[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5106 Introduced in House (IH)]

<DOC>






114th CONGRESS
  2d Session
                                H. R. 5106

   To make college more affordable, reduce student debt, and provide 
   greater access to higher education for all students of the United 
                                States.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 28, 2016

 Ms. Duckworth (for herself, Mr. Scott of Virginia, Mr. Hinojosa, and 
Mr. Courtney) introduced the following bill; which was referred to the 
   Committee on Education and the Workforce, and in addition to the 
Committees on Ways and Means and Natural Resources, 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 make college more affordable, reduce student debt, and provide 
   greater access to higher education for all students of the United 
                                States.

    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 ``In the Red Act of 
2016''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
                   TITLE I--AMERICA'S COLLEGE PROMISE

Sec. 101. State and Indian tribe grants for community college.
Sec. 102. Pathways to student success.
                   TITLE II--STUDENT LOAN REFINANCING

Sec. 201. Refinancing programs.
                TITLE III--FEDERAL PELL GRANT PROTECTION

Sec. 301. Federal Pell Grant protection.
Sec. 302. Point of order against cutting Federal Pell Grants.
Sec. 303. Affirming that Federal Pell Grants are a foundational 
                            investment in affordable higher education.
                        TITLE IV--ACCOUNTABILITY

Sec. 401. Supporting efforts to ensure that institutions of higher 
                            education are accountable for ensuring the 
                            high value of degrees and credentials.
                            TITLE V--OFFSETS

Sec. 501. Amendment of 1986 Code.
Sec. 502. Fair share tax on high-income taxpayers.
Sec. 503. Expansion of denial of deduction for certain excessive 
                            employee remuneration.
Sec. 504. Partnership interests transferred in connection with 
                            performance of services.
Sec. 505. Special rules for partners providing investment management 
                            services to partnerships.
Sec. 506. Consistent treatment of stock options by corporations.
Sec. 507. Application of executive pay deduction limit.
Sec. 508. Modifications to rules relating to inverted corporations.
Sec. 509. Modifications of foreign tax credit rules applicable to major 
                            integrated oil companies which are dual 
                            capacity taxpayers.
Sec. 510. Limitation on section 199 deduction attributable to oil, 
                            natural gas, or primary products thereof.
Sec. 511. Limitation on deduction for intangible drilling and 
                            development costs; amortization of 
                            disallowed amounts.
Sec. 512. Limitation on percentage depletion allowance for oil and gas 
                            wells.
Sec. 513. Limitation on deduction for tertiary injectants.
Sec. 514. Modification of definition of major integrated oil company.
Sec. 515. Repeal of outer Continental Shelf deep water and deep gas 
                            royalty relief.
Sec. 516. Coordination of American Opportunity Credit and Lifetime 
                            Learning Credit with Pell Grants not used 
                            for qualified tuition and related expenses.
Sec. 517. Expansion of Pell Grant exclusion from gross income.

                   TITLE I--AMERICA'S COLLEGE PROMISE

SEC. 101. STATE AND INDIAN TRIBE GRANTS FOR COMMUNITY COLLEGE.

    (a) In General.--From amounts appropriated under subsection (g)(1) 
for any fiscal year, the Secretary shall award grants to eligible 
States and Indian tribes to pay the Federal share of expenditures 
needed to carry out the activities and services described in subsection 
(e).
    (b) Federal Share; Non-Federal Share.--
            (1) Federal share.--
                    (A) Formula.--Subject to subparagraph (B), the 
                Federal share of a grant under this section shall be 
                based on a formula, determined by the Secretary, that--
                            (i) accounts for the State or Indian 
                        tribe's share of eligible students; and
                            (ii) provides, for each eligible student in 
                        the State or Indian tribe, a per-student amount 
                        that is--
                                    (I) not less than 300 percent of 
                                the per-student amount of the State or 
                                Indian tribe share, determined under 
                                paragraph (2), subject to subclause 
                                (II); and
                                    (II) not greater than 75 percent 
                                of--
                                            (aa) for the 2016-2017 
                                        award year, the average 
                                        resident community college 
                                        tuition and fees per student in 
                                        all States for the most recent 
                                        year for which data are 
                                        available; and
                                            (bb) for each subsequent 
                                        award year, the average 
                                        resident community college 
                                        tuition and fees per student in 
                                        all States calculated under 
                                        this subclause for the 
                                        preceding year, increased by 
                                        the lesser of--

                                                    (AA) the percentage 
                                                by which the average 
                                                resident community 
                                                college tuition and 
                                                fees per student in all 
                                                States for the most 
                                                recent year for which 
                                                data are available 
                                                increased as compared 
                                                to such average for the 
                                                preceding year; or

                                                    (BB) 3 percent.

                    (B) Exception for certain indian tribes.--In any 
                case in which not less than 75 percent of the students 
                at the community colleges operated or controlled by an 
                Indian tribe are low-income students, the amount of the 
                Federal share for such Indian tribe shall be not less 
                than 95 percent of the total amount needed to waive 
                tuition and fees for all eligible students enrolled in 
                such community colleges.
            (2) State or tribal share.--
                    (A) Formula.--
                            (i) In general.--The State or tribal share 
                        of a grant under this section for each fiscal 
                        year shall be the amount needed to pay 25 
                        percent of the average community college 
                        resident tuition and fees per student in all 
                        States in the 2016-2017 award year for all 
                        eligible students in the State or Indian tribe, 
                        respectively, for such fiscal year, except as 
                        provided in clause (ii).
                            (ii) Exception for certain indian tribes.--
                        In a case in which not less than 5 percent of 
                        the students at the community colleges operated 
                        or controlled by an Indian tribe are low-income 
                        students, the amount of such Indian tribe's 
                        tribal share shall not exceed 5 percent of the 
                        total amount needed to waive tuition and fees 
                        for all eligible students enrolled in such 
                        community colleges.
                    (B) Need-based aid.--A State or Indian tribe may 
                include any need-based financial aid provided through 
                State or tribal funds to eligible students as part of 
                the State or tribal share.
                    (C) No in-kind contributions.--A State or Indian 
                tribe shall not include in-kind contributions for 
                purposes of the State or tribal share described in 
                subparagraph (A).
    (c) Eligibility.--To be eligible for a grant under this section, a 
State or Indian tribe shall agree to waive community college resident 
tuition and fees for all eligible students for each year of the grant.
    (d) Applications.--
            (1) Submission.--For each fiscal year for which a State or 
        Indian tribe desires a grant under this section, an application 
        shall be submitted to the Secretary at such time, in such 
        manner, and containing such information as the Secretary may 
        require. Such application shall be submitted by--
                    (A) in the case of a State, the Governor, the State 
                agency with jurisdiction over higher education, or 
                another agency designated by the Governor to administer 
                the program under this section; or
                    (B) in the case of an Indian tribe, the governing 
                body of such tribe.
            (2) Contents.--Each State or Indian tribe application shall 
        include, at a minimum--
                    (A) an estimate of the number of eligible students 
                in the State or Indian tribe and the cost of waiving 
                community college resident tuition and fees for all 
                eligible students for each fiscal year covered by the 
                grant, with annual increases of an amount that shall 
                not exceed 3 percent of the prior year's average 
                resident community college tuition and fees;
                    (B) an assurance that all community colleges in the 
                State or under the jurisdiction of the Indian tribe, 
                respectively, will waive resident tuition and fees for 
                eligible students in programs that are--
                            (i) academic programs with credits that can 
                        fully transfer via articulation agreement 
                        toward a baccalaureate degree or 
                        postbaccalaureate degree at any public 
                        institution of higher education in the State; 
                        or
                            (ii) occupational skills training programs 
                        that lead to a recognized postsecondary 
                        credential that is in an in-demand industry 
                        sector or occupation in the State;
                    (C) a description of the promising and evidence-
                based institutional reforms and innovative practices to 
                improve student outcomes, including completion or 
                transfer rates, that have been or will be adopted by 
                the participating community colleges, such as--
                            (i) providing comprehensive academic and 
                        student support services, including mentoring 
                        and advising, especially for first-generation 
                        and minority students;
                            (ii) providing accelerated learning 
                        opportunities, such as dual or concurrent 
                        enrollment programs;
                            (iii) advancing competency-based education;
                            (iv) strengthening remedial education, 
                        especially for low-income students, first 
                        generation students, adult students, and 
                        students from other underrepresented groups in 
                        postsecondary education;
                            (v) implementing course redesigns of high-
                        enrollment courses to improve student outcomes 
                        and reduce cost; or
                            (vi) utilizing career pathways or degree 
                        pathways;
                    (D) a description of how the State or Indian tribe 
                will promote alignment between its public secondary 
                school and postsecondary education systems, including 
                between 2-year and 4-year public institutions of higher 
                education and with minority-serving institutions 
                described in section 371 of the Higher Education Act of 
                1965 (20 U.S.C. 1067q), to expand awareness of and 
                access to postsecondary education, reduce the need for 
                remediation and repeated coursework, and improve 
                student outcomes;
                    (E) a description of how the State or Indian tribe 
                will ensure that programs leading to a recognized 
                postsecondary credential meet the quality criteria 
                established by the State under section 123(a) of the 
                Workforce Innovation and Opportunity Act (29 U.S.C. 
                3153(a)) or other quality criteria determined 
                appropriate by the State or Indian tribe;
                    (F) an assurance that all participating community 
                colleges in the State or under the authority of the 
                Indian tribe have entered into program participation 
                agreements under section 487 of the Higher Education 
                Act of 1965 (20 U.S.C. 1094);
                    (G) an assurance that, for each year of the grant, 
                the State or Indian tribe will notify each eligible 
                student of the student's remaining eligibility for 
                assistance under this section; and
                    (H) a description of how the State or Indian tribe 
                will promote the improved performance of public 
                institutions of higher education through funding 
                reform, including through the use of a performance-
                based model that allocates a portion of the State or 
                Indian tribe's public higher education expenditures 
                based on the performance of those institutions on 
                State-specified metrics, including successful student 
                outcomes.
    (e) Allowable Uses of Funds.--
            (1) In general.--A State or Indian tribe shall use a grant 
        under this section only to provide funds to participating 
        community colleges to waive resident tuition and fees for 
        eligible students who are enrolled in--
                    (A) academic programs with credits that can fully 
                transfer via articulation agreement toward a 
                baccalaureate degree or postbaccalaureate degree at any 
                public institution of higher education in the State; or
                    (B) occupational skills training programs that lead 
                to a recognized postsecondary credential that is in an 
                in-demand industry sector or occupation in the State.
            (2) Additional uses.--If a State or Indian tribe 
        demonstrates to the Secretary that it has grant funds remaining 
        after meeting the demand for activities described in paragraph 
        (1), the State or Indian tribe may use those funds to carry out 
        one or more of the following:
                    (A) Expanding the waiver of resident tuition and 
                fees at community college to students who are returning 
                students or otherwise not enrolling in postsecondary 
                education for the first time, and who meet the student 
                eligibility requirements of clauses (ii) through (v) of 
                subsection (f)(4)(A).
                    (B) Expanding the scope and capacity of high-
                quality academic and occupational skills training 
                programs at community colleges.
                    (C) Improving postsecondary education readiness in 
                the State or Indian tribe, through outreach and early 
                intervention.
                    (D) Expanding access to dual or concurrent 
                enrollment programs.
                    (E) Improving affordability at 4-year public 
                institutions of higher education.
            (3) Use of funds for administrative purposes.--A State or 
        Indian tribe that receives a grant under this section may not 
        use any funds provided under this section for administrative 
        purposes relating to such grant.
            (4) Maintenance of effort.--A State or Indian tribe 
        receiving a grant under this section is entitled to receive its 
        full allotment of funds under this section for a fiscal year 
        only if, for each year of the grant, the State or Indian tribe 
        provides financial support for public higher education at a 
        level equal to or exceeding the average amount provided per 
        full-time equivalent student for public institutions of higher 
        education for the 3 consecutive preceding State or Indian tribe 
        fiscal years. In making the calculation under this paragraph, 
        the State or Indian tribe shall exclude capital expenses and 
        research and development costs and include need-based financial 
        aid for students who attend public institutions of higher 
        education.
            (5) Annual report.--A State or Indian tribe receiving a 
        grant under this section shall submit an annual report to the 
        Secretary--
                    (A) describing the uses of grant funds under this 
                section, the progress made in fulfilling the 
                requirements of the grant, and the rates of graduation, 
                transfer, and attainment of a recognized postsecondary 
                credential for the students at participating community 
                colleges; and
                    (B) including any other information as the 
                Secretary may require.
            (6) Reporting by secretary.--The Secretary annually shall--
                    (A) compile and analyze the information described 
                in paragraph (5); and
                    (B) prepare and submit a report to the Committee on 
                Health, Education, Labor, and Pensions of the Senate 
                and the Committee on Education and the Workforce of the 
                House of Representatives containing the analysis 
                described in subparagraph (A) and an identification of 
                State and Indian tribe best practices for achieving the 
                purpose of this section.
            (7) Technical assistance.--The Secretary shall provide 
        technical assistance to eligible States and Indian tribes 
        concerning best practices regarding the promising and evidence-
        based institutional reforms and innovative practices to improve 
        student outcomes as described in subsection (d)(2)(C) and shall 
        disseminate such best practices among the States and Indian 
        tribes.
            (8) Continuation of funding.--
                    (A) In general.--A State or Indian tribe receiving 
                a grant under this section for a fiscal year may 
                continue to receive funding under this section for 
                future fiscal years conditioned on the availability of 
                budget authority and on meeting the requirements of the 
                grant, as determined by the Secretary.
                    (B) Discontinuation.--The Secretary may discontinue 
                funding of the Federal share of a grant under this 
                section if the State or Indian tribe has violated the 
                terms of the grant or is not making adequate progress 
                in implementing the reforms described in the 
                application submitted under subsection (d).
    (f) Definitions.--In this section:
            (1) Career pathway.--The term ``career pathway'' has the 
        meaning given the term in section 3 of the Workforce Innovation 
        and Opportunity Act (29 U.S.C. 3102).
            (2) Community college.--The term ``community college'' 
        means a public institution of higher education at which the 
        highest degree that is predominantly awarded to students is an 
        associate's degree, including 2-year tribally controlled 
        colleges under section 316 of the Higher Education Act of 1965 
        (20 U.S.C. 1059c) and public 2-year State institutions of 
        higher education.
            (3) Dual or concurrent enrollment program.--The term ``dual 
        or concurrent enrollment program'' means an academic program 
        through which a secondary school student is able simultaneously 
        to earn credit toward a secondary school diploma and a 
        postsecondary degree or other recognized postsecondary 
        credential, including an early college high school program.
            (4) Eligible student.--
                    (A) Definition.--The term ``eligible student'' 
                means a student who--
                            (i)(I) enrolls in a community college for 
                        the first time, regardless of age, after the 
                        date of enactment of this Act; or
                            (II) is enrolled in a community college, 
                        for the first time, as of the date of enactment 
                        of this Act;
                            (ii) attends the community college on not 
                        less than a half-time basis;
                            (iii) is maintaining satisfactory progress, 
                        as defined in section 484(c) of the Higher 
                        Education Act of 1965 (20 U.S.C. 1091(c)), in 
                        the student's course of study;
                            (iv) qualifies for resident tuition, as 
                        determined by the State or Indian tribe; and
                            (v) is enrolled in an eligible program 
                        described in subsection (d)(2)(B).
                    (B) Special rule.--An otherwise eligible student 
                shall lose eligibility 3 calendar years after first 
                receiving benefits under this section.
            (5) In-demand industry sector or occupation.--The term 
        ``in-demand industry sector or occupation'' has the meaning 
        given the term in section 3 of the Workforce Innovation and 
        Opportunity Act (29 U.S.C. 3102).
            (6) Indian tribe.--The term ``Indian tribe'' has the 
        meaning given the term in section 102 of the Federally 
        Recognized Indian Tribe List Act of 1994 (25 U.S.C. 479a).
            (7) Institution of higher education.--The term 
        ``institution of higher education'' has the meaning given the 
        term in section 101 of the Higher Education Act of 1965 (20 
        U.S.C. 1001).
            (8) Recognized postsecondary credential.--The term 
        ``recognized postsecondary credential'' has the meaning as 
        described in section 3 of the Workforce Innovation and 
        Opportunity Act (29 U.S.C. 3102).
            (9) Secretary.--The term ``Secretary'' means the Secretary 
        of Education.
            (10) State.--The term ``State'' has the meaning given the 
        term in section 103 of the Higher Education Act of 1965 (20 
        U.S.C. 1003).
    (g) Appropriations.--
            (1) Authorization and appropriations.--For the purpose of 
        making grants under this section, there are authorized to be 
        appropriated, and there are appropriated--
                    (A) $1,365,000,000 for fiscal year 2016;
                    (B) $3,020,000,000 for fiscal year 2017;
                    (C) $3,854,000,000 for fiscal year 2018;
                    (D) $5,395,000,000 for fiscal year 2019;
                    (E) $7,061,000,000 for fiscal year 2020;
                    (F) $8,085,000,000 for fiscal year 2021;
                    (G) $10,182,000,000 for fiscal year 2022;
                    (H) $13,019,000,000 for fiscal year 2023;
                    (I) $13,583,000,000 for fiscal year 2024; and
                    (J) $14,171,000,000 for fiscal year 2025 and each 
                succeeding fiscal year.
            (2) Availability.--Funds appropriated under paragraph (1) 
        shall remain available to the Secretary until expended.
            (3) Insufficient funds.--If the amount appropriated under 
        paragraph (1) for a fiscal year is not sufficient to award each 
        participating State and Indian tribe a grant under this section 
        that is equal to the minimum amount of the Federal share 
        described in subsection (b)(1), the Secretary may ratably 
        reduce the amount of each such grant or take other actions 
        necessary to ensure an equitable distribution of such amount.

SEC. 102. PATHWAYS TO STUDENT SUCCESS.

    (a) Pathways to Student Success for Historically Black Colleges and 
Universities.--
            (1) In general.--From amounts appropriated under subsection 
        (d)(1) for any fiscal year, the Secretary shall award grants to 
        participating 4-year historically black colleges or 
        universities that meet the requirements of paragraph (2) to--
                    (A) encourage students to enroll as first-time 
                students and successfully complete a bachelor's degree 
                at participating institutions;
                    (B) provide incentives to community college 
                students to transfer to participating institutions 
                through strong transfer pathways to complete a 
                bachelor's degree program; and
                    (C) support participating institutions to better 
                serve new and existing students by engaging in reforms 
                and innovations designed to improve completion rates 
                and other student outcomes.
            (2) Eligibility.--To be eligible to receive a grant under 
        the program under this subsection, an institution shall be a 
        historically black college or university that--
                    (A) has a student body of which not less than 35 
                percent are low-income students;
                    (B) commits to maintaining or adopting and 
                implementing promising and evidence-based institutional 
                reforms and innovative practices to improve the 
                completion rates and other student outcomes, such as--
                            (i) providing comprehensive academic and 
                        student support services, including mentoring 
                        and advising;
                            (ii) providing accelerated learning 
                        opportunities and degree pathways, such as dual 
                        enrollment and pathways to graduate and 
                        professional degree programs;
                            (iii) advancing distance and competency-
                        based education;
                            (iv) partnering with employers, industry, 
                        not-for-profit associations, and other groups 
                        to provide opportunities to advance learning 
                        outside the classroom, including work-based 
                        learning opportunities such as internships or 
                        apprenticeships or programs designed to improve 
                        intercultural development and personal growth, 
                        such as foreign exchange and study abroad 
                        programs;
                            (v) reforming remedial education, 
                        especially for low-income students, first 
                        generation college students, adult students, 
                        and other underrepresented students; or
                            (vi) implementing course redesigns of high-
                        enrollment courses to improve student outcomes 
                        and reduce cost;
                    (C) sets performance goals for improving student 
                outcomes for the duration of the grant; and
                    (D) if receiving a grant for transfer students, has 
                articulation agreements with community colleges at the 
                national, State, or local level to ensure that 
                community college credits can fully transfer to the 
                participating institution.
            (3) Grant amount.--
                    (A) Initial amount.--For the first year that an 
                eligible institution participates in the grant program 
                under this subsection and subject to subparagraph (C), 
                such eligible institution shall receive a grant in an 
                amount based on the product of--
                            (i) the actual cost of tuition and fees at 
                        the eligible institution in such year (referred 
                        to in this subsection as the ``per-student 
                        rebate''); multiplied by
                            (ii) the number of eligible students 
                        enrolled in the eligible institution for the 
                        preceding year.
                    (B) Subsequent increases.--For each succeeding year 
                after the first year of the grant program under this 
                subsection, each participating eligible institution 
                shall receive a grant in the amount determined under 
                subparagraph (A) for such year, except that in no case 
                shall the amount of the per-student rebate for an 
                eligible institution increase by more than 3 percent as 
                compared to the amount of such rebate for the preceding 
                year.
                    (C) Limitations.--
                            (i) Maximum per-student rebate.--No 
                        eligible institution participating in the grant 
                        program under this subsection shall receive a 
                        per-student rebate amount for any year that is 
                        greater than the national average of annual 
                        tuition and fees at public 4-year institutions 
                        of higher education for such year, as 
                        determined by the Secretary.
                            (ii) First year tuition and fees.--During 
                        the first year of participation in the grant 
                        program under this subsection, no eligible 
                        institution may increase tuition and fees at a 
                        rate greater than any annual increase at the 
                        eligible institution in the previous 5 years.
            (4) Application.--An eligible institution that desires a 
        grant under this subsection shall submit an application to the 
        Secretary at such time, in such manner, and containing such 
        information as the Secretary may require.
            (5) Use of funds.--Funds awarded under this subsection to a 
        participating eligible institution shall be--
                    (A) applied in their entirety to student accounts; 
                and
                    (B) used to waive or significantly reduce tuition 
                and fees for eligible students in an amount of not more 
                than up to the annual per-student rebate amount for 
                each student, for not more than the first 60 credits an 
                eligible student enrolls in the participating eligible 
                institution.
    (b) Pathways to Student Success for Hispanic-Serving Institutions, 
Asian American and Native American Pacific Islander-Serving 
Institutions, Tribal Colleges and Universities, Alaska Native-Serving 
Institutions, Native Hawaiian-Serving Institutions, Predominantly Black 
Institutions, and Native American-Serving Nontribal Institutions.--
            (1) In general.--From amounts appropriated under subsection 
        (d)(1) for any fiscal year, the Secretary shall award grants to 
        participating 4-year minority-serving institutions to--
                    (A) encourage students to enroll as first-time 
                students and successfully complete a bachelor's degree 
                at participating institutions;
                    (B) provide incentives to community college 
                students to transfer to participating institutions 
                through strong transfer pathways to complete a 
                bachelor's degree program; and
                    (C) support participating institutions to better 
                serve new and existing students by engaging in reforms 
                and innovations designed to improve completion rates 
                and other student outcomes.
            (2) Institutional eligibility.--To be eligible to 
        participate and receive a grant under this subsection, an 
        institution shall be a minority-serving institution that--
                    (A) has a student body of which not less than 35 
                percent are low-income students;
                    (B) commits to maintaining or adopting and 
                implementing promising and evidence-based institutional 
                reforms and innovative practices to improve the 
                completion rates and other student outcomes, such as--
                            (i) providing comprehensive academic and 
                        student support services, including mentoring 
                        and advising;
                            (ii) providing accelerated learning 
                        opportunities and degree pathways, such as dual 
                        enrollment and pathways to graduate and 
                        professional degree programs;
                            (iii) advancing distance and competency-
                        based education;
                            (iv) partnering with employers, industry, 
                        not-for-profit associations, and other groups 
                        to provide opportunities to advance learning 
                        outside the classroom, including work-based 
                        learning opportunities such as internships or 
                        apprenticeships or programs designed to improve 
                        intercultural development and personal growth, 
                        such as foreign exchange and study abroad 
                        programs;
                            (v) reforming remedial education, 
                        especially for low-income students, first 
                        generation college students, adult students, 
                        and other underrepresented students; and
                            (vi) implementing course redesigns of high-
                        enrollment courses to improve student outcomes 
                        and reduce cost;
                    (C) sets performance goals for improving student 
                outcomes for the duration of the grant; and
                    (D) if receiving a grant for transfer students, has 
                articulation agreements with community colleges at the 
                national, State, or local levels to ensure that 
                community college credits can fully transfer to the 
                participating institution.
            (3) Grant amount.--
                    (A) Initial amount.--For the first year that an 
                eligible institution participates in the grant program 
                under this subsection and subject to subparagraph (C), 
                such participating eligible institution shall receive a 
                grant in an amount based on the product of--
                            (i) the actual cost of tuition and fees at 
                        the eligible institution in such year (referred 
                        to in this subsection as the ``per-student 
                        rebate''); multiplied by
                            (ii) the number of eligible students 
                        enrolled in the eligible institution for the 
                        preceding year.
                    (B) Subsequent increases.--For each succeeding year 
                after the first year of the grant program under this 
                subsection, each participating eligible institution 
                shall receive a grant in the amount determined under 
                subparagraph (A) for such year, except that in no case 
                shall the amount of the per-student rebate increase by 
                more than 3 percent as compared to the amount of such 
                rebate for the preceding year.
                    (C) Limitations.--
                            (i) Maximum per-student rebate.--No 
                        eligible institution participating in the grant 
                        program under this subsection shall receive a 
                        per-student rebate amount for a grant year 
                        greater than the national average of public 4-
                        year institutional tuition and fees, as 
                        determined by the Secretary.
                            (ii) First year tuition and fees.--During 
                        the first year of participation in the grant 
                        program under this subsection, no eligible 
                        institution may increase tuition and fees at a 
                        rate greater than any annual increase made by 
                        the institution in the previous 5 years.
            (4) Application.--An eligible institution shall submit an 
        application to the Secretary at such time, in such a manner, 
        and containing such information as determined by the Secretary.
            (5) Use of funds.--Funds awarded under this subsection to a 
        participating eligible institution shall be--
                    (A) applied in their entirety to student accounts; 
                and
                    (B) used to waive or significantly reduce tuition 
                and fees for eligible students in an amount of not more 
                than up to the annual per-student rebate amount for 
                each student, for not more than the first 60 credits an 
                eligible student enrolls in the participating eligible 
                institution.
    (c) Definitions.--In this section:
            (1) Eligible student.--
                    (A) Definition.--The term ``eligible student'' 
                means a student, regardless of age, who--
                            (i)(I) enrolls in a historically black 
                        college or university, or minority-serving 
                        institution, for the first time; or
                            (II) transfers from a community college 
                        into a historically black college or 
                        university, or minority-serving institution, 
                        for the first time;
                            (ii) attends the historically black college 
                        or university, or minority serving institution, 
                        on at least a half-time basis;
                            (iii) maintains satisfactory academic 
                        progress; and
                            (iv) is a low-income student.
                    (B) Special rules.--
                            (i) First 3 years.--An otherwise eligible 
                        student shall lose eligibility 3 calendar years 
                        after first receiving benefits under this 
                        section.
                            (ii) Special rule for certain students.--
                        Notwithstanding subparagraph (A)(i), an 
                        otherwise eligible student whose parent or 
                        guardian was denied a PLUS loan after November 
                        2011 and before March 29, 2015, and who 
                        subsequently withdrew from a historically black 
                        college or university, or minority-serving 
                        institution, and has not yet completed a 
                        program of study at such historically black 
                        college or university or minority-serving 
                        institution, shall be eligible to participate 
                        under subsection (a) or (b) in order to 
                        complete such program of study, subject to all 
                        other requirements of subsection (a) or (b) (as 
                        the case may be).
            (2) Historically black college or university.--The term 
        ``historically black college or university'' means a part B 
        institution described in section 322(2) of the Higher Education 
        Act of 1965 (20 U.S.C. 1061(2)).
            (3) Low-income student.--The term ``low-income student'' 
        has the meaning given such term by the Secretary, except that 
        such term shall not exclude any student eligible for a Federal 
        Pell Grant under section 401 of the Higher Education Act of 
        1965 (20 U.S.C. 1070a).
            (4) Minority-serving institution.--The term ``minority-
        serving institution'' means any public or not-for-profit 
        institution of higher education--
                    (A) described in paragraphs (2) through (7) of 
                section 371(a) of the Higher Education Act of 1965 (20 
                U.S.C. 1067q(a)); and
                    (B) designated as a minority-serving institution by 
                the Secretary.
    (d) Appropriations.--
            (1) Authorization and appropriations for hbcu and msi 
        grants.--For the purpose of carrying out subsections (a) and 
        (b), there are authorized to be appropriated, and there are 
        appropriated--
                    (A) $55,000,000 for fiscal year 2016;
                    (B) $180,000,000 for fiscal year 2017;
                    (C) $1,072,000,000 for fiscal year 2018;
                    (D) $1,115,000,000 for fiscal year 2019;
                    (E) $1,160,000,000 for fiscal year 2020;
                    (F) $1,206,000,000 for fiscal year 2021;
                    (G) $1,225,000,000 for fiscal year 2022;
                    (H) $1,306,000,000 for fiscal year 2023;
                    (I) $1,359,000,000 for fiscal year 2024; and
                    (J) $1,414,000,000 for fiscal year 2025 and each 
                succeeding fiscal year.
            (2) Availability.--Funds appropriated under paragraph (1) 
        are to remain available to the Secretary until expended.
            (3) Insufficient funds.--If the amount appropriated under 
        paragraph (1) for a fiscal year is not sufficient to award, to 
        each participating institution in the grant programs under 
        subsections (a) and (b), a grant under this section equal to 
        100 percent of the grant amount determined under subsection 
        (a)(3) or (b)(3) (as the case may be), the Secretary may 
        ratably reduce the amount of each such grant or take other 
        actions necessary to ensure an equitable distribution of such 
        amount.

                   TITLE II--STUDENT LOAN REFINANCING

SEC. 201. REFINANCING PROGRAMS.

    (a) Program Authority.--Section 451(a) of the Higher Education Act 
of 1965 (20 U.S.C. 1087a(a)) is amended--
            (1) by striking ``and (2)'' and inserting ``(2)''; and
            (2) by inserting ``; and (3) to make loans under section 
        460A and section 460B'' after ``section 459A''.
    (b) Refinancing Program.--Part D of title IV of the Higher 
Education Act of 1965 (20 U.S.C. 1087a et seq.) is amended by adding at 
the end the following:

``SEC. 460A. REFINANCING FFEL AND FEDERAL DIRECT LOANS.

    ``(a) In General.--Beginning not later than 180 days after the date 
of enactment of the In the Red Act of 2016, the Secretary shall 
establish a program under which the Secretary, upon the receipt of an 
application from a qualified borrower, makes a loan under this part, in 
accordance with the provisions of this section, in order to permit the 
borrower to obtain the interest rate provided under subsection (c).
    ``(b) Refinancing Direct Loans.--
            ``(1) Federal direct loans.--Upon application of a 
        qualified borrower, the Secretary shall repay a Federal Direct 
        Stafford Loan, a Federal Direct Unsubsidized Stafford Loan, a 
        Federal Direct PLUS Loan, or a Federal Direct Consolidation 
        Loan of the qualified borrower, for which the first 
        disbursement was made, or the application for the consolidation 
        loan was received, before July 1, 2016, with the proceeds of a 
        refinanced Federal Direct Stafford Loan, a Federal Direct 
        Unsubsidized Stafford Loan, a Federal Direct PLUS Loan, or a 
        Federal Direct Consolidation Loan, respectively, issued to the 
        borrower in an amount equal to the sum of the unpaid principal, 
        accrued unpaid interest, and late charges of the original loan.
            ``(2) Refinancing ffel program loans as refinanced federal 
        direct loans.--Upon application of a qualified borrower for any 
        loan that was made, insured, or guaranteed under part B and for 
        which the first disbursement was made, or the application for 
        the consolidation loan was received, before July 1, 2010, the 
        Secretary shall make a loan under this part, in an amount equal 
        to the sum of the unpaid principal, accrued unpaid interest, 
        and late charges of the original loan to the borrower in 
        accordance with the following:
                    ``(A) The Secretary shall pay the proceeds of such 
                loan to the eligible lender of the loan made, insured, 
                or guaranteed under part B, in order to discharge the 
                borrower from any remaining obligation to the lender 
                with respect to the original loan.
                    ``(B) A loan made under this section that was 
                originally--
                            ``(i) a loan originally made, insured, or 
                        guaranteed under section 428 shall be a Federal 
                        Direct Stafford Loan;
                            ``(ii) a loan originally made, insured, or 
                        guaranteed under section 428B shall be a 
                        Federal Direct PLUS Loan;
                            ``(iii) a loan originally made, insured, or 
                        guaranteed under section 428H shall be a 
                        Federal Direct Unsubsidized Stafford Loan; and
                            ``(iv) a loan originally made, insured, or 
                        guaranteed under section 428C shall be a 
                        Federal Direct Consolidation Loan.
                    ``(C) The interest rate for each loan made by the 
                Secretary under this paragraph shall be the rate 
                provided under subsection (c).
    ``(c) Interest Rates.--
            ``(1) In general.--The interest rate for the refinanced 
        Federal Direct Stafford Loans, Federal Direct Unsubsidized 
        Stafford Loans, Federal Direct PLUS Loans, and Federal Direct 
        Consolidation Loans, shall be a rate equal to--
                    ``(A) in any case where the original loan was a 
                loan under section 428 or 428H, a Federal Direct 
                Stafford loan, or a Federal Direct Unsubsidized 
                Stafford Loan, that was issued to an undergraduate 
                student, a rate equal to the rate for Federal Direct 
                Stafford Loans and Federal Direct Unsubsidized Stafford 
                Loans issued to undergraduate students for the 12-month 
                period beginning on July 1, 2013, and ending on June 
                30, 2014;
                    ``(B) in any case where the original loan was a 
                loan under section 428 or 428H, a Federal Direct 
                Stafford Loan, or a Federal Direct Unsubsidized 
                Stafford Loan, that was issued to a graduate or 
                professional student, a rate equal to the rate for 
                Federal Direct Unsubsidized Stafford Loans issued to 
                graduate or professional students for the 12-month 
                period beginning on July 1, 2013, and ending on June 
                30, 2014;
                    ``(C) in any case where the original loan was a 
                loan under section 428B or a Federal Direct PLUS Loan, 
                a rate equal to the rate for Federal Direct PLUS Loans 
                for the 12-month period beginning on July 1, 2013, and 
                ending on June 30, 2014; and
                    ``(D) in any case where the original loan was a 
                loan under section 428C or a Federal Direct 
                Consolidation Loan, a rate calculated in accordance 
                with paragraph (2).
            ``(2) Interest rates for consolidation loans.--
                    ``(A) Method of calculation.--In order to determine 
                the interest rate for any refinanced Federal Direct 
                Consolidation Loan under paragraph (1)(D), the 
                Secretary shall--
                            ``(i) determine each of the component loans 
                        that were originally consolidated in the loan 
                        under section 428C or the Federal Direct 
                        Consolidation Loan, and calculate the 
                        proportion of the unpaid principal balance of 
                        the loan under section 428C or the Federal 
                        Direct Consolidation Loan that each component 
                        loan represents;
                            ``(ii) use the proportions determined in 
                        accordance with clause (i) and the interest 
                        rate applicable for each component loan, as 
                        determined under subparagraph (B), to calculate 
                        the weighted average of the interest rates on 
                        the loans consolidated into the loan under 
                        section 428C or the Federal Direct 
                        Consolidation Loan; and
                            ``(iii) apply the weighted average 
                        calculated under clause (ii) as the interest 
                        rate for the refinanced Federal Direct 
                        Consolidation Loan.
                    ``(B) Interest rates for component loans.--The 
                interest rates for the component loans of a loan made 
                under section 428C or a Federal Direct Consolidation 
                Loan shall be the following:
                            ``(i) The interest rate for any loan under 
                        section 428 or 428H, Federal Direct Stafford 
                        Loan, or Federal Direct Unsubsidized Stafford 
                        Loan issued to an undergraduate student shall 
                        be a rate equal to the lesser of--
                                    ``(I) the rate for Federal Direct 
                                Stafford Loans and Federal Direct 
                                Unsubsidized Stafford Loans issued to 
                                undergraduate students for the 12-month 
                                period beginning on July 1, 2013, and 
                                ending on June 30, 2014; or
                                    ``(II) the original interest rate 
                                of the component loan.
                            ``(ii) The interest rate for any loan under 
                        section 428 or 428H, Federal Direct Stafford 
                        Loan, or Federal Direct Unsubsidized Stafford 
                        Loan issued to a graduate or professional 
                        student shall be a rate equal to the lesser 
                        of--
                                    ``(I) the rate for Federal Direct 
                                Unsubsidized Stafford Loans issued to 
                                graduate or professional students for 
                                the 12-month period beginning on July 
                                1, 2013, and ending on June 30, 2014; 
                                or
                                    ``(II) the original interest rate 
                                of the component loan.
                            ``(iii) The interest rate for any loan 
                        under section 428B or Federal Direct PLUS Loan 
                        shall be a rate equal to the lesser of--
                                    ``(I) the rate for Federal Direct 
                                PLUS Loans for the 12-month period 
                                beginning on July 1, 2013, and ending 
                                on June 30, 2014; or
                                    ``(II) the original interest rate 
                                of the component loan.
                            ``(iv) The interest rate for any component 
                        loan that is a loan under section 428C or a 
                        Federal Direct Consolidation Loan shall be the 
                        weighted average of the interest rates that 
                        would apply under this subparagraph for each 
                        loan comprising the component consolidation 
                        loan.
                            ``(v) The interest rate for any eligible 
                        loan that is a component of a loan made under 
                        section 428C or a Federal Direct Consolidation 
                        Loan and is not described in clauses (i) 
                        through (iv) shall be the interest rate on the 
                        original component loan.
            ``(3) Fixed rate.--The applicable rate of interest 
        determined under paragraph (1) for a refinanced loan under this 
        section shall be fixed for the period of the loan.
    ``(d) Terms and Conditions of Loans.--
            ``(1) In general.--A loan that is refinanced under this 
        section shall have the same terms and conditions as the 
        original loan, except as otherwise provided in this section.
            ``(2) No automatic extension of repayment period.--
        Refinancing a loan under this section shall not result in the 
        extension of the duration of the repayment period of the loan, 
        and the borrower shall retain the same repayment term that was 
        in effect on the original loan. Nothing in this paragraph shall 
        be construed to prevent a borrower from electing a different 
        repayment plan at any time in accordance with section 
        455(d)(3).
    ``(e) Definition of Qualified Borrower.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified borrower' means a borrower--
                    ``(A) of a loan under this part or part B for which 
                the first disbursement was made, or the application for 
                a consolidation loan was received, before July 1, 2016; 
                and
                    ``(B) who meets the eligibility requirements based 
                on income or debt-to-income ratio established by the 
                Secretary.
            ``(2) Income requirements.--Not later than 180 days after 
        the date of enactment of the In the Red Act of 2016, the 
        Secretary shall establish eligibility requirements based on 
        income or debt-to-income ratio that take into consideration 
        providing access to refinancing under this section for 
        borrowers with the greatest financial need.
    ``(f) Notification to Borrowers.--The Secretary, in coordination 
with the Director of the Bureau of Consumer Financial Protection, shall 
undertake a campaign to alert borrowers of loans that are eligible for 
refinancing under this section that the borrowers are eligible to apply 
for such refinancing. The campaign shall include the following 
activities:
            ``(1) Developing consumer information materials about the 
        availability of Federal student loan refinancing.
            ``(2) Requiring servicers of loans under this part or part 
        B to provide such consumer information to borrowers in a manner 
        determined appropriate by the Secretary, in consultation with 
        the Director of the Bureau of Consumer Financial Protection.

``SEC. 460B. FEDERAL DIRECT REFINANCED PRIVATE LOAN PROGRAM.

    ``(a) Definitions.--In this section:
            ``(1) Eligible private education loan.--The term `eligible 
        private education loan' means a private education loan, as 
        defined in section 140(a) of the Truth in Lending Act (15 
        U.S.C. 1650(a)), that--
                    ``(A) was disbursed to the borrower before July 1, 
                2016; and
                    ``(B) was for the borrower's own postsecondary 
                educational expenses for an eligible program at an 
                institution of higher education participating in the 
                loan program under this part, as of the date that the 
                loan was disbursed.
            ``(2) Federal direct refinanced private loan.--The term 
        `Federal Direct Refinanced Private Loan' means a loan issued 
        under subsection (b)(1).
            ``(3) Private educational lender.--The term `private 
        educational lender' has the meaning given the term in section 
        140(a) of the Truth in Lending Act (15 U.S.C. 1650(a)).
            ``(4) Qualified borrower.--The term `qualified borrower' 
        means an individual who--
                    ``(A) has an eligible private education loan;
                    ``(B) has been current on payments on the eligible 
                private education loan for the 6 months prior to the 
                date of the qualified borrower's application for 
                refinancing under this section, and is in good standing 
                on the loan at the time of such application;
                    ``(C) is not in default on the eligible private 
                education loan or on any loan made, insured, or 
                guaranteed under this part or part B or E; and
                    ``(D) meets the eligibility requirements described 
                in subsection (b)(2).
    ``(b) Program Authorized.--
            ``(1) In general.--The Secretary, in consultation with the 
        Secretary of the Treasury, shall carry out a program under 
        which the Secretary, upon application by a qualified borrower 
        who has an eligible private education loan, shall issue such 
        borrower a loan under this part in accordance with the 
        following:
                    ``(A) The loan issued under this program shall be 
                in an amount equal to the sum of the unpaid principal, 
                accrued unpaid interest, and late charges of the 
                private education loan.
                    ``(B) The Secretary shall pay the proceeds of the 
                loan issued under this program to the private 
                educational lender of the private education loan, in 
                order to discharge the qualified borrower from any 
                remaining obligation to the lender with respect to the 
                original loan.
                    ``(C) The Secretary shall require that the 
                qualified borrower undergo loan counseling that 
                provides all of the information and counseling required 
                under clauses (i) through (viii) of section 
                485(b)(1)(A) before the loan is refinanced in 
                accordance with this section, and before the proceeds 
                of such loan are paid to the private educational 
                lender.
                    ``(D) The Secretary shall issue the loan as a 
                Federal Direct Refinanced Private Loan, which shall 
                have the same terms, conditions, and benefits as a 
                Federal Direct Unsubsidized Stafford Loan, except as 
                otherwise provided in this section.
            ``(2) Borrower eligibility.--Not later than 180 days after 
        the date of enactment of the In the Red Act of 2016, the 
        Secretary, in consultation with the Secretary of the Treasury 
        and the Director of the Bureau of Consumer Financial 
        Protection, shall establish eligibility requirements--
                    ``(A) based on income or debt-to-income ratio that 
                take into consideration providing access to refinancing 
                under this section for borrowers with the greatest 
                financial need;
                    ``(B) to ensure eligibility only for borrowers in 
                good standing;
                    ``(C) to minimize inequities between Federal Direct 
                Refinanced Private Loans and other Federal student 
                loans;
                    ``(D) to preclude windfall profits for private 
                educational lenders; and
                    ``(E) to ensure full access to the program 
                authorized in this subsection for borrowers with 
                private loans who otherwise meet the criteria 
                established in accordance with subparagraphs (A) and 
                (B).
    ``(c) Interest Rate.--
            ``(1) In general.--The interest rate for a Federal Direct 
        Refinanced Private Loan is--
                    ``(A) in the case of a Federal Direct Refinanced 
                Private Loan for a private education loan originally 
                issued for undergraduate postsecondary educational 
                expenses, a rate equal to the rate for Federal Direct 
                Stafford Loans and Federal Direct Unsubsidized Stafford 
                Loans issued to undergraduate students for the 12-month 
                period beginning on July 1, 2013, and ending on June 
                30, 2014; and
                    ``(B) in the case of a Federal Direct Refinanced 
                Private Loan for a private education loan originally 
                issued for graduate or professional degree 
                postsecondary educational expenses, a rate equal to the 
                rate for Federal Direct Unsubsidized Stafford Loans 
                issued to graduate or professional students for the 12-
                month period beginning on July 1, 2013, and ending on 
                June 30, 2014.
            ``(2) Combined undergraduate and graduate study loans.--If 
        a Federal Direct Refinanced Private Loan is for a private 
        education loan originally issued for both undergraduate and 
        graduate or professional postsecondary educational expenses, 
        the interest rate shall be a rate equal to the rate for Federal 
        Direct PLUS Loans for the 12-month period beginning on July 1, 
        2013, and ending on June 30, 2014.
            ``(3) Fixed rate.--The applicable rate of interest 
        determined under this subsection for a Federal Direct 
        Refinanced Private Loan shall be fixed for the period of the 
        loan.
    ``(d) No Inclusion in Aggregate Limits.--The amount of a Federal 
Direct Refinanced Private Loan, or a Federal Direct Consolidated Loan 
to the extent such loan was used to repay a Federal Direct Refinanced 
Private Loan, shall not be included in calculating a borrower's annual 
or aggregate loan limits under section 428 or 428H.
    ``(e) No Eligibility for Service-Related Repayment.--
Notwithstanding sections 428K(a)(2)(A), 428L(b)(2), 455(m)(3)(A), and 
460(b), a Federal Direct Refinanced Private Loan, or any Federal Direct 
Consolidation Loan to the extent such loan was used to repay a Federal 
Direct Refinanced Private Loan, shall not be eligible for any loan 
repayment or loan forgiveness program under section 428K, 428L, or 460 
or for the repayment plan for public service employees under section 
455(m).
    ``(f) Private Educational Lender Reporting Requirement.--
            ``(1) Reporting required.--Not later than 180 days after 
        the date of enactment of the In the Red Act of 2016, the 
        Secretary, in consultation with the Secretary of the Treasury 
        and the Director of the Bureau of Consumer Financial 
        Protection, shall establish a requirement that private 
        educational lenders report the data described in paragraph (2) 
        to the Secretary, to Congress, to the Secretary of the 
        Treasury, and to the Director of the Bureau of Consumer 
        Financial Protection, in order to allow for an assessment of 
        the private education loan market.
            ``(2) Contents of reporting.--The data that private 
        educational lenders shall report in accordance with paragraph 
        (1) shall include each of the following about private education 
        loans (as defined in section 140(a) of the Truth in Lending Act 
        (15 U.S.C. 1650(a))):
                    ``(A) The total amount of private education loan 
                debt the lender holds.
                    ``(B) The total number of private education loan 
                borrowers the lender serves.
                    ``(C) The average interest rate on the outstanding 
                private education loan debt held by the lender.
                    ``(D) The proportion of private education loan 
                borrowers who are in default on a loan held by the 
                lender.
                    ``(E) The proportion of the outstanding private 
                education loan volume held by the lender that is in 
                default.
                    ``(F) The proportions of outstanding private 
                education loan borrowers who are 30, 60, and 90 days 
                delinquent.
                    ``(G) The proportions of outstanding private 
                education loan volume that is 30, 60, and 90 days 
                delinquent.
    ``(g) Notification to Borrowers.--The Secretary, in coordination 
with the Secretary of the Treasury and the Director of the Bureau of 
Consumer Financial Protection, shall undertake a campaign to alert 
borrowers about the availability of private student loan refinancing 
under this section.''.
    (c) Amendments to Public Service Repayment Plan Provisions.--
Section 455(m) of the Higher Education Act of 1965 (20 U.S.C. 1087e(m)) 
is amended--
            (1) by redesignating paragraphs (3) and (4) as paragraphs 
        (4) and (5), respectively;
            (2) by inserting after paragraph (2) the following:
            ``(3) Special rules for section 460a loans.--
                    ``(A) Refinanced federal direct loans.--
                Notwithstanding paragraph (1), in determining the 
                number of monthly payments that meet the requirements 
                of such paragraph for an eligible Federal Direct Loan 
                refinanced under section 460A that was originally a 
                loan under this part, the Secretary shall include all 
                monthly payments made on the original loan that meet 
                the requirements of such paragraph.
                    ``(B) Refinanced ffel loans.--In the case of an 
                eligible Federal Direct Loan refinanced under section 
                460A that was originally a loan under part B, only 
                monthly payments made after the date on which the loan 
                was refinanced may be included for purposes of 
                paragraph (1).''; and
            (3) in paragraph (4)(A) (as redesignated by paragraph (1)), 
        by inserting ``(including any Federal Direct Stafford Loan, 
        Federal Direct PLUS Loan, Federal Direct Unsubsidized Stafford 
        Loan, or Federal Direct Consolidation Loan refinanced under 
        section 460A)'' before the period at the end.
    (d) Income-Based Repayment.--Section 493C of the Higher Education 
Act of 1965 (20 U.S.C. 1098e) is amended by adding at the end the 
following:
    ``(f)  Special Rule for Refinanced Loans.--
            ``(1) Refinanced federal direct and ffel loans.--In 
        calculating the period of time during which a borrower of a 
        loan that is refinanced under section 460A has made monthly 
        payments for purposes of subsection (b)(7), the Secretary shall 
        deem the period to include all monthly payments made for the 
        original loan, and all monthly payments made for the refinanced 
        loan, that otherwise meet the requirements of this section.
            ``(2) Federal direct refinanced private loans.--In 
        calculating the period of time during which a borrower of a 
        Federal Direct Refinanced Private Loan under section 460B has 
        made monthly payments for purposes of subsection (b)(7), the 
        Secretary shall include only payments--
                    ``(A) that are made after the date of the issuance 
                of the Federal Direct Refinanced Private Loan; and
                    ``(B) that otherwise meet the requirements of this 
                section.''.

                TITLE III--FEDERAL PELL GRANT PROTECTION

SEC. 301. FEDERAL PELL GRANT PROTECTION.

    Section 401(b)(7) of the Higher Education Act of 1965 (20 U.S.C. 
1070a(b)(7)) is amended--
            (1) in subparagraph (A)(iii), by striking ``clauses (ii) 
        and (iii) of subparagraph (B)'' and inserting ``subparagraph 
        (B)(ii)''; and
            (2) in subparagraph (C)--
                    (A) in clause (ii)--
                            (i) in the clause heading, by striking 
                        ``Award years 2014-2015 through 2017-2018'' and 
                        inserting ``Award year 2014-2015 and subsequent 
                        award years'';
                            (ii) in the matter preceding subclause (I), 
                        by striking ``each of the award years 2014-2015 
                        through 2017-2018'' and inserting ``award year 
                        2014-2015 and each subsequent award year''; and
                            (iii) in subclause (I), by striking 
                        ``clause (iv)(II)'' and inserting ``clause 
                        (iii)(II)'';
                    (B) by striking clause (iii); and
                    (C) by redesignating clause (iv) as clause (iii).

SEC. 302. POINT OF ORDER AGAINST CUTTING FEDERAL PELL GRANTS.

    (a) Point of Order.--It shall not be in order in the Senate to 
consider any bill, joint resolution, motion, amendment, amendment 
between the Houses, or conference report that would decrease the 
appropriations provided for Federal Pell Grants under section 401(b)(7) 
of the Higher Education Act of 1965 (20 U.S.C. 1070a(b)(7)) or restrict 
eligibility for Federal Pell Grants.
    (b) Waiver and Appeal.--Subsection (a) may be waived or suspended 
in the Senate only by an affirmative vote of three-fifths of the 
Members, duly chosen and sworn. An affirmative vote of three-fifths of 
the Members of the Senate, duly chosen and sworn, shall be required to 
sustain an appeal of the ruling of the Chair on a point of order raised 
under subsection (a).

SEC. 303. AFFIRMING THAT FEDERAL PELL GRANTS ARE A FOUNDATIONAL 
              INVESTMENT IN AFFORDABLE HIGHER EDUCATION.

    (a) Findings.--Congress finds the following:
            (1) Research shows that with higher educational attainment, 
        individuals are more likely to be employed, earn higher wages, 
        secure health and retirement benefits, make healthier life 
        choices, and be more engaged citizens of their communities.
            (2) Higher education, whether at a 2- or 4-year 
        institution, can help people of the United States from lower 
        income backgrounds climb into the middle class.
            (3) In 2015, more than 20,000,000 students enrolled in 
        colleges and universities in the United States--an increase of 
        4,900,000 since 2000.
            (4) Despite the benefits of further education beyond high 
        school, many students from low-income backgrounds do not attend 
        college. According to the United States Census Bureau, 
        approximately 80 percent of high school graduates from the 
        wealthiest families pursue higher education, while only a 
        little more than half from the lowest income quartile attend 
        college.
            (5) Federal Pell Grants provide need-based aid to students 
        who want to further their education and are the single largest 
        source of grant aid for helping students afford college.
            (6) In award year 2013-2014, an estimated 73 percent of all 
        Pell Grant recipients had a total family income equal to or 
        less than $30,000.
            (7) In 2015, more than 8,200,000 students, or approximately 
        41 percent of all undergraduates, used Federal Pell Grants to 
        finance their education.
    (b) Sense of the Senate.--It is the sense of the Senate that 
Congress should--
            (1) affirm that Federal Pell Grants are a foundational 
        investment in affordable higher education for students and 
        families; and
            (2) commit to ensuring that Federal Pell Grants remain a 
        stable source of financial support for students and families.

                        TITLE IV--ACCOUNTABILITY

SEC. 401. SUPPORTING EFFORTS TO ENSURE THAT INSTITUTIONS OF HIGHER 
              EDUCATION ARE ACCOUNTABLE FOR ENSURING THE HIGH VALUE OF 
              DEGREES AND CREDENTIALS.

    (a) Findings.--Congress finds the following:
            (1) The employment rate for people of the United States 
        between the ages of 21 to 25 has declined by 12 percent from 
        2000 through 2012.
            (2) The cost of attending a 4-year public institution of 
        higher education has increased by 32 percent from 2002 through 
        2012.
            (3) More than 1 in 4 student loan borrowers are now in 
        default or delinquent on a student loan.
            (4) There are limited means through which to ensure that 
        institutions of higher education are held accountable for the 
        value of the degrees and credentials obtained by students, or 
        the outcomes of those students.
            (5) Student borrowers who obtain a high-value degree or 
        credential are much more likely to be able to find a good 
        paying job and repay their student loan debt.
    (b) Sense of the Senate.--It is the sense of the Senate that 
Congress should support efforts to ensure that institutions of higher 
education have strong incentives to ensure that students graduate with 
degrees and credentials that have a high value, and that will enable 
graduates to secure good-paying employment in their field of study and 
enjoy long-term success, by--
            (1) enhancing accountability for institutions of higher 
        education for the quality and cost of degree programs, 
        including student debt burden;
            (2) holding institutions of higher education and their 
        leaders financially accountable when the institutions or 
        leaders engage in fraud or misconduct that violates Federal and 
        State laws;
            (3) creating incentives and tools that will allow State 
        governments and institutions of higher education to curb 
        tuition inflation and maintain investment in higher education;
            (4) creating incentives for institutions of higher 
        education to direct more resources to their academic programs 
        and to provide pathways to ensure that all students can 
        complete their degrees and credentials in a timely manner; and
            (5) guaranteeing that the servicing of student loans made, 
        insured, or guaranteed under part B or D of title IV of the 
        Higher Education Act of 1965 (20 U.S.C. 1071 et seq., 1087a et 
        seq.) provided through these institutions of higher education 
        will meet the highest standards of quality, customer service, 
        and compliance with the law to promote borrower success and 
        minimize defaults.

                            TITLE V--OFFSETS

SEC. 501. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

SEC. 502. FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS.

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

          ``PART VII--FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS

``Sec. 59A. Fair share tax.

``SEC. 59A. FAIR SHARE TAX.

    ``(a) General Rule.--
            ``(1) Phase-in of tax.--In the case of any high-income 
        taxpayer, there is hereby imposed for a taxable year (in 
        addition to any other tax imposed by this subtitle) a tax equal 
        to the product of--
                    ``(A) the amount determined under paragraph (2), 
                and
                    ``(B) a fraction (not to exceed 1)--
                            ``(i) the numerator of which is the excess 
                        of--
                                    ``(I) the taxpayer's adjusted gross 
                                income, over
                                    ``(II) the dollar amount in effect 
                                under subsection (c)(1), and
                            ``(ii) the denominator of which is the 
                        dollar amount in effect under subsection 
                        (c)(1).
            ``(2) Amount of tax.--The amount of tax determined under 
        this paragraph is an amount equal to the excess (if any) of--
                    ``(A) the tentative fair share tax for the taxable 
                year, over
                    ``(B) the excess of--
                            ``(i) the sum of--
                                    ``(I) the regular tax liability (as 
                                defined in section 26(b)) for the 
                                taxable year, determined without regard 
                                to any tax liability determined under 
                                this section,
                                    ``(II) the tax imposed by section 
                                55 for the taxable year, plus
                                    ``(III) the payroll tax for the 
                                taxable year, over
                            ``(ii) the credits allowable under part IV 
                        of subchapter A (other than sections 27(a), 31, 
                        and 34).
    ``(b) Tentative Fair Share Tax.--For purposes of this section--
            ``(1) In general.--The tentative fair share tax for the 
        taxable year is 30 percent of the excess of--
                    ``(A) the adjusted gross income of the taxpayer, 
                over
                    ``(B) the modified charitable contribution 
                deduction for the taxable year.
            ``(2) Modified charitable contribution deduction.--For 
        purposes of paragraph (1)--
                    ``(A) In general.--The modified charitable 
                contribution deduction for any taxable year is an 
                amount equal to the amount which bears the same ratio 
                to the deduction allowable under section 170 (section 
                642(c) in the case of a trust or estate) for such 
                taxable year as--
                            ``(i) the amount of itemized deductions 
                        allowable under the regular tax (as defined in 
                        section 55) for such taxable year, determined 
                        after the application of section 68, bears to
                            ``(ii) such amount, determined before the 
                        application of section 68.
                    ``(B) Taxpayer must itemize.--In the case of any 
                individual who does not elect to itemize deductions for 
                the taxable year, the modified charitable contribution 
                deduction shall be zero.
    ``(c) High-Income Taxpayer.--For purposes of this section--
            ``(1) In general.--The term `high-income taxpayer' means, 
        with respect to any taxable year, any taxpayer (other than a 
        corporation) with an adjusted gross income for such taxable 
        year in excess of $1,000,000 (50 percent of such amount in the 
        case of a married individual who files a separate return).
            ``(2) Inflation adjustment.--
                    ``(A) In general.--In the case of a taxable year 
                beginning after 2016, the $1,000,000 amount under 
                paragraph (1) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2015' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $10,000, such 
                amount shall be rounded to the next lowest multiple of 
                $10,000.
    ``(d) Payroll Tax.--For purposes of this section, the payroll tax 
for any taxable year is an amount equal to the excess of--
            ``(1) the taxes imposed on the taxpayer under sections 
        1401, 1411, 3101, 3201, and 3211(a) (to the extent such tax is 
        attributable to the rate of tax in effect under section 3101) 
        with respect to such taxable year or wages or compensation 
        received during such taxable year, over
            ``(2) the deduction allowable under section 164(f) for such 
        taxable year.
    ``(e) Special Rule for Estates and Trusts.--For purposes of this 
section, in the case of an estate or trust, adjusted gross income shall 
be computed in the manner described in section 67(e).
    ``(f) Not Treated as Tax Imposed by This Chapter for Certain 
Purposes.--The tax imposed under this section shall not be treated as 
tax imposed by this chapter for purposes of determining the amount of 
any credit under this chapter (other than the credit allowed under 
section 27(a)) or for purposes of section 55.''.
    (b) Clerical Amendment.--The table of parts for subchapter A of 
chapter 1 is amended by adding at the end the following new item:

         ``Part VII. Fair Share Tax on High-Income Taxpayers''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2015.

SEC. 503. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN EXCESSIVE 
              EMPLOYEE REMUNERATION.

    (a) Application to All Current and Former Employees.--
            (1) In general.--Section 162(m) is amended--
                    (A) by striking ``covered employee'' each place it 
                appears in paragraphs (1) and (4) and inserting 
                ``covered individual'', and
                    (B) by striking ``such employee'' each place it 
                appears in subparagraphs (A) and (G) of paragraph (4) 
                and inserting ``such individual''.
            (2) Covered individual.--Paragraph (3) of section 162(m) is 
        amended to read as follows:
            ``(3) Covered individual.--For purposes of this subsection, 
        the term `covered individual' means any individual who is an 
        officer, director, or employee of the taxpayer or a former 
        officer, director, or employee of the taxpayer.''.
            (3) Conforming amendments.--
                    (A) Section 48D(b)(3)(A) is amended by inserting 
                ``(as in effect for taxable years beginning before 
                January 1, 2016)'' after ``section 162(m)(3)''.
                    (B) Section 409A(b)(3)(D)(ii) is amended by 
                inserting ``(as in effect for taxable years beginning 
                before January 1, 2016)'' after ``section 162(m)(3)''.
    (b) Expansion of Applicable Employee Remuneration.--
            (1) Elimination of exception for commission-based pay.--
                    (A) In general.--Paragraph (4) of section 162(m), 
                as amended by subsection (a), is amended by striking 
                subparagraph (B) and by redesignating subparagraphs (C) 
                through (G) as subparagraphs (B) through (F), 
                respectively.
                    (B) Conforming amendments.--
                            (i) Section 162(m)(5) is amended--
                                    (I) by striking ``subparagraphs 
                                (B), (C), and (D) thereof'' in 
                                subparagraph (E) and inserting 
                                ``subparagraphs (B) and (C) thereof'', 
                                and
                                    (II) by striking ``subparagraphs 
                                (F) and (G)'' in subparagraph (G) and 
                                inserting ``subparagraphs (E) and 
                                (F)''.
                            (ii) Section 162(m)(6) is amended--
                                    (I) by striking ``subparagraphs 
                                (B), (C), and (D) thereof'' in 
                                subparagraph (D) and inserting 
                                ``subparagraphs (B) and (C) thereof'', 
                                and
                                    (II) by striking ``subparagraphs 
                                (F) and (G)'' in subparagraph (G) and 
                                inserting ``subparagraphs (E) and 
                                (F)''.
            (2) Inclusion of performance-based compensation.--
                    (A) In general.--Paragraph (4) of section 162(m), 
                as amended by subsection (a) and paragraph (1) of this 
                subsection, is amended by striking subparagraph (B) and 
                redesignating subparagraphs (C) through (F) as 
                subparagraphs (B) through (E), respectively.
                    (B) Conforming amendments.--
                            (i) Section 162(m)(5), as amended by 
                        paragraph (1), is amended--
                                    (I) by striking ``subparagraphs (B) 
                                and (C) thereof'' in subparagraph (E) 
                                and inserting ``subparagraph (B) 
                                thereof'', and
                                    (II) by striking ``subparagraphs 
                                (E) and (F)'' in subparagraph (G) and 
                                inserting ``subparagraphs (D) and 
                                (E)''.
                            (ii) Section 162(m)(6), as amended by 
                        paragraph (1), is amended--
                                    (I) by striking ``subparagraphs (B) 
                                and (C) thereof'' in subparagraph (D) 
                                and inserting ``subparagraph (B) 
                                thereof'', and
                                    (II) by striking ``subparagraphs 
                                (E) and (F)'' in subparagraph (G) and 
                                inserting ``subparagraphs (D) and 
                                (E)''.
    (c) Expansion of Applicable Employer.--Paragraph (2) of section 
162(m) is amended to read as follows:
            ``(2) Publicly held corporation.--For purposes of this 
        subsection, the term `publicly held corporation' means any 
        corporation which is an issuer (as defined in section 3 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78c))--
                    ``(A) the securities of which are registered under 
                section 12 of such Act (15 U.S.C. 78l), or
                    ``(B) that is required to file reports under 
                section 15(d) of such Act (15 U.S.C. 780(d)).''.
    (d) Regulatory Authority.--
            (1) In general.--Section 162(m) is amended by adding at the 
        end the following new paragraph:
            ``(7) Regulations.--The Secretary may prescribe such 
        guidance, rules, or regulations, including with respect to 
        reporting, as are necessary to carry out the purposes of this 
        subsection.''.
            (2) Conforming amendment.--Paragraph (6) of section 162(m) 
        is amended by striking subparagraph (H).
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2015.

SEC. 504. 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 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 the date of the 
enactment of this Act.

SEC. 505. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIPS.

    (a) In General.--Part I of subchapter K of chapter 1 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 (other than 
                        subsection (a)(9) thereof) with respect to such 
                        interest for such taxable year, and
                            ``(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.
                    ``(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 (iii) of subparagraph (A) shall 
                apply for purposes of the preceding sentence.
            ``(5) Special rule for dividends.--Any dividend allocated 
        with respect to any investment services partnership interest 
        shall not be treated as qualified dividend income for purposes 
        of section 1(h).
            ``(6) Special rule for qualified small business stock.--
        Section 1202 shall not apply to any gain from the sale or 
        exchange of qualified small business stock (as defined in 
        section 1202(c)) allocated with respect 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) Gift and transfers at death.--In the case of 
                a disposition of an investment services partnership 
                interest by gift or by reason of death of the 
                taxpayer--
                            ``(i) subparagraph (A) shall not apply,
                            ``(ii) such interest shall be treated as an 
                        investment services partnership interest in the 
                        hands of the person acquiring such interest, 
                        and
                            ``(iii) any amount that would have been 
                        treated as ordinary income under this 
                        subsection had the decedent sold such interest 
                        immediately before death shall be treated as an 
                        item of income in respect of a decedent under 
                        section 691.
            ``(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 subsection (a)(2), 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 of 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 one or more investment partnerships 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 two consecutive calendar quarters ending after the 
                date of enactment of this section--
                            ``(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) less than 75 percent of the capital 
                        of the partnership is attributable to qualified 
                        capital interests which constitute property 
                        held in connection with a trade or business of 
                        the owner of such interest.
                    ``(B) Look-through of certain wholly owned entities 
                for purposes of determining assets of the 
                partnership.--
                            ``(i) In general.--For purposes of 
                        determining the assets of a partnership under 
                        subparagraph (A)(i)--
                                    ``(I) any interest in a specified 
                                entity shall not be treated as an asset 
                                of such partnership, and
                                    ``(II) such partnership shall be 
                                treated as holding its proportionate 
                                share of each of the assets of such 
                                specified entity.
                            ``(ii) Specified entity.--For purposes of 
                        clause (i), the term `specified entity' means, 
                        with respect to any partnership (hereafter 
                        referred to as the upper-tier partnership), any 
                        person which engages in the same trade or 
                        business as the upper-tier partnership and is--
                                    ``(I) a partnership all of the 
                                capital and profits interests of which 
                                are held directly or indirectly by the 
                                upper-tier partnership, or
                                    ``(II) a foreign corporation which 
                                does not engage in a trade or business 
                                in the United States and all of the 
                                stock of which is held directly or 
                                indirectly by the upper-tier 
                                partnership.
                    ``(C) Special rules for determining if property 
                held in connection with trade or business.--
                            ``(i) In general.--Except as otherwise 
                        provided by the Secretary, solely for purposes 
                        of determining whether any interest in a 
                        partnership constitutes property held in 
                        connection with a trade or business under 
                        subparagraph (A)(ii)--
                                    ``(I) a trade or business of any 
                                person closely related to the owner of 
                                such interest shall be treated as a 
                                trade or business of such owner,
                                    ``(II) such interest shall be 
                                treated as held by a person in 
                                connection with a trade or business 
                                during any taxable year if such 
                                interest was so held by such person 
                                during any 3 taxable years preceding 
                                such taxable year, and
                                    ``(III) paragraph (5)(B) shall not 
                                apply.
                            ``(ii) Closely related persons.--For 
                        purposes of clause (i)(I), a person shall be 
                        treated as closely related to another person 
                        if, taking into account the rules of section 
                        267(c), the relationship between such persons 
                        is described in--
                                    ``(I) paragraph (1) or (9) of 
                                section 267(b), or
                                    ``(II) section 267(b)(4), but 
                                solely in the case of a trust with 
                                respect to which each current 
                                beneficiary is the grantor or a person 
                                whose relationship to the grantor is 
                                described in paragraph (1) or (9) of 
                                section 267(b).
                    ``(D) Anti-abuse 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.
                    ``(E) 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 held in connection with a trade or 
                        business, 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 held in connection with a trade or 
                        business.
                            ``(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).
                    ``(F) Special rule for corporations.--For purposes 
                of this paragraph, in the case of a corporation, the 
                determination of whether property is held in connection 
                with a trade or business shall be determined as if the 
                taxpayer were an individual.
            ``(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 
        section--
                    ``(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 the date of the 
                enactment of this section 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.
            ``(9) Special rule for qualified family partnerships.--
                    ``(A) In general.--In the case of any specified 
                family partnership interest, paragraph (1)(A) shall be 
                applied without regard to the phrase `and who are not 
                related to the partner holding the qualified capital 
                interest'.
                    ``(B) Specified family partnership interest.--For 
                purposes of this paragraph, the term `specified family 
                partnership interest' means any investment services 
                partnership interest if--
                            ``(i) such interest is an interest in a 
                        qualified family partnership,
                            ``(ii) such interest is held by a natural 
                        person or by a trust with respect to which each 
                        beneficiary is a grantor or a person whose 
                        relationship to the grantor is described in 
                        section 267(b)(1), and
                            ``(iii) all other interests in such 
                        qualified family partnership with respect to 
                        which significant allocations are made (within 
                        the meaning of paragraph (1)(B) and in 
                        comparison to the allocations made to the 
                        interest described in clause (ii)) are held by 
                        persons who--
                                    ``(I) are related to the natural 
                                person or trust referred to in clause 
                                (ii), or
                                    ``(II) provide services described 
                                in subsection (c)(2).
                    ``(C) Qualified family partnership.--For purposes 
                of this paragraph, the term `qualified family 
                partnership' means any partnership if--
                            ``(i) all of the capital and profits 
                        interests of such partnership are held by--
                                    ``(I) specified family members,
                                    ``(II) any person closely related 
                                (within the meaning of subsection 
                                (c)(3)(C)(ii)) to a specified family 
                                member, or
                                    ``(III) any other person (not 
                                described in subclause (I) or (II)) if 
                                such interest is an investment services 
                                partnership interest with respect to 
                                such person, and
                            ``(ii) such partnership does not hold 
                        itself out to the public as an investment 
                        advisor.
                    ``(D) Specified family members.--For purposes of 
                subparagraph (C), individuals shall be treated as 
                specified family members if such individuals would be 
                treated as one person under the rules of section 
                1361(c)(1) if the applicable date (within the meaning 
                of subparagraph (B)(iii) thereof) were the latest of--
                            ``(i) the date of the establishment of the 
                        partnership,
                            ``(ii) the earliest date that the common 
                        ancestor holds a capital or profits interest in 
                        the partnership, or
                            ``(iii) the date of the enactment of this 
                        section.
    ``(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) Exception for Domestic C Corporations.--Except as otherwise 
provided by the Secretary, in the case of a domestic C corporation--
            ``(1) subsections (a) and (b) shall not apply to any item 
        allocated to such corporation with respect to any investment 
        services partnership interest (or to any gain or loss with 
        respect to the disposition of such an interest), and
            ``(2) subsection (e) shall not apply.
    ``(g) 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) require such reporting and recordkeeping by any 
        person in such manner and at such time as the Secretary may 
        prescribe for purposes of enabling the partnership to meet the 
        requirements of section 6031 with respect to any item described 
        in section 702(a)(9),
            ``(2) 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,
            ``(3) prevent the avoidance of the purposes of this section 
        (including through the use of qualified family partnerships), 
        and
            ``(4) coordinate this section with the other provisions of 
        this title.
    ``(h) 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 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) 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 is amended--
                    (A) 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) an investment services partnership interest held by 
        the partnership,'', and
                    (B) by striking ``partner.'' and inserting 
                ``partner (other than a partnership in which it holds 
                an investment services partnership interest).''.
            (4) Investment services partnership interests; qualified 
        capital interests.--Section 751 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) Exception for publicly traded partnerships.--Except 
        as otherwise provided by the Secretary, in the case of an 
        exchange of an interest in a publicly traded partnership (as 
        defined in section 7704) to which subsection (a) applies--
                    ``(A) this section shall be applied without regard 
                to subsections (a)(3), (b)(1)(A)(iii), and (f)(3), and
                    ``(B) such partnership shall be treated as owning 
                its proportionate share of the property of any other 
                partnership in which it is a partner.
            ``(4) 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.
            ``(5) Coordination with inventory items.--An investment 
        services partnership interest held by the partnership shall not 
        be treated as an inventory item of the partnership.
            ``(6) 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.
            ``(7) Valuation methods.--The Secretary shall prescribe 
        regulations or other guidance which provide the acceptable 
        methods for valuing investment services partnership interests 
        for purposes of this section.''.
    (c) Treatment for Purposes of Section 7704.--Subsection (d) of 
section 7704 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 the 
                date of the enactment of this paragraph.''.
    (d) Imposition of Penalty on Underpayments.--
            (1) In general.--Subsection (b) of section 6662 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(g) to prevent 
        the avoidance of the purposes of section 710.''.
            (2) Amount of penalty.--
                    (A) In general.--Section 6662 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) 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 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)) or disqualified interest (as defined in section 
        710(e)), 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).''.
            (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) Separate Accounting by Partner.--Section 702(a) is amended by 
striking ``and'' at the end of paragraph (7), by striking the period at 
the end of paragraph (8) and inserting ``, and'', and by inserting 
after paragraph (8) the following:
            ``(9) any amount treated as ordinary income or loss under 
        subsection (a), (b), or (e) of section 710.''.
    (g) Conforming Amendments.--
            (1) Subsection (d) of section 731 is amended by inserting 
        ``section 710(b)(4) (relating to distributions of partnership 
        property),'' after ``to the extent otherwise provided by''.
            (2) Section 741 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 is amended by adding at the end the following new 
        item:

``Sec. 710. Special rules for partners providing investment management 
                            services to partnerships.''.
    (h) 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 the date of the enactment of this 
        Act.
            (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 the date of the 
        enactment of this Act, the amount of the net capital gain 
        referred to in such section shall be treated as being the 
        lesser of the net capital gain for the entire partnership 
        taxable year or the net capital gain 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 the date of the enactment of this 
                Act.
                    (B) Indirect dispositions.--The amendments made by 
                subsection (b) shall apply to transactions after the 
                date of the enactment of this Act.
            (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 the date of the enactment of 
        this Act.

SEC. 506. 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 nonpublic 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. 507. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.

    (a) In General.--Subparagraph (B) of section 162(m)(4), as 
redesignated by paragraphs (1)(A) and (2)(A) of section 503(b) of this 
Act, is amended to read as follows:
                    ``(B) Stock option compensation.--The term 
                `applicable employee remuneration' shall include any 
                compensation deducted under subsection (q).''.
    (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.

SEC. 508. MODIFICATIONS TO RULES RELATING TO INVERTED CORPORATIONS.

    (a) In General.--Subsection (b) of section 7874 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(b) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--Notwithstanding section 7701(a)(4), a 
        foreign corporation shall be treated for purposes of this title 
        as a domestic corporation if--
                    ``(A) such corporation would be a surrogate foreign 
                corporation if subsection (a)(2) were applied by 
                substituting `80 percent' for `60 percent', or
                    ``(B) such corporation is an inverted domestic 
                corporation.
            ``(2) Inverted domestic corporation.--For purposes of this 
        subsection, a foreign corporation shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                    ``(A) the entity completes after February 10, 2016, 
                the direct or indirect acquisition of--
                            ``(i) substantially all of the properties 
                        held directly or indirectly by a domestic 
                        corporation, or
                            ``(ii) substantially all of the assets of, 
                        or substantially all of the properties 
                        constituting a trade or business of, a domestic 
                        partnership, and
                    ``(B) after the acquisition, more than 50 percent 
                of the stock (by vote or value) of the entity is held--
                            ``(i) in the case of an acquisition with 
                        respect to a domestic corporation, by former 
                        shareholders of the domestic corporation by 
                        reason of holding stock in the domestic 
                        corporation, or
                            ``(ii) in the case of an acquisition with 
                        respect to a domestic partnership, by former 
                        partners of the domestic partnership by reason 
                        of holding a capital or profits interest in the 
                        domestic partnership.
            ``(3) Exception for corporations with substantial business 
        activities in foreign country of organization.--A foreign 
        corporation described in paragraph (2) shall not be treated as 
        an inverted domestic corporation if after the acquisition the 
        expanded affiliated group which includes the entity has 
        substantial business activities in the foreign country in which 
        or under the law of which the entity is created or organized 
        when compared to the total business activities of such expanded 
        affiliated group. For purposes of subsection (a)(2)(B)(iii) and 
        the preceding sentence, the term `substantial business 
        activities' shall have the meaning given such term under 
        regulations in effect on February 10, 2016, except that the 
        Secretary may issue regulations increasing the threshold 
        percent in any of the tests under such regulations for 
        determining if business activities constitute substantial 
        business activities for purposes of this paragraph.''.
    (b) Conforming Amendments.--
            (1) Clause (i) of section 7874(a)(2)(B) of such Code is 
        amended by striking ``after March 4, 2003,'' and inserting 
        ``after March 4, 2003, and before February 11, 2016,''.
            (2) Subsection (c) of section 7874 of such Code is 
        amended--
                    (A) in paragraph (2)--
                            (i) by striking ``subsection 
                        (a)(2)(B)(ii)'' and inserting ``subsections 
                        (a)(2)(B)(ii) and (b)(2)(B)'', and
                            (ii) by inserting ``or (b)(2)(A)'' after 
                        ``(a)(2)(B)(i)'' in subparagraph (B),
                    (B) in paragraph (3), by inserting ``or (b)(2)(B), 
                as the case may be,'' after ``(a)(2)(B)(ii)'',
                    (C) in paragraph (5), by striking ``subsection 
                (a)(2)(B)(ii)'' and inserting ``subsections 
                (a)(2)(B)(ii) and (b)(2)(B)'', and
                    (D) in paragraph (6), by inserting ``or inverted 
                domestic corporation, as the case may be,'' after 
                ``surrogate foreign corporation''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after February 10, 2016.

SEC. 509. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO MAJOR 
              INTEGRATED OIL COMPANIES WHICH ARE DUAL CAPACITY 
              TAXPAYERS.

    (a) In General.--Section 901 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (n) as subsection (o) and by 
inserting after subsection (m) the following new subsection:
    ``(n) Special Rules Relating to Major Integrated Oil Companies 
Which Are Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer which is a major integrated oil company (within the 
        meaning of section 167(h)(5)) to a foreign country or 
        possession of the United States for any period shall not be 
        considered a tax--
                    ``(A) if, for such period, the foreign country or 
                possession does not impose a generally applicable 
                income tax, or
                    ``(B) to the extent such amount exceeds the amount 
                (determined in accordance with regulations) which--
                            ``(i) is paid by such dual capacity 
                        taxpayer pursuant to the generally applicable 
                        income tax imposed by the country or 
                        possession, or
                            ``(ii) would be paid if the generally 
                        applicable income tax imposed by the country or 
                        possession were applicable to such dual 
                        capacity taxpayer.
        Nothing in this paragraph shall be construed to imply the 
        proper treatment of any such amount not in excess of the amount 
        determined under subparagraph (B).
            ``(2) Dual capacity taxpayer.--For purposes of this 
        subsection, the term `dual capacity taxpayer' means, with 
        respect to any foreign country or possession of the United 
        States, a person who--
                    ``(A) is subject to a levy of such country or 
                possession, and
                    ``(B) receives (or will receive) directly or 
                indirectly a specific economic benefit (as determined 
                in accordance with regulations) from such country or 
                possession.
            ``(3) Generally applicable income tax.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `generally applicable 
                income tax' means an income tax (or a series of income 
                taxes) which is generally imposed under the laws of a 
                foreign country or possession on income derived from 
                the conduct of a trade or business within such country 
                or possession.
                    ``(B) Exceptions.--Such term shall not include a 
                tax unless it has substantial application, by its terms 
                and in practice, to--
                            ``(i) persons who are not dual capacity 
                        taxpayers, and
                            ``(ii) persons who are citizens or 
                        residents of the foreign country or 
                        possession.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes paid or accrued in taxable years beginning after 
        the date of the enactment of this Act.
            (2) Contrary treaty obligations upheld.--The amendments 
        made by this section shall not apply to the extent contrary to 
        any treaty obligation of the United States.

SEC. 510. LIMITATION ON SECTION 199 DEDUCTION ATTRIBUTABLE TO 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 certain oil and gas 
                income.--In the case of any taxpayer who is a major 
                integrated oil company (within the meaning of section 
                167(h)(5)) for the taxable year, the term `domestic 
                production gross receipts' shall not include gross 
                receipts from the production, refining, processing, 
                transportation, or distribution of oil, gas, 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 December 31, 2015.

SEC. 511. LIMITATION ON DEDUCTION FOR INTANGIBLE DRILLING AND 
              DEVELOPMENT COSTS; AMORTIZATION OF DISALLOWED AMOUNTS.

    (a) In General.--Section 263(c) of the Internal Revenue Code of 
1986 is amended to read as follows:
    ``(c) Intangible Drilling and Development Costs in the Case of Oil 
and Gas Wells and Geothermal Wells.--
            ``(1) In general.--Notwithstanding subsection (a), and 
        except as provided in subsection (i), regulations shall be 
        prescribed by the Secretary under this subtitle corresponding 
        to the regulations which granted the option to deduct as 
        expenses intangible drilling and development costs in the case 
        of oil and gas wells and which were recognized and approved by 
        the Congress in House Concurrent Resolution 50, Seventy-ninth 
        Congress. Such regulations shall also grant the option to 
        deduct as expenses intangible drilling and development costs in 
        the case of wells drilled for any geothermal deposit (as 
        defined in section 613(e)(2)) to the same extent and in the 
        same manner as such expenses are deductible in the case of oil 
        and gas wells. This subsection shall not apply with respect to 
        any costs to which any deduction is allowed under section 59(e) 
        or 291.
            ``(2) Exclusion.--
                    ``(A) In general.--This subsection shall not apply 
                to amounts paid or incurred by a taxpayer in any 
                taxable year in which such taxpayer is a major 
                integrated oil company (within the meaning of section 
                167(h)(5)).
                    ``(B) Amortization of amounts not allowable as 
                deductions under subparagraph (a).--The amount not 
                allowable as a deduction for any taxable year by reason 
                of subparagraph (A) shall be allowable as a deduction 
                ratably over the 60-month period beginning with the 
                month in which the costs are paid or incurred. For 
                purposes of section 1254, any deduction under this 
                subparagraph shall be treated as a deduction under this 
                subsection.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred in taxable years beginning after December 
31, 2015.

SEC. 512. LIMITATION ON PERCENTAGE DEPLETION ALLOWANCE FOR OIL AND GAS 
              WELLS.

    (a) In General.--Section 613A of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(f) Application With Respect to Major Integrated Oil Companies.--
In the case of any taxable year in which the taxpayer is a major 
integrated oil company (within the meaning of section 167(h)(5)), the 
allowance for percentage depletion shall be zero.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2015.

SEC. 513. LIMITATION ON DEDUCTION FOR TERTIARY INJECTANTS.

    (a) In General.--Section 193 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(d) Application With Respect to Major Integrated Oil Companies.--
            ``(1) In general.--This section shall not apply to amounts 
        paid or incurred by a taxpayer in any taxable year in which 
        such taxpayer is a major integrated oil company (within the 
        meaning of section 167(h)(5)).
            ``(2) Amortization of amounts not allowable as deductions 
        under paragraph (1).--The amount not allowable as a deduction 
        for any taxable year by reason of paragraph (1) shall be 
        allowable as a deduction ratably over the 60-month period 
        beginning with the month in which the costs are paid or 
        incurred.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred in taxable years beginning after December 
31, 2015.

SEC. 514. MODIFICATION OF DEFINITION OF MAJOR INTEGRATED OIL COMPANY.

    (a) In General.--Paragraph (5) of section 167(h) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(C) Certain successors in interest.--For purposes 
                of this paragraph, the term `major integrated oil 
                company' includes any successor in interest of a 
                company that was described in subparagraph (B) in any 
                taxable year, if such successor controls more than 50 
                percent of the crude oil production or natural gas 
                production of such company.''.
    (b) Conforming Amendments.--
            (1) In general.--Subparagraph (B) of section 167(h)(5) of 
        the Internal Revenue Code of 1986 is amended by inserting 
        ``except as provided in subparagraph (C),'' after ``For 
        purposes of this paragraph,''.
            (2) Taxable years tested.--Clause (iii) of section 
        167(h)(5)(B) of such Code is amended--
                    (A) by striking ``does not apply by reason of 
                paragraph (4) of section 613A(d)'' and inserting ``did 
                not apply by reason of paragraph (4) of section 613A(d) 
                for any taxable year after 2004'', and
                    (B) by striking ``does not apply'' in subclause 
                (II) and inserting ``did not apply for the taxable 
                year''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2015.

SEC. 515. REPEAL OF OUTER CONTINENTAL SHELF DEEP WATER AND DEEP GAS 
              ROYALTY RELIEF.

    (a) In General.--Sections 344 and 345 of the Energy Policy Act of 
2005 (42 U.S.C. 15904, 15905) are repealed.
    (b) Administration.--The Secretary of the Interior shall not be 
required to provide for royalty relief in the lease sale terms 
beginning with the first lease sale held on or after the date of 
enactment of this Act for which a final notice of sale has not been 
published.

SEC. 516. COORDINATION OF AMERICAN OPPORTUNITY CREDIT AND LIFETIME 
              LEARNING CREDIT WITH PELL GRANTS NOT USED FOR QUALIFIED 
              TUITION AND RELATED EXPENSES.

    (a) In General.--Section 25A(g)(2) of the Internal Revenue Code of 
1986 is amended to read as follows:
            ``(2) Adjustment for certain scholarships, etc.--
                    ``(A) In general.--The amount of qualified tuition 
                and related expenses otherwise taken into account under 
                subsection (a) with respect to an individual for an 
                academic period shall be reduced (before the 
                application of subsections (b), (c), and (d)) by the 
                sum of any amounts paid for the benefit of such 
                individual which are allocable to such period as--
                            ``(i) a qualified scholarship which is 
                        excludable from gross income under section 117,
                            ``(ii) an educational assistance allowance 
                        under chapter 30, 31, 32, 34, or 35 of title 
                        38, United States Code, or under chapter 1606 
                        of title 10, United States Code, and
                            ``(iii) a payment (other than a gift, 
                        bequest, devise, or inheritance within the 
                        meaning of section 102(a)) for such 
                        individual's educational expenses, or 
                        attributable to such individual's enrollment at 
                        an eligible educational institution, which is 
                        excludable from gross income under any law of 
                        the United States.
                    ``(B) Coordination with pell grants not used for 
                qualified tuition and related expenses.--For purposes 
                of subparagraph (A), the amount of any Federal Pell 
                Grant under section 401 of the Higher Education Act of 
                1965 (20 U.S.C. 1070a) shall be reduced (but not below 
                zero) by the amount of expenses (other than qualified 
                tuition and related expenses) which are taken into 
                account in determining the cost of attendance (as 
                defined in section 472 of the Higher Education Act of 
                1965, as in effect on the date of the enactment of this 
                subparagraph) of such individual at an eligible 
                educational institution for the academic period for 
                which the credit under this section is being 
                determined.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2015.

SEC. 517. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.

    (a) In General.--Paragraph (1) of section 117(b) of the Internal 
Revenue Code of 1986 is amended--
            (1) by striking the period at the end and inserting ``, 
        or'',
            (2) by striking ``received by an individual as a 
        scholarship'' and inserting the following: ``received by an 
        individual--
                    ``(A) as a scholarship'', and
            (3) by adding at the end the following new subparagraph:
                    ``(B) as a Federal Pell Grant under section 401 of 
                the Higher Education Act of 1965 (20 U.S.C. 1070a).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2015.
                                 <all>