporation’s adjusted bases (determined as of the close of such taxable year and after any adjustments with respect to such taxable year) in specified tangible property—
used in a trade or business of the corporation, and
of a type with respect to which a deduction is allowable under section 168.
Specified tangible property
The term specified tangible property
means any tangible property to the extent such property is used in the production of tested income or tested loss.
Partnership property
For purposes of this subsection, if a controlled foreign corporation holds an interest in a partnership at the close of such taxable year of the controlled foreign corporation, such controlled foreign corporation shall take into account under paragraph (1) the controlled foreign corporation’s distributive share of the aggregate of the partnership’s adjusted bases (determined as of such date in the hands of the partnership) in tangible property held by such partnership to the extent such property—
is used in the trade or business of the partnership,
is of a type with respect to which a deduction is allowable under section 168, and
is used in the production of tested income or tested loss (determined with respect to such controlled foreign corporation’s distributive share of income or loss with respect to such property).
Determination of adjusted basis
For purposes of this subsection, the adjusted basis in any property shall be determined without regard to any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section.
Regulations
The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection, including regulations or other guidance which provide for the treatment of property if—
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.
Commodities gross income
For purposes of this section—
Commodities gross income
The term commodities gross income
means, with respect to any corporation—
gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation (or a partnership in which such corporation is a partner), and
gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A).
Commodity
The term commodity
means any commodity described in section 475(e)(2)(A) or section 475(e)(2)(D) (determined without regard to clause (i) thereof and by substituting a commodity described in subparagraph (A)
for such a commodity
in clause (ii) thereof).
Taxable years for which persons are treated as United States shareholders of controlled foreign corporations
For purposes of this section—
In general
A United States shareholder of a controlled foreign corporation shall be treated as a United States shareholder of such controlled foreign corporation for any taxable year of such United States shareholder if—
a taxable year of such controlled foreign corporation ends in or with such taxable year of such person, and
such person owns (within the meaning of section 958(a)) stock in such controlled foreign corporation on the last day, in such taxable year of such foreign corporation, on which the foreign corporation is a controlled foreign corporation.
Treatment as a controlled foreign corporation
Except for purposes of paragraph (1)(B) and the application of section 951(a)(2) to this section pursuant to subsection (g), a foreign corporation shall be treated as a controlled foreign corporation for any taxable year of such foreign corporation if such foreign corporation is a controlled foreign corporation at any time during such taxable year.
Determination of pro rata share
For purposes of this section, pro rata shares shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income.
Coordination with subpart F
Treatment as subpart F income for certain purposes
Except as otherwise provided by the Secretary any foreign high return amount included in gross income under subsection (a) shall be treated in the same manner as an amount included under section 951(a)(1)(A) for purposes of applying sections 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962, 993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 6655(e)(4).
Entire foreign high return amount taken into account for purposes of certain sections
For purposes of applying paragraph (1) with respect to sections 168(h)(2)(B), 851(b), 959, 961, 962, 1248(b)(1), and 1248(d)(1), the foreign high return amount included in gross income under subsection (a) shall be determined by substituting 100 percent
for 50 percent
in such subsection.
Allocation of foreign high return amount to controlled foreign corporations
For purposes of the sections referred to in paragraph (1), with respect to any controlled foreign corporation any pro rata amount from which is taken into account in determining the foreign high return amount included in gross income of a United States shareholder under subsection (a), the portion of such foreign high return amount which is treated as being with respect to such controlled foreign corporation is—
in the case of a controlled foreign corporation with tested loss, zero, and
in the case of a controlled foreign corporation with tested income, the portion of such foreign high return amount which bears the same ratio to such foreign high return amount as—
such United States shareholder’s pro rata amount of the tested income of such controlled foreign corporation, bears to
the aggregate amount determined under subsection (c)(1)(A) with respect to such United States shareholder.
Coordination with subpart F to deny double benefit of losses
In the case of any United States shareholder of any controlled foreign corporation, the amount included in gross income under section 951(a)(1)(A) shall be determined by increasing the earnings and profits of such controlled foreign corporation (solely for purposes of determining such amount) by an amount that bears the same ratio (not greater than 1) to such shareholder’s pro rata share of the tested loss of such controlled foreign corporation as—
the aggregate amount determined under subsection (c)(1)(A) with respect to such shareholder, bears to
the aggregate amount determined under subsection (c)(1)(B) with respect to such shareholder.
.
Foreign tax credit
Application of deemed paid foreign tax credit
Section 960, as amended by the preceding provisions of this Act, is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection:
Deemed paid credit for taxes properly attributable to tested income
In general
For purposes of this subpart, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 80 percent of—
such domestic corporation’s foreign high return percentage, multiplied by
the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations with respect to which such domestic corporation is a United States shareholder.
Foreign high return percentage
For purposes of paragraph (1), the term foreign high return percentage
means, with respect to any domestic corporation, the ratio (expressed as a percentage) of—
such corporation’s foreign high return amount (as defined in section 951A(b)), divided by
the aggregate amount determined under section 951A(c)(1)(A) with respect to such corporation.
Tested foreign income taxes
For purposes of paragraph (1), the term tested foreign income taxes
means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to gross income described in section 951A(c)(2)(A)(i).
.
Application of foreign tax credit limitation
Separate basket for foreign high return amount
Section 904(d)(1) is amended by redesignating subparagraphs (A) and (B) as subparagraphs (B) and (C), respectively, and by inserting before subparagraph (B) (as so redesignated) the following new subparagraph:
any amount includible in gross income under section 951A,
.
No carryover of excess taxes
Section 904(c) is amended by adding at the end the following: This subsection shall not apply to taxes paid or accrued with respect to amounts described in subsection (d)(1)(A).
Gross up for deemed paid foreign tax credit
Section 78, as amended by the preceding provisions of this Act, is amended—
by striking any taxable year, an amount
and inserting
any taxable year—
an amount
, and
by striking the period at the end and inserting
, and
an amount equal to the taxes deemed to be paid by such corporation under section 960(d) for such taxable year (determined by substituting 100 percent
for 80 percent
in such section) shall be treated for purposes of this title (other than sections 959, 960, and 961) as an increase in the foreign high return amount of such domestic corporation under section 951A for such taxable year.
.
Conforming amendments
Section 170(b)(2)(D) is amended by striking computed without regard to
and all that follows and inserting
computed—
without regard to—
this section,
part VIII (except section 248),
any net operating loss carryback to the taxable year under section 172,
any capital loss carryback to the taxable year under section 1212(a)(1), and
by substituting 100 percent
for 50 percent
in section 951A(a).
.
Section 246(b)(1) is amended by—
striking and without regard to
and inserting without regard to
, and
by striking the period at the end and inserting , and by substituting
. 100 percent
for 50 percent
in section 951A(a).
Section 469(i)(3)(F) is amended by striking determined without regard to
and all that follows and inserting
determined—
without regard to—
any amount includible in gross income under section 86,
the amounts allowable as a deduction under section 219, and
any passive activity loss or any loss allowable by reason of subsection (c)(7), and
by substituting 100 percent
for 50 percent
in section 951A(a).
.
Section 856(c)(2) is amended by striking and
at the end of subparagraph (H), by adding and
at the end of subparagraph (I), and by inserting after subparagraph (I) the following new subparagraph:
amounts includible in gross income under section 951A(a);
.
Section 856(c)(3)(D) is amended by striking dividends or other distributions on, and gain
and inserting dividends, other distributions on, amounts includible in gross income under section 951A(a) with respect to, and gain
.
The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by inserting after the item relating to section 951 the following new item:
Sec. 951A. Foreign high return amount included in gross income of United States shareholders.
.
Effective date
The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group
In general
Section 163 is amended by redesignating subsection (n) as subsection (p) and by inserting after subsection (m) the following new subsection:
Limitation on deduction of interest by domestic corporations in international financial reporting groups
In general
In the case of any domestic corporation which is a member of any international financial reporting group, the deduction under this chapter for interest paid or accrued during the taxable year shall not exceed the sum of—
the allowable percentage of 110 percent of the excess (if any) of —
the amount of such interest so paid or accrued, over
the amount described in subparagraph (B), plus
the amount of interest includible in gross income of such corporation for such taxable year.
International financial reporting group
For purposes of this subsection, the term international financial reporting group
means, with respect to any reporting year, any group of entities which—
includes—
at least one foreign corporation engaged in a trade or business within the United States, or
at least one domestic corporation and one foreign corporation,
prepares consolidated financial statements with respect to such year, and
reports in such statements average annual gross receipts (determined in the aggregate with respect to all entities which are part of such group) for the 3-reporting-year period ending with such reporting year in excess of $100,000,000.
Rules relating to determination of average gross receipts
For purposes of subparagraph (A)(iii), rules similar to the rules of section 448(c)(3) shall apply.
Allowable percentage
For purposes of this subsection—
In general
The term allowable percentage
means, with respect to any domestic corporation for any taxable year, the ratio (expressed as a percentage and not greater than 100 percent) of—
such corporation’s allocable share of the international financial reporting group’s reported net interest expense for the reporting year of such group which ends in or with such taxable year of such corporation, over
such corporation’s reported net interest expense for such reporting year of such group.
Reported net interest expense
The term reported net interest expense
means—
with respect to any international financial reporting group for any reporting year, the excess of—
the aggregate amount of interest expense reported in such group’s consolidated financial statements for such taxable year, over
the aggregate amount of interest income reported in such group’s consolidated financial statements for such taxable year, and
with respect to any domestic corporation for any reporting year, the excess of—
the amount of interest expense of such corporation reported in the books and records of the international financial reporting group which are used in preparing such group’s consolidated financial statements for such taxable year, over
the amount of interest income of such corporation reported in such books and records.
Allocable share of reported net interest expense
With respect to any domestic corporation which is a member of any international financial reporting group, such corporation’s allocable share of such group’s reported net interest expense for any reporting year is the portion of such expense which bears the same ratio to such expense as—
the EBITDA of such corporation for such reporting year, bears to
the EBITDA of such group for such reporting year.
EBITDA
In general
The term EBITDA
means, with respect to any reporting year, earnings before interest, taxes, depreciation, and amortization—
as determined in the international financial reporting group’s consolidated financial statements for such year, or
for purposes of subparagraph (A)(i), as determined in the books and records of the international financial reporting group which are used in preparing such statements if not determined in such statements.
Treatment of disregarded entities
The EBITDA of any domestic corporation shall not fail to include the EBITDA of any entity which is disregarded for purposes of this chapter.
Treatment of intra-group distributions
The EBITDA of any domestic corporation shall be determined without regard to any distribution received by such corporation from any other member of the international financial reporting group.
Special rules for non-positive EBITDA
Non-positive group EBITDA
In the case of any international financial reporting group the EBITDA of which is zero or less, paragraph (1) shall not apply to any member of such group the EBITDA of which is above zero.
Non-positive entity EBITDA
In the case of any group member the EBITDA of which is zero or less, paragraph (1) shall be applied without regard to subparagraph (A) thereof.
Consolidated financial statement
For purposes of this subsection, the term consolidated financial statement
means any consolidated financial statement described in paragraph (2)(A)(ii) if such statement is—
a financial statement which is certified as being prepared in accordance with generally accepted accounting principles, international financial reporting standards, or any other comparable method of accounting identified by the Secretary, and which is—
a 10-K (or successor form), or annual statement to shareholders, required to be filed with the United States Securities and Exchange Commission,
an audited financial statement which is used for—
credit purposes,
reporting to shareholders, partners, or other proprietors, or to beneficiaries, or
any other substantial nontax purpose,
filed with any other Federal or State agency for nontax purposes, but only if there is no statement described in clause (i) or (ii), or
a financial statement which—
is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or
filed with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary,
Reporting year
For purposes of this subsection, the term reporting year
means, with respect to any international financial reporting group, the year with respect to which the consolidated financial statements are prepared.
Application to certain entities
Partnerships
Except as otherwise provided by the Secretary in paragraph (7), this subsection shall apply to any partnership which is a member of any international financial reporting group under rules similar to the rules of section 163(j)(3).
Foreign corporations engaged in trade or business within the United States
Except as otherwise provided by the Secretary in paragraph (8), any deduction for interest paid or accrued by a foreign corporation engaged in a trade or business within the United States shall be limited in a manner consistent with the principles of this subsection.
Consolidated groups
For purposes of this subsection, the members of any group that file (or are required to file) a consolidated return with respect to the tax imposed by chapter 1 for a taxable year shall be treated as a single corporation.
Regulations
The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection.
.
Carryforward of disallowed interest
In general
Section 163(o) is amended to read as follows:
Carryforward of certain disallowed interest
The amount of any interest not allowed as a deduction for any taxable year by reason of subsection (j)(1) or (n)(1) (whichever imposes the lower limitation with respect to such taxable year) shall be treated as interest (and as business interest for purposes of subsection (j)(1)) paid or accrued in the succeeding taxable year. Interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the 5th taxable year following such taxable year, determined by treating interest as allowed as a deduction on a first-in, first-out basis.
.
Treatment of carryforward of disallowed interest in certain corporate acquisitions
For rules related to the carryforward of disallowed interest in certain corporate acquisitions, see the amendments made by section 3301(c).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income
Excise tax on certain amounts from domestic corporations to foreign affiliates
In general
Chapter 36 is amended by adding at the end the following new subchapter:
Tax on certain amounts to foreign affiliates
Sec. 4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates.
Imposition of tax on certain amounts from domestic corporations to foreign affiliates
In general
There is hereby imposed on each specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation a tax equal to the highest rate of tax in effect under section 11 multiplied by such amount.
By whom paid
The tax imposed by subsection (a) shall be paid by the domestic corporation described in such subsection.
Exception for effectively connected income
Subsection (a) shall not apply to so much of any specified amount as is effectively connected with the conduct of a trade or business within the United States if such amount is subject to tax under chapter 1. In the case of any amount which is treated as effectively connected with the conduct of a trade or business within the United States by reason of section 882(g), the preceding sentence shall apply to such amount only if the domestic corporation provides to the Secretary (at such time and in such form and manner as the Secretary may provide) a copy of the election made under section 882(g) by the foreign corporation referred to in subsection (a).
Definitions and special rules
Terms used in this section that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this section.
.
Denial of deduction for tax imposed
Section 275(a) is amended by inserting after paragraph (6) the following new paragraph:
Taxes imposed by section 4491.
.
Clerical amendment
The table of subchapters for chapter 36 is amended by adding at the end the following new item:
Subchapter E. Tax on certain amounts to foreign affiliates.
.
Election to treat certain payments from domestic corporations to related foreign corporations as effectively connected income
Section 882 is amended by adding at the end the following new subsection:
Election to treat certain payments from domestic corporations to related foreign corporations as effectively connected income
In general
In the case of any specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation and which has elected to be subject to the provisions of this subsection—
such amount shall be taken into account (other than for purposes of sections 245, 245A, and 881) in the taxable year of such foreign corporation during which such amount is paid or incurred as if—
such foreign corporation were engaged in a trade or business within the United States,
such foreign corporation had a permanent establishment in the United States during the taxable year, and
such payment were effectively connected with the conduct of a trade or business within the United States and were attributable to such permanent establishment,
for purposes of subsection (c)(1)(A), no deduction shall be allowed with respect to such amount and such subsection shall be applied without regard to such amount, and
the foreign corporation shall be allowed a deduction (for the taxable year referred to in subparagraph (A)) equal to the deemed expenses with respect to such amount.
Specified amount
For purposes of this subsection—
In general
The term specified amount
means any amount which is, with respect to the payor, allowable as a deduction or includible in costs of goods sold, inventory, or the basis of a depreciable or amortizable asset.
Exceptions
The term specified amount
shall not include—
interest,
any amount paid or incurred for the acquisition of any security described in section 475(c)(2) (determined without regard to the last sentence thereof) or any commodity described in section 475(e)(2),
except as provided in subparagraph (C), any amount with respect to which tax is imposed under section 881(a), and
in the case of a payor which has elected to use a services cost method for purposes of section 482, any amount paid or incurred for services if such amount is the total services cost with no markup.
Amounts not treated as effectively connected to extent of gross-basis tax
Subparagraph (B)(iii) shall only apply to so much of any specified amount as bears the proportion to such amount as—
the rate of tax imposed under section 881(a) with respect to such amount, bears to
30 percent.
Deemed expenses
In general
The deemed expenses with respect to any specified amount received by a foreign corporation during any reporting year is the amount of expenses such that the net income ratio of such foreign corporation with respect to such amount (taking into account only such specified amount and such deemed expenses) is equal to the net income ratio of the international financial reporting group determined for such reporting year with respect to the product line to which the specified amount relates.
Net income ratio
For purposes of this paragraph, the term net income ratio
means the ratio of—
net income determined without regard to interest income, interest expense, and income taxes, divided by
revenues.
Method of determination
Amounts described in subparagraph (B) shall be determined with respect to the international financial reporting group on the basis of the consolidated financial statements referred to in paragraph (4)(A)(i) and the books and records of the members of the international financial reporting group which are used in preparing such statements, taking into account only revenues and expenses of the members of such group (other than the members of such group which are (or are treated as) a domestic corporation for purposes of this subsection) derived from, or incurred with respect to—
persons who are not members of such group, and
members of such group which are (or are treated as) a domestic corporation for purposes of this subsection.
International financial reporting group
For purposes of this subsection—
In general
The term international financial reporting group
means any group of entities, with respect to any specified amount, if such amount is paid or incurred during a reporting year of such group with respect to which—
such group prepares consolidated financial statements (within the meaning of section 163(n)(4)) with respect to such year, and
the average annual aggregate payment amount of such group for the 3-reporting-year period ending with such reporting year exceeds $100,000,000.
Annual aggregate payment amount
The term annual aggregate payment amount
means, with respect to any reporting year of the group referred to in subparagraph (A)(i), the aggregate specified amounts to which paragraph (1) applies (or would apply if such group were an international financial reporting group).
Application of certain rules
Rules similar to the rules of subparagraphs (A), (B), and (D) of section 448(c)(3) shall apply for purposes of this paragraph.
Treatment of partnerships
Any specified amount paid, incurred, or received by a partnership which is a member of any international financial reporting group (and any amount treated as paid, incurred, or received by a partnership under this paragraph) shall be treated for purposes of this subsection as amounts paid, incurred, or received, respectively, by each partner of such partnership in an amount equal to such partner’s distributive share of the items of income, gain, deduction, or loss to which such amounts relate.
Treatment of amounts in connection with United States trade or business
Any specified amount paid, incurred, or received by a foreign corporation in connection with the conduct of a trade or business within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) shall be treated for purposes of this subsection as an amount paid, incurred, or received, respectively, by a domestic corporation. For purposes of the preceding sentence, a foreign corporation shall be deemed to pay, incur, and receive amounts with respect to a trade or business it conducts within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) to the extent such foreign corporation would be treated as paying, incurring, or receiving such amounts from such trade or business if such trade or business were a domestic corporation.
Joint and several liability of members of internal financial reporting group
In the case of any underpayment with respect to any taxable year of a foreign corporation which is a member of an international financial accounting group, each domestic corporation which is a member of such group at any time during such taxable year shall be jointly and severally liable for—
so much of such underpayment as does not exceed the excess (if any) of such underpayment over the amount of such underpayment determined without regard to this subsection, and
any penalty, addition to tax, or additional amount attributable to the amount described in subparagraph (A).
Foreign tax credit allowed
The credit allowed under section 906(a) with respect to amounts taken into account in income under paragraph (1)(A) shall be limited to 80 percent of the amount of taxes paid or accrued and determined without regard to section 906(b)(1).
Election
Any election under paragraph (1)—
shall be made at such time and in such form and manner as the Secretary may provide, and
shall apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
Regulations
The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance—
to provide for the proper determination of product lines, and
to prevent the avoidance of the purposes of this subsection through the use of conduit transactions or by other means.
.
Reporting requirements
Reporting by foreign corporation
Section 6038C(b) is amended to read as follows:
Required information
In general
The information described in this subsection is—
the information described in section 6038A(b), and
such other information as the Secretary may prescribe by regulations relating to any item not directly connected with a transaction for which information is required under subparagraph (A).
Certain payments from related domestic corporations
In general
In the case of any reporting corporation that receives during the taxable year any amount to which section 882(g)(1) applies, the information described in this subsection shall include, with respect to each member of the international financial reporting group from which any such amount is received—
the name and taxpayer identification number of such member,
the aggregate amounts received from such member,
the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and
a summary of any changes in financial accounting methods that affect the computation of any net income ratio described in clause (iii).
Definitions and special rules
Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this paragraph.
.
Reporting by domestic group members
In general
Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6038D the following new section:
Information with respect to certain payments from domestic corporations to related foreign corporations
In general
In the case of any domestic corporation which pays or incurs any amount to which section 882(g)(1) applies, such person shall—
make a return according to the forms and regulations prescribed the Secretary, setting forth the information described in subsection (b), and
maintain (at the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine liability for tax pursuant to paragraphs (1) and (7) of section 882(g).
Required information
The information described in this subsection is—
the name and taxpayer identification number of the common parent of the international financial reporting group in which such domestic corporation is a member, and
with respect to any person who receives an amount described in subsection (a) from such domestic corporation—
the name and taxpayer identification number of such person,
the aggregate amounts received by such person,
the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and
a summary of any changes in financial accounting methods that affect the computation of any net income ratios described in subparagraph (C).
Definitions and special rules
Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this paragraph.
.
Clerical amendment
The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6038D the following new item:
Sec. 6038E. Information with respect to certain payments from domestic corporations to related foreign corporations.
.
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2018.
Provisions related to possessions of the United States
Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico
In general
Section 199(d)(8)(C), prior to its repeal by this Act, is amended—
by striking first 11 taxable years
and inserting first 12 taxable years
, and
by striking January 1, 2017
and inserting January 1, 2018
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2016.
Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands
In general
Section 7652(f)(1) is amended by striking January 1, 2017
and inserting January 1, 2023
.
Effective date
The amendment made by this section shall apply to distilled spirits brought into the United States after December 31, 2016.
Extension of American Samoa economic development credit
In general
Section 119(d) of division A of the Tax Relief and Health Care Act of 2006 is amended—
by striking January 1, 2017
each place it appears and inserting January 1, 2023
,
by striking first 11 taxable years
in paragraph (1) and inserting first 17 taxable years
, and
by striking first 5 taxable years
in paragraph (2) and inserting first 11 taxable years
.
Treatment of certain references
Section 119(e) of division A of the Tax Relief and Health Care Act of 2006 is amended by adding at the end the following: References in this subsection to section 199 of the Internal Revenue Code of 1986 shall be treated as references to such section as in effect before its repeal by the Tax Cuts and Jobs Act.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2016.
Other international reforms
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 qualifying insurance corporation (as defined in subsection (f)),
.
Qualifying insurance corporation defined
Section 1297 is amended by adding at the end the following new subsection:
Qualifying insurance corporation
For purposes of subsection (b)(2)(B)—
In general
The term qualifying insurance corporation means, with respect to any taxable year, a foreign corporation—
which would be subject to tax under subchapter L if such corporation were a domestic corporation, and
the applicable insurance liabilities of which constitute more than 25 percent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s applicable financial statement for the last year ending with or within the taxable year.
Alternative facts and circumstances test for certain corporations
If a corporation fails to qualify as a qualified insurance corporation under paragraph (1) solely because the percentage determined under paragraph (1)(B) is 25 percent or less, a United States person that owns stock in such corporation may elect to treat such stock as stock of a qualifying insurance corporation if—
the percentage so determined for the corporation is at least 10 percent, and
under regulations provided by the Secretary, based on the applicable facts and circumstances—
the corporation is predominantly engaged in an insurance business, and
such failure is due solely to runoff-related or rating-related circumstances involving such insurance business.
Applicable insurance liabilities
For purposes of this subsection—
In general
The term applicable insurance liabilities means, with respect to any life or property and casualty insurance business—
loss and loss adjustment expenses, and
reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks.
Limitations on amount of liabilities
Any amount determined under clause (i) or (ii) of subparagraph (A) shall not exceed the lesser of such amount—
as reported to the applicable insurance regulatory body in the applicable financial statement described in paragraph (4)(A) (or, if less, the amount required by applicable law or regulation), or
as determined under regulations prescribed by the Secretary.
Other definitions and rules
For purposes of this subsection—
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 applicable insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii).
Applicable insurance regulatory body
The term applicable insurance regulatory body means, with respect to any insurance business, the entity established by law to license, authorize, or regulate such business and to which the statement described in subparagraph (A) is provided.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Exempt organizations
Unrelated Business Income Tax
Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a)
In general
Section 511 is amended by adding at the end the following new subsection:
Organizations and trusts exempt from taxation not solely by reason of section 501(a)
For purposes of subsections (a)(2) and (b)(2), an organization or trust shall not fail to be treated as exempt from taxation under this subtitle by reason of section 501(a) solely because such organization is also so exempt, or excludes amounts from gross income, by reason of any other provision of this title.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Exclusion of research income limited to publicly available research
In general
Section 512(b)(9) 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, 2017.
Excise Taxes
Simplification of excise tax on private foundation investment income
Rate reduction
Section 4940(a) is amended by striking 2 percent
and inserting 1.4 percent
.
Repeal of special rules for certain private foundations
Section 4940 is amended by striking subsection (e).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Private operating foundation requirements relating to operation of art museum
In general
Section 4942(j) is amended by adding at the end the following new paragraph:
Organization operating art museum
For purposes of this section, the term operating foundation
shall not include an organization which operates an art museum as a substantial activity unless such museum is open during normal business hours to the public for at least 1,000 hours during the taxable year.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
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 1.4 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 has at least 500 students during the preceding taxable year,
which is not described in the first sentence of section 511(a)(2)(B), 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 directly in carrying out the institution’s exempt purpose) is at least $250,000 per student of the institution.
Students
For purposes of paragraph (1), the number of students of an institution shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).
Net investment income
For purposes of this section, net investment income shall be determined under rules similar to the rules of section 4940(c).
Assets and net investment income of related organizations
In general
For purposes of subsections (b)(1)(C) and (c), the assets and net investment income of any related organization shall be treated as the assets and net investment income of the eligible educational institution.
Related organization
For purposes of this subsection, the term related organization
means, with respect to an eligible educational institution, any organization which—
controls, or is controlled by, such institution,
is controlled by one or more persons that control such institution, or
is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution.
.
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, 2017.
Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings
In general
Section 4943 is amended by adding at the end the following new subsection:
Exception for certain holdings limited to independently-operated philanthropic business
In general
Subsection (a) shall not apply with respect to the holdings of a private foundation in any business enterprise which for the taxable year meets—
the ownership requirements of paragraph (2),
the all profits to charity distribution requirement of paragraph (3), and
the independent operation requirements of paragraph (4).
Ownership
The ownership requirements of this paragraph are met if—
100 percent of the voting stock in the business enterprise is held by the private foundation at all times during the taxable year, and
all the private foundation’s ownership interests in the business enterprise were acquired not by purchase.
All profits to charity
In general
The all profits to charity distribution requirement of this paragraph is met if the business enterprise, not later than 120 days after the close of the taxable year, distributes an amount equal to its net operating income for such taxable year to the private foundation.
Net operating income
For purposes of this paragraph, the net operating income of any business enterprise for any taxable year is an amount equal to the gross income of the business enterprise for the taxable year, reduced by the sum of—
the deductions allowed by chapter 1 for the taxable year which are directly connected with the production of such income,
the tax imposed by chapter 1 on the business enterprise for the taxable year, and
an amount for a reasonable reserve for working capital and other business needs of the business enterprise.
Independent operation
The independent operation requirements of this paragraph are met if, at all times during the taxable year—
no substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation, or family member of such a contributor (determined under section 4958(f)(4)) is a director, officer, trustee, manager, employee, or contractor of the business enterprise (or an individual having powers or responsibilities similar to any of the foregoing),
at least a majority of the board of directors of the private foundation are not—
also directors or officers of the business enterprise, or
members of the family (determined under section 4958(f)(4)) of a substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation, and
there is no loan outstanding from the business enterprise to a substantial contributor (as so defined) to the private foundation or a family member of such contributor (as so determined).
Certain deemed private foundations excluded
This subsection shall not apply to—
any fund or organization treated as a private foundation for purposes of this section by reason of subsection (e) or (f),
any trust described in section 4947(a)(1) (relating to charitable trusts), and
any trust described in section 4947(a)(2) (relating to split-interest trusts).
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2017.
Requirements for organizations exempt from tax
501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of activities
In general
Section 501 is amended by adding at the end the following new subsection:
Special rule relating to political campaign statements of organizations described in subsection (c)(3)
In general
For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization shall not fail to be treated as organized and operated exclusively for a purpose described in subsection (c)(3), nor shall it be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any statement which—
is made in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and
results in the organization incurring not more than de minimis incremental expenses.
Termination
Paragraph (1) shall not apply to taxable years beginning after December 31, 2023.
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2018.
Additional reporting requirements for donor advised fund sponsoring organizations
In general
Section 6033(k) is amended by striking and
at the end of paragraph (2), by striking the period at the end of paragraph (3), and by adding at the end the following new paragraphs:
indicate the average amount of grants made from such funds during such taxable year (expressed as a percentage of the value of assets held in such funds at the beginning of such taxable year), and
indicate whether the organization has a policy with respect to donor advised funds (as so defined) for frequency and minimum level of distributions.
Such organization shall include with such return a copy of any policy described in paragraph (5).
.
Effective date
The amendment made by this section shall apply for returns filed for taxable years beginning after December 31, 2017.
Passed the House of Representatives November 16, 2017.
Karen L. Haas,
Clerk.
