H.R. 1 — what changed

“1. Tax imposed

“(a) In general—There is hereby imposed on the income of every individual a tax equal to the sum of—

“(1) 12 percent bracket—12 percent of so much of the taxable income as does not exceed the 25-percent bracket threshold amount,

“(2) 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

“(3) 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.

“(4) 39.6 percent bracket—39.6 percent of so much of taxable income as exceeds the 39.6-percent bracket threshold amount.

“(b) Bracket threshold amounts—For purposes of this section—

“(1) 25-percent bracket threshold amount—The term “25-percent bracket threshold amount” means—

“(A) in the case of a joint return or surviving spouse, $90,000,

“(B) in the case of an individual who is the head of a household (as defined in section 2(b)), $67,500,

“(C) 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

“(D) in the case of an estate or trust, $2,550.

“(2) 35-percent bracket threshold amount—The term “35-percent bracket threshold amount” means—

“(A) in the case of a joint return or surviving spouse, $260,000,

changed “(B) 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),(A), and

“(C) in the case of any other individual (other than an estate or trust), $200,000, and

“(D) in the case of an estate or trust, $9,150.

changed “(3) 39-percent 39.6-percent bracket threshold amount—The term “39.6-percent bracket threshold amount” means—

“(A) in the case of a joint return or surviving spouse, $1,000,000,

“(B) 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

“(C) in the case of an estate or trust, $12,500.

“(c) Inflation adjustment

changed “(1) In general—In the case of any taxable year beginning after 2018, each dollar amount in subsection 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—

“(A) such dollar amount, multiplied by

“(B) 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).

“(2) Cost-of-living adjustment—For purposes of this subsection—

“(A) In general—The cost-of-living adjustment for any calendar year is the percentage (if any) by which—

“(i) the C-CPI-U for the preceding calendar year, exceeds

“(ii) the normalized CPI for calendar year 2016.

“(B) 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).

“(3) Normalized CPI—For purposes of this subsection, the normalized CPI for any calendar year is the product of—

“(A) the CPI for such calendar year, multiplied by

“(B) the C-CPI-U transition multiple.

“(4) C-CPI-U transition multiple—For purposes of this subsection, the term “C-CPI-U transition multiple” means the amount obtained by dividing—

“(A) the C-CPI-U for calendar year 2016, by

“(B) the CPI for calendar year 2016.

“(5) C-CPI-U—For purposes of this subsection—

“(A) In general—The term “C-CPI-U” means the Chained Consumer Price Index for All Urban Consumers (as published by the Bureau of Labor Statistics of the Department of Labor). The values of the Chained Consumer Price Index for All Urban Consumers taken into account for purposes of determining the cost-of-living adjustment for any calendar year under this subsection shall be the latest values so published as of the date on which such Bureau publishes the initial value of the Chained Consumer Price Index for All Urban Consumers for the month of August for the preceding calendar year.

“(B) Determination for calendar year—The C-CPI-U for any calendar year is the average of the C-CPI-U as of the close of the 12-month period ending on August 31 of such calendar year.

“(6) CPI—For purposes of this subsection—

“(A) 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.

“(B) 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.

removed “(7) Delay of adjustment based on C-CPI-U until 2023—Notwithstanding any other provision of this title, any cost-of-living adjustment determined under this subsection (or by reference to this subsection) shall be determined on the basis of CPI rather than C-CPI-U with respect to periods before January 1, 2023. Proper adjustments shall be made in the application of this subsection to carry out the preceding sentence.

“(d) Special rules for certain children with unearned income

“(1) In general—In the case of any child to whom this subsection applies for any taxable year—

“(A) 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

“(B) the 35-percent bracket threshold amount shall not be more than the sum of—

“(i) the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus

“(ii) the dollar amount in effect under subsection (b)(2)(D) for the taxable year.

“(C) the 39.6-percent bracket threshold amount shall not be more than the sum of—

“(i) the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus

“(ii) the dollar amount in effect under subsection (b)(3)(C).

“(2) Child to whom subsection applies—This subsection shall apply to any child for any taxable year if—

“(A) such child—

“(i) has not attained age 18 before the close of the taxable year, or

“(ii) has attained age 18 before the close of the taxable year and is described in paragraph (3),

“(B) either parent of such child is alive at the close of the taxable year, and

“(C) such child does not file a joint return for the taxable year.

“(3) Certain children whose earned income does not exceed one-half of individual’s support—A child is described in this paragraph if—

“(A) such child—

“(i) has not attained age 19 before the close of the taxable year, or

“(ii) 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

“(B) 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.

“(4) Net unearned income—For purposes of this subsection—

“(A) In general—The term “net unearned income” means the excess of—

“(i) the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over

“(ii) the sum of—

“(I) the amount in effect for the taxable year under section 63(c)(2)(A) (relating to limitation on standard deduction in the case of certain dependents), plus

“(II) The greater of the amount described in subclause (I) or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i).

“(B) Limitation based on taxable income—The amount of the net unearned income for any taxable year shall not exceed the individual’s taxable income for such taxable year.

added “(e) Phaseout of 12-percent rate

removed “(e) Phaseout of 12-Percent rate

“(1) 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—

“(A) adjusted gross income, over

“(B) the applicable dollar amount.

“(2) 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—

“(A) the taxpayer’s taxable income for such taxable year, or

“(B) the 25-percent bracket threshold amount in effect with respect to the taxpayer for such taxable year.

“(3) Applicable dollar amount—For purposes of this subsection, the term “applicable dollar amount” means—

added “(A) in the case of a joint return or a surviving spouse, $1,200,000,

changed “(A) “(B) in the case of a joint return or married individual filing a surviving spouse, $1,200,000, separate return, an amount equal to 1/2 of the amount in effect for the taxable year under subparagraph (A), and

changed “(B) “(C) in the case of any other individual, $1,000,000.

“(4) Estates and trusts—Paragraph (1) shall not apply in the case of an estate or trust.”

“(12) Rate thresholds defined—For purposes of this subsection—

“(A) 15-percent rate threshold—The 15-percent rate threshold shall be—

“(i) 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),

“(ii) in the case of an individual who is the head of a household (as defined in section 2(b)), $51,700,

“(iii) in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under clause (i), and

“(iv) in the case of an estate or trust, $2,600.

“(B) 20-percent rate threshold—The 20-percent rate threshold shall be—

“(i) 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),

“(ii) in the case of an individual who is the head of a household (as defined in section 2(b)), $452,400,

“(iii) in the case of any other individual (other than an estate or trust), $425,800, and

“(iv) in the case of an estate or trust, $12,700.

“(C) Inflation adjustment—In the case of any taxable year beginning after 2018, each of the dollar amounts in subparagraphs (A) and (B) shall be increased by an amount equal to—

“(i) such dollar amount, multiplied by

“(ii) 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.”

“(c) Standard deduction—For purposes of this subtitle—

“(1) In general—Except as otherwise provided in this subsection, the term “standard deduction” means—

“(A) $24,400, in the case of a joint return (or a surviving spouse (as defined in section 2(a)),

changed “(B) three-quarters of the amount in effect under subparagraph (A) for the taxable year, in the case of an unmarried individual with at least one qualifying child (within the meaning head of a household (as defined in section 7706), 2(b)), and

“(C) one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case.

“(2) 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—

“(A) $500, or

“(B) the sum of $250 and such individual’s earned income (within the means of section 32).

“(3) Certain individuals, etc., not eligible for standard deduction—In the case of—

“(A) a married individual filing a separate return where either spouse itemizes deductions,

“(B) a nonresident alien individual,

“(C) an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or

“(D) an estate or trust, common trust fund, or partnership,

“(4) Unmarried individual—For purposes of this section, the term “unmarried individual” means any individual who—

“(A) is not married as of the close of the taxable year (as determined by applying section 7703),

“(B) is not a surviving spouse (as defined in section 2(a)) for the taxable year, and

“(C) is not a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins.

“(5) Inflation adjustments

“(A) 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—

“(i) such dollar amount, multiplied by

“(ii) 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.

“(B) 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—

“(i) such dollar amount, multiplied by

“(ii)

“(I) 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

“(II) 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.”

“(a) Requirement of withholding—Except as”

“(1) Every individual who has gross income for the taxable year, except that a return shall not be required of—

“(A) an individual who is not married (determined by applying section 7703) and who has gross income for the taxable year which does not exceed the standard deduction applicable to such individual for such taxable year under section 63, or

“(B) an individual entitled to make a joint return if—

“(i) the gross income of such individual, when combined with the gross income of such individual’s spouse, for the taxable year does not exceed the standard deduction which would be applicable to the taxpayer for such taxable year under section 63 if such individual and such individual’s spouse made a joint return,

“(ii) such individual and such individual’s spouse have the same household as their home at the close of the taxable year,

“(iii) such individual’s spouse does not make a separate return, and

“(iv) 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).”

“(ii) in the case of an estate or trust, the deduction allowed for such year under section 642(b).”

“(iii) the number of the taxpayer’s dependents,”

“(2) Exempt amount

“(A) In general—For purposes of paragraph (1), the term “exempt amount” means an amount equal to—

“(i) the standard deduction, divided by

“(ii) 52.

“(B) 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.”

“(6) 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—

“(A) such dollar amount, multiplied by

“(B) 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.”

“4. 25 percent maximum rate on business income of individuals

changed “(a) Reduction in tax To to achieve 25 percent maximum rate—The tax imposed by section 1 shall be reduced by the sum of—

“(1) 10 percent of the lesser of—

“(A) qualified business income, or

“(B) the excess (if any) of—

“(i) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), over

“(ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, and

“(2) 4.6 percent of the excess (if any) of—

“(A) the lesser of—

“(i) qualified business income, or

“(ii) the excess (if any) determined under paragraph (1)(B), over

“(B) the excess of—

“(i) the maximum dollar amount for the 35-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, over

“(ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year.

“(b) Qualified business income—For purposes of this section, the term “qualified business income” means the excess (if any) of—

“(1) the sum of—

“(A) 100 percent of any net business income derived from any passive business activity, plus

“(B) the capital percentage of any net business income derived from any active business activity, over

“(2) the sum of—

“(A) 100 percent of any net business loss derived from any passive business activity,

“(B) except as provided in subsection (e)(3)(A), 30 percent of any net business loss derived from any active business activity, plus

“(C) any carryover business loss determined for the preceding taxable year.

“(c) Determination of net business income or loss—For purposes of this section—

“(1) 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.

“(2) 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.

“(3) Exception for certain investment-related items—There shall not be taken into account under paragraph (1)—

“(A) any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss,

“(B) any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G),

“(C) any interest income other than interest income which is properly allocable to a trade or business,

“(D) 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”),

“(E) 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)),

“(F) any amount received from an annuity which is not received in connection with the trade or business of the business activity, and

“(G) any item of deduction or loss properly allocable to an amount described in any of the preceding subparagraphs.

“(4) 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.

“(5) 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.

“(d) Passive and active business activity—For purposes of this section—

“(1) 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.

“(2) Active business activity—The term “active business activity” means any business activity which is not a passive business activity.

“(3) Business activity—The term “business activity” means any activity (within the meaning of section 469) which involves the conduct of any trade or business.

“(e) Capital percentage—For purposes of this section—

“(1) In general—Except as otherwise provided in this section, the term “capital percentage” means 30 percent.

“(2) 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.

“(3) Treatment of specified service activities

“(A) In general—In the case of any active business activity which is a specified service activity—

“(i) the capital percentage shall be 0 percent, and

“(ii) subsection (b)(2)(B) shall be applied by substituting “0 percent” for “30 percent”.

“(B) Exception for capital-intensive specified service activities—If—

“(i) the taxpayer elects the application of this subparagraph with respect to such activity for any taxable year, and

“(ii) the applicable percentage (as defined in subsection (f)) with respect to such activity for such taxable year is at least 10 percent,

“(C) 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)).

“(4) 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—

“(A) any amounts described in subsection (c)(2) which are taken into account in determining the net business income derived from such activity, divided by

“(B) such net business income.

“(f) Applicable percentage—For purposes of this section—

“(1) 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—

“(A) the specified return on capital with respect to such activity for such taxable year, divided by

“(B) the taxpayer’s net business income derived from such activity for such taxable year.

“(2) 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—

“(A) the product of—

“(i) the deemed rate of return for the taxable year, multiplied by

“(ii) the asset balance with respect to such activity for such taxable year, over

“(B) 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.

“(3) 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.

“(4) Asset balance

changed “(A) 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 the 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).

changed “(B) 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 under this paragraph with respect to the partnership’s such partnership or S corporation’s adjusted basis of the property used in connection with such activity corporation under subparagraph (A) (applied by the partnership substituting “the partnership’s or S corporation.corporation’s adjusted basis” for “the taxpayer’s adjusted basis”).

changed “(g) 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—Reduced rate for small businesses with net active business income

added “(1) In general—The tax imposed by section 1 shall be reduced by 3 percent of the excess (if any) of—

added “(A) the least of—

added “(i) qualified active business income,

added “(ii) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), or

added “(iii) the 9-percent bracket threshold amount, over

added “(B) the excess (if any) of taxable income over the applicable threshold amount.

added “(2) 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”—

added “(A) in the case of any taxable year beginning after December 31, 2017, and before January 1, 2020, “1 percent”, and

added “(B) in the case of any taxable year beginning after December 31, 2019, and before January 1, 2022, “2 percent”.

added “(3) Qualified active business income—For purposes of this subsection, the term “qualified active business income” means the excess (if any) of—

added “(A) any net business income derived from any active business activity, over

added “(B) any net business loss derived from any active business activity.

added “(4) 9-percent bracket threshold amount—For purposes of this subsection, the term “9-percent bracket threshold amount” means—

added “(A) in the case of a joint return or surviving spouse, $75,000,

added “(B) 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

added “(C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A).

added “(5) Applicable threshold amount—For purposes of this subsection, the term “applicable threshold amount” means—

added “(A) in the case of a joint return or surviving spouse, $150,000,

added “(B) 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

added “(C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A).

added “(6) Estates and trusts—Paragraph (1) shall not apply to any estate or trust.

added “(7) 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—

added “(A) such dollar amount, multiplied by

added “(B) 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.

added “(h) 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—

“(1) which ensures that no amount is taken into account under subsection (f)(4) with respect to more than one activity, and

“(2) 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.

added “(i) 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.”

removed “(h) 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.”

changed “(12) “(13) 25 percent rate for certain dividends of real estate investment trusts and cooperatives

“(A) 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.

“(B) Specified dividend income—For purposes of this paragraph, the term “specified dividend income” means—

“(i) in the case of any dividend received from a real estate investment trust, the portion of such dividend which is neither—

“(I) a capital gain dividend (as defined in section 852(b)(3)), nor

“(II) taken into account in determining qualified dividend income (as defined in paragraph (11)), and

“(ii) 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).”

removed “(m) Labor percentage

removed “(1) In general—For purposes of this section, the term “labor percentage” means, with respect to any income or loss, the excess (expressed as a percentage) of 1 minus the capital percentage (expressed as a decimal) with respect to such income or loss.

removed “(2) Capital percentage—For purposes of paragraph (1), the term “capital percentage” means the percentage which applied with respect to such income or loss under section 4(b)(1)(B).

removed “(3) Adjustment for S corporation wages—For purposes of this subsection, proper adjustment shall be made for wages paid to the taxpayer with respect to any trade or business carried on by an S corporation in which the taxpayer is a shareholder.”

“(C) Cost-of-living adjustment defined

“(i) 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.

“(ii) 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.”

“(B) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined—

“(i) by substituting for “calendar year 2016” in clause (ii) thereof—

“(I) except as provided in clause (ii), “calendar year 1997”, and

“(II) in the case of each dollar amount in subsection (c)(2)(A), “calendar year 2003”, and

“(ii) by substituting “March 31” for “August 31” in paragraphs (5)(B) and (6)(B) of section 1(c).”

“(2) Inflation adjustment

“(A) 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—

“(i) such adjusted dollar amount, multiplied by

“(ii) 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.

“(B) 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.

“(C) Rounding—Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.”

“(5) Inflation adjustment

“(A) 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—

“(i) such adjusted dollar amount, multiplied by

“(ii) 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.

“(B) 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.

“(C) Rounding—Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.”

“(aa) who is described in section 1(b)(1)(B) and who does not have any dependents for the taxable year,”

“(A) 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).”

“(b) 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.”

added “(a) Allowance of credit—There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—

added “(1) with respect to each qualifying child of the taxpayer, $1,600, and

added “(2) 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.”

removed “(1) in the case of a qualifying child, $1,600, and

removed “(2) for taxable years beginning before January 1, 2023, in the case of the taxpayer (each spouse in the case of a joint return) and any dependent to whom paragraph (1) does not apply, $300.”

“(1) Dependent

“(A) In general—The term “dependent” shall have the meaning given such term by section 7706.

“(B) 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.”

“(i) without regard to this subsection and the limitation under section 26(a),

“(ii) without regard to subsection (a)(2), and

“(iii) by substituting “$1,000” for “$1,600” in subsection (a)(1), or”

“(3) 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—

“(A) such dollar amount, multiplied by

“(B) the cost-of-living adjustment under section 1(c)(2)(A) for such calendar year.”

“(7) 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.”

“(k) Termination—No credit shall be allowed under this section with respect to any mortgage credit certificate issued after December 31, 2017.”

changed “(5) “(e) Identification requirementrequirements

changed “(A) In general—Paragraph (1) “(1) Requirements for qualifying child—No credit shall not apply be allowed under this section to any a taxpayer for with respect to any taxable year qualifying child unless the taxpayer includes the taxpayer’s name and social security number of such qualifying child on the return of tax for such the taxable year.year. The preceding sentence shall not prevent a qualifying child from being treated as a dependent described in subsection (a)(2).

changed “(B) Joint returns—In the case of a joint return, the requirement of subparagraph (A) “(2) Other identification requirements—No credit shall be treated as met if allowed under this section with respect to any individual unless the social security taxpayer identification number of either spouse such individual is included on the return of tax for the taxable year and such return.identifying number was issued before the due date for filing the return for the taxable year.

changed “(C) “(3) Social security number—For purposes of this paragraph, subsection, the term “social security number” means a social security number issued to an individual by the Social Security Administration (but only if the social security number is issued 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).”Act)).”

changed “(I) an omission of a correct social security number required under section 24(d)(5) (relating to refundable portion of child tax credit), number, or a correct TIN TIN, required under section 24(e) (relating to child tax credit), to be included on a return,”

“(3) Qualified residence interest—For purposes of this subsection—

“(A) In general—The term “qualified residence interest” means any interest which is paid or accrued during the taxable year on indebtedness which—

“(i) is incurred in acquiring, constructing, or substantially improving any qualified residence (determined as of the time the interest is accrued) of the taxpayer, and

“(ii) is secured by such residence.

changed “(B) LimitationLimitation—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).

removed “(i) In general—The aggregate amount of indebtedness taken into account under subparagraph (A) for any period shall not exceed $500,000 (half of such amount in the case of a married individual filing a separate return).

“(C) Treatment of indebtedness incurred on or before November 2, 2017

“(i) 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.

“(ii) Pre-November 2, 2017, indebtedness—For purposes of this subparagraph, the term “pre-November 2, 2017, indebtedness” means—

“(I) any principal residence acquisition indebtedness which was incurred on or before November 2, 2017, or

“(II) 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).

“(iii) Limitation on period of refinancing—clause (ii)(II) shall not apply to any indebtedness after—

“(I) the expiration of the term of the original indebtedness, or

“(II) if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).

“(iv) 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”.”

changed “(i) In general—The term “qualified residence” means the principal residence (within the meaning of section 121) of the taxpayer. Rules similar to the rules of paragraph (3)(C) shall apply for purposes of the preceding sentence.”taxpayer.”

“(5) Limitation in case of individuals—In the case of a taxpayer other than a corporation—

“(A) 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),

changed “(B) 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) and for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return),

“(C) 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

“(D) subsection (a)(3) shall not apply to State and local taxes.”

“(h) Special rule where personal casualty gains exceed personal casualty losses

“(1) In general—If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year—

“(A) all such gains shall be treated as gains from sales or exchanges of capital assets, and

“(B) all such losses shall be treated as losses from sales or exchanges of capital assets.

“(2) Definitions of personal casualty gain and personal casualty loss—For purposes of this subsection—

“(A) 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.

“(B) 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.”

removed “(5) Federally declared disaster—For purposes of this subsection—

removed “(A) Federally declared disaster—The term “federally declared disaster” means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

removed “(B) Disaster area—The term “disaster area” means the area so determined to warrant such assistance.”

“(2) Limitations

“(A) 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.

“(B) 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.”

added “(4) 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.”

removed “(4) Coordination with Tax Reform—This subsection shall be applied without regard to the amendments made by section 1306 of the Tax Cuts and Jobs Act.”

“(G) Increased limitation for cash contributions

“(i) In general—In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year shall not exceed 60 percent of the taxpayer’s contribution base for such year.

“(ii) Carryover—If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time.

“(iii) Coordination with subparagraphs (A) and (B)

“(I) In general—Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A).

“(II) Limitation reduction—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.”

“(1) In general—No deduction shall be allowed under this section for any amount described in paragraph (2).”

“(f) Medical care—For purposes of this section—

“(1) In general—The term “medical care” means amounts paid—

“(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,

“(B) for transportation primarily for and essential to medical care referred to in subparagraph (A),

“(C) for qualified long-term care services (as defined in section 7702B(c)), or

“(D) 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)).

“(2) 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—

“(A) 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

“(B) there is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

“(3) 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)).

“(4) 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)—

“(A) 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,

“(B) the amount taken into account as the amount paid for such insurance shall not exceed such charge, and

“(C) 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.

“(5) 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).

“(6) Cosmetic surgery

“(A) 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.

“(B) 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.

“(7) Eligible long-term care premiums

“(A) 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:

“(B) Indexing

“(i) 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.

“(ii) 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.

“(8) 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—

“(A) 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

“(B) by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual.”

“(B) 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—

“(i) 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

“(ii) 10 percent of the taxpayer’s adjusted gross income.”

“(C) Divorce or separation instrument—For purposes of this paragraph, the term “divorce or separation instrument” means—

“(i) a decree of divorce or separate maintenance or a written instrument incident to such a decree,

“(ii) a written separation agreement, or

“(iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.”

added “(7) 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).”

“262A. Expenses attributable to being an employee

“(a) 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.

changed “(b) Exception for above-the-Line above-the-line deductions—Subsection (a) shall not apply to any deduction allowable (determined without regard to subsection (a)) in determining adjusted gross income.”

“(3) 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.”

“(h) Phaseout based on modified adjusted gross income

“(1) 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.

“(2) 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).

“(3) 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.”

added “(f) Termination—Subsection (a) shall not apply to taxable years beginning after December 31, 2022.”

changed “(o) Special rules for applying nondiscrimination rules To to protect older, longer service and grandfathered participants

“(1) Testing of defined benefit plans with closed classes of participants

“(A) 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—

“(i) 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)),

“(ii) 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

“(iii) the class was closed before April 5, 2017, or the plan is described in subparagraph (C).

“(B) Aggregate testing with defined contribution plans permitted on a benefits basis

“(i) 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—

“(I) provides matching contributions (as defined in subsection (m)(4)(A)),

“(II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or

“(III) 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)).

“(ii) 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—

“(I) 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

“(II) such matching contributions shall be treated in the same manner as nonelective contributions, including for purposes of applying the rules of subsection (l).

“(iii) Plans described—A defined benefit plan is described in this clause if—

“(I) the plan provides benefits to a closed class of participants,

“(II) 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)),

“(III) 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

“(IV) the class was closed before April 5, 2017, or the plan is described in subparagraph (C).

“(C) Plans described—A plan is described in this subparagraph if, taking into account any predecessor plan—

“(i) such plan has been in effect for at least 5 years as of the date the class is closed, and

“(ii) 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).

“(D) 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—

“(i) 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

“(ii) 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.

“(E) 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—

“(i) 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

“(ii) 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.

“(F) 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—

“(i) 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

“(ii) 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,

“(G) Rules relating to average benefit—For purposes of subparagraph (E)—

“(i) 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

“(ii) 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—

“(I) 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

“(II) 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.

“(H) 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.

“(I) Special rules—For purposes of subparagraphs (A)(i) and (B)(iii)(II), the following rules shall apply:

“(i) 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).

“(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.

“(iii) 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.

“(iv) Aggregation and all other testing methodologies otherwise applicable under subsection (a)(4) and section 410(b) may be taken into account.

“(J) 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—

“(i) 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

“(ii) subparagraph (A)(ii) or (B)(iii)(III), whichever is applicable,

“(2) Testing of defined contribution plans

“(A) Testing on a benefits basis—A defined contribution plan shall be permitted to be tested on a benefits basis if—

“(i) 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,

“(ii) 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)),

“(iii) 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

“(iv) 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)).

“(B) Aggregation with plans including matching contributions

“(i) 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—

“(I) provides matching contributions (as defined in subsection (m)(4)(A)),

“(II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or

“(III) 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)).

“(ii) Special rules for matching contributions—Rules similar to the rules of paragraph (1)(B)(ii) shall apply for purposes of clause (i).

“(C) 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.

“(D) 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.

“(3) Definitions—For purposes of this subsection—

“(A) 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.

“(B) 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.

“(C) Highly compensated employee—The term “highly compensated employee” has the meaning given such term in section 414(q).".”

“(I) Protected participants

“(i) In general—A plan shall be deemed to satisfy the requirements of subparagraph (A) if—

“(I) the plan is amended—

“(aa) to cease all benefit accruals, or

“(bb) to provide future benefit accruals only to a closed class of participants,

“(II) the plan satisfies subparagraph (A) (without regard to this subparagraph) as of the effective date of the amendment, and

“(III) the amendment was adopted before April 5, 2017, or the plan is described in clause (ii).

“(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).

“(iii) 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).

“(iv) 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.”

“2210. Termination

changed “(a) In general—Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after December 31, 2023.2024.

changed “(b) 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, 2023—2024—

“(1) section 2056A(b)(1)(A) shall not apply to distributions made after the 10-year period beginning on such date, and

“(2) section 2056A(b)(1)(B) shall not apply after such date.”

“2664. Termination

changed “This chapter shall not apply to generation-skipping transfers after December 31, 2023.”2024.”

changed “(d) Gifts made after 20232024

changed “(1) In general—In the case of a gift made after December 31, 2023, 2024, subsection (a) shall be applied by substituting “subsection (d)(2)” for “section 2001(c)” and “such subsection” for “such section”.

“(2) Rate schedule”

changed “(d) Gifts made after 20232024

changed “(1) In general—In the case of a gift made after December 31, 2023, 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”.

“(2) Inflation adjustment

changed “(A) In general—In the case of any calendar year after 2023, 2024, the dollar amount in subsection (a)(1) (after application of this subsection) shall be increased by an amount equal to—

“(i) such dollar amount, multiplied by

changed “(ii) the cost-of-living adjustment determined under section 1(f)(3) for 1(c)(2)(A) of such calendar year by substituting “calendar year 2011” for “calendar year 1992” 2016” in subparagraph (B) clause (ii) thereof.

“(B) 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.”

changed “(g) Gifts received after 2023—In 2024—In the case of a gift received after December 31, 2023, 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”.”

“(c) 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.”

“(e) Portion of credit treated as refundable

“(1) 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.

“(2) AMT refundable credit amount—For purposes of paragraph (1), the AMT refundable credit amount is an amount equal to 50 percent (100 percent in the case of a taxable year beginning in 2022) of the excess (if any) of—

“(A) the minimum tax credit determined under subsection (b) for the taxable year, over

“(B) the minimum tax credit allowed under subsection (a) for such year (before the application of this subsection for such year).

“(3) Credit refundable—For purposes of this title (other than this section), the credit allowed by reason of this subsection shall be treated as a credit allowed under subpart C (and not this subpart).

“(4) Short taxable years—In the case of any taxable year of less than 365 days, the AMT refundable credit amount determined under paragraph (2) with respect to such taxable year shall be the amount which bears the same ratio to such amount determined without regard to this paragraph as the number of days in such taxable year bears to 365.”

“(3) 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.”

“(a) 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.”

“(1) In general—The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of—

“(A) the sum of—

“(i) so much of the regular tax liability as does not exceed $25,000, plus

“(ii) 75 percent of so much of the regular tax liability as exceeds $25,000, over

“(B) the sum of the credits allowable under subparts A and B of this part.”

“(1) regular tax liability (as defined in section 26(b)), over”

“(A) regular tax liability (as defined in section 26(b)), over”

“(3) Tax-exempt bonds not treated as investment property—The term “investment property” does not include any tax-exempt bond.”

removed “(f) Cross reference—For adjustments to basis of property for amounts allowed as deductions as deferred expenses under subsection (b), see section 1016(a)(14).”

“(a) 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—

“(1) in the case of a nonresident alien individual, under section 871(b)(1), or

“(2) in the case of a foreign corporation, under section 882(a)(1),”

“(k) 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).”

“(f) Determination of tax liability

“(1) 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—

“(A) 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

“(B) 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.

“(2) Treatment of capital gain excess

“(A) 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)—

“(i) 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,

“(ii) 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

“(iii) 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.

“(B) 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).”

“(A) the tax imposed under section 11 or subchapter L of chapter 1, whichever is applicable, over”

“(b) Amount of tax

“(1) 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.

“(2) Special rule for personal service corporations

“(A) 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.

“(B) 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).”

“(b) Tax imposed—A tax”

“(a) Tax imposed—A tax”

“(F) Undistributed capital gain—For purposes of this paragraph, the term “undistributed capital gain” means the excess of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.”

“(5) Cross reference—For limitation on credit provided in paragraph (2) or (3) in the case of certain controlled corporations, see section 1561.”

“1561. Limitation on accumulated earnings credit in the case of certain controlled corporations

“(a) In general—The component members of a controlled group of corporations on a December 31 shall, for their taxable years which include such December 31, be limited for purposes of this subtitle to one $250,000 ($150,000 if any component member is a corporation described in section 535(c)(2)(B)) amount for purposes of computing the accumulated earnings credit under section 535(c)(2) and (3). Such amount shall be divided equally among the component members of such group on such December 31 unless the Secretary prescribes regulations permitting an unequal allocation of such amount.

“(b) Certain short taxable years—If a corporation has a short taxable year which does not include a December 31 and is a component member of a controlled group of corporations with respect to such taxable year, then for purposes of this subtitle, the amount to be used in computing the accumulated earnings credit under section 535(c)(2) and (3) of such corporation for such taxable year shall be the amount specified in subsection (a) with respect to such group, divided by the number of corporations which are component members of such group on the last day of such taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were substituted for December 31.”

“(ii) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and”

“(ii) Acquisition requirements—An acquisition of property meets the requirements of this clause if—

“(I) such property was not used by the taxpayer at any time prior to such acquisition, and

“(II) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).”

“(I) property is used by a lessor of such property and such use is the lessor’s first use of such property,”

changed “(G) Exception for certain property of real property certain businesses and regulated utilities—The 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).”in—

added “(i) a trade or business described in subparagraph (B) or (C) of section 163(j)(7), or

added “(ii) 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.”

“(I) in the case of a passenger automobile placed in service before January 1, 2018, “$8,000”,”

“(6) 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”—

“(A) “50 percent” in the case of—

“(i) property placed in service before January 1, 2018, and

“(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018,

“(B) “40 percent” in the case of—

“(i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and

“(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019, and

“(C) “30 percent” in the case of—

“(i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and

“(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020.”

“(6) Inflation adjustment

“(A) 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—

“(i) 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

“(ii) 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.

“(B) 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)).”

“(D) qualified energy efficient heating and air-conditioning property.”

“(3) Qualified energy efficient heating and air-conditioning property—For purposes of this subsection—

“(A) In general—The term qualified energy efficient heating and air-conditioning property means any section 1250 property—

“(i) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,

“(ii) which is installed as part of a building’s heating, cooling, ventilation, or hot water system, and

“(iii) which is within the scope of Standard 90.1–2007 or any successor standard.

“(B) 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).”

“(c) Gross receipts test—For purposes of this section—

“(1) In general—A corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000.”

“(3) Entities which meet gross receipts test—Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year.”

“(4) Adjustment for inflation—In the case of any taxable year beginning after December 31, 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to—

“(A) such dollar amount, multiplied by

“(B) the cost-of-living adjustment determined under section 1(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.”

“(7) Coordination with section 481—Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”

“(2) a corporation which meets the gross receipts test of section 448(c) for such taxable year.”

“(f) Coordination with section 481—Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”

“(i) Exemption for certain small businesses

“(1) In general—In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year.

“(2) Application of gross receipts test to individuals, etc—In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.

“(3) Coordination with section 481—Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”

“(2) Property acquired for resale—Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale.”

“(c) Exemption for certain small businesses

“(1) In general—In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year—

“(A) subsection (a) shall not apply with respect to such taxpayer for such taxable year, and

“(B) the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either—

“(i) treats inventory as non-incidental materials and supplies, or

“(ii) conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable financial statement with respect to such taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures.

“(2) Applicable financial statement—For purposes of this subsection, the term applicable financial statement means—

“(A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles and which is—

“(i) a 10-K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission,

“(ii) an audited financial statement of the taxpayer which is used for—

“(I) credit purposes,

“(II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or

“(III) any other substantial nontax purpose,

“(iii) 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

“(B) a financial statement of the taxpayer which—

“(i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or

“(ii) filed by the taxpayer with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary,

“(3) Application of gross receipts test to individuals, etc—In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.

“(4) Coordination with section 481—Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”

“(ii) who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into.”

“(2) Rules related to gross receipts test

“(A) Application of gross receipts test to individuals, etc—For purposes of paragraph (1)(B)(ii), in the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.

“(B) Coordination with section 481—Any change in method of accounting made pursuant to paragraph (1)(B)(ii) shall be treated as initiated by the taxpayer and made with the consent of the Secretary. Such change shall be effected on a cut-off basis for all similarly classified contracts entered into on or after the year of change.”

“(j) Limitation on business interest

“(1) 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—

changed “(A) the business interest income of such taxpayer for such taxable year, plusyear,

changed “(B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year.year, plus

changed “(2) Exemption for certain small businesses—For exemption for certain small businesses, see “(C) the amendment made by section 3204 floor plan financing interest of the Tax Cuts and Jobs Act.such taxpayer for such taxable year.

added “(2) 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.

“(3) Application to partnerships, etc

“(A) In general—In the case of any partnership—

“(i) this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership,

“(ii) 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

“(iii) 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.

“(B) Excess amount—The term “excess amount” means, with respect to any partnership, the excess (if any) of—

“(i) 30 percent of the adjusted taxable income of the partnership, over

added “(ii) 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.

removed “(ii) the amount (if any) by which the business interest of the partnership exceeds the business interest income of the partnership.

“(C) 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.

“(4) 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)).

“(5) 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)).

“(6) Adjusted taxable income—For purposes of this subsection, the term “adjusted taxable income” means the taxable income of the taxpayer—

“(A) computed without regard to—

“(i) any item of income, gain, deduction, or loss which is not properly allocable to a trade or business,

“(ii) any business interest or business interest income,

“(iii) the amount of any net operating loss deduction under section 172, and

“(iv) any deduction allowable for depreciation, amortization, or depletion, and

“(B) computed with such other adjustments as the Secretary may provide.

“(7) Trade or business—For purposes of this subsection, the term “trade or business” shall not include—

“(A) the trade or business of performing services as an employee,

“(B) a real property trade or business (as such term is defined in section 469(c)(7)(C)), or

“(C) the trade or business of the furnishing or sale of—

“(i) electrical energy, water, or sewage disposal services,

“(ii) gas or steam through a local distribution system, or

removed “(iii) transportation of gas or steam by pipeline, or

changed “(8) Carryforward of disallowed interest—For carryforward “(iii) transportation of interest disallowed under paragraph (1), see subsection (o).”gas or steam by pipeline,

added “(8) Carryforward of disallowed interest—For carryforward of interest disallowed under paragraph (1), see subsection (o).

added “(9) Floor plan financing interest defined—For purposes of this subsection—

added “(A) In general—The term “floor plan financing interest” means interest paid or accrued on floor plan financing indebtedness.

added “(B) Floor plan financing indebtedness—The term “floor plan financing indebtedness” means indebtedness—

added “(i) used to finance the acquisition of motor vehicles held for sale to retail customers, and

added “(ii) secured by the inventory so acquired.

added “(C) Motor vehicle—The term “motor vehicle” means a motor vehicle that is any of the following:

added “(i) An automobile.

added “(ii) A truck.

added “(iii) A recreational vehicle.

added “(iv) A motorcycle.

added “(v) A boat.

added “(vi) Farm machinery or equipment.

added “(vii) Construction machinery or equipment.”

“(o) 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.”

“(20) 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.”

“(3) 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).”

“(i) 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”

“(B) Eligible disaster loss

“(i) In general—For purposes of subparagraph (A)(i), the term “eligible disaster loss” means—

“(I) 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

“(II) in the case of a taxpayer engaged in the trade or business of farming, net operating losses attributable to such federally declared disasters.

“(ii) 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).

“(iii) Trade or business of farming—For purposes of this subparagraph, the trade or business of farming shall include the trade or business of—

“(I) operating a nursery or sod farm, or

“(II) the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees.”

“(a) Deduction allowed—There shall be allowed as a deduction for the taxable year an amount equal to the lesser of—

“(1) the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or

“(2) 90 percent of taxable income computed without regard to the deduction allowable under this section.”

“(A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,

“(B) not be considered to be less than zero, and

“(C) not exceed the amount determined under subsection (a)(2) for such prior taxable year.”

“(C) subsection (a)(2) shall be applied by substituting “real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))” for “taxable income”.”

“(3) Annual increase of indefinite carryover amounts—For purposes of paragraph (2)—

“(A) 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—

“(i) the amount of the loss which may be so carried over to such succeeding taxable year (determined without regard to this paragraph), multiplied by

“(ii) the sum of—

“(I) the annual Federal short-term rate (determined under section 1274(d)) for the last month ending before the beginning of such taxable year, plus

“(II) 4 percentage points, and

“(B) 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—

“(i) the excess of—

“(I) the amount of the loss carried to the prior taxable year (after any increase under this paragraph with respect to such amount), over

“(II) the amount by which such loss was reduced under paragraph (2) by reason of the taxable income for such prior taxable year, multiplied by

“(ii) a percentage equal to 100 percent plus the percentage determined under subparagraph (A)(ii) with respect to such succeeding taxable year.”

“(7) Phaseout for qualified fuel cell property and qualified small wind energy property

“(A) 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—

“(i) in the case of any property the construction of which begins after December 31, 2019, and before January 1, 2021, 26 percent, and

“(ii) in the case of any property the construction of which begins after December 31, 2020, and before January 1, 2022, 22 percent.

“(B) 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.”

“(5) 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.”

“(j) 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.”

“(iv) Construction issue—For purposes of this subparagraph—

“(I) 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.

changed “(II) Construction—The term “construction” includes reconstruction and rehabilitation”rehabilitation.”

“(3) 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).”

“(A) Related persons—A person is a related person to another person if—

“(i) the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or

“(ii) 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).”

added “(A) a tax”

added “(B) a tax equal to 8 percent of the life insurance company taxable income.”

removed “(c) Items described—The items described in this subsection are the reserves for future unaccrued claims defined in subsection (e) as determined by applying the method of computing the reserves in subsection (d).

removed “(d) Method of computing reserves for purposes of determining income—For purposes of this part (other than section 816), the amount of the reserves for future unaccrued claims shall be 76.5 percent of the amount of such reserves as defined in subsection (e).

removed “(e) Definitions and special rules—For purposes of this section—

removed “(1) Reserves for future unaccrued claims—The term “reserves for future unaccrued claims” means—

removed “(A) life insurance reserves (as defined in section 816(b)) determined in accordance with the method prescribed by the National Association of Insurance Commissioners and reported by the taxpayer on its annual statement for the calendar year that is the taxable year,

removed “(B) unpaid losses included in total reserves under section 816(c)(2), and

removed “(C) the amount (not included in subparagraph (A) or (B)) of reserves solely for claims with respect to insurance risks which are determined in accordance with the method prescribed by the National Association of Insurance Commissioners and reported by the taxpayer on its annual statement for the calendar year that is the taxable year,

removed “(2) Reporting rules—The Secretary shall require reporting (at such time and in such manner as the Secretary shall prescribe) with respect to the opening balance and closing balance of reserves and with respect to the method of computing reserves for purposes of determining income.”

removed “(g) Prevailing State assumed interest rate—For purposes of this subchapter—

removed “(1) In general—The term prevailing State assumed interest rate means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account.

removed “(2) When rate determined—The prevailing State assumed interest rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued.”

removed “812. Definition of company’s share and policyholder’s share

removed “(a) Company’s share—For purposes of section 805(a)(4), the term “company’s share” means, with respect to any taxable year beginning after December 31, 2017, 40 percent.

removed “(b) Policyholder’s share—For purposes of section 807, the term “policyholder’s share” means, with respect to any taxable year beginning after December 31, 2017, 60 percent.”

added “(2) Determination of annual rate—The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate determined on the basis of the corporate bond yield curve (as defined in section 430(h)(2)(D)(i)).”

added “(B) 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:

added “(i) 3-year loss payment pattern

added “(I) In general—The period taken into account under subparagraph (A)(i) shall be extended to the extent required under subclause (II).

added “(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.

added “(ii) 10-year loss payment pattern

added “(I) In general—The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II).

added “(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.”

removed “(2) Determination of annual rate—The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate determined on the basis of the corporate bond yield curve (as defined in section 430(h)(2)(D)(i)).”

removed “(B) 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:

removed “(i) 3-year loss payment pattern

removed “(I) In general—The period taken into account under subparagraph (A)(i) shall be extended to the extent required under subclause (II).

removed “(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.

removed “(ii) 10-year loss payment pattern

removed “(I) In general—The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II).

removed “(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.”

added “(2) Publicly held corporation—For purposes of this subsection, the term “publicly held corporation” means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c))—

added “(A) the securities of which are required to be registered under section 12 of such Act (15 U.S.C. 78l), or

added “(B) that is required to file reports under section 15(d) of such Act (15 U.S.C. 78o(d)).”

removed “409B. Nonqualified deferred compensation

removed “(a) In general—Any compensation which is deferred under a nonqualified deferred compensation plan shall be includible in the gross income of the person who performed the services to which such compensation relates when there is no substantial risk of forfeiture of the rights of such person to such compensation.

removed “(b) Definitions—For purposes of this section—

removed “(1) Substantial risk of forfeiture—The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any person. Such rights shall not be treated as subject to a substantial risk of forfeiture solely by reason of a covenant not to compete or the occurrence of a condition related to a purpose of the compensation other than the future performance of services.

removed “(2) Nonqualified deferred compensation plan—For purposes of this section:

removed “(A) Nonqualified deferred compensation plan—The term “nonqualified deferred compensation plan” means any plan that provides for the deferral of compensation, other than—

removed “(i) a qualified employer plan,

removed “(ii) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan, and

removed “(iii) any other plan or arrangement designated by the Secretary consistent with the purposes of this section.

removed “(B) Equity-based compensation—The term “nonqualified deferred compensation plan” shall include any plan that provides—

removed “(i) a right to compensation based on the value of, or appreciation in value of, a specified number of equity units of the service recipient, whether paid in cash or equity, or

removed “(ii) stock appreciation rights or stock options.

removed “(3) Qualified employer plan—The term “qualified employer plan” means any plan, contract, pension, account, or trust described in section 408(p)(2)(D)(ii) or a simple retirement account (within the meaning of section 408(p)).

removed “(4) Plan includes arrangements, etc—The term “plan” includes any agreement or arrangement, including an agreement or arrangement that includes one person.

removed “(5) Exception—Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 2 ½ months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.

removed “(6) Treatment of earnings—References to deferred compensation shall be treated as including references to income (whether actual or notional) attributable to such compensation or such income.

removed “(7) Aggregation rules—Except as provided by the Secretary, rules similar to the rules of subsections (b) and (c) of section 414 shall apply.

removed “(c) No inference on earlier income inclusion or requirement of later inclusion—Nothing in this section shall be construed to prevent the inclusion of amounts in gross income under any other provision of this chapter or any other rule of law earlier than the time provided in this section. Any amount included in gross income under this section shall not be required to be included in gross income under any other provision of this chapter or any other rule of law later than the time provided in this section.

removed “(d) Application to existing deferrals—In the case of any amount deferred to which this section does not otherwise apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2018, to the extent such amount is not includible in gross income in a taxable year beginning before 2026, such amounts shall be includible in gross income in the later of—

removed “(1) the last taxable year beginning before 2026, or

removed “(2) the taxable year in which there is no substantial risk of forfeiture of the rights to such compensation.

removed “(e) Regulations—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.”

removed “(h) Termination of certain plans

removed “(1) Tax-exempt organization plans—This section shall not apply to amounts deferred which are attributable to services performed after December 31, 2017, under a plan maintained by an employer described in subsection (e)(1)(B).

removed “(2) Ineligible deferred compensation plans—Subsection (f) shall not apply to amounts deferred which are attributable to services performed after December 31, 2017.”

added “(C) was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016.”

added “(F) Special rule for remuneration paid to beneficiaries, etc—Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.”

added “4960. Tax on excess tax-exempt organization executive compensation

added “(a) Tax imposed—There is hereby imposed a tax equal to 20 percent of the sum of—

added “(1) so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus

added “(2) any excess parachute payment paid by such an organization to any covered employee.

added “(b) Liability for tax—The employer shall be liable for the tax imposed under subsection (a).

added “(c) Definitions and special rules—For purposes of this section—

added “(1) Applicable tax-exempt organization—The term “applicable tax-exempt organization” means any organization that for the taxable year—

added “(A) is exempt from taxation under section 501(a),

added “(B) is a farmers’ cooperative organization described in section 521(b)(1),

added “(C) has income excluded from taxation under section 115(1), or

added “(D) is a political organization described in section 527(e)(1).

added “(2) Covered employee—For purposes of this section, the term “covered employee” means any employee (including any former employee) of an applicable tax-exempt organization if the employee—

added “(A) is one of the 5 highest compensated employees of the organization for the taxable year, or

added “(B) was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2016.

added “(3) 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)).

added “(4) Remuneration from related organizations

added “(A) 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.

added “(B) Related organizations—A person or governmental entity shall be treated as related to an applicable tax-exempt organization if such person or governmental entity—

added “(i) controls, or is controlled by, the organization,

added “(ii) is controlled by one or more persons that control the organization,

added “(iii) is a supported organization (as defined in section 509(f)(2)) during the taxable year with respect to the organization,

added “(iv) is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or

added “(v) 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.

added “(C) Liability for tax—In any case in which remuneration from more than one employer is taken into account under this paragraph in determining the tax imposed by subsection (a), each such employer shall be liable for such tax in an amount which bears the same ratio to the total tax determined under subsection (a) with respect to such remuneration as—

added “(i) the amount of remuneration paid by such employer with respect to such employee, bears to

added “(ii) the amount of remuneration paid by all such employers to such employee.

added “(5) Excess parachute payment—For purposes determining the tax imposed by subsection (a)(2)—

added “(A) In general—The term “excess parachute payment” means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment.

added “(B) Parachute payment—The term “parachute payment” means any payment in the nature of compensation to (or for the benefit of) a covered employee if—

added “(i) such payment is contingent on such employee’s separation from employment with the employer, and

added “(ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to 3 times the base amount.

added “(C) Base amount—Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount.

added “(D) Property transfers; present value—Rules similar to the rules of paragraphs (3) and (4) of section 280G(d) shall apply.

added “(6) Coordination with deduction limitation—Remuneration the deduction for which is not allowed by reason of section 162(m) shall not be taken into account for purposes of this section.

added “(d) 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.”

removed “(2) Publicly held corporation—For purposes of this subsection, the term “publicly held corporation” means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c))—

removed “(A) the securities of which are required to be registered under section 12 of such Act (15 U.S.C. 78l), or

removed “(B) that is required to file reports under section 15(d) of such Act (15 U.S.C. 78o(d)).”

removed “(C) was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016.”

removed “(F) Special rule for remuneration paid to beneficiaries, etc—Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.”

added “(i) Qualified equity grants

added “(1) 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—

added “(A) 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

added “(B) 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—

added “(i) the first date such qualified stock becomes transferable (including transferable to the employer),

added “(ii) the date the employee first becomes an excluded employee,

added “(iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection),

added “(iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or

added “(v) 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.

added “(2) Qualified stock

added “(A) In general—For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if—

added “(i) such stock is received—

added “(I) in connection with the exercise of an option, or

added “(II) in settlement of a restricted stock unit, and

added “(ii) such option or restricted stock unit was provided by the corporation—

added “(I) in connection with the performance of services as an employee, and

added “(II) during a calendar year in which such corporation was an eligible corporation.

added “(B) Limitation—The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture.

added “(C) Eligible corporation—For purposes of subparagraph (A)(ii)(II)—

added “(i) In general—The term eligible corporation means, with respect to any calendar year, any corporation if—

added “(I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and

added “(II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock.

added “(ii) Same rights and privileges—For purposes of clause (i)(II)—

added “(I) 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),

added “(II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and

added “(III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit.

added “(iii) Employee—For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee.

added “(iv) Special rule for calendar years before 2018—In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same.

added “(3) Qualified employee; excluded employee—For purposes of this subsection—

added “(A) In general—The term qualified employee means any individual who—

added “(i) is not an excluded employee, and

added “(ii) 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.

added “(B) Excluded employee—The term excluded employee means, with respect to any corporation, any individual—

added “(i) 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,

added “(ii) who is or has been at any prior time—

added “(I) the chief executive officer of such corporation or an individual acting in such a capacity, or

added “(II) the chief financial officer of such corporation or an individual acting in such a capacity,

added “(iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or

added “(iv) 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).

added “(4) Election

added “(A) Time for making election—An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first 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).

added “(B) Limitations—No election may be made under this section with respect to any qualified stock if—

added “(i) the qualified employee has made an election under subsection (b) with respect to such qualified stock,

added “(ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or

added “(iii) 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—

added “(I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and

added “(II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis.

added “(C) Definitions and special rules related to limitation on stock redemptions

added “(i) Deferral stock—For purposes of this paragraph, the term “deferral stock” means stock with respect to which an election is in effect under this subsection.

added “(ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period—Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of 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.

added “(iii) Purchase of all outstanding deferral stock—The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock.

added “(iv) Reporting—Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary may require for purposes of administering this paragraph.

added “(5) 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.

added “(6) 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—

added “(A) certify to such employee that such stock is qualified stock, and

added “(B) notify such employee—

added “(i) that the employee may elect to defer income on such stock under this subsection, and

added “(ii) that, if the employee makes such an election—

added “(I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period,

added “(II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and

added “(III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding.

added “(7) Restricted stock units—This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units.”

added “(i) Qualified stock for which an election is in effect under section 83(i)—For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages—

added “(1) received on the earliest date described in section 83(i)(1)(B), and

added “(2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date.”

added “(t) 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)—

added “(1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and

added “(2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit.”

added “(7) Treatment of qualified stock—An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i).”

added “(15) the amount excludable from gross income under subparagraph (A) of section 83(i)(1),

added “(16) 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

added “(17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year.”

added “(o) 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.”

removed “4960. Tax on excess tax-exempt organization executive compensation

removed “(a) Tax imposed—There is hereby imposed a tax equal to 20 percent of the sum of—

removed “(1) so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus

removed “(2) any excess parachute payment paid by such an organization to any covered employee.

removed “(b) Liability for tax—The employer shall be liable for the tax imposed under subsection (a).

removed “(c) Definitions and special rules—For purposes of this section—

removed “(1) Applicable tax-exempt organization—The term “applicable tax-exempt organization” means any organization that for the taxable year—

removed “(A) is exempt from taxation under section 501(a),

removed “(B) is a farmers’ cooperative organization described in section 521(b)(1),

removed “(C) has income excluded from taxation under section 115(1), or

removed “(D) is a political organization described in section 527(e)(1).

removed “(2) Covered employee—For purposes of this section, the term “covered employee” means any employee (including any former employee) of an applicable tax-exempt organization if the employee—

removed “(A) is one of the 5 highest compensated employees of the organization for the taxable year, or

removed “(B) was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2016.

removed “(3) 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)).

removed “(4) Remuneration from related organizations

removed “(A) 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.

removed “(B) Related organizations—A person or governmental entity shall be treated as related to an applicable tax-exempt organization if such person or governmental entity—

removed “(i) controls, or is controlled by, the organization,

removed “(ii) is controlled by one or more persons that control the organization,

removed “(iii) is a supported organization (as defined in section 509(f)(2)) during the taxable year with respect to the organization,

removed “(iv) is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or

removed “(v) 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.

removed “(C) Liability for tax—In any case in which remuneration from more than one employer is taken into account under this paragraph in determining the tax imposed by subsection (a), each such employer shall be liable for such tax in an amount which bears the same ratio to the total tax determined under subsection (a) with respect to such remuneration as—

removed “(i) the amount of remuneration paid by such employer with respect to such employee, bears to

removed “(ii) the amount of remuneration paid by all such employers to such employee.

removed “(5) Excess parachute payment—For purposes determining the tax imposed by subsection (a)(2)—

removed “(A) In general—The term “excess parachute payment” means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment.

removed “(B) Parachute payment—The term “parachute payment” means any payment in the nature of compensation to (or for the benefit of) a covered employee if—

removed “(i) such payment is contingent on such employee’s separation from employment with the employer, and

removed “(ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to 3 times the base amount.

removed “(C) Base amount—Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount.

removed “(D) Property transfers; present value—Rules similar to the rules of paragraphs (3) and (4) of section 280G(d) shall apply.

removed “(6) Coordination with deduction limitation—Remuneration the deduction for which is not allowed by reason of section 162(m) shall not be taken into account for purposes of this section.

removed “(d) 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.”

“245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations

“(a) In general—In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend.

changed “(b) Specified 10-Percent 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.

changed “(c) Foreign-Source Foreign-source portion—For purposes of this section—

“(1) In general—The foreign-source portion of any dividend is an amount which bears the same ratio to such dividend as—

“(A) the post-1986 undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to

“(B) the total post-1986 undistributed earnings of such foreign corporation.

“(2) 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—

“(A) as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and

“(B) without diminution by reason of dividends distributed during such taxable year.

“(3) 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—

“(A) income described in subparagraph (A) of section 245(a)(5), nor

“(B) dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)).

“(4) Treatment of distributions from earnings before 1987

“(A) 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—

“(i) paragraphs (1), (2), and (3) shall be applied without regard to the phrase “post-1986” each place it appears, and

“(ii) 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”.

“(B) Dividends paid first out of post-1986 earnings—Dividends shall be treated as paid out of post-1986 undistributed earnings to the extent thereof.

“(5) 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—

“(A) 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

“(B) 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).

“(d) Disallowance of foreign tax credit, etc

“(1) In general—No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section.

“(2) Denial of deduction—No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).

“(e) Regulations—The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.”

“(5) Special rules for foreign source portion of dividends received from specified 10-percent owned foreign corporations

“(A) 6-month holding period requirement—For purposes of section 245A—

“(i) paragraph (1)(A) shall be applied—

“(I) by substituting “180 days” for “45 days”each place it appears, and

“(II) by substituting “361-day period” for “91-day period”, and

“(ii) paragraph (2) shall not apply.

“(B) Status must be maintained during holding period—For purposes of applying paragraph (1) with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph (1) for any period only if—

“(i) the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation for such period, and

“(ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation for such period.”

“(5) 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—

“(A) the foreign-source portion of any dividend received from such foreign corporation, and

“(B) any deductions properly allocable or apportioned to—

“(i) income (other than 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

“(ii) 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)).”

“(1) to address United States shareholders that are partnerships with corporate partners, and

“(2) to prevent”

changed “(d) Basis in specified 10-Percent 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.”

“91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations

“(a) In general—If a domestic corporation transfers substantially all of the assets of a foreign branch (within the meaning of section 367(a)(3)(C)) to a specified 10-percent owned foreign corporation (as defined in section 245A) with respect to which it is a United States shareholder after such transfer, such domestic corporation shall include in gross income for the taxable year which includes such transfer an amount equal to the transferred loss amount with respect to such transfer.

“(b) Transferred loss amount—For purposes of this section, the term “transferred loss amount” means, with respect to any transfer of substantially all of the assets of a foreign branch, the excess (if any) of—

“(1) the sum of losses—

“(A) which were incurred by the foreign branch after December 31, 2017, and before the transfer, and

“(B) with respect to which a deduction was allowed to the taxpayer, over

“(2) the sum of—

“(A) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and

“(B) any amount which is recognized under section 904(f)(3) on account of the transfer.

“(c) Reduction for recognized gains

“(1) 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)).

“(2) 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—

“(A) 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

“(B) the amount of gain recognized under section 367(a)(3)(C) with respect to such transfer.

“(d) Source of income—Amounts included in gross income under this section shall be treated as derived from sources within the United States.

“(e) Basis adjustments—Consistent with such regulations or other guidance as the Secretary 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.”

“965. Treatment of deferred foreign income upon transition to participation exemption system of taxation

“(a) Treatment of deferred foreign income as subpart F income—In the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the greater of—

“(1) the accumulated post-1986 deferred foreign income of such corporation determined as of November 2, 2017, or

“(2) the accumulated post-1986 deferred foreign income of such corporation determined as of December 31, 2017.

“(b) Reduction in amounts included in gross income of United States shareholders of specified foreign corporations with deficits in earnings and profits

“(1) In general—In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)(1) by reason of subsection (a) as such United States shareholder’s pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced (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.

“(2) Allocation of aggregate foreign E&P deficit—The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as—

“(A) such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to

“(B) the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder.

“(3) Definitions related to E&P deficits—For purposes of this subsection—

“(A) Aggregate foreign E&P deficit—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.

“(B) E&P deficit foreign corporation—The term “E&P deficit foreign corporation” means, with respect to any taxpayer, any specified foreign corporation with respect to which such taxpayer is a United States shareholder, if—

“(i) such specified foreign corporation has a deficit in post-1986 earnings and profits, and

“(ii) as of November 2, 2017—

“(I) such corporation was a specified foreign corporation, and

“(II) such taxpayer was a United States shareholder of such corporation.

“(C) Specified E&P deficit—The term “specified E&P deficit” means, with respect to any E&P deficit foreign corporation, the amount of the deficit referred to in subparagraph (B).

“(4) Netting among United States shareholders in same affiliated group

“(A) In general—In the case of any affiliated group which includes at least one E&P net surplus shareholder and one E&P net deficit shareholder, the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by each such E&P net surplus shareholder shall be reduced (but not below zero) by such shareholder’s applicable share of the affiliated group’s aggregate unused E&P deficit.

“(B) E&P net surplus shareholder—For purposes of this paragraph, the term “E&P net surplus shareholder” means any United States shareholder which would (determined without regard to this paragraph) take into account an amount greater than zero under section 951(a)(1) by reason of subsection (a).

“(C) E&P net deficit shareholder—For purposes of this paragraph, the term “E&P net deficit shareholder” means any United States shareholder if—

“(i) the aggregate foreign E&P deficit with respect to such shareholder (as defined in paragraph (3)(A)), exceeds

“(ii) the amount which would (but for this subsection) be taken into account by such shareholder under section 951(a)(1) by reason of subsection (a).

“(D) Aggregate unused E&P deficit—For purposes of this paragraph—

“(i) In general—The term “aggregate unused E&P deficit” means, with respect to any affiliated group, the lesser of—

“(I) the sum of the excesses described in subparagraph (C), determined with respect to each E&P net deficit shareholder in such group, or

“(II) the amount determined under subparagraph (E)(ii).

“(ii) Reduction with respect to E&P net deficit shareholders which are not wholly owned by the affiliated group—If the group ownership percentage of any E&P net deficit shareholder is less than 100 percent, the amount of the excess described in subparagraph (C) which is taken into account under clause (i)(I) with respect to such E&P net deficit shareholder shall be such group ownership percentage of such amount.

“(E) Applicable share—For purposes of this paragraph, the term “applicable share” means, with respect to any E&P net surplus shareholder in any affiliated group, the amount which bears the same proportion to such group’s aggregate unused E&P deficit as—

“(i) the product of—

“(I) such shareholder’s group ownership percentage, multiplied by

“(II) the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by such shareholder, bears to

“(ii) the aggregate amount determined under clause (i) with respect to all E&P net surplus shareholders in such group.

“(F) Group ownership percentage—For purposes of this paragraph, the term “group ownership percentage” means, with respect to any United States shareholder in any affiliated group, the percentage of the value of the stock of such United States shareholder which is held by other includible corporations in such affiliated group. Notwithstanding the preceding sentence, the group ownership percentage of the common parent of the affiliated group is 100 percent. Any term used in this subparagraph which is also used in section 1504 shall have the same meaning as when used in such section.

“(c) Application of participation exemption to included income

“(1) In general—In the case of a United States shareholder of a deferred foreign income corporation, there shall be allowed as a deduction for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section an amount equal to the sum of—

changed “(A) the United States shareholder’s 5 7 percent rate equivalent percentage of the excess (if any) of—

“(i) the amount so included as gross income, over

“(ii) the amount of such United States shareholder’s aggregate foreign cash position, plus

changed “(B) the United States shareholder’s 12 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).

changed “(2) 5 7 and 12 14 percent rate equivalent percentages—For purposes of this subsection—

changed “(A) 5 7 percent rate equivalent percentage—The term “5 “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 5 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.

changed “(B) 12 14 percent rate equivalent percentage—The term “12 “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 “12 “14 percent rate of tax” for “5 “7 percent rate of tax”.

“(3) Aggregate foreign cash position—For purposes of this subsection—

“(A) In general—The term “aggregate foreign cash position” means, with respect to any United States shareholder, one-third of the sum of—

“(i) the aggregate of such United States shareholder’s pro rata share of the cash position of each specified foreign corporation of such United States shareholder determined as of November 2, 2017,

“(ii) 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

“(iii) 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).

“(B) Cash position—For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of—

“(i) cash held by such foreign corporation,

“(ii) the net accounts receivable of such foreign corporation, plus

“(iii) the fair market value of the following assets held by such corporation:

“(I) Actively traded personal property for which there is an established financial market.

“(II) Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government.

“(III) Any foreign currency.

“(IV) Any obligation with a term of less than one year.

“(V) Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph.

“(C) Net accounts receivable—For purposes of this paragraph, the term “net accounts receivable” means, with respect to any specified foreign corporation, the excess (if any) of—

“(i) such corporation’s accounts receivable, over

“(ii) such corporation’s accounts payable (determined consistent with the rules of section 461).

“(D) Prevention of double counting

“(i) In general—The applicable percentage of each specified cash position of a specified foreign corporation shall not be taken into account by—

“(I) the United States shareholder referred to in clause (ii) with respect to such position, or

“(II) any United States shareholder which is an includible corporation in the same affiliated group as such United States shareholder referred to in clause (ii).

“(ii) Specified cash position—For purposes of this subparagraph, the term “specified cash position” means—

“(I) 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,

“(II) 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

“(III) 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.

“(iii) Applicable percentage—For purposes of this subparagraph, the term “applicable percentage” means—

“(I) 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

“(II) 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.

“(iv) 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).

“(E) 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)).

changed “(F) 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 corporationcorporation.

“(G) 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).

“(H) 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.

“(d) Deferred foreign income corporation; accumulated post-1986 deferred foreign income—For purposes of this section—

“(1) Deferred foreign income corporation—The term “deferred foreign income corporation” means, with respect to any United States shareholder, any specified foreign corporation of such United States shareholder which has accumulated post-1986 deferred foreign income (as of the date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation) greater than zero.

“(2) Accumulated post-1986 deferred foreign income—The term “accumulated post-1986 deferred foreign income” means the post-1986 earnings and profits except to the extent such earnings—

“(A) are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or

“(B) if distributed, would be excluded from the gross income of a United States shareholder under section 959.

“(3) Post-1986 earnings and profits—The term “post-1986 earnings and profits” means the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986, and determined—

“(A) as of the date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation,

“(B) without diminution by reason of dividends distributed during the taxable year ending with or including such date, and

“(C) 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.

“(e) Specified foreign corporation

“(1) In general—For purposes of this section, the term “specified foreign corporation” means—

“(A) any controlled foreign corporation, and

“(B) any foreign corporation with respect to which one or more domestic corporations is a United States shareholder (determined without regard to section 958(b)(4)).

“(2) Application to certain foreign corporations—For purposes of sections 951 and 961, a foreign corporation described in paragraph (1)(B) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)).

“(3) 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.

“(f) Determinations of pro rata share—For purposes of this section, the determination of any United States shareholder’s pro rata share of any amount with respect to any specified foreign corporation shall be determined under rules similar to the rules of section 951(a)(2) by treating such amount in the same manner as subpart F income (and by treating such specified foreign corporation as a controlled foreign corporation).

“(g) Disallowance of foreign tax credit, etc

“(1) In general—No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section.

“(2) Applicable percentage—For purposes of this subsection, the term “applicable percentage” means the amount (expressed as a percentage) equal to the sum of—

changed “(A) 85.7 80 percent of the ratio of—

“(i) the excess to which subsection (c)(1)(A) applies, divided by

“(ii) the sum of such excess plus the amount to which subsection (c)(1)(B) applies, plus

changed “(B) 65.7 60 percent of the ratio of—

“(i) the amount to which subsection (c)(1)(B) applies, divided by

“(ii) the sum described in subparagraph (A)(ii).

“(3) Denial of deduction—No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).

changed “(4) Coordination with section 78—Section 78 shall not apply 78—With respect to any tax for the taxes treated as paid or accrued by a domestic corporation with respect to amounts which credit is not allowable under section 901 are includible in gross income of such domestic corporation by reason of paragraph (1).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—

added “(A) the excess of—

added “(i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over

added “(ii) the deduction allowable under subsection (c) with respect to such amounts, bears to

added “(B) such amounts.

“(5) 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”.

added “(h) Election to pay liability in installments

removed “(h) Election To pay liability in installments

“(1) In general—In the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder may elect to pay the net tax liability under this section in 8 equal installments.

“(2) Date for payment of installments—If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection (a) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made.

“(3) Acceleration of payment—If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer.

“(4) Proration of deficiency to installments—If an election is made under paragraph (1) to pay the net tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

“(5) Election—Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a) and shall be made in such manner as the Secretary may provide.

“(6) Net tax liability under this section—For purposes of this subsection—

“(A) In general—The net tax liability under this section with respect to any United States shareholder is the excess (if any) of—

“(i) such taxpayer’s net income tax for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section, over

“(ii) such taxpayer’s net income tax for such taxable year determined—

“(I) without regard to this section, and

“(II) without regard to any income, deduction, or credit, properly attributable to a dividend received by such United States shareholder from any deferred foreign income corporation.

“(B) Net income tax—The term “net income tax” means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A.

“(i) Special rules for S corporation shareholders

“(1) In general—In the case of any S corporation which is a United States shareholder of a deferred foreign income corporation, each shareholder of such S corporation may elect to defer payment of such shareholder’s net tax liability under this section with respect to such S corporation until the shareholder’s taxable year which includes the triggering event with respect to such liability. Any net tax liability payment of which is deferred under the preceding sentence shall be assessed on the return as an addition to tax in the shareholder’s taxable year which includes such triggering event.

“(2) Triggering event

“(A) In general—In the case of any shareholder’s net tax liability under this section with respect to any S corporation, the triggering event with respect to such liability is whichever of the following occurs first:

“(i) Such corporation ceases to be an S corporation (determined as of the first day of the first taxable year that such corporation is not an S corporation).

“(ii) A liquidation or sale of substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance.

“(iii) A transfer of any share of stock in such S corporation by the taxpayer (including by reason of death, or otherwise).

“(B) Partial transfers of stock—In the case of a transfer of less than all of the taxpayer’s shares of stock in the S corporation, such transfer shall only be a triggering event with respect to so much of the taxpayer’s net tax liability under this section with respect to such S corporation as is properly allocable to such stock.

“(C) Transfer of liability—A transfer described in clause (iii) shall not be treated as a triggering event if the transferee enters into an agreement with the Secretary under which such transferee is liable for net tax liability with respect to such stock in the same manner as if such transferee were the taxpayer.

“(3) Net tax liability—A shareholder’s net tax liability under this section with respect to any S corporation is the net tax liability under this section which would be determined under subsection (h)(6) if the only subpart F income taken into account by such shareholder by reason of this section were allocations from such S corporation.

“(4) Election to pay deferred liability in installments—In the case of a taxpayer which elects to defer payment under paragraph (1)—

“(A) subsection (h) shall be applied separately with respect to the liability to which such election applies,

“(B) an election under subsection (h) with respect to such liability shall be treated as timely made if made not later than the due date for the return of tax for the taxable year in which the triggering event with respect to such liability occurs,

“(C) the first installment under subsection (h) with respect to such liability shall be paid not later than such due date (but determined without regard to any extension of time for filing the return), and

“(D) if the triggering event with respect to any net tax liability is described in paragraph (2)(A)(ii), an election under subsection (h) with respect to such liability may be made only with the consent of the Secretary.

“(5) Joint and several liability of S corporation—If any shareholder of an S corporation elects to defer payment under paragraph (1), such S corporation shall be jointly and severally liable for such payment and any penalty, addition to tax, or additional amount attributable thereto.

“(6) Extension of limitation on collection—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.

“(7) Annual reporting of net tax liability

“(A) In general—Any shareholder of an S corporation which makes an election under paragraph (1) shall report the amount of such shareholder’s deferred net tax liability on such shareholder’s return of tax for the taxable year for which such election is made and on the return of tax for each taxable year thereafter until such amount has been fully assessed on such returns.

“(B) Deferred net tax liability—For purposes of this paragraph, the term “deferred net tax liability” means, with respect to any taxable year, the amount of net tax liability payment of which has been deferred under paragraph (1) and which has not been assessed on a return of tax for any prior taxable year.

“(C) Failure to report—In the case of any failure to report any amount required to be reported under subparagraph (A) with respect to any taxable year before the due date for the return of tax for such taxable year, there shall be assessed on such return as an addition to tax 5 percent of such amount.

“(8) Election—Any election under paragraph (1)—

“(A) shall be made by the shareholder of the S corporation not later than the due date for such shareholder’s return of tax for the taxable year which includes the close of the taxable year of such S corporation in which the amount described in subsection (a) is taken into account, and

“(B) shall be made in such manner as the Secretary may provide.

“(j) 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.

added “(k) 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.

removed “(k) 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.

“(l) Regulations—The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.”

“951A. Foreign high return amount included in gross income of United States shareholders

“(a) In general—Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income for such taxable year 50 percent of such shareholder’s foreign high return amount for such taxable year.

“(b) Foreign high return amount—For purposes of this section—

“(1) 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—

“(A) such shareholder’s net CFC tested income for such taxable year, over

“(B) the excess (if any) of—

“(i) 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

“(ii) 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.

“(2) 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.

“(c) Net CFC tested income—For purposes of this section—

“(1) In general—The term “net CFC tested income” means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—

“(A) the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over

“(B) the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).

“(2) Tested income; tested loss—For purposes of this section—

“(A) Tested income—The term “tested income” means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of—

“(i) the gross income of such corporation determined without regard to—

“(I) any item of income 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,

“(II) any gross income taken into account in determining the subpart F income of such corporation,

“(III) 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),

changed “(IV) any gross income excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of subsection (h) (c)(2)(C), (h), or (i) of section 954,

“(V) any gross income excluded from the insurance income (as defined in section 953) of such corporation by reason of section 953(a)(2),

“(VI) 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),

“(VII) any dividend received from a related person (as defined in section 954(d)(3)), and

“(VIII) any commodities gross income of such corporation, over

“(ii) the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5) (or which would be so properly allocable if such corporation had such gross income).

“(B) 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).

“(d) Qualified business asset investment—For purposes of this section—

“(1) In general—The term “qualified business asset investment” means, with respect to any controlled foreign corporation for any taxable year 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—

“(A) used in a trade or business of the corporation, and

“(B) of a type with respect to which a deduction is allowable under section 168.

“(2) 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.

“(3) Partnership property—For purposes of this subsection, if a controlled foreign corporation holds an interest in a partnership at the close of such taxable year of the controlled foreign corporation, such controlled foreign corporation shall take into account under paragraph (1) the controlled foreign corporation’s distributive share of the aggregate of the partnership’s adjusted bases (determined as of such date in the hands of the partnership) in tangible property held by such partnership to the extent such property—

changed “(A) is used in the trade or business of the partnership, andpartnership,

changed “(B) 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 a type with respect to such property).which a deduction is allowable under section 168, and

added “(C) 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).

“(4) 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.

“(5) Regulations—The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection, including regulations or other guidance which provide for the treatment of property if—

“(A) such property is transferred, or held, temporarily, or

“(B) the avoidance of the purposes of this paragraph is a factor in the transfer or holding of such property.

“(e) Commodities gross income—For purposes of this section—

added “(1) Commodities gross income—The term “commodities gross income” means, with respect to any corporation—

added “(A) 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

added “(B) gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A).

removed “(1) Commodities gross income—The term “commodities gross income” means, with respect to any corporation, the gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation.

“(2) 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).

“(f) Taxable years for which persons are treated as United States shareholders of controlled foreign corporations—For purposes of this section—

“(1) 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) a taxable year of such controlled foreign corporation ends in or with such taxable year of such person, and

“(B) 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.

“(2) 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.

added “(g) 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.

removed “(g) Determination of pro rata share—For purposes of this section, the pro rata shares referred to in subsections (b)(2), (c)(1)(A), (c)(1)(B), and (c)(2)(B)(ii), respectively, shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income.

“(h) Coordination with subpart F

added “(1) 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).

added “(2) 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.

removed “(1) 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(c), 962(d), 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).

removed “(2) 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(c), 962(d), 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.

“(3) 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—

“(A) in the case of a controlled foreign corporation with tested loss, zero, and

“(B) 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—

“(i) such United States shareholder’s pro rata amount of the tested income of such controlled foreign corporation, bears to

“(ii) the aggregate amount determined under subsection (c)(1)(A) with respect to such United States shareholder.

“(4) 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—

“(A) the aggregate amount determined under subsection (c)(1)(A) with respect to such shareholder, bears to

“(B) the aggregate amount determined under subsection (c)(1)(B) with respect to such shareholder.”

“(d) Deemed paid credit for taxes properly attributable to tested income

“(1) 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—

“(A) such domestic corporation’s foreign high return percentage, multiplied by

“(B) 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.

“(2) 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—

“(A) such corporation’s foreign high return amount (as defined in section 951A(b)), divided by

“(B) the aggregate amount determined under section 951A(c)(1)(A) with respect to such corporation.

“(3) Tested foreign income taxes—For purposes of paragraph (1), the term “tested foreign income taxes” means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to gross income described in section 951A(c)(2)(A)(i).”

“(A) any amount includible in gross income under section 951A,”

“(1) an amount”

“(2) 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.”

“(i) without regard to—

“(I) this section,

“(II) part VIII (except section 248),

“(III) any net operating loss carryback to the taxable year under section 172,

“(IV) any capital loss carryback to the taxable year under section 1212(a)(1), and

“(ii) by substituting “100 percent” for “50 percent” in section 951A(a).”

“(i) without regard to—

“(I) any amount includible in gross income under section 86,

“(II) the amounts allowable as a deduction under section 219, and

“(III) any passive activity loss or any loss allowable by reason of subsection (c)(7), and

“(ii) by substituting “100 percent” for “50 percent” in section 951A(a).”

“(J) amounts includible in gross income under section 951A(a);”

“(n) Limitation on deduction of interest by domestic corporations in international financial reporting groups

“(1) 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—

changed “(A) the allowable percentage of 110 percent of the excess (if any) of—of —

“(i) the amount of such interest so paid or accrued, over

“(ii) the amount described in subparagraph (B), plus

“(B) the amount of interest includible in gross income of such corporation for such taxable year.

“(2) International financial reporting group

“(A) For purposes of this subsection, the term “international financial reporting group” means, with respect to any reporting year, any group of entities which—

“(i) includes—

“(I) at least one foreign corporation engaged in a trade or business within the United States, or

“(II) at least one domestic corporation and one foreign corporation,

“(ii) prepares consolidated financial statements with respect to such year, and

“(iii) 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.

“(B) 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.

“(3) Allowable percentage—For purposes of this subsection—

“(A) 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—

“(i) 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

“(ii) such corporation’s reported net interest expense for such reporting year of such group.

“(B) Reported net interest expense—The term “reported net interest expense” means—

“(i) with respect to any international financial reporting group for any reporting year, the excess of—

“(I) the aggregate amount of interest expense reported in such group’s consolidated financial statements for such taxable year, over

“(II) the aggregate amount of interest income reported in such group’s consolidated financial statements for such taxable year, and

“(ii) with respect to any domestic corporation for any reporting year, the excess of—

“(I) 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

“(II) the amount of interest income of such corporation reported in such books and records.

“(C) 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—

“(i) the EBITDA of such corporation for such reporting year, bears to

“(ii) the EBITDA of such group for such reporting year.

“(D) EBITDA

“(i) In general—The term “EBITDA” means, with respect to any reporting year, earnings before interest, taxes, depreciation, and amortization—

“(I) as determined in the international financial reporting group’s consolidated financial statements for such year, or

“(II) 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.

“(ii) 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.

“(iii) 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.

“(E) Special rules for non-positive EBITDA

“(i) 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.

“(ii) 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.

“(4) 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) 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—

“(i) a 10-K (or successor form), or annual statement to shareholders, required to be filed with the United States Securities and Exchange Commission,

“(ii) an audited financial statement which is used for—

“(I) credit purposes,

“(II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or

“(III) any other substantial nontax purpose,

“(iii) 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

“(B) a financial statement which—

“(i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or

“(ii) filed with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary,

“(5) 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.

“(6) Application to certain entities

changed “(A) Partnerships—Except as otherwise provided by the Secretary in paragraph (8), (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).

“(B) 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.

“(C) 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.

“(7) Regulations—The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection.”

“(o) 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.”

“E Tax on certain amounts to foreign affiliates

“4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates

“(a) 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.

“(b) By whom paid—The tax imposed by subsection (a) shall be paid by the domestic corporation described in such subsection.

“(c) 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).

“(d) 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.”

“(7) Taxes imposed by section 4491.”

changed “(g) Election To to treat certain payments from domestic corporations to related foreign corporations as effectively connected income

“(1) 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—

changed “(A) such amount shall be taken into account (other than for purposes of sections 245, 245A, and 881) as if such foreign corporation were engaged in a trade or business within the United States and had a permanent establishment in the United States during the taxable year and as if such payment were effectively connected with the conduct of a trade or business within the United States and were attributable to such permanent establishment,foreign corporation during which such amount is paid or incurred as if—

added “(i) such foreign corporation were engaged in a trade or business within the United States,

added “(ii) such foreign corporation had a permanent establishment in the United States during the taxable year, and

added “(iii) such payment were effectively connected with the conduct of a trade or business within the United States and were attributable to such permanent establishment,

“(B) 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

added “(C) 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.

removed “(C) there shall be allowed as a deduction the deemed expenses with respect such amount.

“(2) Specified amount—For purposes of this subsection—

“(A) 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.

“(B) Exceptions—The term “specified amount” shall not include—

“(i) interest,

added “(ii) 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),

removed “(ii) any amount paid or incurred for the acquisition of any commodity described in section 475(e)(2)(A) or section 475(e)(2)(D) (determined without regard to subclause (i) thereof),

“(iii) except as provided in subparagraph (C), any amount with respect to which tax is imposed under section 881(a), and

“(iv) 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.

added “(C) 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—

removed “(C) Amounts treated as effectively connected to extent of gross-basis tax—Subparagraph (B)(iii) shall not apply to any specified amount to the extent of the same proportion of such amount as—

“(i) the rate of tax imposed under section 881(a) with respect to such amount, bears to

“(ii) 30 percent.

“(3) Deemed expenses

added “(A) 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.

removed “(A) 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 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.

“(B) Net income ratio—For purposes of this paragraph, the term “net income ratio” means the ratio of—

“(i) net income determined without regard to interest income, interest expense, and income taxes, divided by

“(ii) revenues.

added “(C) 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—

added “(i) persons who are not members of such group, and

added “(ii) members of such group which are (or are treated as) a domestic corporation for purposes of this subsection.

removed “(C) Method of determination—Amounts described in subparagraph (B) shall be determined on the basis of the consolidated financial statements referred to in paragraph (5)(A)(i) and the book and records of the members of the internal financial reporting group which are used in preparing such statements.

“(4) International financial reporting group—For purposes of this subsection—

“(A) 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—

“(i) such group prepares consolidated financial statements (within the meaning of section 163(n)(4)) with respect to such year, and

“(ii) the average annual aggregate payment amount of such group for the 3-reporting-year period ending with such reporting year exceeds $100,000,000.

“(B) 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).

“(C) 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.

“(5) 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.

“(6) 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.

“(7) 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—

“(A) 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

“(B) any penalty, addition to tax, or additional amount attributable to the amount described in subparagraph (A).

removed “(8) Disallowance of foreign tax credit, etc

removed “(A) 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 specified amount to which paragraph (1) applies.

removed “(B) 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).

removed “(9) Rules related to election—Any election under paragraph (1) shall—

removed “(A) be made at such time and in such form and manner as the Secretary may provide, and

changed “(B) apply for the taxable year for which made and all subsequent taxable years unless revoked “(8) Foreign tax credit allowed—The credit allowed under section 906(a) with the consent respect to amounts taken into account in income under paragraph (1)(A) shall be limited to 80 percent of the Secretary.amount of taxes paid or accrued and determined without regard to section 906(b)(1).

added “(9) Election—Any election under paragraph (1)—

added “(A) shall be made at such time and in such form and manner as the Secretary may provide, and

added “(B) shall apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.

“(10) 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—

“(A) to provide for the proper determination of product lines, and

“(B) to prevent the avoidance of the purposes of this subsection through the use of conduit transactions or by other means.”

“(b) Required information

“(1) In general—The information described in this subsection is—

“(A) the information described in section 6038A(b), and

“(B) 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).

“(2) Certain payments from related domestic corporations

“(A) 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—

“(i) the name and taxpayer identification number of such member,

“(ii) the aggregate amounts received from such member,

“(iii) 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

“(iv) a summary of any changes in financial accounting methods that affect the computation of any net income ratio described in clause (iii).

“(B) 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.”

“6038E. Information with respect to certain payments from domestic corporations to related foreign corporations

changed “(a) In general—In the case of any domestic corporation which pays or accrues incurs any amount to which section 882(g)(1) applies, such person shall—

“(1) make a return according to the forms and regulations prescribed the Secretary, setting forth the information described in subsection (b), and

“(2) 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).

“(b) Required information—The information described in this subsection is—

“(1) 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

“(2) with respect to any person who receives an amount described in subsection (a) from such domestic corporation—

“(A) the name and taxpayer identification number of such person,

“(B) the aggregate amounts received by such person,

“(C) 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

“(D) a summary of any changes in financial accounting methods that affect the computation of any net income ratios described in subparagraph (C).

“(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.”

“H Excise tax based on investment income of private colleges and universities

“4969. Excise tax based on investment income of private colleges and universities

“(a) Tax imposed—There is hereby imposed on each applicable educational institution for the taxable year a tax equal to 1.4 percent of the net investment income of such institution for the taxable year.

“(b) Applicable educational institution—For purposes of this subchapter—

“(1) In general—The term “applicable educational institution” means an eligible educational institution (as defined in section 25A(e)(3))—

“(A) which has at least 500 students during the preceding taxable year,

“(B) which is not described in the first sentence of section 511(a)(2)(B), and

changed “(C) 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 $100,000 $250,000 per student of the institution.

“(2) 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).

changed “(c) Net investment income—For purposes of this section, net investment income shall be determined under rules similar to the rules of section 4940(c).”4940(c).

added “(d) Assets and net investment income of related organizations

added “(1) 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.

added “(2) Related organization—For purposes of this subsection, the term “related organization” means, with respect to an eligible educational institution, any organization which—

added “(A) controls, or is controlled by, such institution,

added “(B) is controlled by one or more persons that control such institution, or

added “(C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution.”

changed “(g) Exception for certain holdings limited to independently-Operated independently-operated philanthropic business

“(1) 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—

“(A) the ownership requirements of paragraph (2),

“(B) the all profits to charity distribution requirement of paragraph (3), and

“(C) the independent operation requirements of paragraph (4).

“(2) Ownership—The ownership requirements of this paragraph are met if—

“(A) 100 percent of the voting stock in the business enterprise is held by the private foundation at all times during the taxable year, and

“(B) all the private foundation’s ownership interests in the business enterprise were acquired not by purchase.

“(3) All profits to charity

“(A) 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.

“(B) 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—

“(i) the deductions allowed by chapter 1 for the taxable year which are directly connected with the production of such income,

“(ii) the tax imposed by chapter 1 on the business enterprise for the taxable year, and

“(iii) an amount for a reasonable reserve for working capital and other business needs of the business enterprise.

“(4) Independent operation—The independent operation requirements of this paragraph are met if, at all times during the taxable year—

“(A) 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),

“(B) at least a majority of the board of directors of the private foundation are not—

“(i) also directors or officers of the business enterprise, or

“(ii) 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

“(C) 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).

“(5) Certain deemed private foundations excluded—This subsection shall not apply to—

“(A) any fund or organization treated as a private foundation for purposes of this section by reason of subsection (e) or (f),

“(B) any trust described in section 4947(a)(1) (relating to charitable trusts), and

“(C) any trust described in section 4947(a)(2) (relating to split-interest trusts).”

changed “(s) Special rule relating to political campaign statements of churches, integrated auxiliaries, etcorganizations described in subsection (c)(3)

changed “(1) In general—For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization described in section 508(c)(1)(A) shall not fail to be treated as organized and operated exclusively for a religious purpose, 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 homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings, but only if the preparation and presentation of such content—statement which—

changed “(A) is made in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and

changed “(B) results in the organization incurring not more than de minimis incremental expenses.”expenses.

added “(2) Termination—Paragraph (1) shall not apply to taxable years beginning after December 31, 2023.”