[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 505 Introduced in House (IH)]

113th CONGRESS
  1st Session
                                H. R. 505

   To repeal sequester while achieving balance in deficit reduction 
  between revenue and cuts, and between non-defense cuts and defense 
        cuts, to invest in job creation, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            February 5, 2013

Mr. Ellison (for himself, Mr. Grijalva, Mr. Conyers, Mr. McDermott, Ms. 
Clarke, Mr. Nadler, Ms. Lee of California, Mr. Markey, Ms. Schakowsky, 
 Ms. Chu, Mr. Cohen, Mr. Clay, Ms. Eddie Bernice Johnson of Texas, Mr. 
 Grayson, and Mr. Gutierrez) introduced the following bill; which was 
  referred to the Committee on Ways and Means, and in addition to the 
   Committees on the Budget, Oversight and Government Reform, Armed 
       Services, Education and the Workforce, Transportation and 
Infrastructure, and Financial Services, for a period to be subsequently 
   determined by the Speaker, in each case for consideration of such 
 provisions as fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
   To repeal sequester while achieving balance in deficit reduction 
  between revenue and cuts, and between non-defense cuts and defense 
        cuts, to invest in job creation, 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Balancing Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
                       TITLE I--REPEAL SEQUESTER

Sec. 101. Repeal of section 251A sequestration to enforce budget goal.
            TITLE II--CLOSE TAX LOOPHOLES TO ACHIEVE BALANCE

 Subtitle A--28 Percent Limitation on Certain Deductions and Exclusions

Sec. 201. 28 percent limitation on certain deductions and exclusions.
Subtitle B--Tax Carried Interest in Investment Partnerships as Ordinary 
                                 Income

Sec. 211. Partnership interests transferred in connection with 
                            performance of services.
Sec. 212. Special rules for partners providing investment management 
                            services to partnerships.
                  Subtitle C--Dual Capacity Taxpayers

Sec. 221. Modifications of foreign tax credit rules applicable to dual 
                            capacity taxpayers.
Sec. 222. Separate basket treatment taxes paid on foreign oil and gas 
                            income.
     Subtitle D--Close Exclusion of Foreign-Earned Income Loophole

Sec. 231. Repeal of foreign earned income exclusion.
                Subtitle E--Close S Corporation Loophole

Sec. 241. Employment tax treatment of professional service businesses.
 Subtitle F--Limitation on Mortgage Interest Deduction With Respect to 
                                 Boats

Sec. 251. Mortgage interest deduction allowed with respect to boats 
                            only if boat is used as the principal 
                            residence of the taxpayer.
                 TITLE III--ENDING CORPORATE SUBSIDIES

                 Subtitle A--End Fossil Fuel Subsidies

Sec. 301. Termination of various tax expenditures relating to fossil 
                            fuels.
Sec. 302. Termination of alternative fuel vehicle refueling property 
                            credit with respect to fossil fuels.
Sec. 303. Uniform seven-year amortization for geological and 
                            geophysical expenditures.
Sec. 304. Repeal of domestic manufacturing deduction for hard mineral 
                            mining.
Sec. 305. Limitation on deduction for income attributable to domestic 
                            production of oil, natural gas, or primary 
                            products thereof.
Sec. 306. Termination of last-in, first-out method of inventory for 
                            oil, natural gas, and coal companies.
Sec. 307. Repeal of percentage depletion for coal and hard mineral 
                            fossil fuels.
Sec. 308. Termination of capital gains treatment for royalties from 
                            coal.
Sec. 309. Increase in oil spill liability trust fund financing rate.
Sec. 310. Denial of deduction for removal costs and damages for certain 
                            oil spills.
Sec. 311. Tax on crude oil and natural gas produced from the outer 
                            Continental Shelf in the Gulf of Mexico.
Subtitle B--Ending Excessive Corporate Tax Deductions for Stock Options

Sec. 331. Consistent treatment of stock options by corporations.
Sec. 332. Application of executive pay deduction limit.
   Subtitle C--Reduce Deduction of Corporate Meals and Entertainment

Sec. 341. Reduction in business meals and entertainment tax deduction.
           TITLE IV--CLOSE INTERNATIONAL TAX SYSTEM LOOPHOLES

        Subtitle A--Reformation of U.S. International Tax System

Sec. 401. Allocation of expenses and taxes on basis of repatriation of 
                            foreign income.
Sec. 402. Excess income from transfers of intangibles to low-taxed 
                            affiliates treated as subpart F income.
Sec. 403. Limitations on income shifting through intangible property 
                            transfers.
Sec. 404. Limitation on earnings stripping by expatriated entities.
Sec. 405. Prevention of avoidance of tax through reinsurance with non-
                            taxed affiliates.
                        Subtitle B--Reinsurance

Sec. 411. Prevention of avoidance of tax through reinsurance with non-
                            taxed affiliates.
       Subtitle C--Close Loophole for Corporate Jet Depreciation

Sec. 421. General aviation aircraft treated as 7-year property.
                  TITLE V--CLOSE ESTATE TAX LOOPHOLES

Sec. 501. Valuation rules for certain transfers of nonbusiness assets; 
                            limitation on minority discounts.
Sec. 502. Consistent basis reporting between estate and person 
                            acquiring property from decedent.
Sec. 503. Required minimum 10-year term, etc., for grantor retained 
                            annuity trusts.
Sec. 504. Limitation on GST exemption of perpetual dynasty trusts.
            TITLE VI--CUT PENTAGON WASTE TO ACHIEVE BALANCE

          Subtitle A--Smarter Approach to Nuclear Expenditures

Sec. 601. Short title.
Sec. 602. Findings.
Sec. 603. Reduction in nuclear forces.
Sec. 604. Reports required.
         Subtitle B--Limiting Excessive Contractor Compensation

Sec. 611. Limitation on allowable compensation costs.
      Subtitle C--Relocate Troops From Europe to the United States

Sec. 615. Relocation to United States military installations of members 
                            of the United States Armed Forces assigned 
                            to permanent duty in Europe.
  Subtitle D--Additional Reduction in Armed Forces End Strength Levels

Sec. 621. Additional Army and Marine Corps end strength reductions 
                            through retirement and separation.
 Subtitle E--Procurement of Certain Submarines, Carriers, and Aircraft

Sec. 631. Limitation on procurement of Virginia class submarines.
Sec. 632. Limitation on procurement of one Ford class aircraft carrier.
Sec. 633. Authority for procurement of F/A-18E and F/A-18F aircraft.
Sec. 634. Prohibition on procurement of V-22 Osprey aircraft.
                    Subtitle F--Limit Military Bands

Sec. 641. Limitation on expenditures for military musical units.
      Subtitle G--Reduction in Number of General and Flag Officers

Sec. 651. Return of maximum number of general and flag officers to Cold 
                            War levels.
                     Subtitle H--Audit the Pentagon

Sec. 661. Purposes.
Sec. 662. Findings.
Sec. 663. Spending reductions for agencies without clean audits.
Sec. 664. Report on Department of Defense reporting requirements.
Sec. 665. Sense of Congress in implementation of defense budget 
                            reductions.
                   TITLE VII--INVEST IN JOB CREATION

                 Subtitle A--Making Work Pay Extension

Sec. 701. One-year extension of making work pay credit.
       Subtitle B--Support for Teachers and School Modernization

   Part I--Preventing Teacher Layoffs and Supporting the Creation of 
 Additional Jobs in Public Early Childhood, Elementary, and Secondary 
                               Education

Sec. 711. Purpose.
Sec. 712. Grants for the outlying areas and the Secretary of the 
                            Interior; availability of funds.
Sec. 713. State allocation.
Sec. 714. State application.
Sec. 715. State reservation and responsibilities.
Sec. 716. Local educational agencies.
Sec. 717. Early learning.
Sec. 718. Maintenance of effort.
Sec. 719. Reporting.
Sec. 720. Definitions.
Sec. 721. Authorization of appropriations.
               Part II--Elementary and Secondary Schools

Sec. 731. Purpose.
Sec. 732. Authorization of appropriations.
Sec. 733. Allocation of funds.
Sec. 734. State use of funds.
Sec. 735. State and local applications.
Sec. 736. Use of funds.
Sec. 737. Private schools.
Sec. 738. Additional provisions.
               Part III--Community College Modernization

Sec. 739. Federal assistance for community college modernization.
                      Part IV--General Provisions

Sec. 740. Definitions.
Sec. 741. Buy American.
         Subtitle C--Transportation Infrastructure Investments

      Part I--Immediate Transportation Infrastructure Investments

Sec. 751. Immediate transportation infrastructure investments.
     Part II--Building and Upgrading Infrastructure for Long-Term 
                              Development

     subpart a--immediate transportation infrastructure investments

Sec. 761. Short title.
Sec. 762. Findings and purpose.
Sec. 763. Definitions.
         subpart b--american infrastructure financing authority

Sec. 765. Establishment and general authority of AIFA.
Sec. 766. Voting members of the Board of Directors.
Sec. 767. Chief executive officer of AIFA.
Sec. 768. Powers and duties of the Board of Directors.
Sec. 769. Senior management.
Sec. 770. Special Inspector General for AIFA.
Sec. 771. Other personnel.
Sec. 772. Compliance.
  subpart c--terms and limitations on direct loans and loan guarantees

Sec. 773. Eligibility criteria for assistance from AIFA and terms and 
                            limitations of loans.
Sec. 774. Loan terms and repayment.
Sec. 775. Compliance and enforcement.
Sec. 776. Audits; reports to the President and Congress.
                       subpart d--funding of aifa

Sec. 777. Administrative fees.
Sec. 778. Efficiency of AIFA.
Sec. 779. Funding.
    subpart e--extension of exemption from alternative minimum tax 
                 treatment for certain tax-exempt bonds

Sec. 780. Extension of exemption from alternative minimum tax treatment 
                            for certain tax-exempt bonds.

                       TITLE I--REPEAL SEQUESTER

SEC. 101. REPEAL OF SECTION 251A SEQUESTRATION TO ENFORCE BUDGET GOAL.

    Section 251A of the Balanced Budget and Emergency Deficit Control 
Act of 1985 is repealed.

            TITLE II--CLOSE TAX LOOPHOLES TO ACHIEVE BALANCE

 Subtitle A--28 Percent Limitation on Certain Deductions and Exclusions

SEC. 201. 28 PERCENT LIMITATION ON CERTAIN DEDUCTIONS AND EXCLUSIONS.

    (a) In General.--Part I of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 69. LIMITATION ON CERTAIN DEDUCTIONS AND EXCLUSIONS.

    ``(a) In General.--In the case of an individual for any taxable 
year, if--
            ``(1) the taxpayer's adjusted gross income is above--
                    ``(A) $250,000 in the case of a joint return within 
                the meaning of section 6013,
                    ``(B) $225,000 in the case of a head of household 
                return,
                    ``(C) $125,000 in the case of a married filing 
                separately return, or
                    ``(D) $200,000 in all other cases; and
            ``(2) the taxpayer's adjusted taxable income for such 
        taxable year exceeds the minimum marginal rate amount, then the 
        tax imposed under section 1 with respect to such taxpayer for 
        such taxable year shall be increased by the amount determined 
        under subsection (b). If the taxpayer is subject to tax under 
        section 55,
then in lieu of an increase in tax under section 1, the tax imposed 
under section 55 with respect to such taxpayer for such taxable year 
shall be increased by the amount determined under subsection (c).
    ``(b) Additional Amount.--The amount determined under this 
subsection with respect to any taxpayer for any taxable year is the 
excess (if any) of--
            ``(1) the tax which would be imposed under section 1 with 
        respect to such taxpayer for such taxable year if `adjusted 
        taxable income' were substituted for `taxable income' each 
        place it appears therein, over
            ``(2) the sum of--
                    ``(A) the tax which would be imposed under such 
                section with respect to such taxpayer for such taxable 
                year on the greater of--
                            ``(i) taxable income, or
                            ``(ii) the minimum marginal rate amount, 
                        plus
                    ``(B) 28 percent of the excess (if any) of the 
                taxpayer's adjusted taxable income over the greater 
                of--
                            ``(i) the taxpayer's taxable income, or
                            ``(ii) the minimum marginal rate amount.
    ``(c) Additional AMT Amount.--
            ``(1) The amount determined under this subsection with 
        respect to any taxpayer for any taxable year is the additional 
        amount computed under subsection (b) multiplied by the ratio 
        that--
                    ``(A) the result of--
                            ``(i) all itemized deductions (before the 
                        application of section 68), plus
                            ``(ii) the specified above-the-line 
                        deductions and specified exclusions, minus
                            ``(iii) the amount of deductions disallowed 
                        under section 56(b)(1)(A) and (B), minus
                            ``(iv) the non-preference disallowed 
                        deductions, bears to--
                    ``(B) the sum of--
                            ``(i) the total of itemized deductions 
                        (after the application of section 68), plus
                            ``(ii) the specified above-the-line 
                        deductions and specified exclusions.
            ``(2) If the top of the AMT exemption phase-out range for 
        the taxpayer exceeds the minimum marginal rate amount for the 
        taxpayer and if the taxpayer's alternative minimum taxable 
        income does not exceed the top of the AMT exemption phase-out 
        range, the taxpayer must increase its additional AMT amount by 
        7 percent of the excess of--
                    ``(A) the lesser of--
                            ``(i) the top of the AMT exemption phase-
                        out range, or
                            ``(ii) the taxpayer's alternative minimum 
                        taxable income, computed--
                                    ``(I) without regard to any 
                                itemized deduction or any specified 
                                above-the-line deduction, and
                                    ``(II) by including the amount of 
                                any specified exclusion; over
                    ``(B) the greater of--
                            ``(i) the taxpayer's alternative minimum 
                        taxable income, or
                            ``(ii) the minimum marginal rate amount.
    ``(d) Minimum Marginal Rate Amount.--For purposes of this section, 
the term `minimum marginal rate amount' means, with respect to any 
taxpayer for any taxable year, the highest amount of the taxpayer's 
taxable income which would be subject to a marginal rate of tax under 
section 1 that is less than 36 percent with respect to such taxable 
year.
    ``(e) Adjusted Taxable Income.--For purposes of this section--
            ``(1) In general.--The term `adjusted taxable income' means 
        taxable income computed--
                    ``(A) without regard to any itemized deduction or 
                any specified above-the-line deduction, and
                    ``(B) by including in gross income any specified 
                exclusion.
            ``(2) Specified above-the-line deduction.--The term 
        `specified above-the-line deduction' means--
                    ``(A) the deduction provided under section 162(l) 
                (relating to special rules for health insurance costs 
                of self-employed individuals),
                    ``(B) the deduction provided under section 199 
                (relating to income attributable to domestic production 
                activities), and
                    ``(C) the deductions provided under the following 
                paragraphs of section 62(a):
                            ``(i) Paragraph (2) (relating to certain 
                        trade and business deductions of employees), 
                        other than subparagraph (A) thereof.
                            ``(ii) Paragraph (15) (relating to moving 
                        expenses).
                            ``(iii) Paragraph (16) (relating to Archer 
                        MSAs).
                            ``(iv) Paragraph (17) (relating to interest 
                        on education loans).
                            ``(v) Paragraph (18) (relating to higher 
                        education expenses).
                            ``(vi) Paragraph (19) (relating to health 
                        savings accounts).
            ``(3) Specified exclusion.--The term `specified exclusion' 
        means--
                    ``(A) any interest excluded under section 103,
                    ``(B) any exclusion with respect to the cost 
                described in section 6051(a)(14) (without regard to 
                subparagraph (B) thereof), and
                    ``(C) any foreign earned income excluded under 
                section 911.
    ``(f) Non-Preference Disallowed Deductions.--For purposes of this 
section, the term `AMT-allowed deductions' means all itemized 
deductions disallowed by section 68 multiplied by the ratio that--
            ``(1) a taxpayer's itemized deductions for the taxable year 
        that are subject to section 68 (that is, not including those 
        excluded under section 68(c)) and that are not limited under 
        section 56(b)(1)(A) or (B), bears to
            ``(2) the taxpayer's itemized deductions for the taxable 
        year that are subject to section 68 (that is, not including 
        those excluded under section 68(c)).
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including regulations 
which provide appropriate adjustments to the additional AMT amount.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after January 1, 2013.

Subtitle B--Tax Carried Interest in Investment Partnerships as Ordinary 
                                 Income

SEC. 211. PARTNERSHIP INTERESTS TRANSFERRED IN CONNECTION WITH 
              PERFORMANCE OF SERVICES.

    (a) Modification to Election To Include Partnership Interest in 
Gross Income in Year of Transfer.--Subsection (c) of section 83 of the 
Internal Revenue Code of 1986 is amended by redesignating paragraph (4) 
as paragraph (5) and by inserting after paragraph (3) the following new 
paragraph:
            ``(4) Partnership interests.--Except as provided by the 
        Secretary--
                    ``(A) In general.--In the case of any transfer of 
                an interest in a partnership in connection with the 
                provision of services to (or for the benefit of) such 
                partnership--
                            ``(i) the fair market value of such 
                        interest shall be treated for purposes of this 
                        section as being equal to the amount of the 
                        distribution which the partner would receive if 
                        the partnership sold (at the time of the 
                        transfer) all of its assets at fair market 
                        value and distributed the proceeds of such sale 
                        (reduced by the liabilities of the partnership) 
                        to its partners in liquidation of the 
                        partnership, and
                            ``(ii) the person receiving such interest 
                        shall be treated as having made the election 
                        under subsection (b)(1) unless such person 
                        makes an election under this paragraph to have 
                        such subsection not apply.
                    ``(B) Election.--The election under subparagraph 
                (A)(ii) shall be made under rules similar to the rules 
                of subsection (b)(2).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to interests in partnerships transferred after December 31, 2012.

SEC. 212. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIPS.

    (a) In General.--Part I of subchapter K of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIPS.

    ``(a) Treatment of Distributive Share of Partnership Items.--For 
purposes of this title, in the case of an investment services 
partnership interest--
            ``(1) In general.--Notwithstanding section 702(b)--
                    ``(A) an amount equal to the net capital gain with 
                respect to such interest for any partnership taxable 
                year shall be treated as ordinary income, and
                    ``(B) subject to the limitation of paragraph (2), 
                an amount equal to the net capital loss with respect to 
                such interest for any partnership taxable year shall be 
                treated as an ordinary loss.
            ``(2) Recharacterization of losses limited to 
        recharacterized gains.--The amount treated as ordinary loss 
        under paragraph (1)(B) for any taxable year shall not exceed 
        the excess (if any) of--
                    ``(A) the aggregate amount treated as ordinary 
                income under paragraph (1)(A) with respect to the 
                investment services partnership interest for all 
                preceding partnership taxable years to which this 
                section applies, over
                    ``(B) the aggregate amount treated as ordinary loss 
                under paragraph (1)(B) with respect to such interest 
                for all preceding partnership taxable years to which 
                this section applies.
            ``(3) Allocation to items of gain and loss.--
                    ``(A) Net capital gain.--The amount treated as 
                ordinary income under paragraph (1)(A) shall be 
                allocated ratably among the items of long-term capital 
                gain taken into account in determining such net capital 
                gain.
                    ``(B) Net capital loss.--The amount treated as 
                ordinary loss under paragraph (1)(B) shall be allocated 
                ratably among the items of long-term capital loss and 
                short-term capital loss taken into account in 
                determining such net capital loss.
            ``(4) Terms relating to capital gains and losses.--For 
        purposes of this section--
                    ``(A) In general.--Net capital gain, long-term 
                capital gain, and long-term capital loss, with respect 
                to any investment services partnership interest for any 
                taxable year, shall be determined under section 1222, 
                except that such section shall be applied--
                            ``(i) without regard to the 
                        recharacterization of any item as ordinary 
                        income or ordinary loss under this section,
                            ``(ii) by only taking into account items of 
                        gain and loss taken into account by the holder 
                        of such interest under section 702 with respect 
                        to such interest for such taxable year,
                            ``(iii) by treating property which is taken 
                        into account in determining gains and losses to 
                        which section 1231 applies as capital assets 
                        held for more than 1 year, and
                            ``(iv) without regard to section 1202.
                    ``(B) Net capital loss.--The term `net capital 
                loss' means the excess of the losses from sales or 
                exchanges of capital assets over the gains from such 
                sales or exchanges. Rules similar to the rules of 
                clauses (i) through (iv) of subparagraph (A) shall 
                apply for purposes of the preceding sentence.
            ``(5) Special rules for dividends.--
                    ``(A) Individuals.--Any dividend allocated to any 
                investment services partnership interest shall not be 
                treated as qualified dividend income for purposes of 
                section 1(h).
                    ``(B) Corporations.--No deduction shall be allowed 
                under section 243 or 245 with respect to any dividend 
                allocated to any investment services partnership 
                interest.
    ``(b) Dispositions of Partnership Interests.--
            ``(1) Gain.--
                    ``(A) In general.--Any gain on the disposition of 
                an investment services partnership interest shall be--
                            ``(i) treated as ordinary income, and
                            ``(ii) recognized notwithstanding any other 
                        provision of this subtitle.
                    ``(B) Exceptions; certain transfers to charities 
                and related persons.--Subparagraph (A) shall not apply 
                to--
                            ``(i) a disposition by gift,
                            ``(ii) a transfer at death, or
                            ``(iii) other disposition identified by the 
                        Secretary as a disposition with respect to 
                        which it would be inconsistent with the 
                        purposes of this section to apply subparagraph 
                        (A), if such gift, transfer, or other 
                        disposition is to an organization described in 
                        section 170(b)(1)(A) (other than any 
                        organization described in section 509(a)(3) or 
                        any fund or account described in section 
                        4966(d)(2)) or a person with respect to whom 
                        the transferred interest is an investment 
                        services partnership interest.
            ``(2) Loss.--Any loss on the disposition of an investment 
        services partnership interest shall be treated as an ordinary 
        loss to the extent of the excess (if any) of--
                    ``(A) the aggregate amount treated as ordinary 
                income under subsection (a) with respect to such 
                interest for all partnership taxable years to which 
                this section applies, over
                    ``(B) the aggregate amount treated as ordinary loss 
                under subsection (a) with respect to such interest for 
                all partnership taxable years to which this section 
                applies.
            ``(3) Election with respect to certain exchanges.--
        Paragraph (1)(A)(ii) shall not apply to the contribution of an 
        investment services partnership interest to a partnership in 
        exchange for an interest in such partnership if--
                    ``(A) the taxpayer makes an irrevocable election to 
                treat the partnership interest received in the exchange 
                as an investment services partnership interest, and
                    ``(B) the taxpayer agrees to comply with such 
                reporting and recordkeeping requirements as the 
                Secretary may prescribe.
            ``(4) Distributions of partnership property.--
                    ``(A) In general.--In the case of any distribution 
                of property by a partnership with respect to any 
                investment services partnership interest held by a 
                partner, the partner receiving such property shall 
                recognize gain equal to the excess (if any) of--
                            ``(i) the fair market value of such 
                        property at the time of such distribution, over
                            ``(ii) the adjusted basis of such property 
                        in the hands of such partner (determined 
                        without regard to subparagraph (C)).
                    ``(B) Treatment of gain as ordinary income.--Any 
                gain recognized by such partner under subparagraph (A) 
                shall be treated as ordinary income to the same extent 
                and in the same manner as the increase in such 
                partner's distributive share of the taxable income of 
                the partnership would be treated under subsection (a) 
                if, immediately prior to the distribution, the 
                partnership had sold the distributed property at fair 
                market value and all of the gain from such disposition 
                were allocated to such partner. For purposes of 
                applying paragraphs (2) and (3) of subsection (a), any 
                gain treated as ordinary income under this subparagraph 
                shall be treated as an amount treated as ordinary 
                income under subsection (a)(1)(A).
                    ``(C) Adjustment of basis.--In the case a 
                distribution to which subparagraph (A) applies, the 
                basis of the distributed property in the hands of the 
                distributee partner shall be the fair market value of 
                such property.
                    ``(D) Special rules with respect to mergers, 
                divisions, and technical terminations.--In the case of 
                a taxpayer which satisfies requirements similar to the 
                requirements of subparagraphs (A) and (B) of paragraph 
                (3), this paragraph and paragraph (1)(A)(ii) shall not 
                apply to the distribution of a partnership interest if 
                such distribution is in connection with a contribution 
                (or deemed contribution) of any property of the 
                partnership to which section 721 applies pursuant to a 
                transaction described in paragraph (1)(B) or (2) of 
                section 708(b).
    ``(c) Investment Services Partnership Interest.--For purposes of 
this section--
            ``(1) In general.--The term `investment services 
        partnership interest' means any interest in an investment 
        partnership acquired or held by any person in connection with 
        the conduct of a trade or business described in paragraph (2) 
        by such person (or any person related to such person). An 
        interest in an investment partnership held by any person--
                    ``(A) shall not be treated as an investment 
                services partnership interest for any period before the 
                first date on which it is so held in connection with 
                such a trade or business,
                    ``(B) shall not cease to be an investment services 
                partnership interest merely because such person holds 
                such interest other than in connection with such a 
                trade or business, and
                    ``(C) shall be treated as an investment services 
                partnership interest if acquired from a related person 
                in whose hands such interest was an investment services 
                partnership interest.
            ``(2) Businesses to which this section applies.--A trade or 
        business is described in this paragraph if such trade or 
        business primarily involves the performance of any of the 
        following services with respect to assets held (directly or 
        indirectly) by the investment partnership referred to in 
        paragraph (1):
                    ``(A) Advising as to the advisability of investing 
                in, purchasing, or selling any specified asset.
                    ``(B) Managing, acquiring, or disposing of any 
                specified asset.
                    ``(C) Arranging financing with respect to acquiring 
                specified assets.
                    ``(D) Any activity in support of any service 
                described in subparagraphs (A) through (C).
            ``(3) Investment partnership.--
                    ``(A) In general.--The term `investment 
                partnership' means any partnership if, at the end of 
                any calendar quarter ending after December 31, 2012--
                            ``(i) substantially all of the assets of 
                        the partnership are specified assets 
                        (determined without regard to any section 197 
                        intangible within the meaning of section 
                        197(d)), and
                            ``(ii) more than half of the contributed 
                        capital of the partnership is attributable to 
                        contributions of property by one or more 
                        persons in exchange for interests in the 
                        partnership which (in the hands of such 
                        persons) constitute property held for the 
                        production of income.
                    ``(B) Special rules for determining if property 
                held for the production of income.--Except as otherwise 
                provided by the Secretary, for purposes of determining 
                whether any interest in a partnership constitutes 
                property held for the production of income under 
                subparagraph (A)(ii)--
                            ``(i) any election under subsection (e) or 
                        (f) of section 475 shall be disregarded, and
                            ``(ii) paragraph (5)(B) shall not apply.
                    ``(C) Antiabuse rules.--The Secretary may issue 
                regulations or other guidance which prevent the 
                avoidance of the purposes of subparagraph (A), 
                including regulations or other guidance which treat 
                convertible and contingent debt (and other debt having 
                the attributes of equity) as a capital interest in the 
                partnership.
                    ``(D) Controlled groups of entities.--
                            ``(i) In general.--In the case of a 
                        controlled group of entities, if an interest in 
                        the partnership received in exchange for a 
                        contribution to the capital of the partnership 
                        by any member of such controlled group would 
                        (in the hands of such member) constitute 
                        property not held for the production of income, 
                        then any interest in such partnership held by 
                        any member of such group shall be treated for 
                        purposes of subparagraph (A) as constituting 
                        (in the hands of such member) property not held 
                        for the production of income.
                            ``(ii) Controlled group of entities.--For 
                        purposes of clause (i), the term `controlled 
                        group of entities' means a controlled group of 
                        corporations as defined in section 1563(a)(1), 
                        applied without regard to subsections (a)(4) 
                        and (b)(2) of section 1563. A partnership or 
                        any other entity (other than a corporation) 
                        shall be treated as a member of a controlled 
                        group of entities if such entity is controlled 
                        (within the meaning of section 954(d)(3)) by 
                        members of such group (including any entity 
                        treated as a member of such group by reason of 
                        this sentence).
            ``(4) Specified asset.--The term `specified asset' means 
        securities (as defined in section 475(c)(2) without regard to 
        the last sentence thereof), real estate held for rental or 
        investment, interests in partnerships, commodities (as defined 
        in section 475(e)(2)), cash or cash equivalents, or options or 
        derivative contracts with respect to any of the foregoing.
            ``(5) Related persons.--
                    ``(A) In general.--A person shall be treated as 
                related to another person if the relationship between 
                such persons is described in section 267(b) or 707(b).
                    ``(B) Attribution of partner services.--Any service 
                described in paragraph (2) which is provided by a 
                partner of a partnership shall be treated as also 
                provided by such partnership.
    ``(d) Exception for Certain Capital Interests.--
            ``(1) In general.--In the case of any portion of an 
        investment services partnership interest which is a qualified 
        capital interest, all items of gain and loss (and any 
        dividends) which are allocated to such qualified capital 
        interest shall not be taken into account under subsection (a) 
        if--
                    ``(A) allocations of items are made by the 
                partnership to such qualified capital interest in the 
                same manner as such allocations are made to other 
                qualified capital interests held by partners who do not 
                provide any services described in subsection (c)(2) and 
                who are not related to the partner holding the 
                qualified capital interest, and
                    ``(B) the allocations made to such other interests 
                are significant compared to the allocations made to 
                such qualified capital interest.
            ``(2) Authority to provide exceptions to allocation 
        requirements.--To the extent provided by the Secretary in 
        regulations or other guidance--
                    ``(A) Allocations to portion of qualified capital 
                interest.--Paragraph (1) may be applied separately with 
                respect to a portion of a qualified capital interest.
                    ``(B) No or insignificant allocations to nonservice 
                providers.--In any case in which the requirements of 
                paragraph (1)(B) are not satisfied, items of gain and 
                loss (and any dividends) shall not be taken into 
                account under subsection (a) to the extent that such 
                items are properly allocable under such regulations or 
                other guidance to qualified capital interests.
                    ``(C) Allocations to service providers' qualified 
                capital interests which are less than other 
                allocations.--Allocations shall not be treated as 
                failing to meet the requirement of paragraph (1)(A) 
                merely because the allocations to the qualified capital 
                interest represent a lower return than the allocations 
                made to the other qualified capital interests referred 
                to in such paragraph.
            ``(3) Special rule for changes in services and capital 
        contributions.--In the case of an interest in a partnership 
        which was not an investment services partnership interest and 
        which, by reason of a change in the services with respect to 
        assets held (directly or indirectly) by the partnership or by 
        reason of a change in the capital contributions to such 
        partnership, becomes an investment services partnership 
        interest, the qualified capital interest of the holder of such 
        partnership interest immediately after such change shall not, 
        for purposes of this subsection, be less than the fair market 
        value of such interest (determined immediately before such 
        change).
            ``(4) Special rule for tiered partnerships.--Except as 
        otherwise provided by the Secretary, in the case of tiered 
        partnerships, all items which are allocated in a manner which 
        meets the requirements of paragraph (1) to qualified capital 
        interests in a lower-tier partnership shall retain such 
        character to the extent allocated on the basis of qualified 
        capital interests in any upper-tier partnership.
            ``(5) Exception for no-self-charged carry and management 
        fee provisions.--Except as otherwise provided by the Secretary, 
        an interest shall not fail to be treated as satisfying the 
        requirement of paragraph (1)(A) merely because the allocations 
        made by the partnership to such interest do not reflect the 
        cost of services described in subsection (c)(2) which are 
        provided (directly or indirectly) to the partnership by the 
        holder of such interest (or a related person).
            ``(6) Special rule for dispositions.--In the case of any 
        investment services partnership interest any portion of which 
        is a qualified capital interest, subsection (b) shall not apply 
        to so much of any gain or loss as bears the same proportion to 
        the entire amount of such gain or loss as--
                    ``(A) the distributive share of gain or loss that 
                would have been allocated to the qualified capital 
                interest (consistent with the requirements of paragraph 
                (1)) if the partnership had sold all of its assets at 
                fair market value immediately before the disposition, 
                bears to
                    ``(B) the distributive share of gain or loss that 
                would have been so allocated to the investment services 
                partnership interest of which such qualified capital 
                interest is a part.
            ``(7) Qualified capital interest.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified capital 
                interest' means so much of a partner's interest in the 
                capital of the partnership as is attributable to--
                            ``(i) the fair market value of any money or 
                        other property contributed to the partnership 
                        in exchange for such interest (determined 
                        without regard to section 752(a)),
                            ``(ii) any amounts which have been included 
                        in gross income under section 83 with respect 
                        to the transfer of such interest, and
                            ``(iii) the excess (if any) of--
                                    ``(I) any items of income and gain 
                                taken into account under section 702 
                                with respect to such interest, over
                                    ``(II) any items of deduction and 
                                loss so taken into account.
                    ``(B) Adjustment to qualified capital interest.--
                            ``(i) Distributions and losses.--The 
                        qualified capital interest shall be reduced by 
                        distributions from the partnership with respect 
                        to such interest and by the excess (if any) of 
                        the amount described in subparagraph 
                        (A)(iii)(II) over the amount described in 
                        subparagraph (A)(iii)(I).
                            ``(ii) Special rule for contributions of 
                        property.--In the case of any contribution of 
                        property described in subparagraph (A)(i) with 
                        respect to which the fair market value of such 
                        property is not equal to the adjusted basis of 
                        such property immediately before such 
                        contribution, proper adjustments shall be made 
                        to the qualified capital interest to take into 
                        account such difference consistent with such 
                        regulations or other guidance as the Secretary 
                        may provide.
                    ``(C) Technical terminations, etc., disregarded.--
                No increase or decrease in the qualified capital 
                interest of any partner shall result from a 
                termination, merger, consolidation, or division 
                described in section 708, or any similar transaction.
            ``(8) Treatment of certain loans.--
                    ``(A) Proceeds of partnership loans not treated as 
                qualified capital interest of service providing 
                partners.--For purposes of this subsection, an 
                investment services partnership interest shall not be 
                treated as a qualified capital interest to the extent 
                that such interest is acquired in connection with the 
                proceeds of any loan or other advance made or 
                guaranteed, directly or indirectly, by any other 
                partner or the partnership (or any person related to 
                any such other partner or the partnership). The 
                preceding sentence shall not apply to the extent the 
                loan or other advance is repaid before January 1, 2013 
                unless such repayment is made with the proceeds of a 
                loan or other advance described in the preceding 
                sentence.
                    ``(B) Reduction in allocations to qualified capital 
                interests for loans from nonservice-providing partners 
                to the partnership.--For purposes of this subsection, 
                any loan or other advance to the partnership made or 
                guaranteed, directly or indirectly, by a partner not 
                providing services described in subsection (c)(2) to 
                the partnership (or any person related to such partner) 
                shall be taken into account in determining the 
                qualified capital interests of the partners in the 
                partnership.
    ``(e) Other Income and Gain in Connection With Investment 
Management Services.--
            ``(1) In general.--If--
                    ``(A) a person performs (directly or indirectly) 
                investment management services for any investment 
                entity,
                    ``(B) such person holds (directly or indirectly) a 
                disqualified interest with respect to such entity, and
                    ``(C) the value of such interest (or payments 
                thereunder) is substantially related to the amount of 
                income or gain (whether or not realized) from the 
                assets with respect to which the investment management 
                services are performed, any income or gain with respect 
                to such interest shall be treated as ordinary income. 
                Rules similar to the rules of subsections (a)(5) and 
                (d) shall apply for purposes of this subsection.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Disqualified interest.--
                            ``(i) In general.--The term `disqualified 
                        interest' means, with respect to any investment 
                        entity--
                                    ``(I) any interest in such entity 
                                other than indebtedness,
                                    ``(II) convertible or contingent 
                                debt of such entity,
                                    ``(III) any option or other right 
                                to acquire property described in 
                                subclause (I) or (II), and
                                    ``(IV) any derivative instrument 
                                entered into (directly or indirectly) 
                                with such entity or any investor in 
                                such entity.
                            ``(ii) Exceptions.--Such term shall not 
                        include--
                                    ``(I) a partnership interest,
                                    ``(II) except as provided by the 
                                Secretary, any interest in a taxable 
                                corporation, and
                                    ``(III) except as provided by the 
                                Secretary, stock in an S corporation.
                    ``(B) Taxable corporation.--The term `taxable 
                corporation' means--
                            ``(i) a domestic C corporation, or
                            ``(ii) a foreign corporation substantially 
                        all of the income of which is--
                                    ``(I) effectively connected with 
                                the conduct of a trade or business in 
                                the United States, or
                                    ``(II) subject to a comprehensive 
                                foreign income tax (as defined in 
                                section 457A(d)(2)).
                    ``(C) Investment management services.--The term 
                `investment management services' means a substantial 
                quantity of any of the services described in subsection 
                (c)(2).
                    ``(D) Investment entity.--The term `investment 
                entity' means any entity which, if it were a 
                partnership, would be an investment partnership.
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as is necessary or appropriate to carry out the 
purposes of this section, including regulations or other guidance to--
            ``(1) provide modifications to the application of this 
        section (including treating related persons as not related to 
        one another) to the extent such modification is consistent with 
        the purposes of this section, and
            ``(2) coordinate this section with the other provisions of 
        this title.
    ``(g) Cross Reference.--For 40 percent penalty on certain 
underpayments due to the avoidance of this section, see section 
6662.''.
    (b) Application of Section 751 to Indirect Dispositions of 
Investment Services Partnership Interests.--
            (1) In general.--Subsection (a) of section 751 of the 
        Internal Revenue Code of 1986 is amended by striking ``or'' at 
        the end of paragraph (1), by inserting ``or'' at the end of 
        paragraph (2), and by inserting after paragraph (2) the 
        following new paragraph:
            ``(3) investment services partnership interests held by the 
        partnership,''.
            (2) Certain distributions treated as sales or exchanges.--
        Subparagraph (A) of section 751(b)(1) of the Internal Revenue 
        Code of 1986 is amended by striking ``or'' at the end of clause 
        (i), by inserting ``or'' at the end of clause (ii), and by 
        inserting after clause (ii) the following new clause:
                            ``(iii) investment services partnership 
                        interests held by the partnership,''.
            (3) Application of special rules in the case of tiered 
        partnerships.--Subsection (f) of section 751 of the Internal 
        Revenue Code of 1986 is amended by striking ``or'' at the end 
        of paragraph (1), by inserting ``or'' at the end of paragraph 
        (2), and by inserting after paragraph (2) the following new 
        paragraph:
            ``(3) investment services partnership interests held by the 
        partnership,''.
            (4) Investment services partnership interests; qualified 
        capital interests.--Section 751 of the Internal Revenue Code of 
        1986 is amended by adding at the end the following new 
        subsection:
    ``(g) Investment Services Partnership Interests.--For purposes of 
this section--
            ``(1) In general.--The term `investment services 
        partnership interest' has the meaning given such term by 
        section 710(c).
            ``(2) Adjustments for qualified capital interests.--The 
        amount to which subsection (a) applies by reason of paragraph 
        (3) thereof shall not include so much of such amount as is 
        attributable to any portion of the investment services 
        partnership interest which is a qualified capital interest 
        (determined under rules similar to the rules of section 
        710(d)).
            ``(3) Recognition of gains.--Any gain with respect to which 
        subsection (a) applies by reason of paragraph (3) thereof shall 
        be recognized notwithstanding any other provision of this 
        title.
            ``(4) Coordination with inventory items.--An investment 
        services partnership interest held by the partnership shall not 
        be treated as an inventory item of the partnership.
            ``(5) Prevention of double counting.--Under regulations or 
        other guidance prescribed by the Secretary, subsection (a)(3) 
        shall not apply with respect to any amount to which section 710 
        applies.''.
    (c) Treatment for Purposes of Section 7704.--Subsection (d) of 
section 7704 of the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph:
            ``(6) Income from certain carried interests not 
        qualified.--
                    ``(A) In general.--Specified carried interest 
                income shall not be treated as qualifying income.
                    ``(B) Specified carried interest income.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `specified 
                        carried interest income' means--
                                    ``(I) any item of income or gain 
                                allocated to an investment services 
                                partnership interest (as defined in 
                                section 710(c)) held by the 
                                partnership,
                                    ``(II) any gain on the disposition 
                                of an investment services partnership 
                                interest (as so defined) or a 
                                partnership interest to which (in the 
                                hands of the partnership) section 751 
                                applies, and
                                    ``(III) any income or gain taken 
                                into account by the partnership under 
                                subsection (b)(4) or (e) of section 
                                710.
                            ``(ii) Exception for qualified capital 
                        interests.--A rule similar to the rule of 
                        section 710(d) shall apply for purposes of 
                        clause (i).
                    ``(C) Coordination with other provisions.--
                Subparagraph (A) shall not apply to any item described 
                in paragraph (1)(E) (or so much of paragraph (1)(F) as 
                relates to paragraph (1)(E)).
                    ``(D) Special rules for certain partnerships.--
                            ``(i) Certain partnerships owned by real 
                        estate investment trusts.--Subparagraph (A) 
                        shall not apply in the case of a partnership 
                        which meets each of the following requirements:
                                    ``(I) Such partnership is treated 
                                as publicly traded under this section 
                                solely by reason of interests in such 
                                partnership being convertible into 
                                interests in a real estate investment 
                                trust which is publicly traded.
                                    ``(II) Fifty percent or more of the 
                                capital and profits interests of such 
                                partnership are owned, directly or 
                                indirectly, at all times during the 
                                taxable year by such real estate 
                                investment trust (determined with the 
                                application of section 267(c)).
                                    ``(III) Such partnership meets the 
                                requirements of paragraphs (2), (3), 
                                and (4) of section 856(c).
                            ``(ii) Certain partnerships owning other 
                        publicly traded partnerships.--Subparagraph (A) 
                        shall not apply in the case of a partnership 
                        which meets each of the following requirements:
                                    ``(I) Substantially all of the 
                                assets of such partnership consist of 
                                interests in one or more publicly 
                                traded partnerships (determined without 
                                regard to subsection (b)(2)).
                                    ``(II) Substantially all of the 
                                income of such partnership is ordinary 
                                income or section 1231 gain (as defined 
                                in section 1231(a)(3)).
                    ``(E) Transitional rule.--Subparagraph (A) shall 
                not apply to any taxable year of the partnership 
                beginning before the date which is 10 years after 
                January 1, 2013.''.
    (d) Imposition of Penalty on Underpayments.--
            (1) In general.--Subsection (b) of section 6662 of the 
        Internal Revenue Code of 1986 is amended by inserting after 
        paragraph (7) the following new paragraph:
            ``(8) The application of section 710(e) or the regulations 
        or other guidance prescribed under section 710(h) to prevent 
        the avoidance of the purposes of section 710.''.
            (2) Amount of penalty.--
                    (A) In general.--Section 6662 of the Internal 
                Revenue Code of 1986 is amended by adding at the end 
                the following new subsection:
    ``(k) Increase in Penalty in Case of Property Transferred for 
Investment Management Services.--In the case of any portion of an 
underpayment to which this section applies by reason of subsection 
(b)(8), subsection (a) shall be applied with respect to such portion by 
substituting `40 percent' for `20 percent'.''.
                    (B) Conforming amendment.--Subparagraph (B) of 
                section 6662A(e)(2) is amended by striking ``or (i)'' 
                and inserting ``, (i), or (k)''.
            (3) Special rules for application of reasonable cause 
        exception.--Subsection (c) of section 6664 is amended--
                    (A) by redesignating paragraphs (3) and (4) as 
                paragraphs (4) and (5), respectively;
                    (B) by striking ``paragraph (3)'' in paragraph 
                (5)(A), as so redesignated, and inserting ``paragraph 
                (4)''; and
                    (C) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) Special rule for underpayments attributable to 
        investment management services.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any portion of an underpayment to which section 6662 
                applies by reason of subsection (b)(8) unless--
                            ``(i) the relevant facts affecting the tax 
                        treatment of the item are adequately disclosed,
                            ``(ii) there is or was substantial 
                        authority for such treatment, and
                            ``(iii) the taxpayer reasonably believed 
                        that such treatment was more likely than not 
                        the proper treatment.
                    ``(B) Rules relating to reasonable belief.--Rules 
                similar to the rules of subsection (d)(3) shall apply 
                for purposes of subparagraph (A)(iii).''.
    (e) Income and Loss From Investment Services Partnership Interests 
Taken Into Account in Determining Net Earnings From Self-Employment.--
            (1) Internal revenue code.--
                    (A) In general.--Section 1402(a) of the Internal 
                Revenue Code of 1986 is amended by striking ``and'' at 
                the end of paragraph (16), by striking the period at 
                the end of paragraph (17) and inserting ``; and'', and 
                by inserting after paragraph (17) the following new 
                paragraph:
            ``(18) notwithstanding the preceding provisions of this 
        subsection, in the case of any individual engaged in the trade 
        or business of providing services described in section 
        710(c)(2) with respect to any entity, investment services 
        partnership income or loss (as defined in subsection (m)) of 
        such individual with respect to such entity shall be taken into 
        account in determining the net earnings from self-employment of 
        such individual.''.
                    (B) Investment services partnership income or 
                loss.--Section 1402 of the Internal Revenue Code is 
                amended by adding at the end the following new 
                subsection:
    ``(m) Investment Services Partnership Income or Loss.--For purposes 
of subsection (a)--
            ``(1) In general.--The term `investment services 
        partnership income or loss' means, with respect to any 
        investment services partnership interest (as defined in section 
        710(c)), the net of--
                    ``(A) the amounts treated as ordinary income or 
                ordinary loss under subsections (b) and (e) of section 
                710 with respect to such interest,
                    ``(B) all items of income, gain, loss, and 
                deduction allocated to such interest, and
                    ``(C) the amounts treated as realized from the sale 
                or exchange of property other than a capital asset 
                under section 751 with respect to such interest.
            ``(2) Exception for qualified capital interests.--A rule 
        similar to the rule of section 710(d) shall apply for purposes 
        of applying paragraph (1)(B)(ii).''.
            (2) Social security act.--Section 211(a) of the Social 
        Security Act is amended by striking ``and'' at the end of 
        paragraph (15), by striking the period at the end of paragraph 
        (16) and inserting ``; and'', and by inserting after paragraph 
        (16) the following new paragraph:
            ``(17) Notwithstanding the preceding provisions of this 
        subsection, in the case of any individual engaged in the trade 
        or business of providing services described in section 
        710(c)(2) of the Internal Revenue Code of 1986 with respect to 
        any entity, investment services partnership income or loss (as 
        defined in section 1402(m) of such Code) shall be taken into 
        account in determining the net earnings from self-employment of 
        such individual.''.
    (f) Conforming Amendments.--
            (1) Subsection (d) of section 731 of the Internal Revenue 
        Code of 1986 is amended by inserting ``section 710(b)(4) 
        (relating to distributions of partnership property),'' after 
        ``to the extent otherwise provided by''.
            (2) Section 741 of the Internal Revenue Code of 1986 is 
        amended by inserting ``or section 710 (relating to special 
        rules for partners providing investment management services to 
        partnerships)'' before the period at the end.
            (3) The table of sections for part I of subchapter K of 
        chapter 1 of the Internal Revenue Code of 1986 is amended by 
        adding at the end the following new item:

``Sec. 710. Special rules for partners providing investment management 
                            services to partnerships.''.
    (g) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending after December 31, 2012.
            (2) Partnership taxable years which include effective 
        date.--In applying section 710(a) of the Internal Revenue Code 
        of 1986 (as added by this section) in the case of any 
        partnership taxable year which includes January 1, 2013, the 
        amount of the net income referred to in such section shall be 
        treated as being the lesser of the net income for the entire 
        partnership taxable year or the net income determined by only 
        taking into account items attributable to the portion of the 
        partnership taxable year which is after such date.
            (3) Dispositions of partnership interests.--
                    (A) In general.--Section 710(b) of such Code (as 
                added by this section) shall apply to dispositions and 
                distributions after December 31, 2012.
                    (B) Indirect dispositions.--The amendments made by 
                subsection (b) shall apply to transactions after 
                December 31, 2012.
            (4) Other income and gain in connection with investment 
        management services.--Section 710(e) of such Code (as added by 
        this section) shall take effect on January 1, 2013.

                  Subtitle C--Dual Capacity Taxpayers

SEC. 221. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO DUAL 
              CAPACITY TAXPAYERS.

    (a) In General.--Section 901 of the Internal Revenue Code of 1986 
(relating to credit for taxes of foreign countries and of possessions 
of the United States) is amended by redesignating subsection (n) as 
subsection (o) and by inserting after subsection (m) the following new 
subsection:
    ``(n) Special Rules Relating to Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer or any member of the worldwide affiliated group of 
        which such dual capacity taxpayer is also a member to any 
        foreign country or to any possession of the United States for 
        any period shall not be considered a tax to the extent such 
        amount exceeds the amount (determined in accordance with 
        regulations) which would have been required to be paid if the 
        taxpayer were not a dual capacity taxpayer.
            ``(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) Regulations.--The Secretary may issue such 
        regulations or other guidance as is necessary or appropriate to 
        carry out the purposes of this subsection.''.
    (b) 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.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts that, if such amounts were an amount of tax paid or 
accrued, would be considered paid or accrued in taxable years beginning 
after December 31, 2012.

SEC. 222. SEPARATE BASKET TREATMENT TAXES PAID ON FOREIGN OIL AND GAS 
              INCOME.

    (a) Separate Basket for Foreign Tax Credit.--Paragraph (1) of 
section 904(d) of the Internal Revenue Code of 1986 is amended by 
striking ``and'' at the end of subparagraph (A), by striking the period 
at the end of subparagraph (B) and inserting ``, and'', and by adding 
at the end the following:
                    ``(C) combined foreign oil and gas income (as 
                defined in section 907(b)(1)).''.
    (b) Coordination.--Section 904(d)(2) of such Code is amended by 
redesignating subparagraphs (J) and (K) as subparagraphs (K) and (L) 
and by inserting after subparagraph (I) the following:
                    ``(J) Coordination with combined foreign oil and 
                gas income.--For purposes of this section, passive 
                category income and general category income shall not 
                include combined foreign oil and gas income (as defined 
                in section 907(b)(1)).''.
    (c) Conforming Amendments.--
            (1) Section 907(a) is hereby repealed.
            (2) Section 907(c)(4) is hereby repealed.
            (3) Section 907(f) is hereby repealed.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2012.
            (2) Transitional rules.--
                    (A) Carryovers.--Any unused foreign oil and gas 
                taxes which under section 907(f) of such Code (as in 
                effect before the amendment made by subsection (c)(3)) 
                would have been allowable as a carryover to the 
                taxpayer's first taxable year beginning after December 
                31, 2012 (without regard to the limitation of paragraph 
                (2) of such section 907(f) for first taxable year) 
                shall be allowed as carryovers under section 904(c) of 
                such Code in the same manner as if such taxes were 
                unused taxes under such section 904(c) with respect to 
                foreign oil and gas extraction income.
                    (B) Losses.--The amendment made by subsection 
                (c)(2) shall not apply to foreign oil and gas 
                extraction losses arising in taxable years beginning on 
                or before the date of the enactment of this Act.

     Subtitle D--Close Exclusion of Foreign-Earned Income Loophole

SEC. 231. REPEAL OF FOREIGN EARNED INCOME EXCLUSION.

    (a) In General.--Subsection (a) of section 911 of the Internal 
Revenue Code of 1986 is amended by striking ``for any taxable year--'' 
and all that follows through the end and inserting ``for any taxable 
year the housing cost amount of such individual.''.
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 86 of such Code is amended by 
        inserting ``and'' at the end of paragraph (2), by striking ``, 
        and'' at the end of paragraph (3) and inserting a period, and 
        by striking paragraph (4).
            (2) Section 1401(a) of such Code is amended by striking 
        paragraph (11).
            (3)(A) Clause (i) of section 1411(a)(1)(B) of such Code is 
        amended by striking ``modified''.
                    (B) Section 1411 of such Code is amended by 
                striking subsection (d) and by redesignating subsection 
                (e) as subsection (d).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

                Subtitle E--Close S Corporation Loophole

SEC. 241. EMPLOYMENT TAX TREATMENT OF PROFESSIONAL SERVICE BUSINESSES.

    (a) In General.--Section 1402 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(m) Special Rules for Professional Service Businesses.--
            ``(1) Shareholders providing services to specified s 
        corporations.--
                    ``(A) In general.--In the case of an applicable 
                shareholder who provides substantial services with 
                respect to a professional service business referred to 
                in subparagraph (C) of a specified S corporation--
                            ``(i) such shareholder shall be treated as 
                        engaged in the trade or business of such 
                        professional service business with respect to 
                        items of income or loss described in section 
                        1366 which are attributable to such business, 
                        and
                            ``(ii) such shareholder's net earnings from 
                        self-employment shall include such 
                        shareholder's pro rata share of such items of 
                        income or loss, except that in computing such 
                        pro rata share of such items the exceptions 
                        provided in subsection (a) shall apply.
                    ``(B) Treatment of family members.--Except as 
                otherwise provided by the Secretary, the applicable 
                shareholder's pro rata share of items referred to in 
                subparagraph (A) shall be increased by the pro rata 
                share of such items of each member of such applicable 
                shareholder's family (within the meaning of section 
                318(a)(1)) who does not provide substantial services 
                with respect to such professional service business.
                    ``(C) Specified s corporation.--For purposes of 
                this subsection, the term `specified S corporation' 
                means--
                            ``(i) any S corporation which is a partner 
                        in a partnership which is engaged in a 
                        professional service business if substantially 
                        all of the activities of such S corporation are 
                        performed in connection with such partnership, 
                        and
                            ``(ii) any other S corporation which is 
                        engaged in a professional service business if 
                        75 percent or more of the gross income of such 
                        business is attributable to service of 3 or 
                        fewer shareholders of such corporation.
                    ``(D) Applicable shareholder.--For purposes of this 
                paragraph, the term `applicable shareholder' means any 
                shareholder whose modified adjusted gross income for 
                the taxable year exceeds--
                            ``(i) in the case of a shareholder making a 
                        joint return under section 6013 or a surviving 
                        spouse (as defined in section 2(a)), $250,000,
                            ``(ii) in the case of a married shareholder 
                        (as defined in section 7703) filing a separate 
                        return, half of the dollar amount determined 
                        under clause (i), and
                            ``(iii) in any other case, $200,000.
            ``(2) Partners.--
                    ``(A) In general.--In the case of any partnership 
                which is engaged in a professional service business, 
                subsection (a)(13) shall not apply to any applicable 
                partner who provides substantial services with respect 
                to such professional service business.
                    ``(B) Applicable partner.--For purposes of this 
                paragraph, the term `applicable partner' means any 
                partner whose modified adjusted gross income for the 
                taxable year exceeds--
                            ``(i) in the case of a partner making a 
                        joint return under section 6013 or a surviving 
                        spouse (as defined in section 2(a)), $250,000,
                            ``(ii) in the case of a married partner (as 
                        defined in section 7703) filing a separate 
                        return, half of the dollar amount determined 
                        under clause (i), and
                            ``(iii) in any other case, $200,000.
            ``(3) Professional service business.--For purposes of this 
        subsection, the term `professional service business' means any 
        trade or business (or portion thereof) providing services in 
        the fields of health, law, lobbying, engineering, architecture, 
        accounting, actuarial science, performing arts, consulting, 
        athletics, investment advice or management, or brokerage 
        services.
            ``(4) Modified adjusted gross income.--For purposes of this 
        subsection, the term `modified adjusted gross income' means 
        adjusted gross income--
                    ``(A) determined without regard to any deduction 
                allowed under section 164(f), and
                    ``(B) increased by the amount excluded from gross 
                income under section 911(a)(1).
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection, including regulations which 
        prevent the avoidance of the purposes of this subsection 
        through tiered entities or otherwise.
            ``(6) Cross reference.--For employment tax treatment of 
        wages paid to shareholders of S corporations, see subtitle 
        C.''.
    (b) Conforming Amendment.--Section 211 of the Social Security Act 
is amended by adding at the end the following new subsection:
    ``(l) Special Rules for Professional Service Businesses.--
            ``(1) Shareholders providing services to specified s 
        corporations.--
                    ``(A) In general.--In the case of an applicable 
                shareholder who provides substantial services with 
                respect to a professional service business referred to 
                in subparagraph (C) of a specified S corporation--
                            ``(i) such shareholder shall be treated as 
                        engaged in the trade or business of such 
                        professional service business with respect to 
                        items of income or loss described in section 
                        1366 of the Internal Revenue Code of 1986 which 
                        are attributable to such business, and
                            ``(ii) such shareholder's net earnings from 
                        self-employment shall include such 
                        shareholder's pro rata share of such items of 
                        income or loss, except that in computing such 
                        pro rata share of such items the exceptions 
                        provided in subsection (a) shall apply.
                    ``(B) Treatment of family members.--Except as 
                otherwise provided by the Secretary of the Treasury, 
                the applicable shareholder's pro rata share of items 
                referred to in subparagraph (A) shall be increased by 
                the pro rata share of such items of each member of such 
                applicable shareholder's family (within the meaning of 
                section 318(a)(1) of the Internal Revenue Code of 1986) 
                who does not provide substantial services with respect 
                to such professional service business.
                    ``(C) Specified s corporation.--For purposes of 
                this subsection, the term `specified S corporation' 
                means--
                            ``(i) any S corporation (as defined in 
                        section 1361(a) of the Internal Revenue Code of 
                        1986) which is a partner in a partnership which 
                        is engaged in a professional service business 
                        if substantially all of the activities of such 
                        S corporation are performed in connection with 
                        such partnership, and
                            ``(ii) any other S corporation (as so 
                        defined) which is engaged in a professional 
                        service business if 75 percent or more of the 
                        gross income of such business is attributable 
                        to service of 3 or fewer shareholders of such 
                        corporation.
                    ``(D) Applicable shareholder.--For purposes of this 
                paragraph, the term `applicable shareholder' means any 
                shareholder whose modified adjusted gross income for 
                the taxable year exceeds--
                            ``(i) in the case of a shareholder making a 
                        joint return under section 6013 of the Internal 
                        Revenue Code of 1986 or a surviving spouse (as 
                        defined in section 2(a) of such Code), 
                        $250,000,
                            ``(ii) in the case of a married shareholder 
                        (as defined in section 7703 of such Code) 
                        filing a separate return, half of the dollar 
                        amount determined under clause (i), and
                            ``(iii) in any other case, $200,000.
            ``(2) Partners.--
                    ``(A) In general.--In the case of any partnership 
                which is engaged in a professional service business, 
                subsection (a)(12) shall not apply to any applicable 
                partner who provides substantial services with respect 
                to such professional service business.
                    ``(B) Applicable partner.--For purposes of this 
                paragraph, the term `applicable partner' means any 
                partner whose modified adjusted gross income for the 
                taxable year exceeds--
                            ``(i) in the case of a partner making a 
                        joint return under section 6013 of the Internal 
                        Revenue Code of 1986 or a surviving spouse (as 
                        defined in section 2(a) of such Code), 
                        $250,000,
                            ``(ii) in the case of a married partner (as 
                        defined in section 7703 of such Code) filing a 
                        separate return, half of the dollar amount 
                        determined under clause (i), and
                            ``(iii) in any other case, $200,000.
            ``(3) Professional service business.--For purposes of this 
        subsection, the term `professional service business' means any 
        trade or business (or portion thereof) providing services in 
        the fields of health, law, lobbying, engineering, architecture, 
        accounting, actuarial science, performing arts, consulting, 
        athletics, investment advice or management, or brokerage 
        services.
            ``(4) Modified adjusted gross income.--For purposes of this 
        subsection, the term `modified adjusted gross income' means 
        adjusted gross income as determined under section 62 of the 
        Internal Revenue Code of 1986--
                    ``(A) determined without regard to any deduction 
                allowed under section 164(f) of such Code, and
                    ``(B) increased by the amount excluded from gross 
                income under section 911(a)(1) of such Code.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2012.

 Subtitle F--Limitation on Mortgage Interest Deduction With Respect to 
                                 Boats

SEC. 251. MORTGAGE INTEREST DEDUCTION ALLOWED WITH RESPECT TO BOATS 
              ONLY IF BOAT IS USED AS THE PRINCIPAL RESIDENCE OF THE 
              TAXPAYER.

    (a) In General.--Subclause (ii) of section 163(h)(4)(A) of the 
Internal Revenue Code of 1986 is amended by inserting ``(other than a 
boat)'' after ``1 other residence of the taxpayer''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        apply to indebtedness incurred after the date of the enactment 
        of this Act.
            (2) Special rule for refinancings.--For purposes of this 
        subsection, indebtedness resulting from the refinancing of 
        indebtedness shall be treated as incurred on the date the 
        refinanced indebtedness was incurred (taking into account the 
        application of this paragraph in the case of multiple 
        refinancings) but only to the extent the indebtedness resulting 
        from such refinancing does not exceed the refinanced 
        indebtedness.

                 TITLE III--ENDING CORPORATE SUBSIDIES

                 Subtitle A--End Fossil Fuel Subsidies

SEC. 301. TERMINATION OF VARIOUS TAX EXPENDITURES RELATING TO FOSSIL 
              FUELS.

    (a) In General.--Subchapter C of chapter 90 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new section:

``SEC. 7875. TERMINATION OF CERTAIN PROVISIONS RELATING TO FOSSIL FUEL 
              INCENTIVES.

    ``(a) In General.--The following provisions shall not apply to 
taxable years beginning after the date of the enactment of the 
Balancing Act:
            ``(1) Section 43 (relating to enhanced oil recovery 
        credit).
            ``(2) Section 45I (relating to credit for producing oil and 
        natural gas from marginal wells).
            ``(3) Section 45K (relating to credit for producing fuel 
        from a nonconventional source).
            ``(4) Section 193 (relating to tertiary injectants).
            ``(5) Section 199(d)(9) (relating to special rule for 
        taxpayers with oil related qualified production activities 
        income).
            ``(6) Section 461(i)(2) (relating to special rule for 
        spudding of oil or natural gas wells).
            ``(7) Section 469(c)(3) (relating to working interests in 
        oil and natural gas property).
            ``(8) Section 613A (relating to limitations on percentage 
        depletion in case of oil and natural gas wells).
            ``(9) Section 617 (relating to deduction and recapture of 
        certain mining exploration expenditures).
            ``(10) Section 7704(d)(1)(E) (relating to qualifying 
        income).
    ``(b) Provisions Relating to Property.--The following provisions 
shall not apply to property placed in service after the date of the 
enactment of the Balancing Act:
            ``(1) Subparagraphs (C)(iii) and (E)(viii) of section 
        168(e)(3) (relating to classification of certain property).
            ``(2) Section 169 (relating to amortization of pollution 
        control facilities) with respect to any atmospheric pollution 
        control facility.
            ``(3) Section 179C (relating to election to expense certain 
        refineries).
    ``(c) Provisions Relating to Costs and Expenses.--The following 
provisions shall not apply to costs or expenses paid or incurred after 
the date of the enactment of the Balancing Act:
            ``(1) Section 179B (relating to deduction for capital costs 
        incurred in complying with Environmental Protection Agency 
        sulfur regulations).
            ``(2) Section 198 (relating to expensing of environmental 
        remediation costs).
            ``(3) Section 263(c) (relating to intangible drilling and 
        development costs) with respect to costs in the case of oil and 
        natural gas wells.
            ``(4) Section 468 (relating to special rules for mining and 
        solid waste reclamation and closing costs).
    ``(d) 5-Year Carryback for Marginal Oil and Natural Gas Well 
Production Credit.--Section 39(a)(3) (relating to 5-year carryback for 
marginal oil and natural gas well production credit) shall not apply to 
credits determined in taxable years beginning after the date of the 
enactment of the Balancing Act.
    ``(e) Credit for Carbon Dioxide Sequestration.--Section 45Q 
(relating to credit for carbon dioxide sequestration) shall not apply 
to carbon dioxide captured after the date of the enactment of the 
Balancing Act.
    ``(f) Allocated Credits.--No new credits shall be certified under 
section 48A (relating to qualifying advanced coal project credit) or 
section 48B (relating to qualifying gasification project credit) after 
the date of the enactment of the Balancing Act.
    ``(g) Arbitrage Bonds.--Section 148(b)(4) (relating to safe harbor 
for prepaid natural gas) shall not apply to obligations issued after 
the date of the enactment of the Balancing Act.''.
    (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. 302. TERMINATION OF ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY 
              CREDIT WITH RESPECT TO FOSSIL FUELS.

    (a) In General.--Paragraph (2) of section 30C(c) of the Internal 
Revenue Code of 1986 is amended--
            (1) by striking ``, natural gas, compressed natural gas, 
        liquefied natural gas, liquefied petroleum gas,'' in 
        subparagraph (A),
            (2) by striking subparagraph (B), and
            (3) by redesignating subparagraph (C) as subparagraph (B).
    (b) Technical Amendment.--Paragraph (2) of section 30C(g) of the 
Internal Revenue Code of 1986 is amended by striking the second period.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2012.

SEC. 303. UNIFORM SEVEN-YEAR AMORTIZATION FOR GEOLOGICAL AND 
              GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 167(h) of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``24-month period'' each place it appears 
        in paragraphs (1) and (4) and inserting ``7-year period'', and
            (2) by striking paragraph (5).
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

SEC. 304. REPEAL OF DOMESTIC MANUFACTURING DEDUCTION FOR HARD MINERAL 
              MINING.

    (a) In General.--Subparagraph (B) of section 199(c)(4) of the 
Internal Revenue Code of 1986 is amended by striking ``and'' at the end 
of clause (ii), by striking the period at the end of clause (iii) and 
inserting ``, and'', and by adding at the end the following new clause:
                            ``(iv) the mining of any hard mineral.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 305. LIMITATION ON DEDUCTION FOR INCOME ATTRIBUTABLE TO DOMESTIC 
              PRODUCTION OF OIL, NATURAL GAS, OR PRIMARY PRODUCTS 
              THEREOF.

    (a) Denial of Deduction.--Paragraph (4) of section 199(c) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new subparagraph:
                    ``(E) Special rule for oil, natural gas, and coal 
                income.--The term `domestic production gross receipts' 
                shall not include gross receipts from the production, 
                refining, processing, transportation, or distribution 
                of oil, natural gas, or coal, or any primary product 
                (within the meaning of subsection (d)(9)) thereof.''.
    (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. 306. TERMINATION OF LAST-IN, FIRST-OUT METHOD OF INVENTORY FOR 
              OIL, NATURAL GAS, AND COAL COMPANIES.

    (a) In General.--Section 472 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(h) Termination for Oil, Natural Gas, and Coal Companies.--
Subsection (a) shall not apply to any taxpayer that is in the trade or 
business of the production, refining, processing, transportation, or 
distribution of oil, natural gas, or coal for any taxable year 
beginning after December 31, 2012.''.
    (b) Additional Termination.--Section 473 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
subsection:
    ``(h) Termination for Oil, Natural Gas, and Coal Companies.--This 
section shall not apply to any taxpayer that is in the trade or 
business of the production, refining, processing, transportation, or 
distribution of oil, natural gas, or coal for any taxable year 
beginning after December 31, 2012.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 307. REPEAL OF PERCENTAGE DEPLETION FOR COAL AND HARD MINERAL 
              FOSSIL FUELS.

    (a) In General.--Section 613 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(f) Termination With Respect to Coal and Hard Mineral Fossil 
Fuels.--In the case of coal, lignite, and oil shale (other than oil 
shale described in subsection (b)(5)), the allowance for depletion 
shall be computed without reference to this section for any taxable 
year beginning after the date of the enactment of the Balancing Act.''.
    (b) Conforming Amendments.--
            (1) Coal and lignite.--Section 613(b)(4) of the Internal 
        Revenue Code of 1986 is amended by striking ``coal, lignite,''.
            (2) Oil shale.--Section 613(b)(2) of such Code is amended 
        to read as follows:
            ``(2) 15 percent.--If, from deposits in the United States, 
        gold, silver, copper, and iron ore.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 308. TERMINATION OF CAPITAL GAINS TREATMENT FOR ROYALTIES FROM 
              COAL.

    (a) In General.--Subsection (c) of section 631 of the Internal 
Revenue Code of 1986 is amended--
            (1) by striking ``coal (including lignite), or iron ore'' 
        and inserting ``iron ore'',
            (2) by striking ``coal or iron ore'' each place it appears 
        and inserting ``iron ore'',
            (3) by striking ``iron ore or coal'' each place it appears 
        and inserting ``iron ore'', and
            (4) by striking ``Coal or'' in the heading.
    (b) Conforming Amendment.--The heading of section 631 of the 
Internal Revenue Code of 1986 is amended by striking ``, coal,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dispositions after the date of the enactment of this Act.

SEC. 309. INCREASE IN OIL SPILL LIABILITY TRUST FUND FINANCING RATE.

    (a) In General.--Subparagraph (B) of section 4611(c)(2) of the 
Internal Revenue Code of 1986 is amended to read as follows:
                    ``(B) the Oil Spill Liability Trust Fund financing 
                rate is--
                            ``(i) in the case of crude oil received or 
                        petroleum products entered before January 1, 
                        2013, 8 cents a barrel,
                            ``(ii) in the case of crude oil received or 
                        petroleum products entered after December 31, 
                        2012, and before January 1, 2017, 9 cents a 
                        barrel, and
                            ``(iii) in the case of crude oil received 
                        or petroleum products entered after December 
                        31, 2016, 10 cents a barrel.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to crude oil received and petroleum products entered after the date of 
the enactment of this Act.

SEC. 310. DENIAL OF DEDUCTION FOR REMOVAL COSTS AND DAMAGES FOR CERTAIN 
              OIL SPILLS.

    (a) In General.--Part IX of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 280I. EXPENSES FOR REMOVAL COSTS AND DAMAGES RELATING TO CERTAIN 
              OIL SPILL LIABILITY.

    ``No deduction shall be allowed under this chapter for any amount 
paid or incurred with respect to any costs or damages for which the 
taxpayer is liable under section 1002 of the Oil Pollution Act of 1990 
(33 U.S.C. 2702).''.
    (b) Clerical Amendment.--The table of sections for part IX of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 280I. Expenses for removal costs and damages relating to certain 
                            oil spill liability.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to any liability arising in taxable years ending 
after the date of the enactment of this Act.

SEC. 311. TAX ON CRUDE OIL AND NATURAL GAS PRODUCED FROM THE OUTER 
              CONTINENTAL SHELF IN THE GULF OF MEXICO.

    (a) In General.--Subtitle E of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new chapter:

 ``CHAPTER 56--TAX ON SEVERANCE OF CRUDE OIL AND NATURAL GAS FROM THE 
             OUTER CONTINENTAL SHELF IN THE GULF OF MEXICO

``Sec. 5896. Imposition of tax.
``Sec. 5897. Taxable crude oil or natural gas and removal price.
``Sec. 5898. Special rules and definitions.

``SEC. 5896. IMPOSITION OF TAX.

    ``(a) In General.--In addition to any other tax imposed under this 
title, there is hereby imposed a tax equal to 13 percent of the removal 
price of any taxable crude oil or natural gas removed from the premises 
during any taxable period.
    ``(b) Credit for Federal Royalties Paid.--
            ``(1) In general.--There shall be allowed as a credit 
        against the tax imposed by subsection (a) with respect to the 
        production of any taxable crude oil or natural gas an amount 
        equal to the aggregate amount of royalties paid under Federal 
        law with respect to such production.
            ``(2) Limitation.--The aggregate amount of credits allowed 
        under paragraph (1) to any taxpayer for any taxable period 
        shall not exceed the amount of tax imposed by subsection (a) 
        for such taxable period.
    ``(c) Tax Paid by Producer.--The tax imposed by this section shall 
be paid by the producer of the taxable crude oil or natural gas.

``SEC. 5897. TAXABLE CRUDE OIL OR NATURAL GAS AND REMOVAL PRICE.

    ``(a) Taxable Crude Oil or Natural Gas.--For purposes of this 
chapter, the term `taxable crude oil or natural gas' means crude oil or 
natural gas which is produced from Federal submerged lands on the outer 
Continental Shelf in the Gulf of Mexico pursuant to a lease entered 
into with the United States which authorizes the production.
    ``(b) Removal Price.--For purposes of this chapter--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `removal price' means--
                    ``(A) in the case of taxable crude oil, the amount 
                for which a barrel of such crude oil is sold, and
                    ``(B) in the case of taxable natural gas, the 
                amount per 1,000 cubic feet for which such natural gas 
                is sold.
            ``(2) Sales between related persons.--In the case of a sale 
        between related persons, the removal price shall not be less 
        than the constructive sales price for purposes of determining 
        gross income from the property under section 613.
            ``(3) Oil or natural gas removed from property before 
        sale.--If crude oil or natural gas is removed from the property 
        before it is sold, the removal price shall be the constructive 
        sales price for purposes of determining gross income from the 
        property under section 613.
            ``(4) Refining begun on property.--If the manufacture or 
        conversion of crude oil into refined products begins before 
        such oil is removed from the property--
                    ``(A) such oil shall be treated as removed on the 
                day such manufacture or conversion begins, and
                    ``(B) the removal price shall be the constructive 
                sales price for purposes of determining gross income 
                from the property under section 613.
            ``(5) Property.--The term `property' has the meaning given 
        such term by section 614.

``SEC. 5898. SPECIAL RULES AND DEFINITIONS.

    ``(a) Administrative Requirements.--
            ``(1) Withholding and deposit of tax.--The Secretary shall 
        provide for the withholding and deposit of the tax imposed 
        under section 5896 on a quarterly basis.
            ``(2) Records and information.--Each taxpayer liable for 
        tax under section 5896 shall keep such records, make such 
        returns, and furnish such information (to the Secretary and to 
        other persons having an interest in the taxable crude oil or 
        natural gas) with respect to such oil as the Secretary may by 
        regulations prescribe.
            ``(3) Taxable periods; return of tax.--
                    ``(A) Taxable period.--Except as provided by the 
                Secretary, each calendar year shall constitute a 
                taxable period.
                    ``(B) Returns.--The Secretary shall provide for the 
                filing, and the time for filing, of the return of the 
                tax imposed under section 5896.
    ``(b) Definitions.--For purposes of this chapter--
            ``(1) Producer.--The term `producer' means the holder of 
        the economic interest with respect to the crude oil or natural 
        gas.
            ``(2) Crude oil.--The term `crude oil' includes crude oil 
        condensates and natural gasoline.
            ``(3) Premises and crude oil product.--The terms `premises' 
        and `crude oil product' have the same meanings as when used for 
        purposes of determining gross income from the property under 
        section 613.
    ``(c) Adjustment of Removal Price.--In determining the removal 
price of oil or natural gas from a property in the case of any 
transaction, the Secretary may adjust the removal price to reflect 
clearly the fair market value of oil or natural gas removed.
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
chapter.''.
    (b) Deductibility of Tax.--The first sentence of section 164(a) is 
amended by inserting after paragraph (6) the following new paragraph:
            ``(7) The tax imposed by section 5896(a) (after application 
        of section 5896(b)) on the severance of crude oil or natural 
        gas from the outer Continental Shelf in the Gulf of Mexico.''.
    (c) Clerical Amendment.--The table of chapters for subtitle E is 
amended by adding at the end the following new item:

                              ``Chapter 56. Tax on severance of crude 
                                        oil and natural gas from the 
                                        outer Continental Shelf in the 
                                        Gulf of Mexico.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to crude oil or natural gas removed after December 31, 2012.

Subtitle B--Ending Excessive Corporate Tax Deductions for Stock Options

SEC. 331. CONSISTENT TREATMENT OF STOCK OPTIONS BY CORPORATIONS.

    (a) Consistent Treatment for Wage Deduction.--
            (1) In general.--Section 83(h) is amended--
                    (A) by striking ``In the case of'' and inserting:
            ``(1) In general.--In the case of'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Stock options.--In the case of property transferred 
        to a person in connection with a stock option, any deduction 
        related to such stock option shall be allowed only under 
        section 162(q) and paragraph (1) shall not apply.''.
            (2) Treatment of compensation paid with stock options.--
        Section 162 is amended by redesignating subsection (q) as 
        subsection (r) and by inserting after subsection (p) the 
        following new subsection:
    ``(q) Treatment of Compensation Paid With Stock Options.--
            ``(1) In general.--In the case of compensation for personal 
        services that is paid with stock options, the deduction under 
        subsection (a)(1) shall not exceed the amount the taxpayer has 
        treated as compensation cost with respect to such stock options 
        for the purpose of ascertaining income, profit, or loss in a 
        report or statement to shareholders, partners, or other 
        proprietors (or to beneficiaries), and shall be taken into 
        account in the same period that such compensation cost is 
        recognized for such purpose.
            ``(2) Special rules for controlled groups.--The Secretary 
        may prescribe rules for the application of paragraph (1) in 
        cases where the stock option is granted by--
                    ``(A) a parent or subsidiary corporation (within 
                the meaning of section 424) of the taxpayer, or
                    ``(B) another corporation.''.
    (b) Consistent Treatment for Research Tax Credit.--Section 
41(b)(2)(D) is amended by inserting at the end the following new 
clause:
                            ``(iv) Special rule for stock options.--The 
                        amount which may be treated as wages for any 
                        taxable year in connection with the issuance of 
                        a stock option shall not exceed the amount 
                        allowed for such taxable year as a compensation 
                        deduction under section 162(q) with respect to 
                        such stock option.''.
    (c) Application of Amendments.--The amendments made by this section 
shall apply to stock options exercised after the date of the enactment 
of this Act, except that--
            (1) such amendments shall not apply to stock options that 
        were granted before such date and that vested in taxable 
        periods beginning on or before June 15, 2005,
            (2) for stock options that were granted before such date of 
        enactment and vested during taxable periods beginning after 
        June 15, 2005, and ending before such date of enactment, a 
        deduction under section 162(q) of the Internal Revenue Code of 
        1986 (as added by subsection (a)(2)) shall be allowed in the 
        first taxable period of the taxpayer that ends after such date 
        of enactment,
            (3) for public entities reporting as small business issuers 
        and for non-public entities required to file public reports of 
        financial condition, paragraphs (1) and (2) shall be applied by 
        substituting ``December 15, 2005'' for ``June 15, 2005'', and
            (4) no deduction shall be allowed under section 83(h) or 
        section 162(q) of such Code with respect to any stock option 
        the vesting date of which is changed to accelerate the time at 
        which the option may be exercised in order to avoid the 
        applicability of such amendments.

SEC. 332. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.

    (a) In General.--Subparagraph (D) of section 162(m)(4) of the 
Internal Revenue Code of 1986 is amended to read as follows:
                    ``(D) Stock option compensation.--The term 
                `applicable employee remuneration' shall include any 
                compensation deducted under subsection (q), and such 
                compensation shall not qualify as performance-based 
                compensation under subparagraph (C).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to stock options exercised or granted after the date of the enactment 
of this Act.

   Subtitle C--Reduce Deduction of Corporate Meals and Entertainment

SEC. 341. REDUCTION IN BUSINESS MEALS AND ENTERTAINMENT TAX DEDUCTION.

    (a) In General.--Section 274(n)(1) of the Internal Revenue Code of 
1986 (relating to only 50 percent of meal and entertainment expenses 
allowed as deduction) is amended by striking ``50 percent'' and 
inserting ``25 percent''.
    (b) Conforming Amendment.--Section 274(n) of the Internal Revenue 
Code of 1986 is amended by striking paragraph (3).
    (c) Clerical Amendment.--The heading for section 274(n) of the 
Internal Revenue Code of 1986 is amended by striking ``Only 50 
Percent'' and inserting ``Only 25 Percent''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2012.

           TITLE IV--CLOSE INTERNATIONAL TAX SYSTEM LOOPHOLES

        Subtitle A--Reformation of U.S. International Tax System

SEC. 401. ALLOCATION OF EXPENSES AND TAXES ON BASIS OF REPATRIATION OF 
              FOREIGN INCOME.

    (a) In General.--Part III of subchapter N of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after subpart G 
the following new subpart:

``Subpart H--Special Rules for Allocation of Foreign-Related Deductions 
                        and Foreign Tax Credits

``Sec. 975. Deductions allocated to deferred foreign income may not 
                            offset United States source income.
``Sec. 976. Amount of foreign taxes computed on overall basis.
``Sec. 977. Application of subpart.

``SEC. 975. DEDUCTIONS ALLOCATED TO DEFERRED FOREIGN INCOME MAY NOT 
              OFFSET UNITED STATES SOURCE INCOME.

    ``(a) Current Year Deductions.--For purposes of this chapter, 
foreign-related deductions for any taxable year--
            ``(1) shall be taken into account for such taxable year 
        only to the extent that such deductions are allocable to 
        currently-taxed foreign income, and
            ``(2) to the extent not so allowed, shall be taken into 
        account in subsequent taxable years as provided in subsection 
        (b).
Foreign-related deductions shall be allocated to currently taxed 
foreign income in the same proportion which currently taxed foreign 
income bears to the sum of currently taxed foreign income and deferred 
foreign income.
    ``(b) Deductions Related to Repatriated Deferred Foreign Income.--
            ``(1) In general.--If there is repatriated foreign income 
        for a taxable year, the portion of the previously deferred 
        deductions allocated to the repatriated foreign income shall be 
        taken into account for the taxable year as a deduction 
        allocated to income from sources outside the United States. Any 
        such amount shall not be included in foreign-related deductions 
        for purposes of applying subsection (a) to such taxable year.
            ``(2) Portion of previously deferred deductions.--For 
        purposes of paragraph (1), the portion of the previously 
        deferred deductions allocated to repatriated foreign income 
        is--
                    ``(A) the amount which bears the same proportion to 
                such deductions, as
                    ``(B) the repatriated income bears to the 
                previously deferred foreign income.
    ``(c) Definitions and Special Rule.--For purposes of this section--
            ``(1) Foreign-related deductions.--The term `foreign-
        related deductions' means the total amount of deductions and 
        expenses which would be allocated or apportioned to gross 
        income from sources without the United States for the taxable 
        year if both the currently-taxed foreign income and deferred 
        foreign income were taken into account.
            ``(2) Currently-taxed foreign income.--The term `currently-
        taxed foreign income' means the amount of gross income from 
        sources without the United States for the taxable year 
        (determined without regard to repatriated foreign income for 
        such year).
            ``(3) Deferred foreign income.--The term `deferred foreign 
        income' means the excess of--
                    ``(A) the amount that would be includible in gross 
                income under subpart F of this part for the taxable 
                year if--
                            ``(i) all controlled foreign corporations 
                        were treated as one controlled foreign 
                        corporation, and
                            ``(ii) all earnings and profits of all 
                        controlled foreign corporations were subpart F 
                        income (as defined in section 952), over
                    ``(B) the sum of--
                            ``(i) all dividends received during the 
                        taxable year from controlled foreign 
                        corporations, plus
                            ``(ii) amounts includible in gross income 
                        under section 951(a).
            ``(4) Previously deferred foreign income.--The term 
        `previously deferred foreign income' means the aggregate amount 
        of deferred foreign income for all prior taxable years to which 
        this part applies, determined as of the beginning of the 
        taxable year, reduced by the repatriated foreign income for all 
        such prior taxable years.
            ``(5) Repatriated foreign income.--The term `repatriated 
        foreign income' means the amount included in gross income on 
        account of distributions out of previously deferred foreign 
        income.
            ``(6) Previously deferred deductions.--The term `previously 
        deferred deductions' means the aggregate amount of foreign-
        related deductions not taken into account under subsection (a) 
        for all prior taxable years (determined as of the beginning of 
        the taxable year), reduced by any amounts taken into account 
        under subsection (b) for such prior taxable years.
            ``(7) Treatment of certain foreign taxes.--
                    ``(A) Paid by controlled foreign corporation.--
                Section 78 shall not apply for purposes of determining 
                currently-taxed foreign income and deferred foreign 
                income.
                    ``(B) Paid by taxpayer.--For purposes of 
                determining currently-taxed foreign income, gross 
                income from sources without the United States shall be 
                reduced by the aggregate amount of taxes described in 
                the applicable paragraph of section 901(b) which are 
                paid by the taxpayer (without regard to sections 902 
                and 960) during the taxable year.
            ``(8) Coordination with section 976.--In determining 
        currently-taxed foreign income and deferred foreign income, the 
        amount of deemed foreign tax credits shall be determined with 
        regard to section 976.

``SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON OVERALL BASIS.

    ``(a) Current Year Allowance.--For purposes of this chapter, the 
amount taken into account as foreign income taxes for any taxable year 
shall be an amount which bears the same ratio to the total foreign 
income taxes for that taxable year as--
            ``(1) the currently-taxed foreign income for such taxable 
        year, bears to
            ``(2) the sum of the currently-taxed foreign income and 
        deferred foreign income for such year.
The portion of the total foreign income taxes for any taxable year not 
taken into account under the preceding sentence for a taxable year 
shall only be taken into account as provided in subsection (b) (and 
shall not be taken into account for purposes of applying sections 902 
and 960).
    ``(b) Allowance Related to Repatriated Deferred Foreign Income.--
            ``(1) In general.--If there is repatriated foreign income 
        for any taxable year, the portion of the previously deferred 
        foreign income taxes paid or accrued during such taxable year 
        shall be taken into account for the taxable year as foreign 
        taxes paid or accrued. Any such taxes so taken into account 
        shall not be included in foreign income taxes for purposes of 
        applying subsection (a) to such taxable year.
            ``(2) Portion of previously deferred foreign income 
        taxes.--For purposes of paragraph (1), the portion of the 
        previously deferred foreign income taxes allocated to 
        repatriated deferred foreign income is--
                    ``(A) the amount which bears the same proportion to 
                such taxes, as
                    ``(B) the repatriated deferred income bears to the 
                previously deferred foreign income.
    ``(c) Definitions and Special Rule.--For purposes of this section--
            ``(1) Previously deferred foreign income taxes.--The term 
        `previously deferred foreign income taxes' means the aggregate 
        amount of total foreign income taxes not taken into account 
        under subsection (a) for all prior taxable years (determined as 
        of the beginning of the taxable year), reduced by any amounts 
        taken into account under subsection (b) for such prior taxable 
        years.
            ``(2) Total foreign income taxes.--The term `total foreign 
        income taxes' means the sum of foreign income taxes paid or 
        accrued during the taxable year (determined without regard to 
        section 904(c)) plus the increase in foreign income taxes that 
        would be paid or accrued during the taxable year under sections 
        902 and 960 if--
                    ``(A) all controlled foreign corporations were 
                treated as one controlled foreign corporation, and
                    ``(B) all earnings and profits of all controlled 
                foreign corporations were subpart F income (as defined 
                in section 952).
            ``(3) Foreign income taxes.--The term `foreign income 
        taxes' means any income, war profits, or excess profits taxes 
        paid by the taxpayer to any foreign country or possession of 
        the United States.
            ``(4) Currently-taxed foreign income and deferred foreign 
        income.--The terms `currently-taxed foreign income' and 
        `deferred foreign income' have the meanings given such terms by 
        section 975(c)).

``SEC. 977. APPLICATION OF SUBPART.

    ``This subpart--
            ``(1) shall be applied before subpart A, and
            ``(2) shall be applied separately with respect to the 
        categories of income specified in section 904(d)(1).''.
    (b) Clerical Amendment.--The table of subparts for part III of 
subpart N of chapter 1 of such Code is amended by inserting after the 
item relating to subpart G the following new item:

``subpart h. special rules for allocation of foreign-related deductions 
                      and foreign tax credits.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 402. EXCESS INCOME FROM TRANSFERS OF INTANGIBLES TO LOW-TAXED 
              AFFILIATES TREATED AS SUBPART F INCOME.

    (a) In General.--Subsection (a) of section 954 of such Code is 
amended by inserting after paragraph (3) the following new paragraph:
            ``(4) the foreign base company excess intangible income for 
        the taxable year (determined under subsection (f) and reduced 
        as provided in subsection (b)(5)), and''.
    (b) Foreign Base Company Excess Intangible Income.--Section 954 of 
such Code is amended by inserting after subsection (e) the following 
new subsection:
    ``(f) Foreign Base Company Excess Intangible Income.--For purposes 
of subsection (a)(4) and this subsection:
            ``(1) Foreign base company excess intangible income 
        defined.--
                    ``(A) In general.--The term `foreign base company 
                excess intangible income' means, with respect to any 
                covered intangible, the excess of--
                            ``(i) the sum of--
                                    ``(I) gross income from the sale, 
                                lease, license, or other disposition of 
                                property in which such covered 
                                intangible is used directly or 
                                indirectly, and
                                    ``(II) gross income from the 
                                provision of services related to such 
                                covered intangible or in connection 
                                with property in which such covered 
                                intangible is used directly or 
                                indirectly, over
                            ``(ii) 150 percent of the costs properly 
                        allocated and apportioned to the gross income 
                        taken into account under clause (i) other than 
                        expenses for interest and taxes and any 
                        expenses which are not directly allocable to 
                        such gross income.
                    ``(B) Same country income not taken into account.--
                If--
                            ``(i) the sale, lease, license, or other 
                        disposition of the property referred to in 
                        subparagraph (A)(i)(I) is for use, consumption, 
                        or disposition in the country under the laws of 
                        which the controlled foreign corporation is 
                        created or organized, or
                            ``(ii) the services referred to in 
                        subparagraph (A)(i)(II) are performed in such 
                        country,
                the gross income from such sale, lease, license, or 
                other disposition, or provision of services, shall not 
                be taken into account under subparagraph (A)(i).
            ``(2) Exception based on effective foreign income tax 
        rate.--
                    ``(A) In general.--Foreign base company excess 
                intangible income shall not include the applicable 
                percentage of any item of income received by a 
                controlled foreign corporation if the taxpayer 
                establishes to the satisfaction of the Secretary that 
                such income was subject to an effective rate of income 
                tax imposed by a foreign country in excess of 5 
                percent.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the term `applicable percentage' 
                means the ratio (expressed as a percentage), not 
                greater than 100 percent, of--
                            ``(i) the number of percentage points by 
                        which the effective rate of income tax referred 
                        to in subparagraph (A) exceeds 5 percentage 
                        points, over
                            ``(ii) 10 percentage points.
                    ``(C) Treatment of losses in determining effective 
                rate of foreign income tax.--For purposes of 
                determining the effective rate of income tax imposed by 
                any foreign country--
                            ``(i) such effective rate shall be 
                        determined without regard to any losses carried 
                        to the relevant taxable year, and
                            ``(ii) to the extent the income with 
                        respect to such intangible reduces losses in 
                        the relevant taxable year, such effective rate 
                        shall be treated as being the effective rate 
                        which would have been imposed on such income 
                        without regard to such losses.
            ``(3) Covered intangible.--The term `covered intangible' 
        means, with respect to any controlled foreign corporation, any 
        intangible property (as defined in section 936(h)(3)(B))--
                    ``(A) which is sold, leased, licensed, or otherwise 
                transferred (directly or indirectly) to such controlled 
                foreign corporation from a related person, or
                    ``(B) with respect to which such controlled foreign 
                corporation and one or more related persons has 
                (directly or indirectly) entered into any shared risk 
                or development agreement (including any cost sharing 
                agreement).
            ``(4) Related person.--The term `related person' has the 
        meaning given such term in subsection (d)(3).''.
    (c) Separate Basket for Foreign Tax Credit.--Subsection (d) of 
section 904 of such Code is amended by redesignating paragraph (7) as 
paragraph (8) and by inserting after paragraph (6) the following new 
paragraph:
            ``(6) Separate application to foreign base company excess 
        intangible income.--
                    ``(A) In general.--Subsections (a), (b), and (c) of 
                this section and sections 902, 907, and 960 shall be 
                applied separately with respect to each item of income 
                which is taken into account under section 954(a)(4) as 
                foreign base company excess intangible income.
                    ``(B) Regulations.--The Secretary may issue such 
                regulations or other guidance as is necessary or 
                appropriate to carry out the purposes of this 
                subsection, including regulations or other guidance 
                which provides that related items of income may be 
                aggregated for purposes of this paragraph.''.
    (d) Conforming Amendments.--
            (1) Paragraph (4) of section 954(b) of such Code is amended 
        by inserting ``foreign base company excess intangible income 
        described in subsection (a)(4) or'' before ``foreign base 
        company oil-related income'' in the last sentence thereof.
            (2) Subsection (b) of section 954 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(7) Foreign base company excess intangible income not 
        treated as another kind of base company income.--Income of a 
        corporation which is foreign base company excess intangible 
        income shall not be considered foreign base company income of 
        such corporation under paragraph (2), (3), or (5) of subsection 
        (a).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 403. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY 
              TRANSFERS.

    (a) Clarification of Definition of Intangible Asset.--Clause (vi) 
of section 936(h)(3)(B) of such Code is amended by inserting 
``(including any section 197 intangible described in subparagraph (A), 
(B), or (C)(i) of subsection (d)(1) of such section)'' after ``item''.
    (b) Clarification of Allowable Valuation Methods.--
            (1) Foreign corporations.--Paragraph (2) of section 367(d) 
        of such Code is amended by adding at the end the following new 
        subparagraph:
                    ``(D) Regulatory authority.--For purposes of the 
                last sentence of subparagraph (A), the Secretary may 
                require--
                            ``(i) the valuation of transfers of 
                        intangible property on an aggregate basis, or
                            ``(ii) the valuation of such a transfer on 
                        the basis of the realistic alternatives to such 
                        a transfer,
                in any case in which the Secretary determines that such 
                basis is the most reliable means of valuation of such 
                transfers.''.
            (2) Allocation among taxpayers.--Section 482 of such Code 
        is amended by adding at the end the following: ``For purposes 
        of the preceding sentence, the Secretary may require the 
        valuation of transfers of intangible property on an aggregate 
        basis or the valuation of such a transfer on the basis of the 
        realistic alternatives to such a transfer, in any case in which 
        the Secretary determines that such basis is the most reliable 
        means of valuation of such transfers.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transfers in taxable years beginning after the date of 
        the enactment of this Act.
            (2) No inference.--Nothing in the amendment made by 
        subsection (a) shall be construed to create any inference with 
        respect to the application of section 936(h)(3) of the Internal 
        Revenue Code of 1986, or the authority of the Secretary of the 
        Treasury to provide regulations for such application, on or 
        before the date of the enactment of such amendment.

SEC. 404. LIMITATION ON EARNINGS STRIPPING BY EXPATRIATED ENTITIES.

    (a) In General.--Subsection (j) of section 163 of such Code is 
amended--
            (1) by redesignating paragraph (9) as paragraph (10), and
            (2) by inserting after paragraph (8) the following new 
        paragraph:
            ``(9) Special rules for expatriated entities.--
                    ``(A) In general.--In the case of a corporation to 
                which this subsection applies which is an expatriated 
                entity, this subsection shall apply to such corporation 
                with the following modifications:
                            ``(i) Paragraph (2)(A) shall be applied 
                        without regard to clause (ii) thereof.
                            ``(ii) Paragraph (1)(B) shall be applied--
                                    ``(I) without regard to the 
                                parenthetical, and
                                    ``(II) by substituting `in the 1st 
                                succeeding taxable year and in the 2nd 
                                through 10th succeeding taxable years 
                                to the extent not previously taken into 
                                account under this subparagraph' for 
                                `in the succeeding taxable year'.
                            ``(iii) Paragraph (2)(B) shall be applied--
                                    ``(I) without regard to clauses 
                                (ii) and (iii), and
                                    ``(II) by substituting `25 percent 
                                of the adjusted taxable income of the 
                                corporation for such taxable year' for 
                                the matter of clause (i)(II) thereof.
                    ``(B) Expatriated entity.--For purposes of this 
                paragraph--
                            ``(i) In general.--With respect to a 
                        corporation and a taxable year, the term 
                        `expatriated entity' has the meaning given such 
                        term by section 7874(a)(2), determined as if 
                        such section and the regulations under such 
                        section as in effect on the first day of such 
                        taxable year applied to all taxable years of 
                        the corporation beginning after July 10, 1989.
                            ``(ii) Exception for surrogates treated as 
                        a domestic corporation.--The term `expatriated 
                        entity' does not include a surrogate foreign 
                        corporation which is treated as a domestic 
                        corporation by reason of section 7874(b).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 405. PREVENTION OF AVOIDANCE OF TAX THROUGH REINSURANCE WITH NON-
              TAXED AFFILIATES.

    (a) In General.--Part III of subchapter L of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON-LIFE CONTRACTS WITH 
              NON-TAXED AFFILIATES.

    ``(a) In General.--The taxable income under section 831(a) or the 
life insurance company taxable income under section 801(b) (as the case 
may be) of an insurance company shall be determined by not taking into 
account--
            ``(1) any non-taxed reinsurance premium,
            ``(2) any additional amount paid by such insurance company 
        with respect to the reinsurance for which such non-taxed 
        reinsurance premium is paid, to the extent such additional 
        amount is properly allocable to such non-taxed reinsurance 
        premium, and
            ``(3) any return premium, ceding commission, reinsurance 
        recovered, or other amount received by such insurance company 
        with respect to the reinsurance for which such non-taxed 
        reinsurance premium is paid, to the extent such return premium, 
        ceding commission, reinsurance recovered, or other amount is 
        properly allocable to such non-taxed reinsurance premium.
    ``(b) Non-Taxed Reinsurance Premiums.--For purposes of this 
section--
            ``(1) In general.--The term `non-taxed reinsurance premium' 
        means any reinsurance premium paid directly or indirectly to an 
        affiliated corporation with respect to reinsurance of risks 
        (other than excepted risks), to the extent that the income 
        attributable to the premium is not subject to tax under this 
        subtitle (either as the income of the affiliated corporation or 
        as amounts included in gross income by a United States 
        shareholder under section 951).
            ``(2) Excepted risks.--The term `excepted risks' means any 
        risk with respect to which reserves described in section 
        816(b)(1) are established.
    ``(c) Affiliated Corporations.--For purposes of this section, a 
corporation shall be treated as affiliated with an insurance company if 
both corporations would be members of the same controlled group of 
corporations (as defined in section 1563(a)) if section 1563 were 
applied--
            ``(1) by substituting `at least 50 percent' for `at least 
        80 percent' each place it appears in subsection (a)(1), and
            ``(2) without regard to subsections (a)(4), (b)(2)(C), 
        (b)(2)(D), and (e)(3)(C).
    ``(d) Election To Treat Reinsurance Income as Effectively 
Connected.--
            ``(1) In general.--A specified affiliated corporation may 
        elect for any taxable year to treat specified reinsurance 
        income as--
                    ``(A) income effectively connected with the conduct 
                of a trade or business in the United States, and
                    ``(B) for purposes of any treaty between the United 
                States and any foreign country, income attributable to 
                a permanent establishment in the United States.
            ``(2) Effect of election.--In the case of any specified 
        reinsurance income with respect to which the election under 
        this subsection applies--
                    ``(A) Deduction allowed for reinsurance premiums.--
                For exemption from subsection (a), see definition of 
                non-taxed reinsurance premiums in subsection (b).
                    ``(B) Exception from excise tax.--The tax imposed 
                by section 4371 shall not apply with respect to any 
                income treated as effectively connected with the 
                conduct of a trade or business in the United States 
                under paragraph (1).
                    ``(C) Taxation under this subchapter.--Such income 
                shall be subject to tax under this subchapter to the 
                same extent and in the same manner as if such income 
                were the income of a domestic insurance company.
                    ``(D) Coordination with foreign tax credit 
                provisions.--For purposes of subpart A of part III of 
                subchapter N and sections 78 and 960--
                            ``(i) such specified reinsurance income 
                        shall be treated as derived from sources 
                        without the United States, and
                            ``(ii) subsections (a), (b), and (c) of 
                        section 904 and sections 902, 907, and 960 
                        shall be applied separately with respect to 
                        each item of such income.
                The Secretary may issue regulations or other guidance 
                which provide that related items of specified 
                reinsurance income may be aggregated for purposes of 
                applying clause (ii).
            ``(3) Specified affiliated corporation.--For purposes of 
        this subsection, the term `specified affiliated corporation' 
        means any affiliated corporation which is a foreign corporation 
        and which meets such requirements as the Secretary shall 
        prescribe to ensure that tax on the specified reinsurance 
        income of such corporation is properly determined and paid.
            ``(4) Specified reinsurance income.--For purposes of this 
        paragraph, the term `specified reinsurance income' means all 
        income of a specified affiliated corporation which is 
        attributable to reinsurance with respect to which subsection 
        (a) would (but for the election under this subsection) apply.
            ``(5) Rules related to election.--Any election under 
        paragraph (1) shall--
                    ``(A) be made at such time and in such form and 
                manner as the Secretary may provide, and
                    ``(B) apply for the taxable year for which made and 
                all subsequent taxable years unless revoked with the 
                consent of the Secretary.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as may be appropriate to carry out, or to prevent the 
avoidance of the purposes of, this section, including regulations or 
other guidance which provide for the application of this section to 
alternative reinsurance transactions, fronting transactions, conduit 
and reciprocal transactions, and any economically equivalent 
transactions.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter L of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 849. Special rules for reinsurance of non-life contracts with 
                            non-taxed affiliates.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2012.

                        Subtitle B--Reinsurance

SEC. 411. PREVENTION OF AVOIDANCE OF TAX THROUGH REINSURANCE WITH NON-
              TAXED AFFILIATES.

    (a) In General.--Part III of subchapter L of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON-LIFE CONTRACTS WITH 
              NON-TAXED AFFILIATES.

    ``(a) In General.--The taxable income under section 831(a) or the 
life insurance company taxable income under section 801(b) (as the case 
may be) of an insurance company shall be determined by not taking into 
account--
            ``(1) any non-taxed reinsurance premium,
            ``(2) any additional amount paid by such insurance company 
        with respect to the reinsurance for which such non-taxed 
        reinsurance premium is paid, to the extent such additional 
        amount is properly allocable to such non-taxed reinsurance 
        premium, and
            ``(3) any return premium, ceding commission, reinsurance 
        recovered, or other amount received by such insurance company 
        with respect to the reinsurance for which such non-taxed 
        reinsurance premium is paid, to the extent such return premium, 
        ceding commission, reinsurance recovered, or other amount is 
        properly allocable to such non-taxed reinsurance premium.
    ``(b) Non-Taxed Reinsurance Premiums.--For purposes of this 
section--
            ``(1) In general.--The term `non-taxed reinsurance premium' 
        means any reinsurance premium paid directly or indirectly to an 
        affiliated corporation with respect to reinsurance of risks 
        (other than excepted risks), to the extent that the income 
        attributable to the premium is not subject to tax under this 
        subtitle (either as the income of the affiliated corporation or 
        as amounts included in gross income by a United States 
        shareholder under section 951).
            ``(2) Excepted risks.--The term `excepted risks' means any 
        risk with respect to which reserves described in section 
        816(b)(1) are established.
    ``(c) Affiliated Corporations.--For purposes of this section, a 
corporation shall be treated as affiliated with an insurance company if 
both corporations would be members of the same controlled group of 
corporations (as defined in section 1563(a)) if section 1563 were 
applied--
            ``(1) by substituting `at least 50 percent' for `at least 
        80 percent' each place it appears in subsection (a)(1), and
            ``(2) without regard to subsections (a)(4), (b)(2)(C), 
        (b)(2)(D), and (e)(3)(C).
    ``(d) Election To Treat Reinsurance Income as Effectively 
Connected.--
            ``(1) In general.--A specified affiliated corporation may 
        elect for any taxable year to treat specified reinsurance 
        income as--
                    ``(A) income effectively connected with the conduct 
                of a trade or business in the United States, and
                    ``(B) for purposes of any treaty between the United 
                States and any foreign country, income attributable to 
                a permanent establishment in the United States.
            ``(2) Effect of election.--In the case of any specified 
        reinsurance income with respect to which the election under 
        this subsection applies--
                    ``(A) Deduction allowed for reinsurance premiums.--
                For exemption from subsection (a), see definition of 
                non-taxed reinsurance premiums in subsection (b).
                    ``(B) Exception from excise tax.--The tax imposed 
                by section 4371 shall not apply with respect to any 
                income treated as effectively connected with the 
                conduct of a trade or business in the United States 
                under paragraph (1).
                    ``(C) Taxation under this subchapter.--Such income 
                shall be subject to tax under this subchapter to the 
                same extent and in the same manner as if such income 
                were the income of a domestic insurance company.
                    ``(D) Coordination with foreign tax credit 
                provisions.--For purposes of subpart A of part III of 
                subchapter N and sections 78 and 960--
                            ``(i) such specified reinsurance income 
                        shall be treated as derived from sources 
                        without the United States, and
                            ``(ii) subsections (a), (b), and (c) of 
                        section 904 and sections 902, 907, and 960 
                        shall be applied separately with respect to 
                        each item of such income.
                The Secretary may issue regulations or other guidance 
                which provide that related items of specified 
                reinsurance income may be aggregated for purposes of 
                applying clause (ii).
            ``(3) Specified affiliated corporation.--For purposes of 
        this subsection, the term `specified affiliated corporation' 
        means any affiliated corporation which is a foreign corporation 
        and which meets such requirements as the Secretary shall 
        prescribe to ensure that tax on the specified reinsurance 
        income of such corporation is properly determined and paid.
            ``(4) Specified reinsurance income.--For purposes of this 
        paragraph, the term `specified reinsurance income' means all 
        income of a specified affiliated corporation which is 
        attributable to reinsurance with respect to which subsection 
        (a) would (but for the election under this subsection) apply.
            ``(5) Rules related to election.--Any election under 
        paragraph (1) shall--
                    ``(A) be made at such time and in such form and 
                manner as the Secretary may provide, and
                    ``(B) apply for the taxable year for which made and 
                all subsequent taxable years unless revoked with the 
                consent of the Secretary.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as may be appropriate to carry out, or to prevent the 
avoidance of the purposes of, this section, including regulations or 
other guidance which provide for the application of this section to 
alternative reinsurance transactions, fronting transactions, conduit 
and reciprocal transactions, and any economically equivalent 
transactions.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter L of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 849. Special rules for reinsurance of non-life contracts with 
                            non-taxed affiliates.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2012.

       Subtitle C--Close Loophole for Corporate Jet Depreciation

SEC. 421. GENERAL AVIATION AIRCRAFT TREATED AS 7-YEAR PROPERTY.

    (a) In General.--Subparagraph (C) of section 168(e)(3) of the 
Internal Revenue Code of 1986 (relating to classification of certain 
property) is amended by striking ``and'' at the end of clause (iv), by 
redesignating clause (v) as clause (vi), and by inserting after clause 
(iv) the following new clause:
    ``(v) any general aviation aircraft, and''.
    (b) Class Life.--Paragraph (3) of section 168(g) Internal Revenue 
Code of 1986 is amended by inserting after subparagraph (E) the 
following new subparagraph:
                    ``(F) General aviation aircraft. In the case of any 
                general aviation aircraft, the recovery period used for 
                purposes of paragraph (2) shall be 12 years.''.
    (c) General Aviation Aircraft.--Subsection (i) of section 168 
Internal Revenue Code of 1986 is amended by inserting after paragraph 
(19) the following new paragraph:
            ``(20) General aviation aircraft.--The term `general 
        aviation aircraft' means any airplane or helicopter (including 
        airframes and engines) not used in commercial or contract 
        carrying of passengers or freight, but which primarily engages 
        in the carrying of passengers.''.
    (d) Effective Date.--This section shall be effective for property 
placed in service after December 31, 2012.

                  TITLE V--CLOSE ESTATE TAX LOOPHOLES

SEC. 501. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; 
              LIMITATION ON MINORITY DISCOUNTS.

    (a) In General.--Section 2031 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (d) as subsection (f) and by 
inserting after subsection (c) the following new subsections:
    ``(d) Valuation Rules for Certain Transfers of Nonbusiness 
Assets.--For purposes of this chapter and chapter 12--
            ``(1) In general.--In the case of the transfer of any 
        interest in an entity other than an interest which is actively 
        traded (within the meaning of section 1092)--
                    ``(A) the value of any nonbusiness assets held by 
                the entity shall be determined as if the transferor had 
                transferred such assets directly to the transferee (and 
                no valuation discount shall be allowed with respect to 
                such nonbusiness assets), and
                    ``(B) the nonbusiness assets shall not be taken 
                into account in determining the value of the interest 
                in the entity.
            ``(2) Nonbusiness assets.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonbusiness asset' 
                means any asset which is not used in the active conduct 
                of 1 or more trades or businesses.
                    ``(B) Exception for certain passive assets.--Except 
                as provided in subparagraph (C), a passive asset shall 
                not be treated for purposes of subparagraph (A) as used 
                in the active conduct of a trade or business unless--
                            ``(i) the asset is property described in 
                        paragraph (1) or (4) of section 1221(a) or is a 
                        hedge with respect to such property, or
                            ``(ii) the asset is real property used in 
                        the active conduct of 1 or more real property 
                        trades or businesses (within the meaning of 
                        section 469(c)(7)(C)) in which the transferor 
                        materially participates and with respect to 
                        which the transferor meets the requirements of 
                        section 469(c)(7)(B)(ii).
                For purposes of clause (ii), material participation 
                shall be determined under the rules of section 469(h), 
                except that section 469(h)(3) shall be applied without 
                regard to the limitation to farming activity.
                    ``(C) Exception for working capital.--Any asset 
                (including a passive asset) which is held as a part of 
                the reasonably required working capital needs of a 
                trade or business shall be treated as used in the 
                active conduct of a trade or business.
            ``(3) Passive asset.--For purposes of this subsection, the 
        term `passive asset' means any--
                    ``(A) cash or cash equivalents,
                    ``(B) except to the extent provided by the 
                Secretary, stock in a corporation or any other equity, 
                profits, or capital interest in any entity,
                    ``(C) evidence of indebtedness, option, forward or 
                futures contract, notional principal contract, or 
                derivative,
                    ``(D) asset described in clause (iii), (iv), or (v) 
                of section 351(e)(1)(B),
                    ``(E) annuity,
                    ``(F) real property used in 1 or more real property 
                trades or businesses (as defined in section 
                469(c)(7)(C)),
                    ``(G) asset (other than a patent, trademark, or 
                copyright) which produces royalty income,
                    ``(H) commodity,
                    ``(I) collectible (within the meaning of section 
                401(m)), or
                    ``(J) any other asset specified in regulations 
                prescribed by the Secretary.
            ``(4) Look-thru rules.--
                    ``(A) In general.--If a nonbusiness asset of an 
                entity consists of a 10-percent interest in any other 
                entity, this subsection shall be applied by 
                disregarding the 10-percent interest and by treating 
                the entity as holding directly its ratable share of the 
                assets of the other entity. This subparagraph shall be 
                applied successively to any 10-percent interest of such 
                other entity in any other entity.
                    ``(B) 10-percent interest.--The term `10-percent 
                interest' means--
                            ``(i) in the case of an interest in a 
                        corporation, ownership of at least 10 percent 
                        (by vote or value) of the stock in such 
                        corporation,
                            ``(ii) in the case of an interest in a 
                        partnership, ownership of at least 10 percent 
                        of the capital or profits interest in the 
                        partnership, and
                            ``(iii) in any other case, ownership of at 
                        least 10 percent of the beneficial interests in 
                        the entity.
                    ``(C) Exception for actively traded interests.--
                Subparagraph (A) shall not apply to any nonbusiness 
                asset which consists of an interest which is actively 
                traded (within the meaning of section 1092).
            ``(5) Coordination with subsection (b).--Subsection (b) 
        shall apply after the application of this subsection.
    ``(e) Limitation on Minority Discounts.--For purposes of this 
chapter and chapter 12, in the case of the transfer of any interest in 
an entity other than an interest which is actively traded (within the 
meaning of section 1092), no discount shall be allowed by reason of the 
fact that the transferee does not have control of such entity if the 
transferee and members of the family (as defined in section 
2032A(e)(2)) of the transferee have control of such entity (determined 
immediately after such transfer).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.

SEC. 502. CONSISTENT BASIS REPORTING BETWEEN ESTATE AND PERSON 
              ACQUIRING PROPERTY FROM DECEDENT.

    (a) Consistent Use of Basis.--
            (1) Property acquired from a decedent.--Section 1014 of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new subsection:
    ``(f) Basis Must Be Consistent With Estate Tax Return.--
            ``(1) In general.--For purposes of this section, the value 
        used to determine the basis of any interest in property in the 
        hands of the person acquiring such property shall not exceed 
        the value of such interest as finally determined for purposes 
        of chapter 11.
            ``(2) Special rule where no final determination.--In any 
        case in which the final value of property has not been 
        determined under chapter 11 and there has been a statement 
        furnished under section 6035(a), the value used to determine 
        the basis of any interest in property in the hands of the 
        person acquiring such property shall not exceed the amount 
        reported on any statement furnished under section 6035(a).
            ``(3) Regulations.--The Secretary may by regulations 
        provide exceptions to the application of this subsection.''.
            (2) Property acquired by gifts and transfers in trust.--
        Section 1015 of the Internal Revenue Code of 1986 is amended by 
        adding at the end the following new subsection:
    ``(f) Basis Must Be Consistent Gift Tax Return.--
            ``(1) In general.--For purposes of this section, the value 
        used to determine the basis of any interest in property in the 
        hands of the person acquiring such property shall not exceed 
        the value of such interest as finally determined for purposes 
        of chapter 12.
            ``(2) Special rule where no final determination.--In any 
        case in which the final value of property has not been 
        determined under chapter 12 and there has been a statement 
        furnished under section 6035(b), the value used to determine 
        the basis of any interest in property in the hands of the 
        person acquiring such property shall not exceed the amount 
        reported on any statement furnished under section 6035(b).
            ``(3) Regulations.--The Secretary may by regulations 
        provide exceptions to the application of this subsection.''.
    (b) Information Reporting.--
            (1) In general.--Subpart A of part III of subchapter A of 
        chapter 61 of the Internal Revenue Code of 1986 is amended by 
        inserting after section 6034A the following new section:

``SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING PROPERTY FROM 
              DECEDENT OR BY GIFT.

    ``(a) Information With Respect to Property Acquired From 
Decedents.--
            ``(1) In general.--The executor of any estate required to 
        file a return under section 6018(a) shall furnish to the 
        Secretary and to each person acquiring any interest in property 
        included in the decedent's gross estate for Federal estate tax 
        purposes a statement identifying the value of each interest in 
        such property as reported on such return and such other 
        information with respect to such interest as the Secretary may 
        prescribe.
            ``(2) Statements by beneficiaries.--Each person required to 
        file a return under section 6018(b) shall furnish to the 
        Secretary and to each other person who holds a legal or 
        beneficial interest in the property to which such return 
        relates a statement identifying the information described in 
        paragraph (1).
            ``(3) Time for furnishing statement.--
                    ``(A) In general.--Each statement required to be 
                furnished under paragraph (1) or (2) shall be furnished 
                at such time as the Secretary may prescribe, but in no 
                case at a time later than the earlier of--
                            ``(i) the date which is 30 days after the 
                        date on which the return under section 6018 was 
                        required to be filed (including extensions, if 
                        any), or
                            ``(ii) the date which is 30 days after the 
                        date such return is filed.
                    ``(B) Adjustments.--In any case in which there is 
                an adjustment to the information required to be 
                included on a statement filed under paragraph (1) or 
                (2) after such statement has been filed, a supplemental 
                statement under such paragraph shall be filed not later 
                than the date which is 30 days after such adjustment is 
                made.
    ``(b) Information With Respect to Property Acquired by Gift.--
            ``(1) In general.--Each person making a transfer by gift 
        who is required to file a return under section 6019 with 
        respect to such transfer shall furnish to the Secretary and to 
        each person acquiring any interest in property by reason of 
        such transfer a statement identifying the value of each 
        interest in such property as reported on such return and such 
        other information with respect to such interest as the 
        Secretary may prescribe.
            ``(2) Time for furnishing statement.--
                    ``(A) In general.--Each statement required to be 
                furnished under paragraph (1) shall be furnished at 
                such time as the Secretary may prescribe, but in no 
                case at a time later than the earlier of--
                            ``(i) the date which is 30 days after the 
                        date on which the return under section 6019 was 
                        required to be filed (including extensions, if 
                        any), or
                            ``(ii) the date which is 30 days after the 
                        date such return is filed.
                    ``(B) Adjustments.--In any case in which there is 
                an adjustment to the information required to be 
                included on a statement filed under paragraph (1) after 
                such statement has been filed, a supplemental statement 
                under such paragraph shall be filed not later than the 
                date which is 30 days after such adjustment is made.
    ``(c) Regulations.--The Secretary shall prescribe such regulations 
as necessary to carry out this section, including regulations relating 
to--
            ``(1) the application of this section to property with 
        regard to which no estate or gift tax return is required to be 
        filed, and
            ``(2) situations in which the surviving joint tenant or 
        other recipient may have better information than the executor 
        regarding the basis or fair market value of the property.''.
            (2) Penalty for failure to file.--
                    (A) Return.--Section 6724(d)(1) of the Internal 
                Revenue Code of 1986 is amended by striking ``and'' at 
                the end of subparagraph (B), by striking the period at 
                the end of subparagraph (C) and inserting ``, and'', 
                and by adding at the end the following new 
                subparagraph:
                    ``(D) any statement required to be filed with the 
                Secretary under section 6035.''.
                    (B) Statement.--Section 6724(d)(2) of such Code is 
                amended by striking ``or'' at the end of subparagraph 
                (GG), by striking the period at the end of subparagraph 
                (HH) and inserting ``, or'', and by adding at the end 
                the following new subparagraph:
                    ``(II) section 6035 (other than a statement 
                described in paragraph (1)(D)).''.
            (3) Clerical amendment.--The table of sections for subpart 
        A of part III of subchapter A of chapter 61 of the Internal 
        Revenue Code of 1986 is amended by inserting after the item 
        relating to section 6034A the following new item:

``Sec. 6035. Basis information to persons acquiring property from 
                            decedent or by gift.''.
    (c) Penalty for Inconsistent Reporting.--
            (1) In general.--Subsection (b) of section 6662 of the 
        Internal Revenue Code of 1986 is amended by inserting after 
        paragraph (7) the following new paragraph:
            ``(8) Any inconsistent estate or gift basis.''.
            (2) Inconsistent basis reporting.--Section 6662 of such 
        Code is amended by adding at the end the following new 
        subsection:
    ``(k) Inconsistent Estate or Gift Basis Reporting.--For purposes of 
this section, the term `inconsistent estate or gift basis' means the 
portion of the understatement which is attributable to--
            ``(1) in the case of property acquired from a decedent, a 
        basis determination with respect to such property which is not 
        consistent with the value of such property as determined under 
        section 1014(f), and
            ``(2) in the case of property acquired by gift, a basis 
        determination with respect to such property which is not 
        consistent with the value of such property as determined under 
        section 1015(f).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers for which returns are filed after the date of the 
enactment of this Act.

SEC. 503. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR GRANTOR RETAINED 
              ANNUITY TRUSTS.

    (a) In General.--Subsection (b) of section 2702 of the Internal 
Revenue Code of 1986 is amended--
            (1) by redesignating paragraphs (1), (2) and (3) as 
        subparagraphs (A), (B), and (C), respectively, and by moving 
        such subparagraphs (as so redesignated) 2 ems to the right;
            (2) by striking ``For purposes of'' and inserting the 
        following:
            ``(1) In general.--For purposes of'';
            (3) by striking ``paragraph (1) or (2)'' in paragraph 
        (1)(C) (as so redesignated) and inserting ``subparagraph (A) or 
        (B)''; and
            (4) by adding at the end the following new paragraph:
            ``(2) Additional requirements with respect to grantor 
        retained annuities.--For purposes of subsection (a), in the 
        case of an interest described in paragraph (1)(A) (determined 
        without regard to this paragraph) which is retained by the 
        transferor, such interest shall be treated as described in such 
        paragraph only if--
                    ``(A) the right to receive the fixed amounts 
                referred to in such paragraph is for a term of not less 
                than 10 years,
                    ``(B) such fixed amounts, when determined on an 
                annual basis, do not decrease relative to any prior 
                year during the first 10 years of the term referred to 
                in subparagraph (A), and
                    ``(C) the remainder interest has a value greater 
                than zero determined as of the time of the transfer.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers made after the date of the enactment of this Act.

SEC. 504. LIMITATION ON GST EXEMPTION OF PERPETUAL DYNASTY TRUSTS.

    (a) In General.--Section 2642 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(h) Expiration of GST Exemption 90 Years After Establishment of 
Trust.--
            ``(1) In general.--In the case of any generation-skipping 
        transfer made from a trust after the date which is 90 years 
        after the date on which such trust is created, the inclusion 
        ratio with respect to any property transferred in such transfer 
        shall be 1.
            ``(2) Special rules.--For purposes of this subsection--
                    ``(A) Date of creation of certain deemed separate 
                trusts.--In the case of any portion of a trust which is 
                treated as a separate trust under section 2654(b)(1), 
                such separate trust shall be treated as created on the 
                date of the first transfer described in such section 
                with respect to such separate trust.
                    ``(B) Date of creation of pour-over trusts.--In the 
                case of any generation-skipping transfer of property 
                which involves the transfer of property from 1 trust to 
                another trust, the date of the creation of the 
                transferee trust shall be treated as being the earlier 
                of--
                            ``(i) the date of the creation of such 
                        transferee trust, or
                            ``(ii) the date of the creation of the 
                        transferor trust.
                In the case of multiple transfers to which the 
                preceding sentence applies, the date of the creation of 
                the transferor trust shall be determined under the 
                preceding sentence before the application of the 
                preceding sentence to determine the date of the 
                creation of the transferee trust.
                    ``(C) Exception for certain transfers for education 
                and medical expenses.--Subparagraph (B) shall not apply 
                to the transfer of property from 1 trust to another 
                trust if--
                            ``(i) such transfer is described in section 
                        2642(c)(2), and
                            ``(ii) the individual referred to in such 
                        section with respect to the transferee trust 
                        was also a beneficiary of the transferor trust.
            ``(3) Regulations.--The Secretary may prescribe such 
        regulations or other guidance as may be necessary or 
        appropriate to carry out this subsection.''.
    (b) Effective Date.--
            (1) In general.--The amendments made this section shall 
        apply to--
                    (A) trusts created after the date of the enactment 
                of this Act, and
                    (B) generation-skipping transfers made from trusts 
                created on or before such date, but only to the extent 
                such transfer is made out of corpus added to the trust 
                after such date (or out of income attributable to 
                corpus so added).
            (2) Determination of date of creation.--For purposes of 
        this subsection, the rules of sections 2642(h)(2) (as added by 
        this section) and 2654(b) of the Internal Revenue Code of 1986 
        shall apply for purposes of determining the date of the 
        creation of any trust.
            (3) Exceptions.--The Secretary of the Treasury, or his 
        designee, shall issue regulations or other guidance which 
        provide exceptions to the application of the amendments made by 
        this section which are substantially similar to the relevant 
        exceptions under paragraph (2) of section 1433(b) of the Tax 
        Reform Act of 1986.

            TITLE VI--CUT PENTAGON WASTE TO ACHIEVE BALANCE

          Subtitle A--Smarter Approach to Nuclear Expenditures

SEC. 601. SHORT TITLE.

    This title may be cited as the ``Smarter Approach to Nuclear 
Expenditures Act''.

SEC. 602. FINDINGS.

    Congress finds the following:
            (1) The Berlin Wall fell in 1989, the U.S.S.R. no longer 
        exists, and the Cold War is over. The nature of threats to the 
        national security and military interests of the United States 
        has changed. However, the United States continues to maintain 
        an enormous arsenal of nuclear weapons and delivery systems 
        that were devised with the Cold War in mind.
            (2) The current nuclear arsenal of the United States 
        includes approximately 5,000 total nuclear warheads, of which 
        approximately 2,000 are deployed with three delivery 
        components: long-range strategic bomber aircraft, land-based 
        intercontinental ballistic missiles, and submarine-launched 
        ballistic missiles. The bomber fleet of the United States 
        comprises 93 B-52 and 20 B-2 aircraft. The United States 
        maintains 450 intercontinental ballistic missiles. The United 
        States also maintains 14 Ohio-class submarines, up to 12 of 
        which are deployed at sea. Each of these submarines is armed 
        with up to 96 independently targetable nuclear warheads.
            (3) This Cold War-based approach to nuclear security comes 
        at significant cost. Over the next 10 years, the United States 
        will spend hundreds of billions of dollars maintaining its 
        nuclear force. A substantial decrease in the nuclear arsenal of 
        the United States is prudent for both the budget and national 
        security.
            (4) The national security interests of the United States 
        can be well served by reducing the total number of deployed 
        nuclear warheads and their delivery systems, as suggested by 
        the Department of Defense's January 2012 strategic guidance 
        titled ``Sustaining U.S. Global Leadership: Priorities for 21st 
        Century Defense''. Furthermore, a number of arms control, 
        nuclear, and national security experts have urged the United 
        States to reduce the number of deployed nuclear warheads to no 
        more than 1,000.
            (5) Economic security and national security are linked and 
        both will be well served by smart defense spending. Admiral 
        Mike Mullen, Chairman of the Joint Chiefs of Staff, stated on 
        June 24, 2010, that ``Our national debt is our biggest national 
        security threat'' and on August 2, 2011, stated that ``I 
        haven't changed my view that the continually increasing debt is 
        the biggest threat we have to our national security.''.
            (6) The Government Accountability Office has found that 
        there is significant waste in the construction of the nuclear 
        facilities of the National Nuclear Security Administration of 
        the Department of Energy.

SEC. 603. REDUCTION IN NUCLEAR FORCES.

    (a) Prohibition on Use of B-2 and B-52 Aircraft for Nuclear 
Missions.--Notwithstanding any other provision of law, none of the 
funds authorized to be appropriated or otherwise made available for 
fiscal year 2014 or any fiscal year thereafter for the Department of 
Defense may be obligated or expended to arm a B-2 or B-52 aircraft with 
a nuclear weapon.
    (b) Prohibition on New Long-Range Penetrating Bomber Aircraft.--
Notwithstanding any other provision of law, none of the funds 
authorized to be appropriated or otherwise made available for any of 
fiscal years 2014 through 2024 for the Department of Defense may be 
obligated or expended for the research, development, test, and 
evaluation or procurement of a long-range penetrating bomber aircraft.
    (c) Prohibition on F-35 Nuclear Mission.--Notwithstanding any other 
provision of law, none of the funds authorized to be appropriated or 
otherwise made available for fiscal year 2014 or any fiscal year 
thereafter for the Department of Defense or the Department of Energy 
may be used to make the F-35 Joint Strike Fighter aircraft capable of 
carrying nuclear weapons.
    (d) Termination of B61 LEP.--Notwithstanding any other provision of 
law, none of the funds authorized to be appropriated or otherwise made 
available for fiscal year 2014 or any fiscal year thereafter for the 
Department of Defense or the Department of Energy may be obligated or 
expended for the B61 life extension program.
    (e) Termination of W78 LEP.--Notwithstanding any other provision of 
law, none of the funds authorized to be appropriated or otherwise made 
available for fiscal year 2014 or any fiscal year thereafter for the 
Department of Defense or the Department of Energy may be obligated or 
expended for the W78 life extension program.
    (f) Reduction of Nuclear-Armed Submarines.--Notwithstanding any 
other provision of law, beginning in fiscal year 2014, the forces of 
the Navy shall include not more than eight operational ballistic-
missile submarines available for deployment.
    (g) Limitation on SSBN-X Submarines.--Notwithstanding any other 
provision of law--
            (1) none of the funds authorized to be appropriated or 
        otherwise made available for any of fiscal years 2014 through 
        2024 for the Department of Defense may be obligated or expended 
        for the procurement of an SSBN-X submarine; and
            (2) none of the funds authorized to be appropriated or 
        otherwise made available for fiscal year 2025 or any fiscal 
        year thereafter for the Department of Defense may be obligated 
        or expended for the procurement of more than eight such 
        submarines.
    (h) Reduction of ICBMs.--Notwithstanding any other provision of 
law, none of the funds authorized to be appropriated or otherwise made 
available for fiscal year 2014 or any fiscal year thereafter for the 
Department of Defense may be obligated or expended to maintain more 
than 200 intercontinental ballistic missiles.
    (i) Reduction of SLBMs.--Notwithstanding any other provision of 
law, none of the funds authorized to be appropriated or otherwise made 
available for fiscal year 2014 or any fiscal year thereafter for the 
Department of Defense may be obligated or expended to maintain more 
than 250 submarine-launched ballistic missiles.
    (j) Prohibition on New ICBM.--Notwithstanding any other provision 
of law, none of the funds authorized to be appropriated or otherwise 
made available for fiscal year 2014 or any fiscal year thereafter for 
the Department of Defense may be obligated or expended for the 
research, development, test, and evaluation or procurement of a new 
intercontinental ballistic missile.
    (k) Termination of MOX Fuel Plant Project.--Notwithstanding any 
other provision of law, none of the funds authorized to be appropriated 
or otherwise made available for fiscal year 2014 or any fiscal year 
thereafter for the Department of Defense or the Department of Energy 
may be obligated or expended for the Mixed Oxide (MOX) Fuel Fabrication 
Facility project.
    (l) Termination of CMRR Project.--Notwithstanding section 4215 of 
the Atomic Energy Defense Act or any other provision of law, none of 
the funds authorized to be appropriated or otherwise made available for 
fiscal year 2014 or any fiscal year thereafter for the Department of 
Defense or the Department of Energy may be obligated or expended for 
the Chemistry and Metallurgy Research Replacement nuclear facility.
    (m) Termination of UPF.--Notwithstanding any other provision of 
law, none of the funds authorized to be appropriated or otherwise made 
available for fiscal year 2014 or any fiscal year thereafter for the 
Department of Defense or the Department of Energy may be obligated or 
expended for the Uranium Processing Facility located at the Y-12 
National Security Complex.
    (n) Termination of MEADS.--Notwithstanding any other provision of 
law, none of the funds authorized to be appropriated or otherwise made 
available for fiscal year 2014 or any fiscal year thereafter for the 
Department of Defense may be obligated or expended for the medium 
extended air defense system.

SEC. 604. REPORTS REQUIRED.

    (a) Initial Report.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary of Defense and the Secretary of 
Energy shall jointly submit to the appropriate committees of Congress a 
report outlining the plan of each Secretary to carry out section 603.
    (b) Annual Report.--Not later than March 1, 2014, and each year 
thereafter, the Secretary of Defense and the Secretary of Energy shall 
jointly submit to the appropriate committees of Congress a report 
outlining the plan of each Secretary to carry out section 603, 
including any updates to previously submitted reports.
    (c) Annual Nuclear Weapons Accounting.--Not later than September 
30, 2014, and each year thereafter, the President shall transmit to the 
appropriate committees of Congress a report containing a comprehensive 
accounting by the Director of the Office of Management and Budget of 
the amounts obligated and expended by the Federal Government for each 
nuclear weapon and related nuclear program during--
            (1) the fiscal year covered by the report; and
            (2) the life cycle of such weapon or program.
    (d) Appropriate Committees of Congress Defined.--In this section, 
the term ``appropriate committees of Congress'' means--
            (1) the Committee on Armed Services, the Committee on 
        Foreign Relations, the Committee on Appropriations, and the 
        Committee on Energy and Natural Resources of the Senate; and
            (2) the Committee on Armed Services, the Committee on 
        Foreign Affairs, the Committee on Appropriations, the Committee 
        on Energy and Commerce, and the Committee on Natural Resources 
        of the House of Representatives.

         Subtitle B--Limiting Excessive Contractor Compensation

SEC. 611. LIMITATION ON ALLOWABLE COMPENSATION COSTS.

    (a) Limitation.--
            (1) Civilian contracts.--Section 4304(a)(16) of title 41, 
        United States Code, is amended to read as follows:
            ``(16) Costs of compensation of contractor and 
        subcontractor employees for a fiscal year, regardless of the 
        contract funding source, to the extent that such compensation 
        exceeds the rate payable for level I of the Executive Schedule 
        under section 5312 of title 5.''.
            (2) Defense contracts.--Section 2324(e)(1)(P) of title 10, 
        United States Code, is amended to read as follows:
            ``(P) Costs of compensation of contractor and subcontractor 
        employees for a fiscal year, regardless of the contract funding 
        source, to the extent that such compensation exceeds the rate 
        payable for level I of the Executive Schedule under section 
        5312 of title 5.''.
    (b) Conforming Amendments.--
            (1) In general.--Section 1127 of title 41, United States 
        Code, is hereby repealed.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 11 of title 41, United States Code, is 
        amended by striking the item relating to section 1127.

      Subtitle C--Relocate Troops From Europe to the United States

SEC. 615. RELOCATION TO UNITED STATES MILITARY INSTALLATIONS OF MEMBERS 
              OF THE UNITED STATES ARMED FORCES ASSIGNED TO PERMANENT 
              DUTY IN EUROPE.

    (a) Relocation Required.--Not later than one year after the date of 
the enactment of this Act, the Secretary of Defense shall complete the 
relocation to military installations in the United States of at least 
10,000 members of the Armed Forces of the United States who, as of the 
date of the enactment of this Act, are assigned to permanent duty 
ashore in Europe. The members relocated shall not be replaced by the 
assignment of other members of the Armed Forces of the United States to 
permanent duty ashore in Europe.
    (b) Exclusion of Certain Members.--For purposes of complying with 
this section, the Secretary of Defense shall not select members of the 
Armed Forces performing the following assignments for relocation to the 
United States:
            (1) Members assigned to permanent duty ashore in Iceland, 
        Greenland, and the Azores.
            (2) Members performing duties in Europe for more than 179 
        days under a military-to-military contact program under section 
        168 of title 10, United States Code.
    (c) Exceptions; Waiver.--This section shall not apply in the event 
of a declaration of war or an armed attack on any European member 
nation of the North Atlantic Treaty Organization. The President may 
waive operation of this section if the President declares an emergency 
and immediately informs the Congress of the waiver and the reasons 
therefor.
    (d) Conforming Amendment to Permanent Ceiling on United States 
Military Presence in Europe.--Section 1002(c)(1) of the Department of 
Defense Authorization Act, 1985 (22 U.S.C. 1928 note) is amended by 
striking ``100,000'' and inserting ``60,000''.

  Subtitle D--Additional Reduction in Armed Forces End Strength Levels

SEC. 621. ADDITIONAL ARMY AND MARINE CORPS END STRENGTH REDUCTIONS 
              THROUGH RETIREMENT AND SEPARATION.

    (a) Army.--In addition to the reductions in end strength levels of 
active duty members of the Army otherwise required to be achieved 
during fiscal years 2013 through 2017, the Secretary of the Army shall 
reduce the end strength numbers for active duty personnel as of the end 
of fiscal year 2017 by an additional 20,000.
    (b) Marine Corps.--In addition to the reductions in end strength 
levels of active duty members of the Marine Corps otherwise required to 
be achieved during fiscal years 2013 through 2017, the Secretary of the 
Navy shall reduce the end strength numbers for active duty personnel as 
of the end of fiscal year 2017 by an additional 7,000.
    (c) Methods of Achieving Reductions.--To achieve the personnel 
reductions required by subsections (a) and (b), the Secretary of the 
Army and the Secretary of the Navy shall rely on the retirement and 
separation of members of the Army and Marine Corps, including as a 
result of the use of enhanced selective early retirement boards and 
early discharges under section 638a of title 10, United States Code, as 
reinstated by section 502 of the National Defense Authorization Act for 
Fiscal Year 2013 (Public Law 112-239).

 Subtitle E--Procurement of Certain Submarines, Carriers, and Aircraft

SEC. 631. LIMITATION ON PROCUREMENT OF VIRGINIA CLASS SUBMARINES.

    Notwithstanding any other provision of law, none of the funds 
authorized to be appropriated or otherwise made available for fiscal 
years 2014 through 2024 for the Department of Defense may be obligated 
or expended to procure more than one Virginia class submarine per 
fiscal year.

SEC. 632. LIMITATION ON PROCUREMENT OF ONE FORD CLASS AIRCRAFT CARRIER.

    (a) Limitation.--Notwithstanding any other provision of law, none 
of the funds authorized to be appropriated or otherwise made available 
for fiscal year 2014 or any fiscal year thereafter for the Department 
of Defense may be obligated or expended to procure the Ford class 
aircraft carrier designated CVN-80.
    (b) Effect on Requirement for 11 Operational Aircraft Carriers.--
Subsection (a) applies even in the event that the number of operational 
aircraft carriers for the naval combat forces of the Navy becomes less 
than 11, notwithstanding section 5065(b) of title 10, United States 
Code.

SEC. 633. AUTHORITY FOR PROCUREMENT OF F/A-18E AND F/A-18F AIRCRAFT.

    (a) Replacement of Planned Procurement of F-35C Aircraft.--
            (1) Limitation on procurement.--Notwithstanding any other 
        provision of law, none of the funds authorized to be 
        appropriated or otherwise made available for fiscal year 2014 
        or any fiscal year thereafter for the Department of Defense may 
        be obligated or expended to procure the 237 F-35C aircraft that 
        the Secretary of the Navy planned to procure as of the date on 
        which the budget of the President was submitted to Congress 
        under section 1105(a) of title 31, United States Code, for 
        fiscal year 2013.
            (2) Authority for procurement.--Of the funds authorized to 
        be appropriated or otherwise made available for fiscal year 
        2014 or any fiscal year thereafter for the Department of 
        Defense, the Secretary of the Navy may procure not more than a 
        total of 240 F/A-18E and F/A-18F aircraft.
    (b) Replacement of Procurement of F-35B Aircraft.--
            (1) Limitation on procurement.--Notwithstanding any other 
        provision of law, none of the funds authorized to be 
        appropriated or otherwise made available for fiscal year 2014 
        or any fiscal year thereafter for the Department of Defense may 
        be obligated or expended to procure more than 200 F-35B 
        aircraft.
            (2) Authority for procurement.--Of the funds authorized to 
        be appropriated or otherwise made available for fiscal year 
        2014 or any fiscal year thereafter for the Department of 
        Defense, the Secretary of the Navy may procure not more than a 
        total of 220 F/A-18E and F/A-18F aircraft.

SEC. 634. PROHIBITION ON PROCUREMENT OF V-22 OSPREY AIRCRAFT.

    Notwithstanding any other provision of law, none of the funds 
authorized to be appropriated or otherwise made available for fiscal 
year 2014 or any fiscal year thereafter for the Department of Defense 
may be obligated or expended for the procurement of V-22 Osprey 
aircraft.

                    Subtitle F--Limit Military Bands

SEC. 641. LIMITATION ON EXPENDITURES FOR MILITARY MUSICAL UNITS.

    Amounts expended for any fiscal year for military musical units (as 
defined in section 974 of title 10, United States Code) may not exceed 
$200,000,000.

      Subtitle G--Reduction in Number of General and Flag Officers

SEC. 651. RETURN OF MAXIMUM NUMBER OF GENERAL AND FLAG OFFICERS TO COLD 
              WAR LEVELS.

    Section 526 of title 10, United States Code, is amended by adding 
at the end the following new subsection:
    ``(i) Additional Limitation Stated as Ratio of Members on Active 
Duty.--Notwithstanding any other provision of this section, the number 
of general officers on active duty in the Army, Air Force, or Marine 
Corps, and the number of flag officers on active duty in the Navy, may 
not exceed six general officers or flag officers for each 10,000 
members of that armed force on active duty.''.

                     Subtitle H--Audit the Pentagon

SEC. 661. PURPOSES.

    The purposes of this subtitle are as follows:
            (1) To strengthen American national security by ensuring 
        that--
                    (A) military planning, operations, weapons 
                development, and a long-term national security strategy 
                are connected to sound financial controls; and
                    (B) defense dollars are spent efficiently.
            (2) To instill a culture of accountability at the 
        Department of Defense that supports the vast majority of 
        dedicated members of the Armed Forces and civilians who want to 
        ensure proper accounting and prevent waste, fraud, and abuse.

SEC. 662. FINDINGS.

    Congress finds the following:
            (1) The 2011 Financial Report of the United States 
        Government found that 32 of 35 major Federal agencies received 
        clean audit opinions. Two more, the Department of Homeland 
        Security and the Department of State, received ``qualified'' 
        audit opinions but are making progress. Only the Department of 
        Defense had a ``disclaimer'' because it lacked any auditable 
        reporting or accounting available for independent review.
            (2) The financial management of the Department of Defense 
        has been on the ``High-Risk'' list of the Government 
        Accountability Office (GAO). The GAO found that the Department 
        is not consistently able to ``control costs; ensure basic 
        accountability; anticipate future costs and claims on the 
        budget; measure performance; maintain funds control; and 
        prevent and detect fraud, waste, and abuse''.
            (3) At a September 2010 hearing of the Senate, the 
        Government Accountability Office stated that past expenditures 
        by the Department of Defense of $5,800,000,000 to improve 
        financial information, and billions of dollars more of 
        anticipated expenditures on new information technology systems 
        for that purpose, may not suffice to achieve full audit 
        readiness of the financial statement of the Department. At that 
        hearing, the Government Accountability Office could not predict 
        when the Department would achieve full audit readiness of such 
        statements.
            (4) Section 9 of article I of the Constitution of the 
        United States requires all agencies of the Federal Government, 
        including the Department of Defense, to publish ``a regular 
        statement and account of the receipts and expenditures of all 
        public money''.
            (5) Section 303(d) of the Chief Financial Officers Act of 
        1990 (Public Law 101-576) required that financial statements be 
        prepared and independently audited for the Department of the 
        Army by March 31, 1992, and for the Department of the Air Force 
        by March 31, 1993. Neither the Department of the Army nor the 
        Department of the Air Force has complied.
            (6) Section 3515 of title 31, United States Code, requires 
        the agencies of the Federal Government, including the 
        Department of Defense, to present auditable financial 
        statements beginning not later than March 1, 1997. The 
        Department has not complied with this law.
            (7) The Federal Financial Management Improvement Act of 
        1996 (31 U.S.C. 3512 note) requires financial systems acquired 
        by the Federal Government, including the Department of Defense, 
        to be able to provide information to leaders to manage and 
        control the cost of government. The Department has not complied 
        with this law.
            (8) The National Defense Authorization Act for Fiscal Year 
        2002 (Public Law 107-107) requires the Secretary of Defense to 
        report to Congress annually on the reliability of the financial 
        statements of the Department of Defense, to minimize resources 
        spent on producing unreliable financial statements, and to use 
        resources saved to improve financial management policies, 
        procedures, and internal controls.
            (9) In 2005, the Department of Defense created a Financial 
        Improvement and Audit Readiness (FIAR) Plan, overseen by a 
        directorate within the office of the Under Secretary of Defense 
        (Comptroller), to improve Department business processes with 
        the goal of producing timely, reliable, and accurate financial 
        information that could generate an audit-ready annual financial 
        statement. In December 2005, that directorate, known as the 
        FIAR Directorate, issued the first of a series of semiannual 
        reports on the status of the Financial Improvement and Audit 
        Readiness Plan.
            (10) The National Defense Authorization Act for Fiscal Year 
        2010 (Public Law 111-84) requires regular status reports on the 
        Financial Improvement and Audit Readiness Plan described in 
        paragraph (9), and codified as a statutory requirement the goal 
        of the Plan in ensuring that Department of Defense financial 
        statements are validated as ready for audit not later than 
        September 30, 2017.

SEC. 663. SPENDING REDUCTIONS FOR AGENCIES WITHOUT CLEAN AUDITS.

    (a) Applicability.--
            (1) In general.--Subject to paragraph (2), this section 
        applies to each Federal agency identified by the Director of 
        the Office of Management and Budget as required to have an 
        audited financial statement under section 3515 of title 31, 
        United States Code.
            (2) Applicability to military departments and defense 
        agencies.--For purposes of paragraph (1), in the case of the 
        Department of Defense, each military department and each 
        Defense Agency shall be treated as a separate Federal agency.
    (b) Definitions.--In this section, the terms ``financial 
statement'' and ``external independent auditor'' have the meanings 
given those terms in section 3521(e) of title 31, United States Code.
    (c) Adjustments for Financial Accountability.--
            (1) Reduction required.--If a Federal agency has not 
        submitted a financial statement for a fiscal year by March 1 of 
        the next fiscal year, or if such financial statement has not 
        received either an unqualified or a qualified audit opinion by 
        an independent external auditor by such date, the discretionary 
        budget authority available for the Federal agency for the then 
        current fiscal year is reduced by 5 percent, with the reduction 
        applied proportionately to each account (other than an account 
        listed in subsection (d) or an account for which a waiver is 
        made under subsection (e)).
            (2) Treatment of reduction.--An amount equal to the total 
        amount of any reduction made under paragraph (2) shall be 
        retained in the general fund of the Treasury for the purposes 
        of deficit reduction.
    (d) Accounts Excluded.--The following accounts are excluded from 
any reductions referred to in subsection (c)(1):
            (1) Military personnel, reserve personnel, and National 
        Guard personnel accounts of the Department of Defense.
            (2) The Defense Health Program account of the Department of 
        Defense.
    (e) Waiver.--The President may waive subsection (c)(1) with respect 
to an account if the President certifies that applying the subsection 
to that account would harm national security or members of the Armed 
Forces who are serving in a combat zone.
    (f) Report.--Not later than 60 days after an adjustment is made 
under subsection (c), the Director of the Office of Management and 
Budget shall submit to Congress a report describing the amount of the 
adjustment and the affected accounts.

SEC. 664. REPORT ON DEPARTMENT OF DEFENSE REPORTING REQUIREMENTS.

    Not later than 180 days after the date of the enactment of this 
Act, the Under Secretary of Defense (Comptroller) shall submit to 
Congress a report setting forth the following:
            (1) A list of each report of the Department of Defense 
        required by law to be submitted to Congress which, in the 
        opinion of the Under Secretary, would no longer be necessary if 
        the financial statements of the Department of Defense were 
        audited with an unqualified opinion.
            (2) A list of each report of the Department required by law 
        to be submitted to Congress which, in the opinion of the Under 
        Secretary, interferes with the capacity of the Department to 
        achieve an audit of the financial statements of the Department 
        with an unqualified opinion.

SEC. 665. SENSE OF CONGRESS IN IMPLEMENTATION OF DEFENSE BUDGET 
              REDUCTIONS.

    It is the sense of Congress that--
            (1) as the overall defense budget is cut, congressional 
        defense committees and the Department of Defense should not 
        endanger members of the Armed Forces by reducing wounded 
        warrior accounts or vital protection (such as body armor) for 
        members of the Armed Forces in harm's way;
            (2) the valuation of legacy assets by the Department of 
        Defense should be simplified without compromising essential 
        controls or generally accepted government auditing standards; 
        and
            (3) nothing in this subtitle should be construed to require 
        or permit the declassification of accounting details about 
        classified defense programs, and, as required by law, the 
        Department of Defense should ensure financial accountability in 
        such programs using proven practices, including using auditors 
        with security clearances.

                   TITLE VII--INVEST IN JOB CREATION

                 Subtitle A--Making Work Pay Extension

SEC. 701. ONE-YEAR EXTENSION OF MAKING WORK PAY CREDIT.

    (a) In General.--Subsection (e) of section 36A of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(e) Termination.--This section shall not apply to taxable years--
            ``(1) beginning after December 31, 2010, and before January 
        1, 2013, or
            ``(2) beginning after December 31, 2013.''.
    (b) Treatment of Possessions.--Paragraph (1) of section 1001(b) of 
the American Recovery and Reinvestment Tax Act of 2009 is amended by 
striking ``2009 and 2010'' both places it appears and inserting ``2009, 
2010, and 2013''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2012.

       Subtitle B--Support for Teachers and School Modernization

   PART I--PREVENTING TEACHER LAYOFFS AND SUPPORTING THE CREATION OF 
 ADDITIONAL JOBS IN PUBLIC EARLY CHILDHOOD, ELEMENTARY, AND SECONDARY 
                               EDUCATION

SEC. 711. PURPOSE.

    The purpose of this part is to provide funds to States to prevent 
teacher layoffs and support the creation of additional jobs in public 
early childhood, elementary, and secondary education in the 2012-2013 
and 2013-2014 school years.

SEC. 712. GRANTS FOR THE OUTLYING AREAS AND THE SECRETARY OF THE 
              INTERIOR; AVAILABILITY OF FUNDS.

    (a) Reservation of Funds.--From the amount appropriated to carry 
out this subtitle under section 721, the Secretary--
            (1) shall reserve up to one-half of one percent to provide 
        assistance to the outlying areas on the basis of their 
        respective needs, as determined by the Secretary, for 
        activities consistent with this part under such terms and 
        conditions as the Secretary may determine;
            (2) shall reserve up to one-half of one percent to provide 
        assistance to the Secretary of the Interior to carry out 
        activities consistent with this part, in schools operated or 
        funded by the Bureau of Indian Education; and
            (3) may reserve up to $2,000,000 for administration and 
        oversight of this subtitle, including program evaluation.
    (b) Availability of Funds.--Funds made available under section 721 
shall remain available to the Secretary until September 30, 2014.

SEC. 713. STATE ALLOCATION.

    (a) Allocation.--After reserving funds under section section 
712(a), the Secretary shall allocate the remaining funds appropriated 
under section 721 to States, of which--
            (1) 60 percent shall be allocated to States on the basis of 
        their relative population of individuals aged 5 through 17; and
            (2) 40 percent shall be allocated to States on the basis of 
        their relative total population.
    (b) Awards.--The Secretary shall award a State's allocation under 
subsection (a) to the Governor of the State only if the Secretary has 
approved the State's application under section 714.
    (c) Alternate Distribution of Funds.--
            (1) In general.--If, within 30 days after the date of 
        enactment of this Act, a Governor has not submitted an 
        approvable application to the Secretary, the Secretary shall, 
        consistent with paragraph (2), provide for funds allocated to 
        that State to be distributed to another entity or other 
        entities in the State for the support of early childhood, 
        elementary, and secondary education, under such terms and 
        conditions as the Secretary may establish.
            (2) Maintenance of effort.--
                    (A) Governor assurance.--The Secretary shall not 
                allocate funds under paragraph (1) unless the Governor 
                of the State provides an assurance to the Secretary 
                that the State will for fiscal years 2013 and 2014 meet 
                the requirements of section 718.
                    (B) Allocations to other entities.--Notwithstanding 
                subparagraph (A), the Secretary may allocate up to 50 
                percent of the funds that are available to the State 
                under paragraph (1) to another entity or entities in 
                the State, provided that the State educational agency 
                submits data to the Secretary demonstrating that the 
                State will for fiscal year 2013 meet the requirements 
                of section 718(a) or the Secretary otherwise determines 
                that the State will meet those requirements, or such 
                comparable requirements as the Secretary may establish, 
                for that year.
            (3) Requirements.--An entity that receives funds under 
        paragraph (1) shall use those funds in accordance with the 
        requirements of this subtitle.
    (d) Reallocation.--If a State does not receive funding under this 
part or only receives a portion of its allocation under subsection (c), 
the Secretary shall reallocate the State's entire allocation or the 
remaining portion of its allocation, as the case may be, to the 
remaining States in accordance with subsection (a).

SEC. 714. STATE APPLICATION.

    The Governor of a State desiring to receive a grant under this 
subtitle shall submit an application to the Secretary within 30 days of 
the date of enactment of this Act, in such manner, and containing such 
information as the Secretary may reasonably require to determine the 
State's compliance with applicable provisions of law.

SEC. 715. STATE RESERVATION AND RESPONSIBILITIES.

    (a) Reservation.--Each State receiving a grant under section 713(b) 
may reserve--
            (1) not more than 10 percent of the grant funds for awards 
        to State-funded early learning programs; and
            (2) not more than 2 percent of the grant funds for the 
        administrative costs of carrying out its responsibilities under 
        this subtitle.
    (b) State Responsibilities.--Each State receiving a grant under 
this part shall, after reserving any funds under subsection (a)--
            (1) use the remaining grant funds only for awards to local 
        educational agencies for the support of early childhood, 
        elementary, and secondary education; and
            (2) distribute those funds, through subgrants, to its local 
        educational agencies by distributing--
                    (A) 60 percent on the basis of the local 
                educational agencies' relative shares of enrollment; 
                and
                    (B) 40 percent on the basis of the local 
                educational agencies' relative shares of funds received 
                under part A of title I of the Elementary and Secondary 
                Education Act of 1965 for fiscal year 2012; and
            (3) make those funds available to local educational 
        agencies no later than 100 days after receiving a grant from 
        the Secretary.
    (c) Prohibitions.--A State shall not use funds received under this 
subtitle to directly or indirectly--
            (1) establish, restore, or supplement a rainy-day fund;
            (2) supplant State funds in a manner that has the effect of 
        establishing, restoring, or supplementing a rainy-day fund;
            (3) reduce or retire debt obligations incurred by the 
        State; or
            (4) supplant State funds in a manner that has the effect of 
        reducing or retiring debt obligations incurred by the State.

SEC. 716. LOCAL EDUCATIONAL AGENCIES.

    Each local educational agency that receives a subgrant under this 
part--
            (1) shall use the subgrant funds only for compensation and 
        benefits and other expenses, such as support services, 
        necessary to retain existing employees, recall or rehire former 
        employees, or hire new employees to provide early childhood, 
        elementary, or secondary educational and related services;
            (2) shall obligate those funds not later than September 30, 
        2014; and
            (3) may not use those funds for general administrative 
        expenses or for other support services or expenditures, as 
        those terms are defined by the National Center for Education 
        Statistics in the Common Core of Data, as of the date of 
        enactment of this Act.

SEC. 717. EARLY LEARNING.

    Each State-funded early learning program that receives funds under 
this subtitle shall--
            (1) use those funds only for compensation, benefits, and 
        other expenses, such as support services, necessary to retain 
        early childhood educators, recall or rehire former early 
        childhood educators, or hire new early childhood educators to 
        provide early learning services; and
            (2) obligate those funds not later than September 30, 2014.

SEC. 718. MAINTENANCE OF EFFORT.

    (a) Requirement.--The Secretary shall not allocate funds to a State 
under this subtitle unless the State provides an assurance to the 
Secretary that--
            (1) for State fiscal year 2013--
                    (A) the State will maintain State support for early 
                childhood, elementary, and secondary education (in the 
                aggregate or on the basis of expenditure per pupil) and 
                for public institutions of higher education (not 
                including support for capital projects or for research 
                and development or tuition and fees paid by students) 
                at not less than the level of such support for each of 
                the two categories for State fiscal year 2012; or
                    (B) the State will maintain State support for early 
                childhood, elementary, and secondary education and for 
                public institutions of higher education (not including 
                support for capital projects or for research and 
                development or tuition and fees paid by students) at a 
                percentage of the total revenues available to the State 
                that is equal to or greater than the percentage 
                provided for State fiscal year 2012; and
            (2) for State fiscal year 2014--
                    (A) the State will maintain State support for early 
                childhood, elementary, and secondary education (in the 
                aggregate or on the basis of expenditure per pupil) and 
                for public institutions of higher education (not 
                including support for capital projects or for research 
                and development or tuition and fees paid by students) 
                at not less than the level of such support for each of 
                the two categories for State fiscal year 2013; or
                    (B) the State will maintain State support for early 
                childhood, elementary, and secondary education and for 
                public institutions of higher education (not including 
                support for capital projects or for research and 
                development or tuition and fees paid by students) at a 
                percentage of the total revenues available to the State 
                that is equal to or greater than the percentage 
                provided for State fiscal year 2013.
    (b) Waiver.--The Secretary may waive the requirements of this 
section if the Secretary determines that a waiver would be equitable 
due to--
            (1) exceptional or uncontrollable circumstances, such as a 
        natural disaster; or
            (2) a precipitous decline in the financial resources of the 
        State.

SEC. 719. REPORTING.

    Each State that receives a grant under this part shall submit, on 
an annual basis, a report to the Secretary that contains--
            (1) a description of how funds received under this part 
        were expended or obligated; and
            (2) an estimate of the number of jobs supported by the 
        State using funds received under this subtitle.

SEC. 720. DEFINITIONS.

    In this part:
            (1) ESEA definitions.--Except as otherwise provided, the 
        terms ``local educational agency'', ``outlying area'', 
        ``Secretary'', ``State'', and ``State educational agency'' have 
        the meanings given those terms in section 9101 of the 
        Elementary and Secondary Education Act of 1965 (20 U.S.C. 
        7801).
            (2) State.--The term ``State'' does not include an outlying 
        area.
            (3) Early child educator.--The term ``early childhood 
        educator'' means an individual who--
                    (A) works directly with children in a State-funded 
                early learning program in a low-income community;
                    (B) is involved directly in the care, development, 
                and education of infants, toddlers, or young children 
                age five and under; and
                    (C) has completed a baccalaureate or advanced 
                degree in early childhood development or early 
                childhood education, or in a field related to early 
                childhood education.
            (4) State-funded early learning program.--The term ``State-
        funded early learning program'' means a program that provides 
        educational services to children from birth to kindergarten 
        entry and receives funding from a State.

SEC. 721. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated, and there are 
appropriated, $30,000,000,000 to carry out this part for fiscal year 
2013.

               PART II--ELEMENTARY AND SECONDARY SCHOOLS

SEC. 731. PURPOSE.

    The purpose of this part is to provide assistance for the 
modernization, renovation, and repair of elementary and secondary 
school buildings in public school districts across America in order to 
support the achievement of improved educational outcomes in those 
schools.

SEC. 732. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated, and there are 
appropriated, $25,000,000,000 to carry out this part, which shall be 
available for obligation by the Secretary until September 30, 2014.

SEC. 733. ALLOCATION OF FUNDS.

    (a) Reservations.--Of the amount made available to carry out this 
part, the Secretary shall reserve--
            (1) one-half of one percent for the Secretary of the 
        Interior to carry out modernization, renovation, and repair 
        activities described in section 736 in schools operated or 
        funded by the Bureau of Indian Education;
            (2) one-half of one percent to make grants to the outlying 
        areas for modernization, renovation, and repair activities 
        described in section 736; and
            (3) such funds as the Secretary determines are needed to 
        conduct a survey, by the National Center for Education 
        Statistics, of the school construction, modernization, 
        renovation, and repair needs of the public schools of the 
        United States.
    (b) State Allocation.--After reserving funds under subsection (a), 
the Secretary shall allocate the remaining amount among the States in 
proportion to their respective allocations under part A of title I of 
the Elementary and Secondary Education Act of 1965 (in this part 
referred to as the ``ESEA'') (20 U.S.C. 6311 et seq.) for fiscal year 
2013, except that--
            (1) the Secretary shall allocate 40 percent of such 
        remaining amount to the 100 local educational agencies with the 
        largest numbers of children aged 5-17 living in poverty, as 
        determined using the most recent data available from the 
        Department of Commerce that are satisfactory to the Secretary, 
        in proportion to those agencies' respective allocations under 
        part A of title I of the ESEA for fiscal year 2013; and
            (2) the allocation to any State shall be reduced by the 
        aggregate amount of the allocations under paragraph (1) to 
        local educational agencies in that State.
    (c) Remaining Allocation.--
            (1) States.--If a State does not apply for its allocation 
        under subsection (b) (or applies for less than the full 
        allocation for which it is eligible) or does not use that 
        allocation in a timely manner, the Secretary may--
                    (A) reallocate all or a portion of that allocation 
                to the other States in accordance with subsection (b); 
                or
                    (B) use all or a portion of that allocation to make 
                direct allocations to local educational agencies within 
                the State based on their respective allocations under 
                part A of title I of the ESEA for fiscal year 2013 or 
                such other method as the Secretary may determine.
            (2) Local educational agencies.--If a local educational 
        agency does not apply for its allocation under subsection 
        (b)(1), applies for less than the full allocation for which it 
        is eligible, or does not use that allocation in a timely 
        manner, the Secretary may reallocate all or a portion of its 
        allocation to the State in which that agency is located.

SEC. 734. STATE USE OF FUNDS.

    (a) Reservation.--Each State that receives a grant under this part 
may reserve not more than one percent of the State's allocation under 
section 733(b) for the purpose of administering the grant, except that 
no State may reserve more than $750,000 for this purpose.
    (b) Funds to Local Educational Agencies.--
            (1) Formula subgrants.--From the grant funds that are not 
        reserved under subsection (a), a State shall allocate at least 
        50 percent to local educational agencies, including charter 
        schools that are local educational agencies, that did not 
        receive funds under section 733(b)(1) from the Secretary, in 
        accordance with their respective allocations under part A of 
        title I of the ESEA for fiscal year 2013, except that no such 
        local educational agency shall receive less than $10,000.
            (2) Additional subgrants.--The State shall use any funds 
        remaining, after reserving funds under subsection (a) and 
        allocating funds under paragraph (1), for subgrants to local 
        educational agencies that did not receive funds under section 
        733(b)(1), including charter schools that are local educational 
        agencies, to support modernization, renovation, and repair 
        projects that the State determines, using objective criteria, 
        are most needed in the State, with priority given to projects 
        in rural local educational agencies.
    (c) Remaining Funds.--If a local educational agency does not apply 
for an allocation under subsection (b)(1), applies for less than its 
full allocation, or fails to use that allocation in a timely manner, 
the State may reallocate any unused portion to other local educational 
agencies in accordance with subsection (b).

SEC. 735. STATE AND LOCAL APPLICATIONS.

    (a) State Application.--A State that desires to receive a grant 
under this part shall submit an application to the Secretary at such 
time, in such manner, and containing such information and assurances as 
the Secretary may require, which shall include--
            (1) an identification of the State agency or entity that 
        will administer the program under this part; and
            (2) the State's process for determining how the grant funds 
        will be distributed and administered, including--
                    (A) how the State will determine the criteria and 
                priorities in making subgrants under section 734(b)(2);
                    (B) any additional criteria the State will use in 
                determining which projects it will fund under that 
                section;
                    (C) a description of how the State will consider--
                            (i) the needs of local educational agencies 
                        for assistance under this part;
                            (ii) the impact of potential projects on 
                        job creation in the State;
                            (iii) the fiscal capacity of local 
                        educational agencies applying for assistance;
                            (iv) the percentage of children in those 
                        local educational agencies who are from low-
                        income families; and
                            (v) the potential for leveraging assistance 
                        provided by the program under this part through 
                        matching or other financing mechanisms;
                    (D) a description of how the State will ensure that 
                the local educational agencies receiving subgrants meet 
                the requirements of this part;
                    (E) a description of how the State will ensure that 
                the State and its local educational agencies meet the 
                deadlines established in section 738;
                    (F) a description of how the State will give 
                priority to the use of green practices that are 
                certified, verified, or consistent with any applicable 
                provisions of--
                            (i) the LEED Green Building Rating System;
                            (ii) Energy Star;
                            (iii) the CHPS Criteria;
                            (iv) Green Globes; or
                            (v) an equivalent program adopted by the 
                        State or another jurisdiction with authority 
                        over the local educational agency;
                    (G) a description of the steps that the State will 
                take to ensure that local educational agencies 
                receiving subgrants under this part will adequately 
                maintain any facilities that are modernized, renovated, 
                or repaired with such subgrant funds; and
                    (H) such additional information and assurances as 
                the Secretary may require.
    (b) Local Application.--A local educational agency that is eligible 
under section 733(b)(1) that desires to receive a grant under this part 
shall submit an application to the Secretary at such time, in such 
manner, and containing such information and assurances as the Secretary 
may require, which shall include--
            (1) a description of how the local educational agency will 
        meet the deadlines and requirements of this part;
            (2) a description of the steps that the local educational 
        agency will take to adequately maintain any facilities that are 
        modernized, renovated, or repaired with funds under this part; 
        and
            (3) such additional information and assurances as the 
        Secretary may require.

SEC. 736. USE OF FUNDS.

    (a) In General.--Funds awarded to local educational agencies under 
this part shall be used only for either or both of the following 
modernization, renovation, or repair activities in facilities that are 
used for elementary or secondary education or for early learning 
programs:
            (1) Direct payments for school modernization, renovation, 
        or repair.
            (2) To pay interest on bonds or payments for other 
        financing instruments that are newly issued for the purpose of 
        financing school modernization, renovation, or repair.
    (b) Supplement, Not Supplant.--Funds made available under this part 
shall be used to supplement, and not supplant, other Federal, State, 
and local funds that would otherwise be expended to modernize, 
renovate, or repair eligible school facilities.
    (c) Prohibition.--Funds awarded to local educational agencies under 
this part may not be used for--
            (1) new construction;
            (2) payment of routine maintenance costs; or
            (3) modernization, renovation, or repair of stadiums or 
        other facilities primarily used for athletic contests or 
        exhibitions or other events for which admission is charged to 
        the general public.

SEC. 737. PRIVATE SCHOOLS.

    (a) In General.--Section 9501 of the ESEA (20 U.S.C. 7881) shall 
apply to this part in the same manner as it applies to activities under 
that Act, except that--
            (1) such section 9501 shall not apply with respect to the 
        title to any real property modernized, renovated, or repaired 
        with assistance provided under this part;
            (2) educational services or other benefits funded under 
        this part for private schools shall be provided only to 
        private, nonprofit elementary or secondary schools with a rate 
        of child poverty of at least 40 percent and may include only--
                    (A) modifications of school facilities necessary to 
                meet the standards applicable to public schools under 
                the Americans with Disabilities Act of 1990 (42 U.S.C. 
                12101 et seq.);
                    (B) modifications of school facilities necessary to 
                meet the standards applicable to public schools under 
                section 504 of the Rehabilitation Act of 1973 (29 
                U.S.C. 794); and
                    (C) asbestos or polychlorinated biphenyls abatement 
                or removal from school facilities; and
            (3) expenditures for services provided using funds made 
        available under section 736 shall be considered equal for 
        purposes of section 9501(a)(4) of the ESEA if the per-pupil 
        expenditures for services described in paragraph (2) for 
        students enrolled in private, nonprofit elementary and 
        secondary schools that have child-poverty rates of at least 40 
        percent are consistent with the per-pupil expenditures under 
        this part for children enrolled in the public schools of the 
        local educational agency receiving funds under this part.
    (b) Remaining Funds.--If the expenditure for services described in 
subsection (a)(2) is less than the amount calculated under subsection 
(a)(3) because of insufficient need for those services, the remainder 
shall be available to the local educational agency for modernization, 
renovation, or repair of its school facilities.
    (c) Application.--If any provision of this section, or the 
application thereof, to any person or circumstance is judicially 
determined to be invalid, the remainder of the section and the 
application to other persons or circumstances shall not be affected 
thereby.

SEC. 738. ADDITIONAL PROVISIONS.

    (a) 24-Month Period of Availability.--Funds appropriated under 
section 732 shall be available for obligation by local educational 
agencies receiving grants from the Secretary under section 733(b)(1), 
by States reserving funds under section 734(a), and by local 
educational agencies receiving subgrants under section 734(b)(1) only 
during the period that ends 24 months after the date of enactment of 
this Act.
    (b) 36-Month Period of Availability.--Funds appropriated under 
section 732 shall be available for obligation by local educational 
agencies receiving subgrants under section 734(b)(2) only during the 
period that ends 36 months after the date of enactment of this Act.
    (c) Applicability of GEPA.--Section 439 of the General Education 
Provisions Act (20 U.S.C. 1232b) shall apply to funds available under 
this part.
    (d) Limitation.--For purposes of section 733(b)(1), Hawaii, the 
District of Columbia, and the Commonwealth of Puerto Rico are not local 
educational agencies.

               PART III--COMMUNITY COLLEGE MODERNIZATION

SEC. 739. FEDERAL ASSISTANCE FOR COMMUNITY COLLEGE MODERNIZATION.

    (a) In General.--
            (1) Grant program.--From the amounts made available under 
        subsection (h), the Secretary shall award grants to States to 
        modernize, renovate, or repair existing facilities at community 
        colleges.
            (2) Allocation.--
                    (A) Reservations.--Of the amount made available to 
                carry out this section, the Secretary shall reserve--
                            (i) up to 0.25 percent for grants to 
                        institutions that are eligible under section 
                        316 of the Higher Education Act of 1965 (20 
                        U.S.C. 1059c) to provide for modernization, 
                        renovation, and repair activities described in 
                        this section; and
                            (ii) up to 0.25 percent for grants to the 
                        outlying areas to provide for modernization, 
                        renovation, and repair activities described in 
                        this section.
                    (B) Allocation.--After reserving funds under 
                subparagraph (A), the Secretary shall allocate to each 
                State that has an application approved by the Secretary 
                an amount that bears the same relation to any remaining 
                funds as the total number of students in such State who 
                are enrolled in institutions described in section 
                740(b)(1)(A) plus the number of students who are 
                estimated to be enrolled in and pursuing a degree or 
                certificate that is not a bachelor's, master's, 
                professional, or other advanced degree in institutions 
                described in section 740(b)(1)(B), based on the 
                proportion of degrees or certificates awarded by such 
                institutions that are not bachelor's, master's, 
                professional, or other advanced degrees, as reported to 
                the Integrated Postsecondary Data System bears to the 
                estimated total number of such students in all States, 
                except that no State shall receive less than 
                $2,500,000.
                    (C) Reallocation.--Amounts not allocated under this 
                section to a State because the State either did not 
                submit an application under subsection (b), the State 
                submitted an application that the Secretary determined 
                did not meet the requirements of such subsection, or 
                the State cannot demonstrate to the Secretary a 
                sufficient demand for projects to warrant the full 
                allocation of the funds, shall be proportionately 
                reallocated under this paragraph to the other States 
                that have a demonstrated need for, and are receiving, 
                allocations under this section.
                    (D) State administration.--A State that receives a 
                grant under this section may use not more than one 
                percent of that grant to administer it, except that no 
                State may use more than $750,000 of its grant for this 
                purpose.
            (3) Supplement, not supplant.--Funds made available under 
        this section shall be used to supplement, and not supplant, 
        other Federal, State, and local funds that would otherwise be 
        expended to modernize, renovate, or repair existing community 
        college facilities.
    (b) Application.--A State that desires to receive a grant under 
this section shall submit an application to the Secretary at such time, 
in such manner, and containing such information and assurances as the 
Secretary may require. Such application shall include a description 
of--
            (1) how the funds provided under this section will improve 
        instruction at community colleges in the State and will improve 
        the ability of those colleges to educate and train students to 
        meet the workforce needs of employers in the State;
            (2) the projected start of each project and the estimated 
        number of persons to be employed in the project; and
            (3) the cost of each project and the total amount of funds 
        requested for each project and for all projects.
    (c) Prohibited Uses of Funds.--
            (1) In general.--No funds awarded under this section may be 
        used for--
                    (A) payment of routine maintenance costs;
                    (B) construction, modernization, renovation, or 
                repair of stadiums or other facilities primarily used 
                for athletic contests or exhibitions or other events 
                for which admission is charged to the general public; 
                or
                    (C) construction, modernization, renovation, or 
                repair of facilities--
                            (i) used for sectarian instruction, 
                        religious worship, or a school or department of 
                        divinity; or
                            (ii) in which a substantial portion of the 
                        functions of the facilities are subsumed in a 
                        religious mission.
            (2) Four-year institutions.--No funds awarded to a four-
        year public institution of higher education under this section 
        may be used for any facility, service, or program of the 
        institution that is not available to students who are pursuing 
        a degree or certificate that is not a bachelor's, master's, 
        professional, or other advanced degree.
    (d) Green Projects.--In providing assistance to community college 
projects under this section, the State shall consider the extent to 
which a community college's project involves activities that are 
certified, verified, or consistent with the applicable provisions of--
            (1) the LEED Green Building Rating System;
            (2) Energy Star;
            (3) the CHPS Criteria, as applicable;
            (4) Green Globes; or
            (5) an equivalent program adopted by the State or the State 
        higher education agency that includes a verifiable method to 
        demonstrate compliance with such program.
    (e) Application of GEPA.--Section 439 of the General Education 
Provisions Act (20 U.S.C. 1232b) shall apply to funds available under 
this section.
    (f) Reports by the States.--Each State that receives a grant under 
this section shall, not later than September 30, 2013, and annually 
thereafter for each fiscal year in which the State expends funds 
received under this section, submit to the Secretary a report that 
includes--
            (1) a description of the projects for which the grant was, 
        or will be, used;
            (2) a description of the amount and nature of the 
        assistance provided to each community college under this 
        section; and
            (3) the number of jobs created by the projects funded under 
        this section.
    (g) Report by the Secretary.--The Secretary shall submit to the 
authorizing committees (as defined in section 103 of the Higher 
Education Act of 1965; 20 U.S.C. 1003) an annual report on the grants 
made under this section, including the information described in 
subsection (f).
    (h) Availability of Funds.--
            (1) There are authorized to be appropriated, and there are 
        appropriated, to carry out this section (in addition to any 
        other amounts appropriated to carry out this section and out of 
        any money in the Treasury not otherwise appropriated), 
        $5,000,000,000 for fiscal year 2013.
            (2) Funds appropriated under this subsection shall be 
        available for obligation by community colleges only during the 
        period that ends 36 months after the date of enactment of this 
        Act.

                      PART IV--GENERAL PROVISIONS

SEC. 740. DEFINITIONS.

    (a) ESEA Terms.--Except as otherwise provided, in this subtitle, 
the terms ``local educational agency'', ``Secretary'', and ``State 
educational agency'' have the meanings given those terms in section 
9101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 
7801).
    (b) Additional Definitions.--The following definitions apply to 
this title:
            (1) Community college.--The term ``community college'' 
        means--
                    (A) a junior or community college, as that term is 
                defined in section 312(f) of the Higher Education Act 
                of 1965 (20 U.S.C. 1058(f)); or
                    (B) an institution of higher education (as defined 
                in section 101 of the Higher Education Act of 1965 (20 
                U.S.C. 1001)) that awards a significant number of 
                degrees and certificates, as determined by the 
                Secretary, that are not--
                            (i) bachelor's degrees (or an equivalent); 
                        or
                            (ii) master's, professional, or other 
                        advanced degrees.
            (2) CHPS criteria.--The term ``CHPS Criteria'' means the 
        green building rating program developed by the Collaborative 
        for High Performance Schools.
            (3) Energy star.--The term ``Energy Star'' means the Energy 
        Star program of the United States Department of Energy and the 
        United States Environmental Protection Agency.
            (4) Green globes.--The term ``Green Globes'' means the 
        Green Building Initiative environmental design and rating 
        system referred to as Green Globes.
            (5) Leed green building rating system.--The term ``LEED 
        Green Building Rating System'' means the United States Green 
        Building Council Leadership in Energy and Environmental Design 
        green building rating standard referred to as the LEED Green 
        Building Rating System.
            (6) Modernization, renovation, and repair.--The term 
        ``modernization, renovation, and repair'' means--
                    (A) comprehensive assessments of facilities, 
                including indoor air-quality assessments, to identify--
                            (i) facility conditions or deficiencies 
                        that could adversely affect student and staff 
                        health, safety, performance, or productivity or 
                        energy, water, or materials efficiency; and
                            (ii) needed facility improvements;
                    (B) repairing, replacing, or installing roofs 
                (which may be extensive, intensive, or semi-intensive 
                ``green'' roofs); electrical wiring; water supply and 
                plumbing systems, sewage systems, storm water runoff 
                systems, lighting systems (or components of such 
                systems); or building envelope, windows, ceilings, 
                flooring, or doors, including security doors;
                    (C) repairing, replacing, or installing heating, 
                ventilation, or air conditioning systems, or components 
                of those systems (including insulation) to improve 
                energy efficiency;
                    (D) compliance with fire, health, seismic, and 
                safety codes, including professional installation of 
                fire and life safety alarms, and modernizations, 
                renovations, and repairs that ensure that facilities 
                are prepared for such emergencies as acts of terrorism, 
                campus violence, and natural disasters, such as 
                improving building infrastructure to accommodate 
                security measures and installing or upgrading 
                technology to ensure that a school or incident is able 
                to respond to such emergencies;
                    (E) making modifications necessary to make 
                educational facilities accessible in compliance with 
                the Americans with Disabilities Act of 1990 (42 U.S.C. 
                12101 et seq.) and section 504 of the Rehabilitation 
                Act of 1973 (29 U.S.C. 794), except that such 
                modifications shall not be the primary use of a grant 
                or subgrant;
                    (F) abatement, removal, or interim controls of 
                asbestos, polychlorinated biphenyls, mold, mildew, or 
                lead-based hazards, including lead-based paint hazards;
                    (G) retrofitting necessary to increase energy 
                efficiency;
                    (H) measures, such as selection and substitution of 
                products and materials, and implementation of improved 
                maintenance and operational procedures, such as ``green 
                cleaning'' programs, to reduce or eliminate potential 
                student or staff exposure to--
                            (i) volatile organic compounds;
                            (ii) particles such as dust and pollens; or
                            (iii) combustion gases;
                    (I) modernization, renovation, or repair necessary 
                to reduce the consumption of coal, electricity, land, 
                natural gas, oil, or water;
                    (J) installation or upgrading of educational 
                technology infrastructure;
                    (K) installation or upgrading of renewable energy 
                generation and heating systems, including solar, 
                photovoltaic, wind, biomass (including wood pellet and 
                woody biomass), waste-to-energy, solar-thermal, and 
                geothermal systems, and energy audits;
                    (L) modernization, renovation, or repair activities 
                related to energy efficiency and renewable energy, and 
                improvements to building infrastructures to accommodate 
                bicycle and pedestrian access;
                    (M) ground improvements, storm water management, 
                landscaping, and environmental clean-up when necessary;
                    (N) other modernization, renovation, or repair to--
                            (i) improve teachers' ability to teach and 
                        students' ability to learn;
                            (ii) ensure the health and safety of 
                        students and staff; or
                            (iii) improve classroom, laboratory, and 
                        vocational facilities in order to enhance the 
                        quality of science, technology, engineering, 
                        and mathematics instruction; and
                    (O) required environmental remediation related to 
                facilities modernization, renovation, or repair 
                activities described in subparagraphs (A) through (N).
            (7) Outlying area.--The term ``outlying area'' means the 
        U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of 
        the Northern Mariana Islands, and the Republic of Palau.
            (8) State.--The term ``State'' means each of the 50 States 
        of the United States, the Commonwealth of Puerto Rico, and the 
        District of Columbia.

SEC. 741. BUY AMERICAN.

    Section 1605 of division A of the American Recovery and 
Reinvestment Act of 2009 (Public Law 111-5) applies to funds made 
available under this title.

         Subtitle C--Transportation Infrastructure Investments

      PART I--IMMEDIATE TRANSPORTATION INFRASTRUCTURE INVESTMENTS

SEC. 751. IMMEDIATE TRANSPORTATION INFRASTRUCTURE INVESTMENTS.

    (a) Grants-In-Aid for Airports.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $6,000,000,000 to carry out airport 
        improvement under subchapter I of chapter 471 and subchapter I 
        of chapter 475 of title 49, United States Code.
            (2) Federal share; limitation on obligations.--The Federal 
        share payable of the costs for which a grant is made under this 
        subsection, shall be 100 percent. The amount made available 
        under this subsection shall not be subject to any limitation on 
        obligations for the Grants-In-Aid for Airports program set 
        forth in any Act or in title 49, United States Code.
            (3) Distribution of funds.--Funds provided to the Secretary 
        under this subsection shall not be subject to apportionment 
        formulas, special apportionment categories, or minimum 
        percentages under chapter 471 of such title.
            (4) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (5) Administrative expenses.--Of the funds made available 
        under this subsection, 0.3 percent shall be available to the 
        Secretary for administrative expenses, shall remain available 
        for obligation until September 30, 2015, and may be used in 
        conjunction with funds otherwise provided for the 
        administration of the Grants-In-Aid for Airports program.
    (b) Next Generation Air Traffic Control Advancements.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $3,000,000,000 for necessary Federal Aviation 
        Administration capital, research, and operating costs to carry 
        out Next Generation air traffic control system advancements.
            (2) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act.
    (c) Highway Infrastructure Investment.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $81,000,000,000 for restoration, repair, 
        construction and other activities eligible under section 133(b) 
        of title 23, United States Code, and for passenger and freight 
        rail transportation and port infrastructure projects eligible 
        for assistance under section 601(a)(8) of title 23.
            (2) Federal share; limitation on obligations.--The Federal 
        share payable on account of any project or activity carried out 
        with funds made available under this subsection shall be, at 
        the option of the recipient, up to 100 percent of the total 
        cost thereof. The amount made available under this subsection 
        shall not be subject to any limitation on obligations for 
        Federal-aid highways and highway safety construction programs 
        set forth in any Act or in title 23, United States Code.
            (3) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (4) Distribution of funds.--Of the funds provided in this 
        subsection, after making the set-asides required by paragraphs 
        (9), (10), (11), (12), and (15), 50 percent of the funds shall 
        be apportioned to States using the formula set forth in section 
        104(b)(3) of title 23, United States Code, and the remaining 
        funds shall be apportioned to States in the same ratio as the 
        obligation limitation for fiscal year 2010 was distributed 
        among the States in accordance with the formula specified in 
        section 120(a)(6) of division A of Public Law 111-117.
            (5) Apportionment.--Apportionments under paragraph (4) 
        shall be made not later than 30 days after the date of the 
        enactment of this Act.
            (6) Redistribution.--
                    (A) The Secretary shall, 180 days following the 
                date of apportionment, withdraw from each State an 
                amount equal to 50 percent of the funds apportioned 
                under paragraph (4) to that State (excluding funds 
                suballocated within the State) less the amount of 
                funding obligated (excluding funds suballocated within 
                the State), and the Secretary shall redistribute such 
                amounts to other States that have had no funds 
                withdrawn under this subparagraph in the manner 
                described in section 120(c) of division A of Public Law 
                111-117.
                    (B) One year following the date of apportionment, 
                the Secretary shall withdraw from each recipient of 
                funds apportioned under paragraph (4) any unobligated 
                funds, and the Secretary shall redistribute such 
                amounts to States that have had no funds withdrawn 
                under this paragraph (excluding funds suballocated 
                within the State) in the manner described in section 
                120(c) of division A of Public Law 111-117.
                    (C) At the request of a State, the Secretary may 
                provide an extension of the one-year period only to the 
                extent that the Secretary determines that the State has 
                encountered extreme conditions that create an 
                unworkable bidding environment or other extenuating 
                circumstances. Before granting an extension, the 
                Secretary shall notify in writing the Committee on 
                Transportation and Infrastructure and the Committee on 
                Environment and Public Works, providing a thorough 
                justification for the extension.
            (7) Puerto rico and territorial highway programs.--Of the 
        funds provided under this subsection, $315,000,000 shall be set 
        aside for the Puerto Rico highway program and $135,000,000 
        shall be for the territorial highway program authorized under 
        section 165 of title 23, United States Code.
            (8) Federal lands and indian reservations.--Of the funds 
        provided under this subsection, $1,650,000,000 shall be set 
        aside for investments in transportation at Indian reservations 
        and Federal lands in accordance with the following:.
                    (A) Of the funds set aside by this paragraph, 
                $930,000,000 shall be for the Indian Reservation Roads 
                program, $510,000,000 shall be for the Park Roads and 
                Parkways program, $180,000,000 shall be for the Forest 
                Highway Program, and $30,000,000 shall be for the 
                Refuge Roads program.
                    (B) For investments at Indian reservations and 
                Federal lands, priority shall be given to capital 
                investments, and to projects and activities that can be 
                completed within 2 years of enactment of this Act.
                    (C) One year following the enactment of this Act, 
                to ensure the prompt use of the funding provided for 
                investments at Indian reservations and Federal lands, 
                the Secretary shall have the authority to redistribute 
                unobligated funds within the respective program for 
                which the funds were appropriated.
                    (D) Up to four percent of the funding provided for 
                Indian Reservation Roads may be used by the Secretary 
                of the Interior for program management and oversight 
                and project-related administrative expenses.
            (9) Job training.--Of the funds provided under this 
        subsection, $150,000,000 shall be set aside for the development 
        and administration of transportation training programs under 
        section 140(b) title 23, United States Code.
                    (A) Funds set aside under this subsection shall be 
                competitively awarded and used for the purpose of 
                providing training, apprenticeship (including 
                Registered Apprenticeship), skill development, and 
                skill improvement programs, as well as summer 
                transportation institutes and may be transferred to, or 
                administered in partnership with, the Secretary of 
                Labor and shall demonstrate to the Secretary of 
                Transportation program outcomes, including--
                            (i) impact on areas with transportation 
                        workforce shortages;
                            (ii) diversity of training participants;
                            (iii) number of participants obtaining 
                        certifications or credentials required for 
                        specific types of employment;
                            (iv) employment outcome metrics, such as 
                        job placement and job retention rates, 
                        established in consultation with the Secretary 
                        of Labor and consistent with metrics used by 
                        programs under the Workforce Investment Act;
                            (v) to the extent practical, evidence that 
                        the program did not preclude workers that 
                        participate in training or apprenticeship 
                        activities under the program from being 
                        referred to, or hired on, projects funded under 
                        this chapter; and
                            (vi) identification of areas of 
                        collaboration with the Department of Labor 
                        programs, including co-enrollment.
                    (B) To be eligible to receive a competitively 
                awarded grant under this subsection, a State must 
                certify that at least 0.1 percent of the amounts 
                apportioned under the Surface Transportation Program 
                and Bridge Program will be obligated in the first 
                fiscal year after enactment of this act for job 
                training activities consistent with section 140(b) of 
                title 23, United States Code.
            (10) Disadvantaged business enterprises.--Of the funds 
        provided under this subsection, $30,000,000 shall be set aside 
        for training programs and assistance programs under section 
        140(c) of title 23, United States Code. Funds set aside under 
        this paragraph should be allocated to businesses that have 
        proven success in adding staff while effectively completing 
        projects.
            (11) State planning and oversight expenses.--Of amounts 
        apportioned under paragraph (4) of this subsection, a State may 
        use up to 0.5 percent for activities related to projects funded 
        under this subsection, including activities eligible under 
        sections 134 and 135 of title 23, United States Code, State 
        administration of subgrants, and State oversight of 
        subrecipients.
            (12) Conditions.--
                    (A) Funds made available under this subsection 
                shall be administered as if apportioned under chapter 1 
                of title 23, United States Code, except for funds made 
                available for investments in transportation at Indian 
                reservations and Federal lands, and for the territorial 
                highway program, which shall be administered in 
                accordance with chapter 2 of title 23, United States 
                Code, and except for funds made available for 
                disadvantaged business enterprises bonding assistance, 
                which shall be administered in accordance with chapter 
                3 of title 49, United States Code.
                    (B) Funds made available under this subsection 
                shall not be obligated for the purposes authorized 
                under section 115(b) of title 23, United States Code.
                    (C) Funding provided under this subsection shall be 
                in addition to any and all funds provided for fiscal 
                years 2011 and 2012 in any other Act for ``Federal-aid 
                Highways'' and shall not affect the distribution of 
                funds provided for ``Federal-aid Highways'' in any 
                other Act.
                    (D) Section 1101(b) of Public Law 109-59 shall 
                apply to funds apportioned under this subsection.
            (13) Oversight.--The Administrator of the Federal Highway 
        Administration may set aside up to 0.15 percent of the funds 
        provided under this subsection to fund the oversight by the 
        Administrator of projects and activities carried out with funds 
        made available to the Federal Highway Administration in this 
        Act, and such funds shall be available through September 30, 
        2015.
    (d) Capital Assistance for High Speed Rail Corridors and Intercity 
Passenger Rail Service.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $12,000,000,000 for grants for high-speed 
        rail projects as authorized under sections 26104 and 26106 of 
        title 49, United States Code, capital investment grants to 
        support intercity passenger rail service as authorized under 
        section 24406 of title 49, United States Code, and congestion 
        grants as authorized under section 24105 of title 49, United 
        States Code, and to enter into cooperative agreements for these 
        purposes as authorized, except that the Administrator of the 
        Federal Railroad Administration may retain up to one percent of 
        the funds provided under this heading to fund the award and 
        oversight by the Administrator of grants made under this 
        subsection, which retained amount shall remain available for 
        obligation until September 30, 2015.
            (2) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (3) Federal share.--The Federal share payable of the costs 
        for which a grant or cooperative agreements is made under this 
        subsection shall be, at the option of the recipient, up to 100 
        percent.
            (4) Interim guidance.--The Secretary shall issue interim 
        guidance to applicants covering application procedures and 
        administer the grants provided under this subsection pursuant 
        to that guidance until final regulations are issued.
            (5) Intercity passenger rail corridors.--Not less than 85 
        percent of the funds provided under this subsection shall be 
        for cooperative agreements that lead to the development of 
        entire segments or phases of intercity or high-speed rail 
        corridors.
            (6) Conditions.--
                    (A) In addition to the provisions of title 49, 
                United States Code, that apply to each of the 
                individual programs funded under this subsection, 
                subsections 24402(a)(2), 24402(i), and 24403(a) and (c) 
                of title 49, United States Code, shall also apply to 
                the provision of funds provided under this subsection.
                    (B) A project need not be in a State rail plan 
                developed under chapter 227 of title 49, United States 
                Code, to be eligible for assistance under this 
                subsection.
                    (C) Recipients of grants under this paragraph shall 
                conduct all procurement transactions using such grant 
                funds in a manner that provides full and open 
                competition, as determined by the Secretary, in 
                compliance with existing labor agreements.
    (e) Capital Grants to the National Railroad Passenger 
Corporation.--
            (1) In general.--There is made available $6,000,000,000 to 
        enable the Secretary of Transportation to make capital grants 
        to the National Railroad Passenger Corporation (Amtrak), as 
        authorized by section 101(c) of the Passenger Rail Investment 
        and Improvement Act of 2008 (Public Law 110-432).
            (2) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (3) Project priority.--The priority for the use of funds 
        shall be given to projects for the repair, rehabilitation, or 
        upgrade of railroad assets or infrastructure, and for capital 
        projects that expand passenger rail capacity including the 
        rehabilitation of rolling stock.
            (4) Conditions.--
                    (A) None of the funds under this subsection shall 
                be used to subsidize the operating losses of Amtrak.
                    (B) The funds provided under this subsection shall 
                be awarded not later than 90 days after the date of 
                enactment of this Act.
                    (C) The Secretary shall take measures to ensure 
                that projects funded under this subsection shall be 
                completed within 2 years of enactment of this Act, and 
                shall serve to supplement and not supplant planned 
                expenditures for such activities from other Federal, 
                State, local and corporate sources. The Secretary shall 
                certify to the House and Senate Committees on 
                Appropriations in writing compliance with the preceding 
                sentence.
            (5) Oversight.--The Administrator of the Federal Railroad 
        Administration may set aside 0.5 percent of the funds provided 
        under this subsection to fund the oversight by the 
        Administrator of projects and activities carried out with funds 
        made available in this subsection, and such funds shall be 
        available through September 30, 2015.
    (f) Transit Capital Assistance.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $9,000,000,000 for grants for transit capital 
        assistance grants as defined by section 5302(a)(3) of title 49, 
        United States Code. Notwithstanding any provision of chapter 53 
        of title 49, however, a recipient of funding under this 
        subsection may use up to 10 percent of the amount provided for 
        the operating costs of equipment and facilities for use in 
        public transportation or for other eligible activities.
            (2) Federal share; limitation on obligations.--The 
        applicable requirements of chapter 53 of title 49, United 
        States Code, shall apply to funding provided under this 
        subsection, except that the Federal share of the costs for 
        which any grant is made under this subsection shall be, at the 
        option of the recipient, up to 100 percent. The amount made 
        available under this subsection shall not be subject to any 
        limitation on obligations for transit programs set forth in any 
        Act or chapter 53 of title 49.
            (3) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (4) Distribution of funds.--The Secretary of Transportation 
        shall--
                    (A) provide 80 percent of the funds appropriated 
                under this subsection for grants under section 5307 of 
                title 49, United States Code, and apportion such funds 
                in accordance with section 5336 of such title;
                    (B) provide 10 percent of the funds appropriated 
                under this subsection in accordance with section 5340 
                of such title; and
                    (C) provide 10 percent of the funds appropriated 
                under this subsection for grants under section 5311 of 
                title 49, United States Code, and apportion such funds 
                in accordance with such section.
            (5) Apportionment.--The funds apportioned under this 
        subsection shall be apportioned not later than 21 days after 
        the date of the enactment of this Act.
            (6) Redistribution.--
                    (A) The Secretary shall, 180 days following the 
                date of apportionment, withdraw from each urbanized 
                area or State an amount equal to 50 percent of the 
                funds apportioned to such urbanized areas or States 
                less the amount of funding obligated, and the Secretary 
                shall redistribute such amounts to other urbanized 
                areas or States that have had no funds withdrawn under 
                this proviso utilizing whatever method he deems 
                appropriate to ensure that all funds redistributed 
                under this proviso shall be utilized promptly.
                    (B) One year following the date of apportionment, 
                the Secretary shall withdraw from each urbanized area 
                or State any unobligated funds, and the Secretary shall 
                redistribute such amounts to other urbanized areas or 
                States that have had no funds withdrawn under this 
                proviso utilizing whatever method the Secretary deems 
                appropriate to ensure that all funds redistributed 
                under this proviso shall be utilized promptly.
                    (C) At the request of an urbanized area or State, 
                the Secretary of Transportation may provide an 
                extension of such 1-year period if the Secretary 
                determines that the urbanized area or State has 
                encountered an unworkable bidding environment or other 
                extenuating circumstances. Before granting an 
                extension, the Secretary shall notify in writing the 
                Committee on Transportation and Infrastructure and the 
                Committee on Banking, Housing and Urban Affairs, 
                providing a thorough justification for the extension.
            (7) Conditions.--
                    (A) Of the funds provided for section 5311 of title 
                49, United States Code, 2.5 percent shall be made 
                available for section 5311(c)(1).
                    (B) Section 1101(b) of Public Law 109-59 shall 
                apply to funds appropriated under this subsection.
                    (C) The funds appropriated under this subsection 
                shall not be comingled with any prior year funds.
            (8) Oversight.--Notwithstanding any other provision of law, 
        0.3 percent of the funds provided for grants under section 5307 
        and section 5340, and 0.3 percent of the funds provided for 
        grants under section 5311, shall be available for 
        administrative expenses and program management oversight, and 
        such funds shall be available through September 30, 2015.
    (g) State of Good Repair.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $18,000,000,000 for capital expenditures as 
        authorized by section 5309(b)(5) of title 49, United States 
        Code.
            (2) Federal share.--The applicable requirements of chapter 
        53 of title 49, United States Code, shall apply, except that 
        the Federal share of the costs for which a grant is made under 
        this subsection shall be, at the option of the recipient, up to 
        100 percent.
            (3) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (4) Distribution of funds.--
                    (A) The Secretary of Transportation shall apportion 
                not less than 75 percent of the funds under this 
                subsection for the modernization of fixed guideway 
                systems, pursuant to the formula set forth in section 
                5336(b) title 49, United States Code, other than 
                subsection (b)(2)(A)(ii).
                    (B) Of the funds appropriated under this 
                subsection, not less than 25 percent shall be available 
                for the restoration or replacement of existing public 
                transportation assets related to bus systems, pursuant 
                to the formula set forth in section 5336 other than 
                subsection (b).
            (5) Apportionment.--The funds made available under this 
        subsection shall be apportioned not later than 30 days after 
        the date of the enactment of this Act.
            (6) Redistribution.--
                    (A) The Secretary shall, 180 days following the 
                date of apportionment, withdraw from each urbanized 
                area an amount equal to 50 percent of the funds 
                apportioned to such urbanized area less the amount of 
                funding obligated, and the Secretary shall redistribute 
                such amounts to other urbanized areas that have had no 
                funds withdrawn under this paragraph utilizing whatever 
                method the Secretary deems appropriate to ensure that 
                all funds redistributed under this paragraph shall be 
                utilized promptly.
                    (B) One year following the date of apportionment, 
                the Secretary shall withdraw from each urbanized area 
                any unobligated funds, and the Secretary shall 
                redistribute such amounts to other urbanized areas that 
                have had no funds withdrawn under this paragraph, 
                utilizing whatever method the Secretary deems 
                appropriate to ensure that all funds redistributed 
                under this paragraph shall be utilized promptly.
                    (C) At the request of an urbanized area, the 
                Secretary may provide an extension of the 1-year period 
                if the Secretary finds that the urbanized area has 
                encountered an unworkable bidding environment or other 
                extenuating circumstances. Before granting an 
                extension, the Secretary shall notify the Committee on 
                Transportation and Infrastructure and the Committee on 
                Banking, Housing, and Urban Affairs, providing a 
                thorough justification for the extension.
            (7) Conditions.--
                    (A) The provisions of section 1101(b) of Public Law 
                109-59 shall apply to funds made available under this 
                subsection.
                    (B) The funds appropriated under this subsection 
                shall not be commingled with any prior year funds.
            (8) Oversight.--Notwithstanding any other provision of law, 
        0.3 percent of the funds under this subsection shall be 
        available for administrative expenses and program management 
        oversight and shall remain available for obligation until 
        September 30, 2015.
    (h) Transportation Infrastructure Grants and Financing.--
            (1) In general.--There is made available to the Secretary 
        of Transportation $15,000,000,000 for capital investments in 
        surface transportation infrastructure. The Secretary shall 
        distribute funds provided under this subsection as 
        discretionary grants to be awarded to State and local 
        governments or transit agencies on a competitive basis for 
        projects that will have a significant impact on the Nation, a 
        metropolitan area, or a region.
            (2) Federal share; limitation on obligations.--The Federal 
        share payable of the costs for which a grant is made under this 
        subsection, shall be 100 percent.
            (3) Availability.--The amounts made available under this 
        subsection shall be available for obligation until the date 
        that is two years after the date of the enactment of this Act. 
        The Secretary shall obligate amounts totaling not less than 50 
        percent of the funds made available within one year of 
        enactment and obligate remaining amounts not later than two 
        years after enactment.
            (4) Project eligibility.--Projects eligible for funding 
        provided under this subsection include--
                    (A) highway or bridge projects eligible under title 
                23, United States Code, including interstate 
                rehabilitation, improvements to the rural collector 
                road system, the reconstruction of overpasses and 
                interchanges, bridge replacements, seismic retrofit 
                projects for bridges, and road realignments;
                    (B) public transportation projects eligible under 
                chapter 53 of title 49, United States Code, including 
                investments in projects participating in the New Starts 
                or Small Starts programs that will expedite the 
                completion of those projects and their entry into 
                revenue service;
                    (C) passenger and freight rail transportation 
                projects; and
                    (D) port infrastructure investments, including 
                projects that connect ports to other modes of 
                transportation and improve the efficiency of freight 
                movement.
            (5) TIFIA program.--The Secretary may transfer to the 
        Federal Highway Administration funds made available under this 
        subsection for the purpose of paying the subsidy and 
        administrative costs of projects eligible for Federal credit 
        assistance under chapter 6 of title 23, United States Code, if 
        the Secretary finds that such use of the funds would advance 
        the purposes of this subsection.
            (6) Project priority.--The Secretary shall give priority to 
        projects that are expected to be completed within 3 years of 
        the date of the enactment of this Act.
            (7) Deadline for issuance of competition criteria.--The 
        Secretary shall publish criteria on which to base the 
        competition for any grants awarded under this subsection not 
        later than 90 days after enactment of this Act. The Secretary 
        shall require applications for funding provided under this 
        subsection to be submitted not later than 180 days after the 
        publication of the criteria, and announce all projects selected 
        to be funded from such funds not later than 1 year after the 
        date of the enactment of the Act.
            (8) Applicability of title 40.--Each project conducted 
        using funds provided under this subsection shall comply with 
        the requirements of subchapter IV of chapter 31 of title 40, 
        United States Code.
            (9) Administrative expenses.--The Secretary may retain up 
        to one half of one percent of the funds provided under this 
        subsection, and may transfer portions of those funds to the 
        Administrators of the Federal Highway Administration, the 
        Federal Transit Administration, the Federal Railroad 
        Administration and the Maritime Administration, to fund the 
        award and oversight of grants made under this subsection. Funds 
        retained shall remain available for obligation until September 
        30, 2015.
    (i) Local Hiring.--
            (1) In general.--In the case of the funding made available 
        under subsections (a) through (h) of this section, the 
        Secretary of Transportation may establish standards under which 
        a contract for construction may be advertised that contains 
        requirements for the employment of individuals residing in or 
        adjacent to any of the areas in which the work is to be 
        performed to perform construction work required under the 
        contract, provided that--
                    (A) all or part of the construction work performed 
                under the contract occurs in an area designated by the 
                Secretary as an area of high unemployment, using data 
                reported by the United States Department of Labor, 
                Bureau of Labor Statistics;
                    (B) the estimated cost of the project of which the 
                contract is a part is greater than $10,000,000, except 
                that the estimated cost of the project in the case of 
                construction funded under subsection (c) shall be 
                greater than $50,000,000; and
                    (C) the recipient may not require the hiring of 
                individuals who do not have the necessary skills to 
                perform work in any craft or trade; provided that the 
                recipient may require the hiring of such individuals if 
                the recipient establishes reasonable provisions to 
                train such individuals to perform any such work under 
                the contract effectively.
            (2) Project standards.--Any standards established by the 
        Secretary under this section shall ensure that any requirements 
        specified under subsection (c)(9)--
                    (A) do not compromise the quality of the project;
                    (B) are reasonable in scope and application;
                    (C) do not unreasonably delay the completion of the 
                project; and
                    (D) do not unreasonably increase the cost of the 
                project.
            (3) Implementing regulations.--The Secretary shall 
        promulgate final regulations to implement the authority of this 
        subsection.
    (j) Administrative Provisions.--
            (1) Applicability of title 40.--Each project conducted 
        using funds provided under this subtitle shall comply with the 
        requirements of subchapter IV of chapter 31 of title 40, United 
        States Code.
            (2) Buy american.--Section 1605 of division A of the 
        American Recovery and Reinvestment Act of 2009 (Public Law 111-
        5) applies to each project conducted using funds provided under 
        this subtitle.

     PART II--BUILDING AND UPGRADING INFRASTRUCTURE FOR LONG-TERM 
                              DEVELOPMENT

     Subpart A--Immediate Transportation Infrastructure Investments

SEC. 761. SHORT TITLE.

    This part may be cited as the ``Building and Upgrading 
Infrastructure for Long-Term Development Act''.

SEC. 762. FINDINGS AND PURPOSE.

    (a) Findings.--Congress finds that--
            (1) infrastructure has always been a vital element of the 
        economic strength of the United States and a key indicator of 
        the international leadership of the United States;
            (2) the Erie Canal, the Hoover Dam, the railroads, and the 
        interstate highway system are all testaments to American 
        ingenuity and have helped propel and maintain the United States 
        as the world's largest economy;
            (3) according to the World Economic Forum's Global 
        Competitiveness Report, the United States fell to second place 
        in 2009, and dropped to fourth place overall in 2010, however, 
        in the ``Quality of overall infrastructure'' category of the 
        same report, the United States ranked twenty-third in the 
        world;
            (4) according to the World Bank's 2010 Logistic Performance 
        Index, the capacity of countries to efficiently move goods and 
        connect manufacturers and consumers with international markets 
        is improving around the world, and the United States now ranks 
        seventh in the world in logistics-related infrastructure behind 
        countries from both Europe and Asia;
            (5) according to a January 2009 report from the University 
        of Massachusetts/Alliance for American Manufacturing entitled 
        ``Employment, Productivity and Growth,'' infrastructure 
        investment is a ``highly effective engine of job creation'';
            (6) according to the American Society of Civil Engineers, 
        the current condition of the infrastructure in the United 
        States earns a grade point average of D, and an estimated 
        $2,200,000,000,000 investment is needed over the next 5 years 
        to bring American infrastructure up to adequate condition;
            (7) according to the National Surface Transportation Policy 
        and Revenue Study Commission, $225,000,000,000 is needed 
        annually from all sources for the next 50 years to upgrade the 
        United States surface transportation system to a state of good 
        repair and create a more advanced system;
            (8) the current infrastructure financing mechanisms of the 
        United States, both on the Federal and State level, will fail 
        to meet current and foreseeable demands and will create large 
        funding gaps;
            (9) published reports state that there may not be enough 
        demand for municipal bonds to maintain the same level of 
        borrowing at the same rates, resulting in significantly 
        decreased infrastructure investment at the State and local 
        level;
            (10) current funding mechanisms are not readily scalable 
        and do not--
                    (A) serve large in-State or cross jurisdiction 
                infrastructure projects, projects of regional or 
                national significance, or projects that cross sector 
                silos;
                    (B) sufficiently catalyze private sector 
                investment; or
                    (C) ensure the optimal return on public resources;
            (11) although grant programs of the United States 
        Government must continue to play a central role in financing 
        the transportation, environment, and energy infrastructure 
        needs of the United States, current and foreseeable demands on 
        existing Federal, State, and local funding for infrastructure 
        expansion clearly exceed the resources to support these 
        programs by margins wide enough to prompt serious concerns 
        about the United States ability to sustain long-term economic 
        development, productivity, and international competitiveness;
            (12) the capital markets, including pension funds, private 
        equity funds, mutual funds, sovereign wealth funds, and other 
        investors, have a growing interest in infrastructure investment 
        and represent hundreds of billions of dollars of potential 
        investment; and
            (13) the establishment of a United States Government-owned, 
        independent, professionally managed institution that could 
        provide credit support to qualified infrastructure projects of 
        regional and national significance, making transparent merit-
        based investment decisions based on the commercial viability of 
        infrastructure projects, would catalyze the participation of 
        significant private investment capital.
    (b) Purpose.--The purpose of this part is to facilitate investment 
in, and long-term financing of, economically viable infrastructure 
projects of regional or national significance in a manner that both 
complements existing Federal, State, local, and private funding sources 
for these projects and introduces a merit-based system for financing 
such projects, in order to mobilize significant private sector 
investment, create jobs, and ensure United States competitiveness 
through an institution that limits the need for ongoing Federal 
funding.

SEC. 763. DEFINITIONS.

    For purposes of this part, the following definitions shall apply:
            (1) AIFA.--The term ``AIFA'' means the American 
        Infrastructure Financing Authority established under this part.
            (2) Blind trust.--The term ``blind trust'' means a trust in 
        which the beneficiary has no knowledge of the specific holdings 
        and no rights over how those holdings are managed by the 
        fiduciary of the trust prior to the dissolution of the trust.
            (3) Board of directors.--The term ``Board of Directors'' 
        means Board of Directors of AIFA.
            (4) Chairperson.--The term ``Chairperson'' means the 
        Chairperson of the Board of Directors of AIFA.
            (5) Chief executive officer.--The term ``chief executive 
        officer'' means the chief executive officer of AIFA, appointed 
        under section 767.
            (6) Cost.--The term ``cost'' has the same meaning as in 
        section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 
        661a).
            (7) Direct loan.--The term ``direct loan'' has the same 
        meaning as in section 502 of the Federal Credit Reform Act of 
        1990 (2 U.S.C. 661a).
            (8) Eligible entity.--The term ``eligible entity'' means an 
        individual, corporation, partnership (including a public-
        private partnership), joint venture, trust, State, or other 
        non-Federal governmental entity, including a political 
        subdivision or any other instrumentality of a State, or a 
        revolving fund.
            (9) Infrastructure project.--
                    (A) In general.--The term ``eligible infrastructure 
                project'' means any non-Federal transportation, water, 
                or energy infrastructure project, or an aggregation of 
                such infrastructure projects, as provided in this part.
                    (B) Transportation infrastructure project.--The 
                term ``transportation infrastructure project'' means 
                the construction, alteration, or repair, including the 
                facilitation of intermodal transit, of the following 
                subsectors:
                            (i) Highway or road.
                            (ii) Bridge.
                            (iii) Mass transit.
                            (iv) Inland waterways.
                            (v) Commercial ports.
                            (vi) Airports.
                            (vii) Air traffic control systems.
                            (viii) Passenger rail, including high-speed 
                        rail.
                            (ix) Freight rail systems.
                    (C) Water infrastructure project.--The term ``water 
                infrastructure project'' means the construction, 
                consolidation, alteration, or repair of the following 
                subsectors:
                            (i) Waterwaste treatment facility.
                            (ii) Storm water management system.
                            (iii) Dam.
                            (iv) Solid waste disposal facility.
                            (v) Drinking water treatment facility.
                            (vi) Levee.
                            (vii) Open space management system.
                    (D) Energy infrastructure project.--The term 
                ``energy infrastructure project'' means the 
                construction, alteration, or repair of the following 
                subsectors:
                            (i) Pollution reduced energy generation.
                            (ii) Transmission and distribution.
                            (iii) Storage.
                            (iv) Energy efficiency enhancements for 
                        buildings, including public and commercial 
                        buildings.
                    (E) Board authority to modify subsectors.--The 
                Board of Directors may make modifications, at the 
                discretion of the Board, to the subsectors described in 
                this paragraph by a vote of not fewer than 5 of the 
                voting members of the Board of Directors.
            (10) Investment prospectus.--
                    (A) The term ``investment prospectus'' means the 
                processes and publications described below that will 
                guide the priorities and strategic focus for the Bank's 
                investments. The investment prospectus shall follow 
                rulemaking procedures under section 553 of title 5, 
                United States Code.
                    (B) The Bank shall publish a detailed description 
                of its strategy in an Investment Prospectus within one 
                year of the enactment of this subchapter. The 
                Investment Prospectus shall--
                            (i) specify what the Bank shall consider 
                        significant to the economic competitiveness of 
                        the United States or a region thereof in a 
                        manner consistent with the primary objective;
                            (ii) specify the priorities and strategic 
                        focus of the Bank in forwarding its strategic 
                        objectives and carrying out the Bank strategy;
                            (iii) specify the priorities and strategic 
                        focus of the Bank in promoting greater 
                        efficiency in the movement of freight;
                            (iv) specify the priorities and strategic 
                        focus of the Bank in promoting the use of 
                        innovation and best practices in the planning, 
                        design, development and delivery of projects;
                            (v) describe in detail the framework and 
                        methodology for calculating application 
                        qualification scores and associated ranges as 
                        specified in this subchapter, along with the 
                        data to be requested from applicants and the 
                        mechanics of calculations to be applied to that 
                        data to determine qualification scores and 
                        ranges;
                            (vi) describe how selection criteria will 
                        be applied by the Chief Executive Officer in 
                        determining the competitiveness of an 
                        application and its qualification score and 
                        range relative to other current applications 
                        and previously funded applications; and
                            (vii) describe how the qualification score 
                        and range methodology and project selection 
                        framework are consistent with maximizing the 
                        Bank goals in both urban and rural areas.
                    (C) The Investment Prospectus and any subsequent 
                updates thereto shall be approved by a majority vote of 
                the Board of Directors prior to publication.
                    (D) The Bank shall update the Investment Prospectus 
                on every biennial anniversary of its original 
                publication.
            (11) Investment-grade rating.--The term ``investment-grade 
        rating'' means a rating of BBB minus, Baa3, or higher assigned 
        to an infrastructure project by a ratings agency.
            (12) Loan guarantee.--The term ``loan guarantee'' has the 
        same meaning as in section 502 of the Federal Credit Reform Act 
        of 1990 (2 U.S.C. 661a).
            (13) Public-private partnership.--The term ``public-private 
        partnership'' means any eligible entity--
                    (A)(i) which is undertaking the development of all 
                or part of an infrastructure project that will have a 
                public benefit, pursuant to requirements established in 
                one or more contracts between the entity and a State or 
                an instrumentality of a State; or
                    (ii) the activities of which, with respect to such 
                an infrastructure project, are subject to regulation by 
                a State or any instrumentality of a State;
                    (B) which owns, leases, or operates or will own, 
                lease, or operate, the project in whole or in part; and
                    (C) the participants in which include not fewer 
                than 1 nongovernmental entity with significant 
                investment and some control over the project or project 
                vehicle.
            (14) Rural infrastructure project.--The term ``rural 
        infrastructure project'' means an infrastructure project in a 
        rural area, as that term is defined in section 343(a)(13)(A) of 
        the Consolidated Farm and Rural Development Act (7 U.S.C. 
        1991(a)(13)(A)).
            (15) Secretary.--Unless the context otherwise requires, the 
        term ``Secretary'' means the Secretary of the Treasury or the 
        designee thereof.
            (16) Senior management.--The term ``senior management'' 
        means the chief financial officer, chief risk officer, chief 
        compliance officer, general counsel, chief lending officer, and 
        chief operations officer of AIFA established under section 769, 
        and such other officers as the Board of Directors may, by 
        majority vote, add to senior management.
            (17) State.--The term ``State'' includes the District of 
        Columbia, Puerto Rico, Guam, American Samoa, the Virgin 
        Islands, the Commonwealth of Northern Mariana Islands, and any 
        other territory of the United States.

         Subpart B--American Infrastructure Financing Authority

SEC. 765. ESTABLISHMENT AND GENERAL AUTHORITY OF AIFA.

    (a) Establishment of AIFA.--The American Infrastructure Financing 
Authority is established as a wholly owned Government corporation.
    (b) General Authority of AIFA.--AIFA shall provide direct loans and 
loan guarantees to facilitate infrastructure projects that are both 
economically viable and of regional or national significance, and shall 
have such other authority, as provided in this part.
    (c) Incorporation.--
            (1) In general.--The Board of Directors first appointed 
        shall be deemed the incorporator of AIFA, and the incorporation 
        shall be held to have been effected from the date of the first 
        meeting of the Board of Directors.
            (2) Corporate office.--AIFA shall--
                    (A) maintain an office in Washington, DC; and
                    (B) for purposes of venue in civil actions, be 
                considered to be a resident of Washington, DC.
    (d) Responsibility of the Secretary.--The Secretary shall take such 
action as may be necessary to assist in implementing AIFA, and in 
carrying out the purpose of this part.
    (e) Rule of Construction.--Chapter 91 of title 31, United States 
Code, does not apply to AIFA, unless otherwise specifically provided in 
this part.

SEC. 766. VOTING MEMBERS OF THE BOARD OF DIRECTORS.

    (a) Voting Membership of the Board of Directors.--
            (1) In general.--AIFA shall have a Board of Directors 
        consisting of 7 voting members appointed by the President, by 
        and with the advice and consent of the Senate, not more than 4 
        of whom shall be from the same political party.
            (2) Chairperson.--One of the voting members of the Board of 
        Directors shall be designated by the President to serve as 
        Chairperson thereof.
            (3) Congressional recommendations.--Not later than 30 days 
        after the date of enactment of this Act, the majority leader of 
        the Senate, the minority leader of the Senate, the Speaker of 
        the House of Representatives, and the minority leader of the 
        House of Representatives shall each submit a recommendation to 
        the President for appointment of a member of the Board of 
        Directors, after consultation with the appropriate committees 
        of Congress.
    (b) Voting Rights.--Each voting member of the Board of Directors 
shall have an equal vote in all decisions of the Board of Directors.
    (c) Qualifications of Voting Members.--Each voting member of the 
Board of Directors shall--
            (1) be a citizen of the United States; and
            (2) have significant demonstrated expertise in--
                    (A) the management and administration of a 
                financial institution relevant to the operation of 
                AIFA; or a public financial agency or authority;
                    (B) the financing, development, or operation of 
                infrastructure projects; or
                    (C) analyzing the economic benefits of 
                infrastructure investment.
    (d) Terms.--
            (1) In general.--Except as otherwise provided in this part, 
        each voting member of the Board of Directors shall be appointed 
        for a term of 4 years.
            (2) Initial staggered terms.--Of the voting members first 
        appointed to the Board of Directors--
                    (A) the initial Chairperson and 3 of the other 
                voting members shall each be appointed for a term of 4 
                years; and
                    (B) the remaining 3 voting members shall each be 
                appointed for a term of 2 years.
            (3) Date of initial nominations.--The initial nominations 
        for the appointment of all voting members of the Board of 
        Directors shall be made not later than 60 days after the date 
        of enactment of this Act.
            (4) Beginning of term.--The term of each of the initial 
        voting members appointed under this section shall commence 
        immediately upon the date of appointment, except that, for 
        purposes of calculating the term limits specified in this 
        subsection, the initial terms shall each be construed as 
        beginning on January 22 of the year following the date of the 
        initial appointment.
            (5) Vacancies.--A vacancy in the position of a voting 
        member of the Board of Directors shall be filled by the 
        President, and a member appointed to fill a vacancy on the 
        Board of Directors occurring before the expiration of the term 
        for which the predecessor was appointed shall be appointed only 
        for the remainder of that term.
    (e) Meetings.--
            (1) Open to the public; notice.--Except as provided in 
        paragraph (3), all meetings of the Board of Directors shall 
        be--
                    (A) open to the public; and
                    (B) preceded by reasonable public notice.
            (2) Frequency.--The Board of Directors shall meet not later 
        than 60 days after the date on which all members of the Board 
        of Directors are first appointed, at least quarterly 
        thereafter, and otherwise at the call of either the Chairperson 
        or 5 voting members of the Board of Directors.
            (3) Exception for closed meetings.--The voting members of 
        the Board of Directors may, by majority vote, close a meeting 
        to the public if, during the meeting to be closed, there is 
        likely to be disclosed proprietary or sensitive information 
        regarding an infrastructure project under consideration for 
        assistance under this part. The Board of Directors shall 
        prepare minutes of any meeting that is closed to the public, 
        and shall make such minutes available as soon as practicable, 
        not later than 1 year after the date of the closed meeting, 
        with any necessary redactions to protect any proprietary or 
        sensitive information.
            (4) Quorum.--For purposes of meetings of the Board of 
        Directors, 5 voting members of the Board of Directors shall 
        constitute a quorum.
    (f) Compensation of Members.--Each voting member of the Board of 
Directors shall be compensated at a rate equal to the daily equivalent 
of the annual rate of basic pay prescribed for level III of the 
Executive Schedule under section 5314 of title 5, United States Code, 
for each day (including travel time) during which the member is engaged 
in the performance of the duties of the Board of Directors.
    (g) Conflicts of Interest.--A voting member of the Board of 
Directors may not participate in any review or decision affecting an 
infrastructure project under consideration for assistance under this 
part, if the member has or is affiliated with an entity who has a 
financial interest in such project.

SEC. 767. CHIEF EXECUTIVE OFFICER OF AIFA.

    (a) In General.--The chief executive officer of AIFA shall be a 
nonvoting member of the Board of Directors, who shall be responsible 
for all activities of AIFA, and shall support the Board of Directors as 
set forth in this part and as the Board of Directors deems necessary or 
appropriate.
    (b) Appointment and Tenure of the Chief Executive Officer.--
            (1) In general.--The President shall appoint the chief 
        executive officer, by and with the advice and consent of the 
        Senate.
            (2) Term.--The chief executive officer shall be appointed 
        for a term of 6 years.
            (3) Vacancies.--Any vacancy in the office of the chief 
        executive officer shall be filled by the President, and the 
        person appointed to fill a vacancy in that position occurring 
        before the expiration of the term for which the predecessor was 
        appointed shall be appointed only for the remainder of that 
        term.
    (c) Qualifications.--The chief executive officer--
            (1) shall have significant expertise in management and 
        administration of a financial institution, or significant 
        expertise in the financing and development of infrastructure 
        projects, or significant expertise in analyzing the economic 
        benefits of infrastructure investment; and
            (2) may not--
                    (A) hold any other public office;
                    (B) have any financial interest in an 
                infrastructure project then being considered by the 
                Board of Directors, unless that interest is placed in a 
                blind trust; or
                    (C) have any financial interest in an investment 
                institution or its affiliates or any other entity 
                seeking or likely to seek financial assistance for any 
                infrastructure project from AIFA, unless any such 
                interest is placed in a blind trust for the tenure of 
                the service of the chief executive officer plus 2 
                additional years.
    (d) Responsibilities.--The chief executive officer shall have such 
executive functions, powers, and duties as may be prescribed by this 
part, the bylaws of AIFA, or the Board of Directors, including--
            (1) responsibility for the development and implementation 
        of the strategy of AIFA, including--
                    (A) the development and submission to the Board of 
                Directors of the investment prospectus, the annual 
                business plans and budget;
                    (B) the development and submission to the Board of 
                Directors of a long-term strategic plan; and
                    (C) the development, revision, and submission to 
                the Board of Directors of internal policies; and
            (2) responsibility for the management and oversight of the 
        daily activities, decisions, operations, and personnel of AIFA, 
        including--
                    (A) the appointment of senior management, subject 
                to approval by the voting members of the Board of 
                Directors, and the hiring and termination of all other 
                AIFA personnel;
                    (B) requesting the detail, on a reimbursable basis, 
                of personnel from any Federal agency having specific 
                expertise not available from within AIFA, following 
                which request the head of the Federal agency may 
                detail, on a reimbursable basis, any personnel of such 
                agency reasonably requested by the chief executive 
                officer;
                    (C) assessing and recommending in the first 
                instance, for ultimate approval or disapproval by the 
                Board of Directors, compensation and adjustments to 
                compensation of senior management and other personnel 
                of AIFA as may be necessary for carrying out the 
                functions of AIFA;
                    (D) ensuring, in conjunction with the general 
                counsel of AIFA, that all activities of AIFA are 
                carried out in compliance with applicable law;
                    (E) overseeing the involvement of AIFA in all 
                projects, including--
                            (i) developing eligible projects for AIFA 
                        financial assistance;
                            (ii) determining the terms and conditions 
                        of all financial assistance packages;
                            (iii) monitoring all infrastructure 
                        projects assisted by AIFA, including 
                        responsibility for ensuring that the proceeds 
                        of any loan made, guaranteed, or participated 
                        in are used only for the purposes for which the 
                        loan or guarantee was made;
                            (iv) preparing and submitting for approval 
                        by the Board of Directors the documents 
                        required under paragraph (1); and
                            (v) ensuring the implementation of 
                        decisions of the Board of Directors; and
                    (F) such other activities as may be necessary or 
                appropriate in carrying out this part.
    (e) Compensation.--
            (1) In general.--Any compensation assessment or 
        recommendation by the chief executive officer under this 
        section shall be without regard to the provisions of chapter 51 
        or subchapter III of chapter 53 of title 5, United States Code.
            (2) Considerations.--The compensation assessment or 
        recommendation required under this subsection shall take into 
        account merit principles, where applicable, as well as the 
        education, experience, level of responsibility, geographic 
        differences, and retention and recruitment needs in determining 
        compensation of personnel.

SEC. 768. POWERS AND DUTIES OF THE BOARD OF DIRECTORS.

    The Board of Directors shall--
            (1) as soon as is practicable after the date on which all 
        members are appointed, approve or disapprove senior management 
        appointed by the chief executive officer;
            (2) not later than 180 days after the date on which all 
        members are appointed--
                    (A) develop and approve the bylaws of AIFA, 
                including bylaws for the regulation of the affairs and 
                conduct of the business of AIFA, consistent with the 
                purpose, goals, objectives, and policies set forth in 
                this part;
                    (B) establish subcommittees, including an audit 
                committee that is composed solely of members of the 
                Board of Directors who are independent of the senior 
                management of AIFA;
                    (C) develop and approve, in consultation with 
                senior management, a conflict-of-interest policy for 
                the Board of Directors and for senior management;
                    (D) approve or disapprove internal policies that 
                the chief executive officer shall submit to the Board 
                of Directors, including--
                            (i) policies regarding the loan application 
                        and approval process, including--
                                    (I) disclosure and application 
                                procedures to be followed by entities 
                                in the course of nominating 
                                infrastructure projects for assistance 
                                under this part;
                                    (II) guidelines for the selection 
                                and approval of projects;
                                    (III) specific criteria for 
                                determining eligibility for project 
                                selection, consistent with title II; 
                                and
                                    (IV) standardized terms and 
                                conditions, fee schedules, or legal 
                                requirements of a contract or program, 
                                so as to carry out this part; and
                            (ii) operational guidelines; and
                    (E) approve or disapprove a multi-year or 1-year 
                business plan and budget for AIFA;
            (3) ensure that AIFA is at all times operated in a manner 
        that is consistent with this part, by--
                    (A) monitoring and assessing the effectiveness of 
                AIFA in achieving its strategic goals;
                    (B) periodically reviewing internal policies;
                    (C) reviewing and approving annual business plans, 
                annual budgets, and long-term strategies submitted by 
                the chief executive officer;
                    (D) reviewing and approving annual reports 
                submitted by the chief executive officer;
                    (E) engaging one or more external auditors, as set 
                forth in this part; and
                    (F) reviewing and approving all changes to the 
                organization of senior management;
            (4) appoint and fix, by a vote of 5 of the 7 voting members 
        of the Board of Directors, and without regard to the provisions 
        of chapter 51 or subchapter III of chapter 53 of title 5, 
        United States Code, the compensation and adjustments to 
        compensation of all AIFA personnel, provided that in appointing 
        and fixing any compensation or adjustments to compensation 
        under this paragraph, the Board shall--
                    (A) consult with, and seek to maintain 
                comparability with, other comparable Federal personnel;
                    (B) consult with the Office of Personnel 
                Management; and
                    (C) carry out such duties consistent with merit 
                principles, where applicable, as well as the education, 
                experience, level of responsibility, geographic 
                differences, and retention and recruitment needs in 
                determining compensation of personnel;
            (5) establish such other criteria, requirements, or 
        procedures as the Board of Directors may consider to be 
        appropriate in carrying out this part;
            (6) serve as the primary liaison for AIFA in interactions 
        with Congress, the Executive Branch, and State and local 
        governments, and to represent the interests of AIFA in such 
        interactions and others;
            (7) approve by a vote of 5 of the 7 voting members of the 
        Board of Directors any changes to the bylaws or internal 
        policies of AIFA;
            (8) have the authority and responsibility--
                    (A) to oversee entering into and carry out such 
                contracts, leases, cooperative agreements, or other 
                transactions as are necessary to carry out this part 
                with--
                            (i) any Federal department or agency;
                            (ii) any State, territory, or possession 
                        (or any political subdivision thereof, 
                        including State infrastructure banks) of the 
                        United States; and
                            (iii) any individual, public-private 
                        partnership, firm, association, or corporation;
                    (B) to approve of the acquisition, lease, pledge, 
                exchange, and disposal of real and personal property by 
                AIFA and otherwise approve the exercise by AIFA of all 
                of the usual incidents of ownership of property, to the 
                extent that the exercise of such powers is appropriate 
                to and consistent with the purposes of AIFA;
                    (C) to determine the character of, and the 
                necessity for, the obligations and expenditures of 
                AIFA, and the manner in which the obligations and 
                expenditures will be incurred, allowed, and paid, 
                subject to this part and other Federal law specifically 
                applicable to wholly owned Federal corporations;
                    (D) to execute, in accordance with applicable 
                bylaws and regulations, appropriate instruments;
                    (E) to approve other forms of credit enhancement 
                that AIFA may provide to eligible projects, as long as 
                the forms of credit enhancements are consistent with 
                the purposes of this part and terms set forth in title 
                II;
                    (F) to exercise all other lawful powers which are 
                necessary or appropriate to carry out, and are 
                consistent with, the purposes of AIFA;
                    (G) to sue or be sued in the corporate capacity of 
                AIFA in any court of competent jurisdiction;
                    (H) to indemnify the members of the Board of 
                Directors and officers of AIFA for any liabilities 
                arising out of the actions of the members and officers 
                in such capacity, in accordance with, and subject to 
                the limitations contained in this part;
                    (I) to review all financial assistance packages to 
                all eligible infrastructure projects, as submitted by 
                the chief executive officer and to approve, postpone, 
                or deny the same by majority vote;
                    (J) to review all restructuring proposals submitted 
                by the chief executive officer, including assignation, 
                pledging, or disposal of the interest of AIFA in a 
                project, including payment or income from any interest 
                owned or held by AIFA, and to approve, postpone, or 
                deny the same by majority vote; and
                    (K) to enter into binding commitments, as specified 
                in approved financial assistance packages;
            (9) delegate to the chief executive officer those duties 
        that the Board of Directors deems appropriate, to better carry 
        out the powers and purposes of the Board of Directors under 
        this section; and
            (10) to approve a maximum aggregate amount of outstanding 
        obligations of AIFA at any given time, taking into 
        consideration funding, and the size of AIFA's addressable 
        market for infrastructure projects.

SEC. 769. SENIOR MANAGEMENT.

    (a) In General.--Senior management shall support the chief 
executive officer in the discharge of the responsibilities of the chief 
executive officer.
    (b) Appointment of Senior Management.--The chief executive officer 
shall appoint such senior managers as are necessary to carry out the 
purpose of AIFA, as approved by a majority vote of the voting members 
of the Board of Directors.
    (c) Term.--Each member of senior management shall serve at the 
pleasure of the chief executive officer and the Board of Directors.
    (d) Removal of Senior Management.--Any member of senior management 
may be removed, either by a majority of the voting members of the Board 
of Directors upon request by the chief executive officer, or otherwise 
by vote of not fewer than 5 voting members of the Board of Directors.
    (e) Senior Management.--
            (1) In general.--Each member of senior management shall 
        report directly to the chief executive officer, other than the 
        Chief Risk Officer, who shall report directly to the Board of 
        Directors.
            (2) Duties and responsibilities.--
                    (A) Chief financial officer.--The Chief Financial 
                Officer shall be responsible for all financial 
                functions of AIFA, provided that, at the discretion of 
                the Board of Directors, specific functions of the Chief 
                Financial Officer may be delegated externally.
                    (B) Chief risk officer.--The Chief Risk Officer 
                shall be responsible for all functions of AIFA relating 
                to--
                            (i) the creation of financial, credit, and 
                        operational risk management guidelines and 
                        policies;
                            (ii) credit analysis for infrastructure 
                        projects;
                            (iii) the creation of conforming standards 
                        for infrastructure finance agreements;
                            (iv) the monitoring of the financial, 
                        credit, and operational exposure of AIFA; and
                            (v) risk management and mitigation actions, 
                        including by reporting such actions, or 
                        recommendations of such actions to be taken, 
                        directly to the Board of Directors.
                    (C) Chief compliance officer.--The Chief Compliance 
                Officer shall be responsible for all functions of AIFA 
                relating to internal audits, accounting safeguards, and 
                the enforcement of such safeguards and other applicable 
                requirements.
                    (D) General counsel.--The General Counsel shall be 
                responsible for all functions of AIFA relating to legal 
                matters and, in consultation with the chief executive 
                officer, shall be responsible for ensuring that AIFA 
                complies with all applicable law.
                    (E) Chief operations officer.--The Chief Operations 
                Officer shall be responsible for all operational 
                functions of AIFA, including those relating to the 
                continuing operations and performance of all 
                infrastructure projects in which AIFA retains an 
                interest and for all AIFA functions related to human 
                resources.
                    (F) Chief lending officer.--The Chief Lending 
                Officer shall be responsible for--
                            (i) all functions of AIFA relating to the 
                        development of project pipeline, financial 
                        structuring of projects, selection of 
                        infrastructure projects to be reviewed by the 
                        Board of Directors, preparation of 
                        infrastructure projects to be presented to the 
                        Board of Directors, and set aside for rural 
                        infrastructure projects;
                            (ii) the creation and management of--
                                    (I) a Center for Excellence to 
                                provide technical assistance to public 
                                sector borrowers in the development and 
                                financing of infrastructure projects; 
                                and
                                    (II) an Office of Rural Assistance 
                                to provide technical assistance in the 
                                development and financing of rural 
                                infrastructure projects; and
                            (iii) the establishment of guidelines to 
                        ensure diversification of lending activities by 
                        region, infrastructure project type, and 
                        project size.
    (f) Changes to Senior Management.--The Board of Directors, in 
consultation with the chief executive officer, may alter the structure 
of the senior management of AIFA at any time to better accomplish the 
goals, objectives, and purposes of AIFA, provided that the functions of 
the Chief Financial Officer set forth in subsection (e) remain separate 
from the functions of the Chief Risk Officer set forth in subsection 
(e).
    (g) Conflicts of Interest.--No individual appointed to senior 
management may--
            (1) hold any other public office;
            (2) have any financial interest in an infrastructure 
        project then being considered by the Board of Directors, unless 
        that interest is placed in a blind trust; or
            (3) have any financial interest in an investment 
        institution or its affiliates, AIFA or its affiliates, or other 
        entity then seeking or likely to seek financial assistance for 
        any infrastructure project from AIFA, unless any such interest 
        is placed in a blind trust during the term of service of that 
        individual in a senior management position, and for a period of 
        2 years thereafter.

SEC. 770. SPECIAL INSPECTOR GENERAL FOR AIFA.

    (a) In General.--During the first 5 operating years of AIFA, the 
Office of the Inspector General of the Department of the Treasury shall 
have responsibility for AIFA.
    (b) Office of the Special Inspector General.--Effective 5 years 
after the date of enactment of the commencement of the operations of 
AIFA, there is established the Office of the Special Inspector General 
for AIFA.
    (c) Appointment of Inspector General; Removal.--
            (1) Head of office.--The head of the Office of the Special 
        Inspector General for AIFA shall be the Special Inspector 
        General for AIFA (in this part referred to as the ``Special 
        Inspector General''), who shall be appointed by the President, 
        by and with the advice and consent of the Senate.
            (2) Basis of appointment.--The appointment of the Special 
        Inspector General shall be made on the basis of integrity and 
        demonstrated ability in accounting, auditing, financial 
        analysis, law, management analysis, public administration, or 
        investigations.
            (3) Timing of nomination.--The nomination of an individual 
        as Special Inspector General shall be made as soon as is 
        practicable after the effective date under subsection (b).
            (4) Removal.--The Special Inspector General shall be 
        removable from office in accordance with the provisions of 
        section 3(b) of the Inspector General Act of 1978 (5 U.S.C. 
        App.).
            (5) Rule of construction.--For purposes of section 7324 of 
        title 5, United States Code, the Special Inspector General 
        shall not be considered an employee who determines policies to 
        be pursued by the United States in the nationwide 
        administration of Federal law.
            (6) Rate of pay.--The annual rate of basic pay of the 
        Special Inspector General shall be the annual rate of basic pay 
        for an Inspector General under section 3(e) of the Inspector 
        General Act of 1978 (5 U.S.C. App.).
    (d) Duties.--
            (1) In general.--It shall be the duty of the Special 
        Inspector General to conduct, supervise, and coordinate audits 
        and investigations of the business activities of AIFA.
            (2) Other systems, procedures, and controls.--The Special 
        Inspector General shall establish, maintain, and oversee such 
        systems, procedures, and controls as the Special Inspector 
        General considers appropriate to discharge the duty under 
        paragraph (1).
            (3) Additional duties.--In addition to the duties specified 
        in paragraphs (1) and (2), the Inspector General shall also 
        have the duties and responsibilities of inspectors general 
        under the Inspector General Act of 1978.
    (e) Powers and Authorities.--
            (1) In general.--In carrying out the duties specified in 
        subsection (c), the Special Inspector General shall have the 
        authorities provided in section 6 of the Inspector General Act 
        of 1978.
            (2) Additional authority.--The Special Inspector General 
        shall carry out the duties specified in subsection (c)(1) in 
        accordance with section 4(b)(1) of the Inspector General Act of 
        1978.
    (f) Personnel, Facilities, and Other Resources.--
            (1) Additional officers.--
                    (A) The Special Inspector General may select, 
                appoint, and employ such officers and employees as may 
                be necessary for carrying out the duties of the Special 
                Inspector General, subject to the provisions of title 
                5, United States Code, governing appointments in the 
                competitive service, and the provisions of chapter 51 
                and subchapter III of chapter 53 of such title, 
                relating to classification and General Schedule pay 
                rates.
                    (B) The Special Inspector General may exercise the 
                authorities of subsections (b) through (i) of section 
                3161 of title 5, United States Code (without regard to 
                subsection (a) of that section).
            (2) Retention of services.--The Special Inspector General 
        may obtain services as authorized by section 3109 of title 5, 
        United States Code, at daily rates not to exceed the equivalent 
        rate prescribed for grade GS-15 of the General Schedule by 
        section 5332 of such title.
            (3) Ability to contract for audits, studies, and other 
        services.--The Special Inspector General may enter into 
        contracts and other arrangements for audits, studies, analyses, 
        and other services with public agencies and with private 
        persons, and make such payments as may be necessary to carry 
        out the duties of the Special Inspector General.
            (4) Request for information.--
                    (A) In general.--Upon request of the Special 
                Inspector General for information or assistance from 
                any department, agency, or other entity of the Federal 
                Government, the head of such entity shall, insofar as 
                is practicable and not in contravention of any existing 
                law, furnish such information or assistance to the 
                Special Inspector General, or an authorized designee.
                    (B) Refusal to comply.--Whenever information or 
                assistance requested by the Special Inspector General 
                is, in the judgment of the Special Inspector General, 
                unreasonably refused or not provided, the Special 
                Inspector General shall report the circumstances to the 
                Secretary of the Treasury, without delay.
    (g) Reports.--
            (1) Annual report.--Not later than 1 year after the 
        confirmation of the Special Inspector General, and every 
        calendar year thereafter, the Special Inspector General shall 
        submit to the President a report summarizing the activities of 
        the Special Inspector General during the previous 1-year period 
        ending on the date of such report.
            (2) Public disclosures.--Nothing in this subsection shall 
        be construed to authorize the public disclosure of information 
        that is--
                    (A) specifically prohibited from disclosure by any 
                other provision of law;
                    (B) specifically required by Executive order to be 
                protected from disclosure in the interest of national 
                defense or national security or in the conduct of 
                foreign affairs; or
                    (C) a part of an ongoing criminal investigation.

SEC. 771. OTHER PERSONNEL.

    Except as otherwise provided in the bylaws of AIFA, the chief 
executive officer, in consultation with the Board of Directors, shall 
appoint, remove, and define the duties of such qualified personnel as 
are necessary to carry out the powers, duties, and purpose of AIFA, 
other than senior management, who shall be appointed in accordance with 
section 769.

SEC. 772. COMPLIANCE.

    The provision of assistance by the Board of Directors pursuant to 
this part shall not be construed as superseding any provision of State 
law or regulation otherwise applicable to an infrastructure project.

  Subpart C--Terms and Limitations on Direct Loans and Loan Guarantees

SEC. 773. ELIGIBILITY CRITERIA FOR ASSISTANCE FROM AIFA AND TERMS AND 
              LIMITATIONS OF LOANS.

    (a) In General.--Any project whose use or purpose is private and 
for which no public benefit is created shall not be eligible for 
financial assistance from AIFA under this part. Financial assistance 
under this part shall only be made available if the applicant for such 
assistance has demonstrated to the satisfaction of the Board of 
Directors that the infrastructure project for which such assistance is 
being sought--
            (1) is not for the refinancing of an existing 
        infrastructure project; and
            (2) meets--
                    (A) any pertinent requirements set forth in this 
                part;
                    (B) any criteria established by the Board of 
                Directors or chief executive officer in accordance with 
                this part; and
                    (C) the definition of a transportation 
                infrastructure project, water infrastructure project, 
                or energy infrastructure project.
    (b) Considerations.--The criteria established by the Board of 
Directors pursuant to this part shall provide adequate consideration 
of--
            (1) the economic, financial, technical, environmental, and 
        public benefits and costs of each infrastructure project under 
        consideration for financial assistance under this part, 
        prioritizing infrastructure projects that--
                    (A) contribute to regional or national economic 
                growth;
                    (B) offer value for money to taxpayers;
                    (C) demonstrate a clear and significant public 
                benefit;
                    (D) lead to job creation; and
                    (E) mitigate environmental concerns;
            (2) the means by which development of the infrastructure 
        project under consideration is being financed, including--
                    (A) the terms, conditions, and structure of the 
                proposed financing;
                    (B) the credit worthiness and standing of the 
                project sponsors, providers of equity, and 
                cofinanciers;
                    (C) the financial assumptions and projections on 
                which the infrastructure project is based; and
                    (D) whether there is sufficient State or municipal 
                political support for the successful completion of the 
                infrastructure project;
            (3) the likelihood that the provision of assistance by AIFA 
        will cause such development to proceed more promptly and with 
        lower costs than would be the case without such assistance;
            (4) the extent to which the provision of assistance by AIFA 
        maximizes the level of private investment in the infrastructure 
        project or supports a public-private partnership, while 
        providing a significant public benefit;
            (5) the extent to which the provision of assistance by AIFA 
        can mobilize the participation of other financing partners in 
        the infrastructure project;
            (6) the technical and operational viability of the 
        infrastructure project;
            (7) the proportion of financial assistance from AIFA;
            (8) the geographic location of the project in an effort to 
        have geographic diversity of projects funded by AIFA;
            (9) the size of the project and its impact on the resources 
        of AIFA;
            (10) the infrastructure sector of the project, in an effort 
        to have projects from more than one sector funded by AIFA; and
            (11) encourages use of innovative procurement, asset 
        management, or financing to minimize the all-in-life-cycle 
        cost, and improve the cost-effectiveness of a project.
    (c) Application.--
            (1) In general.--Any eligible entity seeking assistance 
        from AIFA under this part for an eligible infrastructure 
        project shall submit an application to AIFA at such time, in 
        such manner, and containing such information as the Board of 
        Directors or the chief executive officer may require.
            (2) Review of applications.--AIFA shall review applications 
        for assistance under this part on an ongoing basis. The chief 
        executive officer, working with the senior management, shall 
        prepare eligible infrastructure projects for review and 
        approval by the Board of Directors.
            (3) Dedicated revenue sources.--The Federal credit 
        instrument shall be repayable, in whole or in part, from tolls, 
        user fees, or other dedicated revenue sources that also secure 
        the infrastructure project obligations.
    (d) Eligible Infrastructure Project Costs.--
            (1) In general.--Except as provided in paragraph (2), to be 
        eligible for assistance under this part, an infrastructure 
        project shall have project costs that are reasonably 
        anticipated to equal or exceed $100,000,000.
            (2) Rural infrastructure projects.--To be eligible for 
        assistance under this part a rural infrastructure project shall 
        have project costs that are reasonably anticipated to equal or 
        exceed $25,000,000.
    (e) Loan Eligibility and Maximum Amounts.--
            (1) In general.--The amount of a direct loan or loan 
        guarantee under this part shall not exceed the lesser of 50 
        percent of the reasonably anticipated eligible infrastructure 
        project costs or, if the direct loan or loan guarantee does not 
        receive an investment grade rating, the amount of the senior 
        project obligations.
            (2) Maximum annual loan and loan guarantee volume.--The 
        aggregate amount of direct loans and loan guarantees made by 
        AIFA in any single fiscal year may not exceed--
                    (A) during the first 2 fiscal years of the 
                operations of AIFA, $10,000,000,000;
                    (B) during fiscal years 3 through 9 of the 
                operations of AIFA, $20,000,000,000; or
                    (C) during any fiscal year thereafter, 
                $50,000,000,000.
    (f) State and Local Permits Required.--The provision of assistance 
by the Board of Directors pursuant to this part shall not be deemed to 
relieve any recipient of such assistance, or the related infrastructure 
project, of any obligation to obtain required State and local permits 
and approvals.

SEC. 774. LOAN TERMS AND REPAYMENT.

    (a) In General.--A direct loan or loan guarantee under this part 
with respect to an eligible infrastructure project shall be on such 
terms, subject to such conditions, and contain such covenants, 
representations, warranties, and requirements (including requirements 
for audits) as the chief executive officer determines appropriate.
    (b) Terms.--A direct loan or loan guarantee under this part--
            (1) shall--
                    (A) be payable, in whole or in part, from tolls, 
                user fees, or other dedicated revenue sources that also 
                secure the senior project obligations (such as 
                availability payments and dedicated State or local 
                revenues); and
                    (B) include a rate covenant, coverage requirement, 
                or similar security feature supporting the project 
                obligations; and
            (2) may have a lien on revenues described in paragraph (1), 
        subject to any lien securing project obligations.
    (c) Base Interest Rate.--The base interest rate on a direct loan 
under this part shall be not less than the yield on United States 
Treasury obligations of a similar maturity to the maturity of the 
direct loan.
    (d) Risk Assessment.--Before entering into an agreement for 
assistance under this part, the chief executive officer, in 
consultation with the Director of the Office of Management and Budget 
and considering rating agency preliminary or final rating opinion 
letters of the project under this section, shall estimate an 
appropriate Federal credit subsidy amount for each direct loan and loan 
guarantee, taking into account such letter, as well as any comparable 
market rates available for such a loan or loan guarantee, should any 
exist. The final credit subsidy cost for each loan and loan guarantee 
shall be determined consistent with the Federal Credit Reform Act, 2 
U.S.C. 661a et seq.
    (e) Credit Fee.--With respect to each agreement for assistance 
under this part, the chief executive officer may charge a credit fee to 
the recipient of such assistance to pay for, over time, all or a 
portion of the Federal credit subsidy determined under subsection (d), 
with the remainder paid by the account established for AIFA; provided, 
that the source of fees paid under this section shall not be a loan or 
debt obligation guaranteed by the Federal Government. In the case of a 
direct loan, such credit fee shall be in addition to the base interest 
rate established under subsection (c).
    (f) Maturity Date.--The final maturity date of a direct loan or 
loan guaranteed by AIFA under this part shall be not later than 35 
years after the date of substantial completion of the infrastructure 
project, as determined by the chief executive officer.
    (g) Rating Opinion Letter.--
            (1) In general.--The chief executive officer shall require 
        each applicant for assistance under this part to provide a 
        rating opinion letter from at least 1 ratings agency, 
        indicating that the senior obligations of the infrastructure 
        project, which may be the Federal credit instrument, have the 
        potential to achieve an investment-grade rating.
            (2) Rural infrastructure projects.--With respect to a rural 
        infrastructure project, a rating agency opinion letter 
        described in paragraph (1) shall not be required, except that 
        the loan or loan guarantee shall receive an internal rating 
        score, using methods similar to the ratings agencies generated 
        by AIFA, measuring the proposed direct loan or loan guarantee 
        against comparable direct loans or loan guarantees of similar 
        credit quality in a similar sector.
    (h) Investment-Grade Rating Requirement.--
            (1) Loans and loan guarantees.--The execution of a direct 
        loan or loan guarantee under this part shall be contingent on 
        the senior obligations of the infrastructure project receiving 
        an investment-grade rating.
            (2) Rating of aifa overall portfolio.--The average rating 
        of the overall portfolio of AIFA shall be not less than 
        investment grade after 5 years of operation.
    (i) Terms and Repayment of Direct Loans.--
            (1) Schedule.--The chief executive officer shall establish 
        a repayment schedule for each direct loan under this part, 
        based on the projected cash flow from infrastructure project 
        revenues and other repayment sources.
            (2) Commencement.--Scheduled loan repayments of principal 
        or interest on a direct loan under this part shall commence not 
        later than 5 years after the date of substantial completion of 
        the infrastructure project, as determined by the chief 
        executive officer of AIFA.
            (3) Deferred payments of direct loans.--
                    (A) Authorization.--If, at any time after the date 
                of substantial completion of an infrastructure project 
                assisted under this part, the infrastructure project is 
                unable to generate sufficient revenues to pay the 
                scheduled loan repayments of principal and interest on 
                the direct loan under this part, the chief executive 
                officer may allow the obligor to add unpaid principal 
                and interest to the outstanding balance of the direct 
                loan, if the result would benefit the taxpayer.
                    (B) Interest.--Any payment deferred under 
                subparagraph (A) shall--
                            (i) continue to accrue interest, in 
                        accordance with the terms of the obligation, 
                        until fully repaid; and
                            (ii) be scheduled to be amortized over the 
                        remaining term of the loan.
                    (C) Criteria.--
                            (i) In general.--Any payment deferral under 
                        subparagraph (A) shall be contingent on the 
                        infrastructure project meeting criteria 
                        established by the Board of Directors.
                            (ii) Repayment standards.--The criteria 
                        established under clause (i) shall include 
                        standards for reasonable assurance of 
                        repayment.
            (4) Prepayment of direct loans.--
                    (A) Use of excess revenues.--Any excess revenues 
                that remain after satisfying scheduled debt service 
                requirements on the infrastructure project obligations 
                and direct loan and all deposit requirements under the 
                terms of any trust agreement, bond resolution, or 
                similar agreement securing project obligations under 
                this part may be applied annually to prepay the direct 
                loan, without penalty.
                    (B) Use of proceeds of refinancing.--A direct loan 
                under this part may be prepaid at any time, without 
                penalty, from the proceeds of refinancing from non-
                Federal funding sources.
            (5) Sale of direct loans.--
                    (A) In general.--As soon as is practicable after 
                substantial completion of an infrastructure project 
                assisted under this part, and after notifying the 
                obligor, the chief executive officer may sell to 
                another entity, or reoffer into the capital markets, a 
                direct loan for the infrastructure project, if the 
                chief executive officer determines that the sale or 
                reoffering can be made on favorable terms for the 
                taxpayer.
                    (B) Consent of obligor.--In making a sale or 
                reoffering under subparagraph (A), the chief executive 
                officer may not change the original terms and 
                conditions of the direct loan, without the written 
                consent of the obligor.
    (j) Loan Guarantees.--
            (1) Terms.--The terms of a loan guaranteed by AIFA under 
        this part shall be consistent with the terms set forth in this 
        section for a direct loan, except that the rate on the 
        guaranteed loan and any payment, pre-payment, or refinancing 
        features shall be negotiated between the obligor and the 
        lender, with the consent of the chief executive officer.
            (2) Guaranteed lender.--A guaranteed lender shall be 
        limited to those lenders meeting the definition of that term in 
        section 601(a) of title 23, United States Code.
    (k) Compliance With FCRA; in General.--Direct loans and loan 
guarantees authorized by this part shall be subject to the provisions 
of the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.), as 
amended.

SEC. 775. COMPLIANCE AND ENFORCEMENT.

    (a) Credit Agreement.--Notwithstanding any other provision of law, 
each eligible entity that receives assistance under this part from AIFA 
shall enter into a credit agreement that requires such entity to comply 
with all applicable policies and procedures of AIFA, in addition to all 
other provisions of the loan agreement.
    (b) AIFA Authority on Noncompliance.--In any case in which a 
recipient of assistance under this part is materially out of compliance 
with the loan agreement, or any applicable policy or procedure of AIFA, 
the Board of Directors may take action to cancel unutilized loan 
amounts, or to accelerate the repayment terms of any outstanding 
obligation.
    (c) Nothing in this part is intended to affect existing provisions 
of law applicable to the planning, development, construction, or 
operation of projects funded under the Act.

SEC. 776. AUDITS; REPORTS TO THE PRESIDENT AND CONGRESS.

    (a) Accounting.--The books of account of AIFA shall be maintained 
in accordance with generally accepted accounting principles, and shall 
be subject to an annual audit by independent public accountants of 
nationally recognized standing appointed by the Board of Directors.
    (b) Reports.--
            (1) Board of directors.--Not later than 90 days after the 
        last day of each fiscal year, the Board of Directors shall 
        submit to the President and Congress a complete and detailed 
        report with respect to the preceding fiscal year, setting 
        forth--
                    (A) a summary of the operations of AIFA, for such 
                fiscal year;
                    (B) a schedule of the obligations of AIFA and 
                capital securities outstanding at the end of such 
                fiscal year, with a statement of the amounts issued and 
                redeemed or paid during such fiscal year;
                    (C) the status of infrastructure projects receiving 
                funding or other assistance pursuant to this part 
                during such fiscal year, including all nonperforming 
                loans, and including disclosure of all entities with a 
                development, ownership, or operational interest in such 
                infrastructure projects;
                    (D) a description of the successes and challenges 
                encountered in lending to rural communities, including 
                the role of the Center for Excellence and the Office of 
                Rural Assistance established under this part; and
                    (E) an assessment of the risks of the portfolio of 
                AIFA, prepared by an independent source.
            (2) GAO.--Not later than 5 years after the date of 
        enactment of this part, the Comptroller General of the United 
        States shall conduct an evaluation of, and shall submit to 
        Congress a report on, activities of AIFA for the fiscal years 
        covered by the report that includes an assessment of the impact 
        and benefits of each funded infrastructure project, including a 
        review of how effectively each such infrastructure project 
        accomplished the goals prioritized by the infrastructure 
        project criteria of AIFA.
    (c) Books and Records.--
            (1) In general.--AIFA shall maintain adequate books and 
        records to support the financial transactions of AIFA, with a 
        description of financial transactions and infrastructure 
        projects receiving funding, and the amount of funding for each 
        such project maintained on a publically accessible database.
            (2) Audits by the secretary and gao.--The books and records 
        of AIFA shall at all times be open to inspection by the 
        Secretary of the Treasury, the Special Inspector General, and 
        the Comptroller General of the United States.

                       Subpart D--Funding of AIFA

SEC. 777. ADMINISTRATIVE FEES.

    (a) In General.--In addition to fees that may be collected under 
section 774(e), the chief executive officer shall establish and collect 
fees from eligible funding recipients with respect to loans and loan 
guarantees under this part that--
            (1) are sufficient to cover all or a portion of the 
        administrative costs to the Federal Government for the 
        operations of AIFA, including the costs of expert firms, 
        including counsel in the field of municipal and project 
        finance, and financial advisors to assist with underwriting, 
        credit analysis, or other independent reviews, as appropriate;
            (2) may be in the form of an application or transaction 
        fee, or other form established by the CEO; and
            (3) may be based on the risk premium associated with the 
        loan or loan guarantee, taking into consideration--
                    (A) the price of United States Treasury obligations 
                of a similar maturity;
                    (B) prevailing market conditions;
                    (C) the ability of the infrastructure project to 
                support the loan or loan guarantee; and
                    (D) the total amount of the loan or loan guarantee.
    (b) Availability of Amounts.--Amounts collected under subsections 
(a)(1), (a)(2), and (a)(3) shall be available without further action; 
provided further, that the source of fees paid under this section shall 
not be a loan or debt obligation guaranteed by the Federal Government.

SEC. 778. EFFICIENCY OF AIFA.

    The chief executive officer shall, to the extent possible, take 
actions consistent with this part to minimize the risk and cost to the 
taxpayer of AIFA activities. Fees and premiums for loan guarantee or 
insurance coverage will be set at levels that minimize administrative 
and Federal credit subsidy costs to the Government, as defined in 
Section 502 of the Federal Credit Reform Act of 1990, as amended, of 
such coverage, while supporting achievement of the program's 
objectives, consistent with policies as set forth in the Business Plan.

SEC. 779. FUNDING.

    There is hereby appropriated to AIFA to carry out this part, for 
the cost of direct loans and loan guarantees subject to the limitations 
under section 773, and for administrative costs, $10,000,000,000, to 
remain available until expended; provided, that such costs, including 
the costs of modifying such loans, shall be as defined in section 502 
of the Federal Credit Reform Act of 1990, as amended; provided further, 
that of this amount, not more than $25,000,000 for each of fiscal years 
2013 through 2014, and not more than $50,000,000 for fiscal year 2015 
may be used for administrative costs of AIFA; provided further, that 
not more than 5 percent of such amount shall be used to offset subsidy 
costs associated with rural projects. Amounts authorized shall be 
available without further action.

    Subpart E--Extension of Exemption From Alternative Minimum Tax 
                 Treatment for Certain Tax-Exempt Bonds

SEC. 780. EXTENSION OF EXEMPTION FROM ALTERNATIVE MINIMUM TAX TREATMENT 
              FOR CERTAIN TAX-EXEMPT BONDS.

    (a) In General.--Clause (vi) of section 57(a)(5)(C) of the Internal 
Revenue Code of 1986 is amended--
            (1) by striking ``January 1, 2011'' in subclause (I) and 
        inserting ``January 1, 2014''; and
            (2) by striking ``and 2010'' in the heading and inserting 
        ``, 2010, 2011, 2012 and 2013''.
    (b) Adjusted Current Earnings.--Clause (iv) of section 56(g)(4)(B) 
of the Internal Revenue Code of 1986 is amended--
            (1) by striking ``January 1, 2011'' in subclause (I) and 
        inserting ``January 1, 2014''; and
            (2) by striking ``AND 2010'' in the heading and inserting 
        ``, 2010, 2011, 2012 and 2013''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2010.
                                 <all>