[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 727 Introduced in Senate (IS)]

112th CONGRESS
  1st Session
                                 S. 727

 To amend the Internal Revenue Code of 1986 to make the Federal income 
  tax system simpler, fairer, and more fiscally responsible, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 5, 2011

   Mr. Wyden (for himself, Mr. Coats, and Mr. Begich) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to make the Federal income 
  tax system simpler, fairer, and more fiscally responsible, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Bipartisan Tax 
Fairness and Simplification Act of 2011''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Purpose.
                 TITLE I--INDIVIDUAL INCOME TAX REFORMS

Sec. 101. Three progressive individual income tax rates.
Sec. 102. Increase in basic standard deduction.
Sec. 103. Permanent extension of expansion of earned income credit.
Sec. 104. Permanent extension of expansion of dependent care credit.
Sec. 105. Permanent extension of child tax credit.
Sec. 106. Permanent repeal of limitations on personal exemptions and 
                            itemized deductions.
Sec. 107. Elimination of individual miscellaneous itemized deductions.
Sec. 108. Treatment of capital gains and dividends as ordinary income.
Sec. 109. Partial exclusion of capital gains.
Sec. 110. Partial exclusion of dividends received by individuals.
Sec. 111. Nonrefundable personal credit for interest on State and local 
                            bonds.
Sec. 112. Retirement savings accounts.
Sec. 113. American Dream Accounts.
Sec. 114. Consolidation of tax credits and deductions for education 
                            expenses.
Sec. 115. Termination of various exclusions, exemptions, deductions, 
                            and credits.
Sec. 116. Simplified tax return preparation.
          TITLE II--CORPORATE AND BUSINESS INCOME TAX REFORMS

Sec. 201. Corporate flat tax.
Sec. 202. Treatment of travel on corporate aircraft.
Sec. 203. Unlimited expensing of depreciable assets and inventories for 
                            certain small businesses.
Sec. 204. Termination of various preferential treatments.
Sec. 205. Pass-through business entity transparency.
Sec. 206. Modification of effective date of leasing provisions of the 
                            American Jobs Creation Act of 2004.
Sec. 207. Modifications of foreign tax credit rules applicable to large 
                            integrated oil companies which are dual 
                            capacity taxpayers.
Sec. 208. Repeal of lower of cost or market value of inventory rule.
Sec. 209. Reinstitution of per country foreign tax credit.
Sec. 210. Application of rules treating inverted corporations as 
                            domestic corporations to certain 
                            transactions occurring after March 20, 
                            2002.
Sec. 211. Indexing corporate interest deduction for inflation.
Sec. 212. Prohibition of advance refunding of bonds.
Sec. 213. CBO study on government spending on businesses.
              TITLE III--REPEAL OF ALTERNATIVE MINIMUM TAX

Sec. 301. Repeal of alternative minimum tax.
                TITLE IV--IMPROVEMENTS IN TAX COMPLIANCE

Sec. 401. Increase in information return penalties.
Sec. 402. E-filing requirement for certain large organizations.
Sec. 403. Implementation of standards clarifying when employee leasing 
                            companies can be held liable for their 
                            clients' Federal employment taxes.
Sec. 404. Expansion of IRS access to information in National Directory 
                            of New Hires for tax administration 
                            purposes.
Sec. 405. Modification of criminal penalties for willful failures 
                            involving tax payments and filing 
                            requirements.
Sec. 406. Penalties for failure to file certain returns electronically.
Sec. 407. Reporting on identification of beneficial owners of certain 
                            foreign financial accounts.
                   TITLE V--MISCELLANEOUS PROVISIONS

Sec. 501. Allowance of deduction for dividends received from controlled 
                            foreign corporations for 2011.
Sec. 502. Denial of deduction for punitive damages.
Sec. 503. Application of Medicare payroll tax to all State and local 
                            government employees.
Sec. 504. Corrections for CPI overstatement in cost-of-living 
                            indexation.
             TITLE VI--TECHNICAL AND CONFORMING AMENDMENTS

Sec. 601. Technical and conforming amendments.

SEC. 2. PURPOSE.

    The purpose of this Act is to amend the Internal Revenue Code of 
1986--
            (1) to make the Federal individual income tax system 
        simpler, fairer, and more transparent by, among other reforms--
                    (A) repealing the individual alternative minimum 
                tax,
                    (B) increasing the basic standard deduction and 
                maintaining itemized deductions for mortgage interest 
                and charitable contributions, and
                    (C) reducing the number of exclusions, exemptions, 
                deductions, and credits,
            (2) to make the Federal corporate income tax rate a flat 24 
        percent, repeal the corporate alternative minimum tax, and 
        eliminate special tax preferences that favor particular types 
        of businesses or activities, and
            (3) to partially offset the Federal budget deficit through 
        the increased fiscal responsibility resulting from these 
        reforms.

                 TITLE I--INDIVIDUAL INCOME TAX REFORMS

SEC. 101. THREE PROGRESSIVE INDIVIDUAL INCOME TAX RATES.

    (a) Married Individuals Filing Joint Returns and Surviving 
Spouses.--The table contained in section 1(a) is amended to read as 
follows:

``If taxable income is:             The tax is:
    Not over $75,000...............
                                        15% of taxable income.
    Over $75,000 but not over 
        $140,000.
                                        $11,250, plus 25% of the excess 
                                                over $75,000.
    Over $140,000..................
                                        $27,500, plus 35% of the excess 
                                                over $140,000''.
    (b) Heads of Households.--The table contained in section 1(b) is 
amended to read as follows:

``If taxable income is:             The tax is:
    Not over $56,250...............
                                        15% of taxable income.
    Over $56,250 but not over 
        $105,000.
                                        $8,437.50, plus 25% of the 
                                                excess over $56,250.
    Over $105,000..................
                                        $20,625, plus 35% of the excess 
                                                over $105,000''.
    (c) Unmarried Individuals (Other Than Surviving Spouses and Heads 
of Households).--The table contained in section 1(c) is amended to read 
as follows:

``If taxable income is:             The tax is:
    Not over $37,500...............
                                        15% of taxable income.
    Over $37,500 but not over 
        $70,000.
                                        $5,625, plus 25% of the excess 
                                                over $37,500.
    Over $70,000...................
                                        $13,750, plus 35% of the excess 
                                                over $70,000''.
    (d) Married Individuals Filing Separate Returns.--The table 
contained in section 1(d) is amended to read as follows:

``If taxable income is:             The tax is:
    Not over $37,500...............
                                        15% of taxable income.
    Over $37,500 but not over 
        $70,000.
                                        $5,625, plus 25% of the excess 
                                                over $37,500.
    Over $70,000...................
                                        $13,750, plus 35% of the excess 
                                                over $70,000''.
    (e) Repeal of EGTRRA Sunset.--
            (1) In general.--Title IX of the Economic Growth and Tax 
        Relief Reconciliation Act of 2001 shall not apply to section 
        101 (relating to income tax rates for individuals) and section 
        302 (relating to 15 percent bracket) of such Act.
            (2) Conforming amendments.--
                    (A) Section 1 is amended by striking subsection 
                (i).
                    (B) Section 1(g)(7)(B)(ii)(II) is amended by 
                striking ``10 percent'' and inserting ``15 percent''.
                    (C) Section 3402(p)(1)(B) is amended by striking 
                ``3 lowest''.
                    (D) Section 3402(p)(2) is amended by striking ``10 
                percent'' and inserting ``15 percent''.
                    (E) Section 3402(q)(1) is amended by striking 
                ``third'' and inserting ``second''.
                    (F) Section 3402(r)(3) is amended by striking 
                ``fourth'' and inserting ``second''.
                    (G) Section 3406(a)(1) is amended by striking 
                ``fourth'' and inserting ``second''.
                    (H) Section 13273 of the Revenue Reconciliation Act 
                of 1993 is amended by striking ``third'' and inserting 
                ``second''.
    (f) Conforming Amendments to Inflation Adjustment.--
            (1) Section 1(f) is amended--
                    (A) by striking ``1993'' in paragraph (1) and 
                inserting ``2012'',
                    (B) by striking ``except as provided in paragraph 
                (8)'' in paragraph (2)(A),
                    (C) by striking ``1992'' in paragraph (3)(B) and 
                inserting ``2011'',
                    (D) by striking paragraphs (7) and (8), and
                    (E) by striking ``Phaseout of Marriage Penalty in 
                15-Percent Bracket;'' in the heading thereof.
            (2) The Internal Revenue Code of 1986 is amended by 
        striking ``calendar year 1992'' each place it appears and 
        inserting ``calendar year 2011''.
    (g) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2011.
            (2) Amendments to withholding provisions.--The amendments 
        made by subparagraphs (C) through (H) of subsection (e)(2) 
        shall apply to amounts paid after the 60th day after the date 
        of the enactment of this Act.

SEC. 102. INCREASE IN BASIC STANDARD DEDUCTION.

    (a) In General.--Paragraph (2) of section 63(c) is amended to read 
as follows:
            ``(2) Basic standard deduction.--For purposes of paragraph 
        (1), the basic standard deduction is--
                    ``(A) 200 percent of the dollar amount in effect 
                under subparagraph (C) for the taxable year in the case 
                of--
                            ``(i) a joint return, or
                            ``(ii) a surviving spouse (as defined in 
                        section 2(a)),
                    ``(B) $22,500 in the case of a head of household 
                (as defined in section 2(b)), or
                    ``(C) $15,000 in any other case, reduced by any 
                deduction allowed under section 62(a)(22) for such 
                taxable year.''.
    (b) Conforming Amendment to Inflation Adjustment.--Section 
63(c)(4)(B)(i) is amended by striking ``(2)(B), (2)(C), or''.
    (c) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 shall not apply to section 301 of 
such Act (relating to standard deduction).
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 103. PERMANENT EXTENSION OF EXPANSION OF EARNED INCOME CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 shall not apply to section 303 of 
such Act (relating to earned income tax credit).
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2011.

SEC. 104. PERMANENT EXTENSION OF EXPANSION OF DEPENDENT CARE CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 shall not apply to section 204 of 
such Act (relating to dependent care credit).
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2011.

SEC. 105. PERMANENT EXTENSION OF CHILD TAX CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 shall not apply to section 201 
(relating to modifications to child tax credit) and section 203 
(relating to refunds disregarded in the administration of Federal 
programs and federally assisted programs) of such Act.
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2011.

SEC. 106. PERMANENT REPEAL OF LIMITATIONS ON PERSONAL EXEMPTIONS AND 
              ITEMIZED DEDUCTIONS.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 shall not apply to section 102 
(relating to repeal of phaseout of personal exemptions) and 103 
(relating to phaseout of overall limitation on itemized deductions) of 
such Act.
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2011.

SEC. 107. ELIMINATION OF INDIVIDUAL MISCELLANEOUS ITEMIZED DEDUCTIONS.

    (a) In General.--Subsection (a) of section 67 is amended to read as 
follows:
    ``(a) General Rule.--In the case of an individual, miscellaneous 
deductions shall not be allowed for any taxable year beginning after 
December 31, 2011.''.
    (b) Conforming Amendments.--
            (1) The heading for section 67 is amended by striking ``2-
        percent floor on'' and inserting ``treatment of''.
            (2) The item relating to section 67 in the table of 
        sections for part I of subchapter B of chapter 1 is amended by 
        striking ``2-percent floor on'' and inserting ``Treatment of''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 108. TREATMENT OF CAPITAL GAINS AND DIVIDENDS AS ORDINARY INCOME.

    (a) Acceleration of JGTRRA Sunset.--Section 303 of the Jobs and 
Growth Tax Relief Reconciliation Act of 2003, as amended by section 
102(a) of the Tax Relief, Unemployment Insurance Reauthorization, and 
Job Creation Act of 2010, is amended by striking ``December 31, 2012'' 
and inserting ``December 31, 2011''.
    (b) Treatment of Capital Gains and Dividends as Ordinary Income.--
Section 1(h), after the application of subsection (a), is amended by 
adding at the end the following new paragraph:
            ``(11) Termination.--This subsection shall not apply to 
        taxable years beginning after December 31, 2011.''.

SEC. 109. PARTIAL EXCLUSION OF CAPITAL GAINS.

    (a) Partial Exclusion.--Part III of subchapter B of chapter 1 is 
amended by inserting before section 140 the following new section:

``SEC. 139F. CAPITAL GAINS PARTIAL EXCLUSION.

    ``For any taxable year, gross income shall not include--
            ``(1) 35 percent of so much of any gain from the sale or 
        exchange during such taxable year of capital assets held for 
        more than 6 months but not more than 1 year as does not exceed 
        $500,000, plus
            ``(2) 35 percent of any long-term capital gain for such 
        taxable year (determined after the application of section 
        1202).''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by inserting before the item 
relating to section 140 the following new item:

``Sec. 139F. Capital gains partial exclusion.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 110. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

    (a) General Rule.--Part III of subchapter B of chapter 1 is amended 
by inserting after section 115 the following new section:

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
35 percent of the qualified dividend income received during the taxable 
year by an individual.
    ``(b) Qualified Dividend Income.--For purposes of this subsection--
            ``(1) In general.--The term `qualified dividend income' 
        means dividends received with respect to any share of stock 
        of--
                    ``(A) any domestic corporation, or
                    ``(B) any foreign corporation but only if such 
                share of stock is readily tradable on an established 
                securities market.
            ``(2) Certain dividends excluded.--Such term shall not 
        include--
                    ``(A) any dividend from a corporation which for the 
                taxable year of the corporation in which the 
                distribution is made, or the preceding taxable year, is 
                a corporation exempt from tax under section 501 or 521,
                    ``(B) any amount allowed as a deduction under 
                section 591 (relating to deduction for dividends paid 
                by mutual savings banks, etc.), and
                    ``(C) any dividend described in section 404(k).
            ``(3) Exclusion of dividends of certain foreign 
        corporations.--Such term shall not include any dividend from a 
        foreign corporation which for the taxable year of the 
        corporation in which the distribution was made, or the 
        preceding taxable year, is a foreign personal holding company 
        (as defined in section 552), a foreign investment company (as 
        defined in section 1246(b)), or a passive foreign investment 
        company (as defined in section 1297).
            ``(4) Coordination with section 246(c).--Such term shall 
        not include any dividend on any share of stock--
                    ``(A) with respect to which the holding period 
                requirements of section 246(c) are not met, or
                    ``(B) to the extent that the taxpayer is under an 
                obligation (whether pursuant to a short sale or 
                otherwise) to make related payments with respect to 
                positions in substantially similar or related property.
    ``(c) Special Rules.--
            ``(1) Amounts taken into account as investment income.--
        Qualified dividend income shall not include any amount which 
        the taxpayer takes into account as investment income under 
        section 163(d)(4)(B).
            ``(2) Coordination with foreign tax credit and deduction.--
        No credit shall be allowed under section 901, and no deduction 
        shall be allowed under this chapter, for any taxes paid or 
        accrued with respect to any income excludable under this 
        section.
            ``(3) Extraordinary dividends.--If an individual receives, 
        with respect to any share of stock, qualified dividend income 
        from 1 or more dividends which are extraordinary dividends 
        (within the meaning of section 1059(c)), any loss on the sale 
        or exchange of such share shall, to the extent of such 
        dividends, be treated as long-term capital loss.
            ``(4) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only in determining the tax imposed 
        for the taxable year by sections 871(b)(1) and 877(b).
            ``(5) Exclusion disregarded in determining income for 
        certain purposes.--Subsection (a) shall not apply for purposes 
        of determining amounts of income under sections 32(i), 86(b), 
        135(b), 137(b), 219(g), 221(b), 408A(c)(3), 469(i), and 530(c), 
        or subpart A of part IV of subchapter A.
            ``(6) Treatment of dividends from regulated investment 
        companies and real estate investment trusts.--A dividend from a 
        regulated investment company or real estate investment trust 
        shall be subject to the limitations prescribed in sections 854 
        and 857.''.
    (b) Exclusion of Dividends From Investment Income.--The last 
sentence of subparagraph (B) of section 163(d)(4) is amended to read as 
follows:
    ``Such term shall include qualified dividend income (as defined in 
section 116(b)) only to the extent the taxpayer elects to treat such 
income as investment income for purposes of this subsection.''.
    (c) Treatment of Dividends From Regulated Investment Companies.--
            (1) Subsection (a) of section 854 is amended by inserting 
        ``section 116 (relating to partial exclusion of dividends 
        received by individuals) and'' after ``For purposes of''.
            (2) Paragraph (1) of section 854(b) is amended by 
        redesignating subparagraph (B) as subparagraph (C) and by 
        inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Exclusion under section 116.--
                            ``(i) In general.--If the aggregate 
                        dividends received by a regulated investment 
                        company during any taxable year are less than 
                        95 percent of its gross income, then, in 
                        computing the exclusion under section 116, 
                        rules similar to the rules of subparagraph (A) 
                        shall apply.
                            ``(ii) Gross income.--For purposes of 
                        clause (i), in the case of 1 or more sales or 
                        other dispositions of stock or securities, the 
                        term `gross income' includes only the excess 
                        of--
                                    ``(I) the net short-term capital 
                                gain from such sales or dispositions, 
                                over
                                    ``(II) the net long-term capital 
                                loss from such sales or 
                                dispositions.''.
            (3) Subparagraph (C) of section 854(b)(1), as redesignated 
        by paragraph (2), is amended by striking ``subparagraph (A)'' 
        and inserting ``subparagraph (A) or (B)''.
            (4) Paragraph (2) of section 854(b) is amended by inserting 
        ``the exclusion under section 116 and'' after ``for purposes 
        of''.
            (5) Subsection (b) of section 854 is amended by adding at 
        the end the following new paragraph:
            ``(5) Coordination with section 116.--For purposes of 
        paragraph (1)(B), an amount shall be treated as a dividend only 
        if the amount is qualified dividend income (within the meaning 
        of section 116(b)).''.
    (d) Treatment of Dividends Received From Real Estate Investment 
Trusts.--Section 857(c) is amended to read as follows:
    ``(c) Restrictions Applicable to Dividends Received From Real 
Estate Investment Trusts.--
            ``(1) Section 243.--For purposes of section 243 (relating 
        to deductions for dividends received by corporations), a 
        dividend received from a real estate investment trust which 
        meets the requirements of this part shall not be considered a 
        dividend.
            ``(2) Section 116.--For purposes of section 116 (relating 
        to exclusion of dividends), rules similar to the rules of 
        section 854(b)(1)(B) shall apply to dividends received from a 
        real estate trust which meets the requirements of this part.''.
    (e) Conforming Amendments.--
            (1) Subsection (f) of section 301 is amended adding at the 
        end the following new paragraph:
            ``(4) For partial exclusion from gross income of dividends 
        received by individuals, see section 116.''.
            (2) Paragraph (1) of section 306(a) is amended by adding at 
        the end the following new subparagraph:
                    ``(D) Treatment as dividend.--For purposes of 
                section 116, any amount treated as ordinary income 
                under this paragraph shall be treated as a dividend 
                received from the corporation.''.
            (3)(A) Subpart C of part II of subchapter C of chapter 1 is 
        repealed.
            (B)(i) Section 338(h) is amended by striking paragraph 
        (14).
            (ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are 
        each amended by striking ``, 341(e)(12),''.
            (iii) The table of subparts for part II of subchapter C of 
        chapter 1 is amended by striking the item related to subpart C.
            (4) Section 531(a) is amended by inserting ``90 percent (80 
        percent in the case of taxable years beginning after 2007) of'' 
        after ``equal to''.
            (5) Section 541(a) is amended by inserting ``90 percent (80 
        percent in the case of taxable years beginning after 2007) of'' 
        after ``equal to''.
            (6) Section 584(c) is amended by adding at the end the 
        following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends received by the common trust fund and to which section 116 
applies shall be considered for purposes of such paragraph as having 
been received by such participant.''.
            (7) Section 643(a) is amended by redesignating paragraph 
        (7) as paragraph (8) and by inserting after paragraph (6) the 
        following new paragraph:
            ``(7) Excluded dividends.--There shall be included the 
        amount of any dividends excluded from gross income under 
        section 116 (relating to partial exclusion of dividends).''.
            (8) Paragraph (5) of section 702(a) is amended to read as 
        follows:
            ``(5) dividends with respect to which section 116 or part 
        VII of subchapter B applies,''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 111. NONREFUNDABLE PERSONAL CREDIT FOR INTEREST ON STATE AND LOCAL 
              BONDS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new section:

``SEC. 25E. INTEREST ON STATE AND LOCAL BONDS.

    ``(a) In General.--If a taxpayer other than a corporation holds a 
State or local bond on one or more interest payment dates of the bond 
during any taxable year, there shall be allowed as a credit against the 
tax imposed by this chapter for the taxable year an amount equal to the 
sum of the credits determined under subsection (b) with respect to such 
dates.
    ``(b) Amount of Credit.--The amount of the credit determined under 
this subsection with respect to any interest payment date for a State 
or local bond is 25 percent of the amount of interest payable by the 
issuer with respect to such date.
    ``(c) State or Local Bond.--
            ``(1) In general.--For purposes of this section, the term 
        `State or local bond' means any bond issued as part of an issue 
        if the interest on such bond would (but for this section) be 
        excludable from gross income under section 103.
            ``(2) Applicable rules.--For purposes of applying paragraph 
        (1)--
                    ``(A) for purposes of section 149(b), a State or 
                local bond shall not be treated as federally guaranteed 
                by reason of the credit allowed under subsection (a), 
                and
                    ``(B) for purposes of section 148, the yield on a 
                State or local bond shall be determined without regard 
                to the credit allowed under subsection (a).
    ``(d) Interest Payment Date.--For purposes of this section, the 
term `interest payment date' means any date on which the holder of 
record of the State or local bond is entitled to a payment of interest 
under such bond.
    ``(e) Special Rules.--
            ``(1) Interest on state or local bonds includible in gross 
        income for federal income tax purposes.--For purposes of this 
        title, interest on any State or local bond shall be includible 
        in gross income.
            ``(2) Application of certain rules.--Rules similar to the 
        rules of subsections (f), (g), (h), and (i) of section 54A 
        shall apply for purposes of the credit allowed under subsection 
        (a).
    ``(f) Regulations.--The Secretary may prescribe such regulations 
and other guidance as may be necessary or appropriate to carry out this 
section.''.
    (b) Conforming Amendments.--
            (1) Section 103(b) is amended by adding at the end the 
        following new paragraph:
            ``(4) Interest for which credit is allowable.--The interest 
        on any State or local bond for which a credit under seciton 25E 
        is allowable.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

``Sec. 25E. Interest on State and local bonds.''.
    (c) Transitional Coordination With State Law.--Except as otherwise 
provided by a State after the date of the enactment of this Act, the 
interest on any State or local bond (as defined in section 25E of the 
Internal Revenue Code of 1986, as added by this section) and the amount 
of any credit determined under such section with respect to such bond 
shall be treated for purposes of the income tax laws of such State as 
being exempt from Federal income tax.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2011.

SEC. 112. RETIREMENT SAVINGS ACCOUNTS.

    (a) In General.--Section 408A is amended to read as follows:

``SEC. 408A. RETIREMENT SAVINGS ACCOUNTS.

    ``(a) In General.--Except as provided in this section, a retirement 
savings account shall be treated for purposes of this title in the same 
manner as an individual retirement plan.
    ``(b) Retirement Savings Account.--For purposes of this title, the 
term `retirement savings account' means an individual retirement plan 
(as defined in section 7701(a)(37)) which--
            ``(1) is designated (in such manner as the Secretary may 
        prescribe) at the time of establishment of the plan as a 
        retirement savings account, and
            ``(2) does not accept any contribution (other than a 
        qualified rollover contribution) which is not in cash.
    ``(c) Treatment of Contributions.--
            ``(1) Contribution limit.--Notwithstanding subsections 
        (a)(1) and (b)(2)(A) of section 408, the aggregate amount of 
        contributions for any taxable year to all retirement savings 
        accounts maintained for the benefit of an individual shall not 
        exceed the lesser of--
                    ``(A) $5,000, or
                    ``(B) the amount of compensation includible in the 
                individual's gross income for such taxable year.
            ``(2) Special rule for certain married individuals.--In the 
        case of any individual who files a joint return for the taxable 
        year, the amount taken into account under paragraph (1)(B) 
        shall be increased by the excess (if any) of--
                    ``(A) the compensation includible in the gross 
                income of such individual's spouse for the taxable 
                year, over
                    ``(B) the aggregate amount of contributions for the 
                taxable year to all retirement savings accounts 
                maintained for the benefit of such spouse.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to a retirement savings account may be made even 
        after the individual for whom the account is maintained has 
        attained age 70\1/2\.
            ``(4) Mandatory distribution rules not to apply before 
        death.--Notwithstanding subsections (a)(6) and (b)(3) of 
        section 408 (relating to required distributions), the following 
        provisions shall not apply to any retirement savings account:
                    ``(A) Section 401(a)(9)(A).
                    ``(B) The incidental death benefit requirements of 
                section 401(a).
            ``(5) Rollover contributions.--
                    ``(A) In general.--No rollover contribution may be 
                made to a retirement savings account unless it is a 
                qualified rollover contribution.
                    ``(B) Coordination with limit.--A qualified 
                rollover contribution shall not be taken into account 
                for purposes of paragraph (1).
            ``(6) Rollovers from plans with taxable distributions.--
                    ``(A) In general.--Notwithstanding sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16), in the 
                case of any contribution to which this paragraph 
                applies--
                            ``(i) there shall be included in gross 
                        income any amount which would be includible 
                        were it not part of a qualified rollover 
                        contribution,
                            ``(ii) section 72(t) shall not apply, and
                            ``(iii) unless the taxpayer elects not to 
                        have this clause apply for any taxable year, 
                        any amount required to be included in gross 
                        income for such taxable year by reason of this 
                        paragraph for any contribution before January 
                        1, 2012, shall be so included ratably over the 
                        4-taxable year period beginning with such 
                        taxable year.
                Any election under clause (iii) for any contributions 
                during a taxable year may not be changed after the due 
                date (including extensions of time) for filing the 
                taxpayer's return for such taxable year.
                    ``(B) Contributions to which paragraph applies.--
                This paragraph shall apply to any qualified rollover 
                contribution to a retirement savings account (other 
                than a rollover contribution from another such 
                account).
                    ``(C) Conversions of iras.--The conversion of an 
                individual retirement plan (other than a retirement 
                savings account) to a retirement savings account shall 
                be treated for purposes of this paragraph as a 
                contribution to which this paragraph applies.
                    ``(D) Additional reporting requirements.--Trustees 
                and plan administrators of eligible retirement plans 
                (as defined in section 402(c)(8)(B)) and retirement 
                savings accounts shall report such information as the 
                Secretary may require to ensure that amounts required 
                to be included in gross income under subparagraph (A) 
                are so included. Such reports shall be made at such 
                time and in such form and manner as the Secretary may 
                require. The Secretary may provide that such 
                information be included as additional information in 
                reports required under section 408(i) or 6047.
                    ``(E) Special rules for contributions to which a 4-
                year averaging applies.--In the case of a qualified 
                rollover contribution to which subparagraph (A)(iii) 
                applied, the following rules shall apply:
                            ``(i) Acceleration of inclusion.--
                                    ``(I) In general.--The amount 
                                required to be included in gross income 
                                for each of the first 3 taxable years 
                                in the 4-year period under subparagraph 
                                (A)(iii) shall be increased by the 
                                aggregate distributions from retirement 
                                savings accounts for such taxable year 
                                which are allocable under subsection 
                                (d)(3) to the portion of such qualified 
                                rollover contribution required to be 
                                included in gross income under 
                                subparagraph (A)(i).
                                    ``(II) Limitation on aggregate 
                                amount included.--The amount required 
                                to be included in gross income for any 
                                taxable year under subparagraph 
                                (A)(iii) shall not exceed the aggregate 
                                amount required to be included in gross 
                                income under subparagraph (A)(iii) for 
                                all taxable years in the 4-year period 
                                (without regard to subclause (I)) 
                                reduced by amounts included for all 
                                preceding taxable years.
                            ``(ii) Death of distributee.--
                                    ``(I) In general.--If the 
                                individual required to include amounts 
                                in gross income under such subparagraph 
                                dies before all of such amounts are 
                                included, all remaining amounts shall 
                                be included in gross income for the 
                                taxable year which includes the date of 
                                death.
                                    ``(II) Special rule for surviving 
                                spouse.--If the spouse of the 
                                individual described in subclause (I) 
                                acquires the individual's entire 
                                interest in any retirement savings 
                                account to which such qualified 
                                rollover contribution is properly 
                                allocable, the spouse may elect to 
                                treat the remaining amounts described 
                                in subclause (I) as includible in the 
                                spouse's gross income in the taxable 
                                years of the spouse ending with or 
                                within the taxable years of such 
                                individual in which such amounts would 
                                otherwise have been includible. Any 
                                such election may not be made or 
                                changed after the due date (including 
                                extensions of time) for filing the 
                                spouse's return for the taxable year 
                                which includes the date of death.
                    ``(F) 5-year holding period rules.--If--
                            ``(i) any portion of a distribution from a 
                        retirement savings account is properly 
                        allocable to a qualified rollover contribution 
                        with respect to which an amount is includible 
                        in gross income under subparagraph (A)(i),
                            ``(ii) such distribution is made during the 
                        5-taxable year period beginning with the 
                        taxable year for which such contribution was 
                        made, and
                            ``(iii) such distribution is not described 
                        in clause (i), (ii), or (iii) of subsection 
                        (d)(2)(A),
                then section 72(t) shall be applied as if such portion 
                were includible in gross income.
            ``(7) Time when contributions made.--For purposes of this 
        section, a taxpayer shall be deemed to have made a contribution 
        to a retirement savings account on the last day of the 
        preceding taxable year if the contribution is made on account 
        of such taxable year and is made not later than the time 
        prescribed by law for filing the return for such taxable year 
        (not including extensions thereof).
            ``(8) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2012, the $5,000 
                amount under paragraph (1)(A) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins.
                    ``(B) Rounding rules.--If any amount after 
                adjustment under subparagraph (A) is not a multiple of 
                $500, such amount shall be rounded to the next lower 
                multiple of $500.
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) Exclusion.--Any qualified distribution from a 
        retirement savings account shall not be includible in gross 
        income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' means any payment or distribution--
                            ``(i) made on or after the date on which 
                        the individual attains age 58,
                            ``(ii) made to a beneficiary (or to the 
                        estate of the individual) on or after the death 
                        of the individual,
                            ``(iii) attributable to the individual's 
                        being disabled (within the meaning of section 
                        72(m)(7)), or
                            ``(iv) to which section 72(t)(2)(F) applies 
                        (if such payment or distribution is made before 
                        January 1, 2015).
                    ``(B) Distributions of excess contributions and 
                earnings.--The term `qualified distribution' shall not 
                include any distribution of any contribution described 
                in section 408(d)(4) and any net income allocable to 
                the contribution.
            ``(3) Ordering rules.--For purposes of applying this 
        section and section 72 to any distribution from a retirement 
        savings account, such distribution shall be treated as made--
                    ``(A) from contributions to the extent that the 
                amount of such distribution, when added to all previous 
                distributions from the retirement savings account, does 
                not exceed the aggregate contributions to the 
                retirement savings account, and
                    ``(B) from such contributions in the following 
                order:
                            ``(i) Contributions other than qualified 
                        rollover contributions with respect to which an 
                        amount is includible in gross income under 
                        subsection (c)(6)(A)(i).
                            ``(ii) Qualified rollover contributions 
                        with respect to which an amount is includible 
                        in gross income under subsection (c)(6)(A)(i) 
                        on a first-in, first-out basis.
        Any distribution allocated to a qualified rollover contribution 
        under subparagraph (B)(ii) shall be allocated first to the 
        portion of such contribution required to be included in gross 
        income.
            ``(4) Aggregation rules.--Section 408(d)(2) shall be 
        applied separately with respect to retirement savings accounts 
        and other individual retirement plans.
    ``(e) Qualified Rollover Contribution.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified rollover contribution' means--
                    ``(A) a rollover contribution to a retirement 
                savings account of an individual from another such 
                account of such individual or such individual's spouse, 
                or from an individual retirement plan of such 
                individual, but only if such rollover contribution 
                meets the requirements of section 408(d)(3), and
                    ``(B) a rollover contribution described in section 
                402(c), 402A(c)(3)(A), 403(a)(4), 403(b)(8), or 
                457(e)(16).
            ``(2) Coordination with limitation on ira rollovers.--For 
        purposes of section 408(d)(3)(B), there shall be disregarded 
        any qualified rollover contribution from an individual 
        retirement plan (other than a retirement savings account) to a 
        retirement savings account.
    ``(f) Individual Retirement Plan.--For purposes of this section--
            ``(1) a simplified employee pension or a simple retirement 
        account may not be designated as a retirement savings account, 
        and
            ``(2) contributions to any such pension or account shall 
        not be taken into account for purposes of subsection (c)(1).
    ``(g) Compensation.--For purposes of this section, the term 
`compensation' includes earned income (as defined in section 
401(c)(2)). Such term does not include any amount received as a pension 
or annuity and does not include any amount received as deferred 
compensation. Such term shall include any amount includible in the 
individual's gross income under section 71 with respect to a divorce or 
separation instrument described in section 71(b)(2)(A). For purposes of 
this subsection, section 401(c)(2) shall be applied as if the term 
trade or business for purposes of section 1402 included service 
described in section 1402(c)(6).''.
    (b) Roth IRAs Treated as Retirement Savings Accounts.--In the case 
of any taxable year beginning after December 31, 2011, any Roth IRA (as 
defined in section 408A(b) of the Internal Revenue Code of 1986, as in 
effect on the day before the date of the enactment of this Act) shall 
be treated for purposes of such Code as having been designated at the 
time of the establishment of the plan as a retirement savings account 
under section 408A(b) of such Code (as amended by this section).
    (c) Contributions to Other Individual Retirement Plans 
Prohibited.--
            (1) Individual retirement accounts.--Paragraph (1) of 
        section 408(a) is amended to read as follows:
            ``(1) Except in the case of a simplified employee pension, 
        a simple retirement account, or a rollover contribution 
        described in subsection (d)(3) or in section 402(c), 403(a)(4), 
        403(b)(8), or 457(e)(16), no contribution will be accepted on 
        behalf of any individual for any taxable year beginning after 
        December 31, 2011. In the case of any simplified employee 
        pension or simple retirement account, no contribution will be 
        accepted unless it is in cash and contributions will not be 
        accepted for the taxable year on behalf of any individual in 
        excess of--
                    ``(A) in the case of a simplified employee pension, 
                the amount of the limitation in effect under section 
                415(c)(1)(A), and
                    ``(B) in the case of a simple retirement account, 
                the sum of the dollar amount in effect under subsection 
                (p)(2)(A)(ii) and the employer contribution required 
                under subparagraph (A)(iii) or (B)(i) of subsection 
                (p)(2).''.
            (2) Individual retirement annuities.--Paragraph (2) of 
        section 408(b) is amended--
                    (A) by redesignating subparagraphs (A), (B), and 
                (C) as subparagraphs (B), (C), and (D), respectively, 
                and by inserting before subparagraph (B), as so 
                redesignated, the following new subparagraph:
                    ``(A) except in the case of a simplified employee 
                pension, a simple retirement account, or a rollover 
                contribution described in subsection (d)(3) or in 
                section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), a 
                premium shall not be accepted on behalf of any 
                individual for any taxable year beginning after 
                December 31, 2011,'', and
                    (B) by amending subparagraph (C), as redesignated 
                by subparagraph (A), to read as follows:
                    ``(C) the annual premium on behalf of any 
                individual will not exceed--
                            ``(i) in the case of a simplified employee 
                        pension, the amount of the limitation in effect 
                        under section 415(c)(1)(A), and
                            ``(ii) in the case of a simple retirement 
                        account, the sum of the dollar amount in effect 
                        under subsection (p)(2)(A)(ii) and the employer 
                        contribution required under subparagraph 
                        (A)(iii) or (B)(i) of subsection (p)(2), and''.
    (d) Conforming Amendments.--
            (1)(A) Section 219 is amended to read as follows:

``SEC. 219. CONTRIBUTIONS TO CERTAIN RETIREMENT PLANS ALLOWING ONLY 
              EMPLOYEE CONTRIBUTIONS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction the amount contributed on behalf of 
such individual to a plan described in section 501(c)(18).
    ``(b) Maximum Amount of Deduction.--The amount allowable as a 
deduction under subsection (a) to any individual for any taxable year 
shall not exceed the lesser of--
            ``(1) $7,000, or
            ``(2) an amount equal to 25 percent of the compensation (as 
        defined in section 415(c)(3)) includible in the individual's 
        gross income for such taxable year.
    ``(c) Beneficiary Must Be Under Age 70\1/2\.--No deduction shall be 
allowed under this section with respect to any contribution on behalf 
of an individual if such individual has attained age 70\1/2\ before the 
close of such individual's taxable year for which the contribution was 
made.
    ``(d) Special Rules.--
            ``(1) Married individuals.--The maximum deduction under 
        subsection (b) shall be computed separately for each 
        individual, and this section shall be applied without regard to 
        any community property laws.
            ``(2) Reports.--The Secretary shall prescribe regulations 
        which prescribe the time and the manner in which reports to the 
        Secretary and plan participants shall be made by the plan 
        administrator of a qualified employer or government plan 
        receiving qualified voluntary employee contributions.
    ``(e) Cross Reference.--For failure to provide required reports, 
see section 6652(g).''.
            (B) Section 25B(d) is amended--
                    (i) in paragraph (1)(A), by striking ``(as defined 
                in section 219(e))'', and
                    (ii) by adding at the end the following new 
                paragraph:
            ``(3) Qualified retirement contribution.--The term 
        `qualified retirement contribution' means--
                    ``(A) any amount paid in cash for the taxable year 
                by or on behalf of an individual to an individual 
                retirement plan for such individual's benefit, and
                    ``(B) any amount contributed on behalf of any 
                individual to a plan described in section 
                501(c)(18).''.
            (C) Section 86(f)(3) is amended by striking ``section 
        219(f)(1)'' and inserting ``section 408A(g)''.
            (D) Section 132(m)(3) is amended by inserting ``(as in 
        effect on the day before the date of the enactment of the 
        Retirement Savings Account Act)'' after ``section 219(g)(5)''.
            (E) Subparagraphs (A), (B), and (C) of section 220(d)(4) 
        are each amended by inserting ``, as in effect on the day 
        before the date of the enactment of the Retirement Savings 
        Account Act'' at the end.
            (F) Section 408(b) is amended in the last sentence by 
        striking ``section 219(b)(1)(A)'' and inserting ``paragraph 
        (2)(C)''.
            (G) Section 408(p)(2)(D)(ii) is amended by inserting ``(as 
        in effect on the day before the date of the enactment of the 
        Retirement Savings Account Act)'' after ``section 219(g)(5)''.
            (H) Section 409A(d)(2) is amended by inserting ``(as in 
        effect on the day before the date of the enactment of the 
        Retirement Savings Account Act)'' after ``subparagraph 
        (A)(iii))''.
            (I) Section 501(c)(18)(D)(i) is amended by striking 
        ``section 219(b)(3)'' and inserting ``section 219(b)''.
            (J) Section 6652(g) is amended by striking ``section 
        219(f)(4)'' and inserting ``section 219(d)(2)''.
            (K) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        219 and inserting the following new item:

``Sec. 219. Contributions to certain retirement plans allowing only 
                            employee contributions.''.
            (2)(A) Section 408(d)(4)(B) is amended to read as follows:
                    ``(B) no amount is excludable from gross income 
                under subsection (h) or (k) of section 402 with respect 
                to such contribution, and''.
            (B) Section 408(d)(5)(A) is amended to read as follows:
                    ``(A) In general.--In the case of any individual, 
                if the aggregate contributions (other than rollover 
                contributions) paid for any taxable year to an 
                individual retirement account or for an individual 
                retirement annuity do not exceed the dollar amount in 
                effect under subsection (a)(1) or (b)(2)(C), as the 
                case may be, paragraph (1) shall not apply to the 
                distribution of any such contribution to the extent 
                that such contribution exceeds the amount which is 
                excludable from gross income under subsection (h) or 
                (k) of section 402, as the case may be, for the taxable 
                year for which the contribution was paid--
                            ``(i) if such distribution is received 
                        after the date described in paragraph (4),
                            ``(ii) but only to the extent that such 
                        excess contribution has not been excluded from 
                        gross income under subsection (h) or (k) of 
                        section 402.''.
            (C) Section 408(d)(5) is amended by striking the last 
        sentence.
            (D) Section 408(d)(7) is amended to read as follows:
            ``(7) Certain transfers from simplified employee pensions 
        prohibited until deferral test met.--Notwithstanding any other 
        provision of this subsection or section 72(t), paragraph (1) 
        and section 72(t)(1) shall apply to the transfer or 
        distribution from a simplified employee pension of any 
        contribution under a salary reduction arrangement described in 
        subsection (k)(6) (or any income allocable thereto) before a 
        determination as to whether the requirements of subsection 
        (k)(6)(A)(iii) are met with respect to such contribution.''.
            (E) Section 408 is amended by striking subsection (j).
            (F)(i) Section 408 is amended by striking subsection (o).
            (ii) Section 6693 is amended by striking subsection (b) and 
        by redesignating subsections (c) and (d) as subsections (b) and 
        (c), respectively.
            (G) Section 408(p) is amended by striking paragraph (8) and 
        by redesignating paragraphs (9) and (10) as paragraphs (8) and 
        (9), respectively.
            (3)(A) Section 4973(a)(1) is amended to read as follows:
            ``(1) an individual retirement plan,''.
            (B) Section 4973(b) is amended to read as follows:
    ``(b) Excess Contributions to Simplified Employee Pensions and 
Simple Retirement Accounts.--For purposes of this section, in the case 
of simplified employee pensions or simple retirement accounts, the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to the pension or account, over
                    ``(B) the amount applicable to the pension or 
                account under subsection (a)(1) or (b)(2) of section 
                408, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the account for the 
                taxable year which were included in the gross income of 
                the payee under section 408(d)(1),
                    ``(B) the distributions out of the account for the 
                taxable year to which section 408(d)(5) applies, and
                    ``(C) the excess (if any) of the maximum amount 
                excludable from gross income for the taxable year under 
                subsection (h) or (k) of section 402 over the amount 
                contributed to the pension or account for the taxable 
                year.
For purposes of this subsection, any contribution which is distributed 
from a simplified employee pension or simple retirement account in a 
distribution to which section 408(d)(4) applies shall be treated as an 
amount not contributed.''.
            (C) Section 4973 is amended by adding at the end the 
        following new subsection:
    ``(h) Excess Contributions to Certain Individual Retirement 
Plans.--For purposes of this section, in the case of individual 
retirement plans (other than retirement savings accounts, simplified 
employee pensions, and simple retirement accounts), the term `excess 
contribution' means the sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the individual retirement plans, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the plans which were 
                included in gross income under section 408(d)(1), and
                    ``(B) the distributions out of the plans for the 
                taxable year to which section 408(d)(5) applies.
For purposes of this subsection, any contribution which is distributed 
from the plan in a distribution to which section 408(d)(4) applies 
shall be treated as an amount not contributed.''.
            (4)(A) Sections 402(c)(8)(B), 402A(c)(3)(A)(ii), 
        1361(c)(2)(A), 3405(e)(1)(B), and 4973(f) are each amended by 
        striking ``Roth IRA'' each place it appears and inserting 
        ``retirement savings account''.
            (B) Section 4973(f)(1)(A) is amended by striking ``Roth 
        IRAs'' and inserting ``retirement savings accounts''.
            (C) Paragraphs (1)(B) and (2)(B) of section 4973(f) are 
        each amended by striking ``sections 408A(c)(2) and (c)(3)'' and 
        inserting ``section 408A(c)(1)''.
            (D) Subsection (f) of section 4973 is amended in the 
        heading by striking ``roth iras'' and inserting ``retirement 
        savings accounts''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 113. AMERICAN DREAM ACCOUNTS.

    (a) In General.--Subchapter F of Chapter 1 is amended by adding at 
the end the following new part:

                   ``PART IX--AMERICAN DREAM ACCOUNTS

``SEC. 530A. AMERICAN DREAM ACCOUNTS.

    ``(a) General Rule.--An American Dream Account shall be exempt from 
taxation under this subtitle. Notwithstanding the preceding sentence, 
such account shall be subject to the taxes imposed by section 511 
(relating to imposition of tax on unrelated business income of 
charitable organizations).
    ``(b) American Dream Account.--For purposes of this section, the 
term `American Dream Account' means a trust created or organized in the 
United States for the exclusive benefit of an individual or his 
beneficiaries and which is designated (in such manner as the Secretary 
shall prescribe) at the time of the establishment of the trust as an 
American Dream Account, but only if the written governing instrument 
creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover 
        contribution described in subsection (d)--
                    ``(A) no contribution will be accepted unless it is 
                in cash, and
                    ``(B) contributions will not be accepted for the 
                calendar year in excess of the contribution limit 
                specified in subsection (c)(1).
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section or who has so demonstrated with respect to any 
        individual retirement plan.
            ``(3) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of his 
        account is nonforfeitable.
            ``(5) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(c) Treatment of Contributions and Distributions.--
            ``(1) Contribution limit.--
                    ``(A) In general.--The aggregate amount of 
                contributions (other than qualified rollover 
                contributions described in subsection (d)) for any 
                calendar year to all American Dream Accounts maintained 
                for the benefit of an individual shall not exceed 
                $2,000.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of any 
                        calendar year after 2012, the $2,000 amount 
                        under subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $500, such amount shall be rounded to the 
                        next lower multiple of $500.
            ``(2) Distributions.--Any distribution from an American 
        Dream Account shall not be includible in gross income.
    ``(d) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a 
contribution to an American Dream Account--
            ``(1) from another such account of the same beneficiary, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account,
            ``(2) from an American Dream Account of a spouse of the 
        beneficiary of the account to which the contribution is made, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account, and
            ``(3) before January 1, 2012, from--
                    ``(A) a qualified tuition program pursuant to 
                section 529(c)(3)(E), or
                    ``(B) a Coverdell education savings account 
                pursuant to section 530(d)(9).
    ``(e) Loss of Taxation Exemption of Account Where Beneficiary 
Engages in Prohibited Transaction.--Rules similar to the rules of 
paragraph (2) of section 408(e) shall apply to any American Dream 
Account.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account or an annuity contract issued by an insurance company 
qualified to do business in a State shall be treated as a trust under 
this section if--
            ``(1) the custodial account or annuity contract would, 
        except for the fact that it is not a trust, constitute a trust 
        which meets the requirements of subsection (b), and
            ``(2) in the case of a custodial account, the assets of 
        such account are held by a bank (as defined in section 408(n)) 
        or another person who demonstrates, to the satisfaction of the 
        Secretary, that the manner in which he will administer the 
        account will be consistent with the requirements of this 
        section.
For purposes of this title, in the case of a custodial account or 
annuity contract treated as a trust by reason of the preceding 
sentence, the person holding the assets of such account or holding such 
annuity contract shall be treated as the trustee thereof.
    ``(g) Reports.--The trustee of an American Dream Account shall make 
such reports regarding such account to the Secretary and to the 
beneficiary of the account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 is amended 
        by striking ``or'' at the end of paragraph (4), by inserting 
        ``or'' at the end of paragraph (5), and by inserting after 
        paragraph (5) the following new paragraph:
            ``(6) an American Dream Account (as defined in section 
        530A),''.
            (2) Excess contribution.--Section 4973 is amended by adding 
        at the end the following new subsection:
    ``(h) Excess Contributions to American Dream Accounts.--For 
purposes of this section--
            ``(1) In general.--In the case of American Dream Accounts 
        (within the meaning of section 530A), the term `excess 
        contributions' means the sum of--
                    ``(A) the amount by which the amount contributed 
                for the calendar year to such accounts (other than 
                qualified rollover contributions (as defined in section 
                530A(d))) exceeds the contribution limit under section 
                530A(c)(1), and
                    ``(B) the amount determined under this subsection 
                for the preceding calendar year, reduced by the excess 
                (if any) of the maximum amount allowable as a 
                contribution under section 530A(c)(1) for the calendar 
                year over the amount contributed to the accounts for 
                the calendar year.
            ``(2) Special rule.--A contribution shall not be taken into 
        account under paragraph (1) if such contribution (together with 
        the amount of net income attributable to such contribution) is 
        returned to the beneficiary before July 1 of the year following 
        the year in which the contribution is made.''.
    (c) Failure To Provide Reports on American Dream Accounts.--
Paragraph (2) of section 6693(a) is amended by striking ``and'' at the 
end of subparagraph (D), by striking the period at the end of 
subparagraph (E) and inserting ``, and'', and by adding at the end the 
following new subparagraph:
                    ``(F) section 530A(g) (relating to American Dream 
                Accounts).''.
    (d) Rollovers From Certain Other Tax-Free Accounts.--
            (1) Qualified state tuition plans.--Paragraph (3) of 
        section 529(c) is amended by adding at the end the following 
        new subparagraph:
                    ``(E) Rollovers to american dream accounts.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to the qualified portion of any 
                        distribution which, before January 1, 2013, and 
                        within 60 days of such distribution, is 
                        transferred to an American Dream Account 
                        (within the meaning of section 530A) of the 
                        designated beneficiary. This subparagraph shall 
                        only apply to distributions in accordance with 
                        the previous sentence from an account which was 
                        in existence with respect to such designated 
                        beneficiary on December 31, 2010.
                            ``(ii) Qualified portion.--For purposes of 
                        this subparagraph, the term `qualified portion' 
                        means the amount equal to the sum of--
                                    ``(I) the lesser of $50,000 or the 
                                amount which is in the account of the 
                                designated beneficiary on December 31, 
                                2010,
                                    ``(II) any contributions to such 
                                account for the taxable year beginning 
                                after December 31, 2010, and before 
                                January 1, 2012, and
                                    ``(III) any earnings of such 
                                account for such year.
                            ``(iii) Limitation.--The sum of the amounts 
                        taken into account under clause (ii)(II) with 
                        respect to all accounts of the designated 
                        beneficiary plus any amounts with respect to 
                        such designated beneficiary taken into account 
                        under section 530(d)(9)(B)(ii) shall not exceed 
                        the sum of $2,000 plus the earnings 
                        attributable to such amounts.''.
            (2) Coverdell education savings accounts.--Subsection (d) 
        of section 530 is amended by inserting at the end the following 
        new paragraph:
            ``(10) Rollovers to american dream accounts.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                the qualified portion of any amount paid or distributed 
                from a Coverdell education savings account to the 
                extent that the amount received is paid, before January 
                1, 2013, and not later than the 60th day after the date 
                of such payment or distribution, into an American Dream 
                Account (within the meaning of section 530A) for the 
                benefit of the same beneficiary. This paragraph shall 
                only apply to amounts paid or distributed in accordance 
                with the preceding sentence from an account which was 
                in existence with respect to such beneficiary on 
                December 31, 2010.
                    ``(B) Qualified portion.--For purposes of this 
                paragraph, the term `qualified portion' means the 
                amount equal to the sum of--
                            ``(i) the amount which is in the account of 
                        the beneficiary on December 31, 2010,
                            ``(ii) any contributions to such account 
                        for the taxable year beginning after December 
                        31, 2010, and before January 1, 2012, and
                            ``(iii) any earnings of such account for 
                        such year.
                    ``(C) Limitation.--The sum of the amounts taken 
                into account under subparagraph (B)(ii) with respect to 
                all accounts of the beneficiary plus any amounts with 
                respect to such beneficiary taken into account under 
                section 529(c)(3)(E)(ii)(II) shall not exceed the sum 
                of $2,000 plus the earnings attributable to such 
                amounts.''.
    (e) Conforming Amendment.--The table of parts for subchapter F of 
chapter 1 is amended by adding at the end the following new item:

                 ``Part IX. American Dream Accounts''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 114. CONSOLIDATION OF TAX CREDITS AND DEDUCTIONS FOR EDUCATION 
              EXPENSES.

    (a) In General.--Section 25A of the Internal Revenue Code of 1986, 
after the application of section 901 of the Economic Growth and Tax 
Relief Reconciliation Act of 2001, is amended to read as follows:

``SEC. 25A. QUALIFIED TUITION AND RELATED EXPENSES CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of any eligible individual 
        for whom an election is in effect under this section, there 
        shall be allowed as a credit against the tax imposed by this 
        chapter for the taxable year an amount equal to the applicable 
        percentage of so much of the qualified tuition and related 
        expenses paid by the taxpayer during the taxable year (for 
        education furnished to the eligible individual during any 
        academic period beginning in such taxable year) as does not 
        exceed $10,000.
            ``(2) Applicable percentage.--For purposes of subsection 
        (a), the applicable percentage is--
                    ``(A) for the first 2 taxable years such an 
                election is in effect with respect to an eligible 
                individual, 20 percent,
                    ``(B) for the next 2 such taxable years, 15 
                percent, and
                    ``(C) notwithstanding subparagraph (A), for any 
                taxable year such eligible individual attends or is 
                enrolled in only one academic period, 15 percent.
    ``(b) Limitations.--
            ``(1) Modified adjusted gross income limitation.--
                    ``(A) In general.--The amount which would (but for 
                this paragraph) be taken into account under subsection 
                (a) for the taxable year shall be reduced (but not 
                below zero) by the amount determined under paragraph 
                (2).
                    ``(B) Amount of reduction.--The amount determined 
                under this paragraph is the amount which bears the same 
                ratio to the amount which would be so taken into 
                account as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $50,000 (twice such amount 
                                in the case of a joint return), bears 
                                to
                            ``(ii) $40,000 (twice such amount in the 
                        case of a joint return).
                    ``(C) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means the adjusted 
                gross income of the taxpayer for the taxable year 
                increased by any amount excluded from gross income 
                under section 911, 931, or 933.
            ``(2) Credit allowed for only 4 taxable years.--An election 
        to have this section apply with respect to any eligible 
        individual may not be made for any taxable year if such an 
        election (by the taxpayer or any other individual) is in effect 
        with respect to such individual for any 4 prior taxable years.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means any individual described in paragraph (2).
            ``(2) Qualified tuition and related expenses.--
                    ``(A) In general.--The term `qualified tuition and 
                related expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151,
                at an eligible educational institution for courses of 
                instruction of such individual at such institution.
                    ``(B) Student loan interest.--
                            ``(i) In general.--Such term shall include 
                        so much of the interest paid on any qualified 
                        education loan of such individual as does not 
                        exceed $2,500, reduced by any amount taken into 
                        account under this section for any preceding 
                        taxable year.
                            ``(ii) Qualified education loan.--For 
                        purposes of clause (i), the term `qualified 
                        education loan' means any indebtedness incurred 
                        by the taxpayer solely to pay qualified tuition 
                        and related expenses--
                                    ``(I) which are incurred on behalf 
                                of an eligible individual as of the 
                                time the indebtedness was incurred,
                                    ``(II) which are paid or incurred 
                                within a reasonable period of time 
                                before or after the indebtedness is 
                                incurred, and
                                    ``(III) which are attributable to 
                                education furnished during a period 
                                during which the recipient was an 
                                eligible individual.
                        Such term includes indebtedness used to 
                        refinance indebtedness which qualifies as a 
                        qualified education loan. Such term shall not 
                        include any indebtedness owed to a person who 
                        is related (within the meaning of section 
                        267(b) or 707(b)(1)) to the eligible individual 
                        or to any person by reason of a loan under any 
                        qualified employer plan (as defined in section 
                        72(p)(4)) or under any contract referred to in 
                        section 72(p)(5).
                    ``(C) Books.--Such term shall include books 
                required for such individual's academic courses of 
                instruction at the eligible educational institution.
                    ``(D) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any course or other education involving sports, 
                games, or hobbies, unless such course or other 
                education is part of the individual's degree program.
                    ``(E) Exception for nonacademic fees.--Such term 
                does not include student activity fees, athletic fees, 
                insurance expenses, or other expenses unrelated to an 
                individual's academic course of instruction.
            ``(3) Eligible educational institution.--The term `eligible 
        educational institution' means an institution--
                    ``(A) which is described in section 481 of the 
                Higher Education Act of 1965, as in effect on the date 
                of the enactment of the Taxpayer Relief Act of 1997, 
                and
                    ``(B) which is eligible to participate in a program 
                under title IV of the Higher Education Act of 1965.
    ``(d) Special Rules.--
            ``(1) Identification requirement.--No credit shall be 
        allowed under subsection (a) to a taxpayer with respect to an 
        eligible student unless the taxpayer includes the name and 
        taxpayer identification number of such student on the return of 
        tax for the taxable year.
            ``(2) Adjustment for certain scholarships.--The amount of 
        qualified tuition and related expenses otherwise taken into 
        account under subsection (a) with respect to an individual for 
        an academic period shall be reduced (before the application of 
        subsections (a) and (b)) by the sum of any amounts paid for the 
        benefit of such individual which are allocable to such period 
        as--
                    ``(A) a qualified scholarship which is excludable 
                from gross income under section 117,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or under chapter 1606 of title 10, United 
                States Code, and
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for such student's educational expenses, or 
                attributable to such individual's enrollment at an 
                eligible educational institution, which is excludable 
                from gross income under any law of the United States.
            ``(3) Treatment of expenses paid by dependent.--If a 
        deduction under section 151 with respect to an individual is 
        allowed to another taxpayer for a taxable year beginning in the 
        calendar year in which such individual's taxable year begins--
                    ``(A) no credit shall be allowed under subsection 
                (a) to such individual for such individual's taxable 
                year, and
                    ``(B) qualified tuition and related expenses paid 
                by such individual during such individual's taxable 
                year shall be treated for purposes of this section as 
                paid by such other taxpayer.
            ``(4) Treatment of certain prepayments.--If qualified 
        tuition and related expenses are paid by the taxpayer during a 
        taxable year for an academic period which begins during the 
        first 3 months following such taxable year, such academic 
        period shall be treated for purposes of this section as 
        beginning during such taxable year.
            ``(5) Denial of double benefit.--No credit shall be allowed 
        under this section for any expense for which deduction is 
        allowed under any other provision of this chapter.
            ``(6) No credit for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(7) Nonresident aliens.--If the taxpayer is a nonresident 
        alien individual for any portion of the taxable year, this 
        section shall apply only if such individual is treated as a 
        resident alien of the United States for purposes of this 
        chapter by reason of an election under subsection (g) or (h) of 
        section 6013.
    ``(e) Inflation Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2012, the $50,000 amount in subsection 
        (b)(1)(B)(i)(II) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $1,000, such amount shall be rounded 
        to the next lowest multiple of $1,000.
    ``(f) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations providing for a recapture of the credit allowed under this 
section in cases where there is a refund in a subsequent taxable year 
of any expense which was taken into account in determining the amount 
of such credit.''.
    (b) Repeal of Deduction for Interest on Education Loans.--Part VII 
of subchapter B of chapter 1 is amended by striking section 221.
    (c) Conforming Amendments.--
            (1) Section 62(a) is amended by striking paragraph (17).
            (2) Subparagraph (A) of section 86(b)(2) is amended by 
        striking ``, 221''.
            (3) Subparagraph (B) of section 72(t)(7) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (4) Subparagraph (A) of section 135(c)(4) is amended by 
        striking ``, 221''.
            (5) Subparagraph (A) of section 137(b)(3) is amended by 
        striking ``, 221''.
            (6) Paragraph (2) of section 163(h) is amended by adding 
        ``and'' at the end of subparagraph (D), by striking ``, and'' 
        at the end of subparagraph (E) and inserting a period, and by 
        striking subparagraph (F).
            (7) Subparagraph (A) of section 199(d)(2) is amended by 
        striking ``, 221''.
            (8) Clause (ii) of section 219(g)(3)(A) is amended by 
        striking ``, 221''.
            (9) Clause (iii) of section 469(i)(3)(F) is amended by 
        striking ``, 221''.
            (10) Subclause (I) of section 529(c)(3)(B)(v) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (11) Paragraph (3) of section 529(e) is amended--
                    (A) by striking ``(as defined in section 
                25A(b)(3))'' in subparagraph (A), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Eligible student.--For purposes of this 
                paragraph, the term `eligible student' means, with 
                respect to any academic period, a student who--
                            ``(i) meets the requirements of section 
                        484(a)(1) of the Higher Education Act of 1965 
                        (20 U.S.C. 1091(a)(1)), as in effect on the 
                        date of the enactment of the Taxpayer Relief 
                        Act of 1997, and
                            ``(ii) is carrying at least \1/2\ the 
                        normal full-time workload for the course of 
                        study the student is pursuing.''.
            (12) Clause (iii) of section 530(d)(4)(B) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (13) Section 1400O is amended by adding at the end the 
        following flush sentence:
``For purposes of this section, any reference to section 25A shall be 
treated as a reference to such section as in effect on the day before 
the date of the enactment of this sentence.''.
            (14) Subparagraph (J) of section 6213(g)(2) is amended by 
        striking ``section 25A(g)(1)'' and inserting ``section 
        25A(d)(1)''.
            (15) Subsection (e) of section 6050S is amended by 
        inserting ``(as in effect before the date of the enactment of 
        the Bipartisan Tax Fairness and Simplification Act of 2011)'' 
        before the end period.
    (d) Clerical Amendments.--
            (1) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by striking the item 
        relating to section 25A and inserting the following:

``25A. Qualified tuition and related expenses credit.''.
            (2) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        221.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2011, for education furnished 
in academic periods beginning after such date.

SEC. 115. TERMINATION OF VARIOUS EXCLUSIONS, EXEMPTIONS, DEDUCTIONS, 
              AND CREDITS.

    (a) In General.--Subchapter C of chapter 90 is amended by adding at 
the end the following new section:

``SEC. 7875. TERMINATION OF CERTAIN PROVISIONS.

    ``The following provisions shall not apply to taxable years 
beginning after December 31, 2011:
            ``(1) Section 74(c) (relating to exclusion of certain 
        employee achievement awards).
            ``(2) Section 79 (relating to exclusion of group-term life 
        insurance purchased for employees).
            ``(3) Section 119 (relating to exclusion of meals or 
        lodging furnished for the convenience of the employer).
            ``(4) Section 125 (relating to exclusion of cafeteria plan 
        benefits).
            ``(5) Section 132 (relating to certain fringe benefits), 
        except with respect to subsection (a)(5) thereof (relating to 
        exclusion of qualified transportation fringe).
            ``(6) Section 217 (relating to deduction for moving 
        expenses).
            ``(7) Section 454 (relating to deferral of tax on 
        obligations issued at discount).
            ``(8) Section 501(c)(9) (relating to tax-exempt status of 
        voluntary employees' beneficiary associations).
            ``(9) Section 911 (relating to exclusion of earned income 
        of citizens or residents of the United States living abroad).
            ``(10) Section 912 (relating to exemption for certain 
        allowances).''.
    (b) Conforming Amendment.--The table of sections for subchapter C 
of chapter 90 is amended by adding at the end the following new item:

``Sec. 7875. Termination of certain provisions.''.

SEC. 116. SIMPLIFIED TAX RETURN PREPARATION.

    Beginning on January 1, 2012, the Internal Revenue Service shall 
provide to any taxpayer who requests it a simplified ``Easyfile'' pre-
prepared income tax return, on paper, compact disc, or through the 
Internet, based on data the Internal Revenue Service receives with 
respect to such taxpayer (including wages, self-employment income, and 
dividend, capital gains, and interest income). The Internal Revenue 
Service shall provide with every ``Easyfile'' a one-page summary of how 
the most recently available fiscal year's tax revenue was spent, 
including spending on Social Security, Medicare, Medicaid, defense, and 
interest on the Federal debt.

          TITLE II--CORPORATE AND BUSINESS INCOME TAX REFORMS

SEC. 201. CORPORATE FLAT TAX.

    (a) In General.--Subsection (b) of section 11 is amended to read as 
follows:
    ``(b) Amount of Tax.--The amount of tax imposed by subsection (a) 
shall be equal to 24 percent of the taxable income.''.
    (b) Conforming Amendments.--
            (1) Section 280C(c)(3)(B)(ii)(II) is amended by striking 
        ``maximum rate of tax under section 11(b)(1)'' and inserting 
        ``rate of tax under section 11(b)''.
            (2) Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 
        860K(d)(2)(A)(ii), 860K(e)(1)(B)(ii), 1446(b)(2)(B), and 
        7874(e)(1)(B) are each amended by striking ``highest rate of 
        tax specified in section 11(b)(1)'' and inserting ``rate of tax 
        specified in section 11(b)''.
            (3) Section 904(b)(3)(D)(ii) is amended by striking 
        ``(determined without regard to the last sentence of section 
        11(b)(1))''.
            (4) Section 962 is amended by striking subsection (c) and 
        by redesignating subsection (d) as subsection (c).
            (5) Section 1561(a) is amended--
                    (A) by striking paragraph (1) and by redesignating 
                paragraphs (2), (3), and (4) as paragraphs (1), (2), 
                and (3), respectively,
                    (B) by striking ``The amounts specified in 
                paragraph (1), the'' and inserting ``The'',
                    (C) by striking ``paragraph (2)'' and inserting 
                ``paragraph (1)'',
                    (D) by striking ``paragraph (3)'' both places it 
                appears and inserting ``paragraph (2)'',
                    (E) by striking ``paragraph (4)'' and inserting 
                ``paragraph (3)'', and
                    (F) by striking the fourth sentence.
            (6) Subsection (b) of section 1561 is amended to read as 
        follows:
    ``(b) Certain Short Taxable Years.--If a corporation has a short 
taxable year which does not include a December 31 and is a component 
member of a controlled group of corporations with respect to such 
taxable year, then for purposes of this subtitle, the amount to be used 
in computing the accumulated earnings credit under section 535(c) (2) 
and (3) of such corporation for such taxable year shall be the amount 
specified in subsection (a)(1) divided by the number of corporations 
which are component members of such group on the last day of such 
taxable year. For purposes of the preceding sentence, section 1563(b) 
shall be applied as if such last day were substituted for December 
31.''.
    (c) Treatment of Capital Gains as Ordinary Income.--
            (1) In general.--Section 1201 is amended by adding at the 
        end the following new subsection:
    ``(d) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2011.''.
            (2) Conforming amendments.--
                    (A) Section 527(b)(2) is amended by adding at the 
                end the following new flush sentence:
        ``This paragraph shall not apply to taxable years beginning 
        after December 31, 2011.''.
                    (B) Section 801(a)(2) is amended by adding at the 
                end the following new subparagraph:
                    ``(D) Termination.--This paragraph shall not apply 
                to taxable years beginning after December 31, 2011.''.
                    (C) Section 852(b)(3)(A) is amended by adding at 
                the end the following new sentence: ``This subparagraph 
                shall not apply to taxable years beginning after 
                December 31, 2011.''.
                    (D) Section 857(b)(3)(A) is amended by adding at 
                the end the following new flush sentence:
        ``This subparagraph shall not apply to taxable years beginning 
        after December 31, 2011.''.
                    (E) Section 904(b)(2)(B) is amended by adding at 
                the end the following new flush sentence:
        ``This subparagraph shall not apply to taxable years beginning 
        after December 31, 2011.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 202. TREATMENT OF TRAVEL ON CORPORATE AIRCRAFT.

    (a) In General.--Section 162 is amended by redesignating subsection 
(q) as subsection (r) and by inserting after subsection (p) the 
following new subsection:
    ``(q) Treatment of Travel on Corporate Aircraft.--The rate at which 
an amount allowable as a deduction under this chapter for the use of an 
aircraft owned by the taxpayer is determined shall not exceed the rate 
at which an amount paid or included in income by an employee of such 
taxpayer for the personal use of such aircraft is determined.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 203. UNLIMITED EXPENSING OF DEPRECIABLE ASSETS AND INVENTORIES FOR 
              CERTAIN SMALL BUSINESSES.

    (a) Unlimited Expensing.--Section 179 is amended by adding at the 
end the following new subsection:
    ``(g) Unlimited Expensing for Certain Small Business Taxpayers.--
            ``(1) In general.--In the case of any eligible taxpayer, 
        this section shall be applied with respect to any taxable year 
        without regard to subsection (b).
            ``(2) Eligible taxpayer.--For purposes of this subsection, 
        a taxpayer is an eligible taxpayer with respect to any taxable 
        year if for all prior taxable years beginning after December 
        31, 2011, the taxpayer (or any predecessor) met the gross 
        receipts test of section 448(c) (determined by substituting 
        `$1,000,000' for `$5,000,000' each place it appears).''.
    (b) Clarification of Inventory Rules for Small Business.--Section 
471 is amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
    ``(c) Small Business Taxpayers Not Required To Use Inventories.--
            ``(1) In general.--An eligible taxpayer (as determined 
        under section 179(g)(2)) shall not be required to use 
        inventories under this section for a taxable year.
            ``(2) Treatment of taxpayers not using inventories.--If an 
        eligible taxpayer does not use inventories with respect to any 
        property for any taxable year beginning after December 31, 
        2011, such property shall be treated as a material or supply 
        which is not incidental.''.
    (c) Effective Date and Special Rules.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2011.
            (2) Change in method of accounting.--In the case of any 
        taxpayer changing the taxpayer's method of accounting for any 
        taxable year under the amendments made by this section--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                    (C) 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 shall be taken 
                into account over a period (not greater than 4 taxable 
                years) beginning with such taxable year.

SEC. 204. TERMINATION OF VARIOUS PREFERENTIAL TREATMENTS.

    (a) In General.--Section 7875, as added by this Act, is amended--
            (1) by inserting ``(or transactions in the case of sections 
        referred to in paragraphs (13), (14), (15), (16), and (19))'' 
        after ``taxable years beginning'', and
            (2) by adding at the end the following new paragraphs:
            ``(11) Section 43 (relating to enhanced oil recovery 
        credit).
            ``(12) Section 199 (relating to income attributable to 
        domestic production activities).
            ``(13) Section 382(l)(5) (relating to exception from net 
        operating loss limitations for corporations in bankruptcy 
        proceeding).
            ``(14) Section 451(i) (relating to special rules for sales 
        or dispositions to implement Federal Energy Regulatory 
        Commission or State electric restructuring policy).
            ``(15) Section 453A (relating to special rules for 
        nondealers), but only with respect to the dollar limitation 
        under subsection (b)(1) thereof and subsection (b)(3) thereof 
        (relating to exception for personal use and farm property).
            ``(16) Section 460(e)(1) (relating to special rules for 
        long-term home construction contracts or other short-term 
        construction contracts).
            ``(17) Section 613A (relating to percentage depletion in 
        case of oil and gas wells).
            ``(18) Section 616 (relating to development costs).
            ``(19) Sections 861(a)(6), 862(a)(6), 863(b)(2), 863(b)(3), 
        and 865(b) (relating to inventory property sales source rule 
        exception).''.
    (b) Full Tax Rate on Nuclear Decommissioning Reserve Fund.--
Subparagraph (B) of section 468A(e)(2) is amended to read as follows:
                    ``(B) Rate of tax.--For purposes of subparagraph 
                (A), the rate set forth in this subparagraph is 25 
                percent.''.
    (c) Deferral of Active Income of Controlled Foreign Corporations.--
Section 952 is amended by adding at the end the following new 
subsection:
    ``(d) Special Application of Subpart.--
            ``(1) In general.--For taxable years beginning after 
        December 31, 2011, notwithstanding any other provision of this 
        subpart, the term `subpart F income' means, in the case of any 
        controlled foreign corporation, the income of such corporation 
        derived from any foreign country.
            ``(2) Applicable rules.--Rules similar to the rules under 
        the last sentence of subsection (a) and subsection (d) shall 
        apply to this subsection.''.
    (d) Depreciation on Tangible Property in Excess of Alternative 
Depreciation System.--Section 168(g)(1) is amended by striking ``and'' 
at the end of subparagraph (D), by adding ``and'' at the end of 
subparagraph (E), and by inserting after subparagraph (E) the following 
new subparagraph:
                    ``(F) notwithstanding subsection (a), any tangible 
                property placed in service after December 31, 2011,''.
    (e) Effective Date.--The amendments made by subsections (b) and (c) 
shall apply to taxable years beginning after December 31, 2011.

SEC. 205. PASS-THROUGH BUSINESS ENTITY TRANSPARENCY.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall report to the Committee on Finance 
of the Senate and the Committee on Ways and Means of the House of 
Representatives regarding the implementation of additional reporting 
requirements with respect to any pass-through entity with the goal of 
the reduction of tax avoidance through the use of such entities. In 
addition, the Secretary shall develop procedures to share such report 
data with State revenue agencies under the disclosure requirements of 
section 6103(d) of the Internal Revenue Code of 1986.

SEC. 206. MODIFICATION OF EFFECTIVE DATE OF LEASING PROVISIONS OF THE 
              AMERICAN JOBS CREATION ACT OF 2004.

    (a) Leases to Foreign Entities.--Section 849(b) of the American 
Jobs Creation Act of 2004 is amended by adding at the end the following 
new paragraph:
            ``(5) Leases to foreign entities.--In the case of tax-
        exempt use property leased to a tax-exempt entity which is a 
        foreign person or entity, the amendments made by this part 
        shall apply to taxable years beginning after December 31, 2011, 
        with respect to leases entered into on or before March 12, 
        2004.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the enactment of the American Jobs Creation 
Act of 2004.

SEC. 207. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO LARGE 
              INTEGRATED OIL COMPANIES WHICH ARE DUAL CAPACITY 
              TAXPAYERS.

    (a) In General.--Section 901 is amended by redesignating subsection 
(n) as subsection (o) and by inserting after subsection (m) the 
following new subsection:
    ``(n) Special Rules Relating to Large Integrated Oil Companies 
Which Are Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer which is a large integrated oil company to a foreign 
        country or possession of the United States for any period shall 
        not be considered a tax--
                    ``(A) if, for such period, the foreign country or 
                possession does not impose a generally applicable 
                income tax, or
                    ``(B) to the extent such amount exceeds the amount 
                (determined in accordance with regulations) which--
                            ``(i) is paid by such dual capacity 
                        taxpayer pursuant to the generally applicable 
                        income tax imposed by the country or 
                        possession, or
                            ``(ii) would be paid if the generally 
                        applicable income tax imposed by the country or 
                        possession were applicable to such dual 
                        capacity taxpayer.
                Nothing in this paragraph shall be construed to imply 
                the proper treatment of any such amount not in excess 
                of the amount determined under subparagraph (B).
            ``(2) Dual capacity taxpayer.--For purposes of this 
        subsection, the term `dual capacity taxpayer' means, with 
        respect to any foreign country or possession of the United 
        States, a person who--
                    ``(A) is subject to a levy of such country or 
                possession, and
                    ``(B) receives (or will receive) directly or 
                indirectly a specific economic benefit (as determined 
                in accordance with regulations) from such country or 
                possession.
            ``(3) Generally applicable income tax.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `generally applicable 
                income tax' means an income tax (or a series of income 
                taxes) which is generally imposed under the laws of a 
                foreign country or possession on income derived from 
                the conduct of a trade or business within such country 
                or possession.
                    ``(B) Exceptions.--Such term shall not include a 
                tax unless it has substantial application, by its terms 
                and in practice, to--
                            ``(i) persons who are not dual capacity 
                        taxpayers, and
                            ``(ii) persons who are citizens or 
                        residents of the foreign country or possession.
            ``(4) Large integrated oil company.--For purposes of this 
        subsection, the term `large integrated oil company' means, with 
        respect to any taxable year, an integrated oil company (as 
        defined in section 291(b)(4)) which--
                    ``(A) had gross receipts in excess of 
                $1,000,000,000 for such taxable year, and
                    ``(B) has an average daily worldwide production of 
                crude oil of at least 500,000 barrels for such taxable 
                year.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes paid or accrued in taxable years beginning after 
        the date of the enactment of this Act.
            (2) Contrary treaty obligations upheld.--The amendments 
        made by this section shall not apply to the extent contrary to 
        any treaty obligation of the United States.

SEC. 208. REPEAL OF LOWER OF COST OR MARKET VALUE OF INVENTORY RULE.

    (a) In General.--Subsection (a) of section 471 is amended to read 
as follows:
    ``(a) General Rule.--Whenever in the opinion of the Secretary the 
use of inventories is necessary in order clearly to determine the 
income of the taxpayer, inventories shall be valued at cost.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 209. REINSTITUTION OF PER COUNTRY FOREIGN TAX CREDIT.

    (a) In General.--Subsection (a) of section 904 is amended to read 
as follows:
    ``(a) Limitation.--The amount of the credit in respect of the tax 
paid or accrued to any foreign country or possession of the United 
States shall not exceed the same proportion of the tax against which 
such credit is taken which the taxpayer's taxable income from sources 
within such country or possession (but not in excess of the taxpayer's 
entire taxable income) bears to such taxpayer's entire taxable income 
for the same taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2011.

SEC. 210. APPLICATION OF RULES TREATING INVERTED CORPORATIONS AS 
              DOMESTIC CORPORATIONS TO CERTAIN TRANSACTIONS OCCURRING 
              AFTER MARCH 20, 2002.

    (a) In General.--Section 7874(b) is amended to read as follows:
    ``(b) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--Notwithstanding section 7701(a)(4), a 
        foreign corporation shall be treated for purposes of this title 
        as a domestic corporation if such corporation would be a 
        surrogate foreign corporation if subsection (a)(2) were applied 
        by substituting `80 percent' for `60 percent'.
            ``(2) Special rule for certain transactions occurring after 
        march 20, 2002.--
                    ``(A) In general.--If--
                            ``(i) paragraph (1) does not apply to a 
                        foreign corporation, but
                            ``(ii) paragraph (1) would apply to such 
                        corporation if, in addition to the substitution 
                        under paragraph (1), subsection (a)(2) were 
                        applied by substituting `March 20, 2002' for 
                        `March 4, 2003' each place it appears,
                then paragraph (1) shall apply to such corporation but 
                only with respect to taxable years of such corporation 
                beginning after December 31, 2011.
                    ``(B) Special rules.--Subject to such rules as the 
                Secretary may prescribe, in the case of a corporation 
                to which paragraph (1) applies by reason of this 
                paragraph--
                            ``(i) the corporation shall be treated, as 
                        of the close of its last taxable year beginning 
                        before January 1, 2012, as having transferred 
                        all of its assets, liabilities, and earnings 
                        and profits to a domestic corporation in a 
                        transaction with respect to which no tax is 
                        imposed under this title,
                            ``(ii) the bases of the assets transferred 
                        in the transaction to the domestic corporation 
                        shall be the same as the bases of the assets in 
                        the hands of the foreign corporation, subject 
                        to any adjustments under this title for built-
                        in losses,
                            ``(iii) the basis of the stock of any 
                        shareholder in the domestic corporation shall 
                        be the same as the basis of the stock of the 
                        shareholder in the foreign corporation for 
                        which it is treated as exchanged, and
                            ``(iv) the transfer of any earnings and 
                        profits by reason of clause (i) shall be 
                        disregarded in determining any deemed dividend 
                        or foreign tax creditable to the domestic 
                        corporation with respect to such transfer.
                    ``(C) Regulations.--The Secretary may prescribe 
                such regulations as may be necessary or appropriate to 
                carry out this paragraph, including regulations to 
                prevent the avoidance of the purposes of this 
                paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2011.

SEC. 211. INDEXING CORPORATE INTEREST DEDUCTION FOR INFLATION.

    (a) In General.--Section 163 is amended by redesignating subsection 
(n) as subsection (o) and by inserting after subsection (m) the 
following new subsection:
    ``(n) Indexing Corporate Interest Deduction for Inflation.--
            ``(1) In general.--In the case of a corporation, the 
        deduction allowed under this chapter for interest paid for any 
        taxable year with respect to any obligation shall be adjusted 
        by multiplying the amount otherwise so allowed by 1 minus the 
        fractional exclusion rate for such taxable year.
            ``(2) Fractional exclusion rate.--For any taxable year, the 
        Secretary shall determine the fractional exclusion rate using--
                    ``(A) a fraction--
                            ``(i) the numerator of which is the cost-
                        of-living adjustment determined under section 
                        1(f)(3) for the calendar year in which the 
                        taxable year begins by substituting `the second 
                        preceding calendar year' for `calendar year 
                        2011' in subparagraph (B) thereof, and
                            ``(ii) the denominator of which is the 
                        nominal interest rate for such obligation, and
                    ``(B) a constant real before tax rate of return of 
                6 percent.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 212. PROHIBITION OF ADVANCE REFUNDING OF BONDS.

    (a) In General.--Subsection (d) of section 149 is amended--
            (1) by striking paragraphs (1), (2), (3), (4), and (6),
            (2) by redesignating paragraphs (5) and (7) as paragraphs 
        (2) and (3), respectively, and
            (3) by inserting before paragraph (2) (as redesignated by 
        paragraph (2) the following new paragraph:
            ``(1) Prohibition.--Nothing in section 103(a) or in any 
        other provision of law shall be construed to provide an 
        exemption from Federal income tax for interest on any bond 
        issued as part of an issue to advance refund a bond.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to refunding bonds issued on or after the date of the enactment 
of this Act.

SEC. 213. CBO STUDY ON GOVERNMENT SPENDING ON BUSINESSES.

    (a) Study.--The Congressional Budget Office shall identify the 
Federal Government's direct and indirect spending on businesses, using 
among other sources, the corporate welfare lists produced by the Cato 
Institute and the Bureau of Economic Analysis of the Department of 
Commerce, and, from that pool of spending, identify the least 
economically justifiable and suggest options for how Congress could 
potentially reduce Federal spending on the least justifiable programs 
by at least $230,000,000,000 during a 10-year period.
    (b) Report.--The Congressional Budget Office shall report not later 
than one year after the date of the enactment of this Act on the 
results of the study required under subsection (a) and shall submit 
such report for the purpose of hearing by the Committee on the Budget 
of the House of Representatives and the Committee on the Budget of the 
Senate.

              TITLE III--REPEAL OF ALTERNATIVE MINIMUM TAX

SEC. 301. REPEAL OF ALTERNATIVE MINIMUM TAX.

    (a) In General.--Section 55(a) is amended by adding at the end the 
following new flush sentence:
``For purposes of this title, the tentative minimum tax on any taxpayer 
for any taxable year beginning after December 31, 2011, shall be 
zero.''.
    (b) Modification of Limitation on Use of Credit for Prior Year 
Minimum Tax Liability.--Subsection (c) of section 53 is amended to read 
as follows:
    ``(c) Limitation.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        credit allowable under subsection (a) for any taxable year 
        shall not exceed the excess (if any) of--
                    ``(A) the regular tax liability of the taxpayer for 
                such taxable year reduced by the sum of the credits 
                allowable under subparts A, B, D, E, and F of this 
                part, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Taxable years beginning after 2011.--In the case of 
        any taxable year beginning after December 31, 2011, the credit 
        allowable under subsection (a) to a taxpayer other than a 
        corporation for any taxable year shall not exceed 90 percent of 
        the regular tax liability of the taxpayer for such taxable year 
        reduced by the sum of the credits allowable under subparts A, 
        B, D, E, and F of this part.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

                TITLE IV--IMPROVEMENTS IN TAX COMPLIANCE

SEC. 401. INCREASE IN INFORMATION RETURN PENALTIES.

    (a) Failure To File Correct Information Returns.--
            (1) In general.--Section 6721(a)(1) is amended--
                    (A) by striking ``$100'' and inserting ``$250'', 
                and
                    (B) by striking ``$1,500,000'' and inserting 
                ``$3,000,000''.
            (2) Reduction where correction in specified period.--
                    (A) Correction within 30 days.--Section 6721(b)(1) 
                is amended--
                            (i) by striking ``$30'' and inserting 
                        ``$50'',
                            (ii) by striking ``$100'' and inserting 
                        ``$250'', and
                            (iii) by striking ``$250,000'' and 
                        inserting ``$500,000''.
                    (B) Failures corrected on or before august 1.--
                Section 6721(b)(2) is amended--
                            (i) by striking ``$100'' and inserting 
                        ``$250'',
                            (ii) by striking ``$60'' and inserting 
                        ``$100'', and
                            (iii) by striking ``$500,000'' and 
                        inserting ``$1,500,000''.
            (3) Lower limitation for persons with gross receipts of not 
        more than $5,000,000.--Section 6721(d)(1) is amended--
                    (A) in subparagraph (A)--
                            (i) by striking ``$500,000'' and inserting 
                        ``$1,000,000'', and
                            (ii) by striking ``$1,500,000'' and 
                        inserting ``$3,000,000'',
                    (B) in subparagraph (B)--
                            (i) by striking ``$75,000'' and inserting 
                        ``$175,000'', and
                            (ii) by striking ``$250,000'' and inserting 
                        ``$500,000'', and
                    (C) in subparagraph (C)--
                            (i) by striking ``$500,000'' and inserting 
                        ``$1,500,000'', and
                            (ii) by striking ``$200,000'' and inserting 
                        ``$500,000''.
            (4) Penalty in case of intentional disregard.--Section 
        6721(e) is amended--
                    (A) by striking ``$250'' in paragraph (2) and 
                inserting ``$500'', and
                    (B) by striking ``$1,500,000'' in paragraph (3)(A) 
                and inserting ``$3,000,000''.
    (b) Failure To Furnish Correct Payee Statements.--
            (1) In general.--Section 6722(a)(1) is amended by striking 
        ``$100'' and inserting ``$250''.
            (2) Reduction where correction in specified period.--
        Section 6722(b) is amended--
                    (A) in paragraph (1)(A)--
                            (i) by striking ``$30'' and inserting 
                        ``$60'', and
                            (ii) by striking ``$100'' and inserting 
                        ``$250'',
                    (B) by striking ``$250,000'' in paragraph (1)(B) 
                and inserting ``$500,000'',
                    (C) in paragraph (2)(A)--
                            (i) by striking ``$60'' and inserting 
                        ``$100'', and
                            (ii) by striking ``$100'' and inserting 
                        ``$250'', and
                    (D) by striking ``$500,000'' in paragraph (2)(B) 
                and inserting ``$1,500,000''.
            (3) Lower limitations.--Section 6722(d)(1) is amended--
                    (A) in subparagraph (B)--
                            (i) by striking ``$250,000'' and inserting 
                        ``$500,000'', and
                            (ii) by striking ``$75,000'' and inserting 
                        ``$250,000'', and
                    (B) in subparagraph (C)--
                            (i) by striking ``$500,000'' and inserting 
                        ``$1,500,000'', and
                            (ii) by striking ``$200,000'' and inserting 
                        ``$500,000''.
            (4) Penalty in case of intentional disregard.--Section 
        6722(e(2)) is amended by striking ``$250'' and inserting 
        ``$500''.
    (c) Failure To Comply With Other Information Reporting 
Requirements.--Section 6723 is amended--
            (1) by striking ``$50'' and inserting ``$250'', and
            (2) by striking ``$100,000'' and inserting ``$1,000,000''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to information returns required to be filed on or 
after January 1, 2012.

SEC. 402. E-FILING REQUIREMENT FOR CERTAIN LARGE ORGANIZATIONS.

    (a) In General.--The first sentence of section 6011(e)(2) is 
amended to read as follows: ``In prescribing regulations under 
paragraph (1), the Secretary shall take into account (among other 
relevant factors) the ability of the taxpayer to comply at reasonable 
cost with the requirements of such regulations.''.
    (b) Conforming Amendment.--Section 6724 is amended by striking 
subsection (c).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on or after December 31, 2011.

SEC. 403. IMPLEMENTATION OF STANDARDS CLARIFYING WHEN EMPLOYEE LEASING 
              COMPANIES CAN BE HELD LIABLE FOR THEIR CLIENTS' FEDERAL 
              EMPLOYMENT TAXES.

    With respect to employment tax returns required to be filed with 
respect to wages paid on or after January 1, 2012, the Secretary of the 
Treasury shall issue regulations establishing--
            (1) standards for holding employee leasing companies 
        jointly and severally liable with their clients for Federal 
        employment taxes under chapters 21, 22, 23, and 24 of the 
        Internal Revenue Code of 1986, and
            (2) standards for holding such companies solely liable for 
        such taxes.

SEC. 404. EXPANSION OF IRS ACCESS TO INFORMATION IN NATIONAL DIRECTORY 
              OF NEW HIRES FOR TAX ADMINISTRATION PURPOSES.

    (a) In General.--Paragraph (3) of section 453(i) of the Social 
Security Act (42 U.S.C. 653(i)) is amended to read as follows:
            ``(3) Administration of federal tax laws.--The Secretary of 
        the Treasury shall have access to the information in the 
        National Directory of New Hires for purposes of administering 
        the Internal Revenue Code of 1986.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 405. MODIFICATION OF CRIMINAL PENALTIES FOR WILLFUL FAILURES 
              INVOLVING TAX PAYMENTS AND FILING REQUIREMENTS.

    (a) Increase in Penalty for Attempt To Evade or Defeat Tax.--
Section 7201 is amended--
            (1) by striking ``$500,000'' and inserting ``$1,000,000'',
            (2) by striking ``$100,000'' and inserting ``$500,000'', 
        and
            (3) by striking ``5 years'' and inserting ``10 years''.
    (b) Modification of Penalties for Willful Failure To File Return, 
Supply Information, or Pay Tax.--
            (1) In general.--Section 7203 is amended--
                    (A) in the first sentence--
                            (i) by striking ``Any person'' and 
                        inserting the following:
    ``(a) In General.--Any person'', and
                            (ii) by striking ``$25,000'' and inserting 
                        ``$50,000'',
                    (B) in the third sentence, by striking ``section'' 
                and inserting ``subsection'', and
                    (C) by adding at the end the following new 
                subsection:
    ``(b) Aggravated Failure To File.--
            ``(1) In general.--In the case of any failure described in 
        paragraph (2), the first sentence of subsection (a) shall be 
        applied by substituting--
                    ``(A) `felony' for `misdemeanor',
                    ``(B) `$250,000 ($500,000' for `$50,000 ($100,000', 
                and
                    ``(C) `5 years' for `1 year'.
            ``(2) Failure described.--A failure described in this 
        paragraph is--
                    ``(A) a failure to make a return described in 
                subsection (a) for any 3 taxable years occurring during 
                any period of 5 consecutive taxable years if the 
                aggregate tax liability for such period is not less 
                than $50,000, or
                    ``(B) a failure to make a return if the tax 
                liability giving rise to the requirement to make such 
                return is attributable to an activity which is a felony 
                under any State or Federal law.''.
            (2) Penalty may be applied in addition to other 
        penalties.--Section 7204 is amended by striking ``the penalty 
        provided in section 6674'' and inserting ``the penalties 
        provided in sections 6674 and 7203(b)''.
    (c) Fraud and False Statements.--Section 7206 is amended--
            (1) by striking ``$100,000'' and inserting ``$500,000'',
            (2) by striking ``$500,000'' and inserting ``$1,000,000'', 
        and
            (3) by striking ``3 years'' and inserting ``5 years''.
    (d) Increase in Monetary Limitation for Underpayment or Overpayment 
of Tax Due to Fraud.--Section 7206, as amended by subsection (c), is 
amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due to Fraud.--If any portion of any underpayment 
(as defined in section 6664(a)) or overpayment (as defined in section 
6401(a)) of tax required to be shown on a return is attributable to 
fraudulent action described in subsection (a), the applicable dollar 
amount under subsection (a) shall in no event be less than an amount 
equal to such portion. A rule similar to the rule under section 6663(b) 
shall apply for purposes of determining the portion so attributable.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to actions, and failures to act, occurring after the date of the 
enactment of this Act.

SEC. 406. PENALTIES FOR FAILURE TO FILE CERTAIN RETURNS ELECTRONICALLY.

    (a) In General.--Part I of subchapter A of chapter 68 is amended by 
inserting after section 6652 the following new section:

``SEC. 6652A. FAILURE TO FILE CERTAIN RETURNS ELECTRONICALLY.

    ``(a) In General.--If a person fails to file a return described in 
section 6651 or 6652(c)(1) in electronic form as required under section 
6011(e)--
            ``(1) such failure shall be treated as a failure to file 
        such return (even if filed in a form other than electronic 
        form), and
            ``(2) the penalty imposed under section 6651 or 6652(c), 
        whichever is appropriate, shall be equal to the greater of--
                    ``(A) the amount of the penalty under such section, 
                determined without regard to this section, or
                    ``(B) the amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the penalty determined under this subsection is equal to 
        $40 for each day during which a failure described under 
        subsection (a) continues. The maximum penalty under this 
        paragraph on failures with respect to any 1 return shall not 
        exceed the lesser of $20,000 or 10 percent of the gross 
        receipts of the taxpayer for the year.
            ``(2) Increased penalties for taxpayers with gross receipts 
        between $1,000,000 and $100,000,000.--
                    ``(A) Taxpayers with gross receipts between 
                $1,000,000 and $25,000,000.--In the case of a taxpayer 
                having gross receipts exceeding $1,000,000 but not 
                exceeding $25,000,000 for any year--
                            ``(i) the first sentence of paragraph (1) 
                        shall be applied by substituting `$200' for 
                        `$40', and
                            ``(ii) in lieu of applying the second 
                        sentence of paragraph (1), the maximum penalty 
                        under paragraph (1) shall not exceed $100,000.
                    ``(B) Taxpayers with gross receipts over 
                $25,000,000.--Except as provided in paragraph (3), in 
                the case of a taxpayer having gross receipts exceeding 
                $25,000,000 for any year--
                            ``(i) the first sentence of paragraph (1) 
                        shall be applied by substituting `$500' for 
                        `$40', and
                            ``(ii) in lieu of applying the second 
                        sentence of paragraph (1), the maximum penalty 
                        under paragraph (1) shall not exceed $250,000.
            ``(3) Increased penalties for certain taxpayers with gross 
        receipts exceeding $100,000,000.--In the case of a return 
        described in section 6651--
                    ``(A) Taxpayers with gross receipts between 
                $100,000,000 and $250,000,000.--In the case of a 
                taxpayer having gross receipts exceeding $100,000,000 
                but not exceeding $250,000,000 for any year--
                            ``(i) the amount of the penalty determined 
                        under this subsection shall equal the sum of--
                                    ``(I) $50,000, plus
                                    ``(II) $1,000 for each day during 
                                which such failure continues (twice 
                                such amount for each day such failure 
                                continues after the first such 60 
                                days), and
                            ``(ii) the maximum amount under clause 
                        (i)(II) on failures with respect to any 1 
                        return shall not exceed $200,000.
                    ``(B) Taxpayers with gross receipts over 
                $250,000,000.--In the case of a taxpayer having gross 
                receipts exceeding $250,000,000 for any year--
                            ``(i) the amount of the penalty determined 
                        under this subsection shall equal the sum of--
                                    ``(I) $250,000, plus
                                    ``(II) $2,500 for each day during 
                                which such failure continues (twice 
                                such amount for each day such failure 
                                continues after the first such 60 
                                days), and
                            ``(ii) the maximum amount under clause 
                        (i)(II) on failures with respect to any 1 
                        return shall not exceed $250,000.
                    ``(C) Exception for certain returns.--Subparagraphs 
                (A) and (B) shall not apply to any return of tax 
                imposed under section 511.''.
    (b) Clerical Amendment.--The table of sections for part I of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6652 the following new item:

``Sec. 6652A. Failure to file certain returns electronically.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns required to be filed on or after January 1, 2012.

SEC. 407. REPORTING ON IDENTIFICATION OF BENEFICIAL OWNERS OF CERTAIN 
              FOREIGN FINANCIAL ACCOUNTS.

    (a) In General.--Subchapter A of chapter 3 is amended by adding at 
the end the following new section:

``SEC. 1447. WITHHOLDABLE PAYMENTS TO CERTAIN FOREIGN FINANCIAL 
              ACCOUNTS.

    ``(a) In General.--In the case of any withholdable payment to a 
foreign financial account, the withholding agent with respect to such 
payment shall deduct and withhold from such payment a tax equal to 30 
percent of the amount of such payment if such agent does not meet the 
reporting requirements under subsection (b) with respect to such 
payment.
    ``(b) Reporting Requirements.--The requirements of this subsection 
are met with respect to any withholdable payment to a foreign financial 
account if the withholding agent with respect to such payment--
            ``(1) identifies--
                    ``(A) the beneficial owner or owners of such 
                account by name, address, TIN (if any), and
                    ``(B) the account number,
            ``(2) obtains evidence of the nationality of such owner or 
        owners,
            ``(3) complies with such verification and due diligence 
        procedures as the Secretary may require with respect to such 
        identification and obtaining of such evidence, and
            ``(4) reports such identification and evidence to the 
        Secretary in such manner as the Secretary requires.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Withholdable payment.--Except as otherwise provided 
        by the Secretary, the term `withholdable payment' means--
                    ``(A) any payment of interest (including any 
                original issue discount), dividends, rents, and other 
                fixed or determinable annual or periodical gains and 
                profits, if such payment is from sources within the 
                United States, and
                    ``(B) any gross proceeds from the sale or other 
                disposition of any property of a type which can produce 
                interest or dividends from sources within the United 
                States.
            ``(2) Withholding agent.--The term `withholding agent' 
        means all persons, in whatever capacity acting, having the 
        control, receipt, custody, disposal, or payment of any 
        withholdable payment.
            ``(3) Foreign financial account.--
                    ``(A) In general.--The term `foreign financial 
                account' means any financial account maintained by a 
                foreign financial institution.
                    ``(B) Financial account.--Except as otherwise 
                provided by the Secretary, the term `financial account' 
                means, with respect to any foreign financial 
                institution--
                            ``(i) any depository account maintained by 
                        such financial institution, and
                            ``(ii) any custodial account maintained by 
                        such financial institution.
            ``(4) Foreign financial institution.--
                    ``(A) In general.--The term `foreign financial 
                institution' means any financial institution which is a 
                foreign entity. Except as otherwise provided by the 
                Secretary, such term shall not include a financial 
                institution which is organized under the laws of any 
                possession of the United States.
                    ``(B) Financial institution.--Except as otherwise 
                provided by the Secretary, the term `financial 
                institution' means any entity that--
                            ``(i) accepts deposits in the ordinary 
                        course of a banking or similar business,
                            ``(ii) is engaged primarily in the business 
                        of holding financial assets for the account of 
                        others, or
                            ``(iii) is engaged (or holding itself out 
                        as being engaged) primarily in the business of 
                        investing, reinvesting, or trading in 
                        securities (as defined in section 475(c)(2) 
                        without regard to the last sentence thereof), 
                        partnership interests, commodities (as defined 
                        in section 475(e)(2)), or any interest 
                        (including a futures or forward contract or 
                        option) in such securities, partnership 
                        interests, or commodities.
                    ``(C) Foreign entity.--The term `foreign entity' 
                means any entity which is not a United States person.
    ``(d) Exception for Certain Payments.--Subsection (a) shall not 
apply to any payment to the extent that the beneficial owner of such 
payment is--
            ``(1) any foreign government, any political subdivision of 
        a foreign government, or any wholly owned agency or 
        instrumentality of any one or more of the foregoing,
            ``(2) any international organization or any wholly owned 
        agency or instrumentality thereof,
            ``(3) any foreign central bank of issue, or
            ``(4) any other class of persons identified by the 
        Secretary for purposes of this subsection as posing a low risk 
        of tax evasion.
    ``(e) Confidentiality of Information.--For purposes of this 
section, rules similar to the rules of section 3406(f) shall apply.
    ``(f) Coordination With Other Withholding Provisions.--The 
Secretary shall provide for the coordination of this section with other 
withholding provisions under this title, including providing for the 
proper crediting of amounts deducted and withheld under this section 
against amounts required to be deducted and withheld under such other 
provisions.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as may be necessary or appropriate to carry out the 
purposes of, and prevent the avoidance of, this section.''.
    (b) Conforming Amendment.--The table of sections for subchapter A 
of chapter 3 is amended by adding at the end the following new item:

``Sec. 1447. Withholdable payments to certain foreign financial 
                            accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made after December 31, 2011.

                   TITLE V--MISCELLANEOUS PROVISIONS

SEC. 501. ALLOWANCE OF DEDUCTION FOR DIVIDENDS RECEIVED FROM CONTROLLED 
              FOREIGN CORPORATIONS FOR 2011.

    (a) In General.--Section 965 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(g) Allowance for Deduction for an Additional Year.--
            ``(1) In general.--In the case of an election under this 
        subsection, subsection (f)(1) shall be applied by substituting 
        `January 1, 2011,' for `the date of the enactment of this 
        section'.
            ``(2) Special rules.--For purposes of paragraph (1)--
                    ``(A) Extraordinary dividends.--Subsection (b)(2) 
                shall be applied by substituting `June 30, 2010' for 
                `June 30, 2003'.
                    ``(B) Determinations relating to related party 
                indebtedness.--Subsection (b)(3)(B) shall be applied by 
                substituting `October 3, 2011' for `October 3, 2004'.
                    ``(C) Applicable financial statement.--Subsection 
                (c)(1) shall be applied by substituting `June 30, 2010' 
                for `June 30, 2003' each place it occurs.
                    ``(D) Determinations relating to base period.--
                Subsection (c)(2) shall be applied by substituting 
                `June 30, 2010' for `June 30, 2003'.
                    ``(E) Requirements for investment in united 
                states.--Subsection (b)(4) shall be applied--
                            ``(i) by inserting `deposited in 1 or more 
                        United States financial institutions and' after 
                        `amount of the dividend', and
                            ``(ii) by striking subparagraph (B) thereof 
                        and inserting the following:
                    ```(B) provides for the reinvestment of such 
                dividend in the United States (other than as payment 
                for executive compensation) as a source of funding for 
                only 1 or more of the following purposes:
                            ```(i) worker hiring and training,
                            ```(ii) research and development,
                            ```(iii) capital improvements,
                            ```(iv) acquisitions of business entities 
                        for the purpose of retaining or creating jobs 
                        in the United States, and
                            ```(v) clean energy initiatives (such as 
                        clean energy research and development, energy 
                        efficiency, clean energy start ups, and clean 
                        energy jobs).
                For any purpose described in clause (i), (ii), or 
                (iii), funding shall qualify for purposes of this 
                paragraph only if such funding supplements but does not 
                supplant otherwise scheduled funding for either taxable 
                year described in subsection (f) by the taxpayer for 
                such purpose. Such scheduled funding shall be certified 
                by the individual and entity approving the domestic 
                reinvestment plan.'.
            ``(3) Audit.--Not later than 2 years after the date of the 
        election under this subsection, the Internal Revenue Service 
        shall conduct an audit of the taxpayer with respect to any 
        reinvestment transaction arising from such election.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years ending on or after January 1, 2011.

SEC. 502. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) is amended--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively,
                    (B) by striking ``If'' and inserting:
            ``(1) Treble damages.--If'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Punitive damages.--No deduction shall be allowed 
        under this chapter for any amount paid or incurred for punitive 
        damages in connection with any judgment in, or settlement of, 
        any action. This paragraph shall not apply to punitive damages 
        described in section 104(c).''.
            (2) Conforming amendment.--The heading for section 162(g) 
        is amended by inserting ``Or Punitive Damages'' after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 1 is 
        amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) Reporting requirements.--Section 6041 is amended by 
        adding at the end the following new subsection:
    ``(h) Section To Apply to Punitive Damages Compensation.--This 
section shall apply to payments by a person to or on behalf of another 
person as insurance or otherwise by reason of the other person's 
liability (or agreement) to pay punitive damages.''.
            (3) Conforming amendment.--The table of sections for part 
        II of subchapter B of chapter 1 is amended by adding at the end 
        the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.

SEC. 503. APPLICATION OF MEDICARE PAYROLL TAX TO ALL STATE AND LOCAL 
              GOVERNMENT EMPLOYEES.

    (a) In General.--Paragraph (2) of section 3121(u) is amended--
            (1) by striking ``subparagraphs (B) and (C)'' in 
        subparagraph (A) and inserting ``subparagraph (B)'', and
            (2) by striking subparagraphs (C) and (D).
    (b) Entitlement to Hospital Insurance Benefits.--Subsection (p) of 
section 210 of the Social Security Act is amended--
            (1) by striking ``paragraphs (2) and (3)'' in paragraph 
        (1)(B) and inserting ``paragraph (2)'', and
            (2) by striking paragraphs (3) and (4).
    (c) Conforming Amendment.--Paragraph (2) of section 218(v) of the 
Social Security Act is amended to read as follows:
            ``(2) This subsection shall apply only with respect to 
        employees who are not otherwise covered under the State's 
        agreement under this section.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services performed after the date of the enactment of this 
Act.

SEC. 504. CORRECTIONS FOR CPI OVERSTATEMENT IN COST-OF-LIVING 
              INDEXATION.

    (a) In General.--Paragraph (3) of section 1(f), as amended by this 
Act, is amended to read as follows:
            ``(3) Cost-of-living adjustment.--
                    ``(A) In general.--For purposes of paragraph (2), 
                the cost-of-living adjustment for any calendar year is 
                the product of--
                            ``(i) the CPI fraction for calendar years 
                        before 2014, multiplied by
                            ``(ii) the Chained CPI fraction for 
                        calendar years after 2013,
                reduced by 1.
                    ``(B) CPI fraction for calendar years before 
                2014.--The CPI fraction for calendar years before 2014 
                is the fraction--
                            ``(i) the numerator of which is the CPI for 
                        the calendar year 2012, and
                            ``(ii) the denominator of which is the CPI 
                        for the calendar year 2011.
                    ``(C) Chained cpi fraction for calendar years after 
                2013.--The Chained CPI fraction for calendar years 
                after 2013 is the fraction--
                            ``(i) the numerator of which is the Chained 
                        CPI for the preceding calendar year, and
                            ``(ii) the denominator of which is the 
                        Chained CPI for the calendar year 2012.''.
    (b) Conforming Amendments.--
            (1) Paragraph (4) of section 1(f) is amended to read as 
        follows:
            ``(4) CPI and chained cpi for any calendar year.--For 
        purposes of paragraph (3)--
                    ``(A) CPI.--The CPI for any calendar year is the 
                average of the Consumer Price Index as of the close of 
                the 12-month period ending on August 31 of such 
                calendar year.
                    ``(B) Chained cpi.--The Chained CPI for any 
                calendar year is the average of the Chained Consumer 
                Price Index as of the close of the 12-month period 
                ending on August 31 of such calendar year.''.
            (2) Paragraph (5) of section 1(f) is amended to read as 
        follows:
            ``(5) Consumer price index and chained consumer price 
        index.--For purposes of paragraph (4)--
                    ``(A) Consumer price index.--The term `Consumer 
                Price Index' means the last Consumer Price Index for 
                all-urban consumers published by the Department of 
                Labor. For purposes of the preceding sentence, the 
                revision of the Consumer Price Index which is most 
                consistent with the Consumer Price Index for calendar 
                year 1986 shall be used.
                    ``(B) Chained consumer price index.--The term 
                `Chained Consumer Price Index' means the initial 
                Chained Consumer Price Index for all-urban consumers 
                published by the Department of Labor.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2013.

             TITLE VI--TECHNICAL AND CONFORMING AMENDMENTS

SEC. 601. TECHNICAL AND CONFORMING AMENDMENTS.

    The Secretary of the Treasury or the Secretary's delegate shall not 
later than 90 days after the date of the enactment of this Act, submit 
to the Committee on Ways and Means of the House of Representatives and 
the Committee on Finance of the Senate a draft of any technical and 
conforming changes in the Internal Revenue Code of 1986 which are 
necessary to reflect throughout such Code the purposes of the 
provisions of, and amendments made by, this Act.
                                 <all>