1.Short title; table of
contents; etc
(a)This Act may be cited
as the Tax Equity and Middle Class
Fairness Act of 2011
.
(b)Except as otherwise expressly provided, whenever in
this Act an amendment or repeal is expressed in terms of an amendment to, or
repeal of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
(c)The table of contents for this Act is as follows:
Sec. 1. Short title; table of contents; etc.
Title I—Termination of oil and gas tax preferences
Sec. 101. Termination of enhanced oil recovery
credit.
Sec. 102. Termination of credit for producing oil and gas from
marginal wells.
Sec. 103. Termination of deduction for intangible drilling and
development costs.
Sec. 104. Termination of deduction for tertiary
injectants.
Sec. 105. Repeal exception to passive loss limitation for
working interests in oil and natural gas properties.
Sec. 106. Repeal percentage depletion for oil and natural gas
wells.
Sec. 107. Repeal domestic manufacturing tax deduction for oil
and natural gas companies.
Sec. 108. Increase geological and geophysical amortization
period for independent producers to seven years.
Title II—Termination of certain coal tax preferences
Sec. 201. Repeal of deduction for development and exploration
expenditures with respect to coal, lignite, or oil shale.
Sec. 202. Repeal of domestic production activities deduction
with respect to production of coal, lignite, or oil shale.
Sec. 203. Repeal of percentage depletion with respect to coal,
lignite, and oil shale.
Sec. 204. Repeal of capital gain treatment of coal and lignite
royalties.
Title III—Modification of accounting rules
Sec. 301. Repeal of last-in, first-out method of
inventory.
Sec. 302. Repeal of lower of cost or market method of
inventory.
Title IV—Individual tax expenditures
Sec. 401. Limitation on itemized deductions to 28-percent rate
bracket.
Sec. 402. Repeal of foreign earned income
exclusion.
Sec. 403. Phase-out of health savings accounts.
Sec. 404. Phase-out of Archer MSAs.
Title V—Business related tax expenditures
Subtitle A—Partnership interests held by partners providing
services
Sec. 501. Partnership interests transferred in connection with
performance of services.
Sec. 502. Income of partners for performing investment
management services treated as ordinary income received for performance of
services.
Subtitle B—Tax expenditures relating to
agribusiness
Sec. 511. Elimination of expensing for fertilizer, etc.,
otherwise chargeable to a capital account.
Sec. 512. Elimination of expensing for multi-period livestock
and crop production costs.
Sec. 513. Repeal of capital gain treatment with respect to the
sale of timber.
Sec. 514. Elimination of expensing for timber and ornamental
trees.
Sec. 515. Elimination of amortization of reforestation
expenditures.
Sec. 516. Repeal of tax expenditure for horse
breeders.
Subtitle C—Other business tax expenditures
Sec. 521. Termination of $25,000 exemption from passive loss
rules for rental real estate activities.
Sec. 522. Elimination of deduction for certain meal and
entertainment expenses.
Sec. 523. State and local bonds converted to direct subsidy
bonds.
Sec. 524. 28-percent rate for expanded direct subsidy build
America bonds.
Title VI—International tax expenditures
Sec. 601. Allocation of expenses and taxes on basis of
repatriation of foreign income.
Sec. 602. Excess income from transfers of intangibles to
low-taxed affiliates treated as subpart F income.
Sec. 603. Limitations on income shifting through intangible
property transfers.
Sec. 604. Modifications of foreign tax credit rules applicable
to dual capacity taxpayers.
Title VII—Tax expenditure study
Sec. 701. Study of extended tax expenditures.
<enum>I</enum><header>Termination of oil
and gas tax preferences</header>
<section id="H0DBBF8F5A1AC41A98431DD379D7AFAD8"><enum>101.</enum><header>Termination of
enhanced oil recovery credit</header>
<subsection id="H57AFBB3F81C242C1ABD7E2D95D2B6153"><enum>(a)</enum><header>In
General</header><text>Section 43 is amended by adding at the end the following
new subsection:</text>
<quoted-block id="H3F3D04161DEE415BAEC1B4ADA7B2F67D" style="OLC">
<subsection id="HEC67A4A3CAF5466F94799360A3787EA5"><enum>(f)</enum><header>Termination</header><text>This
section shall not apply to any taxable year beginning after the date of the
enactment of this
subsection.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H9989625FEA6049A09C7498E3A82BC2D7"><enum>(b)</enum><header>Effective
Date</header><text>The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H9545533A9BA54B589213ABD1AC42E46D"><enum>102.</enum><header>Termination of
credit for producing oil and gas from marginal wells</header>
<subsection id="H753C4451A8154989B03777BD8D5F01EA"><enum>(a)</enum><header>In
General</header><text>Section 45I is amended by adding at the end the following
new subsection:</text>
<quoted-block id="HC4D479015C694C5DB182B5B1FE09964D" style="OLC">
<subsection id="HBE50CA869E3146ACA7CA5AFCBAAF7A50"><enum>(e)</enum><header>Termination</header><text>This
section shall not apply to any taxable year beginning after the date of the
enactment of this
subsection.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H847D5171103343389872EF37D78BC4D8"><enum>(b)</enum><header>Effective
Date</header><text>The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H6A6D20F77DFC4A1CB051E07CD5DB7808"><enum>103.</enum><header>Termination of
deduction for intangible drilling and development costs</header>
<subsection id="H399B7B6D534C4D62BB27A24FD327D51C"><enum>(a)</enum><header>In
General</header><text>Section 263(c) is amended by adding at the end the
following new sentence: <quote>This subsection shall not apply to any taxable
year beginning after the date of the enactment of this
sentence.</quote>.</text>
</subsection><subsection id="H784FFAF2E3C34FA6884E57336A2656D6"><enum>(b)</enum><header>Conforming
Amendments</header><text>Paragraphs (2) and (3) of section 291(b) are each
amended by striking <quote>section 263(c), 616(a),</quote> and inserting
<quote>section 616(a)</quote>.</text>
</subsection><subsection id="H8953E253A4FD41448D57FB3E810000B8"><enum>(c)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to costs
paid or incurred in taxable years beginning after the date of the enactment of
this Act.</text>
</subsection></section><section id="HDB0A062373B545CEA07F43587335CAF0"><enum>104.</enum><header>Termination of
deduction for tertiary injectants</header>
<subsection id="H75233BC078CC43C598E2ED202A16BAA5"><enum>(a)</enum><header>In
General</header><text>Section 193 is amended by adding at the end the following
new subsection:</text>
<quoted-block id="H1665CDB86FC34E78AF132DF8B16C4B4E" style="OLC">
<subsection id="H64B232914A7C47D093DC6A1E5D5370D8"><enum>(d)</enum><header>Termination</header><text>This
section shall not apply to any taxable year beginning after the date of the
enactment of this
subsection.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H781B6C19941D4D0ABE21C7E06AFAAA2B"><enum>(b)</enum><header>Effective
Date</header><text>The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H113B16529582479782C637BABD6EF0D5"><enum>105.</enum><header>Repeal
exception to passive loss limitation for working interests in oil and natural
gas properties</header>
<subsection id="H375BDE781354496E903251B8859BF1DD"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (c) of
section 469 is amended by striking paragraph (3).</text>
</subsection><subsection id="H38804CD1636541EDB69497E927E2373E"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="HDA7022D54EA7437BB9DD1627439BA94E"><enum>106.</enum><header>Repeal
percentage depletion for oil and natural gas wells</header>
<subsection id="H08D43BC473824179B6D878B1DF3782F9"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 613A is
amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H8582B315BE684A10BD3774FC36BB7EA6" style="OLC">
<subsection id="H33198E9C912549718556D5FB62A6802F"><enum>(f)</enum><header>Termination</header><text display-inline="yes-display-inline">After December 31, 2010, this section and
section 611 shall not apply to any oil or gas
well.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H3AA8ACAB45074F3DAD012A2D7C99D640"><enum>(b)</enum><header>Conforming
amendment</header><text display-inline="yes-display-inline">Section 613A(c)(1)
is amended by striking <quote>subsection (d)</quote> and inserting
<quote>subsections (d) and (f)</quote>.</text>
</subsection><subsection id="H6032990CE87F40CB8E7EA9A9E9F98637"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H7115A08D3CC6451AB9495D275B996A8E"><enum>107.</enum><header>Repeal domestic
manufacturing tax deduction for oil and natural gas companies</header>
<subsection id="HF10F745710A84960BDFB8095F2DBCC08"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subparagraph (B) of
section 199(c)(4) is amended by striking <quote>and</quote> at the end of
clause (ii), by striking the period at the end of clause (iii) and inserting
<quote>, and</quote>, and by inserting after clause (iii) the following new
clause:</text>
<quoted-block display-inline="no-display-inline" id="HEED3F61A9F2A473B88B92FC7ACD11820" style="OLC">
<clause id="HBB1D5CB375C4491D89A75714C230601C"><enum>(iv)</enum><text display-inline="yes-display-inline">production or extraction relating to any
oil or
gas.</text>
</clause><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HA77AC1D182574B129C03AF499CEBEEA5"><enum>(b)</enum><header>Conforming
amendment</header><text>Section 199(c)(4)(A)(i)(III) is amended by striking
<quote>, natural gas,</quote>.</text>
</subsection><subsection id="H65A9C91D176F40D4B572FB0ED3EBC9FF"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H233FD868D28D4725A1AE06E5FDAC3635"><enum>108.</enum><header>Increase
geological and geophysical amortization period for independent producers to
seven years</header>
<subsection id="H9BE6005F75844554B37F6C9008859EB8"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Paragraphs (1) and
(4) of section 167(h) is amended by striking <quote>24-month</quote> both
places it appears and inserting <quote>7-year</quote>.</text>
</subsection><subsection id="H1DB93BE8BA374E5A9D36AC3FBB5FE576"><enum>(b)</enum><header>Conforming
amendment</header><text>Section 167(h) is amended by striking paragraph
(5).</text>
</subsection><subsection id="HA592AD0951F84B9F82A2683114CDE735"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to amounts
paid or incurred in taxable years beginning after the date of the enactment of
this Act.</text>
</subsection></section><enum>II</enum><header>Termination of
certain coal tax preferences</header>
<section id="HFD0BEEDC6FBA40B5A462C77014657CAB" section-type="subsequent-section"><enum>201.</enum><header>Repeal of deduction
for development and exploration expenditures with respect to coal, lignite, or
oil shale</header>
<subsection id="H22F5DC1C229D4C8BB08D1EC7E3490891"><enum>(a)</enum><header>Development
expenditures</header><text display-inline="yes-display-inline">Section 616 is
amended by redesignating subsection (e) as subsection (f) and by inserting
after subsection (d) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H52F1E7635A7240F1BC8A04218C1088D1" style="OLC">
<subsection id="H9E41CF541A024F178906CF0D22C166C2"><enum>(e)</enum><header>Special rule for
expenditures for development of coal mine or deposit</header><text display-inline="yes-display-inline">No deduction shall be allowed under this
section for expenditures paid or incurred with respect to the development of a
mine or other natural deposit for the production of coal, lignite, or oil
shale.</text>
</subsection><after-quoted-block>.
</after-quoted-block></quoted-block>
</subsection><subsection display-inline="no-display-inline" id="H767CE406DEF94D71A1B909FAEBA2A7B3"><enum>(b)</enum><header>Exploration
expenditures</header><text display-inline="yes-display-inline">Section 617 is
amended by redesignating subsection (i) as subsection (j) and by inserting
after subsection (h) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H4532B4691C9D487AB09074AB81296CE6" style="OLC">
<subsection id="H9AE522C791F6438EBA24490177B635EF"><enum>(i)</enum><header>Special rule for
coal exploration expenditures</header><text display-inline="yes-display-inline">No deduction shall be allowed under this
section for expenditures paid or incurred before the development stage for the
purpose of ascertaining the existence, location, extent, or quality of any
deposit of coal, lignite, or oil
shale.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H7B755A27B5BB4DECA11C7ADC0FD73FBE"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to
expenditures paid or incurred after the date of the enactment of this
Act.</text>
</subsection></section><section display-inline="no-display-inline" id="H9F236DA7CCFE4848A68AF87C59F9E6B9" section-type="subsequent-section"><enum>202.</enum><header>Repeal of domestic
production activities deduction with respect to production of coal, lignite, or
oil shale</header>
<subsection id="HE5479F74D2274AC180B785E41F546AFD"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subparagraph (B) of
section 199(c)(4), as amended by this Act, is amended by striking
<quote>or</quote> at the end of clause (iii), by striking the period at the end
of clause (iv) and inserting <quote>, or</quote>, and by adding at the end the
following new clause:</text>
<quoted-block display-inline="no-display-inline" id="H081FA83153F44C169042255DFA1FBA64" style="OLC">
<clause id="HE0A3E08E06744D8EB59BC2B1EEEC6BBA"><enum>(v)</enum><text display-inline="yes-display-inline">the lease, rental, license, sale, exchange,
or other disposition of coal, lignite, or oil
shale).</text>
</clause><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HAF045CCFB5DC4FA8A744581A680E507D"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section display-inline="no-display-inline" id="HC1F40D4C768B44DEB749D70B37538DCB" section-type="subsequent-section"><enum>203.</enum><header>Repeal of percentage
depletion with respect to coal, lignite, and oil shale</header>
<subsection id="H3ECF9DA7C1C94FA38FECECA0947A43F4"><enum>(a)</enum><header>Oil
shale</header><text display-inline="yes-display-inline">Paragraph (2) of
section 613(b) is amended—</text>
<paragraph id="HD5477B32BCC445B4B84EDC1450BF54D1"><enum>(1)</enum><text>by striking
subparagraph (B), and</text>
</paragraph><paragraph id="H2751C8B59B044D109E5CEBC60611A79F"><enum>(2)</enum><text>by striking
<quote>United States—</quote> and all that follows through <quote>ore,
and</quote> and inserting the following: <quote>United States—gold, silver,
copper, and iron ore.</quote>.</text>
</paragraph></subsection><subsection id="HC9C7D294B03C4146B8D2DDAD15F18B60"><enum>(b)</enum><header>Coal and
lignite</header><text>Paragraph (4) of section 613(b) is amended by striking
<quote>coal, lignite</quote>.</text>
</subsection><subsection id="HBC7210E552834928B8BB538ED4F285A8"><enum>(c)</enum><header>Conforming
amendment</header><text>Subparagraph (A) of section 613(b)(6) is amended by
striking <quote>except shale described in paragraph (2)(B) or (5)</quote> and
inserting <quote>except oil shale or shale described in paragraph
(5)</quote>.</text>
</subsection></section><section id="HD563FEB130234D7B8F3C5BB45480DC72"><enum>204.</enum><header>Repeal of
capital gain treatment of coal and lignite royalties</header>
<subsection id="HBFE5019CB64D4E27A79D3328C5145DD2"><enum>(a)</enum><header>In
general</header>
<paragraph id="HB5D7E96302564FF4A7A8890FFC497D89"><enum>(1)</enum><text>Subsection (c) of
section 631 is amended—</text>
<subparagraph id="HEAF696FE53F54A619995BD0586673D17"><enum>(A)</enum><text>by striking
<quote>coal (including lignite), or</quote>,</text>
</subparagraph><subparagraph id="H07262930DE8B4301A7C6E33CCB7B1A02"><enum>(B)</enum><text>by striking
<quote>coal or</quote> each place it appears, and</text>
</subparagraph><subparagraph id="HE36335949C6843F3BBF359728AE432AF"><enum>(C)</enum><text>by striking
<quote>or coal</quote> each place it appears.</text>
</subparagraph></paragraph><paragraph id="H62CA27C435F340B087FAD7D29846C6AF"><enum>(2)</enum><text>Paragraph (2) of
section 1231(b) is amended by striking <quote>, coal,</quote>.</text>
</paragraph></subsection><subsection id="H945F3F251F4E4E1F9502332D8009611E"><enum>(b)</enum><header>Clerical
amendments</header>
<paragraph id="H3276A363B03B42A5814AE67808802777"><enum>(1)</enum><text display-inline="yes-display-inline">The heading for section 631(c) is amended
by striking <quote><header-in-text level="subsection" style="OLC">coal
or</header-in-text></quote>.</text>
</paragraph><paragraph id="HE6838D7810A7474FBAD0A0772333E0FC"><enum>(2)</enum><text>The heading for
section 1231(b)(2) is amended by striking <quote><header-in-text level="paragraph" style="OLC">, coal,</header-in-text></quote>.</text>
</paragraph></subsection><subsection id="H0CD49BD9E17744DDAA5CCA784FCE5D17"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall to taxable years
beginning after the date of the enactment of this Act.</text>
</subsection></section><enum>III</enum><header>Modification of
accounting rules</header>
<section id="HB2911E76A6814676AA93FBA7F2C8297E"><enum>301.</enum><header>Repeal of
last-in, first-out method of inventory</header>
<subsection id="HE124CE7684AD485183741397160D823F"><enum>(a)</enum><header>In
general</header><text>Subpart D of part II of subchapter E of chapter 1 is
amended by striking sections 472 (relating to last-in, first-out inventories),
473 (relating to qualified liquidations of LIFO inventories), and 474 (relating
to simplified dollar-value LIFO method for certain small businesses).</text>
</subsection><subsection id="H23D1B74CF9DE449C972B0CA321A4BC32"><enum>(b)</enum><header>Conforming
amendments</header>
<paragraph id="HFFAD61F55F9D4E23AE6C264871A1CCD0"><enum>(1)</enum><subparagraph commented="no" display-inline="yes-display-inline" id="HD42BAF46ABDB4938A7636DA3195A5D59"><enum>(A)</enum><text>Section 312(n) is
amended by striking paragraph (4) and by redesignating paragraphs (5) through
(8) as paragraphs (4) through (7), respectively.</text>
</subparagraph><subparagraph id="H585046B448374300A004E759E05C5376" indent="up1"><enum>(B)</enum><text>Section 312(n)(7), as redesignated by
subparagraph (A), is amended—</text>
<clause id="H9E18040E438C4C68A3612DF9D5F71CA7"><enum>(i)</enum><text>by striking <quote>paragraphs (4)
and (6)</quote> in subparagraph (A) and inserting <quote>paragraph (5)</quote>,
and</text>
</clause><clause id="H551B50BFD9D24A26A2DCB7D0669C1F48"><enum>(ii)</enum><text>by striking <quote>paragraph
(5)</quote> in subparagraph (B) and inserting <quote>paragraph
(4)</quote>.</text>
</clause></subparagraph><subparagraph id="H638CF91946884A638A687E1B39ABEFD3" indent="up1"><enum>(C)</enum><text>Section 56(g)(4)(D) is amended by
striking clause (iii) and by redesignating clause (iv) as clause (iii).</text>
</subparagraph></paragraph><paragraph id="HE948B43E57A04EC3A225B1295495D84F"><enum>(2)</enum><text>Section 1363 is
amended by striking subsection (d).</text>
</paragraph></subsection><subsection id="H67CABFAD374D4803AD90AC3ADAF0D72F"><enum>(c)</enum><header>Effective
date</header>
<paragraph id="HF0C71781AEAA42ADB6D4089FE39C85DA"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to
taxable years beginning after the date of the enactment of this Act.</text>
</paragraph><paragraph id="H5178B3B9BEC244CA8EA45F724C89660C"><enum>(2)</enum><header>Change in method
of accounting</header><text>In the case of any taxpayer required by the
amendments made by this section to change its method of accounting for its
first taxable year beginning after the date of the enactment of this
Act—</text>
<subparagraph id="H3CDF6C0E3A6B412A910A33EB23219A97"><enum>(A)</enum><text>such change shall
be treated as initiated by the taxpayer,</text>
</subparagraph><subparagraph id="H1F647E5A6C104346BE3A63D9D3A6557C"><enum>(B)</enum><text>such change shall
be treated as made with the consent of the Secretary of the Treasury,
and</text>
</subparagraph><subparagraph id="HCE7D4B98EAE043B38B4777F5B8083F7D"><enum>(C)</enum><text>if the net amount
of the adjustments required to be taken into account by the taxpayer under
section 481 of the Internal Revenue Code of 1986 is positive, such amount shall
be taken into account over a period of 8 years beginning with such first
taxable year.</text>
</subparagraph></paragraph></subsection></section><section id="H99FAD81EE3FB4DA4AC0C9E6FA1E259A9"><enum>302.</enum><header>Repeal of lower
of cost or market method of inventory</header>
<subsection id="HC967F1CD8DB6407988573B3EC633789B"><enum>(a)</enum><header>In
general</header><text>Section 471 is amended by redesignating subsection (c) as
subsection (d) and by inserting after subsection (b) the following new
subsection:</text>
<quoted-block id="H0FCC1035E4DA48F381A107D9A6CFED17" style="OLC">
<subsection id="H4D6D9DA65DCD44CC943D5C56348EA3A4"><enum>(c)</enum><header>Inventories
taken into account at cost</header><text>A method of determining inventories
shall not be treated as clearly reflecting income unless such method provides
that inventories shall be taken into account at
cost.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HC25E509C25E142EBAF6629D6D861663C"><enum>(b)</enum><header>Effective
date</header>
<paragraph id="HA43A4AA39DE94F81BB6F420A65D06892"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to
taxable years beginning after the date of the enactment of this Act.</text>
</paragraph><paragraph id="H5BCC2D0E4C554760BD2AFF1D30DCE612"><enum>(2)</enum><header>Change in method
of accounting</header><text>In the case of any taxpayer required by the
amendments made by this section to change its method of accounting for its
first taxable year beginning after the date of the enactment of this
Act—</text>
<subparagraph id="HE11F8C6C1A5F488DB76784471C945585"><enum>(A)</enum><text>such change shall
be treated as initiated by the taxpayer,</text>
</subparagraph><subparagraph id="H0160781373C040A18035A45AAFC3C86A"><enum>(B)</enum><text>such change shall
be treated as made with the consent of the Secretary of the Treasury,
and</text>
</subparagraph><subparagraph id="HAE9D54055CF84A838BCDF102D91997C0"><enum>(C)</enum><text>if the net amount
of the adjustments required to be taken into account by the taxpayer under
section 481 of the Internal Revenue Code of 1986 is positive, such amount shall
be taken into account over a period of 8 years beginning with such first
taxable year.</text>
</subparagraph></paragraph></subsection></section><enum>IV</enum><header>Individual tax
expenditures</header>
<section id="HBDC4715633BC412CBB43F692DC33771F"><enum>401.</enum><header>Limitation on
itemized deductions to 28-percent rate bracket</header>
<subsection id="HE5D7BE9A027F4937987741980F0276AC"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">The Internal Revenue
Code of 1986 is amended by inserting after section 68 the following new
section:</text>
<quoted-block display-inline="no-display-inline" id="H2387E12B126845AD90FEAF8E3470CEE3" style="OLC">
<section id="H2744EEEE556B4726A4E7BB340FBB2016"><enum>68A.</enum><header>Benefit of
itemized deductions limited to 28-percent rate bracket</header>
<subsection id="HF9935DAD373C4B34BF23D07672A474E9"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">In the case of an
individual whose adjusted gross income exceeds $200,000 ($250,000 in the case
of a joint return), the amount of the itemized deductions otherwise allowable
for the taxable year shall be reduced by an amount necessary to increase the
amount of regular tax liability of the taxpayer to an amount that would be
imposed if such deductions reduced the regular tax liability by not more than
the amount such deductions would reduce the tax imposed by section 1 on taxable
income within the 28-percent bracket amount.</text>
</subsection><subsection id="HBF48710B09724AEDBE7569980E0143B6"><enum>(b)</enum><header>Regular tax
liability</header><text>For purposes of this section, the term <quote>regular
tax liability</quote> has the meaning given such term by section 26(b).</text>
</subsection><subsection id="H09DD7E76A9ED4A5989223BE84C52FEE2"><enum>(c)</enum><header>Coordination
with section <enum-in-header>68</enum-in-header></header><text>This section
shall apply after the application of section
68.</text>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H2E3E3D22D04348D69BE51269B210CC20"><enum>(b)</enum><header>Alternative
minimum tax</header>
<paragraph id="H374BECCF6F2D4251A7120982AAE52033"><enum>(1)</enum><header>In
general</header><text>Subsection (b) of section 55 is amended by adding at the
end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H688AF94150644B9F877A19408582F305" style="OLC">
<paragraph id="H8CB4E77F8ACF4ED9ACB222939F03800A"><enum>(5)</enum><header>Coordination
with section <enum-in-header>68A</enum-in-header></header><text display-inline="yes-display-inline">In the case of an individual, for purposes
of paragraph (2), alternative minimum taxable income shall be determined by
reducing the amount of any itemized deductions otherwise allowed in determining
alternative minimum taxable income by an amount which bears the same ratio to
the amount by which the itemized deductions of the taxpayer were reduced for
the taxable year under section 68A as—</text>
<subparagraph id="H0AD0E513D2B241FFB790C9A214639568"><enum>(A)</enum><text>the amount of
itemized deductions otherwise allowed in determining the alternative minimum
taxable income for the taxable year, bears to</text>
</subparagraph><subparagraph id="HB8BD92232A9F4A0AA0096E02101D9F94"><enum>(B)</enum><text>the aggregate
amount of itemized deductions of the taxpayer for the taxable year (determined
without regard to section
68A).</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H25306B09E6FD41A694883B593D2E3F55"><enum>(2)</enum><header>Conforming
amendment</header><text>Paragraph (1) of section 56(b) is amended by adding at
the end the following new subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="HBD3E9DCBEFC54AF3830B1CCA5E11DB23" style="OLC">
<subparagraph id="H0E609B5C0D53402AABE69301D54FB3AB"><enum>(G)</enum><header>Section
<enum-in-header>68A</enum-in-header> not applicable</header><text display-inline="yes-display-inline">Section 68A shall not
apply.</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="H50634AD5F4544CDAA4B43F42F77D2EC1"><enum>(c)</enum><header>Clerical
amendment</header><text>The table of sections for part I of subchapter B of
chapter 1 is amended by adding at the end the following new item:</text>
<quoted-block display-inline="no-display-inline" id="H67D71BD5F27940D4840C9E466A4C4594" style="OLC">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 68A. Benefit of itemized deductions
limited to 28-percent rate
bracket.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HE730B2FD635C44DFB9705AA08B15AFFD"><enum>(d)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section display-inline="no-display-inline" id="HDAF101FCAF184967A1F5FA298A4F2351" section-type="subsequent-section"><enum>402.</enum><header>Repeal of foreign
earned income exclusion</header>
<subsection id="H1DBF0BDCB71341DAB02B2429F50C622C"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (a) of
section 911 is amended by striking <quote>for any taxable year—</quote> and all
that follows through the end and inserting <quote>for any taxable year the
housing cost amount of such individual.</quote>.</text>
</subsection><subsection id="H64601A25ED0741529C0247BDDFD99124"><enum>(b)</enum><header>Conforming
amendments</header>
<paragraph id="HDCE68824BBDA4F178C625036AA009BD4"><enum>(1)</enum><text>Subsection (f) of
section 86 is amended by inserting <quote>and</quote> at the end of paragraph
(2), by striking <quote>, and</quote> at the end of paragraph (3) and inserting
a period, and by striking paragraph (4).</text>
</paragraph><paragraph id="HE99CBB0DFE7D4A8CBDD237F94A710F5F"><enum>(2)</enum><text>Section 1401(a) is
amended by striking paragraph (11).</text>
</paragraph><paragraph id="H4F93B953D69F43A29F8005844B7C38CE"><enum>(3)</enum><subparagraph commented="no" display-inline="yes-display-inline" id="H3145AFDC46674AF49E864A52BD10C14F"><enum>(A)</enum><text>Clause (i) of section
1411(a)(1)(B) is amended by striking <quote>modified</quote>.</text>
</subparagraph><subparagraph id="HD7A24B0B43604C78812DBD83215DDF7E" indent="up1"><enum>(B)</enum><text>Section 1411 is amended by striking
subsection (d) and by redesignating subsection (e) as subsection (d).</text>
</subparagraph></paragraph></subsection><subsection id="H2FDD1FA9F70240D38F742D9AACB3ADD6"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H9883E7D6963940DCB9E7CD46E4A833CF"><enum>403.</enum><header>Phase-out of
health savings accounts</header><text display-inline="no-display-inline">Section 223 is amended by adding at the end
the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H716383AABAD949AEA6760132F76D8395" style="OLC">
<subsection id="H2C719DCF92744E4E8AFBB5AFAAE76A8B"><enum>(i)</enum><header>Termination</header>
<paragraph id="H6B3B170729C147D78047D762780FF42D"><enum>(1)</enum><header>Deduction</header><text display-inline="yes-display-inline">No deduction shall be allowed under
subsection (a) with respect to amounts paid to health savings accounts after
the date of the enactment of this subsection.</text>
</paragraph><paragraph id="H378FE5F33B0B4E5686325E4D6BC30B99"><enum>(2)</enum><header>Tax treatment
accounts</header><text>Subsection (e) shall not apply with respect to income
derived in taxable years beginning more than 2 years after the date of the
enactment of this
subsection.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</section><section id="HCF6C5C2631E1493DB2BB40A6492F9C22"><enum>404.</enum><header>Phase-out of
Archer MSAs</header><text display-inline="no-display-inline">Section 220 is
amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H44AEE6A23E8046CC8B5678DCB1BD4597" style="OLC">
<subsection id="HAD95BBF4A9D1433AA48470958B2D967F"><enum>(i)</enum><header>Termination</header>
<paragraph id="H897FAB145088459CAE19B05F15743888"><enum>(1)</enum><header>Deduction</header><text display-inline="yes-display-inline">No deduction shall be allowed under
subsection (a) with respect to amounts paid to an Archer MSA after the date of
the enactment of this subsection.</text>
</paragraph><paragraph id="H9826B231118F413AAEDE9BB9D5F529FA"><enum>(2)</enum><header>Tax treatment of
accounts</header><text display-inline="yes-display-inline">Subsection (e) shall
not apply with respect to income derived in taxable years beginning more than 2
years after the date of the enactment of this
subsection.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</section><enum>V</enum><header>Business related
tax expenditures</header>
<subtitle id="HC3AE59E4C00D4E28AC3E94BD537937BE"><enum>A</enum><header>Partnership
interests held by partners providing services</header>
<section id="HE98D764B219F4D1D9765341B66C1B817"><enum>501.</enum><header>Partnership
interests transferred in connection with performance of services</header>
<subsection id="H4C469703666C497F9775CAC07DB13BF3"><enum>(a)</enum><header>Modification to
election To include partnership interest in gross income in year of
transfer</header><text>Subsection (c) of section 83 is amended by redesignating
paragraph (4) as paragraph (5) and by inserting after paragraph (3) the
following new paragraph:</text>
<quoted-block id="H673D09FF8544480091B2BBB55B3F3885" style="OLC">
<paragraph id="HFE05BD6CFD6F4831AAF7A756C4B26A0F"><enum>(4)</enum><header>Partnership
interests</header><text>Except as provided by the Secretary, in the case of any
transfer of an interest in a partnership in connection with the provision of
services to (or for the benefit of) such partnership—</text>
<subparagraph id="HA8CD286D5D7B416090C73842D081D029"><enum>(A)</enum><text>the fair market
value of such interest shall be treated for purposes of this section as being
equal to the amount of the distribution which the partner would receive if the
partnership sold (at the time of the transfer) all of its assets at fair market
value and distributed the proceeds of such sale (reduced by the liabilities of
the partnership) to its partners in liquidation of the partnership, and</text>
</subparagraph><subparagraph id="H96EB4730499242A7BEE006A27B602851"><enum>(B)</enum><text>the person
receiving such interest shall be treated as having made the election under
subsection (b)(1) unless such person makes an election under this paragraph to
have such subsection not
apply.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H20826E990E744250898BAA6745292CE5"><enum>(b)</enum><header>Conforming
amendment</header><text>Paragraph (2) of section 83(b) is amended by inserting
<quote>or subsection (c)(4)(B)</quote> after <quote>paragraph (1)</quote>
.</text>
</subsection><subsection id="H55A3A52F02954CC2A105422854668887"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to interests
in partnerships transferred after the date of the enactment of this Act.</text>
</subsection></section><section display-inline="no-display-inline" id="H2BB35886D14D4F689321859DB49ABD37" section-type="subsequent-section"><enum>502.</enum><header>Income of partners
for performing investment management services treated as ordinary income
received for performance of services</header>
<subsection id="H1BC8D08ECC674A8FACCBA9A8C4AC13F0"><enum>(a)</enum><header>In
general</header><text>Part I of subchapter K of chapter 1 is amended by adding
at the end the following new section:</text>
<quoted-block display-inline="no-display-inline" id="H0D64D63BC25F41F281604EE852FAAD64" style="OLC">
<section id="H75F9D9476E424251BC308CECB53C29CF"><enum>710.</enum><header>Special rules
for partners providing investment management services to partnership</header>
<subsection id="HEA8023BF7AB740458ED3C24422792176"><enum>(a)</enum><header>Treatment of
distributive share of partnership items</header><text display-inline="yes-display-inline">For purposes of this title, in the case of
an investment services partnership interest—</text>
<paragraph id="H1FF9741750264D5EAC5278CB6A2A997D"><enum>(1)</enum><header>In
general</header><text>Notwithstanding section 702(b)—</text>
<subparagraph id="H389BB091875146EFBED0FEDE48110AD4"><enum>(A)</enum><text>any net income
with respect to such interest for any partnership taxable year shall be treated
as ordinary income, and</text>
</subparagraph><subparagraph id="HC1B407F820AA4518AF7D6588ECE459A1"><enum>(B)</enum><text>any net loss with
respect to such interest for such year, to the extent not disallowed under
paragraph (2) for such year, shall be treated as an ordinary loss.</text>
</subparagraph><continuation-text continuation-text-level="paragraph">All items
of income, gain, deduction, and loss which are taken into account in computing
net income or net loss shall be treated as ordinary income or ordinary loss (as
the case may be).</continuation-text></paragraph><paragraph id="H1F9DBCC481794384A35C08073FC81C1B"><enum>(2)</enum><header>Treatment of
losses</header>
<subparagraph id="H50A9A9F0605B4652BD51D10308BE0969"><enum>(A)</enum><header>Limitation</header><text>Any
net loss with respect to such interest shall be allowed for any partnership
taxable year only to the extent that such loss does not exceed the excess (if
any) of—</text>
<clause id="H4C1B3FF0824F4D839E1089BC86E105AC"><enum>(i)</enum><text>the aggregate net
income with respect to such interest for all prior partnership taxable years,
over</text>
</clause><clause id="HEA9F063803CD42C5AD1AF3B9721F65C4"><enum>(ii)</enum><text>the aggregate net
loss with respect to such interest not disallowed under this subparagraph for
all prior partnership taxable years.</text>
</clause></subparagraph><subparagraph id="HB862F5B9695F405F9477EC1F15E0D6BF"><enum>(B)</enum><header>Carryforward</header><text>Any
net loss for any partnership taxable year which is not allowed by reason of
subparagraph (A) shall be treated as an item of loss with respect to such
partnership interest for the succeeding partnership taxable year.</text>
</subparagraph><subparagraph id="H1F3ED6BBE445451F8D82A11D70ADFCB6"><enum>(C)</enum><header>Basis
adjustment</header><text>No adjustment to the basis of a partnership interest
shall be made on account of any net loss which is not allowed by reason of
subparagraph (A).</text>
</subparagraph><subparagraph id="H44CB3D5754E54662BC734E9C7E8C28A5"><enum>(D)</enum><header>Prior
partnership years</header><text>Any reference in this paragraph to prior
partnership taxable years shall only include prior partnership taxable years to
which this section applies.</text>
</subparagraph></paragraph><paragraph id="HC5321F47F35245CCBAC0825327BEB559"><enum>(3)</enum><header>Net income and
loss</header><text>For purposes of this section—</text>
<subparagraph id="HC6F5BE1EFFA748AE9FB80EBCB720A524"><enum>(A)</enum><header>Net
income</header><text>The term <term>net income</term> means, with respect to
any investment services partnership interest for any partnership taxable year,
the excess (if any) of—</text>
<clause id="HD75934330228459980BCF163BC1F7012"><enum>(i)</enum><text>all items of
income and gain taken into account by the holder of such interest under section
702 with respect to such interest for such year, over</text>
</clause><clause id="H097E300BE35F4089B7F72424B229E4A7"><enum>(ii)</enum><text>all items of
deduction and loss so taken into account.</text>
</clause></subparagraph><subparagraph id="H45F19DC9079B4EBB866FC8BFD4B0BE52"><enum>(B)</enum><header>Net
loss</header><text>The term <term>net loss</term> means, with respect to such
interest for such year, the excess (if any) of the amount described in
subparagraph (A)(ii) over the amount described in subparagraph (A)(i).</text>
</subparagraph></paragraph></subsection><subsection id="HEA6AEB3D893C48D48806558F6058677C"><enum>(b)</enum><header>Dispositions of
partnership interests</header>
<paragraph id="H7F18F470C9744C8AA2BA36CC66F71131"><enum>(1)</enum><header>Gain</header><text>Any
gain on the disposition of an investment services partnership interest shall be
treated as ordinary income and shall be recognized notwithstanding any other
provision of this subtitle.</text>
</paragraph><paragraph id="H1F5EB1F0A9014C45892840342DB0E789"><enum>(2)</enum><header>Loss</header><text>Any
loss on the disposition of an investment services partnership interest shall be
treated as an ordinary loss to the extent of the excess (if any) of—</text>
<subparagraph id="H75FBBDD035A5456389199B26FE9E99F2"><enum>(A)</enum><text>the aggregate net
income with respect to such interest for all partnership taxable years,
over</text>
</subparagraph><subparagraph id="H7E1E9C103EB34EFF9CFB7F8243D493B7"><enum>(B)</enum><text>the aggregate net
loss with respect to such interest allowed under subsection (a)(2) for all
partnership taxable years.</text>
</subparagraph></paragraph><paragraph id="H4CF6675EB619488389328CA540C53418"><enum>(3)</enum><header>Disposition of
portion of interest</header><text>In the case of any disposition of an
investment services partnership interest, the amount of net loss which
otherwise would have (but for subsection (a)(2)(C)) applied to reduce the basis
of such interest shall be disregarded for purposes of this section for all
succeeding partnership taxable years.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H94C5A6538E744CF5B1B349866EEC5B40"><enum>(4)</enum><header>Distributions of
partnership property</header><text>In the case of any distribution of property
by a partnership with respect to any investment services partnership interest
held by a partner—</text>
<subparagraph commented="no" id="H17DF528224BB4B8AB8D7AFA424014CEA"><enum>(A)</enum><text>the excess (if
any) of—</text>
<clause commented="no" id="HBEF428D4FFAB4C1EADB8E00B0E2E41B3"><enum>(i)</enum><text>the fair market
value of such property at the time of such distribution, over</text>
</clause><clause commented="no" id="H4C9233D832CE4CFA9423912A00D513F2"><enum>(ii)</enum><text>the adjusted
basis of such property in the hands of the partnership,</text>
</clause><continuation-text commented="no" continuation-text-level="subparagraph">shall be taken into account as an
increase in such partner’s distributive share of the taxable income of the
partnership (except to the extent such excess is otherwise taken into account
in determining the taxable income of the partnership),</continuation-text></subparagraph><subparagraph commented="no" id="H5336611E45B347E5847969ADD7AA5A44"><enum>(B)</enum><text>such property
shall be treated for purposes of subpart B of part II as money distributed to
such partner in an amount equal to such fair market value, and</text>
</subparagraph><subparagraph commented="no" id="HFFD8B930DAE349C2A2D34155F7EF9B40"><enum>(C)</enum><text>the basis of such
property in the hands of such partner shall be such fair market value.</text>
</subparagraph><continuation-text continuation-text-level="paragraph">Subsection
(b) of section 734 shall be applied without regard to the preceding
sentence.</continuation-text></paragraph><paragraph id="H633DB674B9914A64AEE020655A5DAEB8"><enum>(5)</enum><header>Application of
section 751</header><text>In applying section 751(a), an investment services
partnership interest shall be treated as an inventory item.</text>
</paragraph></subsection><subsection id="HB20F59A01F6F4785A33B7E9E776D6F34"><enum>(c)</enum><header>Investment
services partnership interest</header><text display-inline="yes-display-inline">For purposes of this section—</text>
<paragraph id="HC5CE67F4CBD74A23AE34FBE6B7A879A5"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>investment services partnership interest</term> means any interest in a
partnership which is held (directly or indirectly) by any person if it was
reasonably expected (at the time that such person acquired such interest) that
such person (or any person related to such person) would provide (directly or
indirectly) a substantial quantity of any of the following services with
respect to assets held (directly or indirectly) by the partnership:</text>
<subparagraph id="H087213ED8AD447769FCDEC96B0B0A52F"><enum>(A)</enum><text>Advising as to the
advisability of investing in, purchasing, or selling any specified
asset.</text>
</subparagraph><subparagraph id="H2A1474DA84504B298BA61C00AC34D484"><enum>(B)</enum><text>Managing,
acquiring, or disposing of any specified asset.</text>
</subparagraph><subparagraph id="H2BB12C8A4E704AAB8562A0AF68930E77"><enum>(C)</enum><text>Arranging
financing with respect to acquiring specified assets.</text>
</subparagraph><subparagraph id="H6EE7C1471F8C43A5BFE65519A6702FCA"><enum>(D)</enum><text>Any activity in
support of any service described in subparagraphs (A) through (C).</text>
</subparagraph><continuation-text continuation-text-level="paragraph">For
purposes of this paragraph, the term <term>specified asset</term> means
securities (as defined in section 475(c)(2) without regard to the last sentence
thereof), real estate held for rental or investment, interests in partnerships,
commodities (as defined in section 475(e)(2)), or options or derivative
contracts with respect to any of the foregoing.</continuation-text></paragraph><paragraph id="HA15F3766AD4B48F2874605340DEEB56C"><enum>(2)</enum><header>Exception for
certain capital interests</header>
<subparagraph id="H92EDFD5C814C44B89D9D9B2D959DE6B6"><enum>(A)</enum><header>In
general</header><text>In the case of any portion of an investment services
partnership interest which is a qualified capital interest, all items of
income, gain, loss, and deduction which are allocated to such qualified capital
interest shall not be taken into account under subsection (a) if—</text>
<clause id="H53EA6A72723742B98E85C0CC95BBCA11"><enum>(i)</enum><text>allocations of
items are made by the partnership to such qualified capital interest in the
same manner as such allocations are made to other qualified capital interests
held by partners who do not provide any services described in paragraph (1) and
who are not related to the partner holding the qualified capital interest,
and</text>
</clause><clause id="H6AF30419C8DC47C290E15E83E7CA0AD8"><enum>(ii)</enum><text>the allocations
made to such other interests are significant compared to the allocations made
to such qualified capital interest.</text>
</clause></subparagraph><subparagraph id="H24D668B1E98A46448DD6D1C159E0454E"><enum>(B)</enum><header>Special rule for
no or insignificant allocations to nonservice providers</header><text>To the
extent provided by the Secretary in regulations or other guidance, in any case
in which the requirements of subparagraph (A)(ii) are not satisfied, items of
income, gain, loss, and deduction shall not be taken into account under
subsection (a) to the extent that such items are properly allocable under such
regulations or other guidance to qualified capital interests.</text>
</subparagraph><subparagraph display-inline="no-display-inline" id="HE770EFABB622435CBC3FEE0FB013D7C8"><enum>(C)</enum><header>Special rule for
dispositions</header><text display-inline="yes-display-inline">In the case of
any investment services partnership interest any portion of which is a
qualified capital interest, subsection (b) shall not apply to so much of any
gain or loss as bears the same proportion to the entire amount of such gain or
loss as—</text>
<clause id="HBAA57056A6C442C7B37D141285BE0A62"><enum>(i)</enum><text display-inline="yes-display-inline">the distributive share of gain or loss that
would have been allocable to the qualified capital interest under subparagraph
(A) if the partnership sold all of its assets immediately before the
disposition, bears to</text>
</clause><clause id="HC43D9A567F4F4AFC958DE78B66544EAB"><enum>(ii)</enum><text>the distributive
share of gain or loss that would have been so allocable to the investment
services partnership interest of which such qualified capital interest is a
part.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H31051AB38FED4F83BE288F050D35729B"><enum>(D)</enum><header>Qualified
capital interest</header><text>For purposes of this paragraph, the term
<term>qualified capital interest</term> means so much of a partner’s interest
in the capital of the partnership as is attributable to—</text>
<clause commented="no" id="HC39C5CE8BA9544B4ABA31746049BEC68"><enum>(i)</enum><text>the fair market
value of any money or other property contributed to the partnership in exchange
for such interest (determined without regard to section 752(a)),</text>
</clause><clause commented="no" id="H27A2BC025E6240C09A50C595374045FD"><enum>(ii)</enum><text>any amounts which
have been included in gross income under section 83 with respect to the
transfer of such interest, and</text>
</clause><clause commented="no" id="H1AB8F0F9F48C4A7CB1B554920F26607E"><enum>(iii)</enum><text>the excess (if
any) of—</text>
<subclause id="H7AC5AF1677DE401E9F2002A1294BC6B6"><enum>(I)</enum><text>any items of
income and gain taken into account under section 702 with respect to such
interest for taxable years to which this section applies, over</text>
</subclause><subclause id="H40D9A82F538A4375872E114939C51AD3"><enum>(II)</enum><text>any items of
deduction and loss so taken into account.</text>
</subclause></clause><continuation-text commented="no" continuation-text-level="subparagraph">The qualified capital interest
shall be reduced by distributions from the partnership with respect to such
interest for taxable years to which this section applies and by the excess (if
any) of the amount described in clause (iii)(II) over the amount described in
clause (iii)(I).</continuation-text></subparagraph><subparagraph id="H670FFF52F11B4909B7FDAB2697C74AA3"><enum>(E)</enum><header>Treatment of
certain loans</header>
<clause id="H06488F8CBAF5494FADEE7054AEA4D3ED"><enum>(i)</enum><header>Proceeds of
partnership loans not treated as qualified capital interest of service
providing partners</header><text>For purposes of this paragraph, an investment
services partnership interest shall not be treated as a qualified capital
interest to the extent that such interest is acquired in connection with the
proceeds of any loan or other advance made or guaranteed, directly or
indirectly, by any other partner or the partnership (or any person related to
any such other partner or the partnership).</text>
</clause><clause id="H8A9D724ACBDA45D985E82820B6110DF3"><enum>(ii)</enum><header>Reduction in
allocations to qualified capital interests for loans from nonservice providing
partners to the partnership</header><text>For purposes of this paragraph, any
loan or other advance to the partnership made or guaranteed, directly or
indirectly, by a partner not providing services described in paragraph (1) to
the partnership (or any person related to such partner) shall be taken into
account in determining the qualified capital interests of the partners in the
partnership.</text>
</clause></subparagraph></paragraph><paragraph id="HD793C22B885746288C5A672E4B55A3C1"><enum>(3)</enum><header>Related
persons</header><text display-inline="yes-display-inline">A person shall be
treated as related to another person if the relationship between such persons
would result in a disallowance of losses under section 267 or 707(b).</text>
</paragraph></subsection><subsection id="HF76FA989D59E4A9FAE7D7B5FAC88F8BD"><enum>(d)</enum><header>Other income and
gain in connection with investment management services</header>
<paragraph id="H4C05B94056D541788AD6214C300B543C"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">If—</text>
<subparagraph id="HF9DCADB729F04748909B9E1DDF55BC67"><enum>(A)</enum><text>a person performs
(directly or indirectly) investment management services for any entity,</text>
</subparagraph><subparagraph id="H0E693929ABF74D348976B84AF32BAAE9"><enum>(B)</enum><text>such person holds
(directly or indirectly) a disqualified interest with respect to such entity,
and</text>
</subparagraph><subparagraph id="HD35E0C8097F446F5ACEB214AD848CECB"><enum>(C)</enum><text display-inline="yes-display-inline">the value of such interest (or payments
thereunder) is substantially related to the amount of income or gain (whether
or not realized) from the assets with respect to which the investment
management services are performed,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">any income
or gain with respect to such interest shall be treated as ordinary income.
Rules similar to the rules of subsection (c)(2) shall apply for purposes of
this subsection.</continuation-text></paragraph><paragraph id="H8C2F081856E446629AC99B36562EB620"><enum>(2)</enum><header>Definitions</header><text>For
purposes of this subsection—</text>
<subparagraph id="H40F4E9BF1DA74A2C9AEF8965CE2E2896"><enum>(A)</enum><header>Disqualified
interest</header>
<clause id="H924CFE320A374C279D7A585E31FFFD82"><enum>(i)</enum><header>In
general</header><text>The term <term>disqualified interest</term> means, with
respect to any entity—</text>
<subclause id="H408D5184516C49D58217C4CF0F91F76F"><enum>(I)</enum><text>any interest in
such entity other than indebtedness,</text>
</subclause><subclause id="HC036325D36BE453FA84DD08D4A73A755"><enum>(II)</enum><text>convertible or
contingent debt of such entity,</text>
</subclause><subclause id="H47D7BE60152E4FF588D23864D25966C7"><enum>(III)</enum><text>any option or
other right to acquire property described in subclause (I) or (II), and</text>
</subclause><subclause id="H7DDD73B88AD041B5B960B7D9E85841A8"><enum>(IV)</enum><text>any derivative
instrument entered into (directly or indirectly) with such entity or any
investor in such entity.</text>
</subclause></clause><clause id="HEF6339FAED984D47831DC013421F1557"><enum>(ii)</enum><header>Exceptions</header><text>Such
term shall not include—</text>
<subclause id="HE61C63C17D4F476BB8D1E01C828658A2"><enum>(I)</enum><text>a partnership
interest,</text>
</subclause><subclause id="H9288064B931148DB8E4A0417BB7D1BA4"><enum>(II)</enum><text>except as
provided by the Secretary, any interest in a taxable corporation, and</text>
</subclause><subclause id="HAD7B6B6D7FCB4501BA43824E574F72EB"><enum>(III)</enum><text>except as
provided by the Secretary, stock in an S corporation.</text>
</subclause></clause></subparagraph><subparagraph id="HE810EDD0B7144213A6A91ABD4E866444"><enum>(B)</enum><header>Taxable
corporation</header><text>The term <term>taxable corporation</term>
means—</text>
<clause id="H087BFA2267D342469C8D5689C7E3426D"><enum>(i)</enum><text>a
domestic C corporation, or</text>
</clause><clause id="H81AEB0BC4084498E9A29A4F7C2850DCB"><enum>(ii)</enum><text>a
foreign corporation substantially all of the income of which is—</text>
<subclause id="HA17C3AA58E614A41AC0ECC235B32E72E"><enum>(I)</enum><text>effectively
connected with the conduct of a trade or business in the United States,
or</text>
</subclause><subclause id="H67B3CB1682F24827850D3DE971C5D850"><enum>(II)</enum><text>subject to a
comprehensive foreign income tax (as defined in section 457A(d)(2)).</text>
</subclause></clause></subparagraph><subparagraph id="H276BA535FC9C427C9E50B44EC2E1BC46"><enum>(C)</enum><header>Investment
management services</header><text>The term <term>investment management
services</term> means a substantial quantity of any of the services described
in subsection (c)(1).</text>
</subparagraph></paragraph></subsection><subsection commented="no" id="H7F04B66F5E56462E9ED4F7F83F1A1655"><enum>(e)</enum><header>Regulations</header><text>The
Secretary shall prescribe such regulations or other guidance as is necessary or
appropriate to carry out the purposes of this section, including regulations or
other guidance to—</text>
<paragraph commented="no" id="HEA6538FD0C474B899A56645EEB01942E"><enum>(1)</enum><text>provide
modifications to the application of this section (including treating related
persons as not related to one another) to the extent such modification is
consistent with the purposes of this section,</text>
</paragraph><paragraph id="HF77A95D101AC4F50ADAA179A26C6B4DF"><enum>(2)</enum><text>prevent the
avoidance of the purposes of this section, and</text>
</paragraph><paragraph commented="no" id="HD84EF2BC5E344C4FB9D199FA4EEFF4AB"><enum>(3)</enum><text>coordinate this
section with the other provisions of this title.</text>
</paragraph></subsection><subsection commented="no" id="H5B811E0B33CE4D68A8F98A775EC4EF84"><enum>(f)</enum><header>Cross
reference</header><text>For 40 percent penalty on certain underpayments due to
the avoidance of this section, see section
6662.</text>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H5785F8BCED63410EA0AF8513C5007620"><enum>(b)</enum><header>Income from
investment services partnership interests not treated as qualifying income of
publicly traded partnerships</header><text>Subsection (d) of section 7704 is
amended by adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HF7FB38366DBE49C3803B3D994B5227D5" style="OLC">
<paragraph id="H62B51056FC8946D7BEC944FCB406A129"><enum>(6)</enum><header>Income from
investment services partnership interests not qualified</header>
<subparagraph id="H7073081FD06A410DB66E929DADCD59F2"><enum>(A)</enum><header>In
general</header><text>Items of income and gain shall not be treated as
qualifying income if such items are treated as ordinary income by reason of the
application of section 710 (relating to special rules for partners providing
investment management services to partnership).</text>
</subparagraph><subparagraph id="HAB946CC438604D6DB9080056F3F6948B"><enum>(B)</enum><header>Special rules
for certain partnerships</header>
<clause id="H6045B995FC3240788330DD3FBA7A29DB"><enum>(i)</enum><header>Certain
partnerships owned by real estate investment trusts</header><text>Subparagraph
(A) shall not apply in the case of a partnership which meets each of the
following requirements:</text>
<subclause id="HDC749747A2BB45CD84FBCACB488A2BFB"><enum>(I)</enum><text>Such partnership
is treated as publicly traded under this section solely by reason of interests
in such partnership being convertible into interests in a real estate
investment trust which is publicly traded.</text>
</subclause><subclause id="H44274C96E3844C4A8CC0C174C6D8C0A5"><enum>(II)</enum><text display-inline="yes-display-inline">Fifty percent or more of the capital and
profits interests of such partnership are owned, directly or indirectly, at all
times during the taxable year by such real estate investment trust (determined
with the application of section 267(c)).</text>
</subclause><subclause id="HB8E09DC49594473992ED7FD8AB8BBCB5"><enum>(III)</enum><text>Such partnership
meets the requirements of paragraphs (2), (3), and (4) of section
856(c).</text>
</subclause></clause><clause id="H7A4C578A875F43E39F994FFD35519B8D"><enum>(ii)</enum><header>Certain
partnerships owning other publicly traded
partnerships</header><text>Subparagraph (A) shall not apply in the case of a
partnership which meets each of the following requirements:</text>
<subclause id="H15F15925DB1A4479B89B02D9F0C5F922"><enum>(I)</enum><text>Substantially all
of the assets of such partnership consist of interests in one or more publicly
traded partnerships (determined without regard to subsection (b)(2)).</text>
</subclause><subclause commented="no" id="HA45D9281EA264159B34C7CB5048B866B"><enum>(II)</enum><text>Substantially all
of the income of such partnership is ordinary income or section 1231 gain (as
defined in section 1231(a)(3)).</text>
</subclause></clause></subparagraph><subparagraph id="H44995F2422814B7FBCF0FF97AA91360B"><enum>(C)</enum><header>Transitional
rule</header><text>In the case of a partnership which is a publicly traded
partnership on the date of the enactment of this paragraph, subparagraph (A)
shall not apply to any taxable year of the partnership beginning before the
date which is 10 years after the date of the enactment of this
paragraph.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HE9791B322CAB4C78A87F4EDDEED47E30"><enum>(c)</enum><header>Imposition of
penalty on underpayments</header>
<paragraph id="H7739EB8337BE4635B5C9C68C9856F10B"><enum>(1)</enum><header>In
general</header><text>Subsection (b) of section 6662, as amended by section
512, is amended by inserting after paragraph (6) the following new
paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H467EF9A144384CF4982D1B049F97D982" style="OLC">
<paragraph id="HD908DBB2A80D4B29AE1AD7CC8982EBA6"><enum>(7)</enum><text>The application of
subsection (d) of section 710 or the regulations prescribed under section
710(e) to prevent the avoidance of the purposes of section
710.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HA64C9444FDA748899E29A9E37F9D9B08"><enum>(2)</enum><header>Amount of
penalty</header>
<subparagraph id="H79C97677AECA4B28BC6C94F605838FD0"><enum>(A)</enum><header>In
general</header><text>Section 6662, as amended by section 512, is amended by
adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HFB498D63EA9945059BBF4DE2075A2484" style="OLC">
<subsection id="H6316DA3176E246E7BAEA6D53FB27B066"><enum>(j)</enum><header>Increase in
penalty in case of property transferred for investment management
services</header><text>In the case of any portion of an underpayment to which
this section applies by reason of subsection (b)(7), subsection (a) shall be
applied with respect to such portion by substituting <quote>40 percent</quote>
for <quote>20
percent</quote>.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph><subparagraph display-inline="no-display-inline" id="HEB4D3F8F4C8040AD926E017840DF998E"><enum>(B)</enum><header>Conforming
amendments</header><text>Subparagraph (B) of section 6662A(e)(2) is
amended—</text>
<clause id="H04C23FE501B9440C82495ED327FF3D34"><enum>(i)</enum><text>by
striking <quote>section 6662(h)</quote> and inserting <quote>subsection (h) or
(i) of section 6662</quote>, and</text>
</clause><clause id="HD0FB7C04AC9542E891484FDE74156FC2"><enum>(ii)</enum><text>by
striking <quote><header-in-text level="subparagraph" style="OLC">gross
valuation misstatement penalty</header-in-text></quote> in the heading and
inserting <quote><header-in-text level="subparagraph" style="OLC">certain
increased underpayment penalties</header-in-text></quote>.</text>
</clause></subparagraph></paragraph><paragraph display-inline="no-display-inline" id="H3B2AFF59632B4C9685E6C6EAE2E2AA8C"><enum>(3)</enum><header>Special rules
for application of reasonable cause exception</header><text>Subsection (c) of
section 6664 is amended—</text>
<subparagraph id="H7BDC4D1CEC0C498591A33C5EAAC11CA0"><enum>(A)</enum><text>by redesignating
paragraphs (2) and (3) as paragraphs (3) and (4), respectively,</text>
</subparagraph><subparagraph id="H6A3FF9C5730B4B3BBD4F3C4634AF8E80"><enum>(B)</enum><text>by striking
<quote>paragraph (2)</quote> in paragraph (4), as so redesignated, and
inserting <quote>paragraph (3)</quote>, and</text>
</subparagraph><subparagraph id="H00033E5314F14240A8AD5697298C435F"><enum>(C)</enum><text>by inserting after
paragraph (1) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H333E6A29B10744DFBBEB5D3633A7D355" style="OLC">
<paragraph id="HADC3283DDCA1484E81A4215CA9EF9DD0"><enum>(2)</enum><header>Special rule for
underpayments attributable to investment management services</header>
<subparagraph id="H935027027ED448FDBB373B2BF590FFF1"><enum>(A)</enum><header>In
general</header><text>Paragraph (1) shall not apply to any portion of an
underpayment to which this section applies by reason of subsection (b)(7)
unless—</text>
<clause id="H249332C5341045E3BFAA627DEA92DFCC"><enum>(i)</enum><text display-inline="yes-display-inline">the relevant facts affecting the tax
treatment of the item are adequately disclosed,</text>
</clause><clause id="H71451B911A7D498BBDC143AFB438D6CC"><enum>(ii)</enum><text>there is or was
substantial authority for such treatment, and</text>
</clause><clause id="HC80EC7D9522D420CA22A370FBEE9F843"><enum>(iii)</enum><text>the taxpayer
reasonably believed that such treatment was more likely than not the proper
treatment.</text>
</clause></subparagraph><subparagraph id="HED00A4AC449B46DB80BBAEDBCC12CBF0"><enum>(B)</enum><header>Rules relating
to reasonable belief</header><text>Rules similar to the rules of subsection
(d)(3) shall apply for purposes of subparagraph
(A)(iii).</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph></subsection><subsection id="H68B1EC1D11EB43C38FF369F08630A025"><enum>(d)</enum><header>Income and loss
from investment services partnership interests taken into account in
determining net earnings from self-Employment</header>
<paragraph id="H9C5D352435BD404DBBE15817F3EB3219"><enum>(1)</enum><header>Internal Revenue
Code</header><text>Section 1402(a) is amended by striking <quote>and</quote> at
the end of paragraph (16), by striking the period at the end of paragraph (17)
and inserting <quote>; and</quote>, and by inserting after paragraph (17) the
following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HD5CC04AB0AAD407CB11CCD4A0B05D50E" style="OLC">
<paragraph id="HF9B20F787895469DAE5DE2484E4B8BC8"><enum>(18)</enum><text display-inline="yes-display-inline">Notwithstanding the preceding provisions of
this subsection, in the case of any individual engaged in the trade or business
of providing services described in section 710(c)(1) with respect to any
entity, any amount treated as ordinary income or ordinary loss of such
individual under section 710 with respect to such entity shall be taken into
account in determining the net earnings from self-employment of such
individual.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph display-inline="no-display-inline" id="HDA358A35DD324D1997F85C8EECB682E2"><enum>(2)</enum><header>Social Security
Act</header><text>Section 211(a) of the Social Security Act is amended by
inserting after paragraph (16) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HEECD7A46FBAF4DB49BB8277353C295FA" style="OLC">
<paragraph id="H23D6486C431E49A7A380440433AC6831"><enum>(17)</enum><text display-inline="yes-display-inline">Notwithstanding the preceding provisions of
this subsection, in the case of any individual engaged in the trade or business
of providing services described in section 710(c)(1) of the Internal Revenue
Code of 1986 with respect to any entity, any amount treated as ordinary income
or ordinary loss of such individual under section 710 of such Code with respect
to such entity shall be taken into account in determining the net earnings from
self-employment of such
individual.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="H0E2B8463F81142DE87AB14F3355D87D0"><enum>(e)</enum><header>Conforming
amendments</header>
<paragraph id="H00B66FB67D9448F59C78ABD39FEC7FEB"><enum>(1)</enum><text>Subsection (d) of
section 731 is amended by inserting <quote>section 710(b)(4) (relating to
distributions of partnership property),</quote> after <quote>to the extent
otherwise provided by</quote>.</text>
</paragraph><paragraph id="H55BFA2D2B91E43F3B2D742FA71224F58"><enum>(2)</enum><text>Section 741 is
amended by inserting <quote>or section 710 (relating to special rules for
partners providing investment management services to partnership)</quote>
before the period at the end.</text>
</paragraph><paragraph id="HCD834DE5D4BB40268C948B66F273E621"><enum>(3)</enum><text display-inline="yes-display-inline">The table of sections for part I of
subchapter K of chapter 1 is amended by adding at the end the following new
item:</text>
<quoted-block display-inline="no-display-inline" id="HA3FFED9FABAE4233986EE1B06C34E7CF" style="OLC">
<toc container-level="quoted-block-container" idref="H0D64D63BC25F41F281604EE852FAAD64" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry idref="H75F9D9476E424251BC308CECB53C29CF" level="section">Sec. 710. Special rules for partners providing investment
management services to
partnership.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="H28B6A4EEC0D94372AA6CDF3B5C7C1392"><enum>(f)</enum><header>Effective
date</header>
<paragraph id="H7C3268F3BD3A4C54814E78E160727832"><enum>(1)</enum><header>In
general</header><text>Except as otherwise provided in this subsection, the
amendments made by this section shall apply to taxable years ending after
December 31, 2009.</text>
</paragraph><paragraph id="HEFFDB7F586F346488BAB2C713F0F3A78"><enum>(2)</enum><header>Partnership
taxable years which include effective date</header><text display-inline="yes-display-inline">In applying section 710(a) of the Internal
Revenue Code of 1986 (as added by this section) in the case of any partnership
taxable year which includes December 31, 2009, the amount of the net income
referred to in such section shall be treated as being the lesser of the net
income for the entire partnership taxable year or the net income determined by
only taking into account items attributable to the portion of the partnership
taxable year which is after such date.</text>
</paragraph><paragraph id="HCC9CE85F684B40A486B8A8C09ABE004C"><enum>(3)</enum><header>Dispositions of
partnership interests</header><text display-inline="yes-display-inline">Section
710(b) of the Internal Revenue Code of 1986 (as added by this section) shall
apply to dispositions and distributions after December 31, 2009.</text>
</paragraph><paragraph id="H9EFE11CB29194585B012F6C82337E89A"><enum>(4)</enum><header>Other income and
gain in connection with investment management services</header><text display-inline="yes-display-inline">Section 710(d) of such Code (as added by
this section) shall take effect on January 1, 2010.</text>
</paragraph><paragraph id="H4BCEC3C0EB4049F6B0811B5D7FB4912B"><enum>(5)</enum><header>Publicly traded
partnerships</header><text display-inline="yes-display-inline">The amendment
made by subsection (b) shall apply to taxable years beginning after December
31, 2009.</text>
</paragraph></subsection></section></subtitle><subtitle id="HA52C921556EC4607BB5F93F0E22371EF"><enum>B</enum><header>Tax expenditures
relating to agribusiness</header>
<section id="H9B767217B0A24F128D50167D88350634"><enum>511.</enum><header>Elimination of
expensing for fertilizer, etc., otherwise chargeable to a capital
account</header><text display-inline="no-display-inline">Section 180 is amended
by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H572F98A9020A4A118305738A72B2CD96" style="OLC">
<subsection id="H7CB58FDC2C704C53B360A5AC0D7754CC"><enum>(d)</enum><header>Termination</header><text display-inline="yes-display-inline">This section shall not apply to taxable
years beginning after December 31,
2011.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</section><section commented="no" id="HB867EA68CD6C433DAC89CBBC18CBA314"><enum>512.</enum><header>Elimination of
expensing for multi-period livestock and crop production costs</header><text display-inline="no-display-inline">Subsection (d) of section 263A is amended by
adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H42ACDDDD3F944BF7B58E518A1B6B1B90" style="OLC">
<paragraph id="H2C522DB4C262411F9049E12E6206A50D"><enum>(4)</enum><header>Termination</header><text display-inline="yes-display-inline">This subsection shall not apply to costs
incurred after December 31, 2011, in taxable year ending after such
date.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</section><section id="H895E26F417654A6FB2BEAEA4271C563F"><enum>513.</enum><header>Repeal of
capital gain treatment with respect to the sale of timber</header>
<subsection id="H15F549DD48944E75AB0320F73D1BE80F"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Paragraph (2) of
section 1231(b) as amended by this Act, is amended—</text>
<paragraph id="H40F24909F8CF454B906EDA4C14F09ACB"><enum>(1)</enum><text>by striking
<quote>timber and</quote>, and</text>
</paragraph><paragraph id="H1F9C76F77E564B1BAB3AAB8F99DAB883"><enum>(2)</enum><text>by striking
<quote><header-in-text level="paragraph" style="OLC">Timber
or</header-in-text></quote>.</text>
</paragraph></subsection><subsection id="HF5E947E749BB48029F411902C32DC251"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H3DE8359AF8C047EB910C8220AB1EC90B"><enum>514.</enum><header>Elimination of
expensing for timber and ornamental trees</header>
<subsection id="H7D6521190B034966902F3A9561EE6A4D"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Paragraph (5) of
section 263A(c) is amended by striking <quote>This section</quote> and
inserting <quote>In the case of costs incurred before January 1, 2012, in
taxable year ending after such date, this section</quote>.</text>
</subsection><subsection id="H6BF7B686A2C242259F58F82CC3DBA06D"><enum>(b)</enum><header>Conforming
amendment</header><text>Subparagraph (B) of section 448(d)(1) is amended by
inserting before the period at the end the following: <quote>(as in effect on
the day before the date of the enactment of the Tax Equity and Middle Class
Fairness Act of 2011)</quote>.</text>
</subsection></section><section id="HF28D4FB1749C42BFBD46F99D056CBA09"><enum>515.</enum><header>Elimination of
amortization of reforestation expenditures</header><text display-inline="no-display-inline">Section 194 is amended by adding at the end
the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HB2849A771BE54727AFC6EDC691E4FFD4" style="OLC">
<subsection id="H3A2495DFC4A1427993C8304717D74630"><enum>(e)</enum><header>Termination</header><text display-inline="yes-display-inline">This section shall not apply with respect
to expenditures paid or incurred after December 31,
2011.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</section><section id="H8E063082B06D4178A562E3A71A806785"><enum>516.</enum><header>Repeal of tax
expenditure for horse breeders</header>
<subsection id="H2B8E2977BA2343E3A92AF4C17C31EBE4"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Clause (i) of section
168(e)(3) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H8B2547BD79BE4A7FA221444354DD37B3" style="OLC">
<clause id="H72DF004D63BD4B82879F9E2EC109388B"><enum>(i)</enum><text display-inline="yes-display-inline">any race horse which is more than 2 years
old at the time it is placed in
service,</text>
</clause><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HE44D0283C3C2477E99FF9893E009E26C"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by this section shall apply to property
placed in service after the date of the enactment of this Act.</text>
</subsection></section></subtitle><subtitle id="H826361257A9947A0B851D3F73C6D2F09"><enum>C</enum><header>Other business tax
expenditures</header>
<section id="H59285C1613924699B04CB0C5BB32C872"><enum>521.</enum><header>Termination of
$25,000 exemption from passive loss rules for rental real estate
activities</header>
<subsection id="HCBFB7032D8B649939330876135B9521E"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 469 is
amended by striking subsection (i).</text>
</subsection><subsection id="H93109B7501AD4A35A10300A63E77406D"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="HCDF365BEAD8B4FA78BBDCC594BB73629"><enum>522.</enum><header>Elimination of
deduction for certain meal and entertainment expenses</header>
<subsection id="H9BFCF90EF9E64CFDA452A25040551DF7"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Paragraph (1) of
section 274(n) is amended—</text>
<paragraph id="H2EFF15C3E87540B0AEBE91726CC48497"><enum>(1)</enum><text>by striking
<quote>The amount allowable as a deduction</quote> and inserting <quote>No
deduction shall be allowed</quote>, and</text>
</paragraph><paragraph id="HD93A94DB748C4B42AA000184C61CDA9B"><enum>(2)</enum><text>by striking
<quote>activity,</quote> and all that follows through the period at the end and
inserting <quote>activity.</quote>.</text>
</paragraph></subsection><subsection id="H012F129EEE2447DBBA83D34D1DE3AD59"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="HAD36F7CFB89141B7A266341D270FA3F6"><enum>523.</enum><header>State and local
bonds converted to direct subsidy bonds</header>
<subsection id="H51F947906BF84186B4ED87D6B7F82B96"><enum>(a)</enum><header>Termination of
tax exempt status of State and local bonds</header><text display-inline="yes-display-inline">Section 103 is amended by adding at the end
the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H964810EDED924E2D8ECEFBDC503685B7" style="OLC">
<subsection id="HB43BC6561762432B87638388CD5F19F8"><enum>(d)</enum><header>Termination</header><text display-inline="yes-display-inline">This section shall not apply to any
obligations issued after December 31,
2011.</text>
</subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HBA8B764DD3D14A78875D087853A72A5A"><enum>(b)</enum><header>State and local
bonds treated as build America bonds</header>
<paragraph id="HD0A7809A991F4108A4A731969BB18174"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Paragraph (1) of
section 54AA(d) is amended—</text>
<subparagraph id="HAB7C20843ABA4D5590570F8A3E02873A"><enum>(A)</enum><text>by striking
subparagraph (B) and by inserting <quote>and</quote> at the end of subparagraph
(A), and</text>
</subparagraph><subparagraph id="H9DEA120EB4A44C1292FA42A6FFA333C3"><enum>(B)</enum><text>in subparagraph
(A) by inserting <quote>(determined without regard to subsection (d)
thereof)</quote> after <quote>section 103</quote>.</text>
</subparagraph></paragraph><paragraph id="H9E66FEC541564093A3B0EEDF8AD52714"><enum>(2)</enum><header>Direct
subsidy</header>
<subparagraph id="H6770C31185BC44BEA8EC959789114AEE"><enum>(A)</enum><text>Subsection (g) of
section 54AA is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H9F89679EF7FE43E5AF847DB2F73A4F91" style="OLC">
<subsection id="H8EF29392C1554AE28EAE12600591C25F"><enum>(g)</enum><header>Direct subsidy
for build America bonds issued after 2011</header>
<paragraph id="HC5443C6DB958433BA41FC4F1E32321BB"><enum>(1)</enum><header>In
general</header><text>In the case of build America bonds issued after December
31, 2011, no credit shall be allowed under this section with respect to such
bond.</text>
</paragraph><paragraph id="H40CBFE82E7384656A99EE6871618DA09"><enum>(2)</enum><header>Cross
reference</header><text>For the credit to the issuer of build America bonds,
see section
6431.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph><subparagraph id="HDE1C534083254193AB69179DBFE72862"><enum>(B)</enum><text>Section 6431 is
amended—</text>
<clause id="H5F51B8E3E1D74EF7B7D09B8BF4CFEC00"><enum>(i)</enum><text>by
striking <quote>In the case of a qualified bond issued before January 1,
2011,</quote> in subsection (a) and inserting <quote>In the case of any build
America bond (as defined in section 54AA(d)) issued after December 31,
2011,</quote>,</text>
</clause><clause id="H40519101E44C419E8295F78C834AB53A"><enum>(ii)</enum><text>by
striking subsections (e) and (f), and</text>
</clause><clause id="H3AE8696140CD4438AA89D96EA09AECEF"><enum>(iii)</enum><text>by
striking <quote><header-in-text level="section" style="OLC">qualified
bonds</header-in-text></quote> in the heading thereof and inserting
<quote><header-in-text level="section" style="OLC">build America
bonds</header-in-text></quote>.</text>
</clause></subparagraph></paragraph><paragraph id="H8F0B8513817E4A30A438F0960115CA31"><enum>(3)</enum><header>Private activity
bonds included</header><text>Paragraph (1) of section 54AA(d) of such Code is
amended by striking <quote>(other than a private activity bond)</quote>.</text>
</paragraph></subsection><subsection id="HAC827565A17E4EA2956B882B34D750BD"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to
obligations issued after December 31, 2011.</text>
</subsection></section><section id="HFB62E20F03DE4D2FB490E32F64F993CC"><enum>524.</enum><header>28-percent rate
for expanded direct subsidy build America bonds</header><text display-inline="no-display-inline">Subsection (b) of section 6431 is amended by
inserting <quote>(28 percent in the case of obligations issued after December
31, 2011)</quote> after <quote>35 percent</quote>.</text>
</section></subtitle><enum>VI</enum><header>International tax
expenditures</header>
<section display-inline="no-display-inline" id="H8312E308A6C841B88C5B64F60859F154" section-type="subsequent-section"><enum>601.</enum><header>Allocation of
expenses and taxes on basis of repatriation of foreign income</header>
<subsection id="H5047DAD6F0454C0E924B0C1DF72D10EF"><enum>(a)</enum><header>In
general</header><text>Part III of subchapter N of chapter 1 is amended by
inserting after subpart G the following new subpart:</text>
<quoted-block display-inline="no-display-inline" id="HD462BA5567214C518298EF9A96537A5C" style="OLC">
<subpart id="H58E2E8648E6E49C8A80F9D08393F6110"><enum>H</enum><header>Special Rules for
Allocation of Foreign-Related Interest Deductions and Foreign Tax
Credits</header>
<toc container-level="subpart-container" idref="H58E2E8648E6E49C8A80F9D08393F6110" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry idref="H4771C3A84BD749D2ABBDC350CDD29234" level="section">Sec. 975. Deductions allocated to deferred foreign income may
not offset United States source income.</toc-entry>
<toc-entry idref="H8BD7B2720D69424EB79C2F4D520B8DE7" level="section">Sec. 976. Amount of foreign taxes computed on overall
basis.</toc-entry>
<toc-entry idref="H24FA116EEBB4406CBD03C44B7D2421F0" level="section">Sec. 977. Application of subpart.</toc-entry>
</toc>
<section id="H4771C3A84BD749D2ABBDC350CDD29234"><enum>975.</enum><header>Interest
deductions allocated to deferred foreign income may not offset United States
source income</header>
<subsection id="HFDABDB40DBA148919EA72B9F4AF58C43"><enum>(a)</enum><header>Current year
deductions</header><text display-inline="yes-display-inline">For purposes of
this chapter, foreign-related interest deductions for any taxable year—</text>
<paragraph id="H83FBBEF61C4F4763B35A28FD0DAC48EE"><enum>(1)</enum><text>shall be taken
into account for such taxable year only to the extent that such deductions are
allocable to currently-taxed foreign income, and</text>
</paragraph><paragraph id="H975D88F7688D4B8DBBE438B81493DB9A"><enum>(2)</enum><text>to the extent not
so allowed, shall be taken into account in subsequent taxable years as provided
in subsection (b).</text>
</paragraph><continuation-text continuation-text-level="subsection">Foreign-related interest deductions
shall be allocated to currently-taxed foreign income in the same proportion
which currently-taxed foreign income bears to the sum of currently-taxed
foreign income and deferred foreign income.</continuation-text></subsection><subsection id="HD324568676F648F79911923FBA98A47B"><enum>(b)</enum><header>Interest
deductions related to repatriated deferred foreign income</header>
<paragraph id="H93EFD2A1168E4AF8B7900E7A0A0D13EF"><enum>(1)</enum><header>In
general</header><text>If there is repatriated foreign income for a taxable
year, the portion of the previously deferred interest deductions allocated to
the repatriated foreign income shall be taken into account for the taxable year
as a deduction for interest expense allocated to income from sources outside
the United States. Any such amount shall not be included in foreign-related
interest deductions for purposes of applying subsection (a) to such taxable
year.</text>
</paragraph><paragraph id="H6AFCA3327EF44032A2136612CB56B3D8"><enum>(2)</enum><header>Portion of
previously deferred interest deductions</header><text>For purposes of paragraph
(1), the portion of the previously deferred interest deductions allocated to
repatriated foreign income is—</text>
<subparagraph id="HA0237B99FA69438FBFB8F8B721B653B4"><enum>(A)</enum><text>the amount which
bears the same proportion to such deductions, as</text>
</subparagraph><subparagraph id="HDDEE70D889834B56BE94384E067967B4"><enum>(B)</enum><text>the repatriated
income bears to the previously deferred foreign income.</text>
</subparagraph></paragraph></subsection><subsection id="HD52B2C51FBB24559B4612C18448B9EE7"><enum>(c)</enum><header>Definitions and
special rule</header><text display-inline="yes-display-inline">For purposes of
this section—</text>
<paragraph id="HB1F577294C9641FB8EECFAE22FBD5079"><enum>(1)</enum><header>Foreign-related
interest deductions</header><text>The term <term>foreign-related interest
deductions</term> means the total amount of deductions for interest expenses
which would be allocated or apportioned to gross income from sources without
the United States for the taxable year if both the currently-taxed foreign
income and deferred foreign income were taken into account.</text>
</paragraph><paragraph display-inline="no-display-inline" id="HB4F40529C878452E9AFF58371A874968"><enum>(2)</enum><header>Currently-taxed
foreign income</header><text>The term <term>currently-taxed foreign
income</term> means the amount of gross income from sources without the United
States for the taxable year (determined without regard to repatriated foreign
income for such year).</text>
</paragraph><paragraph display-inline="no-display-inline" id="H78FCB6B554904002ABCFA2EB21517601"><enum>(3)</enum><header>Deferred foreign
income</header><text>The term <term>deferred foreign income</term> means the
excess of—</text>
<subparagraph id="H07A2B75227A642DA9CDD82A2B517C051"><enum>(A)</enum><text display-inline="yes-display-inline">the amount that would be includible in
gross income under subpart F of this part for the taxable year if—</text>
<clause id="H571B04343C4845768AEC9779982CF54C"><enum>(i)</enum><text>all controlled
foreign corporations were treated as one controlled foreign corporation,
and</text>
</clause><clause id="H5253D743FA7C40C5B5A3CA5378A087F9"><enum>(ii)</enum><text>all earnings and
profits of all controlled foreign corporations were subpart F income (as
defined in section 952), over</text>
</clause></subparagraph><subparagraph id="HE5CFD14236B24D00AECBBE3F84254610"><enum>(B)</enum><text>the sum of—</text>
<clause id="H81768DA47FE04E3EA79F3184BB34DD99"><enum>(i)</enum><text>all dividends
received during the taxable year from controlled foreign corporations,
plus</text>
</clause><clause id="H865E6B9221E4490A8AA5AC9F0A86DC31"><enum>(ii)</enum><text>amounts
includible in gross income under section 951(a).</text>
</clause></subparagraph></paragraph><paragraph id="H331A62D0F92343B9AEF2434BF4C7C30F"><enum>(4)</enum><header>Previously
deferred foreign income</header><text display-inline="yes-display-inline">The
term <term>previously deferred foreign income</term> means the aggregate amount
of deferred foreign income for all prior taxable years to which this part
applies, determined as of the beginning of the taxable year, reduced by the
repatriated foreign income for all such prior taxable years.</text>
</paragraph><paragraph id="H0EBBD05EA99E4187BCB802F9515776C9"><enum>(5)</enum><header>Repatriated
foreign income</header><text>The term <term>repatriated foreign income</term>
means the amount included in gross income on account of distributions out of
previously deferred foreign income.</text>
</paragraph><paragraph id="H9E7B90D1EF8947F1862828828E2083F8"><enum>(6)</enum><header>Previously
deferred interest deductions</header><text display-inline="yes-display-inline">The term <term>previously deferred interest
deductions</term> means the aggregate amount of foreign-related interest
deductions not taken into account under subsection (a) for all prior taxable
years (determined as of the beginning of the taxable year), reduced by any
amounts taken into account under subsection (b) for such prior taxable
years.</text>
</paragraph><paragraph id="HA00F44BDD6564E28AE49DABB61D324CB"><enum>(7)</enum><header>Treatment of
certain foreign taxes</header>
<subparagraph id="HAFEF89E41C8941D7AA6DA80A4FF0E5D3"><enum>(A)</enum><header>Paid by
controlled foreign corporation</header><text display-inline="yes-display-inline">Section 78 shall not apply for purposes of
determining currently-taxed foreign income and deferred foreign income.</text>
</subparagraph><subparagraph id="H49228C3ED2DC44E4A08D7D62904AB070"><enum>(B)</enum><header>Paid by
taxpayer</header><text>For purposes of determining currently-taxed foreign
income, gross income from sources without the United States shall be reduced by
the aggregate amount of taxes described in the applicable paragraph of section
901(b) which are paid by the taxpayer (without regard to sections 902 and 960)
during the taxable year.</text>
</subparagraph></paragraph><paragraph id="HB36EB59F37624F05A021BDF101130995"><enum>(8)</enum><header>Coordination
with section <enum-in-header>976</enum-in-header></header><text>In determining
currently-taxed foreign income and deferred foreign income, the amount of
deemed foreign tax credits shall be determined with regard to section
976.</text>
</paragraph></subsection></section><section id="H8BD7B2720D69424EB79C2F4D520B8DE7"><enum>976.</enum><header>Amount of
foreign taxes computed on overall basis</header>
<subsection id="HECB370B3366643B8A95D0B035CC4F031"><enum>(a)</enum><header>Current year
allowance</header><text display-inline="yes-display-inline">For purposes of
this chapter, the amount taken into account as foreign income taxes for any
taxable year shall be an amount which bears the same ratio to the total foreign
income taxes for that taxable year as—</text>
<paragraph id="HEBF775011C5542548EAD947EB9BD09A2"><enum>(1)</enum><text>the
currently-taxed foreign income for such taxable year, bears to</text>
</paragraph><paragraph id="H299A9EACE26C42CEB4011A26052A1B94"><enum>(2)</enum><text>the sum of the
currently-taxed foreign income and deferred foreign income for such
year.</text>
</paragraph><continuation-text continuation-text-level="subsection">The
portion of the total foreign income taxes for any taxable year not taken into
account under the preceding sentence for a taxable year shall only be taken
into account as provided in subsection (b) (and shall not be taken into account
for purposes of applying sections 902 and 960).</continuation-text></subsection><subsection display-inline="no-display-inline" id="HB792C56BB9F54558A29D5C3F8249EE17"><enum>(b)</enum><header>Allowance
related to repatriated deferred foreign income</header>
<paragraph id="H56973CD84838476FB5A5E285FD940076"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">If there is
repatriated foreign income for any taxable year, the portion of the previously
deferred foreign income taxes paid or accrued during such taxable year shall be
taken into account for the taxable year as foreign taxes paid or accrued. Any
such taxes so taken into account shall not be included in foreign income taxes
for purposes of applying subsection (a) to such taxable year.</text>
</paragraph><paragraph id="H40F5BE306A234A0DB849F36C2EF4BF17"><enum>(2)</enum><header>Portion of
previously deferred foreign income taxes</header><text>For purposes of
paragraph (1), the portion of the previously deferred foreign income taxes
allocated to repatriated deferred foreign income is—</text>
<subparagraph id="HCE0F34C8AA154D35BBC429E0D473CB7D"><enum>(A)</enum><text>the amount which
bears the same proportion to such taxes, as</text>
</subparagraph><subparagraph id="HB0CB6BAB9F8043439CD5FE77F1B08434"><enum>(B)</enum><text>the repatriated
deferred income bears to the previously deferred foreign income.</text>
</subparagraph></paragraph></subsection><subsection id="H58D38F946BC3435F891E4F87785A6A28"><enum>(c)</enum><header>Definitions and
special rule</header><text display-inline="yes-display-inline">For purposes of
this section—</text>
<paragraph id="H4D1518DD3F44468F82D893514326786A"><enum>(1)</enum><header>Previously
deferred foreign income taxes</header><text display-inline="yes-display-inline">The term <term>previously deferred foreign
income taxes</term> means the aggregate amount of total foreign income taxes
not taken into account under subsection (a) for all prior taxable years
(determined as of the beginning of the taxable year), reduced by any amounts
taken into account under subsection (b) for such prior taxable years.</text>
</paragraph><paragraph id="H416B3F0169AC4EED8CE2283CA3B164C6"><enum>(2)</enum><header>Total foreign
income taxes</header><text display-inline="yes-display-inline">The term
<term>total foreign income taxes</term> means the sum of foreign income taxes
paid or accrued during the taxable year (determined without regard to section
904(c)) plus the increase in foreign income taxes that would be paid or accrued
during the taxable year under sections 902 and 960 if—</text>
<subparagraph id="HFC091AB2FFF34495A79BC2CB15BC42D1"><enum>(A)</enum><text>all controlled
foreign corporations were treated as one controlled foreign corporation,
and</text>
</subparagraph><subparagraph id="H8CD669ACFC924C5DB64D78818C3CC6CE"><enum>(B)</enum><text>all earnings and
profits of all controlled foreign corporations were subpart F income (as
defined in section 952).</text>
</subparagraph></paragraph><paragraph id="HCF13A7F3576B4CCEA7378E8CCDA0B325"><enum>(3)</enum><header>Foreign income
taxes</header><text display-inline="yes-display-inline">The term <term>foreign
income taxes</term> means any income, war profits, or excess profits taxes paid
by the taxpayer to any foreign country or possession of the United
States.</text>
</paragraph><paragraph id="H2B529A3C51DE4016BFB90BCBD2CDE334"><enum>(4)</enum><header>Currently-taxed
foreign income and deferred foreign income</header><text display-inline="yes-display-inline">The terms <term>currently-taxed foreign
income</term> and <term>deferred foreign income</term> have the meanings given
such terms by section 975(c)).</text>
</paragraph></subsection></section><section id="H24FA116EEBB4406CBD03C44B7D2421F0"><enum>977.</enum><header>Application of
subpart</header><text display-inline="no-display-inline">This subpart—</text>
<paragraph id="HBD01F10AD1CB44D5A8B3A024DAFDAEB1"><enum>(1)</enum><text>shall be applied
before subpart A, and</text>
</paragraph><paragraph id="HC4446655A3494632A77D9ACBE65F7250"><enum>(2)</enum><text>shall be applied
separately with respect to the categories of income specified in section
904(d)(1).</text>
</paragraph></section></subpart><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H8187548E18BB4D12A3437BC6860ED415"><enum>(b)</enum><header>Clerical
amendment</header><text>The table of subparts for part III of subpart N of
chapter 1 is amended by inserting after the item relating to subpart G the
following new item:</text>
<quoted-block display-inline="no-display-inline" id="H509E437B9CD54194A045AC3542874C16" style="OLC">
<toc container-level="quoted-block-container" idref="HD462BA5567214C518298EF9A96537A5C" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry idref="H58E2E8648E6E49C8A80F9D08393F6110" level="subpart">Subpart H. Special Rules for Allocation of Foreign-Related
Interest Deductions and Foreign Tax
Credits.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H2B1306E281EF4D768A30583325D9E3FC"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to taxable years beginning after December 31,
2011.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="H2EA89AAF6C074973A4A8DDCC78488D66" section-type="subsequent-section"><enum>602.</enum><header>Excess income from
transfers of intangibles to low-taxed affiliates treated as subpart F
income</header>
<subsection id="HD78568632F5947A9A59C9448D80AB4A8"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (a) of
section 954 is amended by inserting after paragraph (3) the following new
paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H92CD6819A7A14AE88D4DBABEAE31F167" style="OLC">
<paragraph id="HBB96572C93C945F9A8EFA1676A8FD4F4"><enum>(4)</enum><text display-inline="yes-display-inline">the foreign base company excess intangible
income for the taxable year (determined under subsection (f) and reduced as
provided in subsection (b)(5)),
and</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H4708307C8A23412EA33CB9B6CA32F976"><enum>(b)</enum><header>Foreign base
company excess intangible income</header><text>Section 954 is amended by
inserting after subsection (e) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H32C484896F4C4964ACFC3AF0A936D645" style="OLC">
<subsection id="HBA7B23B673B645ECB525976C269DCED0"><enum>(f)</enum><header>Foreign base
company excess intangible income</header><text display-inline="yes-display-inline">For purposes of subsection (a)(4) and this
subsection—</text>
<paragraph id="H24D816C2F60544C8ADD3639923D89643"><enum>(1)</enum><header>Foreign base
company excess intangible income defined</header>
<subparagraph id="HF0115D304363462C86E4C557BF49FA07"><enum>(A)</enum><header>In
general</header><text>The term <quote>foreign base company excess intangible
income</quote> means, with respect to any covered intangible, the excess
of—</text>
<clause id="H44E7101399C94E8DB2ADACD3BD694110"><enum>(i)</enum><text>the sum of—</text>
<subclause id="HD5E63680C95A465F9543F78F9D9F8747"><enum>(I)</enum><text>gross income from
the sale, lease, license, or other disposition of property in which such
covered intangible is used directly or indirectly, and</text>
</subclause><subclause id="H86C924E127594135964EFABAF0D0CD14"><enum>(II)</enum><text>gross income from
the provision of services related to such covered intangible or in connection
with property in which such covered intangible is used directly or indirectly,
over</text>
</subclause></clause><clause id="H6E193BECBA3440188C6A032EE9F4840D"><enum>(ii)</enum><text>115 percent of
the costs properly allocated and apportioned to the gross income taken into
account under clause (i) other than expenses for interest and taxes and any
expenses which are not directly allocable to such gross income.</text>
</clause></subparagraph><subparagraph commented="no" id="HA33F5B976F404B08BDCD979486A2D7C5"><enum>(B)</enum><header>Same country
income not taken into account</header><text>If—</text>
<clause id="HB9FB191250254999B7217043C62B98A9"><enum>(i)</enum><text>the sale, lease,
license, or other disposition of the property referred to in subparagraph
(A)(i)(I) is for use, consumption, or disposition in the country under the laws
of which the controlled foreign corporation is created or organized, or</text>
</clause><clause id="HA7F08FAEEF7F45B099420F9CB9535059"><enum>(ii)</enum><text>the services
referred to in subparagraph (A)(i)(II) are performed in such country,</text>
</clause><continuation-text continuation-text-level="subparagraph">the
gross income from such sale, lease, license, or other disposition, or provision
of services, shall not be taken into account under subparagraph (A)(i).</continuation-text></subparagraph></paragraph><paragraph id="H1B6A4B91059C43029A3BCC1B9E54A0F8"><enum>(2)</enum><header>Exception based
on effective foreign income tax rate</header>
<subparagraph id="H258807DF481649C6BC6991DA0691863B"><enum>(A)</enum><header>In
general</header><text>Foreign base company excess intangible income shall not
include the applicable percentage of any item of income received by a
controlled foreign corporation if the taxpayer establishes to the satisfaction
of the Secretary that such income was subject to an effective rate of income
tax imposed by a foreign country in excess of 10 percent.</text>
</subparagraph><subparagraph id="H276C01542B5C45879889813A9D5B49D6"><enum>(B)</enum><header>Applicable
percentage</header><text>For purposes of subparagraph (A), the term
<quote>applicable percentage</quote> means the ratio (expressed as a
percentage), not greater than 100 percent, of—</text>
<clause id="H4D98FDF8001247BCB565C574DD499B6B"><enum>(i)</enum><text>the number of
percentage points by which the effective rate of income tax referred to in
subparagraph (A) exceeds 10 percentage points, over</text>
</clause><clause id="H6F7DA371AA07492E9589C279B8582DA6"><enum>(ii)</enum><text>25 percentage
points.</text>
</clause></subparagraph><subparagraph id="HF6B4B18C83AF470295AB611AD67F7985"><enum>(C)</enum><header>Treatment of
losses in determining effective rate of foreign income tax</header><text>For
purposes of determining the effective rate of income tax imposed by any foreign
country—</text>
<clause id="H734373653D0E40579EA18D1ACC0A9917"><enum>(i)</enum><text>such effective
rate shall be determined without regard to any losses carried to the relevant
taxable year, and</text>
</clause><clause id="H4370151A1CE54682B81EB6A60D287E20"><enum>(ii)</enum><text>to the extent the
income with respect to such intangible reduces losses in the relevant taxable
year, such effective rate shall be treated as being the effective rate which
would have been imposed on such income without regard to such losses.</text>
</clause></subparagraph></paragraph><paragraph id="HCBC0F59AA9454E3492A00D170F21F754"><enum>(3)</enum><header>Covered
intangible</header><text>The term <quote>covered intangible</quote> means, with
respect to any controlled foreign corporation, any intangible property (as
defined in section 936(h)(3)(B))—</text>
<subparagraph id="HF9F110CB795C47D589DDBDBEC2350BBA"><enum>(A)</enum><text>which is sold,
leased, licensed, or otherwise transferred (directly or indirectly) to such
controlled foreign corporation from a related person, or</text>
</subparagraph><subparagraph id="HF37A6F33F497489196105B32267930AC"><enum>(B)</enum><text>with respect to
which such controlled foreign corporation and one or more related persons has
(directly or indirectly) entered into any shared risk or development agreement
(including any cost sharing agreement).</text>
</subparagraph></paragraph><paragraph id="H79A90E9B60D947658BC9FA0FFCE7A17C"><enum>(4)</enum><header>Related
person</header><text>The term <quote>related person</quote> has the meaning
given such term in subsection
(d)(3).</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HB976FE6376734A9094F2659C30053447"><enum>(c)</enum><header>Separate basket
for foreign tax credit</header><text display-inline="yes-display-inline">Subsection (d) of section 904 is amended by
redesignating paragraph (7) as paragraph (8) and by inserting after paragraph
(6) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HBE81164BCE084229BEAE8285246EA9B1" style="OLC">
<paragraph id="H837F090DE61A41A492332DCE62AA22CB"><enum>(6)</enum><header>Separate
application to foreign base company excess intangible income</header>
<subparagraph id="HB6BD78831EA443B4A10556524A54B24E"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsections (a), (b),
and (c) of this section and sections 902, 907, and 960 shall be applied
separately with respect to each item of income which is taken into account
under section 954(a)(4) as foreign base company excess intangible
income.</text>
</subparagraph><subparagraph id="H9EEA7DE8D7C2406AA29562792A02AFC0"><enum>(B)</enum><header>Regulations</header><text>The
Secretary may issue such regulations or other guidance as is necessary or
appropriate to carry out the purposes of this subsection, including regulations
or other guidance which provides that related items of income may be aggregated
for purposes of this
paragraph.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HC43CEFC00DA14C88A570E351568635B5"><enum>(d)</enum><header>Conforming
amendments</header>
<paragraph id="HFC6866862CE54839AF81E86DF4690F86"><enum>(1)</enum><text>Paragraph (4) of
section 954(b) is amended by inserting <quote>foreign base company excess
intangible income described in subsection (a)(4) or</quote> before
<quote>foreign base company oil-related income</quote> in the last sentence
thereof.</text>
</paragraph><paragraph id="H7CC20EA40FF342CFA96EECF5D830414E"><enum>(2)</enum><text>Subsection (b) of
section 954 is amended by adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H8AACC79F90CE486DB7B5D62D3E5506E8" style="OLC">
<paragraph id="H1C66AD9E97DE4B0F885A67614F5A3D50"><enum>(7)</enum><header>Foreign base
company excess intangible income not treated as another kind of base company
income</header><text display-inline="yes-display-inline">Income of a
corporation which is foreign base company excess intangible income shall not be
considered foreign base company income of such corporation under paragraph (2),
(3), or (5) of subsection
(a).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="HA7F02CD21F9A4BA0B468EA3867DA8814"><enum>(e)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="HEFE2946C8D604573970AF0C235C37078"><enum>603.</enum><header>Limitations on
income shifting through intangible property transfers</header>
<subsection id="HA420208312DC47E9A59527807D4B39FF"><enum>(a)</enum><header>Clarification of
definition of intangible asset</header><text>Clause (vi) of section
936(h)(3)(B) is amended by inserting <quote>(including any section 197
intangible described in subparagraph (A), (B), or (C)(i) of subsection (d)(1)
of such section)</quote> after <quote>item</quote>.</text>
</subsection><subsection id="H3EB10C5FADCE43A2B46CBEB30F2E25C4"><enum>(b)</enum><header>Clarification of
allowable valuation methods</header>
<paragraph id="HF96AC6D5662D475A8624DF08E3C875B4"><enum>(1)</enum><header>Foreign
corporations</header><text>Paragraph (2) of section 367(d) is amended by adding
at the end the following new subparagraph:</text>
<quoted-block act-name="" id="H66463F77790C4626822BB269EFFAA5D7" style="OLC">
<subparagraph id="H16175D008E594F619C0B15A3DA9BC48F"><enum>(D)</enum><header>Regulatory
authority</header><text>For purposes of the last sentence of subparagraph (A),
the Secretary may require—</text>
<clause id="H8EE2783E566F427BAB762426DEBA4524"><enum>(i)</enum><text>the valuation of
transfers of intangible property on an aggregate basis, or</text>
</clause><clause id="H8E15DB4F18F445E3A81906B395E88D8F"><enum>(ii)</enum><text>the valuation of
such a transfer on the basis of the realistic alternatives to such a
transfer,</text>
</clause><continuation-text continuation-text-level="subparagraph">in any
case in which the Secretary determines that such basis is the most reliable
means of valuation of such
transfers.</continuation-text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H638265B17D924EC58F613D0CEBE18604"><enum>(2)</enum><header>Allocation among
taxpayers</header><text>Section 482 is amended by adding at the end the
following: <quote>For purposes of the preceding sentence, the Secretary may
require the valuation of transfers of intangible property on an aggregate basis
or the valuation of such a transfer on the basis of the realistic alternatives
to such a transfer, in any case in which the Secretary determines that such
basis is the most reliable means of valuation of such
transfers.</quote>.</text>
</paragraph></subsection><subsection id="HBF2C94B26319410F9490BD74ABB48D7C"><enum>(c)</enum><header>Effective
date</header>
<paragraph id="H8F4105B9EA274D26866E622778BC25EB"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to
transfers in taxable years beginning after December 31, 2011.</text>
</paragraph><paragraph id="HF53130E3E6234C48848F8DED3748B77C"><enum>(2)</enum><header>No
inference</header><text>Nothing in the amendment made by subsection (a) shall
be construed to create any inference with respect to the application of section
936(h)(3) of the Internal Revenue Code of 1986, or the authority of the
Secretary of the Treasury to provide regulations for such application, on or
before the date of the enactment of such amendment.</text>
</paragraph></subsection></section><section display-inline="no-display-inline" id="H6CC06A651CAD48C3A571889B22F904F4" section-type="subsequent-section"><enum>604.</enum><header>Modifications of
foreign tax credit rules applicable to dual capacity taxpayers</header>
<subsection id="HB5CAE6EECD1C4927967FBA52AAC54838"><enum>(a)</enum><header>In
general</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/901">Section 901</external-xref> is amended by
redesignating subsection (n) as subsection (o) and by inserting after
subsection (m) the following new subsection:</text>
<quoted-block id="H4F5ACE020DBC478691EFDFC4926349F2" style="OLC">
<subsection id="H2503390DD061413DA2802755A32E63EB"><enum>(n)</enum><header>Special rules
relating to dual capacity taxpayers</header>
<paragraph id="H3B9BE48FE28D41F4BCD97449638D20FA"><enum>(1)</enum><header>General
rule</header><text>Notwithstanding any other provision of this chapter, any
amount paid or accrued by a dual capacity taxpayer to a foreign country or
possession of the United States for any period with respect to combined foreign
oil and gas income (as defined in section 907(b)(1)) shall not be considered a
tax to the extent such amount exceeds the amount (determined in accordance with
regulations) which would have been required to be paid if the taxpayer were not
a dual capacity taxpayer.</text>
</paragraph><paragraph id="HC599E28A3CE64671BE34C97B2B0EEF5C"><enum>(2)</enum><header>Dual capacity
taxpayer</header><text>For purposes of this subsection, the term <quote>dual
capacity taxpayer</quote> means, with respect to any foreign country or
possession of the United States, a person who—</text>
<subparagraph id="H9743A2C25745485FBEABFC1CBA138EA6"><enum>(A)</enum><text>is subject to a
levy of such country or possession, and</text>
</subparagraph><subparagraph id="HB1D8330B6BF64A75BFAB9DFB420B557E"><enum>(B)</enum><text>receives (or will
receive) directly or indirectly a specific economic benefit (as determined in
accordance with regulations) from such country or
possession.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H9F5CFE87B531420A8439D9D709BF4C99"><enum>(b)</enum><header>Effective
date</header>
<paragraph id="H9D7D3AD75E4D4143B623CDB70CAF0179"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to taxes
paid or accrued in taxable years beginning after December 31, 2011.</text>
</paragraph><paragraph id="H95BD341FEDCF4E20B824D92047C2D9ED"><enum>(2)</enum><header>Contrary treaty
obligations upheld</header><text>The amendments made by this section shall not
apply to the extent contrary to any treaty obligation of the United
States.</text>
</paragraph></subsection></section><enum>VII</enum><header>Tax
expenditure study</header>
<section id="H913B7ECC4E604F20989C5EA0C8C98204"><enum>701.</enum><header>Study of
extended tax expenditures</header>
<subsection id="H39667222BAA843FFA315496BE5CA5DB0"><enum>(a)</enum><header>In
General</header><text display-inline="yes-display-inline">Not later than 180
days after the date of the enactment of this Act, the Comptroller General of
the United States, in consultation with the Secretary of the Treasury, shall
submit to Congress a report on each tax expenditure (as defined in section 3(3)
of the Congressional Budget Impoundment Control Act of 1974 (2 U.S.C. 622(3))
not terminated or modified by this Act.</text>
</subsection><subsection id="HA760816342B545509A609A35F41E5F6F"><enum>(b)</enum><header>Contents of
Report</header><text>Such reports shall contain the following:</text>
<paragraph id="H7409FDB647C34196B773AF33C4B27B91"><enum>(1)</enum><text>An explanation of
the tax expenditure and any relevant economic, social, or other context under
which it was first enacted.</text>
</paragraph><paragraph id="HD7C0F2F815064EC3B4CFEB01C42DA88A"><enum>(2)</enum><text>A
description of the intended purpose of the tax expenditure.</text>
</paragraph><paragraph id="H1A858FE9950E437E804C9F2930B22D95"><enum>(3)</enum><text>An analysis of the
overall success of the tax expenditure in achieving such purpose, and evidence
supporting such analysis.</text>
</paragraph><paragraph id="H7F24E73E610E4CE2BC6DA3047DD28EB1"><enum>(4)</enum><text>An analysis of the
extent to which further extending the tax expenditure, or making it permanent,
would contribute to achieving such purpose.</text>
</paragraph><paragraph id="H0AB2EAFC3C0A40F992F60FA26CA73618"><enum>(5)</enum><text>A
description of the direct and indirect beneficiaries of the tax expenditure,
including identifying any unintended beneficiaries.</text>
</paragraph><paragraph id="H39146F5AFEC34DFAB92C97BA529AA473"><enum>(6)</enum><text>An analysis of
whether the tax expenditure is the most cost-effective method for achieving the
purpose for which it was intended, and a description of any more cost-effective
methods through which such purpose could be accomplished.</text>
</paragraph><paragraph id="HE78069BDE42844B99E001A4D14E5B230"><enum>(7)</enum><text>A
description of any unintended effects of the tax expenditure that are useful in
understanding the tax expenditure’s overall value.</text>
</paragraph><paragraph id="H175987715B684D6FBDEA28FD966572B7"><enum>(8)</enum><text>An analysis of how
the tax expenditure could be modified to better achieve its original purpose or
if such tax expenditure should be eliminated.</text>
</paragraph></subsection></section>