[JPRT 114-1-15]
[From the U.S. Government Publishing Office]




                                                               

                                     

                        [JOINT COMMITTEE PRINT]
 
                         GENERAL EXPLANATION OF
                            TAX LEGISLATION
                     ENACTED IN THE 113TH CONGRESS

                               ----------                              

                         Prepared by the Staff

                                 of the

                      JOINT COMMITTEE ON TAXATION



[GRAPHIC] [TIFF OMITTED] 


                               MARCH 2015

  GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN THE 113TH CONGRESS
                                                            

                                     

                        [JOINT COMMITTEE PRINT]

                         GENERAL EXPLANATION OF

                            TAX LEGISLATION

                     ENACTED IN THE 113TH CONGRESS

                               __________

                         Prepared by the Staff

                                 of the

                      JOINT COMMITTEE ON TAXATION



[GRAPHIC] [TIFF OMITTED] 



                                    ______

                     U.S. GOVERNMENT PUBLISHING OFFICE 

93-497 PDF                     WASHINGTON : 2015            JCS-1-15




                               MARCH 2015
                               
                            SUMMARY CONTENTS

                              ----------                              
                                                                   Page
Part One: An Act to Amend the Internal Revenue Code of 1986 to 
  Include Vaccines Against Seasonal Influenza Within the 
  Definition of Taxable Vaccines (Public Law 113-15).............     3

Part Two: An Act to Rename Section 219(c) of the Internal Revenue 
  Code of 1986 as the Kay Bailey Hutchison Spousal IRA (Public 
  Law 113-22)....................................................     5

Part Three: Fallen Firefighters Assistance Tax Clarification Act 
  of 2013 (Public Law 113-63)....................................     7

Part Four: Philippines Charitable Giving Assistance Act (Public 
  Law 113-92)....................................................     8

Part Five: Gabriella Miller Kids First Research Act (Public Law 
  113-94)........................................................    10

Part Six: Cooperative and Small Employer Charity Pension 
  Flexibility Act (Public Law 113-97)............................    12

Part Seven: Revenue Provisions of the Highway and Transportation 
  Funding Act of 2014 (Public Law 113-159).......................    29

Part Eight: Tribal General Welfare Exclusion Act of 2014 (Public 
  Law 113-168)...................................................    40

Part Nine: Consolidated and Further Continuing Appropriations 
  Act, 2015 (Public Law 113-235).................................    42

Part Ten: An Act to Amend Certain Provisions of the FAA 
  Modernization and Reform Act of 2012 (Public Law 113-243)......   114

Part Eleven: Grand Portage Band Per Capita Adjustment Act (Public 
  Law 113-290)...................................................   118

Part Twelve: Tax Increase Prevention Act of 2014 and the Stephen 
  Beck, Jr., Achieving a Better Life Experience Act of 2014 
  (Public Law 113-295)...........................................   119
                                CONTENTS

                              ----------                              
                                                                   Page
Introduction.....................................................     1

Part One: An Act to Amend the Internal Revenue Code of 1986 to 
  Include Vaccines Against Seasonal Influenza Within the 
  Definition of Taxable Vaccines (Public Law 113-15).............     3

          A. Addition of Vaccines Against Seasonal Influenza To 
              List of Taxable Vaccines (sec. 1 of the Act and 
              sec. 4132(a)(1) of the Code).......................     3

Part Two: An Act to Rename Section 219(c) of the Internal Revenue 
  Code of 1986 as the Kay Bailey Hutchison Spousal IRA (Public 
  Law 113-22)....................................................     5

          A. Kay Bailey Hutchison Spousal IRA (sec. 1 of the Act 
              and sec. 219(c) of the Code).......................     5

Part Three: Fallen Firefighters Assistance Tax Clarification Act 
  of 2013 (Public Law 113-63)....................................     7

          A. Payments by Charitable Organizations With Respect to 
              Certain Firefighters Treated as Exempt Payments 
              (sec. 2 of the Act)................................     7

Part Four: Philippines Charitable Giving Assistance Act (Public 
  Law 113-92)....................................................     8

          A. Acceleration of Income Tax Benefits for Charitable 
              Cash Contributions for Relief of Victims of Typhoon 
              Haiyan in the Philippines (sec. 2 of the Act)......     8

Part Five: Gabriella Miller Kids First Research Act (Public Law 
  113-94)........................................................    10

          A. Termination of Taxpayer Financing of Political Party 
              Conventions; Use of Funds for Pediatric Research 
              Initiative (sec. 2 of the Act and sec. 9008 of the 
              Code)..............................................    10

Part Six: Cooperative and Small Employer Charity Pension 
  Flexibility Act (Public Law 113-97)............................    12

          A. Cooperative and Small Employer Charity Pension Plans 
              (secs. 3, 101-103 and 201-203 of the Act, new secs. 
              414(y) and 433 of the Code, and new secs. 210(f) 
              and 306 of ERISA)..................................    12

          B. Election to Cease Treatment as an Eligible Charity 
              Plan (sec. 103(b) and (d) of the Act, sec. 430 of 
              the Code and sec. 303 of ERISA)....................    22

          C. Deemed Election for Church Plans (sec. 103(c) and 
              (d) of the Act and sec. 410(d) of the Code)........    25

          D. Transparency in Annual Reports and Notices (secs. 3 
              and 104 of the Act and secs. 101(d), 101(f) and 103 
              of ERISA)..........................................    27

          E. Sponsor Education and Assistance (secs. 3 and 105 of 
              the Act and sec. 4004 of ERISA)....................    28

Part Seven: Revenue Provisions of the Highway and Transportation 
  Funding Act of 2014 (Public Law 113-159).......................    29

          A. Extension of Highway Trust Fund Expenditure 
              Authority (sec. 2001 of the Act and secs. 9503, 
              9504 and 9508 of the Code).........................    29

          B. Funding of the Highway Trust Fund (sec. 2002 of the 
              Act and secs. 9503(f) and 9508(c) of the Code).....    30

          C. Pension Funding Stabilization (sec. 2003 of the Act 
              and secs. 430 and 436 of the Code).................    32

          D. Extension of Customs User Fees (sec. 2004 of the Act 
              and sec. 58c(j)(3) of Title 19 of the United States 
              Code)..............................................    38

Part Eight: Tribal General Welfare Exclusion Act of 2014 (Public 
  Law 113-168)...................................................    40

          A. Indian General Welfare Benefits (sec. 2 of the Act 
              and new sec. 139E of the Code).....................    40

Part Nine: Consolidated and Further Continuing Appropriations 
  Act, 2015 (Public Law 113-235).................................    42

Division M--Expatriate Health Coverage Clarification Act of 2014.    42

          A. Treatment of Expatriate Health Plans under ACA (sec. 
              3 of the Act)......................................    42

Division N--Other Matters........................................    58

          A. Tax Technical Correction to Treatment of Certain 
              Health Organizations (sec. 2 of the Act and sec. 
              833 of the Code)...................................    58

Division O--The Multiemployer Pension Reform Act of 2014.........    59

          A. Amendments to Pension Protection Act of 2006........    59

              1. Repeal of sunset of PPA funding rules (sec. 101 
                  of the Act, sec. 221 of the Pension Protection 
                  Act of 2006, secs. 431-432 of the Code and 
                  secs. 304-305 of ERISA)........................    59

              2. Election to be in critical status (sec. 102 of 
                  the Act, sec. 432 of the Code and sec. 305 of 
                  ERISA).........................................    63

              3. Clarification of rule for emergence from 
                  critical status (sec. 103 of the Act, sec. 432 
                  of the Code and sec. 305 of ERISA).............    66

              4. Endangered status not applicable if no 
                  additional action is required (sec. 104 of the 
                  Act, sec. 432 of the Code and sec. 305 of 
                  ERISA).........................................    68

              5. Correct endangered status funding improvement 
                  plan target funded percentage (sec. 105 of the 
                  Act, sec. 432 of the Code and sec. 305 of 
                  ERISA).........................................    70

              6. Conforming endangered status and critical status 
                  rules during funding improvement and 
                  rehabilitation plan adoption periods (secs. 
                  106, 109(a)(2)(B) and 109(b)(2)(B) of the Act, 
                  sec. 432 of the Code and sec. 305 of ERISA)....    71

              7. Corrective plan schedules when parties fail to 
                  adopt in bargaining (sec. 107 of the Act, sec. 
                  432 of the Code and sec. 305 of ERISA).........    75

              8. Repeal of reorganization rules for multiemployer 
                  plans (sec. 108 of the Act, secs. 418-418E of 
                  the Code and secs. 4241-4245 of ERISA).........    76

              9. Disregard of certain contribution increases for 
                  withdrawal liability purposes (sec. 109 of the 
                  Act, sec. 432 of the Code and sec. 305 of 
                  ERISA).........................................    77

              10. Guarantee for preretirement survivor annuities 
                  under multiemployer pension plans (sec. 110 of 
                  the Act and sec. 4022A of ERISA)...............    80

              11. Required disclosure of multiemployer plan 
                  information (sec. 111 of the Act and secs. 
                  101(k) and 107 of ERISA).......................    81

          B. Multiemployer Plan Mergers and Partitions...........    83

              1. Mergers (sec. 121 of the Act and sec. 4231 of 
                  ERISA).........................................    83

              2. Partitions of eligible multiemployer plans (sec. 
                  122 of the Act and sec. 4233 of ERISA).........    84

          C. Strengthening the Pension Benefit Guaranty 
              Corporation (sec. 131 of the Act and sec. 
              4006(a)(3) of ERISA)...............................    88

          D. Remediation Measures for Deeply Troubled Plans (sec. 
              201 of the Act, sec. 432 of the Code and sec. 305 
              of ERISA)..........................................    89

Division P--Other Retirement-Related Modifications...............   104

          A. Substantial Cessation of Operations (sec. 1 of the 
              Act and sec. 4062(e) of ERISA).....................   104

          B. Clarification of the Normal Retirement Age (sec. 2 
              of the Act, sec. 411 of the Code, and sec. 204 of 
              ERISA).............................................   110

          C. Application of Cooperative and Small Employer 
              Charity Pension Plan Rules to Certain Charitable 
              Employers Whose Primary Exempt Purpose is Providing 
              Services with Respect to Children (sec. 3 of the 
              Act, sec. 414(y) of the Code, and sec. 210(f) of 
              ERISA).............................................   112

Part Ten: An Act To Amend Certain Provisions of the FAA 
  Modernization and Reform Act of 2012 (Public Law 113-243)......   114

          A. Rollover of Amounts Received in Airline Carrier 
              Bankruptcy (sec. 1 of the Act and sec. 1106 of the 
              FAA Modernization and Reform Act of 2012)..........   114

Part Eleven: Grand Portage Band Per Capita Adjustment Act (Public 
  Law 113-290)...................................................   118

          A. Equal Treatment of Certain Per Capita Income For 
              Purposes of Federal Assistance (sec. 2 of the Act).   118

Part Twelve: Tax Increase Prevention Act of 2014 and the Stephen 
  Beck, Jr., Achieving a Better Life Experience Act of 2014 
  (Public Law 113-295)...........................................   119

Division A--Tax Increase Prevention Act of 2014..................   119

TITLE I--CERTAIN EXPIRING PROVISIONS.............................   119

          A. Subtitle A--Individual Tax Extenders................   119

              1. Extension of deduction for certain expenses of 
                  elementary and secondary school teachers (sec. 
                  101 of the Act and sec. 62(a)(2)(D) of the 
                  Code)..........................................   119

              2. Extension of exclusion from gross income of 
                  discharges of acquisition indebtedness on 
                  principal residences (sec. 102 of the Act and 
                  sec. 108 of the Code)..........................   120

              3. Extension of parity for employer-provided mass 
                  transit and parking benefits (sec. 103 of the 
                  Act and 132(f) of the Code)....................   122

              4. Extension of mortgage insurance premiums treated 
                  as qualified residence interest (sec. 104 of 
                  the Act and sec. 163 of the Code)..............   123

              5. Extension of deduction for State and local 
                  general sales taxes (sec. 105 of the Act and 
                  sec. 164 of the Code)..........................   124

              6. Extension of special rule for contributions of 
                  capital gain real property made for 
                  conservation purposes (sec. 106 of the Act and 
                  sec. 170(b) of the Code).......................   126

              7. Extension of above-the-line deduction for 
                  qualified tuition and related expenses (sec. 
                  107 of the Act and sec. 222 of the Code).......   129

              8. Extension of tax-free distributions from 
                  individual retirement plans for charitable 
                  purposes (sec. 108 of the Act and sec. 
                  408(d)(8) of the Code).........................   130

          B. Subtitle B--Business Tax Extenders..................   134

              1. Extension of research credit (sec. 111 of the 
                  Act and sec. 41 of the Code)...................   134

              2. Extension of temporary minimum low-income 
                  housing tax credit rate for non-Federally 
                  subsidized buildings (sec. 112 of the Act and 
                  sec. 42 of the Code)...........................   137

              3. Extension of military housing allowance 
                  exclusion for determining whether a tenant in 
                  certain counties is low-income (sec. 113 of the 
                  Act and secs. 42 and 142 of the Code)..........   138

              4. Extension of Indian employment tax credit (sec. 
                  114 of the Act and sec. 45A of the Code).......   139

              5. Extension of new markets tax credit (sec. 115 of 
                  the Act and sec. 45D of the Code)..............   140

              6. Extension of railroad track maintenance credit 
                  (sec. 116 of the Act and sec. 45G of the Code).   143

              7. Extension of mine rescue team training credit 
                  (sec. 117 of the Act and sec. 45N of the Code).   144

              8. Extension of employer wage credit for employees 
                  who are active duty members of the uniformed 
                  services (sec. 118 of the Act and sec. 45P of 
                  the Code)......................................   145

              9. Extension of work opportunity tax credit (sec. 
                  119 of the Act and secs. 51 and 52 of the Code)   146

              10. Extension of qualified zone academy bonds (sec. 
                  120 of the Act and sec. 54E of the Code).......   152

              11. Extension of classification of certain race 
                  horses as three-year property (sec. 121 of the 
                  Act and sec. 168 of the Code)..................   154

              12. Extension of 15-year straight-line cost 
                  recovery for qualified leasehold improvements, 
                  qualified restaurant buildings and 
                  improvements, and qualified retail improvements 
                  (sec. 122 of the Act and sec. 168 of the Code).   155

              13. Extension of seven-year recovery period for 
                  motorsports entertainment complexes (sec. 123 
                  of the Act and sec. 168 of the Code)...........   158

              14. Extension of accelerated depreciation for 
                  business property on an Indian reservation 
                  (sec. 124 of the Act and sec. 168(j) of the 
                  Code)..........................................   159

              15. Extension of bonus depreciation (sec. 125 of 
                  the Act and sec. 168(k) of the Code)...........   160

              16. Extension of enhanced charitable deduction for 
                  contributions of food inventory (sec. 126 of 
                  the Act and sec. 170 of the Code)..............   165

              17. Extension of increased expensing limitations 
                  and treatment of certain real property as 
                  section 179 property (sec. 127 of the Act and 
                  sec. 179 of the Code)..........................   167

              18. Extension of election to expense mine safety 
                  equipment (sec. 128 of the Act and sec. 179E of 
                  the Code)......................................   169

              19. Extension of special expensing rules for 
                  certain film and television productions (sec. 
                  129 of the Act and sec. 181 of the Code).......   170

              20. Extension of deduction allowable with respect 
                  to income attributable to domestic production 
                  activities in Puerto Rico (sec. 130 of the Act 
                  and sec. 199 of the Code)......................   171

              21. Extension of modification of tax treatment of 
                  certain payments to controlling exempt 
                  organizations (sec. 131 of the Act and sec. 512 
                  of the Code)...................................   172

              22. Extension of treatment of certain dividends of 
                  regulated investment companies (sec. 132 of the 
                  Act and sec. 871(k) of the Code)...............   173

              23. Extension of RIC qualified investment entity 
                  treatment under FIRPTA (sec. 133 of the Act and 
                  secs. 897 and 1445 of the Code)................   174

              24. Extension of subpart F exception for active 
                  financing income (sec. 134 of the Act and secs. 
                  953 and 954 of the Code).......................   175

              25. Extension of look-thru treatment of payments 
                  between related controlled foreign corporations 
                  under foreign personal holding company rules 
                  (sec. 135 of the Act and sec. 954(c)(6) of the 
                  Code)..........................................   178

              26. Extension of exclusion of 100 percent of gain 
                  on certain small business stock (sec. 136 of 
                  the Act and sec. 1202 of the Code).............   179

              27. Extension of basis adjustment to stock of S 
                  corporations making charitable contributions of 
                  property (sec. 137 of the Act and sec. 1367 of 
                  the Code)......................................   180

              28. Extension of reduction in S corporation 
                  recognition period for built-in gains tax (sec. 
                  138 of the Act and sec. 1374 of the Code)......   181

              29. Extension of empowerment zone tax incentives 
                  (sec. 139 of the Act and sec. 1391 of the Code)   183

              30. Extension of temporary increase in limit on 
                  cover over of rum excise taxes to Puerto Rico 
                  and the Virgin Islands (sec. 140 of the Act and 
                  sec. 7652(f) of the Code)......................   189

              31. Extension of American Samoa Economic 
                  Development Credit (sec. 141 of the Act and 
                  sec. 119 of Pub. L. No. 109-432)...............   190

          C. Subtitle C--Energy Tax Extenders....................   192

              1. Extension of credit for nonbusiness energy 
                  property (sec. 151 of the Act and sec. 25C of 
                  the Code)......................................   192

              2. Extension of second generation biofuel producer 
                  credit (sec. 152 of the Act and sec. 40(b)(6) 
                  of the Code)...................................   194

              3. Extension of incentives for biodiesel and 
                  renewable diesel (secs. 153 of the Act and 
                  secs. 40A, 6426 and 6427(e) of the Code).......   195

              4. Extension of credit for the production of Indian 
                  coal facilities placed in service before 2009 
                  (sec. 154 of the Act and sec. 45(e)(10) of the 
                  Code)..........................................   198

              5. Extension of credits with respect to facilities 
                  producing energy from certain renewable 
                  resources (sec. 155 of the Act and secs. 45 and 
                  48 of the Code)................................   198

              6. Extension of credit for energy-efficient new 
                  homes (sec. 156 of the Act and sec. 45L of the 
                  Code)..........................................   199

              7. Extension of special allowance for second 
                  generation biofuel plant property (sec. 157 of 
                  the Act and sec. 168(l) of the Code)...........   200

              8. Extension of energy efficient commercial 
                  buildings deduction (sec. 158 of the Act and 
                  sec. 179D of the Code).........................   202

              9. Extension of special rule for sales or 
                  dispositions to implement FERC or State 
                  electric restructuring policy for qualified 
                  electric utilities (sec. 159 of the Act and 
                  sec. 451(i) of the Code).......................   204

              10. Extension of excise tax credits relating to 
                  certain fuels (sec. 160 of the Act and sec. 
                  6426 and 6427(e) of the Code)..................   206

              11. Extension of credit for alternative fuel 
                  vehicle refueling property (sec. 161 of the Act 
                  and sec. 30C of the Code)......................   207

          D. Subtitle D--Extenders Relating to Multiemployer 
              Defined Benefit Pension Plans......................   209

              1. Multiemployer defined benefit plans (secs. 171-
                  172 of the Act and sec. 221(c) of the Pension 
                  Protection Act of 2006, secs. 431-432 of the 
                  Code, and secs. 304-305 of ERISA)..............   209

TITLE II--TECHNICAL CORRECTIONS..................................   209

          A. Tax Technical Corrections (secs. 201-220 of the Act)   209

          B. Deadwood Provisions (sec. 221 of the Act)...........   217

TITLE III--JOINT COMMITTEE ON TAXATION...........................   217

          A. Increased Refund and Credit Threshold for Joint 
              Committee on Taxation Review of C Corporation 
              Return (sec. 301 of the Act and sec. 6405 of the 
              Code)..............................................   217

Division B--Stephen Beck, Jr., Achieving a Better Life Experience 
  Act of 2014 or the Stephen Beck, Jr., Able Act of 2014.........   218

TITLE I--QUALIFIED ABLE PROGRAMS.................................   218

          A. Qualified Able Programs (secs. 101-105 of the Act 
              and section 529 and new section 529A of the Code)..   218

TITLE II--OFFSETS................................................   226

          A. Modification Relating to Inland Waterways Trust Fund 
              Financing Rate (sec. 205 of the Act and sec. 4042 
              of the Code).......................................   226

          B. Certified Professional Employer Organizations (sec. 
              206 of the Act and new secs. 3511, 6652(n), and 
              7705 of the Code)..................................   227

          C. Exclusion of Dividends from Controlled Foreign 
              Corporations from the Definition of Personal 
              Holding Company Income for Purposes of the Personal 
              Holding Company Rules (sec. 207 of the Act and sec. 
              543 of the Code)...................................   237

          D. Inflation Adjustment for Certain Civil Penalties 
              Under the Internal Revenue Code (sec. 208 of the 
              Act and secs. 6651, 6652(c), 6695, 6698, 6699, 
              6721, and 6722 of the Code)........................   239

          E. Increase Continuous Levy Authority on Payments to 
              Medicare Providers and Suppliers (sec. 209 of the 
              Act and sec. 6331 of the Code).....................   241

Appendix: Estimated Budget Effects of Tax Legislation Enacted in 
  the 113th Congress.............................................   243

                              INTRODUCTION

    This document,\1\ prepared by the staff of the Joint 
Committee on Taxation in consultation with the staffs of the 
House Committee on Ways and Means and the Senate Committee on 
Finance, provides an explanation of tax legislation enacted in 
the 113th Congress. The explanation follows the chronological 
order of the tax legislation as signed into law.
---------------------------------------------------------------------------
    \1\ This document may be cited as follows: Joint Committee on 
Taxation, General Explanation of Tax Legislation Enacted in the 113th 
Congress (JCS-1-15), March, 2014.
---------------------------------------------------------------------------
    For each provision, the document includes a description of 
present law, explanation of the provision, and effective date. 
Present law describes the law in effect immediately prior to 
enactment and does not reflect changes to the law made by the 
provision or by subsequent legislation. Reasons for change are 
included based on Committee report language for provisions 
reported by a Committee. For provisions enacted in bills that 
went directly to the House and Senate floors without a 
Committee report, no reasons for change are included in this 
document.
    In a case where a Committee report accompanies a bill, this 
document is based on the language of the report. For a bill 
with no Committee report but with a contemporaneous technical 
explanation prepared and published by the staff of the Joint 
Committee on Taxation, this document is based on the language 
of the explanation.
    Section references are to the Internal Revenue Code of 
1986, as amended, unless otherwise indicated.
    Part One is an explanation of the provisions of An Act to 
amend the Internal Revenue Code of 1986 to include vaccines 
against seasonal influenza within the definition of taxable 
vaccines (Pub. L. No. 113-15).
    Part Two is an explanation of the provisions of An Act to 
rename section 219(c) of the Internal Revenue Code of 1986 as 
the Kay Bailey Hutchison Spousal IRA (Pub. L. No. 113-22).
    Part Three is an explanation of the provisions of the 
Fallen Firefighters Assistance Tax Clarification Act of 2013 
(Pub. L. No. 113-63).
    Part Four is an explanation of the provisions of the 
Philippines Charitable Giving Assistance Act (Pub. L. No. 113-
92).
    Part Five is an explanation of the provisions of the 
Gabriella Miller Kids First Research Act (Pub. L. No. 113-94).
    Part Six is an explanation of the provisions of the 
Cooperative and Small Employer Charity Pension Flexibility Act 
(Pub. L. No. 113-97).
    Part Seven is an explanation of the provisions of the 
Highway and Transportation Funding Act of 2014 (Pub. L. No. 
113-159).
    Part Eight is an explanation of the provisions of the 
Tribal General Welfare Exclusion Act of 2014 (Pub. L. No. 113-
168).
    Part Nine is an explanation of the revenue provisions of 
Consolidated and Further Continuing Appropriations Act, 2015 
(Pub. L. No. 113-235).
    Part Ten is an explanation of the provisions of An Act to 
amend certain provisions of the FAA Modernization and Reform 
Act of 2012 (Pub. L. No. 113-243).
    Part Eleven is an explanation of the provisions of the 
Grand Portage Band Per Capita Adjustment Act (Pub. L. No. 113-
290).
    Part Twelve is an explanation of the provisions of the Tax 
Increase Prevention Act of 2014 and the Stephen Beck, Jr., 
Achieving a Better Life Experience Act of 2014 (Pub. L. No. 
113-295).
    The Appendix provides the estimated budget effects of tax 
legislation enacted in the 113th Congress.
    The first footnote in each Part gives the legislative 
history of the Act explained in that Part.

PART ONE: AN ACT TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO INCLUDE 
 VACCINES AGAINST SEASONAL INFLUENZA WITHIN THE DEFINITION OF TAXABLE 
                                VACCINES

                        (PUBLIC LAW 113-15) \2\
---------------------------------------------------------------------------

    \2\ H.R. 475. The House passed H.R. 475 on June 18, 2013. The 
Senate passed the bill without amendment on June 19, 2013. The 
President signed the bill on June 25, 2013.
---------------------------------------------------------------------------

 A. Addition of Vaccines Against Seasonal Influenza To List of Taxable 
      Vaccines (sec. 1 of the Act and sec. 4132(a)(1) of the Code)

                              Present Law

    Under present law, a tax is imposed on specified, taxable 
vaccines sold by the manufacturer, producer, or importer 
thereof.\3\ Manufacturers, producers, and importers are 
responsible for paying 75 cents per dose of such specified, 
taxable vaccines upon the sale of the vaccine, but the tax does 
not apply if it has already been imposed on a prior sale of 
such vaccine.\4\ Vaccines which include multiple, specified, 
and taxable vaccines are taxed cumulatively--that is, if two 
specified, taxable vaccines are combined, then the tax imposed 
is $1.50 per dose.\5\ Similarly, fractional doses are taxed at 
the same fraction of the amount of such tax imposed on a whole 
dose.\6\ Doses which are used by manufacturers, producers, or 
importers before being sold are taxed as if the vaccine were 
sold by such manufacturers, producers, or importers.\7\
---------------------------------------------------------------------------
    \3\ Sec. 4131. Unless otherwise specified, all section references 
are made to the Internal Revenue Code of 1986, as amended.
    \4\ Sec. 4132(b)(4).
    \5\ Sec. 4131(b)(2).
    \6\ Sec. 4132(c)(3).
    \7\ Sec. 4132(c)(1).
---------------------------------------------------------------------------
    Currently, section 4132(a)(1)(N) includes any trivalent 
vaccine against influenza as a specified, taxable vaccine. 
Vaccines against influenza are changed each season to protect 
against the influenza viruses that research indicates will be 
most common during the upcoming season.\8\ Trivalent vaccines, 
for example, protect against three different seasonal flu 
viruses; quadrivalent vaccines, on the other hand, protect 
against four different seasonal flu viruses.\9\ Seasonal 
influenza vaccines that are not trivalent vaccines, such as 
quadrivalent vaccines, are not currently specified, taxable 
vaccines.
---------------------------------------------------------------------------
    \8\ Center for Disease Control, Key Facts About Seasonal Flu 
Vaccine (March 6, 2014), available at http://www.cdc.gov/flu/protect/
keyfacts.htm.
    \9\ Ibid.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision changes section 4132(a)(1)(N) to include any 
trivalent vaccine against influenza or any other vaccine 
against seasonal influenza.

                             Effective Date

    For sales and uses, the provision is effective on or after 
the later of (A) the first day of the first month which begins 
more than four weeks after the date of enactment (June 25, 
2013), or (B) the date on which the Secretary of Health and 
Human Services lists any vaccine against seasonal influenza 
(other than any vaccine against seasonal influenza listed by 
the Secretary prior to the date of the date of enactment) for 
purposes of compensation for any vaccine-related injury or 
death through the Vaccine Injury Compensation Trust Fund.
    For deliveries, in the case of sales on or before the 
effective date described above for which delivery is made after 
such date, the delivery date shall be considered the sale date.

PART TWO: AN ACT TO RENAME SECTION 219(C) OF THE INTERNAL REVENUE CODE 
  OF 1986 AS THE KAY BAILEY HUTCHISON SPOUSAL IRA (PUBLIC LAW 113-22) 
                                 \10\ 
---------------------------------------------------------------------------

    \10\ H.R. 2289. The House passed H.R. 2289 on June 25, 2013. The 
Senate passed the bill without amendment on July 11, 2013. The 
President signed the bill on July 25, 2013.
---------------------------------------------------------------------------

A. Kay Bailey Hutchison Spousal IRA (sec. 1 of the Act and sec. 219(c) 
                              of the Code)

                              Present Law

    Under present law, an individual may make contributions to 
an individual retirement arrangement (``IRA'').\11\ There are 
two basic types of IRAs: traditional IRAs, to which both 
deductible and nondeductible contributions may be made, and 
Roth IRAs, to which only nondeductible contributions may be 
made.
---------------------------------------------------------------------------
    \11\ Secs. 219, 408 and 408A. The principal difference between 
traditional and Roth IRAs is the timing of income tax inclusion. For a 
traditional IRA, an eligible contributor may deduct the contributions 
made for the year, but distributions are includible in gross income to 
the extent attributable to the deductible contributions and earnings on 
the IRA (or to the extent distributions exceed the individual's basis 
attributable to nondeductible contributions). For a Roth IRA, all 
contributions are after-tax (that is, no deduction is allowed) but, if 
certain requirements are met, distributions are not includible in gross 
income.
---------------------------------------------------------------------------
    An annual limit applies to the aggregate contributions to 
all of an individual's IRAs (both traditional and Roth) for a 
taxable year. The contribution limit is generally the lesser of 
a certain dollar amount (for 2013, $5,500 or $6,500 for an 
individual age 50 or older) or the individual's compensation. 
Thus, generally, if an individual's compensation for a year is 
less than the dollar amount, the applicable limit for that year 
is the amount of the individual's compensation. An individual 
with no compensation for a year generally may not make any IRA 
contributions for that year.
    Under a special rule, in the case of a married couple 
filing a joint return, a spouse with compensation lower than 
the other spouse may include compensation of the other spouse 
in determining his or her own IRA contribution limits.\12\ 
Specifically, for this purpose, compensation of the spouse with 
lower compensation is the sum of (1) that spouse's 
compensation, plus (2) the other spouse's compensation reduced 
by any IRA contributions made by the other spouse. This rule 
thus allows a spouse with no compensation to make contributions 
up to the dollar limit by taking into account the other 
spouse's compensation.
---------------------------------------------------------------------------
    \12\ Sec. 219(c).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision amends the heading of the Code section that 
allows a spouse to include compensation of the other spouse in 
determining his or her own IRA contribution limits, so that the 
heading reads ``Kay Bailey Hutchison spousal IRA.''

                             Effective Date

    The provision is effective on the date of enactment (July 
25, 2013).

  PART THREE: FALLEN FIREFIGHTERS ASSISTANCE TAX CLARIFICATION ACT OF 
                     2013 (PUBLIC LAW 113-63) \13\
---------------------------------------------------------------------------

    \13\ H.R. 3458. The House passed H.R. 3458 on December 12, 2013. 
The Senate passed the bill without amendment on December 13, 2013. The 
President signed the bill on December 20, 2013.
---------------------------------------------------------------------------

    A. Payments by Charitable Organizations With Respect to Certain 
      Firefighters Treated as Exempt Payments (sec. 2 of the Act)

                              Present Law

    In general, organizations described in section 501(c)(3) 
are exempt from taxation. Such organizations are classified 
either as private foundations or public charities. Public 
charities include organizations that receive broad public 
support (sec. 509(a)(1) or sec. 509(a)(2)), supporting 
organizations (sec. 509(a)(3)), and organizations organized and 
operated for testing for public safety (sec. 509(a)(4)).
    Contributions to section 501(c)(3) organizations generally 
are tax deductible (sec. 170). Section 501(c)(3) organizations 
must be organized and operated exclusively for exempt purposes 
and no part of the net earnings of such organizations may inure 
to the benefit of any private shareholder or individual. An 
organization is not organized or operated exclusively for one 
or more exempt purposes unless the organization serves a public 
rather than a private interest. Thus, an organization described 
in section 501(c)(3) generally must serve a charitable class of 
persons that is indefinite or of sufficient size.

                        Explanation of Provision

    Under the provision, certain payments made by a public 
charity described in section 509(a)(1) and (a)(2) are treated 
as related to the purpose or function constituting the basis 
for the organization's exempt status, if the payments are made 
in good faith using a reasonable and objective formula that is 
consistently applied. This provision applies to payments to: 
(1) any firefighter who was injured as a result of the ambush 
of firefighters responding to an emergency on December 24, 
2012, in Webster, New York; (2) the spouse of any firefighter 
who died as a result of such ambush; or (3) any dependent (as 
defined in section 152 of the Code) of any firefighter who died 
as a result of such ambush.

                             Effective Date

    The provision applies to payments made on or after December 
24, 2012, and before the later of (1) January 1, 2014, or (2) 
the date which is 30 days after the date of enactment (that is, 
30 days after December 20, 2013).

  PART FOUR: PHILIPPINES CHARITABLE GIVING ASSISTANCE ACT (PUBLIC LAW 
                              113-92) \14\
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    \14\ H.R. 3771. The House passed H.R. 3771 on March 24, 2014. The 
Senate passed the bill without amendment on March 25, 2014. The 
President signed the bill on March 25, 2014.
---------------------------------------------------------------------------

      A. Acceleration of Income Tax Benefits for Charitable Cash 
     Contributions for Relief of Victims of Typhoon Haiyan in the 
                    Philippines (sec. 2 of the Act)

                              Present Law

    In general, under present law, taxpayers may claim an 
income tax deduction for charitable contributions. The 
charitable deduction generally is available for the taxable 
year in which the contribution is made. The tax benefit of a 
charitable contribution often is not apparent until the 
following calendar year when the taxpayer's tax return is filed 
and the taxpayer receives a refund or realizes a reduction in 
taxes owed.
    A donor who claims a charitable deduction for a charitable 
contribution of money, regardless of amount, must maintain as a 
record of the contribution a bank record or a written 
communication from the donee showing the name of the donee 
organization, the date of the contribution, and the amount of 
the contribution.\15\
---------------------------------------------------------------------------
    \15\ Sec. 170(f)(17).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision permits taxpayers to treat charitable 
contributions of cash made after March 25, 2014, and before 
April 15, 2014, as contributions made on December 31, 2013, if 
such contributions were for the relief of victims in areas 
affected by Typhoon Haiyan. Thus, the effect of the provision 
is to give taxpayers who make Typhoon Haiyan-related charitable 
contributions of cash after March 25, 2014, and before April 
15, 2014, the opportunity to accelerate their tax benefit.
    The provision also clarifies the recordkeeping requirement 
of section 170(f)(17) for monetary contributions eligible for 
the accelerated income tax deduction described above. With 
respect to such contributions, a telephone bill will also 
satisfy the recordkeeping requirement if it shows the name of 
the donee organization, the date of the contribution, and the 
amount of the contribution. Thus, for example, in the case of a 
charitable contribution made by text message and charged to a 
telephone or wireless account, a bill from the 
telecommunications company containing the relevant information 
will satisfy the recordkeeping requirement.

                             Effective Date

    The provision is effective on the date of enactment (March 
25, 2014).

PART FIVE: GABRIELLA MILLER KIDS FIRST RESEARCH ACT (PUBLIC LAW 113-94) 
                                  \16\
---------------------------------------------------------------------------

    \16\ H.R. 2019. The House passed H.R. 2019 on December 11, 2013. 
The Senate passed the bill without amendment on March 11, 2014. The 
President signed the bill on April 3, 2014.
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 A. Termination of Taxpayer Financing of Political Party Conventions; 
 Use of Funds for Pediatric Research Initiative (sec. 2 of the Act and 
                         sec. 9008 of the Code)

                              Present Law

    Section 9008 provides a mechanism for the financing of 
presidential nominating conventions. The Secretary of the 
Treasury is required to maintain a separate account within the 
Presidential Election Campaign Fund for the national committee 
of each major party and minor party. The Secretary is required 
to deposit into each such committee's account the amount the 
committee is entitled to receive with respect to any 
presidential nominating convention. The deposits are drawn from 
amounts designated by individual taxpayers at the time of 
filing a Federal income tax return to be paid over to the 
Presidential Election Campaign Fund.
    With respect to any presidential nominating convention, the 
national committee of a major party is entitled to receive 
amounts that, in the aggregate, do not exceed $4 million 
(indexed for inflation). For the 2012 presidential nominating 
conventions, each major party was entitled to receive 
$17,689,800. The national committee of a minor party generally 
is entitled to receive an amount that bears the same ratio to 
the major-party amount as (1) the number of popular votes the 
minor party's presidential candidate received in the preceding 
presidential election bears to (2) the average number of 
popular votes received by major-party candidates in that 
election.
    If, after the close of a presidential nominating convention 
and the payment of amounts to which a committee is entitled, 
money remains in the account of a national committee, the 
Secretary is required to transfer the remaining amounts to the 
Presidential Election Campaign Fund. Additional rules address 
the use of funds, limitations on expenditures, and the timing 
of payments.

                        Explanation of Provision

    The provision terminates the entitlement of any major party 
or minor party to a payment under section 9008. All amounts in 
each account maintained for the national committee of a major 
party or minor party are to be transferred to a new fund in the 
Treasury to be known as the ``10-Year Pediatric Research 
Initiative Fund.'' Amounts in the Fund are available only for 
the purpose provided in section 402A(a)(2) of the Public Health 
Service Act,\17\ and only to the extent and in such amounts as 
are provided in advance in appropriations Acts.
---------------------------------------------------------------------------
    \17\ Section 3 of the Gabriella Miller Kids First Research Act 
(Pub. L. No. 113-94) amends the Public Health Service Act (42 U.S.C. 
sec. 282) to address funding of the pediatric research initiative.
---------------------------------------------------------------------------
    The provision also makes various technical and conforming 
changes to sections 9006, 9009 and 9012.

                             Effective Date

    The provision is effective on the date of enactment (April 
3, 2014).

 PART SIX: COOPERATIVE AND SMALL EMPLOYER CHARITY PENSION FLEXIBILITY 
                      ACT (PUBLIC LAW 113-97) \18\
---------------------------------------------------------------------------

    \18\ H.R. 4275. The House passed H.R. 4275 on March 24, 2014. The 
Senate passed the bill without amendment on March 25, 2014. The 
President signed the bill on April 7, 2014.
---------------------------------------------------------------------------

 A. Cooperative and Small Employer Charity Pension Plans (secs. 3, 101-
 103 and 201-203 of the Act, new secs. 414(y) and 433 of the Code, and 
                new secs. 210(f) and 306 of ERISA \19\)
---------------------------------------------------------------------------

    \19\ ERISA refers to the Employee Retirement Income Security Act of 
1974.
---------------------------------------------------------------------------

                              Present Law

         Defined benefit plans and minimum funding requirements

            Types of plans
    Qualified retirement plans, including defined benefit 
plans, are categorized for some purposes as one of three types, 
based on the number of employers that maintain the plan and the 
type of employees covered by the plan. The three types are 
single-employer plans, multiple-employer plans, and 
multiemployer plans.
    A single-employer plan is a plan maintained by one 
employer. For this purpose, businesses and organizations are 
that members of a controlled group, a group under common 
control, or an affiliated service group are treated as one 
employer (referred to as ``aggregation'').\20\ A single-
employer plan may cover employees who are also covered by a 
collective bargaining agreement (``collectively bargained 
employees''), pursuant to which the plan is maintained (a 
``collectively bargained plan'').\21\ An employer may maintain 
separate single-employer plans for collectively and 
noncollectively bargained employees, or they may be covered by 
the same plan.
---------------------------------------------------------------------------
    \20\ Secs. 414(b), (c), (m) and (o).
    \21\ Treas. Reg. sec. 1.410(b)-6(d).
---------------------------------------------------------------------------
    A multiple-employer plan is a single plan maintained by two 
or more unrelated employers (that is, employers that are not 
treated as a single employer under the aggregation rules) and 
which is not a multiemployer plan (as defined below).\22\ 
Multiple-employer plans are commonly maintained by employers in 
the same industry. A multiple-employer plan may cover 
collectively bargained employees or noncollectively bargained 
employees.
---------------------------------------------------------------------------
    \22\ Sec. 413(c) and ERISA sec. 210(a).
---------------------------------------------------------------------------
    Multiemployer plans (also known as ``Taft-Hartley'' plans 
and distinct from multiple-employer plans) are plans maintained 
pursuant to one or more collective bargaining agreements with 
two or more unrelated employers and to which the employers are 
required to contribute under the collective bargaining 
agreement(s).\23\ Multiemployer plans commonly cover 
collectively bargained employees in a particular industry.
---------------------------------------------------------------------------
    \23\ Sec. 414(f) and ERISA sec. 2(37).
---------------------------------------------------------------------------
            Minimum funding requirements and PPA
    Defined benefit plans maintained by private employers are 
generally subject to minimum funding requirements under the 
Code and ERISA.\24\ The employer or employers maintaining a 
plan may be subject to an excise tax for a failure to make 
required contributions unless a funding waiver is obtained.\25\
---------------------------------------------------------------------------
    \24\ The minimum funding requirements do not apply to most 
governmental or church plans.
    \25\ Sec. 4971.
---------------------------------------------------------------------------
    Before the Pension Protection Act of 2006 (``PPA''),\26\ 
the basic funding rules applicable to single-employer plans, 
multiple-employer plans, and multiemployer plans were similar, 
with an additional contribution requirement, referred to as the 
``deficit reduction contribution'' (or ``DRC'') requirement, 
for single-employer and multiple-employer plans.\27\ PPA 
replaced the funding rules for single-employer plans and 
multiple-employer plans with new rules, effective for plan 
years beginning after December 31, 2007.\28\ However, PPA 
provided a delayed effective date (``PPA delayed effective 
date'') for certain multiple-employer plans, under which the 
PPA funding rules apply as of the earlier of (1) the first plan 
year for which the plan ceases to be an eligible cooperative 
plan (described below) or (2) January 1, 2017.\29\ In the 
interim, as discussed below, these plans continue to be subject 
to the minimum funding rules in effect before PPA, with certain 
modifications.
---------------------------------------------------------------------------
    \26\ Pub. L. No. 109-280.
    \27\ Single-employer plans and multiple-employer plans have 
generally been subject to the same funding rules. Under section 
413(c)(4), in the case of a multiple-employer plan established by 
December 31, 1988, the minimum funding requirement is generally 
determined as if all plan participants are employed by a single 
employer, and, in the case of a multiple-employer plan established 
after December 31, 1988, each employer is treated as maintaining a 
separate plan for purposes of the funding requirements unless the plan 
uses a method for determining required contributions that provides for 
any employer to contribute not less than the amount that would be 
required if the employer maintained a separate plan. ERISA section 
210(a)(3) provides that the minimum funding requirement for a multiple-
employer plan is determined as if all plan participants are employed by 
a single employer.
    \28\ Secs. 412 and 430 and ERISA secs. 302-303. For an explanation 
of the funding requirements for single-employer plans as amended by 
PPA, see Part I.D.2 of Joint Committee on Taxation, Present Law and 
Background Relating to Qualified Defined Benefit Plans (JCX-99-14), 
September 15, 2014, available at www.jct.gov.
    \29\ PPA sec. 104.
---------------------------------------------------------------------------
    The PPA delayed effective date applies to a plan that was 
in existence on July 26, 2005, and was an eligible cooperative 
plan for the plan year including that date. A plan is treated 
as an eligible cooperative plan for a plan year if it is 
maintained by more than one employer and at least 85 percent of 
the employers are (1) certain rural cooperatives \30\ or (2) 
certain cooperative organizations that are more than 50-percent 
owned by agricultural producers or by cooperatives owned by 
agricultural producers, or organizations that are more than 50-
percent owned, or controlled by, one or more of these 
cooperative organizations. A plan is also treated as an 
eligible cooperative plan for any plan year for which it is 
maintained by more than one employer and is maintained by a 
rural telephone cooperative association.
---------------------------------------------------------------------------
    \30\ This is as defined in section 401(k)(7)(B) without regard to 
(iv) thereof and includes (1) organizations engaged primarily in 
providing electric service on a mutual or cooperative basis, or engaged 
primarily in providing electric service to the public in its service 
area and which is exempt from tax or which is a State or local 
government, other than a municipality; (2) certain civic leagues and 
business leagues exempt from tax 80 percent of the members of which are 
described in (1); (3) certain cooperative telephone companies; and (4) 
any organization that is a national association of organizations 
described above.
---------------------------------------------------------------------------
    The PPA delayed effective date was extended to additional 
plans, ``eligible charity plans,'' by the Preservation of 
Access to Care for Medicare Beneficiaries and Pension Relief 
Act of 2010 (``PRA 2010'').\31\ A plan in existence on July 26, 
2005, is treated as an eligible charity plan for a plan year if 
(1) it is maintained by more than one employer (determined for 
this purpose without regard to the aggregation rules for groups 
under common control) and (2) 100 percent of the employers 
maintaining the plan are tax-exempt charitable 
organizations.\32\
---------------------------------------------------------------------------
    \31\ Pub. L. No. 111-192.
    \32\ Because separate employer status is determined without regard 
to the aggregation rules, some eligible charity plans are not multiple-
employer plans. An organization is a tax-exempt charitable organization 
if it is exempt from income tax under section 501(c)(3).
---------------------------------------------------------------------------
Funding rules applicable to eligible cooperative and eligible charity 
        plans \33\
---------------------------------------------------------------------------
    \33\ These rules are found in section 412 and ERISA sections 302-
307 as in effect for plan years beginning before 2008.
---------------------------------------------------------------------------
            In general
    Under the funding requirements applicable to eligible 
cooperative and eligible charity plans (``eligible plans'') 
until the PPA delayed effective date, a notional account called 
a ``funding standard account'' is maintained, to which specific 
charges and credits (including plan contributions) are made for 
each plan year the plan is maintained. The minimum required 
contribution for a plan year is the amount, if any, needed so 
that the accumulated credits to the funding standard account as 
of that plan year are not less than the accumulated charges 
(that is, so the funding standard account does not have a 
negative balance). If, as of the close of a plan year, 
accumulated charges to the funding standard account exceed 
credits, the plan has an ``accumulated funding deficiency'' 
equal to the amount of the excess, which may result in an 
excise tax. For example, if, as of a plan year, the balance of 
charges to the funding standard account would be $200,000 
without any contributions, then a minimum contribution equal to 
that amount is required to meet the minimum funding standard 
for the year (that is, to prevent an accumulated funding 
deficiency). If credits to the funding standard account exceed 
charges, a ``credit balance'' results. The amount of the credit 
balance, increased with interest, has the effect of reducing 
future required contributions.
            Charges and credits to the funding standard account
    An acceptable actuarial cost method (referred to as a 
funding method) must be used to determine the elements included 
in a plan's funding standard account for a year. Generally, a 
funding method breaks up the cost of benefits under the plan 
into annual charges to the funding standard account consisting 
of two elements for each plan year. These elements are referred 
to as (1) normal cost and (2) supplemental cost. IRS approval 
is required in order to change a plan's funding method.
    The plan's normal cost for a plan year generally represents 
the cost of future benefits allocated to the year by the 
funding method used by the plan for current employees and, 
under some funding methods, for separated employees. 
Specifically, it is the amount actuarially determined that 
would be required as a contribution by the employer for the 
plan year in order to maintain the plan if the plan had been in 
effect from the beginning of service of the included employees 
and if the costs for prior years had been paid, and all 
assumptions (such as interest and mortality) had been 
fulfilled. A plan's normal cost for a plan year is charged to 
the funding standard account for that year.
    The supplemental cost for a plan year is the cost of future 
benefits that would not be met by future normal costs, future 
employee contributions, or plan assets. The most common 
supplemental cost is that attributable to past service 
liability, which represents the cost of future benefits under 
the plan (1) on the date the plan is first effective or (2) on 
the date a plan amendment increasing plan benefits is first 
effective. Supplemental cost attributable to past service 
liability is generally amortized (that is, recognized for 
funding purposes) over 30 years by annual charges to the 
funding standard account over that period. Other supplemental 
costs that may apply (and the applicable amortization periods) 
include the following: net experience losses, such as worse 
than expected investment returns or actuarial experience (five 
years); losses from changes in actuarial assumptions (10 
years); and amounts necessary to make up minimum required 
contributions for which a funding waiver was obtained (five 
years).
    A plan sponsor may obtain from the IRS an extension of up 
to 10 years of the amortization periods applicable in 
determining charges to the funding standard account. The 
extension may be granted if the IRS determines that (1) the 
extension would carry out the purposes of ERISA and would 
provide adequate protection for participants and beneficiaries 
under the plan, and (2) the failure to permit the extension 
would (a) result in a substantial risk to the voluntary 
continuation of the plan or a substantial curtailment of 
pension benefit levels or employee compensation and (b) be 
adverse to the interests of plan participants in the aggregate.
    Factors that result in a supplemental loss can 
alternatively result in a gain that is recognized by annual 
credits to the funding standard account over a specified 
amortization period, in addition to a credit for contributions 
made for the plan year. These include a reduction in unfunded 
past service liability as a result of a plan amendment 
decreasing plan benefits (30 years); net experience gains, such 
as better than expected investment returns or actuarial 
experience (five years); and gains from changes in actuarial 
assumptions (10 years). If minimum required contributions are 
waived, the waived amount (referred to as a ``waived funding 
deficiency'') is also credited to the funding standard account.
            Actuarial valuations
    Normal cost and supplemental costs under a plan are 
computed on the basis of an actuarial valuation of the assets 
and liabilities of a plan. An actuarial valuation is generally 
required annually and is made as of a date within the plan year 
or within one month before the beginning of the plan year. 
However, a valuation date within the preceding plan year may be 
used if, as of that date, the value of the plan's assets is at 
least 100 percent of the plan's current liability (that is, the 
present value of benefits under the plan, as described below).
    For funding purposes, the actuarial value of plan assets 
may be used, rather than fair market value. The actuarial value 
of plan assets is the value determined on the basis of a 
reasonable actuarial valuation method that takes into account 
fair market value and is permitted under Treasury regulations. 
Any actuarial valuation method used must result in a value of 
plan assets that is not less than 80 percent of the fair market 
value of the assets and not more than 120 percent of the fair 
market value. In addition, if the valuation method uses average 
value of the plan assets, values may be used for a stated 
period not to exceed the five most recent plan years, including 
the current year.
    In applying the funding rules, all costs, liabilities, 
interest rates, and other factors are required to be determined 
on the basis of actuarial assumptions and methods, each of 
which is reasonable (taking into account the experience of the 
plan and reasonable expectations), or which, in the aggregate, 
result in a total plan contribution equivalent to a 
contribution that would be determined if each assumption and 
method were reasonable. In addition, the assumptions are 
required to offer the actuary's best estimate of anticipated 
experience under the plan.
            Deficit reduction contribution requirements
    Under the deficit reduction contribution rules, an 
additional charge to a plan's funding standard account is 
generally required for a plan year if the plan's funded current 
liability percentage for the plan year is less than 90 
percent.\34\ A plan's funded current liability percentage is 
generally the actuarial value of plan assets as a percentage of 
the plan's current liability. In general, a plan's current 
liability means the value of all liabilities to employees and 
their beneficiaries under the plan. In determining current 
liability, the interest rate and mortality table used are the 
``third segment rate'' and the mortality table used in valuing 
liabilities under the PPA funding rules.\35\
---------------------------------------------------------------------------
    \34\ An exception to the deficit reduction contribution 
requirements applies if the plan's funded current liability percentage 
for the plan year is at least 80 percent and, for at least two 
consecutive plan years in the preceding three plan years, the plan's 
funded current liability percentage was at least 90 percent. In 
addition, the deficit reduction contribution requirements generally do 
not apply to plans with 100 or fewer participants, and a pro-rata 
portion of the deficit reduction contribution applies to plans with 
more than 100 but not more than 150 participants.
    \35\ The PPA delayed effective date provides for the use of this 
interest rate. Under the rules in effect before PPA, the interest rate 
used in determining current liability was based on a four-year weighted 
average of interest rates on 30-year Treasury securities.
---------------------------------------------------------------------------
    The amount of the additional charge required under the 
deficit reduction contribution rules is the sum of two amounts: 
(1) the excess, if any, of (a) the deficit reduction 
contribution (as described below), over (b) the contribution 
required under the normal funding rules, and (2) the amount (if 
any) required with respect to unpredictable contingent event 
benefits. The amount of the additional charge cannot exceed the 
amount needed to increase the plan's funded current liability 
percentage to 100 percent, taking into account the expected 
increase in current liability due to benefits accruing during 
the plan year.
    The deficit reduction contribution is generally the sum of 
(1) the applicable percentage of the plan's unfunded current 
liability, and (2) the expected increase in current liability 
due to benefits accruing during the plan year.\36\ For this 
purpose, the plan's unfunded current liability is the amount by 
which (1) the plan's current liability exceeds (2) the 
actuarial value of plan assets reduced by any credit balance. 
The applicable percentage is generally 30 percent, but 
decreases by 0.4 of one percentage point for each percentage 
point by which the plan's funded current liability percentage 
exceeds 60 percent. For example, if a plan's funded current 
liability percentage is 85 percent (that is, it exceeds 60 
percent by 25 percentage points), the applicable percentage is 
20 percent (30 percent minus 10 percentage points (25 
multiplied by 0.4)).
---------------------------------------------------------------------------
    \36\ If the use of a new required mortality table results in an 
increase in a plan's current liability, the deficit reduction 
contribution also includes the amount needed to amortize the increase 
over 10 years (referred to as the ``unfunded mortality increase 
amount'').
---------------------------------------------------------------------------
    A plan may provide for unpredictable contingent event 
benefits, which are benefits that depend on contingencies that 
are not reliably and reasonably predictable, such as facility 
shutdowns or reductions in workforce. The value of any 
unpredictable contingent event benefit is not considered in 
determining additional contributions until the event has 
occurred. The event on which an unpredictable contingent event 
benefit is contingent is generally not considered to have 
occurred until all events on which the benefit is contingent 
have occurred. If an event on which unpredictable contingent 
event benefits are contingent has occurred, the additional 
charge to the funding standard account is increased to take the 
unpredictable contingent event benefits into account.
            Other rules
    No contributions are required under these funding rules in 
excess of the full funding limitation. The full funding 
limitation is the excess, if any, of (1) the accrued liability 
under the plan (including normal cost), over (2) the lesser of 
(a) the market value of plan assets or (b) the actuarial value 
of plan assets. However, the full funding limitation may not be 
less than the excess, if any, of 90 percent of the plan's 
current liability (including the expected increase in current 
liability due to benefits accruing during the plan year) over 
the actuarial value of plan assets.\37\
---------------------------------------------------------------------------
    \37\ In general, current liability is all liabilities to plan 
participants and beneficiaries accrued to date, whereas the accrued 
liability under the full funding limitation may be based on projected 
future benefits, including future salary increases.
---------------------------------------------------------------------------
    In general, plan contributions required to satisfy the 
funding rules must be made within 8\1/2\ months after the end 
of the plan year. If the contribution is made by the due date, 
the contribution is treated as if it were made on the last day 
of the plan year. In the case of a plan with a funded current 
liability percentage of less than 100 percent for the preceding 
plan year, estimated contributions for the current plan year 
must be made in quarterly installments during the current plan 
year. The amount of each required installment is generally 25 
percent of the lesser of (1) 90 percent of the amount required 
to be contributed for the current plan year or (2) 100 percent 
of the amount required to be contributed for the preceding plan 
year. If a required installment is not made, interest applies 
for the period of underpayment at a rate of the greater of (1) 
175 percent of the Federal mid-term rate, or (2) the interest 
rate used for funding purposes under the plan. If quarterly 
contributions are required with respect to a plan, the amount 
of a quarterly installment must also be sufficient to cover any 
shortfall in the plan's liquid assets (a ``liquidity 
shortfall''). In general, a plan has a liquidity shortfall for 
a quarter if the plan's liquid assets (such as cash and 
marketable securities) are less than a certain amount 
(generally determined by reference to disbursements from the 
plan in the preceding 12 months).
    The IRS is permitted to waive all or a portion of the 
contribution required under the minimum funding standard for a 
plan year (a ``waived funding deficiency''). A waiver may be 
granted if the employers responsible for the contribution could 
not make the required contribution without temporary 
substantial business hardship and if requiring the contribution 
would be adverse to the interests of plan participants in the 
aggregate. Generally, no more than three waivers may be granted 
within any period of 15 consecutive plan years. The IRS is 
authorized to require security to be provided as a condition of 
granting a funding waiver if the sum of the plan's accumulated 
funding deficiency and the balance of any outstanding waived 
funding deficiencies exceeds $1 million.
Funding-related benefit restrictions
    Under PPA, single-employer and multiple-employer defined 
benefit plans are generally subject to funding-related benefit 
restrictions.\38\ The PPA delayed effective date for eligible 
plans applies also to the funding related benefit restrictions.
---------------------------------------------------------------------------
    \38\ Section 430 and ERISA section 206(g).
---------------------------------------------------------------------------
    Certain funding-related benefit restrictions that predate 
PPA continue to apply to eligible plans until the PPA delayed 
effective date.
    As described above, if quarterly contributions are required 
with respect to a plan and the plan has a liquidity shortfall, 
the amount of a quarterly installment must also be sufficient 
to cover the liquidity shortfall. If a quarterly installment is 
less than the amount required to cover the plan's liquidity 
shortfall, limits apply to the benefits that can be paid from a 
plan during the period of underpayment. During that period, the 
plan may not make any prohibited payment, defined as (1) any 
payment in excess of the monthly amount paid under a single 
life annuity (plus any social security supplement provided 
under the plan) to a participant or beneficiary whose annuity 
starting date occurs during the period, (2) any payment for the 
purchase of an irrevocable commitment from an insurer to pay 
benefits (for example, an annuity contract), or (3) any other 
payment specified by the Secretary of the Treasury by 
regulations.\39\
---------------------------------------------------------------------------
    \39\ Sec. 401(a)(32) and ERISA sec. 206(e).
---------------------------------------------------------------------------
    Subject to certain exceptions, if an employer maintaining a 
plan is involved in bankruptcy proceedings, no plan amendment 
may be adopted that increases the liabilities of the plan by 
reason of any increase in benefits, any change in the accrual 
of benefits, or any change in the rate at which benefits vest 
under the plan.\40\ This limitation does not apply if the 
plan's funded current liability percentage is at least 100 
percent, taking into account the amendment.
---------------------------------------------------------------------------
    \40\ Sec. 401(a)(33) and ERISA sec. 204(i).
---------------------------------------------------------------------------

                        Explanation of Provision

In general
    As discussed below, the provision generally provides new, 
permanent minimum funding rules under the Code and ERISA for 
certain plans eligible for the PPA delayed effective date, 
referred to as ``CSEC'' plans. A CSEC plan is a defined benefit 
plan (other than a multiemployer plan) (1) that is an eligible 
cooperative plan to which the PPA delayed effective date 
applies (without regard to the January 1, 2017, end date), or 
(2) that, as of June 25, 2010 (the date of enactment of PRA 
2010), was maintained by more than one employer (taking into 
account the aggregation rules for controlled groups and groups 
under common control) and all of the employers were tax-exempt 
charitable organizations.\41\
---------------------------------------------------------------------------
    \41\ See Part Nine, IV.C for an amendment to this definition.
---------------------------------------------------------------------------
    If a plan is treated as a CSEC plan, the delayed effective 
date for the PPA funding rules ceases to apply to the plan as 
of the first date the plan is treated as a CSEC plan.\42\ 
However, a plan described in (1) or (2) is not a CSEC plan if 
the plan sponsor elects, not later than the close of the first 
plan year beginning after December 31, 2013, not to be treated 
as a CSEC plan.\43\ An election takes effect for the first plan 
year beginning after December 31, 2013, and, once made, may be 
revoked only with the consent of the Secretary of the Treasury.
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    \42\ A plan maintained by employers treated as a single employer 
under the aggregation rules is not a CSEC plan as defined under the 
provision. Thus, not all eligible charity plans as defined for purposes 
of the PPA delayed effective date come within the definition of CSEC 
plan. Those that do not may continue to be covered by the PPA delayed 
effective date.
    \43\ If an election not to be treated as a CSEC plan is made with 
respect to a plan eligible for the PPA delayed effective date, the plan 
may continue to be covered by the delayed effective date unless making 
an election as described in Part B.
---------------------------------------------------------------------------
Funding rules for CSEC plans
            In general
    Under the provision, CSEC plans are permanently exempted 
from the PPA funding rules generally applicable to single-
employer plans and multiple-employer plans. The provision 
establishes new minimum funding rules for CSEC plans that are 
similar to the rules applicable to eligible cooperative and 
eligible charity plans under the PPA delayed effective date, 
with the following modifications:\44\
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    \44\ Under the provision, a CSEC plan's amortization bases for plan 
years beginning before January 1, 2014, and related charges and credits 
continue to apply. In addition, the minimum funding requirement for a 
CSEC plan is determined as if all plan participants are employed by a 
single employer.
---------------------------------------------------------------------------
           the deficit reduction contribution rules are 
        repealed with respect to CSEC plans,
           new rules apply, as discussed below, to a 
        CSEC plan in ``restoration status,''
           supplemental cost attributable to past 
        service liability and a reduction in unfunded past 
        service liability as a result of a plan amendment 
        decreasing plan benefits are amortized over 15 years 
        (rather than 30 years),
           any funding method available to a CSEC plans 
        under the funding rules in effect before PPA continues 
        to be available under the CSEC rules,\45\
---------------------------------------------------------------------------
    \45\ As under present law, IRS approval is required for a change in 
funding method.
---------------------------------------------------------------------------
           all costs, liabilities, interest rates, and 
        other factors are required to be determined on the 
        basis of actuarial assumptions and methods, each of 
        which is reasonable (taking into account the experience 
        of the plan and reasonable expectations),\46\ and
---------------------------------------------------------------------------
    \46\ As under present law, the assumptions are also required to 
offer the actuary's best estimate of anticipated experience under the 
plan.
---------------------------------------------------------------------------
           the IRS may grant an amortization period 
        extension to a CSEC plan if it determines that (1) the 
        extension would carry out the purposes of ERISA and 
        would provide adequate protection for participants and 
        beneficiaries under the plan, and (2) the failure to 
        permit the extension would result in a substantial risk 
        to the voluntary continuation of the plan or a 
        substantial curtailment of pension benefit levels or 
        employee compensation.
            Rules relating to restoration status
    If a CSEC plan is in funding restoration status for a plan 
year, as discussed below, a special minimum contribution 
requirement applies, the plan sponsor must adopt a funding 
restoration plan, and the plan generally may not be amended to 
increase benefits. Under the provision, not later than the 90th 
day of a CSEC plan's plan year, the plan actuary of a CSEC plan 
must certify to the plan sponsor whether or not the plan is in 
funding restoration status for the plan year, based on the 
plan's funded percentage as of the beginning of the plan year.
    A CSEC plan is in funding restoration status for a plan 
year if the plan's funded percentage as of the beginning of the 
plan year is less than 80 percent. For this purpose, funded 
percentage means the ratio (expressed as a percentage) that the 
value of the plan's assets bears to the plan's funding 
liability. A plan's funding liability for a plan year is the 
present value of all benefits accrued or earned under the plan 
as of the beginning of the plan year, determined using the 
assumptions, including interest and mortality, used in other 
funding computations with respect to plan. In making the 
certification described above, the plan actuary may 
conclusively rely on an estimate of (1) the plan's funding 
liability, based on the funding liability of the plan for the 
preceding plan year and on reasonable actuarial estimates, 
assumptions, and methods, and (2) the amount of any 
contributions reasonably anticipated to be made for the 
preceding plan year.\47\ Reasonably anticipated contributions 
for the preceding year are taken into account in determining 
the plan's funded percentage as of the beginning of the plan 
year.
---------------------------------------------------------------------------
    \47\ Because contributions for a plan year may be made up to 8\1/2\ 
months after the end of the plan year, some contributions for the 
preceding year might not have been made by the time of the 
certification.
---------------------------------------------------------------------------
    If a plan is in restoration status for a plan year, the 
minimum required contribution is the greater of (1) the amount 
otherwise required without regard to restoration status and (2) 
the normal cost of the plan for the plan year.\48\ Thus, an 
accumulated funding deficiency will result if contributions are 
less than normal cost.
---------------------------------------------------------------------------
    \48\ In certain cases, a specific funding method, the entry age 
normal funding method, must be used in determining normal cost for this 
purpose.
---------------------------------------------------------------------------
    If a CSEC plan is certified as being in restoration status, 
within 180 days after receipt of the certification, the plan 
sponsor must establish a written funding restoration plan. If a 
CSEC plan remains in funding restoration status for more than a 
year, the plan sponsor must update the funding restoration plan 
each year within 180 days after receipt of the certification of 
restoration status. If a plan sponsor fails to adopt or update 
a funding restoration plan as required, the plan sponsor may be 
subject to an excise tax under the Code or an ERISA penalty of 
up to $100 per day.
    A funding restoration plan must consist of actions that are 
calculated, based on reasonably anticipated experience and 
reasonable actuarial assumptions, to increase the plan's funded 
percentage to 100 percent over seven years, or, if sooner, the 
shortest amount of time practicable. The funding restoration 
plan is to take into account contributions required under the 
minimum funding requirements (determined without regard to the 
funding restoration plan).
    If a CSEC plan is in funding restoration status for a plan 
year, no plan amendment may take effect during the plan year if 
it has the effect of increasing plan liabilities by means of 
increases in benefits, establishment of new benefits, changing 
the rate of benefit accrual, or changing the rate at which 
benefits vest under the plan. However, this prohibition does 
not apply to any plan amendment required to comply with any 
applicable law. The prohibition ceases to apply with respect to 
any plan year, effective as of the first day of the plan year 
(or if later, the effective date of the amendment), if a plan 
contribution is made, in addition to any contribution otherwise 
required under the funding rules, in an amount equal to the 
increase in the plan's funding liability as a result of the 
plan amendment.
Funding-related benefit restrictions
    Under the provision, CSEC plans are permanently exempted 
from the PPA funding-related benefit restrictions. CSEC plans 
are also exempted from (1) the restrictions on benefit 
increases when an employer maintaining a plan is involved in 
bankruptcy proceedings and (2) the ERISA restriction on 
prohibited payments if a plan has a liquidity shortfall and a 
quarterly installment is less than the amount required to cover 
the liquidity shortfall.

                             Effective Date

    The provision is generally effective for plan years 
beginning after December 31, 2013. The provision allowing a 
plan sponsor to elect out of CSEC status is effective on the 
date of enactment (April 7, 2014).

B. Election to Cease Treatment as an Eligible Charity Plan (sec. 103(b) 
    and (d) of the Act, sec. 430 of the Code and sec. 303 of ERISA)


                              Present Law


PPA funding rules for single-employer and multiple-employer plans

            In general
    Under PPA, new Code and ERISA minimum funding requirements 
apply to single-employer and multiple-employer defined benefit 
plans, generally effective for plan years beginning after 
December 31, 2007.\49\
---------------------------------------------------------------------------
    \49\ Secs. 412 and 430 and ERISA secs. 302-303. For further 
explanation of the funding requirements for single-employer plans as 
amended by PPA, see Part I.D.2 of Joint Committee on Taxation, Present 
Law and Background Relating to Qualified Defined Benefit Plans (JCX-99-
14), September 15, 2014, available at www.jct.gov.
---------------------------------------------------------------------------
    Under these rules, the minimum required contribution with 
respect to a plan for a plan year generally depends on a 
comparison of the value of the plan's assets, reduced by any 
prefunding balance or funding standard carryover balance (``net 
value of plan assets''),\50\ with the plan's funding target 
(the present value of all benefits accrued or earned as of the 
beginning of the plan year) and the plan's target normal cost 
(the present value of benefits expected to accrue or to be 
earned during the plan year plus administrative expenses).\51\
---------------------------------------------------------------------------
    \50\ The value of plan assets is generally reduced by any 
prefunding balance or funding standard carryover balance in determining 
minimum required contributions. A prefunding balance results from 
contributions to a plan that exceed the minimum required contributions. 
A funding standard carryover balance results from a positive balance in 
the funding standard account that applied under the funding 
requirements in effect before PPA. Subject to certain conditions, a 
prefunding balance or funding standard carryover balance may be 
credited against the minimum required contribution for a year, reducing 
the amount that must be contributed.
    \51\ Specific interest and mortality assumptions generally apply in 
determining a plan's funding target and target normal cost.
---------------------------------------------------------------------------
    If the net value of plan assets is less than the plan's 
funding target, so that the plan has a funding shortfall 
(discussed further below), the minimum required contribution is 
the sum of the plan's target normal cost and the shortfall 
amortization charge for the plan year (determined as described 
below).\52\ If the net value of plan assets is equal to or 
exceeds the plan's funding target, the minimum required 
contribution is the plan's target normal cost, reduced by the 
amount, if any, by which the net value of plan assets exceeds 
the plan's funding target.
---------------------------------------------------------------------------
    \52\ If the plan has obtained a funding waiver within the past five 
years, the minimum required contribution also includes the related 
waiver amortization charge, that is, the annual installment needed to 
amortize the waived amount in level installments over the five years 
following the year of the waiver.
---------------------------------------------------------------------------
            Shortfall amortization charge
    The shortfall amortization charge for a plan year is the 
sum of the annual shortfall amortization installments 
attributable to the shortfall bases for that plan year and the 
six previous plan years. Generally, if a plan has a funding 
shortfall for the plan year, a shortfall amortization base must 
be established for the plan year.\53\ A plan's funding 
shortfall is the amount by which the plan's funding target 
exceeds the net value of plan assets. The shortfall 
amortization base for a plan year is (1) the plan's funding 
shortfall, minus (2) the present value of the aggregate total 
of the ``shortfall amortization installments'' that have been 
determined for the plan year and any succeeding plan year with 
respect to any shortfall amortization bases for the six 
previous plan years. The shortfall amortization base is 
amortized in level annual installments (the ``shortfall 
amortization installments'') over a seven-year period beginning 
with the current plan year and using specified interest 
assumptions.\54\
---------------------------------------------------------------------------
    \53\ If the value of plan assets, reduced only by any prefunding 
balance if the employer elects to apply the prefunding balance against 
the required contribution for the plan year, is at least equal to the 
plan's funding target, no shortfall amortization base is established 
for the year.
    \54\ The shortfall amortization base for a plan year may be 
positive or negative, depending on whether the present value of 
remaining installments with respect to amortization bases for previous 
years is more or less than the plan's funding shortfall. If the 
shortfall amortization base is positive (that is, the funding shortfall 
exceeds the present value of the remaining installments), the related 
shortfall amortization installments are positive. If the shortfall 
amortization base is negative, the related shortfall amortization 
installments are negative. The positive and negative shortfall 
amortization installments for a particular plan year are netted when 
adding them up in determining the shortfall amortization charge for the 
plan year, but the resulting shortfall amortization charge cannot be 
less than zero (that is, negative amortization installments may not 
offset normal cost).
---------------------------------------------------------------------------
    If the net value of plan assets for a plan year is at least 
equal to the plan's funding target for the year, so the plan 
has no funding shortfall, any shortfall amortization bases and 
related shortfall amortization installments are eliminated.\55\ 
As indicated above, if the net value of plan assets exceeds the 
plan's funding target, the excess is applied against target 
normal cost in determining the minimum required contribution.
---------------------------------------------------------------------------
    \55\ Any amortization base relating to a funding waiver for a 
previous year is also eliminated.
---------------------------------------------------------------------------
            PRA 2010 relief under the PPA rules
    The Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (``PRA 2010'') 
allowed the sponsor of a plan subject to the PPA funding rules 
to elect a 15-year amortization period, rather than a seven-
year amortization period, with respect to the shortfall 
amortization bases for two plan years (``election years'') of 
the four plan years beginning in 2008, 2009, 2010 and 2011.\56\ 
The use of the longer amortization period for an eligible plan 
year had the effect of reducing the shortfall amortization 
installments attributable to the shortfall amortization base 
for that plan year, thus reducing required contributions for 
the first seven years in the 15-year amortization period.
---------------------------------------------------------------------------
    \56\ PRA 2010 also provided funding relief that could be elected 
with respect to a plan eligible for the delayed PPA effective date 
discussed below.
---------------------------------------------------------------------------
    Under PRA 2010, if, in any of the five years following an 
election year, the plan sponsor provides excessive compensation 
to an employee (generally, compensation in excess of $1 
million) or provides an extraordinary dividend or redemption 
with respect to its stock, subject to certain limits, the 
remaining shortfall amortization installments attributable to 
the shortfall amortization base for the election year are 
generally accelerated, increasing the required contribution for 
that year.

PPA delayed effective date for eligible charity plans

    As discussed in Part A, under PRA 2010, a delayed effective 
date for the PPA funding rules applies to ``eligible charity 
plans.'' A plan in existence on July 26, 2005, is treated as an 
eligible charity plan for a plan year if (1) it is maintained 
by more than one employer (determined for this purpose without 
regard to the aggregation rules for groups under common 
control) and (2) 100 percent of the employers maintaining the 
plan are tax-exempt charitable organizations. Under the delayed 
effective date, the PPA funding rules apply to an eligible 
charity plan as of the earlier of (1) the first plan year for 
which the plan ceases to be an eligible charity plan or (2) 
January 1, 2017.\57\
---------------------------------------------------------------------------
    \57\ Because the PPA funding rules had already gone into effect for 
plan years beginning after December 31, 2007, retroactive application 
of the delayed effective date under PRA 2010 meant that some eligible 
charity plans already using the PPA rules could be forced to change 
back to the pre-PPA rules, resulting in administrative burden and 
expense.
---------------------------------------------------------------------------

                        Explanation of Provision


In general

    The provision allows the plan sponsor of an eligible 
charity plan (as defined under PRA 2010) to elect that the plan 
cease being treated as an eligible charity plan for plan years 
beginning after December 31, 2013. In the case of an eligible 
charity plan that is not a CSEC plan as discussed in Part A, 
the election has the effect of applying the PPA funding rules 
for these years.\58\ A plan sponsor that makes an election may 
also elect to use a special computation, as discussed below, in 
applying the PPA funding rules to the first plan year beginning 
after December 31, 2013. Either of these elections must be made 
at the time and in the form and manner as prescribed by the 
Secretary of the Treasury and may be revoked only with the 
consent of the Secretary.
---------------------------------------------------------------------------
    \58\ In the case of an eligible charity plan that is a CSEC plan, 
this result can be obtained by also making an election out of CSEC 
treatment as described in Part A.
---------------------------------------------------------------------------
    The provision also allows the plan sponsor of an eligible 
charity plan (as defined under PRA 2010) to make a one-time, 
irrevocable election not to be treated as an eligible charity 
plan, retroactive to the first plan year beginning after 
December 31, 2007.\59\ This election is made by providing 
reasonable notice to the Secretary.
---------------------------------------------------------------------------
    \59\ This election would affirm an eligible charity plan's 
consistent use of the PPA funding rules plan year beginning after 
December 31, 2007, rather than applying the PPA delayed effective date 
as extended to eligible charity plans by PRA 2010.
---------------------------------------------------------------------------

Special funding computation

    Under the special computation, for the first plan year 
beginning after December 31, 2013, rather than a single 
shortfall amortization base, a plan has (1) an 11-year 
shortfall amortization base, (2) a 12-year shortfall 
amortization base, and (3) a 7-year shortfall amortization 
base.\60\ The shortfall amortization charges for the first plan 
year beginning after December 31, 2013, and subsequent years 
include the shortfall amortization installments attributable to 
the three shortfall amortization bases. The shortfall 
amortization installments attributable to the 11-year shortfall 
amortization base and the 12-year shortfall amortization base 
are determined as under the PPA rules, except that 11-year and 
12-year periods, respectively, are substituted for the seven-
year amortization period applicable under PPA.
---------------------------------------------------------------------------
    \60\ Eleven years is the period that would remain as of 2014 if, 
under PRA 2010, a 15-year amortization period had been used with 
respect to a plan's shortfall amortization base for 2010, and twelve 
years is the period that would remain as of 2014 if, under PRA 2010, a 
15-year amortization period had been used with respect to a plan's 
shortfall amortization base for 2011.
---------------------------------------------------------------------------
    The plan's 11-year shortfall amortization base is the 
amount that, as of the first plan year beginning after December 
31, 2013, would be the unamortized principal amount of the 
shortfall amortization base that would have applied to the plan 
for the first plan year beginning after December 31, 2009, if 
the plan had never been an eligible charity plan,\61\ the plan 
sponsor had elected a 15-year amortization period for that 
year, and no event (such as excessive employee compensation) 
had occurred to accelerate the shortfall amortization 
installments attributable to the shortfall amortization base 
for that year. Similarly, the plan's 12-year shortfall 
amortization base is the amount that, as of the first plan year 
beginning after December 31, 2013, would be the unamortized 
principal amount of the shortfall amortization base that would 
have applied to the plan for the first plan year beginning 
after December 31, 2010, if the plan had never been an eligible 
charity plan, the plan sponsor had elected a 15-year 
amortization period for that year, and no event (such as 
excessive compensation) had occurred to accelerate the 
shortfall amortization installments attributable to the 
shortfall amortization base for that year. The plan's 7-year 
shortfall amortization base is the amount of the shortfall 
amortization base for the first plan year beginning after 
December 31, 2013, determined without regard to the special 
computation, minus the sum of the plan's 11-year and 12-year 
shortfall amortization bases.
---------------------------------------------------------------------------
    \61\ If the plan had never been an eligible charity plan, shortfall 
amortization bases under the PPA funding rules would have applied for 
the previous two plan years beginning after December 31, 2007. Thus, 
the shortfall amortization base for the first plan beginning after 
December 31, 2009 would have been (1) the plan's funding shortfall for 
that year, minus (2) the present value of the aggregate total of the 
remaining shortfall amortization installments attributable to the 
shortfall amortization bases for the two previous plan years.
---------------------------------------------------------------------------
    Under the provision, the PRA 2010 rules relating to the 
acceleration of shortfall amortization installments 
attributable to the shortfall amortization base for the first 
plan year beginning after December 31, 2013, are applied by 
treating that year (and no other year) as an election year.

                             Effective Date

    The provision is effective on the date of enactment (April 
7, 2014).

C. Deemed Election for Church Plans (sec. 103(c) and (d) of the Act and 
                        sec. 410(d) of the Code)


                              Present Law


PBGC insurance program

    The Pension Benefit Guaranty Corporation (``PBGC'') 
provides an insurance program for benefits under most defined 
benefit plans maintained by private employers.\62\ Defined 
benefit plans covered by the PBGC insurance program are 
required to pay annual premiums to the PBGC.
---------------------------------------------------------------------------
    \62\ ERISA secs. 4001-4402.
---------------------------------------------------------------------------
    If the assets of a single-employer plan are not sufficient 
to pay benefits due under the plan and the plan terminates in a 
distress termination (for example, in a bankruptcy proceeding 
of the employer maintaining the plan), the plan becomes the 
responsibility of the PBGC. The PBGC becomes the trustee of the 
plan, takes control of any plan assets, and assumes 
responsibility for benefits that cannot be provided from plan 
assets, subject to certain limits.

Church Plans

    A church plan is generally exempted from various Code 
requirements otherwise applicable to qualified retirement 
plans, including, in the case of a defined benefit plan that is 
a church plan, the minimum funding requirements.\63\ A church 
plan is also generally exempt from ERISA, including, in the 
case of a defined benefit plan that is a church plan, the PBGC 
insurance program.\64\
---------------------------------------------------------------------------
    \63\ Secs. 401(a), last sentence, 410(c)(1)(B) and (d), 
411(e)(1)(B), and 412(e)(2)(D). A church plan is also exempted from the 
vesting and anti-cutback requirements generally applicable to qualified 
retirement plans.
    \64\ ERISA secs. 4(b)(2) and 4021(b)(3).
---------------------------------------------------------------------------
    A church plan is defined as a plan established and 
maintained for its employees by a church or by a convention or 
association of churches that is exempt from income tax.\65\ For 
this purpose, an employee of a church or a convention or 
association of churches includes an employee of an 
organization, whether a civil law corporation or otherwise, 
that is exempt from income tax and is controlled by or 
associated with a church or a convention or association of 
churches.
---------------------------------------------------------------------------
    \65\ Sec. 414(e). A similar definition applies under ERISA section 
3(33).
---------------------------------------------------------------------------
    The exemption from the Code requirements does not apply if 
the church or convention or association of churches maintaining 
the plan makes an election to apply the Code requirements 
(referred to as an ``electing'' church plan).\66\ This election 
is irrevocable. If an election is made, the Code requirements 
apply to the electing church plan in the same manner as other 
plans. In addition, ERISA applies to an electing church plan. 
With respect to coverage under the PBGC insurance program, an 
electing church plan must notify the PBGC that it wishes to 
have the provisions of the PBGC insurance program apply.
---------------------------------------------------------------------------
    \66\ Sec. 410(d) and Treas. Reg. sec. 1.410(d)-1. A church plan 
with respect to which an election under section 410(d) is not made is 
referred to as a ``nonelecting'' church plan.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, in certain circumstances, an 
irrevocable election of electing church plan status is deemed 
to have been made with respect to a church plan. An election is 
deemed to have been made if (1) the plan was established before 
January 1, 2014, (2) the plan meets the definition of a CSEC 
plan, (3) the plan sponsor does not elect out of CSEC 
treatment, and (4) the plan, plan sponsor, plan administrator, 
or fiduciary remits one or more premium payments for the plan 
to the PBGC for a plan year beginning after December 31, 2013.
    If a deemed election is made, the plan covered by the 
election is an electing church plan and is subject to the Code 
requirements generally applicable to qualified retirement plans 
and to ERISA.

                             Effective Date

    The provision is effective on the date of enactment (April 
7, 2014).

 D. Transparency in Annual Reports and Notices (secs. 3 and 104 of the 
             Act and secs. 101(d), 101(f) and 103 of ERISA)


                              Present Law

    Under ERISA, the plan administrator of a defined benefit or 
defined contribution plan must file an annual report with the 
Secretary of Labor. The annual report must contain certain 
information about the plan, such as a statement of the plan's 
assets and liabilities and contributions made for the plan 
year.\67\
---------------------------------------------------------------------------
    \67\ Similar annual reporting requirements apply under the Code 
(sections 6058 and 6059), and, under section 4065 of ERISA, the plan 
administrator of a defined benefit plan must file an annual report with 
the PBGC. A plan administrator complies with all of these Code and 
ERISA reporting requirements by filing an Annual Return/Report of 
Employee Benefit Plan, Form 5500 series, and providing the information 
as required on the form and related instructions.
---------------------------------------------------------------------------
    ERISA requires the plan administrator of a defined benefit 
plan to provide an annual funding notice to each plan 
participant and beneficiary, each labor organization 
representing participants or beneficiaries, and the PBGC. 
Certain information must be included in any funding notice, 
regardless of the type of plan, that is, regardless of whether 
the plan is a single-employer, multiple-employer or 
multiemployer plan. Funding notices must also include 
additional information that varies with the type of plan.
    ERISA requires an employer maintaining a single-employer or 
multiple-employer defined benefit plan to notify plan 
participants and beneficiaries if the employer fails to make 
contributions required under the funding rules. An exception 
applies if the employer requests a funding waiver from the IRS. 
However, if the waiver request is denied, the employer must 
notify the employees of the failure to make required 
contributions within 60 days after the denial.

                        Explanation of Provision

    In connection with the funding rules for CSEC plans as 
discussed in Part A, the provision revises the annual report 
and certain notice requirements as described below.
    The provision requires the annual report filed with respect 
to a CSEC plan to include a list of participating employers and 
a good faith estimate of the percentage of total contributions 
made by the participating employers during the plan year.
    The provision amends the annual funding notice requirements 
to require a funding notice with respect to a CSEC plan to 
include (1) a statement that different rules apply to CSEC 
plans than apply to single-employer plans, (2) for the first 
two plan years beginning after December 31, 2013, a statement 
that, as a result of changes made by the Cooperative and Small 
Employer Charity Pension Flexibility Act, the contributions to 
the plan may have changed, and (3) in the case of a CSEC plan 
in funding restoration status for a plan year, a statement that 
the plan is in funding restoration status for the plan year. A 
copy of the statement described in (3) must be provided to the 
Secretary of Labor, the Secretary of the Treasury, and the 
Director of the PBGC.
    Under the provision, if an employer maintaining a CSEC plan 
fails to make a required contribution, the employer must notify 
plan participants and beneficiaries unless the employer 
requests a funding waiver. However, if the waiver request is 
denied, the employer must notify the employees of the failure 
to make required contributions within 60 days after the denial.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2013.

  E. Sponsor Education and Assistance (secs. 3 and 105 of the Act and 
                          sec. 4004 of ERISA)


                              Present Law

    Under ERISA, the PBGC board of directors selects a 
Participant and Plan Sponsor Advocate, who generally acts as a 
liaison between the PBGC, defined benefit plan sponsors, and 
participants in defined benefit plans trusteed by the PBGC.

                        Explanation of Provision

    Under the provision, the Participant and Plan Sponsor 
Advocate is directed as part of his or her duties to make 
himself or herself available to assist CSEC plan sponsors and 
participants.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2013.

   PART SEVEN: REVENUE PROVISIONS OF THE HIGHWAY AND TRANSPORTATION 
             FUNDING ACT OF 2014 (PUBLIC LAW 113-159) \68\

A. Extension of Highway Trust Fund Expenditure Authority (sec. 2001 of 
           the Act and secs. 9503, 9504 and 9508 of the Code)

                              Present Law

In general
    Six separate excise taxes are imposed to finance the 
Federal Highway Trust Fund program. Three of these taxes are 
imposed on highway motor fuels. The remaining three are a 
retail sales tax on heavy highway vehicles, a manufacturers' 
excise tax on heavy vehicle tires, and an annual use tax on 
heavy vehicles. A substantial majority of the revenues produced 
by the Highway Trust Fund excise taxes are derived from the 
taxes on motor fuels. The annual use tax on heavy vehicles 
expires October 1, 2017. Except for 4.3 cents per gallon of the 
Highway Trust Fund fuels tax rates, the remaining taxes are 
scheduled to expire October 1, 2016. The 4.3-cents-per-gallon 
portion of the fuels tax rates is permanent.\69\
---------------------------------------------------------------------------
    \68\ H.R. 5021. The House Committee on Ways and Means reported H.R. 
5021 on July 14, 2014 (H.R. Rep. 113-520 (Part 1)). The House passed 
H.R. 5021 on July 15, 2014. The Senate passed the bill with an 
amendment on July 29, 2014. The House disagreed to the Senate amendment 
on July 31, 2014, and the Senate receded from its amendment the same 
day. The President signed the bill on August 8, 2014.
    \69\ This portion of the tax rates was enacted as a deficit 
reduction measure in 1993. Receipts from it were retained in the 
General Fund until 1997 legislation provided for their transfer to the 
Highway Trust Fund.
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    Revenues from the excise taxes generally are dedicated to 
the Highway Trust Fund. Dedication of excise tax revenues to 
the Highway Trust Fund and expenditures from the Highway Trust 
Fund are governed by the Code.\70\ As discussed below, the Code 
authorizes expenditures (subject to appropriations) from the 
Highway Trust Fund through September 30, 2014.
---------------------------------------------------------------------------
    \70\ Sec. 9503. Unless otherwise stated, all section references are 
to the Internal Revenue Code of 1986, as amended (the ``Code'').
---------------------------------------------------------------------------
Highway Trust Fund expenditure purposes
    Section 9503 contains the operative rules for the transfer 
of revenues to the Highway Trust Fund and for the expenditure 
of monies from the Highway Trust Fund. In general, these rules 
provide for transfer from the General Fund of ``gross 
receipts'' from the Highway Trust Fund excise taxes to the 
Highway Trust Fund. Amounts deposited in the Highway Trust Fund 
are divided between a Mass Transit Account and a residual 
account, the ``Highway Account.'' \71\ The Mass Transit Account 
generally receives 2.86 cents per gallon of the Highway Trust 
Fund motor fuels excise taxes.\72\ The balance of the motor 
fuels tax receipts and all receipts from the three non-fuels 
excise taxes are deposited in the Highway Account.
---------------------------------------------------------------------------
    \71\ Sec. 9503(e)(1).
    \72\ Sec. 9503(e)(2).
---------------------------------------------------------------------------
    The Highway Trust Fund expenditure purposes have been 
revised with each authorization Act enacted since establishment 
of the Highway Trust Fund in 1956. In general, expenditures 
authorized under those Acts (as the Acts were in effect on the 
date of enactment of the most recent such authorizing Act, 
currently the Moving Ahead for Progress in the 21st Century Act 
or ``MAP-21'' \73\) are specified by the Code as authorized 
Highway Trust Fund expenditure purposes.\74\ The Code provides 
that the authority to make expenditures from the Highway Trust 
Fund for these purposes expires after September 30, 2014. Thus, 
no Highway Trust Fund expenditures may occur after September 
30, 2014, without an amendment to the Code.
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    \73\ The short title for Pub. L. No. 112-141 is ``MAP-21'' and the 
law is also known as the ``Moving Ahead for Progress in the 21st 
Century Act.''
    \74\ Sec. 9503(c)(1).
---------------------------------------------------------------------------

                           Reasons for Change

    The current Highway Trust Fund expenditure authority was 
expiring after September 30, 2014. The Congress believed that 
an extension of that authority, through May 31, 2015, would 
give the Congress sufficient time to carefully consider a more 
long-term reauthorization of the Highway Trust Fund and also 
minimize disruption and provide some stability for State 
transportation programs dependent on funding from the Highway 
Trust Fund.

                        Explanation of Provision

    The expenditure authority for the Highway Trust Fund is 
extended through May 31, 2015. The Code provisions governing 
the purposes for which monies in the Highway Trust Fund may be 
spent are updated to include the ``Highway and Transportation 
Funding Act of 2014.'' The provision also updates the Code 
provisions governing the Leaking Underground Storage Tank Trust 
Fund, and the Sport Fish Restoration and Boating Trust Fund.

                             Effective Date

    The provision is effective on the date of enactment (August 
8, 2014).

 B. Funding of the Highway Trust Fund (sec. 2002 of the Act and secs. 
                    9503(f) and 9508(c) of the Code)

                              Present Law

    Public Law No. 110-318, ``an Act to amend the Internal 
Revenue Code of 1986 to restore the Highway Trust Fund 
balance'' transferred, out of money in the Treasury not 
otherwise appropriated, $8,017,000,000 to the Highway Trust 
Fund effective September 15, 2008. Public Law No. 111-46, ``an 
Act to restore sums to the Highway Trust Fund,'' transferred, 
out of money in the Treasury not otherwise appropriated, $7 
billion to the Highway Trust Fund effective August 7, 2009. The 
Hiring Incentives to Restore Employment Act transferred, out of 
money in the Treasury not otherwise appropriated, 
$14,700,000,000 to the Highway Trust Fund and $4,800,000,000 to 
the Mass Transit Account in the Highway Trust Fund.\75\
---------------------------------------------------------------------------
    \75\ The Hiring Incentives to Restore Employment Act (the ``HIRE'' 
Act), Pub. L. No. 111-147, sec. 442.
---------------------------------------------------------------------------
    MAP-21 provided that, out of money in the Treasury not 
otherwise appropriated, the following transfers were to be made 
from the General Fund to the Highway Trust Fund:

------------------------------------------------------------------------
                                     FY 2013               FY 2014
------------------------------------------------------------------------
Highway Account.............  $6.2 billion........  $10.4 billion
Mass Transit Account........  ....................  $2.2 billion
------------------------------------------------------------------------

    MAP-21 also transferred $2.4 billion from the Leaking 
Underground Storage Tank Trust Fund to the Highway Account in 
the Highway Trust Fund.\76\
---------------------------------------------------------------------------
    \76\ Moving Ahead for Progress in the 21st Century Act (``MAP-
21''), Pub. L. No. 112-141, sec. 40201(a)(2) and sec. 40251.
---------------------------------------------------------------------------

                           Reasons for Change

    Both the Highway Account and the Mass Transit Account of 
the Highway Trust Fund were nearing insolvency. If the Congress 
did not act, it was anticipated that the Mass Transit Account 
would have only $1 billion available by the end of the fiscal 
year, and the Highway Account was expected to experience a 
shortfall by August 2014.\77\ As a result, the Department of 
Transportation had notified State transportation authorities 
that beginning August 1, 2014, for programs funded out of the 
Highway Account, the Department of Transportation would 
undertake cash management procedures that would limit payments 
and eliminate ``same-day'' reimbursements to States.\78\ 
Instead, payments would be made twice a month and incoming 
funds would be distributed in proportion to each State's 
Federal formula apportionment in the 2014 fiscal year.
---------------------------------------------------------------------------
    \77\ U.S. Department of Transportation, Highway Trust Fund Ticker 
(July 9, 2014). 
    \78\ See, e.g., Anthony R. Foxx, Letter of Anthony R. Foxx, 
Secretary of Transportation, to John R. Cooper, Transportation 
Director, Alabama Department of Transportation (July 1, 2014).
---------------------------------------------------------------------------
    The Congress believed that additional funding for the 
Highway Trust Fund should be provided in an amount sufficient 
to avoid short-term disruption of Federally-funded 
transportation programs, while giving the Congress enough time 
to stabilize that Trust Fund's finances over the longer term. 
The Congress further believed that this additional, short-term 
funding should be provided to the Highway Trust Fund in a 
manner that was budget-neutral and did not involve permanent 
tax increases.

                        Explanation of Provision

    The provision transfers from the General Fund $7.765 
billion to the Highway Account of the Highway Trust Fund and $2 
billion to the Mass Transit Account of the Highway Trust Fund. 
The provision also transfers $1 billion from the Leaking 
Underground Storage Tank Trust Fund to the Highway Account of 
the Highway Trust Fund.

                             Effective Date

    The provision is effective on the date of enactment (August 
8, 2014).

 C. Pension Funding Stabilization (sec. 2003 of the Act and secs. 430 
                          and 436 of the Code)


                              Present Law


Minimum funding rules

    A defined benefit plan maintained by a single employer is 
subject to minimum funding rules that generally require the 
sponsoring employer to make a certain level of contribution for 
each plan year to fund plan benefits.\79\ The minimum funding 
rules for single-employer defined benefit plans were 
substantially revised by the Pension Protection Act of 2006 
(``PPA'').\80\
---------------------------------------------------------------------------
    \79\ Sec. 412 and section 302 of the Employee Retirement Income 
Security Act of 1974 (``ERISA''). For purposes of whether a plan is 
maintained by a single employer, certain related entities, such as the 
members of a controlled group, are treated as a single employer. 
Different funding rules apply to multiemployer and multiple-employer 
defined benefit plans, which are types of plans maintained by two or 
more unrelated employers. A number of exceptions to the minimum funding 
rules apply. For example, governmental plans (within the meaning of 
section 414(d)) and church plans (within the meaning of section 414(e)) 
are generally not subject to the minimum funding rules. Under section 
4971, an excise tax applies if the minimum funding requirements are not 
satisfied.
    \80\ Pub. L. No. 109-280. The PPA minimum funding rules for single-
employer plans are generally effective for plan years beginning after 
December 31, 2007. Subsequent changes were made by the Worker, Retiree, 
and Employer Recovery Act of 2008 (``WRERA''), Pub. L. No. 110-458; the 
Preservation of Access to Care for Medicare Beneficiaries and Pension 
Relief Act of 2010 (``PRA 2010''), Pub. L. No. 111-192; and MAP-21, 
discussed further herein.
---------------------------------------------------------------------------

Minimum required contributions

            In general
    The minimum required contribution for a plan year for a 
single-employer defined benefit plan generally depends on a 
comparison of the value of the plan's assets, reduced by any 
prefunding balance or funding standard carryover balance (``net 
value of plan assets''),\81\ with the plan's funding target and 
target normal cost. The plan's funding target for a plan year 
is the present value of all benefits accrued or earned as of 
the beginning of the plan year. A plan's target normal cost for 
a plan year is generally the present value of benefits expected 
to accrue or to be earned during the plan year.
---------------------------------------------------------------------------
    \81\ The value of plan assets is generally reduced by any 
prefunding balance or funding standard carryover balance in determining 
minimum required contributions. A prefunding balance results from plan 
contributions that exceed the minimum required contributions. A funding 
standard carryover balance results from a positive balance in the 
funding standard account that applied under the funding requirements in 
effect before PPA. Subject to certain conditions, a prefunding balance 
or funding standard carryover balance may be credited against the 
minimum required contribution for a year, reducing the amount that must 
be contributed.
---------------------------------------------------------------------------
    If the net value of plan assets is less than the plan's 
funding target, so that the plan has a funding shortfall 
(discussed further below), the minimum required contribution is 
the sum of the plan's target normal cost and the shortfall 
amortization charge for the plan year (determined as described 
below).\82\ If the net value of plan assets is equal to or 
exceeds the plan's funding target, the minimum required 
contribution is the plan's target normal cost, reduced by the 
amount, if any, by which the net value of plan assets exceeds 
the plan's funding target.
---------------------------------------------------------------------------
    \82\ If the plan has obtained a waiver of the minimum required 
contribution (a funding waiver) within the past five years, the minimum 
required contribution also includes the related waiver amortization 
charge, that is, the annual installment needed to amortize the waived 
amount in level installments over the five years following the year of 
the waiver.
---------------------------------------------------------------------------
            Shortfall amortization charge
    The shortfall amortization charge for a plan year is the 
sum of the annual shortfall amortization installments 
attributable to the shortfall bases for that plan year and the 
six previous plan years. Generally, if a plan has a funding 
shortfall for the plan year, a shortfall amortization base must 
be established for the plan year.\83\ A plan's funding 
shortfall is the amount by which the plan's funding target 
exceeds the net value of plan assets. The shortfall 
amortization base for a plan year is: (1) the plan's funding 
shortfall, minus (2) the present value, determined using the 
segment interest rates (discussed below), of the aggregate 
total of the shortfall amortization installments that have been 
determined for the plan year and any succeeding plan year with 
respect to any shortfall amortization bases for the six 
previous plan years. The shortfall amortization base is 
amortized in level annual installments (``shortfall 
amortization installments'') over a seven-year period beginning 
with the current plan year and using the segment interest rates 
(discussed below).\84\
---------------------------------------------------------------------------
    \83\ If the value of plan assets, reduced only by any prefunding 
balance if the employer elects to apply the prefunding balance against 
the required contribution for the plan year, is at least equal to the 
plan's funding target, no shortfall amortization base is established 
for the year.
    \84\ Under PRA 2010, employers were permitted to elect to use one 
of two alternative extended amortization schedules for up to two 
``eligible'' plan years during the period 2008-2011. The use of an 
extended amortization schedule has the effect of reducing the amount of 
the shortfall amortization installments attributable to the shortfall 
amortization base for the eligible plan year. However, the shortfall 
amortization installments attributable to an eligible plan year may be 
increased by an additional amount, an ``installment acceleration 
amount,'' in the case of employee compensation exceeding $1 million, 
extraordinary dividends, or stock redemptions within a certain period 
of the eligible plan year.
---------------------------------------------------------------------------
    The shortfall amortization base for a plan year may be 
positive or negative, depending on whether the present value of 
remaining installments with respect to amortization bases for 
previous years is more or less than the plan's funding 
shortfall. If the shortfall amortization base is positive (that 
is, the funding shortfall exceeds the present value of the 
remaining installments), the related shortfall amortization 
installments are positive. If the shortfall amortization base 
is negative, the related shortfall amortization installments 
are negative. The positive and negative shortfall amortization 
installments for a particular plan year are netted when adding 
them up in determining the shortfall amortization charge for 
the plan year, but the resulting shortfall amortization charge 
cannot be less than zero (that is, negative amortization 
installments may not offset normal cost).
    If the net value of plan assets for a plan year is at least 
equal to the plan's funding target for the year, so the plan 
has no funding shortfall, any shortfall amortization bases and 
related shortfall amortization installments are eliminated.\85\ 
As indicated above, if the net value of plan assets exceeds the 
plan's funding target, the excess is applied against target 
normal cost in determining the minimum required contribution.
---------------------------------------------------------------------------
    \85\ Any amortization base relating to a funding waiver for a 
previous year is also eliminated.
---------------------------------------------------------------------------

Interest rate used to determine target normal cost and funding target

    The minimum funding rules for single-employer plans specify 
the interest rates and certain other actuarial assumptions that 
must be used in determining the present value of benefits for 
purposes of a plan's target normal cost and funding target.
    Present value is generally determined using three interest 
rates (``segment'' rates), each of which applies to benefit 
payments expected to be made from the plan during a certain 
period.\86\ The first segment rate applies to benefits 
reasonably determined to be payable during the five-year period 
beginning on the first day of the plan year; \87\ the second 
segment rate applies to benefits reasonably determined to be 
payable during the 15-year period following the initial five-
year period; and the third segment rate applies to benefits 
reasonably determined to be payable after the end of the 15-
year period. Under the funding rules as enacted in PPA (``PPA'' 
rules), each segment rate is a single interest rate determined 
monthly by the Secretary of the Treasury, on the basis of a 
corporate bond yield curve, taking into account only the 
portion of the yield curve based on corporate bonds maturing 
during the particular segment rate period. The corporate bond 
yield curve used for this purpose reflects the average, for the 
24-month period ending with the preceding month, of yields on 
investment grade corporate bonds with varying maturities and 
that are in the top three quality levels available. The 
Internal Revenue Service (``IRS'') publishes the segment rates 
each month.
---------------------------------------------------------------------------
    \86\ Solely for purposes of determining minimum required 
contributions, in lieu of the segment rates, an employer may elect to 
use interest rates on a yield curve based on the yields on investment 
grade corporate bonds for the month preceding the month in which the 
plan year begins (that is, without regard to the 24-month averaging 
described above) (``monthly yield curve''). If an election to use a 
monthly yield curve is made, it cannot be revoked without IRS approval.
    \87\ Subject to an exception for small plans with no more than 100 
participants, the annual valuation date for a plan must be the first 
day of the plan year. Thus, except for small plans with valuation dates 
other than the first day of the plan year, the period for which the 
first segment rate applies begins on the valuation date.
---------------------------------------------------------------------------
    Under MAP-21, for plan years beginning after December 31, 
2011, a segment rate determined under the PPA rules is adjusted 
if it falls outside a specified percentage range of the average 
segment rates for a preceding period. In particular, if a 
segment rate determined under the PPA rules is less than the 
applicable minimum percentage in the specified range, the 
segment rate is adjusted upward to match the minimum 
percentage. If a segment rate determined under the PPA rules is 
more than the applicable maximum percentage in the specified 
range, the segment rate is adjusted downward to match the 
maximum percentage. For this purpose, an average segment rate 
is the average of the segment rates determined under the PPA 
rules for the 25-year period ending September 30 of the 
calendar year preceding the calendar year in which the plan 
year begins. The Secretary is to determine average segment 
rates on an annual basis and may prescribe equivalent rates for 
any years in the 25-year period for which segment rates 
determined under the PPA rules are not available. The Secretary 
is directed to publish the average segment rates each month.
    The specified percentage range (that is, the range from the 
applicable minimum percentage to the applicable maximum 
percentage) for a plan year is determined by reference to the 
calendar year in which the plan year begins as follows:
           90 percent to 110 percent for 2012,
           85 percent to 115 percent for 2013,
           80 percent to 120 percent for 2014,
           75 percent to 125 percent for 2015, and
           70 percent to 130 percent for 2016 or later.

Funding-related benefit restrictions

    Special rules may apply to a plan if its funding target 
attainment percentage is below a certain level.\88\ A plan's 
funding target attainment percentage for a plan year is the 
ratio, expressed as a percentage, that the net value of plan 
assets bears to the plan's funding target for the year. Because 
a plan's funding target is a component of the plan's funding 
target attainment percentage, the interest rate used in 
determining the plan's funding target generally applies also in 
determining the plan's funding target attainment 
percentage.\89\
---------------------------------------------------------------------------
    \88\ For example, funding target attainment percentage is used to 
determine whether a plan is in ``at-risk'' status, so that special 
actuarial assumptions (``at-risk assumptions'') must be used in 
determining the plan's funding target and target normal cost. A plan is 
in at risk status for a plan year if, for the preceding year: (1) the 
plan's funding target attainment percentage, determined without regard 
to the at-risk assumptions, was less than 80 percent, and (2) the 
plan's funding target attainment percentage, determined using the at-
risk assumptions (without regard to whether the plan was in at-risk 
status for the preceding year), was less than 70 percent. A similar 
test applies in order for an employer to be permitted to apply a 
prefunding balance against its required contribution. That is, for the 
preceding year, the ratio of the value of plan assets (reduced by any 
prefunding balance) must be at least 80 percent of the plan's funding 
target (determined without regard to the at-risk rules).
    \89\ The adjustments to the segment rates under MAP-21 do not apply 
for certain other purposes for which the segment rates are used, for 
example, in calculating the limits on deductible contributions to 
single-employer defined benefit plans under section 404.
---------------------------------------------------------------------------
    Restrictions on benefit increases, certain types of benefit 
payments (``prohibited payments'') and benefit accruals 
(collectively referred to as ``benefit restrictions'') may 
apply to a plan if the plan's adjusted funding target 
attainment percentage is below a certain level.\90\ The plan's 
adjusted funding target attainment percentage is determined in 
the same way as its funding target attainment percentage, 
except that the net value of plan assets and the plan's funding 
target are both increased by the aggregate amount of purchases 
of annuities for employees, other than highly compensated 
employees, made by the plan during the two preceding plan 
years. Although anti-cutback rules generally prohibit 
reductions in benefits that have already been earned under a 
plan,\91\ reductions required to comply with the benefit 
restrictions are permitted.
---------------------------------------------------------------------------
    \90\ Code secs. 401(a)(29) and 436 and ERISA sec. 206(g).
    \91\ Code sec. 411(d)(6) and ERISA sec. 204(g).
---------------------------------------------------------------------------
    Under these rules, a prohibited payment generally means (1) 
any payment in excess of the monthly benefit amount paid under 
a single life annuity (plus any social security supplement), or 
(2) any payment for the purchase of an irrevocable commitment 
from an insurer to pay benefits. Prohibited payments generally 
may not be made if the plan's adjusted funding target 
attainment percentage is less than 60 percent. If a plan's 
adjusted funding target attainment percentage is at least 60 
percent, but less than 80 percent, prohibited payments may be 
made, but subject to limits. In addition, prohibited payments 
may not be made during any period in which the plan sponsor is 
a debtor in a bankruptcy proceeding under Federal or State law 
unless the plan's adjusted funding target attainment percentage 
is at least 100 percent.

Annual funding notice

    The plan administrator of a single-employer defined benefit 
plan must provide an annual funding notice to each participant 
and beneficiary, each labor organization representing such 
participants or beneficiaries, and the Pension Benefit Guaranty 
Corporation (``PBGC'').\92\ In addition to the information 
required to be provided in all funding notices, in the case of 
a single-employer defined benefit plan, the notice must include 
(1) the plan's funding target attainment percentage for the 
plan year to which the notice relates and the two preceding 
plan years, (2) the value of the plan's assets and benefit 
liabilities (that is, the present value of benefits owed under 
the plan) for the plan year and the two preceding years, 
determined in the same manner as under the funding rules, and 
(3) the value of the plan's assets and benefit liabilities as 
of the last day of the plan year to which the notice relates, 
determined using the fair market value of plan assets (rather 
value determined under the funding rules) and, in computing 
benefit liabilities, the interest rates used in computing 
variable-rate PBGC premiums.\93\
---------------------------------------------------------------------------
    \92\ ERISA sec. 101(f), originally enacted by section 103 of the 
Pension Funding Equity Act of 2004, Pub. L. No. 108-218. Annual funding 
notice requirements, with some differences, apply also to multiemployer 
and multiple-employer plans.
    \93\ In applying the funding rules, the value of plan assets may be 
determined on the basis of average fair market values over a period of 
up to 24 months. PBGC variable-rate premiums are based on a plan's 
unfunded vested benefit liabilities, computed using the first, second 
and third segment rates as determined under the PPA rules (without 
adjustments under MAP-21), but based on a monthly corporate bond yield 
curve, rather than a yield curve reflecting average yields for a 24-
month period.
---------------------------------------------------------------------------
    Under MAP-21, additional information must be included in a 
single-employer plan's annual funding notice in the case of an 
applicable plan year. For this purpose, an applicable plan year 
is any plan year beginning after December 31, 2011, and before 
January 1, 2015, for which (1) the plan's funding target, 
determined using segment rates as adjusted to reflect average 
segment rates (``adjusted'' segment rates), is less than 95 
percent of the funding target determined without regard to 
adjusted segment rates, (2) the plan has a funding shortfall, 
determined without regard to adjusted segment rates, greater 
than $500,000, and (3) the plan had 50 or more participants on 
any day during the preceding plan year. Specifically, the 
notice must include (1) a statement that MAP-21 modified the 
method for determining the interest rates used to determine the 
actuarial value of benefits earned under the plan, providing 
for a 25-year average of interest rates to be taken into 
account in addition to a two-year average, (2) a statement 
that, as a result of MAP-21, the plan sponsor may contribute 
less money to the plan when interest rates are at historical 
lows, and (3) a table showing, for the applicable plan year and 
each of the two preceding plan years,\94\ the plan's funding 
target attainment percentage, funding shortfall, and the 
employer's minimum required contribution, each determined both 
using adjusted segment rates and without regard to adjusted 
segment rates.
---------------------------------------------------------------------------
    \94\ In the case of a preceding plan year beginning before January 
1, 2012, only the plan's funding target attainment percentage, funding 
shortfall, and the employer's minimum required contribution determined 
without regard to adjusted segment rates are required to be provided.
---------------------------------------------------------------------------

                           Reasons for Change

    The interest rates used in valuing pension liabilities are 
intended to reflect market interest rates. However, interest 
rates in recent years have been low compared to average 
interest rates over the past 25 years. Recent low interest 
rates result in higher values for pension liabilities and 
higher required contributions in the near term. MAP-21 modified 
the interest rates used in valuing pension liabilities to give 
employers the option to effectively spread out the higher 
contributions over a longer period of time than would otherwise 
have been required. The Congress believed that continued low 
interest rates made it appropriate to extend the policy enacted 
in MAP-21.

                        Explanation of Provision


Applicable minimum and maximum percentages and annual funding notice

    The provision revises the specified percentage ranges (that 
is, the range from the applicable minimum percentage to the 
applicable maximum percentage of average segment rates) for 
determining whether a segment rate must be adjusted upward or 
downward. Under the provision, the specified percentage range 
for a plan year is determined by reference to the calendar year 
in which the plan year begins as follows:
           90 percent to 110 percent for 2012 through 
        2017,
           85 percent to 115 percent for 2018,
           80 percent to 120 percent for 2019,
           75 percent to 125 percent for 2020, and
           70 percent to 130 percent for 2021 or later.
    In addition, for purposes of the additional information 
that must be provided in a funding notice for an applicable 
plan year, an applicable plan year includes any plan year that 
begins after December 31, 2011, and before January 1, 2020, and 
that otherwise meets the definition of applicable plan year.

Prohibited payments in bankruptcy

    Under the provision, the adjusted segment rates do not 
apply for purposes of whether prohibited payments may be made 
from a plan during a period in which the plan sponsor is a 
debtor in a bankruptcy proceeding under Federal or State law, 
that is, for purposes of determining whether the plan's 
adjusted funding target attainment percentage is at least 100 
percent. Thus, the plan's adjusted funding target attainment 
percentage, determined without regard to the adjusted segment 
rates, must be at least 100 percent in order for prohibited 
payments to be made.

Periods for determining segment rates

    The provision revises the period of benefit payments to 
which the segment rates (or adjusted segment rates) apply. 
Under the provision, the first rate applies to benefits 
reasonably determined to be payable during the five-year period 
beginning on the plan's valuation date (rather than the first 
day of the plan year as under present law); the second segment 
rate applies to benefits reasonably determined to be payable 
during the 15-year period following the initial five-year 
period; and the third segment rate applies to benefits 
reasonably determined to be payable after the end of the 15-
year period.\95\
---------------------------------------------------------------------------
    \95\ The provision does not change the requirement that the 
valuation date for plans other than certain small plans must be the 
first day of the plan year. Thus, the provision does not change these 
periods for plans for which the valuation date must be the first day of 
the plan year.
---------------------------------------------------------------------------

                             Effective Date

    The provisions relating to the applicable minimum and 
maximum percentages and periods for determining segment rates 
are generally effective for plan years beginning after December 
31, 2012. Under a special rule, an employer may elect, for any 
plan year beginning before January 1, 2014, not to have these 
provisions apply either (1) for all purposes for which the 
provisions would otherwise apply, or (2) solely for purposes of 
determining the plan's adjusted funding target attainment 
percentage in applying the benefit restrictions for that year. 
A plan will not be treated as failing to meet the requirements 
of the anti-cutback rules solely by reason of an election under 
the special rule.
    The provision relating to prohibited payments in bankruptcy 
generally applies to plan years beginning after December 31, 
2014, or, in the case of a plan maintained pursuant to one or 
more collective bargaining agreements, to plan years beginning 
after December 31, 2015. If certain requirements are met, a 
plan amendment made pursuant to the provision may be 
retroactively effective, the plan will be treated as being 
operated in accordance with its terms during the period before 
the amendment, and the plan will not be treated as failing to 
meet the requirements of the anti-cutback rules solely by 
reason of the amendment. In order for this treatment to apply, 
the amendment must be made pursuant to the provision (or 
pursuant to any regulation issued by the Secretary or the 
Secretary of Labor under the provision), and the amendment must 
be made by the last day of the first plan year beginning on or 
after January 1, 2016, or such later date as the Secretary 
prescribes. In addition, the plan must be operated as if the 
plan amendment were in effect during the period (1) beginning 
on the date the provision (or regulation) takes effect (or, in 
the case of a plan amendment not required by the provision or 
regulation, the effective date specified in the plan), and (2) 
ending on the last day of the first plan year beginning on or 
after January 1, 2016, or such later date as the Secretary 
prescribes (or, if earlier, the date the amendment is adopted). 
The amendment must also apply retroactively for that period.

   D. Extension of Customs User Fees (sec. 2004 of the Act and sec. 
            58c(j)(3) of Title 19 of the United States Code)


                               Present Law

    Section 13031 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (``COBRA'') authorizes the Secretary 
of the Treasury to collect passenger and conveyance processing 
fees and the merchandise processing fees. Section 412 of the 
Homeland Security Act of 2002 authorizes the Secretary of the 
Treasury to delegate such authority to the Secretary of 
Homeland Security. COBRA has been extended on several 
occasions. The current authorization for the collection of the 
passenger and conveyance processing fees is through September 
30, 2023. The current authorization for the collection of the 
merchandise processing fee is through September 30, 2023.

                           Reasons for Change

    The Congress believed it was appropriate to extend the 
specified Customs user fees.

                        Explanation of Provision

    The provision extends the passenger and conveyance 
processing fees and the merchandise processing fee authorized 
under Section 13031 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (``COBRA'') through September 30, 
2024.

                             Effective Date

    The provision is effective on the date of enactment (August 
8, 2014).

 PART EIGHT: TRIBAL GENERAL WELFARE EXCLUSION ACT OF 2014 (PUBLIC LAW 
                              113-168)\96\
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    \96\ H.R. 3043. The House passed H.R. 3043 on September 16, 2014. 
The Senate passed the bill without amendment on September 18, 2014. The 
President signed the bill on September 26, 2014.
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A. Indian General Welfare Benefits (sec. 2 of the Act and new sec. 139E 
                              of the Code)

                              Present Law

    Except as otherwise provided under the Code, gross income 
means all income from whatever source derived. The general 
welfare doctrine excludes certain payments from gross income. 
Excludable payments generally consist of payments: (1) made 
from a governmental fund, (2) for the promotion of general 
welfare (on the basis of the need of the recipient), and (3) 
that do not represent compensation for services. Examples of 
excludable benefits include disaster relief, adoption 
assistance, housing and utility subsidies for low income 
persons, and government benefits paid to the blind.
    Prior to 2012, there was some uncertainty concerning the 
application of the general welfare doctrine to certain benefits 
provided by Indian tribes to their members. Benefits that have 
been scrutinized by the IRS include payments for housing, 
cultural, education, and elder programs provided by Indian 
tribal governments. The issue is whether the tribal governments 
can provide such benefits tax-free to their members because 
they are addressing a social welfare need, without considering 
the financial need of the members. In response to requests from 
tribes to provide guidance on this issue, the IRS issued Notice 
2012-75 and Revenue Procedure 2014-35 (herein collectively 
referred to as ``Rev. Proc. 2014-35''),\97\ which provides safe 
harbors under which the IRS will presume that the individual 
need requirement of the general welfare exclusion is met for 
benefits provided under certain Indian tribal governmental 
programs.
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    \97\ Notice 2012-75, 2012-51 I.R.B. 715; Rev. Proc. 2014-35, 2014-
26 I.R.B. 1110.
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                        Explanation of Provision

    The provision contains similar requirements to Rev. Proc. 
2014-35 in terms of which benefits would qualify for exclusion 
under the general welfare doctrine, including that the benefits 
(1) are provided pursuant to a specific Indian tribal 
government program, (2) are available to any tribal member who 
meets certain guidelines, (3) are for the promotion of general 
welfare, (4) are not lavish or extravagant, and (5) are not 
compensation for services. The Act, however, does not provide 
specific examples of programs under which benefits would 
qualify for exclusion.
    The provision requires the Secretary of the Treasury 
(``Secretary'') to establish a Tribal Advisory Committee to 
advise on matters relating to the taxation of Indians. In 
consultation with the Committee, the Act requires the Secretary 
to establish and require training of IRS agents on Federal 
Indian law and training of tribal financial officers about the 
Act. The provision also requires the Secretary to suspend 
audits and examinations of Indian tribal governments and tribe 
members relating to the general welfare exclusion until this 
education has been completed. The Secretary may waive interest 
and penalties to the extent those penalties relate to excluding 
a payment under the general welfare exclusion.

                             Effective Date

    The provision applies to taxable years for which the tribal 
member's refund statute of limitations period has not expired. 
The provision contains a one-year waiver of the refund statute 
of limitations period in the event that the period expires 
before the end of the one-year period beginning on the date of 
enactment (September 26, 2014).

PART NINE: CONSOLIDATED AND FURTHER CONTINUING APPROPRIATIONS ACT, 2015 
                       (PUBLIC LAW 113-235) \98\

    DIVISION M--EXPATRIATE HEALTH COVERAGE CLARIFICATION ACT OF 2014

 A. Treatment of Expatriate Health Plans under ACA (sec. 3 of the Act)

                              Present Law

Affordable Care Act
    The Patient Protection and Affordable Care Act (``PPACA'') 
\99\ and the Health Care and Education Reconciliation Act of 
2010 (``HCERA''),\100\ enacted in March, 2010, are collectively 
referred to as the Affordable Care Act (``ACA''). The ACA made 
various changes to the law with respect to health insurance 
coverage in the individual and group markets and the law with 
respect to group health plans. The changes to the individual 
and group health insurance markets include, for example, the 
establishment of American Health Benefit Exchanges, mandatory 
community rating in health insurance premiums for the 
individual and small group market, guaranteed issue for 
purchasers of individual health insurance plans and insured 
group health plans, and a prohibition against preexisting 
condition limitations in health insurance plans, including 
group health plans. The ACA also requires individuals to 
maintain minimum essential health coverage and applicable large 
employers to offer minimum essential coverage to their 
employees. Finally, the ACA imposes new fees and excise taxes, 
including for example, an annual fee on health insurance 
providers and, effective for 2018, an excise tax on high cost 
employer-sponsored health coverage.
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    \98\ H.R. 83 (a bill relating to insular areas and freely 
associated states energy) passed the House on September 15, 2014. The 
bill passed the Senate with an amendment on September 18, 2014. The 
House passed the bill with an amendment on December 11, 2014. The 
Senate agreed to the House amendment on December 13, 2014. The 
President signed the bill on December 16, 2014.
    \99\ Pub. L. No. 111-148
    \100\ Pub. L. No. 111-152.
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Requirements for group health plans and individual insurance
            Rules for group health plans in effect before the enactment 
                    of the ACA
    Prior to the enactment of ACA, an employer was not required 
to offer its employees coverage under a group health plan, but 
any coverage offered was required to satisfy certain 
requirements. A group health plan is a plan, including a self-
insured plan, of, or contributed to by, an employer or employee 
organization to provide health care to the employees, former 
employees, the employer, others associated or formerly 
associated with the employer in a business relationship, or 
their families.\101\
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    \101\ Sec. 5000(b)(1). By definition, a group health plan is a plan 
providing employment-related health benefits.
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    The requirements for group health plans in effect prior to 
the enactment of ACA include limitations on exclusions on 
benefits for preexisting conditions, prohibition on 
discrimination against individuals based on health status or 
genetic information, guaranteed renewability of an employer's 
participation in a multiemployer plan (generally a plan 
providing benefits under collective bargaining agreements to 
employees of two or more unrelated employers) or multiple-
employer welfare arrangement (generally a plan providing 
benefits to employees of two or more unrelated employers, but 
not under collective bargaining agreements), specified benefits 
for mothers and newborns, mental health parity, and coverage 
for students on medical leave of absence from school.\102\ 
Compliance with these requirements is enforced through an 
excise tax.\103\ These requirements continue to apply to group 
health plans after enactment of ACA. However, if one of these 
pre-ACA requirement conflicts with an ACA requirement, the ACA 
requirement applies.\104\
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    \102\ These requirements for group health plans are contained in 
Chapter 100 of the Code, sections 9801 et seq. Certain group health 
plans (e.g., governmental plans and plans covering fewer than two 
active employees) and certain types of coverage are exempt from these 
Code requirements. Parallel requirements generally apply to group 
health plans of private employers under part 7 of Title I of the 
Employee Retirement Income Security Act of 1974 (``ERISA''), 29 U.S.C. 
sec. 1181 et seq., to group health plans of State and local government 
employers under Title XXVII of the Public Health Service Act (the 
``PHSA''), 42 U.S.C. 300gg et seq., and to health insurance issued in 
connection with group health plans under ERISA and the PHSA. Mirror 
definitions of the term group health plan apply for purposes of ERISA 
and the PHSA. This definition is similar to the definition under 
section 5000(b)(1) of the Code. Under ERISA and the PHSA, a group 
health plan is an employee welfare benefit plan established or 
maintained by an employer or employee organization, or both, that 
provides medical care for participants or their dependents directly or 
through insurance, or otherwise. Similar requirements apply also under 
the Federal Employees Health Benefits Program.
    \103\ Sec. 4980D.
    \104\ Sec. 9815.
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            Additional requirements for group health plans and 
                    individual health coverage added by the ACA
    The ACA amended the PHSA to add requirements to group 
health plans and individual health insurance coverage,\105\ 
that, subject to certain exceptions, apply under the Code and 
ERISA to group health plans by cross-reference to the PHSA 
provisions.\106\ Some of the additional requirements are 
generally effective in 2010, specifically for plan years 
beginning on or after September 23, 2010 (six months after 
enactment of PPACA). Other requirements added by the ACA are 
effective beginning in 2014, specifically for plan years 
beginning on or after January 1, 2014.
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    \105\ The Centers for Medicare and Medicaid Services (``CMS'') sent 
letters, dated July 16, 2014, to the insurance commissioners of each of 
the territories informing them that the Department of Health and Human 
Service has determined that certain ACA requirements in the PHSA do not 
apply to individual and group health insurance issuers in the United 
States territories, for example, guaranteed availability, community 
rating, medical loss ratio, and essential health benefits, but that the 
group health plan rules generally do apply to the territories. The 
letters indicated that the determination is based on the definition of 
``state'' in Title I of the ACA. Section 1304(d) provides that, for 
purposes of title I of the ACA, state is defined as the 50 States and 
the District of Columbia, but the application of the group health plan 
rules to the territories is not based on this definition.The letters 
are available at: http://www.cms.gov/CCIIO/Resources/ Letters/
Downloads/letter-to-Francis.pdf;
    http://www.cms.gov/CCIIO/Resources/Letters/Downloads/letter-to-
Ilagan.pdf;
    http://www.cms.gov/CCIIO/Resources/ Letters/Downloads/letter-to-
Weyne.pdf;
    http://www.cms.gov/CCIIO/Resources/ Letters/Downloads/letter-to-
Tanuvasa.pdf;
    http://www.cms.gov/CCIIO/Resources/ Letters/Downloads/letter-to-
Igisomar.pdf.
    \106\ Secs. 1001-1004, 1201, 1255 of PPACA, as amended by sections 
10101 and 10103 of PPACA and section 2301(b) of HCERA. These 
requirements are cross-referenced in section 9815 and ERISA section 
716.
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    The additional requirements under the ACA for group health 
plans and individual health insurance coverage (as applicable) 
are:
           Required coverage of adult children up to 
        age 26 if the plan provides dependent coverage of 
        children, but a plan is not required to cover a child 
        of a child receiving dependent coverage;
           Required coverage of preventive health 
        services with no cost-sharing (i.e., deductibles and 
        co-pays);
           No lifetime limits or annual limits on 
        benefits;
           No preexisting condition exclusions, and no 
        waiting periods of more than 90 days;
           Guaranteed availability and renewability of 
        coverage;
           Setting of premiums without regard to health 
        status (commonly referred to as ``community rating'') 
        and provision of essential health benefits; \107\
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    \107\ These requirements apply to individual insurance and 
insurance offered in the small group market, which, under section 
1304(a)(3) and (b)(2) of PPACA generally means insurance for a group 
health plan of an employer with an average of at least one but not more 
than 100 employees.
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           Prohibition on discrimination under an 
        insured group health plan in favor of highly 
        compensated individuals; \108\
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    \108\ This ACA provision does not apply to self-insured health 
plans, which, under Code section 105(h), have been subject to 
nondiscrimination requirements since before ACA. These rules prohibit 
such a plan from discriminating (both as to eligibility for coverage 
and as to benefits provided under the plan) in favor of highly 
compensated individuals. Under IRS Notice 2011-1, 2011-2 I.R.B. 259, 
compliance with the ACA nondiscrimination prohibition for insured plans 
is not required until regulations or other guidance has been issued.
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           Additional choice of health care providers 
        and access to certain services;
           Use of a uniform explanation of coverage and 
        standardized definitions (commonly referred to as a 
        summary of benefits and coverage or ``SBC'' and a 
        uniform glossary);
           Required appeals process for benefit 
        denials, including an internal appeal and external 
        review;
           Prohibition on the rescission of coverage, 
        except in the case of fraud or intentional 
        misrepresentation of material fact, and required 
        advance notice of cancellation of coverage;
           Premium rebates for purchasers of health 
        insurance (not self-insured coverage) unless a 
        specified percentage of premiums is spent on health 
        care and activities that improve health care quality 
        (commonly referred to as medical loss ratio or ``MLR'' 
        rule); \109\
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    \109\ The MLR is a measurement that measures the percentage of 
total premiums that insurance companies spend on health care and 
quality initiatives, and not on administration, marketing and profit. 
If a health insurer does not spend at least 80 percent of the premiums 
(or 85 percent in the case of the large group market) it receives on 
health care services and activities to improve health care quality, the 
insurer must rebate the difference. A special rule applies in 
calculating the MLR for expatriate policies. Issuers of expatriate 
policies apply a special circumstances adjustment to the numerator of 
their MLR by multiplying the total of the incurred claims plus 
expenditures for activities that improve health care quality by a 
factor of two beginning with the 2012 MLR reporting year. For purpose 
of this MLR calculation, expatriate policies are policies that provide 
coverage for employees, substantially all of whom are: working outside 
of their country of citizenship; working outside of their country of 
citizenship and outside the employer's country of domicile; or 
individuals who are not United States citizens and who are working in 
their home country.
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           Access to additional data about the 
        particular health coverage, such as claims denials;
           Statutory standards for programs to promote 
        health or prevent disease (commonly referred to as 
        ``wellness'' programs);
           Consistent coverage for individuals 
        participating in approved clinical trials; and
           Consistent treatment of health care 
        providers.
            Temporary relief from ACA group health plan rules for 
                    expatriate plans
    For plan years ending on or before December 31, 2015, under 
transitional relief under Treasury guidance, expatriate health 
plans are treated as satisfying the group health plan 
requirements added by ACA, provided the group health plan 
continues to satisfy the group health plan requirements in 
effect prior to the enactment of ACA.\110\ For purposes of this 
transitional relief, an expatriate health plan is an insured 
group health plan with respect to which enrollment is limited 
to primary insureds who reside outside of their home country 
for at least six months of the plan year (or across two 
consecutive plans years) and any covered dependents, and its 
associated group health insurance coverage.\111\
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    \110\ FAQs about the Affordable Care Act Implementation (Part 
XIII), prepared by the Departments of Labor (``DOL''), Health and Human 
Services (``HHS'') and the Treasury (``Treasury''), March 8, 2013, and 
available at http://www.dol.gov/ebsa/faqs/faq-aca13.html.
    \111\ Q&A-6 of Frequently Asked Questions about the Affordable Care 
Implementation (Part XVIII) and Mental Health Parity Implementation, 
prepared issued by DOL, HHS, and Treasury, January 9, 2014, and 
available at: http://www.dol.gov/ebsa/faqs/faq-aca18.html.
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Annual fee on health insurance providers

    Effective for 2014, an annual fee applies to any covered 
entity engaged in the business of providing health insurance 
with respect to United States (``U.S.'') health risks.\112\ The 
aggregate annual fee for all covered entities is the applicable 
amount. The applicable amount is $8 billion for calendar year 
2014, $11.3 billion for calendar years 2015 and 2016, $13.9 
billion for calendar year 2017, and $14.3 billion for calendar 
year 2018. For calendar years after 2018, the applicable amount 
is indexed to the rate of premium growth.
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    \112\ Sec. 9010 of PPACA.
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    The aggregate annual fee is apportioned among the providers 
based on a ratio designed to reflect relative market share of 
U.S. health insurance business. For each covered entity, the 
fee for a calendar year is an amount that bears the same ratio 
to the applicable amount as (1) the covered entity's net 
premiums written during the preceding calendar year with 
respect to health insurance for any U.S. health risk, bears to 
(2) the aggregate net written premiums of all covered entities 
during such preceding calendar year with respect to such health 
insurance.

Tax on individuals without minimum essential coverage

            Requirement to maintain coverage
    Effective for 2014, the ACA added a requirement to the Code 
that individuals be covered by a health plan that provides at 
least minimum essential coverage or be subject to a tax \113\ 
for failure to maintain the coverage. If an individual is a 
dependent \114\ of another taxpayer, the other taxpayer is 
liable for any tax for failure to maintain the required 
coverage with respect to the individual. The tax is imposed for 
any month that an individual does not have minimum essential 
coverage, unless the individual qualifies for an exemption for 
the month.\115\
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    \113\ Section 5000A.
    \114\ Sec. 152.
    \115\ Exemptions from the requirement to maintain minimum essential 
coverage are provided for the following: (1) an individual for whom 
coverage is unaffordable because the required contribution exceeds 
eight percent of household income, (2) an individual with household 
income below the income tax return filing threshold under section 
6012(a), (3) a member of an Indian tribe, (4) a member of certain 
recognized religious sects or a health sharing ministry, (5) an 
individual with a coverage gap for a continuous period of less than 
three months, and (6) an individual who is determined by the Secretary 
of Health and Human Services to have suffered a hardship with respect 
to the capability to obtain coverage.
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            Minimum essential coverage
    Minimum essential coverage includes government-sponsored 
programs, eligible employer-sponsored plans, plans in the 
individual market, grandfathered group health plans and 
grandfathered health insurance coverage, and other coverage as 
recognized by the Secretary of HHS in coordination with the 
Secretary of the Treasury. Certain individuals present or 
residing outside of the U.S.\116\ and bona fide residents of 
territories of the U.S.\117\ are deemed to maintain minimum 
essential coverage.
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    \116\ This rule applies to any month that occurs during a period 
described in section 911(d)(1)(A) or (B) which is applicable to an 
individual. Such periods include: (1) for a United States citizen, an 
uninterrupted period which includes an entire taxable year during which 
the individual is a bona fide resident of a foreign country or 
countries, and (2) for a United States citizen or resident, a period of 
12 consecutive months during which the individual is present in a 
foreign country at least 330 full days.
    \117\ Bona fide residence in a territory is determined under 
section 937(a). For this purpose, the territories include Puerto Rico, 
Guam, the Northern Marianna Islands, American Samoa, and United States 
Virgin Islands.
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    Minimum essential coverage does not include coverage that 
consists of certain excepted benefits.\118\ Excepted benefits 
include: (1) coverage only for accident, or disability income 
insurance; (2) coverage issued as a supplement to liability 
insurance; (3) liability insurance, including general liability 
insurance and automobile liability insurance; (4) workers' 
compensation or similar insurance; (5) automobile medical 
payment insurance; (6) credit-only insurance; (7) coverage for 
on-site medical clinics; and (8) other similar insurance 
coverage, specified in regulations, under which benefits for 
medical care are secondary or incidental to other insurance 
benefits. Other excepted benefits that do not constitute 
minimum essential coverage if offered under a separate policy, 
certificate or contract of insurance include long term care, 
limited scope dental and vision benefits, coverage for a 
disease or specified illness, hospital indemnity or other fixed 
indemnity insurance or Medicare supplemental health insurance.
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    \118\ Sec. 2791(c)(1)-(4) of PHSA (42 U.S.C. sec. 300gg-91(c)(1-
4)). A parallel definition of excepted benefits is provided in section 
9832(c)(1)-(4).
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            Tax on failure to maintain minimum essential coverage
    The tax for failure to maintain minimum essential coverage 
for any calendar month is calculated as one-twelfth of the tax 
calculated as an annual amount. The annual amount is equal to 
the greater of the flat dollar amount or the excess income 
amount. The flat dollar amount is the lesser of sum of the 
individual annual dollar amounts for the members of the 
taxpayer's family and 300 percent of adult individual dollar 
amount. The excess income amount is a specified percentage of 
the excess of the taxpayer's household income for the taxable 
year over the threshold amount of income required for income 
tax return filing for that taxpayer. The total annual household 
payment may not exceed the national average annual premium for 
bronze level health plans offered through American Health 
Benefit Exchanges that year for the family size. The tax is 
phased in over the first three years. The individual adult 
annual dollar amount is phased in as follows: $95 for 2014; 
$325 for 2015; and $695 in 2016.\119\ For an individual who has 
not attained age 18, the individual annual dollar amount is one 
half of the adult amount. The specified percentage of income is 
phased in as follows: one percent for 2014; two percent in 
2015; and 2.5 percent beginning after 2015.
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    \119\ For years after 2016, the $695 amount is indexed to CPI-U, 
rounded to the next lowest multiple of $50.
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Premium assistance credit

            In general
    Effective for 2014, the ACA added a refundable tax credit 
(the ``premium assistance credit'') to the Code which is 
available to eligible individuals and families who purchase 
health insurance through an American Health Benefit 
Exchange.\120\ The premium assistance credit, which is 
refundable and payable in advance directly to the insurer, 
subsidizes the purchase of certain health insurance plans 
through an American Health Benefit Exchange.\121\
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    \120\ Sec. 36B.
    \121\ Although the credit is generally payable in advance directly 
to the insurer, individuals may choose to pay the total health 
insurance premiums out-of-pocket and claim the credit at the end of the 
taxable year.
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    The premium assistance credit amount is generally the lower 
of (1) the premium for the qualified health plan in which the 
individual or family enrolls, and (2) the premium for the 
second lowest cost silver plan \122\ in the rating area where 
the individual resides, reduced by the individual's or family's 
share of premiums.
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    \122\ Under section 1302(d) of PPACA, a qualified health plan is 
categorized by level (bronze, silver, gold or platinum), depending on 
its actuarial value, that is the percentage of the plan's share of the 
total costs of benefits under the plan. A silver level plan must have 
an actuarial value of 70 percent.
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            Minimum essential coverage and employer offer of health 
                    insurance coverage
    Generally, if an employee is offered minimum essential 
coverage \123\ other than through the individual market, 
including employer-provided health insurance coverage, the 
individual is ineligible for the premium assistance credit. 
However, mere eligibility for employer-sponsored minimum 
essential coverage does not prevent an individual from being 
eligible for the premium assistance credit if the employer-
sponsored coverage is not affordable or does not provide 
minimum value. Coverage is affordable for this purpose if the 
employee's share of the premium for self-only employer-provided 
coverage is 9.5 percent or less of an employee's household 
income. A plan provides minimum value for this purpose if the 
plan's share of the total allowed cost of provided benefits is 
at least 60 percent of such costs.\124\ Actual enrollment in 
employer-sponsored minimum essential coverage makes an 
individual ineligible for premium assistance credits even if 
the coverage is not affordable or does not provide minimum 
value.
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    \123\ As defined in section 5000A(f).
    \124\ Guidance on the calculation of minimum value is provided in 
HHS regulations, 45 C.F.R sec. 145. The regulations provide safe harbor 
methods for calculating whether a plan with certain standard features 
provides minimum value, but a plan containing non-standard features 
that are incompatible with the safe harbors may determine minimum value 
through an actuarial certification from a member of the American 
Academy of Actuaries. Further the regulations provide that a 
calculation of minimum value must be made using a standard population 
developed by HHS for such use and described summary statistics issued 
by HHS. The standard population must reflect the population covered by 
self-insured group health plans. Finally, in Notice 2014-69, HHS and 
Treasury indicate that they intend to provide in regulations that plans 
do not provide minimum value if the plan excludes substantial coverage 
for in-patient hospitalization services or physician services (or 
both). The notice provides that in the interim employees are not 
required to treat a plan not providing these services as providing 
minimum value for purposes of eligibility for the premium assistance 
credit.
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Shared responsibility for employers

            General requirement
    Effective for 2014, the ACA also added to the Code 
liability for an assessable payment on any applicable large 
employer \125\ if one or more of its full-time employees is 
certified to the employer as having received a premium 
assistance credit \126\ or a cost-sharing reduction \127\ for 
health insurance. The amount of the assessable payment depends 
on whether the employer offers its full-time employees and 
their dependents the opportunity to enroll in minimum essential 
coverage under a group health plan sponsored by the 
employer.\128\ An employer that offers its full-time employees 
the opportunity to enroll in affordable minimum essential 
coverage that provides at least minimum value is not subject to 
the assessable payment.
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    \125\ Sec. 4980H. Notice 2013-45, 2013-31 I.R.B. 116, Part III, 
Q&A-2, provides that no assessable payments under section 4980H will be 
assessed for 2014. In addition, no assessable payments for 2015 will 
apply to applicable large employers that have fewer than 100 full-time 
employees (taking into account full-time equivalent employees) and meet 
certain other requirements. Section XV.D.6 of the preamble to the final 
regulations under section 4980H, 79 Fed. Reg. 8544, 8574-8575, February 
12, 2014.
    \126\ Sec. 36B.
    \127\ Sec. 1402 of the ACA.
    \128\ Liability is dependent on one or more full-time employees 
receiving a premium assistance credit or cost-sharing reduction, not on 
individuals related to employees, such as an employee's spouse or 
children.
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    An applicable large employer is generally defined as an 
employer having an average of at least 50 full-time employees 
during the preceding calendar year. For purposes of whether the 
employer has at least 50 full-time employees, besides the 
number of full-time employees, the employer must include the 
number of its full-time equivalent employees for a month, 
determined by dividing the aggregate number of hours of service 
of employees who are not full-time employees for the month by 
120. In addition, in determining whether an employer is an 
applicable large employer, members of the same controlled 
group, group under common control, and affiliated service group 
are treated as a single employer.\129\
---------------------------------------------------------------------------
    \129\ The rules for determining controlled group, group under 
common control, and affiliated service group under section 414(b), (c), 
(m) and (o) apply for this purpose.
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            Amount of assessable payment
    The assessable payment for not offering minimum essential 
coverage is imposed monthly and is equal to the total number of 
full-time employees of the employer in excess of 30 during the 
applicable month (regardless of how many employees receive 
premium assistance credits or cost-sharing reductions) 
multiplied by one-twelfth of $2,000.\130\ The assessable 
payment for offering coverage that is not affordable or does 
not provide minimum value is imposed monthly and is equal to 
one-twelfth of $3,000 for each full-time employee who receives 
a premium assistance credit or reduced cost-sharing.\131\ 
However, the assessable payment in this case is limited to the 
amount of the tax that would apply if the employer did not 
offer coverage.
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    \130\ Only one 30-employee threshold is allowed when multiple 
employers are aggregated and treated as a single employer, such as for 
a controlled group of employers.
    \131\ For calendar years after 2014, both the $2,000 and $3,000 
amount are increased by the percentage by which the average per capita 
premium for health insurance coverage in the United States for the 
preceding calendar year exceeds the average per capita premium for 
calendar year 2013.
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Information reporting added by the ACA

    The ACA added certain new information reporting 
requirements related to the provision of health coverage. These 
include a requirement that employers report the value of 
employer-sponsored health coverage on Form W-2 \132\ and 
certain reporting requirements related to the enforcement of an 
individual's responsibility to maintain minimum essential 
coverage and an employer's responsibility to offer its full-
time employees and their dependents the opportunity to enroll 
in employer-sponsored minimum essential coverage (``individual 
and employer responsibility reporting requirements''). Failure 
to comply results in reporting penalties.
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    \132\ Notice 2012-9 provides guidance on this reporting 
requirement. The notice provides relief from the reporting requirement 
in certain situations. For example, in the case of 2012 Forms W-2 (and 
later years unless and until further guidance is issued), the notice 
provides that an employer is not subject to the reporting requirement 
if the employer was required to file fewer than 250 Forms W-2 for the 
preceding calendar year. As another example, the notice provides that 
an employer that contributes to the cost of health coverage provided 
under a multiemployer plan is not required to report that cost on the 
Form W-2.
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            Reporting related to minimum essential coverage
    Effective beginning 2014, the ACA requires that every 
person that provides minimum essential coverage to an 
individual during a calendar year report certain health 
insurance coverage information to the IRS and furnish the same 
information to the covered individual.\133\ The persons 
required to report are generally health insurance issuers or 
carriers for insured coverage, plan sponsors of self-insured 
group health plan coverage, and the executive department or 
agency that provides coverage under a government-sponsored 
program. However, a health insurance issuer is not required to 
report coverage in a qualified health plan in the individual 
market enrolled in through an American Health Benefit Exchange.
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    \133\ Sec. 6055 and Treas. Reg. sec. 1.6055-1 and -2. Pursuant to 
Treas. Reg. sec. 1.6055-1(j), and Notice 2013-45, reporting entities 
are not subject to penalties for failure to comply with this reporting 
requirement for coverage in 2014.
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    The information required to be reported includes: (1) the 
name, address, and employer identification number (``EIN'') of 
the entity required to file the report; (2) the name, address, 
and taxpayer identification number (``TIN'') of the primary 
insured (or other responsible individual); (3) the name and TIN 
of each other individual obtaining coverage under the health 
plan; (4) for each covered individual, the months for which, 
for at least one day, the individual was enrolled in coverage 
and entitled to receive benefits; and (5) any other information 
specified in forms or published guidance. In the case of 
coverage of an individual by a health insurance issuer under a 
group health plan, the report must also include the name, 
address, and EIN of the employer sponsoring the plan, whether 
the coverage is a qualified health plan enrolled in through the 
Small Business Health Options Program (``SHOP'') and the SHOP's 
unique identifier.
            Reporting related to applicable large employers offering 
                    minimum essential coverage
    Effective for 2014, an applicable large employer subject to 
the requirement to offer minimum essential coverage to its 
employees is required to report certain health insurance 
coverage information to the IRS and furnish certain health-
coverage-related statements to its full-time employees.\134\ 
The information required to be reported to the IRS must include 
(1) the name, address and EIN of the applicable large employer; 
(2) the name and telephone number of the applicable large 
employer's contact, (3) the calendar for which the information 
is reported; (4) a verification as to whether the applicable 
large employer offered to its full-time employees (and their 
dependents) the opportunity to enroll in minimum essential 
coverage under an employer-sponsored plan, by calendar month; 
(5) the months during the calendar year for which minimum 
essential coverage under the plan was available; (6) each full-
time employee's share of the lowest cost monthly premiums 
(self-only) for coverage providing minimum value offered to 
that full-time employee under an employer-sponsored plan, by 
calendar month, (7) the number of full-time employees for each 
month during the calendar year; (8) the name, address, and TIN 
of each full-time employee during the calendar year and the 
months, if any, during which the employee was covered under the 
plan; and (9) any other information prescribed in forms, 
instructions, or published guidance.
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    \134\ Sec. 6056 and Treas. Reg. secs. 301.6056-1 and -2. Pursuant 
to Treas. Reg. sec. 301.6056-1(j), and Notice 2013-45, reporting 
entities are not subject to penalties for failure to comply with this 
reporting requirement for coverage in 2014.
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    The information required to be furnished to each full-time 
employee is the e-mail address and employer identification 
number of the applicable large employer, and the information 
required to be reported to the IRS with respect to the full-
time employee.
            Time for reporting
    The time for filing the return with the IRS and for 
furnishing the report to an individual or employee is the same 
for the individual and employer responsibility reporting 
requirements. For these two reporting requirements, the 
information must be provided to individuals or full-time 
employees by January 31 and must be filed with the IRS by 
February 28 (or in the case of electronic filing by March 31). 
An applicable large employer is permitted to combine the 
reporting with respect to its full-time employees for both 
reporting requirements.
            Electronic furnishing of reports to individuals
    The information furnished to individuals for both these 
reporting requirement may be provided electronically if the 
individual affirmatively consents to receiving the information 
electronically and certain other requirements are 
satisfied.\135\ One of the other requirements is providing the 
individual, prior to, or at the time of the consent, a 
disclosure statement informing the individual that the 
information will be provided in a paper document if the 
individual does not consent, the scope and duration of the 
consent, the right to withdraw consent, the condition under 
which the information will cease to be furnished 
electronically, procedures for the individual to update the 
information needed to contact the individual, and hardware and 
software requirement for receiving the information 
electronically.
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    \135\ Treas. Reg. secs. 1.6055-2 and 301.6056-2.
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Patient-Centered Outcomes Research Trust Fund Excise Taxes

    The ACA imposes excise taxes to fund the Patient-Centered 
Outcomes Research Trust Fund (``PCORI Fund taxes'').\136\ These 
excise taxes are effective for policy years ending after 
September 30, 2012, and before October 1, 2019. For fiscal year 
2014, the tax rate for specified health insurance policies is 
$2.00 for each policy. For applicable self-insured plans, the 
tax rate for fiscal year 2014 is also $2.00.\137\ In both 
cases, the tax is determined by applying the applicable rate to 
the average number of lives covered under the policy or plan. 
After fiscal year 2014, each tax rate is indexed to reflect 
projected annual increases in the per capita amount of national 
health expenditures.
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    \136\ Sec. 4375-4377.
    \137\ For fiscal year 2013, a tax rate of $1.00 applied to policies 
and plans.
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    The taxes are imposed on the issuers of specified health 
insurance policies or plan sponsors of applicable self-insured 
health plans, including (with certain exceptions) governmental 
entities, and Federal programs for providing medical care. The 
taxes further are imposed both within the 50 States and the 
District of Columbia, and in all U.S. territories.\138\
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    \138\ No amount of these taxes is to be covered over to any 
territory.
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    A specified health insurance policy is an accident or 
health insurance policy (including a policy under a group 
health plan) that is issued with respect to individuals 
residing in the U.S. (including U.S. territories).\139\
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    \139\ A specified health insurance policy does not include a policy 
substantially all of the benefits of which are excepted benefits under 
section 9832(c).
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    An applicable self-insured health plan is any plan 
providing accident or health coverage if any portion of the 
coverage is provided other than through an insurance policy and 
such plan is established or maintained by (1) one or more 
employers for the benefit of current or former employees, (2) 
one or more employee organizations for the benefit of current 
or former members, (3) a combination of (1) and (2), and (4) 
certain other types of entities. The plan sponsor of an 
applicable self-insured health plan is generally (1) in the 
case of a plan established or maintained by a single employer, 
the employer, and (2) in the case of a plan established or 
maintained by an employee organization, the employee 
organization.

Excise tax on high cost employer-sponsored health coverage

    Effective for 2018, the ACA imposes an excise tax on the 
provider of applicable employer-sponsored coverage if the 
aggregate cost of the coverage for an employee (including a 
former employee, surviving spouse, or any other primary insured 
individual) exceeds a threshold amount (``high cost employer-
sponsored health coverage'').\140\ The tax is 40 percent of the 
amount by which the aggregate cost exceeds the threshold 
amount. For 2018, the annual threshold amount is $10,200 for 
self-only coverage and $27,500 for other coverage (such as 
family coverage), multiplied by the health cost adjustment 
percentage, and then increased by an age and gender adjusted 
excess premium amount.\141\
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    \140\ Sec. 4980I.
    \141\ The threshold is increased for coverage of certain 
individuals: qualified retiree and participants in a plan sponsored by 
an employer, the majority of whose employee are in a high risk 
profession or are lineman for electrical or communication cable lines. 
In determining the excess amount with respect to an employee (that is, 
the amount by which the cost of employer-sponsored coverage for the 
employee exceeds the threshold amount), the aggregate cost of all 
employer-sponsored coverage of the employee is taken into account. For 
this purpose, the cost of employer-sponsored coverage is generally 
determined under rules similar to the rules for determining the 
applicable premium for purposes of COBRA continuation coverage, except 
that any portion of the cost of coverage attributable to the excise tax 
is not taken into account. Cost is determined separately for self-only 
coverage and family coverage. Special valuation rules apply to retiree 
coverage, certain health FSAs, and contributions to HSAs and Archer 
MSAs.
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    The excise tax is imposed on the provider of the employer-
sponsored coverage (``coverage provider''). In the case of 
insured coverage (i.e., coverage under a policy, certificate, 
or contract issued by an insurance company), the health 
insurance issuer is liable for the excise tax. In the case of 
self-insured coverage, the person that administers the plan 
benefits is generally liable for the excise tax. In the case of 
employer contributions to an HSA or an Archer MSA, the employer 
is liable for the excise tax.

                        Explanation of Provision


Exemption from ACA for qualified expatriate plans

    Under the provision, the provisions of the ACA \142\ do not 
apply with respect to the following: expatriate health plans; 
employers with respect to expatriate health plans, solely in 
their capacity as plan sponsors for expatriate health plans; 
and expatriate health insurance issuers with respect to 
coverage offered by such issuers under expatriate health plans. 
Thus for example, the prohibition against lifetime limits does 
not apply to expatriate health plans, employers acting as plan 
sponsors with respect to these plans, and expatriate health 
insurance issuers with respect to coverage offered by such 
issuers under expatriate health plans. Further, for example, 
the PCORI Fund taxes do not apply to expatriate health plans. 
However, as described below, there are certain ACA provisions 
that do apply to expatriate plans, employers in their capacity 
as sponsors of expatriate health plans, and health insurance 
issuers with respect to expatriate health plans.
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    \142\ The exemption from the ACA does not apply to the provisions 
of subtitle A of Title II of HCERA, which includes only education 
provisions that are not health provisions.
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Qualified expatriate health plans and the requirements for individuals 
        to maintain and applicable large employers to offer minimum 
        essential coverage

    The provision does not provide an exemption for individuals 
from the requirements of the ACA including the requirement that 
individuals maintain minimum essential coverage. Further the 
provision specifically provides that there is no exemption for 
applicable large employers that sponsor expatriate health plans 
from the requirement that the employer offer all its full-time 
employees the opportunity to enroll in employer-sponsored 
minimum essential coverage.
    However, the provision specifies that an offer of coverage 
under an expatriate health plan under a group health plan is an 
offer of employer-sponsored minimum essential coverage and, 
thus, if the coverage offered is affordable and provides 
minimum value, the employee is not eligible for premium 
assistance credits. Further, an employee who enrolls in an 
expatriate plan that is provided under a group health plan 
satisfies the requirement to have minimum essential coverage 
for purposes of the individual responsibility requirement and 
is not eligible for the premium assistance credit (even if the 
coverage is not affordable or does not provide minimum value).
    In the case of individuals who are qualified expatriates 
based on their status as members of a group (as described 
below), an expatriate plan covering these individuals is deemed 
to provide minimum essential coverage based on being a plan in 
the individual market, and thus satisfies the requirement to 
maintain minimum essential coverage.

Required reporting with respect to qualified expatriate coverage

    The exemption from the ACA does not apply to the individual 
and employer responsibility reporting requirements added by 
ACA, except that statements furnished to individuals with 
respect to expatriate health insurance may be provided through 
electronic media and the primary insured with respect to 
expatriate health insurance is deemed to have consented to 
receive the statements in electronic form, unless the 
individual explicitly refuses such consent.

Treatment of qualified expatriates and expatriate health plan coverage 
        under annual fee on health insurance providers

    For calendar years after 2015, for purposes of applying the 
annual fee on health providers, a qualified expatriate (and any 
spouse, dependent, or any other individual enrolled in the 
plan) enrolled in an expatriate health plan is not considered a 
U.S. health risk. Thus, for calendar years after 2015, the same 
amount of fee is assessed but, when the aggregate annual fee is 
apportioned among the providers based on a ratio designed to 
reflect relative market share of U.S. health insurance 
business, coverage under an expatriate health plan is 
disregarded in determining both the numerator and the 
denominator of the ratio for calculating a provider's share of 
the business.
    For calendar years 2014 and 2015, coverage under an 
expatriate health plan is taken into account if the coverage is 
otherwise for a U.S. health risk. However, the amount of the 
annual fee assessed on any expatriate health insurance issuer 
is limited to the amount which bears the same ratio to the fee 
amount determined by the Secretary of the Treasury with respect 
to the expatriate health insurance issuer for each of these 
calendar years (taking into account the expatriate health 
coverage) as (1) the amount of premiums taken into account with 
respect to such issuer for each such year, less the amount of 
premiums for its expatriate health plans so taken into account, 
bears to (2) the amount of premiums taken into account with 
respect to such issuer for the year. The fee assessed on any 
other issuer remains unchanged for 2014 and 2015. Thus, for 
2014 and 2015, the total fees assessed on all issuers are less 
than the total otherwise specified in ACA ($8 billion and $11.3 
billion, respectively).

Application of high cost employer-sponsored coverage excise tax to 
        expatriate health coverage

    The excise tax on high-cost employer-sponsored coverage 
applies to coverage under an employer-sponsored expatriate 
health plan for employees who are qualified expatriates because 
they are assigned to work in the U.S. temporarily, as described 
below. The high-cost employer-sponsored health coverage excise 
tax does not apply to employer-sponsored expatriate health plan 
coverage for employees who are qualified expatriates because 
they are transferred temporarily to the U.S., as described 
below.

Definitions

            Definition of qualified expatriate
    As described below, one of the required standards for 
expatriate health plan is that substantially all of the primary 
enrollees in such plan (or health coverage under the plan) are 
qualified expatriates with respect to such plan or coverage.
            Definition of qualified expatriate with respect to a group 
                    health plan
    Under the provision, there is a distinction in the 
definition of a qualified expatriate under a group health plan 
between individuals working in the U.S. temporarily and 
individuals working outside the U.S. for certain periods during 
a year. For individuals working temporarily in the U.S., a 
qualified expatriate is a primary insured in a group health 
plan whose skills, qualifications, job duties, or expertise is 
of a type that has caused his or her employer to transfer or 
assign him or her to the U.S. for a specific and temporary 
purpose or assignment tied to his or her employment. For this 
purpose, the term transfer means an employer has transferred an 
employee to perform services for a branch of the same employer 
or a parent, affiliate, franchise, or subsidiary thereof. A 
further requirement for an individual working temporarily in 
the U.S. is that, in connection with the transfer or 
assignment, the primary insured must be reasonably determined 
by the plan sponsor to require access to health insurance and 
other related services and support in multiple countries, and 
is offered other multinational benefits on a periodic basis 
(such as tax equalization, compensation for cross border moving 
expenses, or compensation to enable the expatriate to return to 
their home country). For individuals working outside the U.S. 
for periods during the year, a qualified expatriate is a 
primary insured who is working outside of the U.S. for a period 
of at least 180 days in a consecutive 12-month period that 
overlaps with the plan year.
    In determining whether a primary insured is a qualified 
expatriate, U.S. includes only the 50 States, the District of 
Columbia, and Puerto Rico. Thus, for purposes of determining 
whether an individual is transferred or assigned temporarily to 
the U.S. or is working outside the U.S., the territory of 
Puerto Rico is treated as part of the U.S. but the other 
territories are not part of the U.S.
            Qualified expatriate based on being a member of a group of 
                    similarly situated individuals
    A qualified expatriate also includes an individual who is a 
member of a group of similarly situated individuals, and the 
group is formed for the purpose of traveling or relocating 
internationally to service one or more of purposes permitted 
for certain tax-exempt organizations,\143\ or similarly 
situated organizations or groups (such as students or religious 
missionaries). The group must not be formed primarily for the 
sale of health insurance coverage. Finally the group must be a 
group that the Secretary of Health and Human Services, in 
consultation with the Secretary of the Treasury and the 
Secretary of Labor, determines requires access to health 
insurance and other related services and support in multiple 
countries.
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    \143\ The tax-exempt organizations are organizations exempt under 
sections 501(c)(3) and (4).
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            Expatriate health plan
    The term expatriate health plan means a group health plan, 
health insurance coverage offered in connection with a group 
health plan, or health insurance coverage offered to certain 
groups of individuals that meets certain standards. All 
expatriate health plans must meet the following standards:
           Substantially all of the primary enrollees 
        in such plan or coverage are qualified expatriates with 
        respect to such plan or coverage. In applying this 
        standard, an individual shall not be considered a 
        primary enrollee if the individual is not a national of 
        the U.S. and the individual resides in the country of 
        which the individual is a citizen.
           Substantially all of the benefits provided 
        under the plan or coverage are not excepted 
        benefits.\144\
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    \144\ For purposes of the definition of expatriate health plans, 
excepted benefits is defined under section 9832(c). This definition 
parallels the definition used under section 5000A(f)(3) which (as 
discussed above under present law) provides that minimum essential 
benefits does not include health insurance coverage which consists of 
coverage of excepted benefits.
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           If an expatriate health plan or coverage 
        provides dependent coverage of children, the plan or 
        coverage must make such dependent coverage available 
        for adult children until the adult child attains age 
        26, unless such individual is the child of a child 
        receiving dependent coverage.\145\
---------------------------------------------------------------------------
    \145\ This standard for expatriate health coverage is the same as 
the ACA requirement for individual and group health plans that provide 
dependent coverage of children, as described in present law.
---------------------------------------------------------------------------
           The plan or coverage must be issued by an 
        expatriate health plan issuer, or administered by an 
        administrator, that together with any other person in 
        the expatriate health plan issuer's or administrator's 
        controlled group,\146\ has licenses to sell insurance 
        in more than two countries, and, with respect to such 
        plan, coverage, or company in the controlled group:
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    \146\ For this purpose, controlled group is defined as for purposes 
of the annual fee on health insurance issuers.
---------------------------------------------------------------------------
                  a. maintains network provider agreements that 
                provide for direct claims payments, directly or 
                through third party contracts, with health care 
                providers in eight or more countries;
                  b. maintains call centers, directly or 
                through third party contracts, in three or more 
                countries and accepts calls from customers in 
                eight or more languages;
                  c. processes (in the aggregate together with 
                other plans or coverage it issues or 
                administers) at least $1 million in claims in 
                foreign currency equivalents each year;
                  d. makes available (directly or through third 
                party contracts) global evacuation/repatriation 
                coverage;
                  e. maintains legal and compliance resources 
                in three or more countries; and
                  f. offers reimbursements for items or 
                services under such plan or coverage in the 
                local currency in eight or more countries.
    The standards for an expatriate health plan that is a group 
health plan or health insurance coverage offered in connection 
with a group health plan include the following:
           The plan or coverage provides coverage for 
        inpatient hospital services, outpatient facility 
        services, physician services, and certain emergency 
        services (comparable to such emergency services 
        coverage described in and offered under a service 
        benefit plan for plan year 2009 offered through the 
        Federal Employee Health Benefits program \147\ in 
        multiple countries as follows:
---------------------------------------------------------------------------
    \147\ This is a plan described in 5 U.S.C. sec. 8903(1) for plan 
year 2009.
---------------------------------------------------------------------------
                  a. Under a group health plan for qualified 
                expatriates temporarily assigned or transferred 
                to the U.S., both in the U.S. and in the 
                country or countries from which the individual 
                was transferred or assigned (accounting for 
                flexibility needed with existing coverage), and 
                such other country or countries as the 
                Secretary of HHS, in consultation with the 
                Secretary of the Treasury and the Secretary of 
                Labor, may designate (after taking into account 
                the barriers and prohibitions to providing 
                health care services in the countries as 
                designated).
                  b. For qualified expatriates working outside 
                the U.S. for a minimum period, in the country 
                or countries in which the individual is present 
                in connection with the individual's employment, 
                and such other country or countries as the 
                Secretary of HHS, in consultation with the 
                Secretary of the Treasury and the Secretary of 
                Labor, may designate.
           The plan sponsor must reasonably believe 
        that the benefits provided by the expatriate health 
        plan satisfy a standard at least actuarially equivalent 
        to required minimum value.\148\
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    \148\ This standard incorporates by reference the standard for 
minimum value in section 36B that applies for purposes of determining 
whether an offer of employer-sponsored coverage causes and an 
individual to be ineligible for the premium assistance credit.
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           The plan or coverage, and the plan sponsor 
        or expatriate health insurance issuer with respect to 
        such plan or coverage, satisfies the requirements for 
        group health plans in effect before the enactment of 
        the ACA.\149\
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    \149\ The pre-ACA requirements for group health plans would apply 
to expatriate group health plans absent this requirement but including 
these requirements in the standards for expatriate group health plans 
also conditions the exemption from the ACA requirements for an 
expatriate group plan on satisfaction of the pre-ACA group health plan 
rules.
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    The standards for an expatriate health plan that provides 
coverage to individuals who are qualified expatriates based on 
being members of a group of similarly situated individuals 
includes a requirement that the plan or coverage provide 
coverage for inpatient hospital services, outpatient facility 
services, physician services, and certain emergency services 
(comparable to such emergency services coverage described in 
and offered under a service benefit plan for plan year 2009 
offered through the Federal Employee Health Benefits program) 
in the country or countries as the Secretary of HHS, in 
consultation with the Secretary of the Treasury and the 
Secretary of Labor, may designate. The standards for the 
expatriate health coverage for this group also include any pre-
ACA requirements under the PHSA that apply to health insurance 
in the individual market.
            Other terms used in the provision
    A qualified expatriate issuer is a health insurance issuer 
that issues expatriate health plans. The terms group health 
plan, health insurance coverage, health insurance issuer, and 
plan sponsor are defined by reference to the definition of 
these terms provided in the PHSA. As described above, the 
definitions of group health plan and plan sponsor provided in 
the PHSA are generally the same as the definitions for these 
terms in ERISA and the Code.

Regulatory authority

    Under the provision, the Secretaries of the Treasury, HHS, 
and Labor are authorized to promulgate regulations necessary to 
carry out this provision, including such rules as may be 
necessary to prevent inappropriate expansion of the application 
of the exclusions under this provision from the ACA and 
applicable regulations, and to amend existing annual reporting 
requirements or procedures to include applicable qualified 
expatriate health insurers' total number of expatriate plan 
enrollees.

                             Effective Date

    The provision is generally effective on the date of 
enactment (December 16, 2014) and applies only to expatriate 
health plans issued or renewed on or after July 1, 2015. 
However, as described above, a special rule applies with 
respect to the annual insurance fee for 2014 and 2015.

                       DIVISION N--OTHER MATTERS


      A. Tax Technical Correction to Treatment of Certain Health 
       Organizations (sec. 2 of the Act and sec. 833 of the Code)


                              Present Law

    Code section 833 provides three rules with respect to 
certain health organizations meeting statutory requirements: 
(1) the organization is taxable as if it were a stock property 
and casualty insurance company; (2) a 25-percent deduction for 
certain claims and expenses is allowed with respect to health 
business of the organization; and (3) an exception is allowed 
for such an organization from the application of the 20-percent 
reduction in the deduction for increases in unearned premiums 
that applies generally to property and casualty insurance 
companies. Code section 833 applies a medical loss ratio 
threshold.

                        Explanation of Provision

    First, the technical correction provides that the only 
consequences for not meeting the medical loss ratio threshold 
are that the 25-percent deduction for claims and expenses and 
the exception from the 20-percent reduction in the deduction 
for unearned premium reserves are not allowed. The organization 
is, however, treated as if it were a stock property and 
casualty insurance company. Second, the technical correction 
provides that, in calculating the medical loss ratio, the 
organization includes both the cost of reimbursement for 
clinical services provided to the individuals they insure and 
the cost of activities that improve health care quality (not 
just the former). This determination is made on an annual basis 
and affects the application of the 25-percent deduction for 
that year.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2009.

        DIVISION O--THE MULTIEMPLOYER PENSION REFORM ACT OF 2014


            A. Amendments to Pension Protection Act of 2006


1. Repeal of sunset of PPA funding rules (sec. 101 of the Act, sec. 221 
        of the Pension Protection Act of 2006, secs. 431-432 of the 
        Code and secs. 304-305 of ERISA)

                              Present Law


Multiemployer plans

    A multiemployer plan is a plan to which more than one 
unrelated employer contributes, that is established pursuant to 
one or more collective bargaining agreements, and that meets 
other requirements as specified by the Secretary of Labor.\150\ 
Multiemployer plans are governed by a board of trustees 
consisting of an equal number of employer and employee 
representatives, referred to as the plan sponsor. In general, 
the level of contributions to a multiemployer plan is specified 
in the applicable collective bargaining agreements, and the 
level of plan benefits is established by the plan sponsor.
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    \150\ Sec. 414(f) and ERISA sec. 2(37).
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    Like other private defined benefit plans, multiemployer 
defined benefit plans are subject to minimum funding 
requirements under the Code and ERISA.\151\ An excise tax may 
be imposed on the employers maintaining the plan if the funding 
requirements are not met.\152\ Certain changes were made to the 
funding requirements for multiemployer plans by the Pension 
Protection Act of 2006 (``PPA'').\153\ Changes made by PPA are 
generally effective for plan years beginning after 2007.
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    \151\ Secs. 412 and 431 and ERISA secs. 302 and 304. Additional 
rules apply to multiemployer plans that are in reorganization or 
insolvent under sections 418-418E and ERISA sections 4241-4245.
    \152\ Sec. 4971.
    \153\ For further explanation of the funding rules applicable after 
PPA, see Part I.D of Joint Committee on Taxation, Present Law and 
Background Relating to Qualified Defined Benefit Plans (JCX-99-14), 
September 15, 2014, available at www.jct.gov.
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General funding requirements for multiemployer plans

            Minimum required contributions
    In connection with the funding requirements for a 
multiemployer plan, a notional account called a ``funding 
standard account'' is maintained, to which specific charges and 
credits (including plan contributions) are made for each plan 
year the multiemployer plan is maintained. The minimum required 
contribution for a plan year is the amount, if any, needed so 
that the accumulated credits to the funding standard account as 
of that plan year are not less than the accumulated charges 
(that is, so the funding standard account does not have a 
negative balance). If, as of the close of a plan year, 
accumulated charges to the funding standard account exceed 
credits, the plan has an ``accumulated funding deficiency'' 
equal to the amount of the excess. For example, if, as of a 
plan year, the balance of charges to the funding standard 
account would be $200,000 without any contributions, then a 
minimum contribution equal to that amount is required to meet 
the minimum funding standard for the year (that is, to prevent 
an accumulated funding deficiency). If credits to the funding 
standard account exceed charges, a ``credit balance'' results. 
The amount of the credit balance, increased with interest, has 
the effect of reducing future required contributions.
            Funding method; charges and credits to the funding standard 
                    account
    In the case of a multiemployer plan, an acceptable 
actuarial cost method (referred to as a funding method) must be 
used to determine the elements included in its funding standard 
account for a year. Generally, a funding method breaks up the 
cost of benefits under the plan into annual charges to the 
funding standard account consisting of two elements for each 
plan year. These elements are referred to as (1) normal cost 
and (2) supplemental cost.
    The plan's normal cost for a plan year generally represents 
the cost of future benefits allocated to the year by the 
funding method used by the plan for current employees and, 
under some funding methods, for separated employees. 
Specifically, it is the amount actuarially determined that 
would be required as a contribution by the employer for the 
plan year in order to maintain the plan if the plan had been in 
effect from the beginning of service of the included employees 
and if the costs for prior years had been paid, and all 
assumptions (for example, interest and mortality) had been 
fulfilled. A plan's normal cost for a plan year is charged to 
the funding standard account for that year.
    The supplemental cost for a plan year is the cost of future 
benefits that would not be met by future normal costs, future 
employee contributions, or plan assets. The most common 
supplemental cost is that attributable to past service 
liability, which represents the cost of future benefits under 
the plan (1) on the date the plan is first effective, or (2) on 
the date a plan amendment increasing plan benefits is first 
effective. Other supplemental costs may be attributable to net 
experience losses (for example, worse than expected investment 
returns or actuarial experience), losses from changes in 
actuarial assumptions, and amounts necessary to make up funding 
deficiencies for which a waiver was obtained. Supplemental 
costs are amortized (that is, recognized for funding purposes) 
over a specified number of years (generally 15 years) by annual 
charges to the funding standard account over that period.
    Factors that result in a supplemental loss can 
alternatively result in a gain that is recognized by annual 
credits to the funding standard account over a 15-year 
amortization period (in addition to a credit for contributions 
made for the plan year). These include a reduction in plan 
liabilities as a result of a plan amendment decreasing plan 
benefits, net experience gains (for example, better than 
expected investment returns or actuarial experience), and gains 
from changes in actuarial assumptions.
            Extensions of amortization periods and sunset
    Before and after PPA, the plan sponsor of a multiemployer 
plan may obtain from the Secretary of the Treasury 
(``Secretary'') an extension of up to 10 years of the 
amortization periods applicable in determining charges to the 
funding standard account. The extension may be granted by the 
Secretary if the Secretary determines that (1) the extension 
would carry out the purposes of ERISA and would provide 
adequate protection for participants under the plan and (2) the 
failure to permit the extension would (a) result in a 
substantial risk to the voluntary continuation of the plan or a 
substantial curtailment of pension benefit levels or employee 
compensation and (b) be adverse to the interests of plan 
participants in the aggregate. The sponsor must also provide 
satisfactory evidence that notice of the request, including 
certain information, has been provided to plan participants and 
beneficiaries, any employee organization representing 
participants, and the Pension Benefit Guaranty Corporation 
(``PBGC'').
    Under PPA, in addition to an amortization period extension 
described above, the sponsor of a multiemployer plan certified 
as meeting certain criteria may apply for an amortization 
period extension of up to five years that is required to be 
approved by the Secretary (referred to as an automatic 
amortization period extension). Included with the application 
must be a certification by the plan's actuary that (1) absent 
the extension, the plan would have an accumulated funding 
deficiency in the current plan year and any of the nine 
succeeding plan years, (2) the sponsor has adopted a plan to 
improve the plan's funding status, (3) taking into account the 
extension, the plan is projected to have sufficient assets to 
timely pay its expected benefit liabilities and other 
anticipated expenditures, and (4) the required notice described 
above has been provided. The period of any automatic 
amortization period extension reduces the 10-year period for 
which an extension described above may be granted by the 
Secretary. Under PPA, the provision relating to automatic 
amortization period extensions does not apply with respect to 
any application submitted after December 31, 2014.\154\
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    \154\ Sec. 431(d)(1)(C) and ERISA sec. 304(d)(1)(C).
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            Shortfall funding method and sunset
    Certain plans may elect to determine the required charges 
to the funding standard account under the shortfall funding 
method. Under this method, the charges are computed on the 
basis of an estimated number of units of service or production 
for which a certain amount per unit is to be charged. The 
difference between the net amount charged under this method and 
the net amount that otherwise would have been charged for the 
same period is a shortfall loss or gain that is amortized over 
subsequent plan years.
    In general, the funding method used with respect to a 
multiemployer plan may be changed only with approval of the 
Secretary. However, under PPA, certain multiemployer plans may 
adopt, use or cease using the shortfall funding method and the 
adoption, use, or cessation of use is deemed approved by the 
Secretary.\155\ Plans are eligible if (1) the plan has not used 
the shortfall funding method during the five-year period ending 
on the day before the date the plan is to use the shortfall 
funding method; and (2) the plan is not operating under an 
amortization period extension and did not operate under an 
amortization period extension during the five-year period. In 
general, plan amendments increasing benefit liabilities of the 
plan cannot be adopted while the shortfall funding method is in 
use. Under PPA, deemed approval of a multiemployer plan's 
adoption, use, or cessation of use of the shortfall funding 
method does not apply to plan years beginning after December 
31, 2014.\156\
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    \155\ Sec. 201(b) of PPA.
    \156\ Sec. 221(c) of PPA.
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Additional requirements relating to endangered or critical status \157\
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    \157\ Sec. 432 as enacted by sec. 212 of PPA, and ERISA sec. 305, 
as enacted by sec. 202 of PPA. The rules relating to endangered and 
critical status (including annual certification of status) apply only 
to multiemployer plans in effect on July 16, 2006. Thus, any discussion 
of these rules in this document applies to multiemployer plans in 
effect on July 16, 2006.
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            In general
    Under PPA, additional funding-related requirements apply to 
a multiemployer defined benefit pension plan that is in 
endangered or critical status.\158\ In connection with the 
endangered and critical rules, not later than the 90th day of 
each plan year, the actuary for any multiemployer plan must 
certify to the Secretary and to the plan sponsor whether or not 
the plan is in endangered or critical status for the plan year. 
If a plan is certified as being in endangered or critical 
status, notice of endangered or critical status must be 
provided within 30 days after the date of certification to plan 
participants and beneficiaries, the bargaining parties, the 
PBGC and the Secretary of Labor. Additional notice requirements 
apply in the case of a plan certified as being in critical 
status.
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    \158\ Endangered status and critical status are defined in section 
432(b)(1) and (2) and ERISA section 305(b)(1) and (2).
---------------------------------------------------------------------------
    Various requirements apply to a plan in endangered or 
critical status, including adoption of and compliance with (1) 
a funding improvement plan in the case of a multiemployer plan 
in endangered status, and (2) a rehabilitation plan in the case 
of a multiemployer plan in critical status. In addition, 
restrictions on certain plan amendments, benefit increases, and 
reductions in employer contributions apply during certain 
periods.
    In the case of a multiemployer plan in critical status, 
additional required contributions (referred to as employer 
surcharges) apply until the adoption of a collective bargaining 
agreement that is consistent with the rehabilitation plan. In 
addition, employers are relieved of liability for minimum 
required contributions under the otherwise applicable funding 
rules (and the related excise tax), provided that a 
rehabilitation plan is adopted and followed.\159\ Moreover, 
subject to notice requirements, some benefits that would 
otherwise be protected from elimination or reduction may be 
eliminated or reduced in accordance with the rehabilitation 
plan.\160\
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    \159\ Sec. 4971(g)(1)(A).
    \160\ The rules for multiemployer plans in critical status include 
the elimination or reduction of ``adjustable benefits,'' which include 
some benefits that would otherwise be protected from elimination or 
reduction under the anti-cutback rules under section 411(d)(6) and 
ERISA section 204(g).
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    In the case of a failure to meet the requirements 
applicable to a multiemployer plan in endangered or critical 
status, the plan actuary, plan sponsor, or employers required 
to contribute to the plan may be subject to an excise tax under 
the Code or a civil penalty under ERISA.\161\
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    \161\ Sec. 4971(g) and ERISA sec. 502(c)(8). In addition, certain 
failures are treated as a failure to file an annual report with respect 
to the multiemployer plan, subject to a civil penalty under ERISA.
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            Sunset of endangered and critical rules
    The rules relating to endangered and critical status 
generally do not apply to plan years beginning after December 
31, 2014.\162\ However, if a multiemployer plan is operating 
under a funding improvement or rehabilitation plan for its last 
plan year beginning before January 1, 2015, that is, for its 
2014 plan year, the multiemployer plan must continue to operate 
under the funding improvement or rehabilitation plan during any 
period after December 31, 2014, that the funding improvement or 
rehabilitation plan is in effect, and all of the Code and ERISA 
provisions relating to the operation of the funding improvement 
or rehabilitation plan continue in effect during that period.
---------------------------------------------------------------------------
    \162\ Sec. 221(c) of PPA.
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                        Explanation of Provision

    The provision repeals the PPA provisions under which the 
rules relating to automatic extensions of amortization periods, 
deemed approval of a multiemployer plan's adoption, use, or 
cessation of use of the shortfall funding method, and 
endangered and critical status cease to apply. As a result, 
these rules apply on a permanent basis.

                             Effective Date

    The provision is effective on the date of enactment 
(December 16, 2014).

2. Election to be in critical status (sec. 102 of the Act, sec. 432 of 
        the Code and sec. 305 of ERISA)

                              Present Law

    Not later than the 90th day of each plan year, the actuary 
for any multiemployer plan must certify to the Secretary and to 
the plan sponsor whether or not the plan is in endangered or 
critical status for the plan year. If a plan is certified as 
being in endangered or critical status, notice of endangered or 
critical status must be provided within 30 days after the date 
of certification to plan participants and beneficiaries, the 
bargaining parties, the PBGC and the Secretary of Labor. 
Additional notice requirements apply in the case of a plan 
certified as being in critical status.
    A multiemployer plan is in critical status for a plan year 
if, as of the beginning of the plan year, it meets any of the 
following definitions:
           The funded percentage of the plan \163\ is 
        less than 65 percent and the sum of (1) the market 
        value of plan assets, plus (2) the present value of 
        reasonably anticipated employer and employee 
        contributions for the current plan year and each of the 
        six succeeding plan years (assuming that the terms of 
        the collective bargaining agreements continue in 
        effect) is less than the present value of all benefits 
        projected to be payable under the plan during the 
        current plan year and each of the six succeeding plan 
        years (plus administrative expenses),
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    \163\ A plan's multiemployer funded percentage is the percentage 
determined by dividing the value of plan assets by the plan's accrued 
liability (that is, generally, the present value of plan benefits).
---------------------------------------------------------------------------
           (1) The plan has an accumulated funding 
        deficiency for the current plan year, not taking into 
        account any amortization period extensions, or (2) the 
        plan is projected to have an accumulated funding 
        deficiency for any of the three succeeding plan years 
        (four succeeding plan years if the funded percentage of 
        the plan is 65 percent or less), not taking into 
        account any amortization period extensions,
           (1) The plan's normal cost for the current 
        plan year, plus interest for the current plan year on 
        the amount of unfunded benefit liabilities under the 
        plan as of the last day of the preceding year, exceeds 
        the present value of the reasonably anticipated 
        employer contributions for the current plan year, (2) 
        the present value of vested (that is, nonforfeitable) 
        benefits of inactive participants is greater than the 
        present value of vested benefits of active 
        participants, and (3) the plan has an accumulated 
        funding deficiency for the current plan year, or is 
        projected to have an accumulated funding deficiency for 
        any of the four succeeding plan years (not taking into 
        account amortization period extensions), or
           The sum of (1) the market value of plan 
        assets, plus (2) the present value of the reasonably 
        anticipated employer contributions for the current plan 
        year and each of the four succeeding plan years 
        (assuming that the terms of the collective bargaining 
        agreements continue in effect) is less than the present 
        value of all benefits projected to be payable under the 
        plan during the current plan year and each of the four 
        succeeding plan years (plus administrative expenses).
    The first plan year for which the plan is in critical 
status is referred to as the ``initial critical year,'' which 
governs the timing of certain requirements and periods.
    In making the determinations and projections applicable in 
determining and certifying endangered or critical status (or 
neither), the plan actuary must follow certain statutory 
standards. The actuary's projections generally must be based on 
reasonable actuarial estimates, assumptions, and methods that 
offer the actuary's best estimate of anticipated experience 
under the plan.\164\ In addition, the plan actuary must make 
projections for the current and succeeding plan years of the 
current value of the assets of the plan and the present value 
of all liabilities to participants and beneficiaries under the 
plan for the current plan year as of the beginning of the year. 
The projected present value of liabilities as of the beginning 
of the year must be based on the most recent actuarial 
statement required with respect to the most recently filed 
annual report or the actuarial valuation for the preceding plan 
year. Any projection of activity in the industry or industries 
covered by the plan, including future covered employment and 
contribution levels, must be based on information provided by 
the plan sponsor, which shall act reasonably and in good faith.
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    \164\ Under section 432(i)(8) and ERISA section 305(i)(8), for 
purposes of the endangered and critical rules, various actuarial 
computations are based upon the unit credit funding method, regardless 
of whether it is the funding method used in applying the general 
funding requirements to the plan.
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                        Explanation of Provision


Election of critical status

    Under the provision, if a multiemployer plan is not in 
critical status for a plan year, but is projected to be in 
critical status in any of the succeeding five years, as 
determined and certified by the plan actuary, the plan sponsor 
may elect critical status for the plan. An election of critical 
status must be made within 30 days after the date the plan 
actuary certifies the plan's status.
    If a plan sponsor elects critical status for the plan, the 
plan year for which the election is made is treated as the 
first year for which the plan is in critical status, that is, 
the initial critical year, regardless of the date, if any, on 
which the plan first meets one of the otherwise applicable 
definitions of critical status. Thus, a certification for a 
later year that the plan is in critical status under one of the 
otherwise applicable definitions does not result in a new 
initial critical year. In addition, if a plan is in critical 
status as a result of an election, it remains in critical 
status until it meets the requirements for emergence from 
critical status (as discussed below).

Additional certification and notice requirements

    Under the provision, as part of the required annual 
certification of a multiemployer plan's status for the plan 
year, the plan actuary must certify whether the plan will be in 
critical status for any of the five succeeding plan years. For 
this purpose, the actuary's projections generally must be based 
on reasonable actuarial estimates, assumptions, and methods 
that offer the actuary's best estimate of anticipated 
experience under the plan. However, the other statutory 
standards applicable in determining and certifying a plan's 
status as described above may be disregarded, except that a 
multiemployer plan sponsor may not elect critical status for 
the plan based on a certification made without regard to those 
standards.
    If a multiemployer plan sponsor elects critical status for 
the plan, notice of the election must be included in the notice 
of critical status provided to plan participants and 
beneficiaries, the bargaining parties, the PBGC and the 
Secretary of Labor. Notice of the election must also be 
provided to the Secretary not later than 30 days after the date 
of certification of the plan's status or such other time as the 
Secretary may prescribe.
    If a plan is certified by the plan actuary as projected to 
be in critical status in any of the succeeding five years (but 
not for the current plan year) and the plan sponsor does not 
elect critical status for the plan, the plan sponsor must 
provide notice of projected critical status to the PBGC within 
30 days of the certification.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

3. Clarification of rule for emergence from critical status (sec. 103 
        of the Act, sec. 432 of the Code and sec. 305 of ERISA)

                              Present Law


Extensions of amortization periods

    As discussed above, under the general funding rules 
applicable to multiemployer defined benefit plans, charges and 
credits to the funding standard account are determined as the 
amount needed to amortize costs, losses and gains over 
specified periods, referred to as amortization periods.
    Before and after PPA, the plan sponsor of a multiemployer 
plan may obtain from the Secretary an extension of up to 10 
years of the amortization periods applicable in determining 
charges to the funding standard account. Under PPA, in addition 
to an amortization period extension described above, the 
sponsor of a multiemployer plan certified as meeting certain 
criteria may apply for an amortization period extension of up 
to five years that is required to be approved by the Secretary 
(referred to as an automatic amortization period extension). 
The period of any automatic amortization period extension 
reduces the 10-year period for which an extension described 
above may be granted by the Secretary.\165\
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    \165\ Under PPA, the provision relating to automatic amortization 
period extensions does not apply with respect to any application 
submitted after December 31, 2014; however, as described in Part A.1, 
the 2014 sunset date is repealed by section 101 of the Act.
---------------------------------------------------------------------------

Emergence from critical status

    A multiemployer plan is in critical status for a plan year 
if, as of the beginning of the plan year, it meets any of the 
following definitions:
           The funded percentage of the plan is less 
        than 65 percent and the sum of (1) the market value of 
        plan assets, plus (2) the present value of reasonably 
        anticipated employer and employee contributions for the 
        current plan year and each of the six succeeding plan 
        years (assuming that the terms of the collective 
        bargaining agreements continue in effect) is less than 
        the present value of all benefits projected to be 
        payable under the plan during the current plan year and 
        each of the six succeeding plan years (plus 
        administrative expenses),
           (1) The plan has an accumulated funding 
        deficiency for the current plan year, not taking into 
        account any amortization period extensions, or (2) the 
        plan is projected to have an accumulated funding 
        deficiency for any of the three succeeding plan years 
        (four succeeding plan years if the funded percentage of 
        the plan is 65 percent or less), not taking into 
        account any amortization period extensions,
           (1) The plan's normal cost for the current 
        plan year, plus interest for the current plan year on 
        the amount of unfunded benefit liabilities under the 
        plan as of the last day of the preceding year, exceeds 
        the present value of the reasonably anticipated 
        employer contributions for the current plan year, (2) 
        the present value of vested benefits of inactive 
        participants is greater than the present value of 
        vested benefits of active participants, and (3) the 
        plan has an accumulated funding deficiency for the 
        current plan year, or is projected to have an 
        accumulated funding deficiency for any of the four 
        succeeding plan years (not taking into account 
        amortization period extensions), or
           The sum of (1) the market value of plan 
        assets, plus (2) the present value of the reasonably 
        anticipated employer contributions for the current plan 
        year and each of the four succeeding plan years 
        (assuming that the terms of the collective bargaining 
        agreements continue in effect) is less than the present 
        value of all benefits projected to be payable under the 
        plan during the current plan year and each of the four 
        succeeding plan years (plus administrative expenses).
    If a multiemployer plan is certified in critical status, 
the plan sponsor must adopt a rehabilitation plan. In general, 
a rehabilitation plan is a plan consisting of actions, 
including options or a range of options to be proposed to the 
bargaining parties, formulated, based on reasonable anticipated 
experience and reasonable actuarial assumptions, to enable the 
multiemployer plan to cease to be in critical status within a 
certain period (generally 10 years), referred to as the 
rehabilitation period, and may include reductions in plan 
expenditures (including plan mergers and consolidations), 
reductions in future benefits accruals or increases in 
contributions, if agreed to by the bargaining parties, or any 
combination of these actions.\166\ A rehabilitation plan must 
provide annual standards for meeting the requirements of the 
rehabilitation plan.
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    \166\ If the plan sponsor determines that, on exhaustion of all 
reasonable measures, the multiemployer plan cannot reasonably be 
expected to cease to be in critical status by the end of the 
rehabilitation period, the rehabilitation plan must consist of 
reasonable measures to cease to be in critical status at a later time 
or to forestall insolvency.
---------------------------------------------------------------------------
    Under a specific rule, a multiemployer plan in critical 
status remains in critical status until a plan year for which 
the plan actuary certifies (in accordance with the annual 
certification requirements) that the plan is not projected to 
have an accumulated funding deficiency for the plan year or any 
of the nine succeeding plan years, without regard to the use of 
the shortfall method, but taking into account any amortization 
period extensions.\167\ Thus, a multiemployer plan does not 
emerge from critical status unless (1) it no longer meets any 
of the definitions of critical status, and (2) the plan actuary 
makes the certification described in the preceding sentence 
with respect to the plan's not being projected to have an 
accumulated funding deficiency.\168\
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    \167\ Sec. 432(e)(4)(B) and ERISA sec. 305(e)(4)(B).
    \168\ See Prop. Treas. Reg. sec. 1.432(b)-1(c)(6).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision amends the rule for emergence from critical 
status to provide a rule for plans in critical status generally 
and a special rule if a plan has an automatic amortization 
period extension.
    Under the general rule, a plan in critical status remains 
in critical status until a plan year for which the plan actuary 
certifies (in accordance with the annual certification 
requirements) that the plan (1) does not meet any of the 
definitions of critical status, (2) is not projected to have an 
accumulated funding deficiency for the plan year or any of the 
nine succeeding plan years, without regard to the use of the 
shortfall method but taking into account any amortization 
period extensions granted by the Secretary under the rules in 
effect either before or after PPA, and (3) is not projected to 
become insolvent for any of the 30 succeeding plan years.
    Under the special rule, a plan in critical status that has 
an automatic amortization period extension is no longer in 
critical status (that is, the plan emerges from critical 
status) if the plan actuary certifies for a plan year (in 
accordance with the annual certification requirements) that the 
plan (1) is not projected to have an accumulated funding 
deficiency for the plan year or any of the 9 succeeding plan 
years, without regard to the use of the shortfall method but 
taking into account any automatic amortization period extension 
(but not taking into account any amortization period extensions 
granted by the Secretary), and (2) is not projected to become 
insolvent for any of the 30 succeeding plan years. Under the 
special rule, the plan is no longer in critical status, 
regardless of whether the plan meets any of the otherwise 
applicable definitions of critical status. If a plan emerges 
from critical status under the special rule, the plan does not 
reenter critical status for any subsequent plan year unless the 
plan (1) is projected to have an accumulated funding deficiency 
for the plan year or any of the nine succeeding plan years, 
without regard to the use of the shortfall method but taking 
into account any amortization period extensions (either 
automatic or granted by the Secretary) or (2) is projected to 
become insolvent for any of the 30 succeeding plan years.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

4. Endangered status not applicable if no additional action is required 
        (sec. 104 of the Act, sec. 432 of the Code and sec. 305 of 
        ERISA)

                              Present Law

    Not later than the 90th day of each plan year, the actuary 
for any multiemployer plan must certify to the Secretary and to 
the plan sponsor whether or not the plan is in endangered or 
critical status for the plan year. If a plan is certified as 
being in endangered or critical status, notice of endangered or 
critical status must be provided within 30 days after the date 
of certification to plan participants and beneficiaries, the 
bargaining parties, the PBGC and the Secretary of Labor.
    A multiemployer plan is in endangered status if the plan is 
not in critical status and, as of the beginning of the plan 
year, (1) the plan's funded percentage for the plan year is 
less than 80 percent, or (2) the plan has an accumulated 
funding deficiency for the plan year or is projected to have an 
accumulated funding deficiency in any of the six succeeding 
plan years (taking into account amortization period 
extensions).\169\ A plan's multiemployer funded percentage is 
the percentage determined by dividing the value of plan assets 
by the plan's accrued liability (that is, generally, the 
present value of plan benefits).
---------------------------------------------------------------------------
    \169\ A plan that meets the criteria in both (1) and (2) is in 
``seriously endangered'' status. Special rules may apply to a plan in 
seriously endangered status.
---------------------------------------------------------------------------
    In the case of a multiemployer plan in endangered status, a 
funding improvement plan must be adopted within 240 days 
following the deadline for certifying a plan's status.\170\ A 
funding improvement plan is a plan that consists of the 
actions, including options or a range of options, to be 
proposed to the bargaining parties, formulated to provide, 
based on reasonably anticipated experience and reasonable 
actuarial assumptions, for the attainment by the plan of 
certain requirements. The plan sponsor must update the funding 
improvement plan annually to reflect the circumstances of the 
multiemployer plan.
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    \170\ This requirement applies for the first plan year that the 
plan is in endangered status. If a plan sponsor fails to adopt a 
funding improvement plan by the end of the 240-day period after the 
required certification date, an ERISA penalty of up to $1,100 a day 
applies.
---------------------------------------------------------------------------
    The funding improvement plan must provide that, during the 
funding improvement period, the plan will have a certain 
required increase in its funded percentage and will not have an 
accumulated funding deficiency for any plan year during the 
funding improvement period, taking into account amortization 
period extensions. In general, the plan's funded percentage 
must increase such that the funded percentage as of the close 
of the funding improvement period equals or exceeds a 
percentage equal to the sum of (1) the funded percentage at the 
beginning of the period, plus (2) 33 percent of the difference 
between 100 percent and the percentage in (1).\171\ Thus, the 
difference between 100 percent and the plan's funded percentage 
at the beginning of the period must be reduced by at least one-
third during the funding improvement period.
---------------------------------------------------------------------------
    \171\ The requirements may vary for plans in seriously endangered 
status.
---------------------------------------------------------------------------
    The funding improvement period is generally the 10-year 
period beginning on the first day of the first plan year 
beginning after the earlier of (1) the second anniversary of 
the date of adoption of the funding improvement plan, or (2) 
the expiration of collective bargaining agreements that were in 
effect on the due date for the actuarial certification of 
endangered status for the initial determination year and 
covering, as of that due date, at least 75 percent of the 
plan's active participants. The period ends if the plan is no 
longer in endangered status or if the plan enters critical 
status.

                        Explanation of Provision

    Under the provision, a multiemployer plan that meets the 
otherwise applicable criteria for endangered status is treated 
as not being in endangered status for a plan year if (1) as 
part of the certification of endangered status for the plan 
year, the plan actuary certifies that the plan is projected to 
no longer meet the otherwise applicable criteria for endangered 
status as of the end of the tenth plan year ending after the 
plan year to which the certification relates, and (2) the plan 
was not in critical or endangered status for the immediately 
preceding plan year.\172\ In that case, the plan sponsor must 
provide notice to the bargaining parties and the PBGC that the 
plan would be in endangered status but for treatment under the 
provision as not being in endangered status.
---------------------------------------------------------------------------
    \172\ The provision does not require the multiemployer plan to be 
projected to have achieved the increase in the plan's funded percentage 
by the end of the funding improvement plan that would be required under 
a funding improvement plan.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

5. Correct endangered status funding improvement plan target funded 
        percentage (sec. 105 of the Act, sec. 432 of the Code and sec. 
        305 of ERISA)

                              Present Law

    In the case of a multiemployer plan in endangered status, a 
funding improvement plan must be adopted within 240 days 
following the deadline for certifying a plan's status. The 
funding improvement plan generally must provide that--
           during the funding improvement period, the 
        plan will have a certain required increase in its 
        funded percentage, and
           the plan will not have an accumulated 
        funding deficiency for any plan year during the funding 
        improvement period.
    A plan's multiemployer funded percentage is the percentage 
determined by dividing the value of plan assets by the plan's 
accrued liability (that is, generally, the present value of 
plan benefits). In general, in order for a funding improvement 
plan to be valid, it must reflect a projected increase in the 
multiemployer plan's funded percentage such that the funded 
percentage as of the close of the funding improvement period 
equals or exceeds a percentage equal to the sum of (1) the 
funded percentage at the beginning of the period, plus (2) 33 
percent of the difference between 100 percent and the 
percentage in (1). Thus, the difference between 100 percent and 
the plan's funded percentage at the beginning of the period 
must be reduced by at least one-third during the funding 
improvement period.
    The funding improvement period is generally the 10-year 
period beginning on the first day of the first plan year 
beginning after the earlier of (1) the second anniversary of 
the date of adoption of the funding improvement plan, or (2) 
the expiration of collective bargaining agreements that were in 
effect on the due date for the actuarial certification of 
endangered status for the initial determination year and 
covering, as of that due date, at least 75 percent of the 
plan's active participants. The period ends if the plan is no 
longer in endangered status or if the plan enters critical 
status.
    As described above, the starting point for determining the 
required increase in the plan's funded percentage under a 
funding improvement plan is the plan's funded percentage as of 
the beginning of the funding improvement period, rather than 
its funded percentage as of the first plan year for which the 
plan is in endangered status. Thus, in order for a funding 
improvement plan to be developed, the plan's funded percentage 
must be projected to the beginning of the funding improvement 
period. In addition, any increase in the plan's funded 
percentage that occurs before the funding improvement period 
begins is not taken into account in determining whether a plan 
has achieved the required increase in funded percentage.
    As also described above, under a funding improvement plan, 
the multiemployer plan must not be projected to have an 
accumulated funding deficiency in any year in the funding 
improvement period. Otherwise, a proposed funding improvement 
plan is invalid, even if, under the funding improvement plan, 
the multiemployer plan is projected not to have an accumulated 
funding deficiency as of the end of the funding improvement 
period.

                        Explanation of Provision

    Under the provision, the starting point for determining the 
required increase in a multiemployer plan's funded percentage 
under a funding improvement plan is the plan's funded 
percentage as of the beginning of the first plan year for which 
the plan is in endangered status.
    In addition, under a funding improvement plan, a 
multiemployer plan must not have an accumulated funding 
deficiency for the last plan year during the funding 
improvement period (rather than for any year). Thus, a funding 
improvement plan will not fail to be valid merely because the 
multiemployer plan is projected to have an accumulated funding 
deficiency for one or more years in the funding improvement 
period, other than the last year.\173\
---------------------------------------------------------------------------
    \173\ The provision does not change the aspect of present law under 
which a multiemployer plan that has an accumulated funding deficiency 
(or, in some cases, a projected funding deficiency) is in critical 
status, rather than endangered status. Thus, if the multiemployer plan 
has an accumulated funding deficiency for any year in the funding 
improvement period, it will be in critical status, rather than 
endangered status.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

6. Conforming endangered status and critical status rules during 
        funding improvement and rehabilitation plan adoption periods 
        (secs. 106, 109(a)(2)(B) and 109(b)(2)(B) of the Act, sec. 432 
        of the Code and sec. 305 of ERISA)

                              Present Law


In general

    Various operational restrictions apply with respect to a 
multiemployer plan that has been certified as being in 
endangered or critical status.

Endangered status

            During funding plan adoption period
    Certain restrictions apply with respect to a multiemployer 
plan in endangered status during the ``funding plan adoption 
period,'' which is the period beginning on the date that the 
plan is first certified as being in endangered status for a 
plan year (referred to as the initial determination year) and 
ending on the day before the first day of the funding 
improvement period.\174\
---------------------------------------------------------------------------
    \174\ Sec. 432(d)(1)(A)-(C) and ERISA sec. 305(d)(1)(A)-(C).
---------------------------------------------------------------------------
    During the funding plan adoption period, the plan sponsor 
may not accept a collective bargaining agreement or 
participation agreement that provides for (1) a reduction in 
the level of contributions for any participants, (2) a 
suspension of contributions with respect to any period of 
service, or (3) any new or indirect exclusion of younger or 
newly hired employees from plan participation. In addition, 
during the funding plan adoption period, except in the case of 
amendments required as a condition of qualified retirement plan 
status under the Code or to comply with other applicable law, 
no amendment may be adopted that increases the liabilities of 
the plan by reason of any increase in benefits, any change in 
the accrual of benefits, or any change in the rate at which 
benefits vest (that is, become nonforfeitable) under the plan.
    In the case of a plan in seriously endangered status, 
during the funding plan adoption period, the plan sponsor must 
take all reasonable actions (consistent with the terms of the 
plan and present law) that are expected, based on reasonable 
assumptions, to achieve an increase in the plan's funded 
percentage and a postponement of an accumulated funding 
deficiency for at least one additional plan year. These actions 
include applications for extensions of amortization periods, 
use of the shortfall funding method in making funding standard 
account computations, amendments to the plan's benefit 
structure, reductions in future benefit accruals, and other 
reasonable actions.
            After adoption of funding improvement plan (including 
                    funding improvement period)
    A multiemployer plan in endangered status may not be 
amended after the date of the adoption of a funding improvement 
plan so as to be inconsistent with the funding improvement 
plan.\175\ In addition, a plan may not be amended after the 
date of the adoption of a funding improvement plan to increase 
benefits, including future benefit accruals, unless the plan 
actuary certifies that the benefit increase is consistent with 
the funding improvement plan and is paid for out of 
contributions not required by the funding improvement plan to 
meet the requirements of the funding improvement plan in 
accordance with the schedule contemplated in the funding 
improvement plan.\176\
---------------------------------------------------------------------------
    \175\ Sec. 432(d)(2)(A) and ERISA sec. 305(d)(2)(A).
    \176\ Sec. 432(d)(2)(C) and ERISA sec. 305(d)(2)(C).
---------------------------------------------------------------------------
    During the funding improvement period, a plan sponsor may 
not accept a collective bargaining agreement or participation 
agreement with respect to the multiemployer plan that provides 
for (1) a reduction in the level of contributions for any 
participants, (2) a suspension of contributions with respect to 
any period of service, or (3) any new direct or indirect 
exclusion of younger or newly hired employees from plan 
participation.\177\
---------------------------------------------------------------------------
    \177\ Sec. 432(d)(2)(B) and ERISA sec. 305(d)(2)(B).
---------------------------------------------------------------------------

Critical status

            After notice of critical status
    In the case of a multiemployer plan in critical status, 
certain distributions and purchases may not be made as of the 
date notice of critical status is sent to participants and 
beneficiaries.\178\ Specifically, payments in excess of a 
single life annuity (plus any social security supplement, if 
applicable) generally may not be made to a participant or 
beneficiary who begins receiving benefits after the notice is 
sent. In addition, annuity contracts to provide benefits may 
not be purchased.
---------------------------------------------------------------------------
    \178\ Sec. 432(f)(2) and ERISA sec. 305(f)(2).
---------------------------------------------------------------------------
            During rehabilitation plan adoption period
    Certain restrictions apply with respect to a multiemployer 
plan in critical status during the ``rehabilitation plan 
adoption period,'' which is the period beginning on the date 
that the plan is first certified as being in critical status 
for a plan year (referred to as the initial critical year) and 
ending on the day before the first day of the rehabilitation 
period.\179\
---------------------------------------------------------------------------
    \179\ Sec. 432(f)(4)(A)-(B) and ERISA sec. 305(f)(4)(A)-(B).
---------------------------------------------------------------------------
    During the rehabilitation plan adoption period, the plan 
sponsor may not accept a collective bargaining agreement or 
participation agreement that provides for (1) a reduction in 
the level of contributions for any participants, (2) a 
suspension of contributions with respect to any period of 
service, or (3) any new direct or indirect exclusion of younger 
or newly hired employees from plan participation. In addition, 
during the rehabilitation plan adoption period, except in the 
case of amendments required as a condition of qualified 
retirement plan status under the Code or to comply with other 
applicable law, no amendment may be adopted that increases the 
liabilities of the plan by reason of any increase in benefits, 
any change in the accrual of benefits, or any change in the 
rate at which benefits vest under the plan.
            After adoption of rehabilitation plan (including 
                    rehabilitation period)
    A multiemployer plan in critical status may not be amended 
after the date of adoption of a rehabilitation plan to be 
inconsistent with the rehabilitation plan.\180\ In addition, a 
plan may not be amended after the date of the adoption of a 
rehabilitation plan to increase benefits (including future 
benefit accruals) unless the plan actuary certifies that the 
increase is paid for out of additional contributions not 
contemplated by the rehabilitation plan and, after taking into 
account the benefit increases, the plan is still reasonably 
expected to emerge from critical status by the end of the 
rehabilitation period on the schedule contemplated by the 
rehabilitation plan.\181\
---------------------------------------------------------------------------
    \180\ Sec. 432(f)(1)(A) and ERISA sec. 305(f)(1)(A).
    \181\ Sec. 432(f)(1)(B) and ERISA sec. 305(f)(1)(B).
---------------------------------------------------------------------------

                        Explanation of Provision


Restrictions applicable to endangered and critical plans

    Under the provision, operational restrictions applicable 
under present law only to multiemployer plans in endangered 
status are eliminated. In addition, other operational 
restrictions are modified and, as modified, apply both to plans 
in endangered status and to plans in critical status. The 
operational restrictions apply as described below.
    During the period beginning on the date of the 
certification of endangered status for the initial 
determination year, or of critical status for the initial 
critical year, and ending on the date of the adoption of a 
funding improvement plan, or rehabilitation plan, the plan 
sponsor may not accept a collective bargaining agreement or 
participation agreement with respect to the multiemployer plan 
that provides for a reduction in the level of contributions for 
any participants, a suspension of contributions with respect to 
any period of service, or any new direct or indirect exclusion 
of younger or newly hired employees from plan participation. In 
addition, during that period, no amendment of the plan that 
increases the liabilities of the plan by reason of any increase 
in benefits, any change in the accrual of benefits, or any 
change in the rate at which benefits vest under the plan may be 
adopted unless the amendment is required as a condition of 
qualified retirement plan status under the Code or to comply 
with other applicable law.
    After the date of adoption of a funding improvement plan or 
rehabilitation plan, a multiemployer plan in endangered or 
critical status may not be amended so as to be inconsistent 
with the funding improvement plan or rehabilitation plan, as 
applicable. In addition, after the date of the adoption of a 
funding improvement plan or rehabilitation plan, a 
multiemployer plan in endangered or critical status may not be 
amended to increase benefits, including future benefit 
accruals, unless the plan actuary certifies that the increase 
is paid for out of additional contributions not contemplated by 
the funding improvement or rehabilitation plan, as applicable, 
and, after taking into account the benefit increase, the 
multiemployer plan is still reasonably expected to (1) in the 
case of a plan in endangered status, meet the requirements of 
the funding improvement plan in accordance with the schedule 
contemplated in the funding improvement plan, and (2) in the 
case of a plan in critical status, emerge from critical status 
by the end of the rehabilitation period on the schedule 
contemplated by the rehabilitation plan.

Restrictions applicable only to critical plans

    The provision does not change the restrictions on certain 
distributions and purchases that apply to a multiemployer plan 
in critical status as of the date notice of critical status is 
sent to participants and beneficiaries. Thus, as under present 
law, payments in excess of a single life annuity (plus any 
social security supplement, if applicable) generally may not be 
made to a participant or beneficiary who begins receiving 
benefits after the notice is sent. In addition, annuity 
contracts to provide benefits may not be purchased.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

7. Corrective plan schedules when parties fail to adopt in bargaining 
        (sec. 107 of the Act, sec. 432 of the Code and sec. 305 of 
        ERISA)

                              Present Law

    Within 30 days of the adoption of a funding improvement 
plan in the case of a multiemployer plan in endangered status, 
or a rehabilitation plan in the case of a multiemployer plan in 
critical status, the plan sponsor must provide the bargaining 
parties schedules showing revised benefit structures, revised 
contribution structures, or both, which, if adopted, may 
reasonably be expected to enable the multiemployer plan to meet 
the requirements of the funding improvement or rehabilitation 
plan, as applicable. Certain schedules of contributions and 
benefits are required to be provided to the bargaining parties 
and, in each case, a particular schedule must be designated as 
the default schedule under the funding improvement or 
rehabilitation plan.\182\ With the annual update of a funding 
improvement or rehabilitation plan, the plan sponsor must 
update any schedule of contribution rates under the funding 
improvement or rehabilitation plan to reflect the experience of 
the multiemployer plan.
---------------------------------------------------------------------------
    \182\ A default schedule under a rehabilitation plan that includes 
reductions in future benefit accruals must not reduce the rate of 
benefit accruals below a specified minimum level.
---------------------------------------------------------------------------
    If a collective bargaining agreement providing for 
contributions under a multiemployer plan that was in effect at 
the time the plan entered endangered or critical status 
expires, and after receiving one or more schedules from the 
plan sponsor, the bargaining parties fail to adopt a 
contribution schedule provided by the plan sponsor and 
consistent with the funding improvement or rehabilitation plan, 
the plan sponsor must implement the default schedule 180 days 
after the date on which the collective bargaining agreement 
expires.
    Present law does not provide authority for a plan sponsor 
to implement an updated default schedule if, on expiration of a 
later bargaining agreement, the bargaining parties fail to 
agree on changes to contribution or benefit schedules necessary 
to meet the requirements of the funding improvement or 
rehabilitation plan.

                        Explanation of Provision

    Under the provision, a schedule is to be implemented by the 
plan sponsor in certain instances on the expiration of a 
collective bargaining agreement subsequent to the collective 
bargaining agreement that was in effect at the time a 
multiemployer plan entered endangered or critical status.
    Specifically, if a subsequent collective bargaining 
agreement expires while the multiemployer plan is still in 
endangered or critical status, as applicable, and after 
receiving one or more updated schedules from the plan sponsor, 
the bargaining parties fail to adopt a contribution schedule 
with terms consistent with the updated funding improvement or 
rehabilitation plan and a schedule received from the plan 
sponsor, the plan sponsor must implement the schedule 
applicable under the expired collective bargaining agreement 
(whether adopted by the parties or implemented by the plan 
sponsor), as updated and in effect on the date the collective 
bargaining agreement expires. The plan sponsor is to implement 
the updated schedule 180 days after the date on which the 
collective bargaining agreement expires.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

8. Repeal of reorganization rules for multiemployer plans (sec. 108 of 
        the Act, secs. 418-418E of the Code and secs. 4241-4245 of 
        ERISA)

                              Present Law

    Certain modifications to the funding rules apply to 
multiemployer plans in reorganization.\183\ A plan is in 
reorganization for a year if the contribution needed to balance 
the charges and credits to its funding standard account exceeds 
its ``vested benefits charge.'' The plan's vested benefits 
charge is generally the amount needed to amortize, in equal 
annual installments, unfunded vested benefits under the plan 
over (1) 10 years in the case of obligations attributable to 
participants in pay status, and (2) 25 years in the case of 
obligations attributable to other participants.
---------------------------------------------------------------------------
    \183\ The reorganization rules predate the endangered and critical 
rules enacted under PPA.
---------------------------------------------------------------------------
    When a plan is in reorganization, an additional funding 
requirement, the ``minimum contribution requirement'' applies. 
Failure to meet the minimum contribution requirement results in 
an accumulated funding deficiency. In general, the minimum 
contribution requirement is an amount equal to the excess of 
(1) the sum of the plan's vested benefit charge for the plan 
year and the increase in normal cost for the plan year 
attributable to plan amendments adopted while the plan was in 
reorganization, over (2) if applicable, a special credit (the 
``overburden credit''). A limitation applies to the minimum 
contribution requirement so that the rate of increase in 
contributions is generally limited to seven percent per year.
    Subject to certain requirements (including notice to 
participants, any employee organization representing 
participants, and contributing employers), a multiemployer plan 
in reorganization may also be amended to reduce or eliminate 
accrued benefits (or benefit increases) that have been in 
effect for less than 60 months and are not guaranteed by the 
PBGC. Benefits may be reduced or eliminated notwithstanding the 
anti-cutback rules, which generally require that accrued 
benefits may not be decreased by plan amendment. Active and 
inactive participants must generally be treated similarly with 
respect to benefit reductions made under a plan in 
reorganization.
    If a multiemployer plan is in reorganization, the plan 
sponsor is required to compare assets and liabilities to 
determine if the plan will become insolvent in the future. A 
plan is insolvent when its available resources in a plan year 
are not sufficient to pay the plan benefits for that plan year, 
or when the sponsor of a plan in reorganization reasonably 
determines, taking into account the plan's recent and 
anticipated financial experience, that the plan's available 
resources will not be sufficient to pay benefits that come due 
in the next plan year. Notwithstanding the anti-cutback rules, 
an insolvent plan is required to reduce benefits to the level 
that can be provided by the plan's assets. However, benefits 
cannot be reduced below the level guaranteed by the PBGC. If a 
multiemployer plan is insolvent, the PBGC guarantee is provided 
in the form of unsecured loans to the plan (referred to as 
financial assistance), regardless of the plan's ability to 
repay the loan.\184\ However, if a plan were later to recover 
from insolvency status, loans from the PBGC would have to be 
repaid.
---------------------------------------------------------------------------
    \184\ ERISA sec. 4261.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision repeals the reorganization rules for 
multiemployer plans. The provision also makes related 
modifications to the insolvency rules, including a requirement 
that, in the case of a multiemployer plan in critical status, 
the plan sponsor compare assets and liabilities to determine if 
the plan will become insolvent in the future. In addition, 
under the provision, the rules relating to benefit reductions 
under an insolvent plan do not apply to a multiemployer plan in 
critical and declining status that is operating under benefit 
suspensions (as discussed in Part D below).

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

9. Disregard of certain contribution increases for withdrawal liability 
        purposes (sec. 109 of the Act, sec. 432 of the Code and sec. 
        305 of ERISA)

                              Present Law


Withdrawal liability

    An employer that withdraws from a multiemployer plan in a 
complete or partial withdrawal is generally liable to the plan 
in the amount determined to be the employer's withdrawal 
liability.\185\ In general, a ``complete withdrawal'' means the 
employer has permanently ceased operations under the plan or 
has permanently ceased to have an obligation to contribute. A 
``partial withdrawal'' generally occurs if, on the last day of 
a plan year, there is a 70-percent contribution decline for the 
plan year or there is a partial cessation of the employer's 
contribution obligation.
---------------------------------------------------------------------------
    \185\ ERISA secs. 4201-4225. Under ERISA section 4219(d), the 
prohibited transaction restrictions under ERISA section 406(a) do not 
apply to any action permitted or required under the withdrawal 
liability rules.
---------------------------------------------------------------------------
    When an employer withdraws from a multiemployer plan, the 
plan sponsor is required to determine the amount of the 
employer's withdrawal liability, notify the employer of the 
amount of the withdrawal liability, and collect the amount of 
the withdrawal liability from the employer. In order to 
determine an employer's withdrawal liability, a portion of the 
plan's unfunded vested benefits is first allocated to the 
employer, generally in proportion to the employer's share of 
plan contributions for a previous period.\186\ The amount of 
unfunded vested benefits allocable to the employer is then 
subject to various reductions and adjustments. An employer's 
withdrawal liability is generally payable, with interest, in 
level annual installments. However, the amount of the annual 
installments is limited, based on the amount of the employer's 
previous contributions to the plan and its highest previous 
rate of contribution, and the period over which installments 
are paid is limited to 20 years. An employer's withdrawal is 
the amount determined after application of these limits. In 
addition, the plan sponsor and the employer may agree to settle 
an employer's withdrawal liability obligation for a different 
amount.
---------------------------------------------------------------------------
    \186\ Under 29 C.F.R. sec. 4211.2, for this purpose, unfunded 
vested benefits is the amount by which the value of vested benefits 
under the plan exceeds the value of plan assets.
---------------------------------------------------------------------------

Disregard of employer surcharges and benefit reductions

    As of the first plan year a multiemployer plan is certified 
as being in critical status, certain plan contributions 
(``surcharges''), in addition to the contributions required 
under a collective bargaining agreement, apply to employers 
otherwise obligated to make a contribution for that plan year. 
For that first plan year, the surcharge is five percent of the 
contribution otherwise required to be made under the applicable 
collective bargaining agreement; for subsequent plan years, the 
surcharge is 10 percent of contributions otherwise required. 
The surcharge no longer applies with respect to employees 
covered by a collective bargaining agreement (or other 
agreement pursuant to which the employer contributes), 
beginning on the effective date of a collective bargaining 
agreement (or other agreement) that includes terms consistent 
with a schedule of contribution and benefit rates that complies 
with the rehabilitation plan. Surcharges may not be the basis 
for any benefit accrual under the plan, and surcharges are 
generally disregarded in determining the allocation of unfunded 
vested benefits to an employer for purposes of the employer's 
withdrawal liability.
    In the case of a multiemployer plan in critical status, 
certain distributions may not be made as of the date notice of 
critical status is sent to participants and beneficiaries. 
Specifically, payments in excess of a single life annuity (plus 
any social security supplement, if applicable) may not be made 
to a participant or beneficiary who begins receiving benefits 
after the notice is sent. In addition, subject to providing 
advance notice, the plan sponsor may make certain reductions to 
adjustable benefits that the plan sponsor deems 
appropriate.\187\ However, benefits generally may not be 
reduced for a participant or beneficiary who began to receive 
benefits before receiving notice of the multiemployer plan's 
critical status. The elimination of any prohibited forms of 
distribution and reductions in adjustable benefits are 
disregarded in determining a plan's unfunded vested benefits 
for withdrawal liability purposes.
---------------------------------------------------------------------------
    \187\ Adjustable benefits means (1) benefits, rights, and features 
under the plan, including post-retirement death benefits, 60-month 
guarantees, disability benefits not yet in pay status, and similar 
benefits; (2) any early retirement benefit or retirement-type subsidy 
and any benefit payment option (other than the qualified joint-and-
survivor annuity); and (3) benefit increases that would not be eligible 
for PBGC guarantee on the first day of the initial critical year 
because the increases were adopted (or, if later, took effect) less 
than 60 months before that first day. However, the level of a 
participant's accrued benefit payable at normal retirement age may not 
be reduced. The ability to eliminate prohibited forms of distribution 
and to reduce adjustable benefits applies notwithstanding protection 
for distribution forms and previously accrued benefits under the anti-
cutback rules, discussed in Part D below.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision consolidates the present-law rules for the 
disregard of benefit reductions and employer surcharges in 
determining withdrawal liability with respect to a 
multiemployer plan in critical status. In addition, under the 
provision, employer surcharges are disregarded in determining 
an employer's highest previous rate of contribution to the 
plan. The provision also adds new rules relating to the 
disregard of contribution increases under a funding improvement 
plan in the case of a multiemployer plan in endangered status 
or a rehabilitation plan in the case of a multiemployer plan in 
critical status.
    Under the new rules, if an increase in contribution rate or 
other increase in contribution requirements (unless the other 
increase is due to increased levels of work, employment, or 
periods for which compensation is provided) is required or made 
to enable a multiemployer plan to meet the requirements of a 
funding improvement or rehabilitation plan, the increase is 
generally disregarded in determining the allocation of unfunded 
vested benefits to an employer and an employer's highest 
contribution rate. For this purpose, an increase in 
contribution rate or other increase in contribution 
requirements is deemed to be required or made to enable the 
multiemployer plan to meet the requirements of the funding 
improvement or rehabilitation plan, except for (1) increases in 
contribution requirements due to increased levels of work, 
employment, or periods for which compensation is provided or 
(2) additional contributions used to provide a permissible 
increase in benefits, including an increase in future benefit 
accruals.
    The disregard of increases in contribution rate or other 
increases in contribution requirements generally ceases to 
apply as of the expiration date of the collective bargaining 
agreement in effect when the multiemployer plan emerges from 
endangered or critical status. However, after the plan emerges 
from endangered or critical status, increases in contribution 
rates for plan years during which the plan was in endangered or 
critical status that were disregarded while the plan was in 
endangered or critical status, continue to be disregarded in 
determining an employer's highest contribution rate for those 
plan years.

                             Effective Date

    The provision is effective with respect to benefit 
reductions and increases in contribution rates or other 
required contribution increases that go into effect during plan 
years beginning after December 31, 2014, and to surcharges the 
obligation for which accrues on or after December 31, 2014.

10. Guarantee for preretirement survivor annuities under multiemployer 
        pension plans (sec. 110 of the Act and sec. 4022A of ERISA)

                              Present Law


QPSA requirement

    Under the Code and ERISA, if a married participant in a 
defined benefit plan dies before benefits begin, the plan 
generally must provide a benefit for the participant's 
surviving spouse in the form of a qualified preretirement 
survivor annuity (``QPSA''), which is a survivor annuity for 
the spouse that is at least 50 percent of the employee's 
accrued benefit.\188\
---------------------------------------------------------------------------
    \188\ Secs. 401(a)(11) and 417(c) and ERISA sec. 205(a) and (e).
---------------------------------------------------------------------------

PBGC guarantee of multiemployer plan benefits

    Termination of a multiemployer defined benefit pension plan 
can occur as a result of (1) the adoption of a plan amendment 
providing that participants receive no credit under the plan 
for any purpose for service with any employer after a date 
specified in the amendment (referred to as ``freezing 
accruals''), (2) the adoption of a plan amendment causing the 
plan to become a defined contribution plan, or (3) the 
withdrawal of every employer from the plan or the cessation of 
the obligation of all employers to contribute to the plan 
(referred to as ``mass withdrawal'').\189\
---------------------------------------------------------------------------
    \189\ ERISA sec. 4041A. Unlike the termination of a single-employer 
plan (and except in the case of multiemployer plan terminations 
occurring before 1981), termination of a multiemployer plan does not of 
itself result in the end of the operation of the plan or in the PBGC's 
taking over the plan. Instead, the plan sponsor continues to administer 
the plan.
---------------------------------------------------------------------------
    If a terminated multiemployer plan becomes insolvent and 
plan assets are not sufficient to pay benefits at the level 
guaranteed by the PBGC, the PBGC will provide financial 
assistance as needed to pay benefits at the guarantee 
level.\190\ The PBGC benefit guarantee level for multiemployer 
plans is the sum of 100 percent of the first $11 of vested 
monthly benefits and 75 percent of the next $33 of vested 
monthly benefits, multiplied by the participant's number of 
years of service.
---------------------------------------------------------------------------
    \190\ ERISA secs. 4261 and 4281.
---------------------------------------------------------------------------
    The PBGC guarantee generally applies also to benefits 
payable to the surviving spouse of a deceased participant. 
However, in the case of a multiemployer plan, the PBGC 
guarantees QPSA benefits only in the case of a surviving spouse 
of a participant who dies before plan termination.
    If a multiemployer plan that has not terminated becomes 
insolvent, similar rules apply, including the provision by the 
PBGC of financial assistance in an amount needed to provide 
benefits at the guarantee level.

                        Explanation of Provision

    Under the provision, for purposes of the PBGC guarantee of 
benefits under a multiemployer plan, QPSA benefits under a 
multiemployer plan that becomes insolvent or is terminated are 
not treated as forfeitable solely because the participant has 
not died as of the date the plan becomes insolvent or the 
termination date of the plan. Thus, QPSA benefits payable to 
the surviving spouse of a participant who dies after the plan 
becomes insolvent or is terminated are eligible for the PBGC 
guarantee (subject to guarantee limits).

                             Effective Date

    The provision is effective with respect to multiemployer 
plan benefit payments becoming payable on or after January 1, 
1985, except that it does not apply if a surviving spouse has 
died before the date of the enactment (December 16, 2014).

11. Required disclosure of multiemployer plan information (sec. 111 of 
        the Act and secs. 101(k) and 107 of ERISA)

                              Present Law

    A plan administrator of a multiemployer plan must, within 
30 days of a written request, provide a plan participant or 
beneficiary, employee representative, or employer that has an 
obligation to contribute to the plan with a copy of the 
following:
    1.  any periodic actuarial report (including any 
sensitivity testing) for any plan year that has been in the 
plan's possession for at least 30 days,
    2.  any quarterly, semi-annual, or annual financial report 
prepared for the plan by any plan investment manager or advisor 
or other plan fiduciary that has been in the plan's possession 
for at least 30 days, and
    3.  any application for an amortization period extension 
filed with the Secretary.
    Any actuarial report, financial report, or amortization 
extension application provided to a participant, beneficiary, 
or employer generally must not include any individually 
identifiable information regarding any participant, 
beneficiary, employee, fiduciary, or contributing employer, or 
reveal any proprietary information regarding the plan, any 
contributing employer, or any entity providing services to the 
plan.
    A person is not entitled to receive more than one copy of 
any actuarial or financial report or amortization extension 
application during any 12-month period. The plan administrator 
may make a reasonable charge to cover copying, mailing, and 
other costs of furnishing copies or notices, subject to a 
maximum amount that may be prescribed by regulations. Any 
information or notice required to be provided under the 
provision may be provided in written, electronic, or other 
appropriate form to the extent the particular form is 
reasonably available to the persons to whom the information is 
required to be provided.
    In the case of a failure to comply with these requirements, 
the Secretary of Labor may assess a civil penalty of up to 
$1,000 per day for each failure to provide a notice.

                        Explanation of Provision

    The provision expands the types of documents that a 
multiemployer plan administrator is required to provide, within 
30 days of a written request, to a participant or beneficiary, 
employee representative, or employer that has an obligation to 
contribute to the plan. Specifically, the plan administrator 
must provide a copy of the following:
    1. the current plan document (including any amendments 
thereto),
    2. the latest summary plan description of the plan,
    3. the current trust agreement (including any amendments 
thereto) or any other instrument or agreement under which the 
plan is established or operated,
    4. in the case of a request by an employer, any 
participation agreement of the employer with respect to the 
plan that relates to the employer's participation during the 
current or any of the five immediately preceding plan years,
    5. the annual report filed for the plan for any plan year,
    6. the annual funding notice for the plan for any plan 
year,
    7. any periodic actuarial report (including any sensitivity 
testing) for any plan year that has been in the plan's 
possession for at least 30 days,
    8. any quarterly, semi-annual, or annual financial report 
prepared for the plan by any plan investment manager or advisor 
or other plan fiduciary that has been in the plan's possession 
for at least 30 days,
    9. audited financial statements of the plan for any plan 
year,
    10. any application for an amortization period extension 
filed with the Secretary and the determination on the 
application, and
    11. in the case of a plan in endangered or critical status 
for a plan year, the latest funding improvement or 
rehabilitation plan, and the contribution schedules applicable 
with respect to the funding improvement or rehabilitation plan 
(other than a contribution schedule applicable to a specific 
employer).
    A person is not entitled to receive more than one copy of 
any document during any 12-month period. In addition, in the 
case of documents 5 through 9 listed above, a person is not 
entitled to receive a copy of a document that, as of the date 
on which the document request is received by the plan 
administrator, has been in the plan administrator's possession 
for six years or more. If the plan administrator provides a 
copy of a document listed above to any person on request, the 
plan administrator is considered as having met any obligation 
it may have under Title I of ERISA to furnish a copy of the 
same document to the person on request.
    The provision amends the record-keeping requirements of 
Title I of ERISA to require the plan administrator to maintain 
a copy of any report required to be filed, including the 
documents listed above, and related records (as described in 
the record-keeping requirements) and to keep the records 
available for examination for at least six years. The provision 
amends the enforcement provisions of Title I of ERISA to allow 
an employee representative or an employer that has an 
obligation to contribute to the plan to bring a civil action to 
enjoin any act or practice that violates the requirement to 
provide the documents listed above or, in the case of an 
employer, to obtain appropriate equitable relief to redress a 
violation or to enforce the requirement to provide the listed 
documents.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

              B. Multiemployer Plan Mergers and Partitions


        1. Mergers (sec. 121 of the Act and sec. 4231 of ERISA)


                              Present Law


Multiemployer plan insolvency

    If a multiemployer plan is insolvent (that is, the plan's 
available resources are not sufficient to pay benefits due 
under the plan), benefits must be reduced to the level that can 
be provided by plan assets. However, benefits cannot be reduced 
below the level guaranteed by the PBGC. If plan assets are 
insufficient to provide benefits at the PBGC guarantee level, 
the PBGC provides financial assistance as needed to pay 
benefits at the guarantee level.

Plan mergers and transfers

    Under present law, a plan sponsor generally may not cause a 
multiemployer plan to merge with one or more other 
multiemployer plans, or engage in a transfer of assets and 
liabilities to or from another multiemployer plan, unless the 
following requirements are met:
           the plan sponsor notifies the PBGC of the 
        merger or transfer at least 120 days before the 
        effective date of the merger or transfer,
           no participant's or beneficiary's accrued 
        benefit will be lower immediately after the effective 
        date of the merger or transfer than immediately before 
        the effective date,
           the benefits of participants and 
        beneficiaries are not reasonably expected to be subject 
        to suspension as a result of plan insolvency, and
           an actuarial valuation of the assets and 
        liabilities of each of the affected plans has been 
        performed in accordance with PBGC regulations.\191\
---------------------------------------------------------------------------
    \191\ See PBGC regulations at 29 C.F.R. sections 4231.1-4231.10 for 
additional rules.
---------------------------------------------------------------------------

PBGC Participant and Plan Sponsor Advocate

    Under ERISA, the PBGC board of directors selects a 
Participant and Plan Sponsor Advocate, who generally acts as a 
liaison between the PBGC, defined benefit plan sponsors, and 
participants in defined benefit plans trusteed by the 
PBGC.\192\
---------------------------------------------------------------------------
    \192\ ERISA sec. 4004.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision amends the ERISA rules governing mergers of 
multiemployer plans by adding new rules relating to involvement 
by the PBGC. Under the provision, when requested by the plan 
sponsors of the relevant plans, the PBGC may take actions as it 
deems appropriate to promote and facilitate the merger of the 
plans. Before taking action, the PBGC must determine, after 
consultation with the Participant and Plan Sponsor Advocate, 
that the merger is in the interests of the participants and 
beneficiaries of at least one of the plans and is not 
reasonably expected to be adverse to the overall interests of 
the participants and beneficiaries of any of the plans. Actions 
taken by the PBGC may include training, technical assistance, 
mediation, communication with stakeholders, and support with 
related requests to other government agencies.
    In order to facilitate a merger that the PBGC determines is 
necessary to enable one or more of the plans involved to avoid 
or postpone insolvency, the PBGC may provide financial 
assistance to the merged plan if (1) one or more of the 
multiemployer plans participating in the merger is in critical 
and declining status (as described in Part D below), (2) the 
PBGC reasonably expects that the financial assistance will 
reduce the PBGC's expected long-term loss with respect to the 
plans involved and is necessary for the merged plan to become 
or remain solvent, (3) the PBGC certifies that its ability to 
meet existing financial assistance obligations to other plans 
will not be impaired by providing the financial assistance, and 
(4) the financial assistance is paid exclusively from the fund 
for basic benefits guaranteed for multiemployer plans.\193\
---------------------------------------------------------------------------
    \193\ Thus, other Federal funds, including funds from the PBGC 
single-employer plan program, may not be used for this purpose.
---------------------------------------------------------------------------
    Not later than 14 days after the provision of financial 
assistance under the provision, the PBGC must provide notice 
thereof to the Committees of the House of Representatives 
(``House Committees'') on Education and the Workforce and on 
Ways and Means and the Committees of the Senate (``Senate 
Committees'') on Finance and on Health, Education, Labor, and 
Pensions.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

2. Partitions of eligible multiemployer plans (sec. 122 of the Act and 
        sec. 4233 of ERISA)

                              Present Law


Reorganization, withdrawal liability, insolvency

    Certain modifications to the funding rules apply to 
multiemployer plans in reorganization.\194\ A plan is in 
reorganization for a year if the contribution needed to balance 
the charges and credits to its funding standard account exceeds 
its ``vested benefits charge.'' The plan's vested benefits 
charge is generally the amount needed to amortize, in equal 
annual installments, unfunded vested benefits under the plan 
over (1) 10 years in the case of obligations attributable to 
participants in pay status, and (2) 25 years in the case of 
obligations attributable to other participants. When a plan is 
in reorganization, an additional funding requirement, the 
``minimum contribution requirement'' applies. Failure to meet 
the minimum contribution requirement results in an accumulated 
funding deficiency.
---------------------------------------------------------------------------
    \194\ As discussed in Part A.8 above, section 108 of the Act 
repeals the reorganization rules.
---------------------------------------------------------------------------
    If an employer withdraws from a multiemployer plan in a 
complete or partial withdrawal, so that the employer's 
obligation to contribute to the plan ceases or is reduced, the 
employer is generally liable to the plan in the amount 
determined to be the employer's withdrawal liability.\195\ An 
employer's withdrawal liability is generally payable in level 
annual installments over a period of up to 20 years. 
Termination of a multiemployer plan does not end an employer's 
obligation to make withdrawal liability payments to the plan, 
though, in some circumstances, the amount of an employer's 
withdrawal liability may be redetermined.\196\
---------------------------------------------------------------------------
    \195\ ERISA secs. 4201-4225.
    \196\ Under ERISA sec. 4041A, termination of a multiemployer 
defined benefit pension plan can occur as a result of (1) the adoption 
of a plan amendment providing that participants receive no credit under 
the plan for any purpose for service with any employer after a date 
specified in the amendment (referred to as ``freezing accruals''), (2) 
the adoption of a plan amendment causing the plan to become a defined 
contribution plan, or (3) the withdrawal of every employer from the 
plan or the cessation of the obligation of all employers to contribute 
to the plan (referred to as ``mass withdrawal''). Unlike the 
termination of a single-employer plan (and except in the case of 
multiemployer plan terminations occurring before 1981), termination of 
a multiemployer plan does not of itself result in the end of the 
operation of the plan or in the PBGC's taking over the plan. Instead, 
the plan sponsor continues to administer the plan.
---------------------------------------------------------------------------
    If a terminated multiemployer plan becomes insolvent and 
plan assets are not sufficient to pay benefits at the level 
guaranteed by the PBGC, the PBGC will provide financial 
assistance as needed to pay benefits at the guarantee 
level.\197\
---------------------------------------------------------------------------
    \197\ ERISA secs. 4261 and 4281.
---------------------------------------------------------------------------
    The PBGC benefit guarantee level for multiemployer plans is 
the sum of 100 percent of the first $11 of vested monthly 
benefits and 75 percent of the next $33 of vested monthly 
benefits, multiplied by the participant's number of years of 
service. However, the guarantee level may be lower in the case 
of a benefit that has been in effect for fewer than 60 months, 
including benefits under a plan in effect for fewer than 60 
months. In the case of a plan that is a successor to a 
previously established plan, the time that the successor plan 
is considered to be in effect for this purpose includes the 
time the previously established plan was in effect.

Partition of a multiemployer plan

    Under present law, if certain conditions are met, a 
multiemployer plan may be partitioned, that is, separated into 
two plans, by order of the PBGC in response to an application 
by the plan sponsor. Before issuing a partition order, the PBGC 
must provide notice to the plan sponsor and to the plan 
participants and beneficiaries whose vested benefits will be 
affected by the partition of the plan. In addition, the PBGC 
must determine that--
           a substantial reduction in the amount of 
        aggregate contributions under the plan has resulted or 
        will result from a Federal bankruptcy case or 
        proceeding with respect to an employer,
           the plan is likely to become insolvent,
           contributions will have to be increased 
        significantly to meet the minimum contribution 
        requirement in reorganization and prevent insolvency, 
        and
           partition would significantly reduce the 
        likelihood that the plan will become insolvent.\198\
---------------------------------------------------------------------------
    \198\ The PBGC may also bring an action in Federal court for a 
decree partitioning a multiemployer plan and appointing a trustee for 
the terminated portion of a partitioned plan. Subject to the notice and 
determinations required in order for the PBGC to order a partition, the 
court may issue a partition order.
---------------------------------------------------------------------------
    The PBGC's partition order must provide for a transfer to 
the plan created by the partition of no more than the vested 
benefits of participants and beneficiaries that are directly 
attributable to service with the employer involved in the 
bankruptcy case or proceeding, as well as for the transfer of 
an equitable share of plan assets. The plan created by the 
partition order is treated as (1) a terminated plan with 
respect to which only the employer involved in the bankruptcy 
case or proceeding has withdrawal liability (and with respect 
to which a lien in favor of the PBGC may apply), and (2) a 
successor plan for purposes of determining the PBGC guarantee 
level.

PBGC Participant and Plan Sponsor Advocate

    Under ERISA, the PBGC board of directors selects a 
Participant and Plan Sponsor Advocate, who generally acts as a 
liaison between the PBGC, defined benefit plan sponsors, and 
participants in defined benefit plans trusteed by the 
PBGC.\199\ 
---------------------------------------------------------------------------
    \199\ ERISA sec. 4004.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision replaces the present-law partition rules with 
a new set of rules. Under the new rules, on application by the 
plan sponsor of an eligible multiemployer plan for a partition 
of the plan, the PBGC may order a partition of the plan. Not 
later than 30 days after submitting an application to the PBGC 
for partition of a plan, the plan sponsor must notify the 
participants and beneficiaries of the application, in the form 
and manner prescribed by PBGC regulations.
    For purposes of the provision, a multiemployer plan is an 
eligible multiemployer plan if--
           the plan is in critical and declining status 
        (as described in Part D below),
           the PBGC determines, after consultation with 
        the Participant and Plan Sponsor Advocate, that the 
        plan sponsor has taken (or is taking concurrently with 
        an application for partition) all reasonable measures 
        to avoid insolvency, including maximum benefit 
        suspensions permitted in the case of a critical and 
        declining plan, if applicable,
           the PBGC reasonably expects that a partition 
        of the plan will reduce the PBGC's expected long-term 
        loss with respect to the plan and is necessary for the 
        plan to remain solvent,
           the PBGC certifies to Congress that the 
        PBGC's ability to meet existing financial assistance 
        obligations to other plans (including any liabilities 
        associated with multiemployer plans that are insolvent 
        or that are projected to become insolvent within 10 
        years) will not be impaired by the partition, and
           the cost to the PBGC arising from the 
        proposed partition is paid exclusively from the fund 
        for basic benefits guaranteed for multiemployer 
        plans.\200\ 
---------------------------------------------------------------------------
    \200\ Thus, other Federal funds, including funds from the PBGC 
single-employer plan program, may not be used for this purpose.
---------------------------------------------------------------------------
    The PBGC must make a determination regarding a partition 
application not later than 270 days after the application is 
filed (or, if later, the date the application is completed) in 
accordance with PBGC regulations. Not later than 14 days after 
a partition order, the PBGC must provide notice thereof to the 
House Committees on Education and the Workforce and on Ways and 
Means and the Senate Committees on Finance and on Health, 
Education, Labor, and Pensions, as well as to any affected 
participants or beneficiaries.
    The plan sponsor and the plan administrator of the eligible 
multiemployer plan (the ``original'' plan) before the partition 
are the plan sponsor and plan administrator of the plan created 
by the partition order (the ``new'' plan). For purposes of 
determining benefits eligible for guarantee by the PBGC, the 
new plan is a successor plan with respect to the original plan.
    The PBGC's partition order is to provide for a transfer to 
the new plan the minimum amount of the original plan's 
liabilities necessary for the original plan to remain solvent. 
The provision does not provide for the transfer to the new plan 
of any assets of the original plan.
    It is expected that the liabilities transferred to the new 
plan will be liabilities attributable to benefits of specific 
participants and beneficiaries (or a specific group or groups 
of participants and beneficiaries) as requested by the plan 
sponsor of the original plan and approved by the PBGC, up to 
the PBGC guarantee level applicable to each participant or 
beneficiary. Thus, benefits for such participants and 
beneficiaries up to the guarantee level will be paid by the new 
plan. For each month after the effective date of the partition 
that such a participant or beneficiary is in pay status, the 
original plan will pay a monthly benefit to the participant or 
beneficiary in the amount by which (1) the monthly benefit that 
would be paid to the participant or beneficiary under the terms 
of the original plan if the partition had not occurred (taking 
into account any benefit suspensions and any plan amendments 
after the effective date of the partition) exceeds (2) the 
amount of the participant's or beneficiary's benefit up to the 
PBGC guarantee level.
    During the 10-year period following the effective date of 
the partition, the original plan must pay the PBGC premiums due 
for each year with respect to participants whose benefits were 
transferred to the new plan. The original plan must pay an 
additional amount to the PBGC if it provides a benefit 
improvement (as defined under the rules for plans in critical 
and declining status, discussed in Part D below) that takes 
effect after the effective date of the partition. Specifically, 
for each year during the 10-year period following the effective 
date of the partition, the original plan must pay the PBGC an 
annual amount equal to the lesser of (1) the total value of the 
increase in benefit payments for the year that is attributable 
to the benefit improvement, or (2) the total benefit payments 
from the new plan for the year. This payment must be made to 
the PBGC at the time of, and in addition to, any other PBGC 
premium due from the original plan.
    If an employer withdraws from the original plan within ten 
years after the date of the partition order, the employer's 
withdrawal liability will be determined by reference to both 
the original plan and the new plan. If the withdrawal occurs 
more than ten years after the date of the partition order, 
withdrawal liability will be determined only by reference to 
the original plan and not with respect to the new plan.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

C. Strengthening the Pension Benefit Guaranty Corporation (sec. 131 of 
                 the Act and sec. 4006(a)(3) of ERISA)


                              Present Law

    In order to protect plan participants and beneficiaries 
from losing retirement benefits, the PBGC, a corporation within 
DOL, was created under ERISA to provide an insurance program 
for benefits under most defined benefit plans maintained by 
private employers, including multiemployer defined benefit 
plans.\201\
---------------------------------------------------------------------------
    \201\ ERISA secs. 4001-4071. Governmental and church plans are 
generally not covered by the PBGC insurance programs. In the case of 
single-employer and multiple-employer defined benefit plans, the PBGC 
guarantees a certain level of benefits if a plan is terminated without 
sufficient assets to provide all benefits due under the plan.
---------------------------------------------------------------------------
    In the case of multiemployer plans, the PBGC generally 
insures plan insolvency, regardless of whether the plan has 
terminated.\202\ In general, a plan is insolvent when its 
available resources are not sufficient to pay the plan benefits 
for a plan year. If it appears that available resources will 
not support the payment of benefits at the level guaranteed by 
the PBGC (described below), the PBGC will provide the 
additional resources needed as a loan, referred to as financial 
assistance. If the plan recovers from insolvency, it must begin 
repaying the loans on reasonable terms in accordance with 
regulations.
---------------------------------------------------------------------------
    \202\ Under ERISA section 4041A, termination of a multiemployer 
defined benefit pension plan can occur as a result of (1) the adoption 
of a plan amendment providing that participants receive no credit under 
the plan for any purpose for service with any employer after a date 
specified in the amendment (referred to as ``freezing accruals''), (2) 
the adoption of a plan amendment causing the plan to become a defined 
contribution plan, or (3) the withdrawal of every employer from the 
plan or the cessation of the obligation of all employers to contribute 
to the plan (referred to as ``mass withdrawal''). Unlike the 
termination of a single-employer plan (and except in the case of 
multiemployer plan terminations occurring before 1981), termination of 
a multiemployer plan does not of itself result in the end of the 
operation of the plan or in the PBGC's taking over the plan. Instead, 
the plan sponsor continues to administer the plan.
---------------------------------------------------------------------------
    The PBGC benefit guarantee level for multiemployer plans is 
the sum of 100 percent of the first $11 of vested monthly 
benefits and 75 percent of the next $33 of vested monthly 
benefits, multiplied by the participant's number of years of 
service.
    The PBGC multiemployer program is financed through the 
payment of premiums by multiemployer defined benefit plans, 
which are held in an interest-bearing Treasury fund. In the 
case of a multiemployer plan, PBGC flat-rate premiums apply at 
a rate of $12 per participant for 2014 with indexing 
thereafter. For 2015, the indexed rate is $13 per 
participant.\203\
---------------------------------------------------------------------------
    \203\ Under ERISA section 4022A(f), the PBGC is directed every five 
years to determine the premium levels needed to support the existing 
guarantee levels for multiemployer plans, and whether the guarantee 
levels could be increased without increasing multiemployer plan 
premiums, and to report on its determinations to the House Committees 
on Ways and Means and on Education and Labor (now the House Committee 
on Education and the Workforce) and to the Senate Committees on Finance 
and Labor and Human Resources (now the Senate Committee on Health, 
Education, Labor, and Pensions). If such a report indicates that a 
premium increase is needed to support existing guarantee levels, by 
March 31 of any calendar year in which congressional action under 
section 4022A(f) is requested, the PBGC is directed to submit to the 
Committees (1) changes to the guarantee schedule as would be needed in 
the absence of premium increases, (2) premium increases needed to 
support existing guarantee levels, and (3) a combination of changes to 
the guarantee schedule at levels higher than under (1) with 
corresponding premiums increases, but lower than under (2).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, in the case of a multiemployer plan, 
PBGC flat-rate premiums apply at a rate of $26 per participant 
for 2015 with indexing thereafter.\204\
---------------------------------------------------------------------------
    \204\ For fiscal years 2016 through 2020, certain multiemployer 
premium amounts are to be placed in a noninterest-bearing account and 
any financial assistance provided to multiemployer plans is to be 
withdrawn proportionately from the noninterest-bearing account and 
other accounts within the multiemployer plan fund.
---------------------------------------------------------------------------
    Not later than June 1, 2016, the PBGC is directed to submit 
a report to Congress that includes (1) an analysis of whether 
the premium levels enacted under the provision are sufficient 
for the PBGC to meet its projected benefit guarantee 
obligations under the multiemployer plan program for the 10- 
and 20-year periods beginning with 2015, including an 
explanation of the assumptions underlying the analysis, and (2) 
if the analysis concludes that the premium levels are 
insufficient to meet these obligations (or are in excess of the 
levels sufficient to meet these obligations), a proposed 
schedule of revised premiums sufficient to meet (but not 
exceed) these obligations.\205\
---------------------------------------------------------------------------
    \205\ This report is required in addition to any report required 
under ERISA section 4022A.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2014.

D. Remediation Measures for Deeply Troubled Plans (sec. 201 of the Act, 
              sec. 432 of the Code and sec. 305 of ERISA)


                              Present Law


Anti-cutback requirements

    In general, a plan amendment may not reduce an employee's 
accrued benefit, eliminate an optional form of benefit (such as 
a lump-sum form), or eliminate or reduce early retirement 
benefits or retirement-type subsidies with respect to the 
employee's accrued benefit.\206\ These restrictions are 
referred to as the anti-cutback requirements. Amendments 
generally are permitted only to reduce future rates of accrual, 
or, in the case of optional forms of benefits, early retirement 
benefits and retirement-type subsidies, eliminate or reduce 
them only with respect to benefits that accrue after the 
amendment. However, as discussed below, certain benefits may be 
reduced or eliminated in the case of an underfunded 
multiemployer defined benefit plan. In addition, Treasury 
regulations may provide exceptions to the prohibition on 
eliminating an optional form of benefit.
---------------------------------------------------------------------------
    \206\ Sec. 411(d)(6) and ERISA sec. 204(g).
---------------------------------------------------------------------------

 Exceptions to anti-cutback protection for multiemployer plan benefits

            Multiemployer plans in critical status
    Not later than the 90th day of each plan year, the actuary 
for any multiemployer plan must certify to the Secretary and to 
the plan sponsor whether or not the plan is in endangered or 
critical status for the plan year. If a plan is certified as 
being in endangered or critical status, notice of endangered or 
critical status must be provided within 30 days after the date 
of certification to plan participants and beneficiaries, the 
bargaining parties, the PBGC and the Secretary of Labor. If a 
plan is in critical status, the notice of critical status must 
include an explanation of the possibility that adjustable 
benefits may be reduced (as discussed below) for participants 
and beneficiaries whose benefit commencement date is on or 
after the date the notice is provided for the first plan year 
for which the plan is in critical status.
    In the case of a multiemployer plan in critical status, 
notwithstanding the anti-cutback rules, certain distributions 
may not be made as of the date notice of critical status is 
sent to participants and beneficiaries; thus, those forms of 
distribution may be eliminated. Specifically, payments in 
excess of a single life annuity (plus any social security 
supplement, if applicable) may not be made to a participant or 
beneficiary who begins receiving benefits after the notice is 
sent.
    In addition, subject to providing advance notice, 
notwithstanding the anti-cutback rules, the plan sponsor of a 
plan in critical status may make certain reductions to 
adjustable benefits that the plan sponsor deems 
appropriate.\207\ However, benefits generally may not be 
reduced for a participant or beneficiary who began to receive 
benefits before receiving notice of the multiemployer plan's 
critical status.
---------------------------------------------------------------------------
    \207\ In some circumstances, reductions in adjustable benefits may 
be required in order to enable a multiemployer plan to meet the 
requirements of its rehabilitation plan, as described in Part A.3.
---------------------------------------------------------------------------
    Adjustable benefits means (1) benefits, rights, and 
features under the plan, including post-retirement death 
benefits, 60-month guarantees, disability benefits not yet in 
pay status, and similar benefits; (2) any early retirement 
benefit or retirement-type subsidy and any benefit payment 
option (other than the qualified joint-and-survivor annuity); 
and (3) benefit increases that would not be eligible for PBGC 
guarantee on the first day of the initial critical year because 
the increases were adopted (or, if later, took effect) less 
than 60 months before such first day. Adjustable benefits that 
are otherwise protected under the anti-cutback rules, such as 
early retirement benefits, retirement-type subsidies and 
optional forms of benefit, may be reduced notwithstanding the 
anti-cutback rules. However, the level of a participant's 
accrued benefit payable at normal retirement age may not be 
reduced.
    No adjustable benefits may be reduced unless 30 days 
advance notice is given to plan participants and beneficiaries, 
any employer that has an obligation to contribute to the plan, 
and any employee organization that, in collective bargaining, 
represents plan participants employed by a contributing 
employer. The notice must contain sufficient information to 
enable participants and beneficiaries to understand the effect 
of any reduction of their benefits, including an estimate (on 
an annual or monthly basis) of any affected adjustable benefit 
that a participant or beneficiary would otherwise have been 
eligible for, and information as to the rights and remedies of 
plan participants and beneficiaries as well as how to contact 
DOL for further information and assistance where appropriate.
    The required notice must be provided in a form and manner 
prescribed by the Secretary in consultation with the Secretary 
of Labor, must be written in a manner so as to be understood by 
the average plan participant, and may be provided in written, 
electronic, or other appropriate form to the extent such form 
is reasonably accessible to persons to whom the notice is 
required to be provided. The Secretary is to establish a model 
notice that a plan sponsor may use to meet the notice 
requirements.
            Multiemployer plans in reorganization or insolvency
    Subject to certain requirements (including notice to 
participants and beneficiaries, any employee organization 
representing participants, and contributing employers), 
notwithstanding the anti-cutback rules, a multiemployer plan in 
reorganization may be amended to reduce or eliminate benefits 
or benefit increases that have been in effect for less than 60 
months and are not guaranteed by the PBGC.\208\ Active and 
inactive participants generally must be treated similarly with 
respect to benefit reductions made under a plan in 
reorganization.
---------------------------------------------------------------------------
    \208\ Sec. 418D and ERISA sec. 4244A. As discussed in Part A.8, 
section 108 of the Act repeals the reorganization rules.
---------------------------------------------------------------------------
    Benefits under a multiemployer plan may be reduced (or 
suspended) if the plan is insolvent.\209\ A multiemployer plan 
is insolvent when its available resources in a plan year are 
not sufficient to pay the plan benefits for that plan year, or 
when the sponsor of a plan in reorganization reasonably 
determines, taking into account the plan's recent and 
anticipated financial experience, that the plan's available 
resources will not be sufficient to pay benefits that come due 
in the next plan year. Notwithstanding the anti-cutback rules, 
an insolvent plan is required to reduce benefits to the level 
that can be covered by the plan's assets.\210\ However, 
benefits cannot be reduced below the level guaranteed by the 
PBGC. If a multiemployer plan is insolvent, the PBGC guarantee 
is provided in the form of unsecured loans to the plan 
(referred to as financial assistance), regardless of the plan's 
ability to repay the loan. However, if a plan were later to 
recover from insolvency status, loans from the PBGC would have 
to be repaid.
---------------------------------------------------------------------------
    \209\ Sec. 418E and ERISA sec. 4245.
    \210\ If a multiemployer plan is in reorganization, the plan 
sponsor is required periodically to compare assets and liabilities to 
determine whether the plan will become insolvent within a certain 
period. If the plan sponsor determines that the plan may become 
insolvent, the plan sponsor must provide notice to the Secretary, the 
PBGC, participants and beneficiaries, any employee organization 
representing participants, and contributing employers. The plan sponsor 
must also inform participants and beneficiaries, any employee 
organization representing participants, and contributing employers 
that, if insolvency occurs, benefits will be reduced, but not below the 
PBGC guarantee level. For any plan year in which a plan is insolvent, 
the plan sponsor must notify the Secretary, the PBGC, participants and 
beneficiaries, any employee organization representing participants, and 
contributing employers of the level of benefits that will be paid for 
that year.
---------------------------------------------------------------------------

Annual funding notice requirement

    The plan administrator of a multiemployer defined benefit 
plan must provide an annual funding notice to each participant 
and beneficiary, each labor organization representing such 
participants or beneficiaries, each employer obligated to 
contribute to the plan, and the PBGC.\211\ In addition to the 
other information required to be provided, in the case of a 
multiemployer plan, the notice must include (1) whether the 
plan was in critical or endangered status for the plan year, 
and if so, (2) information on how a person may obtain a copy of 
the multiemployer plan's funding improvement or rehabilitation 
plan, as appropriate, and the actuarial and financial data that 
demonstrate any action taken toward fiscal improvement, and (3) 
a summary of the funding improvement plan, rehabilitation plan, 
or modification thereof adopted during the plan year.
---------------------------------------------------------------------------
    \211\ ERISA sec. 101(f). Annual funding notice requirements, with 
some differences, apply also to single-employer and multiple-employer 
plans.
---------------------------------------------------------------------------

PBGC guarantee of multiemployer plan benefits

    The PBGC benefit guarantee level for multiemployer plans is 
the sum of 100 percent of the first $11 of vested monthly 
benefits and 75 percent of the next $33 of vested monthly 
benefits, multiplied by the participant's number of years of 
service. Thus, the guarantee level for a particular participant 
depends on the participant's years of service. For example, if 
a participant has 20 years of service under a multiemployer 
plan, the maximum monthly benefit covered by the guarantee is 
$35.75 per month [(100%  $11) + (75%  $33)] 
 20 = $715, or a yearly benefit of $8,580 ($715 
 12).

Withdrawal liability

    An employer that withdraws from a multiemployer plan in a 
complete or partial withdrawal is generally liable to the plan 
in the amount determined to be the employer's withdrawal 
liability.\212\ In general, a ``complete withdrawal'' means the 
employer has permanently ceased operations under the plan or 
has permanently ceased to have an obligation to contribute. A 
``partial withdrawal'' generally occurs if, on the last day of 
a plan year, there is a 70-percent contribution decline for 
such plan year or there is a partial cessation of the 
employer's contribution obligation.
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    \212\ ERISA secs. 4201-4225. Under ERISA section 4219(d), the 
prohibited transaction restrictions under ERISA section 406(a) do not 
apply to any action permitted or required under the withdrawal 
liability rules.
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    When an employer withdraws from a multiemployer plan, the 
plan sponsor is required to determine the amount of the 
employer's withdrawal liability, notify the employer of the 
amount of the withdrawal liability, and collect the amount of 
the withdrawal liability from the employer. In order to 
determine an employer's withdrawal liability, a portion of the 
plan's unfunded vested benefits is first allocated to the 
employer, generally in proportion to the employer's share of 
plan contributions for a previous period.\213\ The amount of 
unfunded vested benefits allocable to the employer is then 
subject to various reductions and adjustments. An employer's 
withdrawal liability is generally payable, with interest, in 
level annual installments. However, the amount of the annual 
installments is limited, based on the amount of the employer's 
previous contributions to the plan, and the period over which 
installments are paid is limited to 20 years. An employer's 
withdrawal is the amount determined after application of these 
limits. In addition, the plan sponsor and the employer may 
agree to settle an employer's withdrawal liability obligation 
for a different amount.
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    \213\ Under 29 C.F.R. sec. 4211.2, for this purpose, unfunded 
vested benefits is the amount by which the value of vested benefits 
under the plan exceeds the value of plan assets.
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    In the case of a multiemployer plan in critical status, the 
elimination of any prohibited forms of distribution and 
reductions in adjustable benefits are disregarded in 
determining a plan's unfunded vested benefits for purposes of 
determining an employer's withdrawal liability.

ERISA remedies

    ERISA imposes fiduciary responsibility on a plan sponsor 
and other plan fiduciaries.\214\ Under ERISA, a plan 
participant or beneficiary may bring a civil action in Federal 
court (1) to recover benefits due him under the terms of the 
plan, to enforce his rights under the terms of the plan, or to 
clarify his rights to future benefits under the terms of the 
plan, (2) for appropriate relief in the case of a breach of 
fiduciary duty, (3) to enjoin any act or practice that violates 
ERISA or the terms of the plan, or (4) to obtain other 
appropriate equitable relief to redress a violation of ERISA or 
the terms of the plan or to enforce any provisions of ERISA or 
the terms of the plan.\215\
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    \214\ ERISA secs. 404 and 409.
    \215\ ERISA sec. 502.
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    ERISA also allows certain persons adversely affected by an 
action of the PBGC to bring a civil action in Federal court 
against the PBGC for appropriate equitable relief (except with 
respect to withdrawal liability disputes).\216\ Persons who may 
bring an action against the PBGC include a fiduciary, employer, 
contributing sponsor, member of a contributing sponsor's 
controlled group, plan participant or beneficiary, or an 
employee organization representing a plan participant or 
beneficiary.
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    \216\ ERISA sec. 4003(f).
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                        Explanation of Provision


Suspension of benefits under multiemployer plans in critical and 
        declining status

            In general
    Under the provision, subject to certain conditions, 
limitations and procedural requirements, including approval by 
the Secretary of Treasury as described below, in the case of a 
multiemployer plan in critical and declining status, 
notwithstanding the anti-cutback rules, the plan sponsor may 
amend the plan to suspend benefits that the plan sponsor deems 
appropriate. In that case, the plan is not liable for any 
benefit payments not made as a result of a suspension of 
benefits.
    For this purpose, a plan is in critical and declining 
status if the plan (1) otherwise meets one of the definitions 
of critical status and (2) is projected to become insolvent 
during the current plan year or any of the 14 succeeding plan 
years. In applying (2), 19 succeeding plan years is substituted 
for 14 if either the ratio of inactive plan participants to 
active plan participants is more than two to one or the plan's 
funded percentage is less than 80 percent.
    In the annual certification of whether a multiemployer plan 
is in endangered or critical status for a plan year, the plan 
actuary must also certify whether the plan is or will be in 
critical and declining status for the plan year. In making a 
determination with respect to critical and declining status, in 
addition to the rules generally applicable with respect to 
status determinations, the plan actuary must (1) if reasonable, 
assume that each contributing employer in compliance with the 
multiemployer plan's rehabilitation plan continues to comply 
through the end of the rehabilitation period (or such later 
time as may be applicable to the plan) with the terms of the 
rehabilitation plan that correspond to the applicable schedule 
of contribution and benefit rates, and (2) take into account 
any benefit suspensions adopted in a prior plan year that are 
still in effect.
    The provision does not specifically require that the notice 
of critical status provided to plan participants and 
beneficiaries, the bargaining parties, the PBGC and the 
Secretary of Labor include the information that the plan is in 
critical and declining status. However, the provision amends 
the information that must be provided in an annual funding 
notice with respect to a multiemployer plan. The annual funding 
notice must include (1) whether the plan was in critical and 
declining status for the plan year and if so, (2) the projected 
date of insolvency, (3) a clear statement that such insolvency 
may result in benefit reductions, and (4) a statement 
describing whether the plan sponsor has taken legally permitted 
actions to prevent insolvency.
    Under the provision, suspension of benefits means the 
temporary or permanent reduction of any current or future 
payment obligation of the plan to any plan participant or 
beneficiary, whether or not the participant or beneficiary is 
in pay status at the time of the suspension.\217\ Any 
suspension of benefits made under the provision will remain in 
effect until the earlier of when the plan sponsor provides 
benefit improvements in accordance with the provision or when 
the suspension expires by its own terms. Thus, unless the terms 
of the suspension of benefits provide for the suspension to 
expire (and for benefits to return to the same level as before 
the suspension), a suspension of benefits may result in a 
permanent benefit reduction.
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    \217\ Any references in the provision to suspensions of benefits, 
increases in benefits, or resumptions of suspended benefits with 
respect to participants apply also with respect to benefits of 
beneficiaries or alternative payees of participants. Under section 
414(p)(8) and ERISA section 206(d)(3)(K), an alternate payee is a 
spouse, former spouse, child or other dependent of a participant who is 
recognized by a domestic relations order as having a right to receive 
all, or a portion of, the benefits payable under a plan with respect to 
the participant.
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            Conditions for suspensions
    In addition to the procedural requirements described below, 
the provision requires two conditions to be met in order for 
the plan sponsor of a multiemployer plan in critical and 
declining status for a plan year to suspend benefits:
    1. Taking into account the proposed suspensions of benefits 
(and, if applicable, a proposed partition of the plan under 
ERISA \218\), the plan actuary certifies that the plan is 
projected to avoid insolvency, assuming the suspensions of 
benefits continue until the suspensions expire by their own 
terms or, if no specific expiration date is set by the terms, 
indefinitely, and
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    \218\ ERISA sec. 4233. As discussed in Part B.2., section 122 of 
the Act amends the partition rules.
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    2. The plan sponsor determines, in a written record to be 
maintained throughout the period of the suspension of benefits, 
that, although all reasonable measures to avoid insolvency have 
been taken (and continue to be taken during the period of the 
benefit suspensions), the plan is still projected to become 
insolvent unless benefits are suspended.
    In making the determination described above, the plan 
sponsor may take into account factors including the following:
           current and past contribution levels,
           levels of benefit accruals, including any 
        prior reductions in the rate of benefit accruals,
           prior reductions of adjustable benefits, if 
        any,
           prior suspensions of benefits, if any,
           the impact on plan solvency of the subsidies 
        and ancillary benefits available to active 
        participants,
           compensation levels of active participants 
        relative to employees in the participants' industry 
        generally,
           competitive and other economic factors 
        facing contributing employers,
           the impact of benefit and contribution 
        levels on retaining active participants and bargaining 
        groups under the plan,
           the impact of past and anticipated 
        contribution increases under the plan on employer 
        attrition and retention levels, and
           measures undertaken by the plan sponsor to 
        retain or attract contributing employers.
            Application of and limitations on suspensions
    In general, any suspensions of benefits under the provision 
are to be equitably distributed across the plan participant and 
beneficiary population, taking into account factors (with 
respect to the participants and beneficiaries and their 
benefits) that may include one or more of the following:
           age and life expectancy,
           length of time in pay status,
           amount of benefit,
           type of benefit, such as survivor, normal 
        retirement, early retirement,
           the extent to which a participant or 
        beneficiary is receiving a subsidized benefit,
           the extent to which a participant or 
        beneficiary has received post-retirement benefit 
        increases,
           any history of benefit increases and 
        reductions,
           the number of years to retirement for active 
        employees,
           any discrepancies between active and retiree 
        benefits,
           the extent to which active participants are 
        reasonably likely to withdraw support for the plan, 
        accelerating employer withdrawals from the plan and 
        increasing the risk of additional benefit reductions 
        for participants in and not in pay status, and
           the extent to which benefits are 
        attributable to service with an employer that failed to 
        pay its full withdrawal liability.
    In addition to these factors, any suspensions of benefits 
under the provision are subject to an aggregate limit and 
several limits at the individual level. Specifically, in the 
aggregate (considered, if applicable, in combination with a 
partition of the plan), any suspensions of benefits must be at 
the level reasonably estimated to achieve, but not materially 
exceed, the level that is necessary to avoid insolvency.\219\
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    \219\ If suspensions of benefits under a plan are made in 
combination with a partition of the plan, the suspensions may not take 
effect before the effective date of the partition.
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    At the individual level, no benefits based on disability 
(as defined under the plan) may be suspended. In addition, the 
monthly benefit of any participant or beneficiary may not be 
reduced below 110 percent of the monthly PBGC guarantee level, 
as determined (as under present law) for that participant or 
beneficiary.
    In the case of a participant or beneficiary who is age 75 
or over as of the effective date of the benefit suspension, the 
amount of the benefit suspension is phased out ratably over the 
number of months until age 80, with the result that no benefit 
suspension applies to a participant or beneficiary who, as of 
the effective date of the benefit suspension, is age 80 or 
older. Specifically, for a participant or beneficiary who is 
between age 75 and 80 as of the effective date of the benefit 
suspension, not more than the applicable percentage of the 
participant's or beneficiary's maximum suspendable benefits may 
be suspended. For this purpose, the applicable percentage for a 
participant or beneficiary is obtained by dividing (1) the 
number of months during the period beginning with the month 
after the month containing the effective date of the suspension 
and ending with the month in which the participant or 
beneficiary attains the age of 80, by (2) 60 months. Thus, the 
applicable percentage is determined on the basis of a 
participant's or beneficiary's age as of the effective date of 
the benefit suspension and does not change as the participant 
or beneficiary gets older. A participant's or beneficiary's 
maximum suspendable benefits is the portion of the 
participant's or beneficiary's benefits that would otherwise be 
suspended if the applicable percentage limitation did not 
apply.\220\ For example, if a participant is exactly age 77 
(that is, age 77 and zero months) as of the effective date of 
the benefit suspension, with a period of 36 months until 
attainment of age 80, the participant's applicable percentage 
is 36/60 or 60 percent, and the amount of the suspension of 
benefits applied to the participant is 60 percent of the 
portion of the participant's benefits that would otherwise be 
suspended.
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    \220\ The maximum suspendable benefits does not mean a 
participant's or beneficiary's entire benefit, but only the portion of 
the benefit that that would otherwise be suspended under the proposed 
suspensions of benefits, taking into account the other rules applicable 
to benefit suspensions. For example, in determining the portion of a 
participant's or beneficiary's benefit that that would otherwise be 
suspended, the prohibition on reducing benefits below 110 percent of 
the PBGC guarantee level is taken into account.
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    Besides these limitations, an ordering rule applies if 
benefits under a multiemployer plan include benefits that are 
directly attributable to a participant's service with an 
employer that, before the date of enactment of the provision, 
(1) withdrew from the plan in a complete withdrawal and paid 
the full amount of its withdrawal liability,\221\ and (2) 
pursuant to a collective bargaining agreement, assumed 
liability for providing benefits to plan participants and 
beneficiaries under a separate, single-employer plan sponsored 
by the employer, in the amount by which those participants' and 
beneficiaries' benefits under the multiemployer plan are 
reduced as a result of the financial status of the 
multiemployer plan.\222\ In that case, suspensions of benefits 
are applied: first, to the maximum extent permissible, to 
benefits attributable to service with an employer that withdrew 
from the plan and failed to pay (or is delinquent in paying) 
the full amount of its withdrawal liability; second, to all 
other benefits that may be suspended, other than those in the 
following (third) category; and third, to benefits directly 
attributable to service with an employer described in the 
preceding sentence.
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    \221\ For purposes of the ordering rule, the full amount of an 
employer's withdrawal liability with respect to a plan is determined 
under the withdrawal liability rules under ERISA or an agreement with 
the plan sponsor, whichever is applicable.
    \222\ The ordering rule does not apply if benefits under a 
multiemployer plan do not include benefits directly attributable to 
service with such an employer.
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            Benefit improvements
    The provision contains several requirements with respect to 
benefit improvements under a multiemployer plan while a 
suspension of benefits under the plan is in effect. For this 
purpose, a benefit improvement means a resumption of suspended 
benefits, an increase in benefits, an increase in the rate at 
which benefits accrue under the plan, or an increase in the 
rate at which benefits vest under the plan. Except for 
resumptions of suspended benefits as discussed below, any limit 
on benefit improvements while a suspension of benefits is in 
effect is in addition to any other applicable limits imposed on 
a plan with respect to benefit increases.
    Subject to certain conditions, the plan sponsor may, in its 
sole discretion, provide benefit improvements while any 
suspension of benefits remains in effect. However, the plan 
sponsor may not increase the liabilities of the plan by reason 
of a benefit improvement for any participant or beneficiary who 
is not in pay status by the first day of the plan year for 
which the benefit improvement takes effect (referred to herein 
as the ``benefit improvement year'') unless (1) the benefit 
improvement is accompanied by equitable benefit improvements 
(as described below) for all participants and beneficiaries who 
are in pay status before the first day of the benefit 
improvement year, and (2) the plan actuary certifies that, 
after taking any benefit improvements into account, the plan is 
projected to avoid insolvency indefinitely.
    In order to satisfy (1) above, the projected value of the 
total liabilities attributable to benefit improvements for 
participants and beneficiaries who are not in pay status by the 
first day of the benefit improvement year (with this projected 
value determined as of that day) may not exceed the projected 
value of the liabilities attributable to benefit improvements 
for participants and beneficiaries who are in pay status before 
the first day of the benefit improvement year (with this 
projected value also determined as of that day). In addition, 
with respect to the required benefit improvements for 
participants and beneficiaries who are in pay status before the 
first day of the benefit improvement year, the plan sponsor 
must equitably distribute any increase in total liabilities 
attributable to the benefit improvements to some or all of 
those participants and beneficiaries, taking into account the 
factors relevant in equitably distributing benefit suspensions 
among participants and beneficiaries (as described above) and 
the extent to which the benefits of the participants and 
beneficiaries were suspended.
    The provision allows benefit improvements only for 
participants and beneficiaries in pay status. However, a plan 
sponsor may increase plan liabilities through a resumption of 
benefits for participants and beneficiaries in pay status only 
if the plan sponsor equitably distributes the value of resumed 
benefits to some or all of the participants and beneficiaries 
in pay status, taking into account the factors relevant in 
equitably distributing benefit suspensions among participants 
and beneficiaries (as described above).
    Finally, the requirements under the provision with respect 
to benefit improvements do not apply to a resumption of 
suspended benefits or a plan amendment that increases 
liabilities with respect to participants and beneficiaries not 
in pay status by the first day of the benefit improvement year 
that (1) the Secretary (in consultation with the PBGC and the 
Secretary of Labor) determines to be reasonable and that 
provides for only de minimis increases in plan liabilities, or 
(2) is required as a condition of qualified retirement plan 
status under the Code or to comply with other applicable law, 
as determined by the Secretary.
            Effect on withdrawal liability
    Under the provision, suspensions of benefits made under a 
multiemployer plan in critical and declining status are 
disregarded in determining the plan's unfunded vested benefits 
for purposes of determining an employer's withdrawal liability 
unless the withdrawal occurs more than ten years after the 
effective date of the benefit suspension.\223\
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    \223\ Under the provision, the prohibited transaction restrictions 
under ERISA section 406(a) do not apply to any arrangement relating to 
withdrawal liability involving the plan.
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Procedural requirements for suspension of benefits

    The provision specifies a series of procedural steps that 
must be taken and approvals that must be obtained before any 
proposed suspension of benefits under a multiemployer plan in 
critical and declining status may be implemented by the plan 
sponsor. Below is a summary of these procedural steps and 
approvals. The approval procedures for a proposed suspension of 
benefits are administered by the Secretary of Treasury 
(``Treasury''). However, every step of the process requiring 
action by Treasury is required to be done in consultation with 
the Pension Benefit Guaranty Corporation (``PBGC'') and the 
Department of Labor (``DOL''). Thus, all references below to 
Treasury with respect to these procedures include this required 
consultation with the PBGC and DOL (including references to 
information to be provided in required notices).
           Not less than 60 days before submitting an 
        application to Treasury for approval of proposed 
        benefit suspensions, the plan sponsor must appoint a 
        retiree representative if the plan has more than 10,000 
        participants.
           Plan sponsor submits an application to 
        Treasury for approval of the proposed benefit 
        suspensions. Concurrently with submitting the 
        application, the plan sponsor must provide certain 
        parties (which include plan participants) notice of the 
        application and the proposed benefit suspensions.
           Within 30 days after receipt of the 
        application, Treasury must publish the application on 
        the Treasury Website and publish notice requesting 
        comments on the application in the Federal Register
           Within 225 days after receipt of the 
        application, Treasury must approve or disapprove the 
        application, or the application is deemed to be 
        approved in the absence of an affirmative decision. If 
        the application is denied by Treasury at this step, 
        then the suspension of benefits cannot be implemented 
        and the process does not continue.
           Within 30 days after the approval, if the 
        application is approved, or deemed approved, by 
        Treasury, Treasury must administer a participant and 
        beneficiary vote on the proposed benefit suspension.
           Within 7 days after the vote, unless a 
        majority of participants and beneficiaries vote to 
        reject the proposed benefit suspensions (``negative 
        vote''), Treasury must issue a final authorization to 
        allow implementation of the benefit suspensions.
           Within 14 days after a negative vote, 
        Treasury must determine whether the plan is 
        systemically important. In the event of a negative 
        vote, the benefits suspensions cannot be implemented 
        unless the plan is systemically important.
           Within 90 days after a negative vote with 
        respect to a plan determined to be systemically 
        important, Treasury must issue a final authorization 
        permitting benefit suspensions to be implemented by the 
        plan sponsor and in sufficient time to allow 
        implementation before the end of this 90 day period, 
        but can impose modifications to the proposed 
        suspensions.
            Appointment of retiree representative
    If a multiemployer plan has 10,000 or more participants, 
the plan sponsor is required to appoint a participant of the 
plan in pay status to act as a retiree representative to 
advocate for the interests of the retired and deferred vested 
participants and beneficiaries of the plan throughout the 
suspension approval process.\224\ The appointment must be made 
no later than 60 days before the plan sponsor submits an 
application to Treasury for approval of proposed benefit 
suspensions. The plan is required to provide for reasonable 
expenses by the retiree representative, including reasonable 
legal and actuarial support, commensurate with the plan's size 
and funded status. Duties performed by the retiree 
representative under this provision are not subject to 
prohibited transaction rules under the Code and the fiduciary 
responsibility requirements under ERISA.\225\ However, this 
relief from fiduciary responsibility does not apply to those 
duties associated with an application to suspend benefits that 
are performed by a retiree representative who is also a plan 
trustee.
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    \224\ A deferred vested participant is a participant who has a 
vested benefit under the plan, is no longer accruing benefits under the 
plan, and has not yet begun receiving benefits.
    \225\ Sec. 4975 and ERISA sec. 404(a).
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            Plan sponsor notice of application for Treasury approval of 
                    proposed suspension
    The first step in satisfying the procedural requirements 
for being allowed to implement proposed benefit suspensions 
(after appointing a retiree representative if applicable) is 
applying to Treasury for approval of the proposed suspensions, 
as described below. Concurrently with submitting that 
application, the plan sponsor must provide a notice to plan 
participants and beneficiaries, employers with an obligation to 
contribute to the plan and any employee organization 
representing participants employed by the employers. The notice 
must contain the following information:
           sufficient information to enable 
        participants and beneficiaries to understand the effect 
        of any suspensions of benefits, including an 
        individualized estimate (on an annual or monthly basis) 
        of such effect on each participant or beneficiary,
           a description of the factors considered by 
        the plan sponsor in designing the benefit suspensions,
           a statement that the application for 
        approval of any suspension of benefits will be 
        available on the Treasury website and that comments on 
        the application will be accepted,
           information as to the rights and remedies of 
        plan participants and beneficiaries,
           if applicable, a statement describing the 
        appointment of a retiree representative, the date of 
        appointment of the representative, identifying 
        information about the retiree representative (including 
        whether the representative is a plan trustee), and how 
        to contact the representative, and
           information on how to contact Treasury for 
        further information and assistance where appropriate.
    The notice must be provided in a form and manner prescribed 
in guidance by Treasury. It must be written in a manner so as 
to be understood by the average plan participant. It may be 
provided in written, electronic, or other appropriate form to 
the extent such form is reasonably accessible to persons to 
whom the notice is required to be provided. The notice fulfills 
the requirement for providing notice of a significant reduction 
in the future rate of benefit accrual.\226\ Treasury is 
directed to publish a model notice that a plan sponsor may use 
to meet these requirements.
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    \226\ Section 4980F of the Code and section 204(h) of ERISA require 
notice of any amendment to significantly reduce the rate of future 
benefit accrual under a pension plan to be provided to affected plan 
participants and alternate payees (and employee organizations 
representing these participants and alternate payees and participating 
employers) within a reasonable time before the amendment is effective.
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    The provision further specifies that, in addition to 
providing this notice, it is the sense of the Congress that, 
depending on the size and resources of the plan and geographic 
distribution of the plan's participants and beneficiaries, the 
plan sponsor should take such steps as may be necessary to 
inform participants and beneficiaries about proposed benefit 
suspensions through in-person meetings, telephone or internet-
based communications, mailed information, or by other means.
            Public notice of the application by Treasury
    The application for approval of the suspension of benefits 
must be published on the Treasury website. In addition, not 
later than 30 days after receipt of the application, Treasury 
must publish a notice in the Federal Register soliciting 
comments from contributing employers, employee organizations, 
and participants and beneficiaries of the plan for which an 
application was made.
            Approval procedures by Treasury
    Under the provision, Treasury must approve the plan 
sponsor's application for a suspension of benefits upon finding 
that the plan is eligible for the suspensions and has satisfied 
the criteria, as previously described, for suspending benefits, 
limitations on suspensions, and benefit improvements (if any) 
during suspension and has provided the required notice of the 
proposed suspensions.
    In general, in evaluating an application, Treasury is to 
accept a plan sponsor's determinations unless Treasury 
concludes that the plan sponsor's determinations were clearly 
erroneous. As previously discussed, as a condition for benefit 
suspensions, the plan sponsor must determine that, although all 
reasonable measures to avoid insolvency have been taken (and 
continue to be taken during the period of the benefit 
suspensions), the plan is still projected to become insolvent 
unless benefits are suspended. The plan sponsor may take 
various factors into account in making this determination. In 
evaluating whether the plan sponsor has met the criteria for 
its required determination, Treasury must review the plan 
sponsor's consideration of relevant factors.
    Treasury is directed to approve or deny the application 
within 225 days of the submission by the plan sponsor, and the 
application for suspension of benefits is deemed approved 
unless, within such 225 days, Treasury notifies the plan 
sponsor that it has failed to satisfy one or more of the 
criteria for approval.
    If Treasury rejects a plan sponsor's application, Treasury 
must provide notice to the plan sponsor detailing the specific 
reasons for the rejection, including reference to the specific 
requirement not satisfied.
            Participant vote to ratify or reject the proposed 
                    suspensions
    Not later than 30 days after Treasury approves the proposed 
benefit suspension, Treasury must administer a vote of plan 
participants and beneficiaries. No suspension of benefits may 
take effect pursuant to this provision prior to a vote of the 
plan participants and beneficiaries with respect to the 
proposed benefit suspension.
    The plan sponsor is required to provide a ballot for the 
vote (subject to approval by Treasury) that includes the 
following statements:
           from the plan sponsor in support of the 
        suspension,
           in opposition to the suspension compiled 
        from comments received pursuant to the Notice published 
        in the Federal Register (as described above),
           that the suspension has been approved by 
        Treasury,
           that the plan sponsor has determined that 
        the plan will become insolvent unless the suspension 
        takes effect,
           that insolvency of the plan could result in 
        benefits lower than benefits paid under the suspension, 
        and
           that insolvency of the PBGC would result in 
        benefits lower than benefits paid in the case of plan 
        insolvency.
    A negative vote occurs only if a majority of all plan 
participants and beneficiaries vote to reject the proposed 
benefit suspensions (``negative vote'').\227\ The suspension 
goes into effect following the vote if the result is not a 
negative vote. In that case, not later than seven days after 
the vote, Treasury must issue a final authorization of the 
suspension.
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    \227\ Thus, a participant's or beneficiary's failure to vote has 
the effect of a vote in favor of the benefit suspension.
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    If the result is a negative vote, the plan sponsor may not 
implement the benefit suspension unless the plan is 
systemically important. However, after a negative vote with 
respect to a plan that is not systemically important, the plan 
sponsor may start the process again by developing different 
proposed benefit suspensions, subject to the conditions 
applicable under the provision, and submitting a new 
application for approval to Treasury.
            Systemically important plan
    Not later than 14 days after a negative vote, Treasury must 
determine whether the plan is a systemically important plan. A 
systemically important plan is a plan with respect to which the 
PBGC projects that, if suspensions are not implemented, the 
present value of projected financial assistance payments 
exceeds $1 billion (indexed).\228\ Not later than 30 days after 
a determination by Treasury that the plan is systemically 
important, if applicable, the Participant and Plan Sponsor 
Advocate (``Advocate'') \229\ may submit recommendations to 
Treasury with respect to the proposed benefit suspensions or 
any revisions to the proposed suspensions.
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    \228\ This determination is expected to be made using the 
assumptions that PBGC generally uses in evaluating the financial 
position of its multiemployer program. For calendar years beginning 
after 2015, the $1 billion is indexed by reference to the change in the 
wage base applicable for purposes of Social Security taxes and benefits 
since 2014. If the amount otherwise determined under this calculation 
is not a multiple of $1 million, the amount is rounded to the next 
lowest multiple of $1 million.
    \229\ The Advocate is selected under section 4004 of ERISA.
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    If Treasury determines that the plan is a systemically 
important plan, not later than the end of the 90-day period 
beginning on the date the results of the vote are certified, 
Treasury must, notwithstanding the negative vote, issue a final 
authorization either:
           permitting the implementation of the benefit 
        suspensions proposed by the plan sponsor; or
           permitting the implementation of a 
        modification by Treasury of the benefit suspensions 
        (giving consideration to any recommendations submitted 
        by the Advocate), provided that the plan is projected 
        to avoid insolvency under the modification.
    However, the provision also requires that Treasury issue 
the final authorization at a time sufficient to allow 
implementation of the benefit suspension before the end of the 
90-day period. Thus, the deadline for issuance of the final 
authorization of the suspension is actually earlier than the 
end of the 90-day period.

Appeal of decisions

    For purposes of judicial review of agency action, approval 
or denial by Treasury of an application is treated as a final 
agency action.\230\
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    \230\ Rules for judicial review of agency action are provided at 5 
U.S.C. chap. 7 (part of the Administrative Procedure Act). The 
provision does not specifically make these rules applicable to 
Treasury's approval or denial of an application for benefit 
suspensions. However, under 5 U.S.C. sec. 701, these rules apply except 
to the extent that statutes preclude judicial review or agency action 
is committed to agency discretion by law. Pursuant to 5 U.S.C sec. 704, 
agency action made reviewable by statute and final agency action for 
which there is no other adequate remedy in a court are subject to 
judicial review under these rules.
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    An action by a plan sponsor challenging the denial of an 
application for suspension of benefits by Treasury may only be 
brought following the denial. An action challenging a 
suspension of benefits may only be brought following a final 
authorization to suspend by Treasury. A participant or 
beneficiary affected by a benefit suspension does not have a 
cause of action under the Code or Title I of ERISA.\231\ No 
action challenging a suspension of benefits following the final 
authorization to suspend or the denial of an application for 
suspension of benefits may be brought after one year after the 
earliest date on which the plaintiff acquired or should have 
acquired actual knowledge of the existence of the cause of 
action.
---------------------------------------------------------------------------
    \231\ A participant or beneficiary might otherwise have a cause of 
action against the plan sponsor under ERISA section 502 with respect to 
the benefit suspension.
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    A court review of an action challenging a suspension of 
benefits is to be done in accordance with the rules for 
judicial review of agency actions.\232\ A court reviewing an 
action challenging a suspension of benefits may not grant a 
temporary injunction with respect to the suspension unless the 
court finds a clear and convincing likelihood that the 
plaintiff will prevail on the merits of the case.
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    \232\ In reviewing an agency action, under 5 U.S.C. sec. 706, the 
reviewing court is to decide all relevant questions of law, interpret 
constitutional and statutory provisions, and determine the meaning or 
applicability of the terms of an agency action. The reviewing court is 
to set aside agency action in certain circumstances, such as when found 
to be arbitrary, capricious, an abuse of discretion, or otherwise not 
in accordance with law. In making its determinations, the court is to 
review the whole record, or those parts of it cited by a party, and due 
account is to be taken of the rule of prejudicial error.
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    Under the provision, a plan sponsor is added to the list of 
persons who may bring action against the PBGC for appropriate 
equitable relief in Federal court.\233\
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    \233\ As under present law, this right to bring an action does not 
apply with respect to withdrawal liability disputes.
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Guidance

    The Secretary of the Treasury, in consultation with the 
PBGC and the Secretary of Labor, is directed to publish, not 
later than 180 days after enactment, appropriate guidance to 
implement the provision.

                             Effective Date

    The provision is effective on the date of enactment 
(December 16, 2014).

           DIVISION P--OTHER RETIREMENT-RELATED MODIFICATIONS


  A. Substantial Cessation of Operations (sec. 1 of the Act and sec. 
                           4062(e) of ERISA)


                              Present Law


Funding rules for single-employer defined benefit plans and PBGC 
        insurance program

    Employer contributions to private defined benefit plans are 
generally subject to minimum funding requirements under the 
Code and ERISA.\234\ Unless a funding waiver is obtained from 
the Secretary of the Treasury (``Secretary''), an employer may 
be subject to a two-tier excise tax if the funding requirements 
are not met.\235\
---------------------------------------------------------------------------
    \234\ Secs. 412 and 430-433 and ERISA secs. 301-306.
    \235\ Sec. 4971.
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    The minimum required contribution for a plan year for a 
single-employer defined benefit plan generally depends on a 
comparison of the value of the plan's assets, reduced by any 
prefunding balance or funding standard carryover balance (``net 
value of plan assets''),\236\ with the plan's funding target 
and target normal cost. The plan's funding target for a plan 
year is the present value of all benefits accrued or earned as 
of the beginning of the plan year. A plan's target normal cost 
for a plan year is generally the present value of benefits 
expected to accrue or to be earned during the plan year.
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    \236\ The value of plan assets is generally reduced by any 
prefunding balance or funding standard carryover balance in determining 
minimum required contributions. A prefunding balance results from plan 
contributions that exceed the minimum required contributions. A funding 
standard carryover balance results from a positive balance in the 
funding standard account that applied under the funding requirements in 
effect before PPA. Subject to certain conditions, a prefunding balance 
or funding standard carryover balance may be credited against the 
minimum required contribution for a year, reducing the amount that must 
be contributed.
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    If the net value of plan assets is less than the plan's 
funding target, so that the plan has a funding shortfall 
(discussed further below), the minimum required contribution is 
the sum of the plan's target normal cost and the shortfall 
amortization charge for the plan year (determined as described 
below).\237\ If the net value of plan assets is equal to or 
exceeds the plan's funding target, the minimum required 
contribution is the plan's target normal cost, reduced by the 
amount, if any, by which the net value of plan assets exceeds 
the plan's funding target.
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    \237\ If the plan has obtained a waiver of the minimum required 
contribution (a funding waiver) within the past five years, the minimum 
required contribution also includes the related waiver amortization 
charge, that is, the annual installment needed to amortize the waived 
amount in level installments over the five years following the year of 
the waiver.
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    Restrictions on benefit increases, certain types of 
benefits and benefit accruals (collectively referred to as 
benefit restrictions) may apply to a plan if the plan is funded 
below a certain level.\238\ In some cases, an employer may make 
an additional plan contribution to avoid a benefit restriction. 
In such a case, the additional contribution does not result in 
a prefunding balance.
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    \238\ Sec. 436 and ERISA sec. 206(g).
---------------------------------------------------------------------------
    The Pension Benefit Guaranty Corporation (``PBGC'') 
provides a mandatory insurance program for benefits under most 
defined benefit plans maintained by private employers. If the 
assets of a single-employer plan are not sufficient to pay 
benefits due under the plan and the plan terminates in a 
distress termination (for example, in a bankruptcy proceeding 
of the employer maintaining the plan), the plan becomes the 
responsibility of the PBGC. The PBGC becomes the trustee of the 
plan, takes control of any plan assets, and assumes 
responsibility for benefits that cannot be provided from plan 
assets, subject to certain limits.

Substantial cessation of operations

    Certain additional funding-related requirements apply if a 
substantial cessation of operations occurs in connection with a 
single-employer defined benefit plan.\239\ For this purpose, a 
substantial cessation of operations occurs if the employer 
maintaining the plan ceases operations at a facility, for 
example, closes a plant, and, as a result, more than 20 percent 
of the total active participants in the plan are separated from 
employment.
---------------------------------------------------------------------------
    \239\ ERISA sec. 4062(e), under which the rules of ERISA section 
4063 (which generally deal with the withdrawal of an employer from a 
multiple-employer plan) apply.
---------------------------------------------------------------------------
    If a substantial cessation of operations occurs, the 
employer is required to notify the PBGC and pay to the PBGC a 
portion of the unfunded benefit liabilities under the plan 
(determined in the same manner as if the plan were 
terminating), which the PBGC then holds in escrow. 
Alternatively, the employer can provide a bond for 150 percent 
of the amount it would otherwise have to pay to the PBGC.
    The escrow or bond is released after five years if the 
defined benefit plan is not terminated during that time. If the 
plan is terminated within five years, the escrow or bond 
proceeds are used to fund the plan as needed to pay all 
benefits due under the plan, with any remaining amounts 
returned to the employer.
    The PBGC also has authority to enter into an alternative 
arrangement with an employer on a voluntary basis, rather than 
requiring the payment to the PBGC or the bond.
    On July 8, 2014, the PBGC announced a moratorium, until 
December 31, 2014, on enforcement action with respect to 
substantial cessations of operations.\240\
---------------------------------------------------------------------------
    \240\ PBGC Issues Moratorium on 4062(e) Enforcement, available at 
http://www.pbgc.gov/news/press/releases/pr14-09.html.
---------------------------------------------------------------------------

                        Explanation of Provision


In general

    The provision amends the rules relating to a substantial 
cessation of operations by providing a new definition of a 
substantial cessation of operations, exceptions to the 
application of the substantial cessation of operations 
requirements, and an alternative method for an employer to 
satisfy its liability with respect to a substantial cessation 
of operations.\241\
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    \241\ Sec. 109 of Division G of the Act provides that none of the 
funds made available by the Act may be used by the PBGC to take any 
action in connection with any asserted liability under ERISA section 
4062(e), provided that section 109 ceases to apply on the enactment of 
any bill that amends section 4062(e). Thus, section 109 ceases to apply 
as a result of enactment of the provision.
---------------------------------------------------------------------------
    Under the provision, a substantial cessation of operations 
means a permanent cessation of an employer's operations at a 
facility that results in a workforce reduction of a number of 
eligible employees at the facility that is more than 15 percent 
of the number of all of the employer's eligible employees. For 
this purpose, an eligible employee is any employee who is 
eligible to participate in a defined benefit or a defined 
contribution plan established and maintained by the employer. 
Thus, whether a substantial cessation of operations has 
occurred is not determined only by reference to the active 
participants in the defined benefit plan affected by the 
cessation.
    For purposes of whether a substantial cessation of 
operations has occurred, the number of all of the employer's 
eligible employees is generally determined immediately before 
the date of the employer's decision to implement the cessation 
of operations. However, under a special rule, previous 
employees previously separated from employment may be required 
to be taken into account. That is, the workforce reduction with 
respect to a cessation of operations is determined by taking 
into account the separation from employment of any eligible 
employee at the facility that is related to the permanent 
cessation of the employer's operations at the facility and 
occurs during the 3-year period preceding the cessation. In 
that case, the number of all of the employer's eligible 
employees is determined immediately before the earliest date on 
which any of the eligible employees was separated from 
employment.
    In general, a workforce reduction at a facility means the 
number of eligible employees at the facility who are separated 
from employment by reason of the permanent cessation of 
operations at the facility. However, in the case of relocation 
of a workforce or disposition of a facility, certain eligible 
employees separated from employment at a facility (``separated 
employees'') are not taken into account in computing a 
workforce reduction.
    A separated employee is not taken into account in computing 
a workforce reduction in the case of a relocation of a 
workforce if, within a reasonable period of time, the employer 
replaces the employee, at the same or another facility located 
in the United States, with an employee who is a citizen or 
resident of the United States.
    In addition, a separated employee is not taken into account 
in computing a workforce reduction in the case of certain 
dispositions related to operation of a facility. If an employer 
(``transferee employer''), other than the employer that 
maintains a plan in connection with operations at a facility 
and experiences the substantial cessation of operations 
(``transferor employer''), conducts any portion of the 
operations (whether by reason of a sale or other disposition of 
the assets or stock of the transferor employer, or any member 
of the same controlled group), then a separated employee is not 
taken into account if, within a reasonable period of time, (1) 
the transferee employer replaces the employee with an employee 
who is a citizen or resident of the United States, and (2) in 
the case of a separated employee who is a participant in a 
single-employer plan maintained by the transferor employer, the 
transferee employer maintains a single-employer plan that 
includes the assets and liabilities attributable to the accrued 
benefit of the separated employee at the time of separation 
from employment with the transferor employer. In the case of a 
separated employee who continues to be employed at the facility 
by the transferee employer, the employee is not taken into 
account in computing a workforce reduction if (1) the employee 
is not a participant in a single-employer plan maintained by 
the transferor employer, or (2) within a reasonable period of 
time, the transferee employer maintains a single-employer plan 
that includes the assets and liabilities attributable to the 
accrued benefit of the employee at the time of separation from 
employment with the transferor employer.

Exceptions

    Under the provision, the substantial cessation of 
operations rules do not apply with respect to a defined benefit 
plan if, for the plan year preceding the plan year in which the 
cessation occurs, (1) there were fewer than 100 participants 
with accrued benefits under the plan, or (2) the ratio of the 
fair market value of the plan's assets to the plan's funding 
target was 90 percent or greater.
    In addition, an employer is not treated as ceasing 
operations at a qualified lodging facility if the operations 
are continued by an eligible independent contractor pursuant to 
an agreement with the employer. For this purpose, the terms 
qualified lodging facility and eligible independent contractor 
are defined by reference to the real estate investment trust 
(``REIT'') rules under the Code.\242\
---------------------------------------------------------------------------
    \242\ Sec. 856(d)(9)(D) and (A), respectively. A qualified lodging 
facility is generally any lodging facility (such as a hotel or motel) 
unless wagering activities are conducted at or in connection with the 
facility by any person engaged in the business of accepting wagers and 
legally authorized to engage in that business at or in connection with 
the facility. An independent contractor with respect to a qualified 
lodging facility means any independent contractor if, at the time the 
contractor enters into a management agreement or other similar service 
contract with a taxable REIT subsidiary to operate the qualified 
lodging facility, the contractor (or any related person) is actively 
engaged in the trade or business of operating qualified lodging 
facilities for a person who is not a related person with respect to the 
taxable REIT subsidiary or the REIT of which it is a subsidiary.
---------------------------------------------------------------------------

Alternative of additional contributions to satisfy liability

            In general
    The provision allows an employer to elect to satisfy its 
liability with respect to a substantial cessation of operations 
by making certain additional contributions to the defined 
benefit plan for the seven plan years beginning with the plan 
year in which the cessation occurs. The additional contribution 
for any plan year is in addition to any minimum required 
contribution under the funding rules and, like additional 
contributions made to avoid a benefit restriction, does not 
result in a prefunding balance. Any additional contribution for 
a year must be paid by the earlier of (1) the due date for the 
minimum required contribution for the year, or (2) in the case 
of the first contribution, one year after the date the employer 
notifies the PBGC of the substantial cessation of operations or 
the date the PBGC determines a substantial cessation of 
operations has occurred, and in the case of subsequent 
contributions, the same date in each succeeding year.
    Subject to the limit described below, the amount of an 
additional contribution is (1) one-seventh of the amount of the 
unfunded vested benefits under the plan, as determined for the 
plan year preceding the plan year in which the cessation 
occurred, multiplied by (2) the reduction fraction. Unfunded 
vested benefits under a plan is the amount by which the present 
value of all vested benefits accrued or earned as of the 
beginning of the plan year exceeds the fair market value of the 
plan's assets for the year. The reduction fraction is (1) the 
number of participants with accrued benefits under the plan who 
were taken into account in computing the workforce reduction 
resulting from the cessation of operations, divided by (2) the 
number of eligible employees with accrued benefits in the plan 
(determined as of the same date used in determining the number 
of all of the employer's eligible employees for purposes of 
whether a substantial cessation of operations occurred).
    The additional contribution for any plan year is limited to 
the excess, if any, of (1) 25 percent of the difference between 
the fair market value of the plan's assets and the plan's 
funding target for the preceding plan year, over (2) the 
minimum required contribution for the plan year, determined 
without regard to the additional contribution. In addition, an 
employer's obligation to make additional contributions does not 
apply to the first plan year (beginning on or after the first 
day of the plan year in which the cessation occurs) for which 
the ratio of the fair market value of the plan's assets to the 
plan's funding target is 90 percent or greater or any 
subsequent year.
    If the Secretary issues a funding waiver with respect to 
the plan for any plan year for which an additional contribution 
is due, the additional contribution for that plan year is 
permanently waived. If a funding waiver has been issued with 
respect to a plan or a request for a funding waiver is pending, 
the employer maintaining the plan is required to provide notice 
to the Secretary of the substantial cessation of operations in 
the form and at the time as provided by the Secretary.
            Enforcement
    An employer electing to make additional contributions must 
provide notice to the PBGC, in accordance with rules prescribed 
by the PBGC, of--
           the election, not later than 30 days after 
        the earlier of the date the employer notifies the PBGC 
        of the substantial cessation of operations or the date 
        the PBGC determines a substantial cessation of 
        operations has occurred,
           the payment of each additional contribution, 
        not later than 10 days after the payment,
           any failure to pay an additional 
        contribution in the full amount for any of the seven 
        years for which additional payments are due, not later 
        than 10 days after the due date for such payment,
           any funding waiver that waives the 
        obligation to make an additional contribution for any 
        year, not later than 30 days after the funding waiver 
        is granted, and
           the cessation of any obligation to make 
        additional contributions because the ratio of the fair 
        market value of the plan's assets to the plan's funding 
        target is 90 percent or greater, not later than 10 days 
        after the due date for payment of the additional 
        contribution for the first plan year to which such 
        cessation applies.
    If an employer fails to pay an additional contribution for 
any year in the full amount by the due date for the payment, as 
of that date, the employer is liable to the plan for the 
remaining unpaid balance of the aggregate additional 
contributions required for the seven plan years. The PBGC may 
waive or settle this liability at its discretion. The PBGC may 
also bring a civil action in Federal district courts to compel 
an employer that elects to make additional contributions to pay 
the additional contributions required.

                             Effective Date

    The provision is generally effective for a cessation of 
operations or other event at a facility occurring on or after 
the date of enactment (December 16, 2014).
    Under a transition rule, an employer that had a cessation 
of operations before the date of enactment (as determined under 
the substantial cessation of operations rules in effect before 
the date of enactment), but did not, before the date of 
enactment, enter into an arrangement with the PBGC to satisfy 
the requirements of those rules, may elect to make additional 
contributions under the provision to satisfy its liability as 
if the cessation occurred on the date of enactment. The 
election must be made not later than 30 days after the PBGC 
issues, on or after the date of enactment, a final 
administrative determination that a substantial cessation of 
operations has occurred.
    In addition, the PBGC must not take any enforcement, 
administrative, or other action with respect to a substantial 
cessation of operations, or in connection with an agreement 
settling liability arising with respect to a substantial 
cessation of operations, that is inconsistent with the 
amendments made by the provision, regardless of whether the 
action relates to a cessation or other event that occurs 
before, on, or after the date of enactment, unless the action 
is in connection with a settlement agreement in place before 
June 1, 2014. The PBGC also must not initiate a new enforcement 
action with respect to a substantial cessation of operations 
that is inconsistent with its enforcement policy in effect on 
June 1, 2014.

B. Clarification of the Normal Retirement Age (sec. 2 of the Act, sec. 
                411 of the Code, and sec. 204 of ERISA) 


                              Present Law


Rules relating to normal retirement age

    Normal retirement age is relevant for various purposes 
under the requirements relating to qualified defined benefit 
plans.\243\ Normal retirement age is generally the age 
specified for normal retirement under the plan, but may not be 
later than age 65 or, if later, the fifth anniversary of the 
time a participant commences participation in the plan.\244\
---------------------------------------------------------------------------
    \243\ See, for example, the vesting and accrual requirements under 
sections 401(a)(7) and 411. Similar requirements apply under sections 
203 and 204 of the Employee Retirement Income Security Act of 1974 
(``ERISA''). These requirements (and ERISA) generally do not apply to 
governmental plans or church plans.
    \244\ Sec. 411(a)(8) of the Code and sec. 3(24) of ERISA.
---------------------------------------------------------------------------
    Under the vesting rules, a participant's right to employer-
provided benefits he or she has earned or ``accrued'' under a 
plan (``accrued benefit'') generally must become nonforfeitable 
after a specified period of service. In addition, a 
participant's right to the benefit under the plan commencing at 
normal retirement age (the ``normal retirement benefit'') must 
become nonforfeitable on attainment of normal retirement age. 
In the case of a defined benefit plan, a participant's accrued 
benefit at any given time is generally the portion of the 
normal retirement benefit that the participant has earned as of 
that time. That is, if a participant terminates employment 
before reaching normal retirement age, the benefit to which the 
participant is entitled to receive on reaching normal 
retirement age is the accrued benefit.
    Under the accrual rules (also referred to as the ``anti-
backloading'' rules), the pattern in which a participant's 
normal retirement benefit is earned over his or her period of 
service to normal retirement age must satisfy one of three 
options (``accrual methods'').\245\ This serves as a backstop 
to the vesting rules by requiring a participant's normal 
retirement benefit to be earned relatively smoothly over his or 
her service, rather than having a disproportionate amount 
earned only at a later age or completion of longer service 
(that is, ``backloaded'').
---------------------------------------------------------------------------
    \245\ Sec. 411(b) of the Code and sec. 204 of ERISA.
---------------------------------------------------------------------------
    A defined benefit plan is permitted to provide a wide 
variety of optional forms of distribution with respect to the 
accrued benefit, but each form must be at least the actuarial 
equivalent of the accrued benefit.\246\ A defined benefit plan 
may provide for a subsidized early retirement benefit or other 
retirement-type subsidies, the right to which is not required 
to vest or accrue in accordance with the vesting and accrual 
requirements. For example, a plan with a normal retirement age 
of 65 might provide for payment of a participant's accrued 
benefit on retirement at age 55 without actuarial reduction for 
early commencement, but conditioned on the participant having 
at least 30 years of service.
---------------------------------------------------------------------------
    \246\ The assumptions for determining actuarial equivalence 
(interest rate and mortality) must be specified in the plan in a manner 
that precludes employer discretion. In the case of certain forms of 
benefit, including lump sums, specific actuarial assumptions must be 
used.
---------------------------------------------------------------------------
    Defined benefit plans generally may not provide for 
distributions to a participant during employment (referred to 
as ``in-service'' distributions) unless the participant has 
attained normal retirement age (or age 62, if earlier) or in 
the case of plan termination.\247\ Under final Treasury 
regulations issued in 2007, the normal retirement age under a 
plan must be an age that is not earlier than the earliest age 
that is reasonably representative of the typical retirement age 
for the industry in which the covered workforce is 
employed.\248\ Under the regulations, a normal retirement age 
of age 62 or later is deemed not to be earlier than the 
earliest age that is reasonably representative of the typical 
retirement age for the industry in which the covered workforce 
is employed.
---------------------------------------------------------------------------
    \247\ Sec. 401(a)(36); Treas. Reg. secs. 1.401-1(b)(1)(i) and 
1.401(a)-1(b)(1)(i).
    \248\ Treas. Reg. sec. 1.401(a)-1(b)(2). These regulations apply to 
all qualified defined benefit plans, including governmental plans and 
church plans.
---------------------------------------------------------------------------

Normal retirement ages with a service component

    Some defined benefit plans have defined normal retirement 
age as the earlier of a fixed age (such as age 62) or the 
completion of a specified period of service (for example, 30 
years) and have permitted participants to receive in-service 
distributions of their full normal retirement benefits (that 
is, without an actuarial reduction for early commencement) 
after completion of the period of service.
    The IRS has indicated that a plan under which a 
participant's normal retirement age changes to an earlier date 
upon completion of a stated number of years of service 
typically will not satisfy the vesting and accrual rules.\249\ 
An unreduced early retirement benefit is permitted to be 
conditioned on completion of a stated number of years of 
service (such as 30 years of service); however, an early 
retirement benefit is generally permitted to be paid only after 
termination of employment.
---------------------------------------------------------------------------
    \249\ Notice 2007-69, 2007-2 C.B. 468.
---------------------------------------------------------------------------

Nondiscrimination requirements

    Qualified retirement plans may not discriminate in favor of 
highly compensated employees with respect to contributions or 
benefits.\250\ In the case of a defined benefit plan, whether 
benefits are discriminatory is generally based on the benefits 
provided at a uniform normal retirement age.\251\
---------------------------------------------------------------------------
    \250\ Sec. 401(a)(4). For this purpose, highly compensated 
employees are generally five-percent owners and employees with 
compensation above a certain level for the preceding year. For 2014, 
the compensation level is $115,000.
    \251\ Treas. Reg. secs. 1.401(a)(4)-3 and -12.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, a defined benefit plan meeting certain 
requirements (an ``applicable'' plan) is not treated as failing 
any qualification requirement or any requirement under ERISA, 
or as failing to have a uniform normal retirement age for these 
purposes, solely because the plan provides a normal retirement 
age of the earlier of (1) an age otherwise permitted under the 
definition of normal retirement age in the Code and ERISA, or 
(2) the age at which a participant completes the number of 
years (not less than 30) of service specified by the plan. An 
applicable plan is a defined benefit plan the terms of which, 
on or before December 8, 2014, provided for such a normal 
retirement age. A plan is generally an applicable plan only 
with respect to an individual who (1) is a participant in the 
plan on or before January 1, 2017, or (2) is an employee at any 
time on or before January 1, 2017, of any employer maintaining 
the plan and who becomes a participant in the plan after 
January 1, 2017.
    A plan does not fail to be an applicable plan solely 
because, as of December 8, 2014, the normal retirement age 
described above applied only to certain plan participants or, 
in the case of a plan maintained by more than one employer, 
only to employees of certain employers. In addition, subject to 
the limitation described above relating to participation or 
employment on or before January 1, 2017, if application of this 
normal retirement age is expanded after December 8, 2014, to 
additional participants or employees of additional employers, 
the plan will be treated as an applicable plan with respect to 
those participants and employees.

                             Effective Date

    The provision applies to all periods before, on, and after 
the date of enactment (December 16, 2014).

 C. Application of Cooperative and Small Employer Charity Pension Plan 
 Rules to Certain Charitable Employers Whose Primary Exempt Purpose is 
 Providing Services with Respect to Children (sec. 3 of the Act, sec. 
             414(y) of the Code, and sec. 210(f) of ERISA)


                              Present Law

    Defined benefit plans maintained by private employers are 
generally subject to minimum funding requirements.\252\ 
Different minimum funding rules apply to (1) single-employer 
plans and most multiple-employer plans, (2) multiple-employer 
plans that are CSEC (cooperative and small employer charity) 
plans, and (3) multiemployer plans.\253\ For this purpose, 
businesses and organizations that are members of a controlled 
group, a group under common control, or an affiliated service 
group are treated as one employer (referred to as 
``aggregation'').\254\
---------------------------------------------------------------------------
    \252\ Secs. 412 and 430-433 and ERISA secs. 301-306. Unless a 
funding waiver is obtained, an employer may be subject to a two-tier 
excise tax under section 4971 if the funding requirements are not met.
    \253\ See Part Six and Part Nine, Division O, above, for 
descriptions of these plans and the funding rules applicable to each 
type.
    \254\ Secs. 414(b), (c), (m) and (o).
---------------------------------------------------------------------------
    Funding rules for CSEC plans were enacted by the 
Cooperative and Small Employer Charity Pension Flexibility 
Act.\255\ For this purpose, a CSEC plan is a defined benefit 
plan (other than a multiemployer plan) (1) that is an eligible 
cooperative plan to which a delayed effective date for funding 
rules enacted under the Pension Protection Act of 2006 
(``PPA'') applies (without regard to the January 1, 2017, end 
of the delayed effective date),\256\ or (2) that, as of June 
25, 2010, was maintained by more than one employer (taking into 
account the aggregation rules for controlled groups and groups 
under common control) and all of the employers were tax-exempt 
charitable organizations.\257\
---------------------------------------------------------------------------
    \255\ Pub. L. No. 113 197, discussed in Part Six.
    \256\ This delayed effective date is provided under section 104 of 
PPA, Pub. L. No. 109-280.
    \257\ June 25, 2010 is the date of enactment of the Preservation of 
Access to Care for Medicare Beneficiaries and Pension Relief Act of 
2010 (``PRA 2010''), Pub. L. No. 111-192, which expanded the 
applicability of the delayed effective date. A tax-exempt charitable 
organization is an organization exempt from tax under section 
501(c)(3).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision amends the definition of CSEC plan to include 
a plan that, as of June 25, 2010, was maintained by an employer 
(1) that is a tax-exempt charitable organization and a 
Federally-chartered patriotic organization,\258\ (2) that has 
employees in at least 40 States, and (3) the primary exempt 
purpose of which is to provide services with respect to 
children. For purposes of determining the employer maintaining 
the plan, the aggregation rules for controlled groups and 
groups under common control employers apply.
---------------------------------------------------------------------------
    \258\ A Federally-chartered patriotic organization is an 
organization chartered under part B of subtitle II of title 36, United 
States Code.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective as if included in the 
Cooperative and Small Employer Charity Pension Flexibility Act. 
As a result, the provision is effective for plan years 
beginning after December 31, 2013.

 PART TEN: AN ACT TO AMEND CERTAIN PROVISIONS OF THE FAA MODERNIZATION 
           AND REFORM ACT OF 2012 (PUBLIC LAW 113-243) \259\

 A. Rollover of Amounts Received in Airline Carrier Bankruptcy (sec. 1 
  of the Act and sec. 1106 of the FAA Modernization and Reform Act of 
                                 2012)

                              Present Law

Individual retirement arrangements
    The Code provides for two types of individual retirement 
arrangements (``IRAs''): traditional IRAs and Roth IRAs.\260\
---------------------------------------------------------------------------
    \259\ H.R. 2591. The House passed H.R. 2591 on December 11, 2014. 
The Senate passed the bill without amendment on December 13, 2014. The 
President signed the bill on December 18, 2014.
    \260\ Traditional IRAs are described in section 408, and Roth IRAs 
are described in section 408A.
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    Contributions to a traditional IRA may be deductible from 
gross income, or nondeductible contributions may be made, which 
result in ``basis.'' Distributions from a traditional IRA are 
includible in gross income to the extent not treated as a 
return of basis (that is, if attributable to deductible 
contributions or earnings).
    Contributions to a Roth IRA are not deductible (and result 
in basis), and qualified distributions from a Roth IRA are 
excludable from gross income. Distributions from a Roth IRA 
that are not qualified distributions are includible in gross 
income to the extent not treated as a return of basis (that is, 
if attributable to earnings). In general, a qualified 
distribution from a Roth IRA is a distribution that (1) is made 
after the five taxable year period beginning with the first 
taxable year for which the individual first made a contribution 
to a Roth IRA, and (2) is made on or after the individual 
attains age 59\1/2\, death, or disability or which is a 
qualified special purpose distribution.
    The total amount that an individual may contribute to one 
or more IRAs for a year (other than a rollover contribution, 
discussed below) is generally limited to the lesser of: (1) a 
dollar amount ($5,500 for 2014); or (2) the amount of the 
individual's compensation that is includible in gross income 
for the year.\261\ In the case of married individuals filing a 
joint return, a contribution up to the dollar limit for each 
spouse may be made, provided the combined compensation of the 
spouses is at least equal to the contributed amount.
---------------------------------------------------------------------------
    \261\ The maximum contribution amount is increased by $1,000 for 
individuals 50 years of age or older.
---------------------------------------------------------------------------
    Subject to certain requirements, an individual may roll a 
distribution from an IRA over to an IRA of the same type on a 
nontaxable basis (that is, without income inclusion). In 
addition, an individual generally may convert a traditional IRA 
to a Roth IRA. In that case, the amount converted is includible 
in income as if a distribution from the traditional IRA had 
been made.
Rollover of airline payments to traditional IRAs
    Under the FAA Modernization and Reform Act of 2012 (``2012 
FAA Act''), if a qualified airline employee contributes any 
portion of an airline payment amount to a traditional IRA 
within 180 days of receipt of the amount (or, if later, within 
180 days of February 14, 2012, the date of enactment of the 
2012 FAA Act), the amount contributed is treated as a rollover 
contribution to the IRA.\262\ A qualified airline employee 
making such a rollover contribution may exclude the contributed 
amount from gross income for the taxable year in which the 
airline payment amount was paid to the qualified airline 
employee.
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    \262\ Sec. 1106 of Pub. L. No. 112-95. Under section 125 of the 
Worker, Retiree, and Employer Recovery Act of 2008 (``WRERA''), Pub. L. 
No. 110-458, a qualified airline employee is permitted to contribute 
any portion of an airline payment amount to a Roth IRA within 180 days 
of receipt of such amount (or, if later, within 180 days of December 
23, 2008, the date of enactment of WRERA), and the amount contributed 
is treated as a rollover contribution to the Roth IRA. The 2012 FAA Act 
permitted an employee who had previously made a rollover contribution 
of an airline payment amount to a Roth IRA to recharacterize all or a 
portion of the rollover contribution as a rollover contribution to a 
traditional IRA and to exclude the recharacterized amount from income.
---------------------------------------------------------------------------
    For this purpose, a qualified airline employee is an 
employee or former employee of a commercial passenger airline 
carrier who was a participant in a qualified defined benefit 
plan maintained by the carrier that was terminated or that 
became subject to the benefit accrual and other restrictions 
applicable to certain plans under the Pension Protection Act of 
2006 (``PPA'').\263\ If a qualified airline employee dies after 
receiving an airline payment amount, or if an airline payment 
amount is paid to a surviving spouse of a qualified airline 
employee, the surviving spouse may receive the same rollover 
contribution treatment (and the related exclusion from income) 
as the employee could have received.
---------------------------------------------------------------------------
    \263\ Pub. L. No. 109-280. Section 402 of PPA provides funding 
relief with respect to certain defined benefit plans maintained by 
commercial passenger airlines, subject to meeting the benefit accrual 
and other restrictions under PPA section 402(b)(2) and (3).
---------------------------------------------------------------------------
    An airline payment amount is any payment of any money or 
other property payable by a commercial passenger airline to a 
qualified airline employee: (1) under the approval of an order 
of a Federal bankruptcy court in a case filed after September 
11, 2001, and before January 1, 2007, and (2) in respect of the 
qualified airline employee's interest in a bankruptcy claim 
against the airline carrier, any note of the carrier (or amount 
paid in lieu of a note being issued), or any other fixed 
obligation of the carrier to pay a lump sum amount. An airline 
payment amount does not include any amount payable on the basis 
of the carrier's future earnings or profits. The amount of any 
airline payment amount is determined without regard to the 
withholding of the employee's share of taxes under the Federal 
Insurance Contributions Act (``FICA'') or income tax.\264\ 
Thus, for purposes of the rollover provision and the related 
exclusion from income, the gross amount of the airline payment 
amount (before withholding) applies.
---------------------------------------------------------------------------
    \264\ Secs. 3102 and 3402. An airline payment amount that is 
excluded from income under the 2012 FAA Act continues to be wages for 
FICA and Social Security earnings purposes.
---------------------------------------------------------------------------
    The ability to contribute airline payment amounts to a 
traditional IRA as a rollover contribution (and the related 
exclusion from income) is subject to limitations. First, a 
qualified airline employee is not permitted to contribute an 
airline payment amount to a traditional IRA for a taxable year 
if, at any time during the taxable year or a preceding taxable 
year, the employee was a ``covered employee,'' that is, the 
principal executive officer (or an individual acting in such 
capacity) within the meaning of the Securities Exchange Act of 
1934 or among the three most highly compensated officers for 
the taxable year (other than the principal executive officer), 
of the commercial passenger airline carrier making the airline 
payment amount.\265\ Second, in the case of a qualified airline 
employee who was not at any time a covered employee, the amount 
that may be contributed to a traditional IRA for a taxable year 
cannot exceed the excess (if any) of (1) 90 percent of the 
aggregate airline payment amounts received during the taxable 
year and all preceding taxable years, over (2) the aggregate 
amount contributed to a traditional IRA (and excluded from 
income) for all preceding taxable years (``90 percent 
limitation'').
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    \265\ Covered employee status is defined by reference to section 
162(m) (limiting deductions for compensation of covered employees), 
which defines a covered employee as (1) the chief executive officer of 
the corporation (or an individual acting in such capacity) as of the 
close of the taxable year, and (2) the four most highly compensated 
officers for the taxable year (other than the chief executive officer), 
whose compensation is required to be reported to shareholders under the 
Securities Exchange Act of 1934. Treas. Reg. sec. 1.162-27(c)(2) 
provides that whether an employee is the chief executive officer or 
among the four most highly compensated officers is determined pursuant 
to the executive compensation disclosure rules promulgated under the 
Securities Exchange Act of 1934. To reflect 2006 changes made to the 
disclosure rules by the Securities and Exchange Commission, Notice 
2007-49, 2007-25 I.R.B. 1429, provides that ``covered employee'' means 
any employee who is (1) the principal executive officer (or an 
individual acting in such capacity) within the meaning of the amended 
disclosure rules, or (2) among the three most highly compensated 
officers for the taxable year (other than the principal executive 
officer).
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    Under the 2012 FAA Act, a qualified airline employee who 
excludes from income an airline payment amount contributed to a 
traditional IRA may file a claim for a refund until the later 
of: (1) the usual period of limitation (generally, three years 
from the time the return was filed or two years from the time 
the tax was paid, whichever period expires later),\266\ or (2) 
April 15, 2013.
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    \266\ Sec. 6511(a).
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                        Explanation of Provision

    The provision amends the definition of qualified airline 
employee under the 2012 FAA Act to include an employee or 
former employee of a commercial passenger airline carrier who 
was a participant in a qualified defined benefit plan 
maintained by the carrier that was frozen (that is, under which 
all benefit accruals ceased) as of November 1, 2012. The 
provision also amends the definition of airline payment amount 
under the 2012 FAA Act to include any payment of any money or 
other property payable by a commercial passenger airline (but 
not any amount payable on the basis of the carrier's future 
earnings or profits) to a qualified airline employee: (1) under 
the approval of an order of a Federal bankruptcy court in a 
case filed on November 29, 2011, and (2) in respect of the 
qualified airline employee's interest in a bankruptcy claim 
against the airline carrier, any note of the carrier (or amount 
paid in lieu of a note being issued), or any other fixed 
obligation of the carrier to pay a lump sum amount. Thus, as a 
result of the provision, if a qualified airline employee (other 
than a covered employee as described above) under a qualified 
defined benefit plan that was frozen as of November 1, 2012, 
receives an airline payment amount under a Federal bankruptcy 
order in a case filed on November 29, 2011, and, subject to the 
90 percent limitation described above, contributes any portion 
of the airline payment amount to a traditional IRA within 180 
days of receipt of the amount,\267\ the amount contributed is 
treated as a rollover contribution to the traditional IRA and 
may be excluded from gross income for the taxable year in which 
the airline payment amount was paid to the qualified airline 
employee.\268\
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    \267\ Rollover contribution treatment (and the related exclusion 
from income) applies to an airline payment amount (or portion thereof) 
contributed to a traditional IRA within 180 days. A legislative change 
may be needed for the provision to apply with respect to airline 
payment amounts received more than 180 days before enactment.
    \268\ As permitted under present law, after the contribution, an 
individual may convert the traditional IRA to a Roth IRA.
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    Under the provision, a qualified airline employee who 
excludes from income an airline payment amount contributed to a 
traditional IRA may file a claim for a refund until the later 
of (1) the usual period of limitation (generally, three years 
from the time the return was filed or two years from the time 
the tax was paid, whichever period expires later), or (2) April 
15, 2015.

                             Effective Date

    The provision is effective on the date of enactment 
(December 18, 2014).

 PART ELEVEN: GRAND PORTAGE BAND PER CAPITA ADJUSTMENT ACT (PUBLIC LAW 
                             113-290) \269\
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    \269\ H.R. 3608. The House Committee on Natural Resources reported 
H.R. 3608 on November 17, 2014 (H.R. Rep. 113-625 (Part 1)). The House 
passed the bill on November 17, 2014. The Senate passed the bill 
without amendment on December 16, 2014. The President signed the bill 
on December 19, 2014.
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A. Equal Treatment of Certain Per Capita Income For Purposes of Federal 
                     Assistance (sec. 2 of the Act)

                              Present Law

    Section 1407 of Title 25 of the United States Code 
(Indians) exempts certain per capita payments from Federal and 
State income taxes and from treatment as income for purposes of 
determining eligibility for Social Security and Federal 
assistance programs.
    Section 7873 of the Internal Revenue Code provides that no 
income or employment tax is imposed on income derived by 
Indians from a fishing rights-related activity. The IRS has 
found that ``income derived from a fishing rights-related 
activity'' includes per capita payments to tribal members from 
a tribe's settlement of an action for declaratory judgment 
prohibiting State regulation of fishing on treaty waters.\270\  
The IRS's rationale was that the amount of the settlement 
payment to the tribe was intended to approximate the loss of 
potential fishing income that would result from the State 
regulation imposed by the settlement agreement.
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    \270\ Technical Advice Memorandum 9747004, July 25, 1997.
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                        Explanation of Provision

    The provision amends section 1407 of Title 25 of the United 
States Code to include certain payments made by the State of 
Minnesota to the Grand Portage Band of Lake Superior Chippewa 
Indians (the ``Tribe''). These payments result from a 
settlement under which the Tribe agreed to restrict their 
members from exercising their fishing rights.

                             Effective Date

    The provision is effective on the date of enactment 
(December 19, 2014).

PART TWELVE: TAX INCREASE PREVENTION ACT OF 2014 AND THE STEPHEN BECK, 
  JR., ACHIEVING A BETTER LIFE EXPERIENCE ACT OF 2014 (PUBLIC LAW 113-
                               295) \271\
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    \271\ H.R. 5771. The Senate Committee on Finance reported S. 2260 
(``EXPIRE Act of 2014'') on April 28, 2014 (S. Rep. No. 113-154) and S. 
2261 (``Tax Technical Corrections Act of 2014'') on April 28, 2014 (S. 
Rep. No. 113-155). The EXPIRE Act generally extended expiring 
provisions through 2015 with some modifications. The House Committee on 
Ways and Means reported H.R. 647 (``Achieving a Better Life Experience 
Act of 2014'') on November 12, 2014 (H.R. Rep. No. 113-614 (Part 1)). 
The House passed H.R. 5771 (``Tax Increase Prevention Act of 2014'') 
and H.R. 647 on December 3, 2014. In the engrossment of H.R. 5771, the 
text of H.R. 647 was added as Division B. The Senate passed the bill 
without amendment on December 16, 2014. The President signed the bill 
on December 19, 2014.
    The House Ways and Means Committee reported the following bills 
relating to the modification and making permanent or extending certain 
expiring provisions: H.R. 4453 (``S Corporation Permanent Tax Relief 
Act of 2014'') on May 2, 2014 (H.R. Rep. No. 113-429), H.R. 4454 
(``Permanent S Corporation Charitable Contributions Act of 2014'') on 
May 2, 2014 (H.R. Rep. No. 113-430), H.R. 4438 (``American Research and 
Competitiveness Act of 2014'') on May 2, 2014 (H.R. Rep. No. 113-431), 
H.R. 4457 (``America's Small Business Tax Relief Act of 2014'') on May 
2, 2014 (H.R. Rep. No. 113-432), H.R. 4719 (``America Gives More Act of 
2014'') on June 26, 2014 (H.R. Rep. 113-498), H.R. 2807 (``Conservation 
Easement Incentive Act of 2014'') on June 26, 2014 (H. Rep. No. 113-
494), H.R. 4619 (``Permanent IRA Charitable Contribution Act of 2014'') 
on June 26, 2014 (H.R. Rep. No. 113-496), and H.R. 4718 (A bill to 
amend the Internal Revenue Code of 1986 to modify and make permanent 
bonus depreciation) on July 3, 2014 (H.R. Rep. No. 113-509). Each of 
the bills passed the House, either separately or in a bill combining 
certain of the provisions.
---------------------------------------------------------------------------

            DIVISION A--TAX INCREASE PREVENTION ACT OF 2014

                  TITLE I--CERTAIN EXPIRING PROVISIONS

                A. Subtitle A--Individual Tax Extenders

1. Extension of deduction for certain expenses of elementary and 
        secondary school teachers (sec. 101 of the Act and sec. 
        62(a)(2)(D) of the Code)

                              Present Law

    In general, ordinary and necessary business expenses are 
deductible. However, unreimbursed employee business expenses 
generally are deductible only as an itemized deduction and only 
to the extent that the individual's total miscellaneous 
deductions (including employee business expenses) exceed two 
percent of adjusted gross income. For taxable years beginning 
after 2012, an individual's otherwise allowable itemized 
deductions may be further limited by the overall limitation on 
itemized deductions, which reduces itemized deductions for 
taxpayers with adjusted gross income in excess of a threshold 
amount. In addition, miscellaneous itemized deductions are not 
allowable under the alternative minimum tax.
    Certain expenses of eligible educators are allowed as an 
above-the-line deduction. Specifically, for taxable years 
beginning prior to January 1, 2014, an above-the-line deduction 
is allowed for up to $250 annually of expenses paid or incurred 
by an eligible educator for books, supplies (other than 
nonathletic supplies for courses of instruction in health or 
physical education), computer equipment (including related 
software and services) and other equipment, and supplementary 
materials used by the eligible educator in the classroom.\272\ 
To be eligible for this deduction, the expenses must be 
otherwise deductible under section 162 as a trade or business 
expense. A deduction is allowed only to the extent the amount 
of expenses exceeds the amount excludable from income under 
section 135 (relating to education savings bonds), 529(c)(1) 
(relating to qualified tuition programs), and section 530(d)(2) 
(relating to Coverdell education savings accounts).
---------------------------------------------------------------------------
    \272\ Sec. 62(a)(2)(D).
---------------------------------------------------------------------------
    An eligible educator is a kindergarten through grade twelve 
teacher, instructor, counselor, principal, or aide in a school 
for at least 900 hours during a school year. A school means any 
school that provides elementary education or secondary 
education (kindergarten through grade 12), as determined under 
State law.
    The above-the-line deduction for eligible educators is not 
allowed for taxable years beginning after December 31, 2013.

                        Explanation of Provision

    The provision extends the deduction for eligible educator 
expenses for one year, through December 31, 2014.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2013.
2. Extension of exclusion from gross income of discharges of 
        acquisition indebtedness on principal residences (sec. 102 of 
        the Act and sec. 108 of the Code)

                              Present Law

In general
    Gross income includes income that is realized by a debtor 
from the discharge of indebtedness, subject to certain 
exceptions for debtors in Title 11 bankruptcy cases, insolvent 
debtors, certain student loans, certain farm indebtedness, and 
certain real property business indebtedness (secs. 61(a)(12) 
and 108).\273\ In cases involving discharges of indebtedness 
that are excluded from gross income under the exceptions to the 
general rule, taxpayers generally reduce certain tax 
attributes, including basis in property, by the amount of the 
discharge of indebtedness.
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    \273\ A debt cancellation which constitutes a gift or bequest is 
not treated as income to the donee debtor (sec. 102).
---------------------------------------------------------------------------
    The amount of discharge of indebtedness excluded from 
income by an insolvent debtor not in a Title 11 bankruptcy case 
cannot exceed the amount by which the debtor is insolvent. In 
the case of a discharge in bankruptcy or where the debtor is 
insolvent, any reduction in basis may not exceed the excess of 
the aggregate bases of properties held by the taxpayer 
immediately after the discharge over the aggregate of the 
liabilities of the taxpayer immediately after the discharge 
(sec. 1017).
    For all taxpayers, the amount of discharge of indebtedness 
generally is equal to the difference between the adjusted issue 
price of the debt being cancelled and the amount used to 
satisfy the debt. These rules generally apply to the exchange 
of an old obligation for a new obligation, including a 
modification of indebtedness that is treated as an exchange (a 
debt-for-debt exchange).
Qualified principal residence indebtedness
    An exclusion from gross income is provided for any 
discharge of indebtedness income by reason of a discharge (in 
whole or in part) of qualified principal residence 
indebtedness. Qualified principal residence indebtedness means 
acquisition indebtedness (within the meaning of section 
163(h)(3)(B), except that the dollar limitation is $2 million) 
with respect to the taxpayer's principal residence. Acquisition 
indebtedness with respect to a principal residence generally 
means indebtedness which is incurred in the acquisition, 
construction, or substantial improvement of the principal 
residence of the individual and is secured by the residence. It 
also includes refinancing of such indebtedness to the extent 
the amount of the indebtedness resulting from such refinancing 
does not exceed the amount of the refinanced indebtedness. For 
these purposes, the term ``principal residence'' has the same 
meaning as under section 121 of the Code.
    If, immediately before the discharge, only a portion of a 
discharged indebtedness is qualified principal residence 
indebtedness, the exclusion applies only to so much of the 
amount discharged as exceeds the portion of the debt which is 
not qualified principal residence indebtedness. Thus, assume 
that a principal residence is secured by an indebtedness of $1 
million, of which $800,000 is qualified principal residence 
indebtedness. If the residence is sold for $700,000 and 
$300,000 debt is discharged, then only $100,000 of the amount 
discharged may be excluded from gross income under the 
qualified principal residence indebtedness exclusion.
    The basis of the individual's principal residence is 
reduced by the amount excluded from income under the provision.
    The qualified principal residence indebtedness exclusion 
does not apply to a taxpayer in a Title 11 case; instead the 
general exclusion rules apply. In the case of an insolvent 
taxpayer not in a Title 11 case, the qualified principal 
residence indebtedness exclusion applies unless the taxpayer 
elects to have the general exclusion rules apply instead.
    The exclusion does not apply to the discharge of a loan if 
the discharge is on account of services performed for the 
lender or any other factor not directly related to a decline in 
the value of the residence or to the financial condition of the 
taxpayer.
    The exclusion for qualified principal residence 
indebtedness is effective for discharges of indebtedness before 
January 1, 2014.

                        Explanation of Provision

    The provision extends for one year (through December 31, 
2014) the exclusion from gross income for discharges of 
qualified principal residence indebtedness.

                             Effective Date

    The provision applies to discharges of indebtedness on or 
after January 1, 2014.

 3. Extension of parity for employer-provided mass transit and parking 
         benefits (sec. 103 of the Act and 132(f) of the Code)


                              Present Law


Qualified transportation fringes

    Qualified transportation fringe benefits provided by an 
employer are excluded from an employee's gross income for 
income tax purposes and from an employee's wages for employment 
tax purposes.\274\ Qualified transportation fringe benefits 
include parking, transit passes, vanpool benefits, and 
qualified bicycle commuting reimbursements.
---------------------------------------------------------------------------
    \274\ Secs. 132(a)(5) and (f), 3121(a)(20), 3231(e)(5), 3306(b)(16) 
and 3401(a)(19).
---------------------------------------------------------------------------
    No amount is includible in the income of an employee merely 
because the employer offers the employee a choice between cash 
and qualified transportation fringe benefits (other than a 
qualified bicycle commuting reimbursement).
    Qualified transportation fringe benefits also include a 
cash reimbursement (under a bona fide reimbursement 
arrangement) by an employer to an employee for parking, transit 
passes, or vanpooling. In the case of transit passes, however, 
a cash reimbursement is considered a qualified transportation 
fringe benefit only if a voucher or similar item that may be 
exchanged only for a transit pass is not readily available for 
direct distribution by the employer to the employee.

Mass transit parity

    Before February 17, 2009, the amount that could be excluded 
as qualified transportation fringe benefits was limited to $100 
per month in combined transit pass and vanpool benefits and 
$175 per month in qualified parking benefits. These limits are 
adjusted annually for inflation, using 1998 as the base year; 
for 2014, the limits are $130 and $250, respectively. Effective 
for months beginning on or after February 17, 2009,\275\ and 
before January 1, 2014, parity in qualified transportation 
fringe benefits is provided by temporarily increasing the 
monthly exclusion for combined employer-provided transit pass 
and vanpool benefits to the same level as the exclusion for 
employer-provided parking.
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    \275\ Parity was originally provided by the American Recovery and 
Reinvestment Act of 2009 (``ARRA''), Pub. L. No. 111-5, effective for 
months beginning on or after February 17, 2009, the date of enactment 
of ARRA.
---------------------------------------------------------------------------
    Effective January 1, 2014, the amount that can be excluded 
as qualified transportation fringe benefits is limited to $130 
per month in combined transit pass and vanpool benefits and 
$250 per month in qualified parking benefits. These amounts 
apply also for 2015.

                        Explanation of Provision

    The provision extends parity in the exclusion for combined 
employer-provided transit pass and vanpool benefits and for 
employer-provided parking benefits for one year, through months 
beginning before January 1, 2015. Thus, for 2014, the monthly 
limit on the exclusion for combined transit pass and vanpool 
benefits is $250, the same as the monthly limit on the 
exclusion for qualified parking benefits.
    In order for the extension to be effective retroactive to 
January 1, 2014, expenses incurred during 2014 by an employee 
for employer-provided transit and vanpool benefits may be 
reimbursed (under a bona fide reimbursement arrangement) by 
employers on a tax-free basis to the extent they exceed $130 
per month and are no more than $250 per month. The Congress 
intends that the rule that an employer reimbursement is 
excludible only if vouchers are not available to provide the 
benefit continues to apply, except in the case of 
reimbursements for transit or vanpool benefits between $130 and 
$250 for months during 2014. Further, the Congress intends that 
reimbursements for expenses incurred for months during 2014 may 
be made in addition to the provision of excludible benefits or 
reimbursements for expenses incurred during 2015.

                             Effective Date

    The provision is effective for months after December 31, 
2013.

   4. Extension of mortgage insurance premiums treated as qualified 
   residence interest (sec. 104 of the Act and sec. 163 of the Code)


                              Present Law


In general

    Present law provides that qualified residence interest is 
deductible notwithstanding the general rule that personal 
interest is nondeductible.\276\
---------------------------------------------------------------------------
    \276\ Sec. 163(h).
---------------------------------------------------------------------------

Acquisition indebtedness and home equity indebtedness

    Qualified residence interest is interest on acquisition 
indebtedness and home equity indebtedness with respect to a 
principal and a second residence of the taxpayer. The maximum 
amount of home equity indebtedness is $100,000. The maximum 
amount of acquisition indebtedness is $1 million. Acquisition 
indebtedness means debt that is incurred in acquiring, 
constructing, or substantially improving a qualified residence 
of the taxpayer, and that is secured by the residence. Home 
equity indebtedness is debt (other than acquisition 
indebtedness) that is secured by the taxpayer's principal or 
second residence, to the extent the aggregate amount of such 
debt does not exceed the difference between the total 
acquisition indebtedness with respect to the residence, and the 
fair market value of the residence.

Qualified mortgage insurance

    Certain premiums paid or accrued for qualified mortgage 
insurance by a taxpayer during the taxable year in connection 
with acquisition indebtedness on a qualified residence of the 
taxpayer are treated as interest that is qualified residence 
interest and thus deductible. The amount allowable as a 
deduction is phased out ratably by 10 percent for each $1,000 
(or fraction thereof) by which the taxpayer's adjusted gross 
income exceeds $100,000 ($500 and $50,000, respectively, in the 
case of a married individual filing a separate return). Thus, 
the deduction is not allowed if the taxpayer's adjusted gross 
income exceeds $109,000 ($54,000 in the case of married 
individual filing a separate return).
    For this purpose, qualified mortgage insurance means 
mortgage insurance provided by the Department of Veterans 
Affairs, the Federal Housing Administration, or the Rural 
Housing Service, and private mortgage insurance (defined in 
section two of the Homeowners Protection Act of 1998 as in 
effect on the date of enactment of the provision).
    Amounts paid for qualified mortgage insurance that are 
properly allocable to periods after the close of the taxable 
year are treated as paid in the period to which they are 
allocated. No deduction is allowed for the unamortized balance 
if the mortgage is paid before its term (except in the case of 
qualified mortgage insurance provided by the Department of 
Veterans Affairs or Rural Housing Service).
    The provision does not apply with respect to any mortgage 
insurance contract issued before January 1, 2007. The provision 
terminates for any amount paid or accrued after December 31, 
2013, or properly allocable to any period after that date.
    Reporting rules apply under the provision.

                        Explanation of Provision

    The provision extends the deduction for qualified mortgage 
insurance premiums for one year (with respect to contracts 
entered into after December 31, 2006). Thus, the provision 
applies to amounts paid or accrued in 2014 (and not properly 
allocable to any period after 2014).

                             Effective Date

    The provision applies to amounts paid or accrued after 
December 31, 2013.

5. Extension of deduction for State and local general sales taxes (sec. 
                105 of the Act and sec. 164 of the Code)


                              Present Law

    For purposes of determining regular tax liability, an 
itemized deduction is permitted for certain State and local 
taxes paid, including individual income taxes, real property 
taxes, and personal property taxes. The itemized deduction is 
not permitted for purposes of determining a taxpayer's 
alternative minimum taxable income. For taxable years beginning 
before January 1, 2014, at the election of the taxpayer, an 
itemized deduction may be taken for State and local general 
sales taxes in lieu of the itemized deduction provided under 
present law for State and local income taxes. As is the case 
for State and local income taxes, the itemized deduction for 
State and local general sales taxes is not permitted for 
purposes of determining a taxpayer's alternative minimum 
taxable income. Taxpayers have two options with respect to the 
determination of the sales tax deduction amount. Taxpayers may 
deduct the total amount of general State and local sales taxes 
paid by accumulating receipts showing general sales taxes paid. 
Alternatively, taxpayers may use tables created by the 
Secretary that show the allowable deduction. The tables are 
based on average consumption by taxpayers on a State-by-State 
basis taking into account number of dependents, modified 
adjusted gross income and rates of State and local general 
sales taxation. Taxpayers who live in more than one 
jurisdiction during the tax year are required to pro-rate the 
table amounts based on the time they live in each jurisdiction. 
Taxpayers who use the tables created by the Secretary may, in 
addition to the table amounts, deduct eligible general sales 
taxes paid with respect to the purchase of motor vehicles, 
boats, and other items specified by the Secretary. Sales taxes 
for items that may be added to the tables are not reflected in 
the tables themselves.
    A general sales tax is a tax imposed at one rate with 
respect to the sale at retail of a broad range of classes of 
items.\277\ No deduction is allowed for any general sales tax 
imposed with respect to an item at a rate other than the 
general rate of tax. However, in the case of food, clothing, 
medical supplies, and motor vehicles, the above rules are 
relaxed in two ways. First, if the tax does not apply with 
respect to some or all of such items, a tax that applies to 
other such items can still be considered a general sales tax. 
Second, the rate of tax applicable with respect to some or all 
of these items may be lower than the general rate. However, in 
the case of motor vehicles, if the rate of tax exceeds the 
general rate, such excess is disregarded and the general rate 
is treated as the rate of tax.
---------------------------------------------------------------------------
    \277\ Sec. 164(b)(5)(B).
---------------------------------------------------------------------------
    A compensating use tax with respect to an item is treated 
as a general sales tax, provided such tax is complementary to a 
general sales tax and a deduction for sales taxes is allowable 
with respect to items sold at retail in the taxing jurisdiction 
that are similar to such item.

                        Explanation of Provision

    The provision extends the provision allowing taxpayers to 
elect to deduct State and local sales taxes in lieu of State 
and local income taxes for one year, through December 31, 2014.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2013.

  6. Extension of special rule for contributions of capital gain real 
 property made for conservation purposes (sec. 106 of the Act and sec. 
                          170(b) of the Code)


                              Present Law


Charitable contributions generally

    In general, a deduction is permitted for charitable 
contributions, subject to certain limitations that depend on 
the type of taxpayer, the property contributed, and the donee 
organization. The amount of deduction generally equals the fair 
market value of the contributed property on the date of the 
contribution. Charitable deductions are provided for income, 
estate, and gift tax purposes.\278\
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    \278\ Secs. 170, 2055, and 2522, respectively.
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    In general, in any taxable year, charitable contributions 
by a corporation are not deductible to the extent the aggregate 
contributions exceed 10 percent of the corporation's taxable 
income computed without regard to net operating or capital loss 
carrybacks. Total deductible contributions of an individual 
taxpayer to public charities, private operating foundations, 
and certain types of private nonoperating foundations generally 
may not exceed 50 percent of the taxpayer's contribution base, 
which is the taxpayer's adjusted gross income for a taxable 
year (disregarding any net operating loss carryback). To the 
extent a taxpayer has not exceeded the 50-percent limitation, 
(1) contributions of capital gain property to public charities 
generally may be deducted up to 30 percent of the taxpayer's 
contribution base, (2) contributions of cash to most private 
nonoperating foundations and certain other charitable 
organizations generally may be deducted up to 30 percent of the 
taxpayer's contribution base, and (3) contributions of capital 
gain property to private foundations and certain other 
charitable organizations generally may be deducted up to 20 
percent of the taxpayer's contribution base.
    Contributions in excess of the applicable percentage limits 
generally may be carried over and deducted over the next five 
taxable years, subject to the relevant percentage limitations 
on the deduction in each of those years.

Capital gain property

    Capital gain property means any capital asset or property 
used in the taxpayer's trade or business the sale of which at 
its fair market value, at the time of contribution, would have 
resulted in gain that would have been long-term capital gain. 
Contributions of capital gain property to a qualified charity 
are deductible at fair market value within certain limitations. 
Contributions of capital gain property to charitable 
organizations described in section 170(b)(1)(A) (e.g., public 
charities, private foundations other than private non-operating 
foundations, and certain governmental units) generally are 
deductible up to 30 percent of the taxpayer's contribution 
base. An individual may elect, however, to bring all these 
contributions of capital gain property for a taxable year 
within the 50-percent limitation category by reducing the 
amount of the contribution deduction by the amount of the 
appreciation in the capital gain property. Contributions of 
capital gain property to charitable organizations described in 
section 170(b)(1)(B) (e.g., private non-operating foundations) 
are deductible up to 20 percent of the taxpayer's contribution 
base.
    For purposes of determining whether a taxpayer's aggregate 
charitable contributions in a taxable year exceed the 
applicable percentage limitation, contributions of capital gain 
property are taken into account after other charitable 
contributions.

Qualified conservation contributions

    Qualified conservation contributions are one exception to 
the ``partial interest'' rule, which generally bars deductions 
for charitable contributions of partial interests in 
property.\279\ A qualified conservation contribution is a 
contribution of a qualified real property interest to a 
qualified organization exclusively for conservation purposes. A 
qualified real property interest is defined as: (1) the entire 
interest of the donor other than a qualified mineral interest; 
(2) a remainder interest; or (3) a restriction (granted in 
perpetuity) on the use that may be made of the real property. 
Qualified organizations include certain governmental units, 
public charities that meet certain public support tests, and 
certain supporting organizations. Conservation purposes 
include: (1) the preservation of land areas for outdoor 
recreation by, or for the education of, the general public; (2) 
the protection of a relatively natural habitat of fish, 
wildlife, or plants, or similar ecosystem; (3) the preservation 
of open space (including farmland and forest land) where such 
preservation will yield a significant public benefit and is 
either for the scenic enjoyment of the general public or 
pursuant to a clearly delineated Federal, State, or local 
governmental conservation policy; and (4) the preservation of 
an historically important land area or a certified historic 
structure.
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    \279\ Secs. 170(f)(3)(B)(iii) and 170(h).
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    Qualified conservation contributions of capital gain 
property are subject to the same limitations and carryover 
rules as other charitable contributions of capital gain 
property.

Temporary rules regarding contributions of capital gain real property 
        for conservation purposes

            In general
    Under a temporary provision \280\ the 30-percent 
contribution base limitation on contributions of capital gain 
property by individuals does not apply to qualified 
conservation contributions (as defined under present law). 
Instead, individuals may deduct the fair market value of any 
qualified conservation contribution to the extent of the excess 
of 50 percent of the contribution base over the amount of all 
other allowable charitable contributions. These contributions 
are not taken into account in determining the amount of other 
allowable charitable contributions.
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    \280\ Sec. 170(b)(1)(E).
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    Individuals are allowed to carry over any qualified 
conservation contributions that exceed the 50-percent 
limitation for up to 15 years.
    For example, assume an individual with a contribution base 
of $100 makes a qualified conservation contribution of property 
with a fair market value of $80 and makes other charitable 
contributions subject to the 50-percent limitation of $60. The 
individual is allowed a deduction of $50 in the current taxable 
year for the non-conservation contributions (50 percent of the 
$100 contribution base) and is allowed to carry over the excess 
$10 for up to 5 years. No current deduction is allowed for the 
qualified conservation contribution, but the entire $80 
qualified conservation contribution may be carried forward for 
up to 15 years.
            Farmers and ranchers
    In the case of an individual who is a qualified farmer or 
rancher for the taxable year in which the contribution is made, 
a qualified conservation contribution is allowable up to 100 
percent of the excess of the taxpayer's contribution base over 
the amount of all other allowable charitable contributions.
    In the above example, if the individual is a qualified 
farmer or rancher, in addition to the $50 deduction for non-
conservation contributions, an additional $50 for the qualified 
conservation contribution is allowed and $30 may be carried 
forward for up to 15 years as a contribution subject to the 
100-percent limitation.
    In the case of a corporation (other than a publicly traded 
corporation) that is a qualified farmer or rancher for the 
taxable year in which the contribution is made, any qualified 
conservation contribution is allowable up to 100 percent of the 
excess of the corporation's taxable income (as computed under 
section 170(b)(2)) over the amount of all other allowable 
charitable contributions. Any excess may be carried forward for 
up to 15 years as a contribution subject to the 100-percent 
limitation.\281\
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    \281\ Sec. 170(b)(2)(B).
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    As an additional condition of eligibility for the 100 
percent limitation, with respect to any contribution of 
property in agriculture or livestock production, or that is 
available for such production, by a qualified farmer or 
rancher, the qualified real property interest must include a 
restriction that the property remain generally available for 
such production. (There is no requirement as to any specific 
use in agriculture or farming, or necessarily that the property 
be used for such purposes, merely that the property remain 
available for such purposes.)
    A qualified farmer or rancher means a taxpayer whose gross 
income from the trade or business of farming (within the 
meaning of section 2032A(e)(5)) is greater than 50 percent of 
the taxpayer's gross income for the taxable year.
            Termination
    The temporary rules regarding contributions of capital gain 
real property for conservation purposes do not apply to 
contributions made in taxable years beginning after December 
31, 2013.\282\
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    \282\ Secs. 170(b)(1)(E)(vi) and 170(b)(2)(B)(iii).
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                        Explanation of Provision

    The provision extends the increased percentage limits and 
extended carryforward period for contributions of capital gain 
real property for conservation purposes for one year, i.e., for 
contributions made in taxable years beginning before January 1, 
2015.

                             Effective Date

    The provision is effective for contributions made in 
taxable years beginning after December 31, 2103.

7. Extension of above-the-line deduction for qualified tuition and 
        related expenses (sec. 107 of the Act and sec. 222 of the Code)

                              Present Law

    An individual is allowed a deduction for qualified tuition 
and related expenses for higher education paid by the 
individual during the taxable year.\283\ The deduction is 
allowed in computing adjusted gross income. The term qualified 
tuition and related expenses is defined in the same manner as 
for the Hope and Lifetime Learning credits, and includes 
tuition and fees required for the enrollment or attendance of 
the taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer with respect to whom the taxpayer may claim a personal 
exemption, at an eligible institution of higher education for 
courses of instruction of such individual at such 
institution.\284\ The expenses must be in connection with 
enrollment at an institution of higher education during the 
taxable year, or with an academic period beginning during the 
taxable year or during the first three months of the next 
taxable year. The deduction is not available for tuition and 
related expenses paid for elementary or secondary education.
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    \283\ Sec. 222.
    \284\ The deduction generally is not available for expenses with 
respect to a course or education involving sports, games, or hobbies, 
and is not available for student activity fees, athletic fees, 
insurance expenses, or other expenses unrelated to an individual's 
academic course of instruction.
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    The maximum deduction is $4,000 for an individual whose 
adjusted gross income for the taxable year does not exceed 
$65,000 ($130,000 in the case of a joint return), or $2,000 for 
other individuals whose adjusted gross income does not exceed 
$80,000 ($160,000 in the case of a joint return). No deduction 
is allowed for an individual whose adjusted gross income 
exceeds the relevant adjusted gross income limitations, for a 
married individual who does not file a joint return, or for an 
individual with respect to whom a personal exemption deduction 
may be claimed by another taxpayer for the taxable year. The 
deduction is not available for taxable years beginning after 
December 31, 2013.
    The amount of qualified tuition and related expenses must 
be reduced by certain scholarships, educational assistance 
allowances, and other amounts paid for the benefit of such 
individual,\285\ and by the amount of such expenses taken into 
account for purposes of determining any exclusion from gross 
income of: (1) income from certain U.S. savings bonds used to 
pay higher education tuition and fees; and (2) income from a 
Coverdell education savings account.\286\ Additionally, such 
expenses must be reduced by the earnings portion (but not the 
return of principal) of distributions from a qualified tuition 
program if an exclusion under section 529 is claimed with 
respect to expenses eligible for the qualified tuition 
deduction. No deduction is allowed for any expense for which a 
deduction is otherwise allowed or with respect to an individual 
for whom a Hope or Lifetime Learning credit is elected for such 
taxable year.
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    \285\ Secs. 222(d)(1) and 25A(g)(2).
    \286\ Sec. 222(c). These reductions are the same as those that 
apply to the Hope and Lifetime Learning credits.
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                        Explanation of Provision

    The provision extends the qualified tuition deduction for 
one year, through 2014.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2013.

8. Extension of tax-free distributions from individual retirement plans 
        for charitable purposes (sec. 108 of the Act and sec. 408(d)(8) 
        of the Code)

                              Present Law


In general

    If an amount withdrawn from a traditional individual 
retirement arrangement (``IRA'') or a Roth IRA is donated to a 
charitable organization, the rules relating to the tax 
treatment of withdrawals from IRAs apply to the amount 
withdrawn and the charitable contribution is subject to the 
normally applicable limitations on deductibility of such 
contributions. An exception applies in the case of a qualified 
charitable distribution.

Charitable contributions

    In computing taxable income, an individual taxpayer who 
itemizes deductions generally is allowed to deduct the amount 
of cash and up to the fair market value of property contributed 
to the following entities: (1) a charity described in section 
170(c)(2); (2) certain veterans' organizations, fraternal 
societies, and cemetery companies; \287\ and (3) a Federal, 
State, or local governmental entity, but only if the 
contribution is made for exclusively public purposes.\288\ The 
deduction also is allowed for purposes of calculating 
alternative minimum taxable income.
---------------------------------------------------------------------------
    \287\ Secs. 170(c)(3)-(5).
    \288\ Sec. 170(c)(1).
---------------------------------------------------------------------------
    The amount of the deduction allowable for a taxable year 
with respect to a charitable contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\289\
---------------------------------------------------------------------------
    \289\ Secs. 170(b) and (e).
---------------------------------------------------------------------------
    A taxpayer who takes the standard deduction (i.e., who does 
not itemize deductions) may not take a separate deduction for 
charitable contributions.\290\
---------------------------------------------------------------------------
    \290\ Sec. 170(a).
---------------------------------------------------------------------------
    A payment to a charity (regardless of whether it is termed 
a ``contribution'') in exchange for which the donor receives an 
economic benefit is not deductible, except to the extent that 
the donor can demonstrate, among other things, that the payment 
exceeds the fair market value of the benefit received from the 
charity. To facilitate distinguishing charitable contributions 
from purchases of goods or services from charities, present law 
provides that no charitable contribution deduction is allowed 
for a separate contribution of $250 or more unless the donor 
obtains a contemporaneous written acknowledgement of the 
contribution from the charity indicating whether the charity 
provided any good or service (and an estimate of the value of 
any such good or service provided) to the taxpayer in 
consideration for the contribution.\291\ In addition, present 
law requires that any charity that receives a contribution 
exceeding $75 made partly as a gift and partly as consideration 
for goods or services furnished by the charity (a ``quid pro 
quo'' contribution) is required to inform the contributor in 
writing of an estimate of the value of the goods or services 
furnished by the charity and that only the portion exceeding 
the value of the goods or services may be deductible as a 
charitable contribution.\292\
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    \291\ Sec. 170(f)(8). For any contribution of a cash, check, or 
other monetary gift, no deduction is allowed unless the donor maintains 
as a record of such contribution a bank record or written communication 
from the donee charity showing the name of the donee organization, the 
date of the contribution, and the amount of the contribution. Sec. 
170(f)(17).
    \292\ Sec. 6115.
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    Under present law, total deductible contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations generally may not exceed 50 percent of the 
taxpayer's contribution base, which is the taxpayer's adjusted 
gross income for a taxable year (disregarding any net operating 
loss carryback). To the extent a taxpayer has not exceeded the 
50-percent limitation, (1) contributions of capital gain 
property to public charities generally may be deducted up to 30 
percent of the taxpayer's contribution base, (2) contributions 
of cash to most private nonoperating foundations and certain 
other charitable organizations generally may be deducted up to 
30 percent of the taxpayer's contribution base, and (3) 
contributions of capital gain property to private foundations 
and certain other charitable organizations generally may be 
deducted up to 20 percent of the taxpayer's contribution base.
    Contributions by individuals in excess of the 50-percent, 
30-percent, and 20-percent limits generally may be carried over 
and deducted over the next five taxable years, subject to the 
relevant percentage limitations on the deduction in each of 
those years.
    In general, a charitable deduction is not allowed for 
income, estate, or gift tax purposes if the donor transfers an 
interest in property to a charity (e.g., a remainder) while 
also either retaining an interest in that property (e.g., an 
income interest) or transferring an interest in that property 
to a noncharity for less than full and adequate 
consideration.\293\ Exceptions to this general rule are 
provided for, among other interests, remainder interests in 
charitable remainder annuity trusts, charitable remainder 
unitrusts, and pooled income funds, and present interests in 
the form of a guaranteed annuity or a fixed percentage of the 
annual value of the property.\294\ For such interests, a 
charitable deduction is allowed to the extent of the present 
value of the interest designated for a charitable organization.
---------------------------------------------------------------------------
    \293\ Secs. 170(f), 2055(e)(2), and 2522(c)(2).
    \294\ Sec. 170(f)(2).
---------------------------------------------------------------------------

IRA rules

    Within limits, individuals may make deductible and 
nondeductible contributions to a traditional IRA. Amounts in a 
traditional IRA are includible in income when withdrawn (except 
to the extent the withdrawal represents a return of 
nondeductible contributions). Certain individuals also may make 
nondeductible contributions to a Roth IRA (deductible 
contributions cannot be made to Roth IRAs). Qualified 
withdrawals from a Roth IRA are excludable from gross income. 
Withdrawals from a Roth IRA that are not qualified withdrawals 
are includible in gross income to the extent attributable to 
earnings. Includible amounts withdrawn from a traditional IRA 
or a Roth IRA before attainment of age 59\1/2\ are subject to 
an additional 10-percent early withdrawal tax, unless an 
exception applies. Under present law, minimum distributions are 
required to be made from tax-favored retirement arrangements, 
including IRAs. Minimum required distributions from a 
traditional IRA must generally begin by April 1 of the calendar 
year following the year in which the IRA owner attains age 
70\1/2\.\295\
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    \295\ Minimum distribution rules also apply in the case of 
distributions after the death of a traditional or Roth IRA owner.
---------------------------------------------------------------------------
    If an individual has made nondeductible contributions to a 
traditional IRA, a portion of each distribution from an IRA is 
nontaxable until the total amount of nondeductible 
contributions has been received. In general, the amount of a 
distribution that is nontaxable is determined by multiplying 
the amount of the distribution by the ratio of the IRA's 
nondeductible contributions to the IRA's account balance. In 
making the calculation, all traditional IRAs of an individual 
are treated as a single IRA, all distributions during any 
taxable year are treated as a single distribution, and, in 
general, the value of the account, income on the account, and 
investment in the contract (basis) are computed as of the close 
of the calendar year.
    In the case of a distribution from a Roth IRA that is not a 
qualified distribution, in determining the portion of the 
distribution attributable to earnings, contributions and 
distributions are deemed to be distributed in the following 
order: (1) regular Roth IRA contributions; (2) taxable 
conversion contributions; \296\ (3) nontaxable conversion 
contributions; and (4) earnings. In determining the amount of 
taxable distributions from a Roth IRA, all Roth IRA 
distributions in the same taxable year are treated as a single 
distribution, all regular Roth IRA contributions for a year are 
treated as a single contribution, and all conversion 
contributions during the year are treated as a single 
contribution.
---------------------------------------------------------------------------
    \296\ Conversion contributions refer to conversions of amounts in a 
traditional IRA to a Roth IRA.
---------------------------------------------------------------------------
    Taxable distributions from an IRA are generally subject to 
withholding unless the individual elects not to have 
withholding apply.\297\ Elections not to have withholding apply 
are to be made in the time and manner prescribed by the 
Secretary.
---------------------------------------------------------------------------
    \297\ Sec. 3405.
---------------------------------------------------------------------------

Qualified charitable distributions

    Otherwise taxable IRA distributions from a traditional or 
Roth IRA are excluded from gross income to the extent they are 
qualified charitable distributions.\298\ The amount excluded 
may not exceed $100,000 per taxpayer per taxable year. Special 
rules apply in determining the amount of an IRA distribution 
that is otherwise taxable. The otherwise applicable rules 
regarding taxation of IRA distributions and the deduction of 
charitable contributions continue to apply to distributions 
from an IRA that are not qualified charitable distributions. A 
qualified charitable distribution is taken into account for 
purposes of the minimum distribution rules applicable to 
traditional IRAs to the same extent the distribution would have 
been taken into account under such rules had the distribution 
not been directly distributed under the qualified charitable 
distribution provision. An IRA does not fail to qualify as an 
IRA as a result of qualified charitable distributions being 
made from the IRA.
---------------------------------------------------------------------------
    \298\ Sec. 408(d)(8). The exclusion does not apply to distributions 
from employer-sponsored retirement plans, including SIMPLE IRAs and 
simplified employee pensions (``SEPs'').
---------------------------------------------------------------------------
    A qualified charitable distribution is any distribution 
from an IRA directly by the IRA trustee to an organization 
described in section 170(b)(1)(A) (other than an organization 
described in section 509(a)(3) or a donor advised fund (as 
defined in section 4966(d)(2)). Distributions are eligible for 
the exclusion only if made on or after the date the IRA owner 
attains age 70\1/2\ and only to the extent the distribution 
would be includible in gross income (without regard to this 
provision).
    The exclusion applies only if a charitable contribution 
deduction for the entire distribution otherwise would be 
allowable (under present law), determined without regard to the 
generally applicable percentage limitations. Thus, for example, 
if the deductible amount is reduced because of a benefit 
received in exchange, or if a deduction is not allowable 
because the donor did not obtain sufficient substantiation, the 
exclusion is not available with respect to any part of the IRA 
distribution.
    If the IRA owner has any IRA that includes nondeductible 
contributions, a special rule applies in determining the 
portion of a distribution that is includible in gross income 
(but for the qualified charitable distribution provision) and 
thus is eligible for qualified charitable distribution 
treatment. Under the special rule, the distribution is treated 
as consisting of income first, up to the aggregate amount that 
would be includible in gross income (but for the qualified 
charitable distribution provision) if the aggregate balance of 
all IRAs having the same owner were distributed during the same 
year. In determining the amount of subsequent IRA distributions 
includible in income, proper adjustments are to be made to 
reflect the amount treated as a qualified charitable 
distribution under the special rule.
    Distributions that are excluded from gross income by reason 
of the qualified charitable distribution provision are not 
taken into account in determining the deduction for charitable 
contributions under section 170.
    Under present law, the exclusion does not apply to 
distributions made in taxable years beginning after December 
31, 2013.

                        Explanation of Provision

    The provision extends the exclusion from gross income for 
qualified charitable distributions from an IRA for one year, 
i.e., for distributions made in taxable years beginning before 
January 1, 2015.

                             Effective Date

    The provision is effective for distributions made in 
taxable years beginning after December 31, 2013.

                 B. Subtitle B--Business Tax Extenders


1. Extension of research credit (sec. 111 of the Act and sec. 41 of the 
        Code)

                              Present Law


General rule

    For general research expenditures, a taxpayer may claim a 
research credit equal to 20 percent of the amount by which the 
taxpayer's qualified research expenses for a taxable year 
exceed its base amount for that year.\299\ Thus, the research 
credit is generally available with respect to incremental 
increases in qualified research. An alternative simplified 
research credit (with a 14 percent rate and a different base 
amount) may be claimed in lieu of this credit.\300\
---------------------------------------------------------------------------
    \299\ Sec. 41(a)(1).
    \300\ Sec. 41(c)(5).
---------------------------------------------------------------------------
    A 20-percent research tax credit also is available with 
respect to the excess of (1) 100 percent of corporate cash 
expenses (including grants or contributions) paid for basic 
research conducted by universities (and certain nonprofit 
scientific research organizations) over (2) the sum of (a) the 
greater of two minimum basic research floors plus (b) an amount 
reflecting any decrease in nonresearch giving to universities 
by the corporation as compared to such giving during a fixed-
base period, as adjusted for inflation.\301\ This separate 
credit computation commonly is referred to as the basic 
research credit.
---------------------------------------------------------------------------
    \301\ Secs. 41(a)(2) and 41(e). The base period for the basic 
research credit generally extends from 1981 through 1983.
---------------------------------------------------------------------------
    Finally, a research credit is available for a taxpayer's 
expenditures on research undertaken by an energy research 
consortium.\302\ This separate credit computation commonly is 
referred to as the energy research credit. Unlike the other 
research credits, the energy research credit applies to all 
qualified expenditures, not just those in excess of a base 
amount.
---------------------------------------------------------------------------
    \302\ Sec. 41(a)(3).
---------------------------------------------------------------------------
    The research credit, including the basic research credit 
and the energy research credit, expires for amounts paid or 
incurred after December 31, 2013.\303\
---------------------------------------------------------------------------
    \303\ Sec. 41(h).
---------------------------------------------------------------------------

Computation of general research credit

    The general research tax credit applies only to the extent 
that the taxpayer's qualified research expenses for the current 
taxable year exceed its base amount. The base amount for the 
current year generally is computed by multiplying the 
taxpayer's fixed-base percentage by the average amount of the 
taxpayer's gross receipts for the four preceding years. If a 
taxpayer both incurred qualified research expenses and had 
gross receipts during each of at least three years from 1984 
through 1988, then its fixed-base percentage is the ratio that 
its total qualified research expenses for the 1984-1988 period 
bears to its total gross receipts for that period (subject to a 
maximum fixed-base percentage of 16 percent). Special rules 
apply to all other taxpayers (so called start-up firms).\304\ 
In computing the research credit, a taxpayer's base amount 
cannot be less than 50 percent of its current-year qualified 
research expenses.
---------------------------------------------------------------------------
    \304\ The Small Business Job Protection Act of 1996 expanded the 
definition of start-up firms under section 41(c)(3)(B)(i) to include 
any firm if the first taxable year in which such firm had both gross 
receipts and qualified research expenses began after 1983. A special 
rule (enacted in 1993) is designed to gradually recompute a start-up 
firm's fixed-base percentage based on its actual research experience. 
Under this special rule, a start-up firm is assigned a fixed-base 
percentage of three percent for each of its first five taxable years 
after 1993 in which it incurs qualified research expenses. A start-up 
firm's fixed-base percentage for its sixth through tenth taxable years 
after 1993 in which it incurs qualified research expenses is a phased-
in ratio based on the firm's actual research experience. For all 
subsequent taxable years, the taxpayer's fixed-base percentage is its 
actual ratio of qualified research expenses to gross receipts for any 
five years selected by the taxpayer from its fifth through tenth 
taxable years after 1993. Sec. 41(c)(3)(B).
---------------------------------------------------------------------------

Alternative simplified credit

    The alternative simplified research credit is equal to 14 
percent of qualified research expenses that exceed 50 percent 
of the average qualified research expenses for the three 
preceding taxable years.\305\ The rate is reduced to six 
percent if a taxpayer has no qualified research expenses in any 
one of the three preceding taxable years.\306\ An election to 
use the alternative simplified credit applies to all succeeding 
taxable years unless revoked with the consent of the 
Secretary.\307\
---------------------------------------------------------------------------
    \305\ Sec. 41(c)(5)(A).
    \306\ Sec. 41(c)(5)(B).
    \307\ Sec. 41(c)(5)(C).
---------------------------------------------------------------------------

Eligible expenses

    Qualified research expenses eligible for the research tax 
credit consist of: (1) in-house expenses of the taxpayer for 
wages and supplies attributable to qualified research; (2) 
certain time-sharing costs for computer use in qualified 
research; and (3) 65 percent of amounts paid or incurred by the 
taxpayer to certain other persons for qualified research 
conducted on the taxpayer's behalf (so-called contract research 
expenses).\308\ Notwithstanding the limitation for contract 
research expenses, qualified research expenses include 100 
percent of amounts paid or incurred by the taxpayer to an 
eligible small business, university, or Federal laboratory for 
qualified energy research.
---------------------------------------------------------------------------
    \308\ Under a special rule, 75 percent of amounts paid to a 
research consortium for qualified research are treated as qualified 
research expenses eligible for the research credit (rather than 65 
percent under the general rule under section 41(b)(3) governing 
contract research expenses) if (1) such research consortium is a tax-
exempt organization that is described in section 501(c)(3) (other than 
a private foundation) or section 501(c)(6) and is organized and 
operated primarily to conduct scientific research, and (2) such 
qualified research is conducted by the consortium on behalf of the 
taxpayer and one or more persons not related to the taxpayer. Sec. 
41(b)(3)(C).
---------------------------------------------------------------------------
    To be eligible for the credit, the research not only has to 
satisfy the requirements of section 174, but also must be 
undertaken for the purpose of discovering information that is 
technological in nature, the application of which is intended 
to be useful in the development of a new or improved business 
component of the taxpayer, and substantially all of the 
activities of which constitute elements of a process of 
experimentation for functional aspects, performance, 
reliability, or quality of a business component. Research does 
not qualify for the credit if substantially all of the 
activities relate to style, taste, cosmetic, or seasonal design 
factors.\309\ In addition, research does not qualify for the 
credit if: (1) conducted after the beginning of commercial 
production of the business component; (2) related to the 
adaptation of an existing business component to a particular 
customer's requirements; (3) related to the duplication of an 
existing business component from a physical examination of the 
component itself or certain other information; (4) related to 
certain efficiency surveys, management function or technique, 
market research, market testing, or market development, routine 
data collection or routine quality control; (5) related to 
software developed primarily for internal use by the taxpayer; 
(6) conducted outside the United States, Puerto Rico, or any 
U.S. possession; (7) in the social sciences, arts, or 
humanities; or (8) funded by any grant, contract, or otherwise 
by another person (or government entity).\310\
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    \309\ Sec. 41(d)(3).
    \310\ Sec. 41(d)(4).
---------------------------------------------------------------------------

Relation to deduction

    Deductions allowed to a taxpayer under section 174 (or any 
other section) are reduced by an amount equal to 100 percent of 
the taxpayer's research tax credit determined for the taxable 
year.\311\ Taxpayers may alternatively elect to claim a reduced 
research tax credit amount under section 41 in lieu of reducing 
deductions otherwise allowed.\312\
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    \311\ Sec. 280C(c).
    \312\ Sec. 280C(c)(3).
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                        Explanation of Provision

    The provision extends the present law credit for one year, 
for qualified research expenses paid or incurred before January 
1, 2015.

                             Effective Date

    The provision is effective for amounts paid or incurred 
after December 31, 2013.

2. Extension of temporary minimum low-income housing tax credit rate 
        for non-Federally subsidized buildings (sec. 112 of the Act and 
        sec. 42 of the Code)

                              Present Law


In general

    The low-income housing credit may be claimed over a 10-year 
credit period after each low-income building is placed-in-
service. The amount of the credit for any taxable year in the 
credit period is the applicable percentage of the qualified 
basis of each qualified low-income building.

Present value credit

    The calculation of the applicable percentage is designed to 
produce a credit equal to: (1) 70 percent of the present value 
of the building's qualified basis in the case of newly 
constructed or substantially rehabilitated housing that is not 
Federally subsidized (the ``70-percent credit''); or (2) 30 
percent of the present value of the building's qualified basis 
in the case of newly constructed or substantially rehabilitated 
housing that is Federally subsidized and existing housing that 
is substantially rehabilitated (the ``30-percent credit''). 
Where existing housing is substantially rehabilitated, the 
existing housing is eligible for the 30-percent credit and the 
qualified rehabilitation expenses (if not Federally subsidized) 
are eligible for the 70-percent credit.

Calculation of the applicable percentage

            In general
    The credit percentage for a low-income building is set for 
the earlier of: (1) the month the building is placed in 
service; or (2) at the election of the taxpayer, (a) the month 
the taxpayer and the housing credit agency enter into a binding 
agreement with respect to such building for a credit 
allocation, or (b) in the case of a tax-exempt bond-financed 
project for which no credit allocation is required, the month 
in which the tax-exempt bonds are issued.
    These credit percentages (used for the 70-percent credit 
and 30-percent credit) are adjusted monthly by the IRS on a 
discounted after-tax basis (assuming a 28-percent tax rate) 
based on the average of the Applicable Federal Rates for mid-
term and long-term obligations for the month the building is 
placed in service. The discounting formula assumes that each 
credit is received on the last day of each year and that the 
present value is computed on the last day of the first year. In 
a project consisting of two or more buildings placed in service 
in different months, a separate credit percentage may apply to 
each building.
            Special rule
    Under this rule the applicable percentage is set at a 
minimum of 9 percent for newly constructed non-Federally 
subsidized buildings placed in service after July 30, 2008, and 
before January 1, 2014.

                        Explanation of Provision

    The provision extends the temporary minimum applicable 
percentage of 9 percent for newly constructed non-Federally 
subsidized buildings with respect to which credit allocations 
are made before January 1, 2015.

                             Effective Date

    The provision is effective on January 1, 2014.

3. Extension of military housing allowance exclusion for determining 
        whether a tenant in certain counties is low-income (sec. 113 of 
        the Act and secs. 42 and 142 of the Code)

                              Present Law


In general

    In order to be eligible for the low-income housing credit, 
a qualified low-income building must be part of a qualified 
low-income housing project. In general, a qualified low-income 
housing project is defined as a project that satisfies one of 
two tests at the election of the taxpayer. The first test is 
met if 20 percent or more of the residential units in the 
project are both rent-restricted, and occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). The second test is met if 40 percent or 
more of the residential units in such project are both rent-
restricted, and occupied by individuals whose income is 60 
percent or less of area median gross income (the ``40-60 
test''). These income figures are adjusted for family size.

Rule for income determinations before July 30, 2008 and on or after 
        January 1, 2014

    The recipients of the military basic housing allowance must 
include these amounts for purposes of low-income credit 
eligibility income test, as described above.

Special rule for income determination before January 1, 2014

    Under the provision the basic housing allowance (i.e., 
payments under 37 U.S.C. sec. 403) is not included in income 
for the low-income credit income eligibility rules. The 
provision is limited in application to qualified buildings. A 
qualified building is defined as any building located in:
    1. any county which contains a qualified military 
installation to which the number of members of the Armed Forces 
assigned to units based out of such qualified military 
installation has increased by 20 percent or more as of June 1, 
2008, over the personnel level on December 31, 2005; and
    2. any counties adjacent to a county described in (1), 
above.

    For these purposes, a qualified military installation is 
any military installation or facility with at least 1000 
members of the Armed Forces assigned to it.

    The provision applies to income determinations: (1) made 
after July 30, 2008, and before January 1, 2014, in the case of 
qualified buildings which received credit allocations on or 
before July 30, 2008, or qualified buildings placed in service 
on or before July 30, 2008, to the extent a credit allocation 
was not required with respect to such building by reason of 
42(h)(4) (i.e., such qualified building was at least 50 percent 
tax-exempt bond financed with bonds subject to the private 
activity bond volume cap) but only with respect to bonds issued 
before July 30, 2008; and (2) made after July 30, 2008, in the 
case of qualified buildings which received credit allocations 
after July 30, 2008 and before January 1, 2014, or qualified 
buildings placed in service after July 30, 2008, and before 
January 1, 2014, to the extent a credit allocation was not 
required with respect to such qualified building by reason of 
42(h)(4) (i.e., such qualified building was at least 50 percent 
tax-exempt bond financed with bonds subject to the private 
activity bond volume cap) but only with respect to bonds issued 
after July 30, 2008, and before January 1, 2014.

                        Explanation of Provision

    The provision extends the special rule one year (through 
December 31, 2014).

                             Effective Date

    The provision is effective as if included in the enactment 
of section 3005 of the Housing Assistance Tax Act of 2008.

4. Extension of Indian employment tax credit (sec. 114 of the Act and 
        sec. 45A of the Code) 

                               Present Law

    In general, a credit against income tax liability is 
allowed to employers for the first $20,000 of qualified wages 
and qualified employee health insurance costs paid or incurred 
by the employer with respect to certain employees.\313\ The 
credit is equal to 20 percent of the excess of eligible 
employee qualified wages and health insurance costs during the 
current year over the amount of such wages and costs incurred 
by the employer during 1993. The credit is an incremental 
credit, such that an employer's current-year qualified wages 
and qualified employee health insurance costs (up to $20,000 
per employee) are eligible for the credit only to the extent 
that the sum of such costs exceeds the sum of comparable costs 
paid during 1993. No deduction is allowed for the portion of 
the wages equal to the amount of the credit.
---------------------------------------------------------------------------
    \313\  Sec. 45A.
---------------------------------------------------------------------------
    Qualified wages means wages paid or incurred by an employer 
for services performed by a qualified employee. A qualified 
employee means any employee who is an enrolled member of an 
Indian tribe or the spouse of an enrolled member of an Indian 
tribe, who performs substantially all of the services within an 
Indian reservation, and whose principal place of abode while 
performing such services is on or near the reservation in which 
the services are performed. An ``Indian reservation'' is a 
reservation as defined in section 3(d) of the Indian Financing 
Act of 1974 \314\ or section 4(10) of the Indian Child Welfare 
Act of 1978.\315\ For purposes of the preceding sentence, 
section 3(d) is applied by treating ``former Indian 
reservations in Oklahoma'' as including only lands that are (1) 
within the jurisdictional area of an Oklahoma Indian tribe as 
determined by the Secretary of the Interior, and (2) recognized 
by such Secretary as an area eligible for trust land status 
under 25 C.F.R. Part 151 (as in effect on August 5, 1997).
---------------------------------------------------------------------------
    \314\  Pub. L. No. 93-262.
    \315\ Pub. L. No. 95-608.
---------------------------------------------------------------------------
    An employee is not treated as a qualified employee for any 
taxable year of the employer if the total amount of wages paid 
or incurred by the employer with respect to such employee 
during the taxable year exceeds an amount determined at an 
annual rate of $30,000 (which after adjusted for inflation is 
$45,000 for 2013). In addition, an employee will not be treated 
as a qualified employee under certain specific circumstances, 
such as where the employee is related to the employer (in the 
case of an individual employer) or to one of the employer's 
shareholders, partners, or grantors. Similarly, an employee 
will not be treated as a qualified employee where the employee 
has more than a five percent ownership interest in the 
employer. Finally, an employee will not be considered a 
qualified employee to the extent the employee's services relate 
to gaming activities or are performed in a building housing 
such activities.
    The wage credit is available for wages paid or incurred in 
taxable years that begin on or before December 31, 2013.

                        Explanation of Provision

    The provision extends for one year the present-law 
employment credit provision (through taxable years beginning on 
or before December 31, 2014).

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2013.

5. Extension of new markets tax credit (sec. 115 of the Act and sec. 
        45D of the Code)

                               Present Law

    Section 45D provides a new markets tax credit for qualified 
equity investments made to acquire stock in a corporation, or a 
capital interest in a partnership, that is a qualified 
community development entity (``CDE'').\316\ The amount of the 
credit allowable to the investor (either the original purchaser 
or a subsequent holder) is (1) a five-percent credit for the 
year in which the equity interest is purchased from the CDE and 
for each of the following two years, and (2) a six-percent 
credit for each of the following four years.\317\ The credit is 
determined by applying the applicable percentage (five or six 
percent) to the amount paid to the CDE for the investment at 
its original issue, and is available to the taxpayer who holds 
the qualified equity investment on the date of the initial 
investment or on the respective anniversary date that occurs 
during the taxable year.\318\ The credit is recaptured if at 
any time during the seven-year period that begins on the date 
of the original issue of the investment the entity (1) ceases 
to be a qualified CDE, (2) the proceeds of the investment cease 
to be used as required, or (3) the equity investment is 
redeemed.\319\
---------------------------------------------------------------------------
    \316\ Section 45D was added by section 121(a) of the Community 
Renewal Tax Relief Act of 2000, Pub. L. No. 106-554.
    \317\ Sec. 45D(a)(2).
    \318\ Sec. 45D(a)(3).
    \319\ Sec. 45D(g).
---------------------------------------------------------------------------
    A qualified CDE is any domestic corporation or partnership: 
(1) whose primary mission is serving or providing investment 
capital for low-income communities or low-income persons; (2) 
that maintains accountability to residents of low-income 
communities by their representation on any governing board of 
or any advisory board to the CDE; and (3) that is certified by 
the Secretary as being a qualified CDE.\320\ A qualified equity 
investment means stock (other than nonqualified preferred 
stock) in a corporation or a capital interest in a partnership 
that is acquired at its original issue directly (or through an 
underwriter) from a CDE for cash, and includes an investment of 
a subsequent purchaser if such investment was a qualified 
equity investment in the hands of the prior holder. 
Substantially all of the investment proceeds must be used by 
the CDE to make qualified low-income community investments and 
the investment must be designated as a qualified equity 
investment by the CDE. For this purpose, qualified low-income 
community investments include: (1) capital or equity 
investments in, or loans to, qualified active low-income 
community businesses; (2) certain financial counseling and 
other services to businesses and residents in low-income 
communities; (3) the purchase from another CDE of any loan made 
by such entity that is a qualified low-income community 
investment; or (4) an equity investment in, or loan to, another 
CDE.\321\
---------------------------------------------------------------------------
    \320\  Sec. 45D(c).
    \321\  Sec. 45D(d).
---------------------------------------------------------------------------
    A ``low-income community'' is a population census tract 
with either (1) a poverty rate of at least 20 percent or (2) 
median family income which does not exceed 80 percent of the 
greater of metropolitan area median family income or statewide 
median family income (for a non-metropolitan census tract, does 
not exceed 80 percent of statewide median family income). In 
the case of a population census tract located within a high 
migration rural county, low-income is defined by reference to 
85 percent (as opposed to 80 percent) of statewide median 
family income.\322\ For this purpose, a high migration rural 
county is any county that, during the 20-year period ending 
with the year in which the most recent census was conducted, 
has a net out-migration of inhabitants from the county of at 
least 10 percent of the population of the county at the 
beginning of such period.
---------------------------------------------------------------------------
    \322\  Sec. 45D(e).
---------------------------------------------------------------------------
    The Secretary is authorized to designate ``targeted 
populations'' as low-income communities for purposes of the new 
markets tax credit.\323\ For this purpose, a ``targeted 
population'' is defined by reference to section 103(20) of the 
Riegle Community Development and Regulatory Improvement Act of 
1994 \324\ (the ``Act'') to mean individuals, or an 
identifiable group of individuals, including an Indian tribe, 
who are low-income persons or otherwise lack adequate access to 
loans or equity investments. Section 103(17) of the Act 
provides that ``low-income'' means (1) for a targeted 
population within a metropolitan area, less than 80 percent of 
the area median family income; and (2) for a targeted 
population within a non-metropolitan area, less than the 
greater of--80 percent of the area median family income, or 80 
percent of the statewide non-metropolitan area median family 
income.\325\ A targeted population is not required to be within 
any census tract. In addition, a population census tract with a 
population of less than 2,000 is treated as a low-income 
community for purposes of the credit if such tract is within an 
empowerment zone, the designation of which is in effect under 
section 1391 of the Code, and is contiguous to one or more low-
income communities.
---------------------------------------------------------------------------
    \323\ Sec. 45D(e)(2).
    \324\ Pub. L. No. 103-325.
    \325\ Pub. L. No. 103-325.
---------------------------------------------------------------------------
    A qualified active low-income community business is defined 
as a business that satisfies, with respect to a taxable year, 
the following requirements: (1) at least 50 percent of the 
total gross income of the business is derived from the active 
conduct of trade or business activities in any low-income 
community; (2) a substantial portion of the tangible property 
of the business is used in a low-income community; (3) a 
substantial portion of the services performed for the business 
by its employees is performed in a low-income community; and 
(4) less than five percent of the average of the aggregate 
unadjusted bases of the property of the business is 
attributable to certain financial property or to certain 
collectibles.\326\
---------------------------------------------------------------------------
    \326\ Sec. 45D(d)(2).
---------------------------------------------------------------------------
    The maximum annual amount of qualified equity investments 
was $3.5 billion for calendar years 2010, 2011, 2012, and 2013. 
The new markets tax credit expired on December 31, 2013. No 
amount of unused allocation limitation may be carried to any 
calendar year after 2018.

                        Explanation of Provision

    The provision extends the new markets tax credit for one 
year, through 2014, permitting up to $3.5 billion in qualified 
equity investments for the 2014 calendar year. The provision 
also extends for one year, through 2019, the carryover period 
for unused new markets tax credits.

                             Effective Date

    The provision applies to calendar years beginning after 
December 31, 2013.

6. Extension of railroad track maintenance credit (sec. 116 of the Act 
        and sec. 45G of the Code)

                              Present Law

    Present law provides a 50-percent business tax credit for 
qualified railroad track maintenance expenditures paid or 
incurred by an eligible taxpayer during taxable years beginning 
before January 1, 2014.\327\ The credit is limited to the 
product of $3,500 times the number of miles of railroad track 
(1) owned or leased by an eligible taxpayer as of the close of 
its taxable year, and (2) assigned to the eligible taxpayer by 
a Class II or Class III railroad that owns or leases such track 
at the close of the taxable year.\328\ Each mile of railroad 
track may be taken into account only once, either by the owner 
of such mile or by the owner's assignee, in computing the per-
mile limitation. The credit also may reduce a taxpayer's tax 
liability below its tentative minimum tax.\329\ Basis of the 
railroad track must be reduced (but not below zero) by an 
amount equal to 100 percent of the taxpayer's qualified 
railroad track maintenance tax credit determined for the 
taxable year.\330\
---------------------------------------------------------------------------
    \327\ Sec. 45G(a) and (f).
    \328\ Sec. 45G(b)(1).
    \329\ Sec. 38(c)(4).
    \330\ Sec. 45G(e)(3).
---------------------------------------------------------------------------
    Qualified railroad track maintenance expenditures are 
defined as gross expenditures (whether or not otherwise 
chargeable to capital account) for maintaining railroad track 
(including roadbed, bridges, and related track structures) 
owned or leased as of January 1, 2005, by a Class II or Class 
III railroad (determined without regard to any consideration 
for such expenditure given by the Class II or Class III 
railroad which made the assignment of such track).\331\
---------------------------------------------------------------------------
    \331\ Sec. 45G(d).
---------------------------------------------------------------------------
    An eligible taxpayer means any Class II or Class III 
railroad, and any person who transports property using the rail 
facilities of a Class II or Class III railroad or who furnishes 
railroad-related property or services to a Class II or Class 
III railroad, but only with respect to miles of railroad track 
assigned to such person by such railroad under the 
provision.\332\
---------------------------------------------------------------------------
    \332\ Sec. 45G(c).
---------------------------------------------------------------------------
    The terms Class II or Class III railroad have the meanings 
given by the Surface Transportation Board.\333\
---------------------------------------------------------------------------
    \333\ Sec. 45G(e)(1).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the present law credit for one year, 
for qualified railroad track maintenance expenditures paid or 
incurred in taxable years beginning after December 31, 2013, 
and before January 1, 2015.

                             Effective Date

    The provision is effective for expenditures paid or 
incurred in taxable years beginning after December 31, 2013.

7. Extension of mine rescue team training credit (sec. 117 of the Act 
        and sec. 45N of the Code)

                              Present Law

    An eligible employer may claim a general business credit 
against income tax with respect to each qualified mine rescue 
team employee equal to the lesser of: (1) 20 percent of the 
amount paid or incurred by the taxpayer during the taxable year 
with respect to the training program costs of the qualified 
mine rescue team employee (including the wages of the employee 
while attending the program); or (2) $10,000.\334\ A qualified 
mine rescue team employee is any full-time employee of the 
taxpayer who is a miner eligible for more than six months of a 
taxable year to serve as a mine rescue team member by virtue of 
either having completed the initial 20 hour course of 
instruction prescribed by the Mine Safety and Health 
Administration's Office of Educational Policy and Development, 
or receiving at least 40 hours of refresher training in such 
instruction.\335\
---------------------------------------------------------------------------
    \334\ Sec. 45N(a).
    \335\ Sec. 45N(b).
---------------------------------------------------------------------------
    An eligible employer is any taxpayer which employs 
individuals as miners in underground mines in the United 
States.\336\ The term ``wages'' has the meaning given to such 
term by section 3306(b) \337\ (determined without regard to any 
dollar limitation contained in that section).\338\
---------------------------------------------------------------------------
    \336\ Sec. 45N(c).
    \337\ Section 3306(b) defines wages for purposes of Federal 
Unemployment Tax.
    \338\ Sec. 45N(d).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of the expenses 
otherwise deductible that is equal to the amount of the 
credit.\339\ The credit does not apply to taxable years 
beginning after December 31, 2013.\340\ Additionally, the 
credit is not allowable for purposes of computing the 
alternative minimum tax.\341\
---------------------------------------------------------------------------
    \339\ Sec. 280C(e).
    \340\ Sec. 45N(e).
    \341\ Sec. 38(c).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for one year through 
taxable years beginning on or before December 31, 2014.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2013.

8. Extension of employer wage credit for employees who are active duty 
        members of the uniformed services (sec. 118 of the Act and sec. 
        45P of the Code)

                              Present Law


Differential pay

    In general, compensation paid by an employer to an employee 
is deductible by the employer unless the expense must be 
capitalized.\342\ In the case of an employee who is called to 
active duty with respect to the armed forces of the United 
States, some employers voluntarily pay the employee the 
difference between the compensation that the employer would 
have paid to the employee during the period of military service 
less the amount of pay received by the employee from the 
military. This payment by the employer is often referred to as 
``differential pay.''
---------------------------------------------------------------------------
    \342\ Sec. 162(a)(1).
---------------------------------------------------------------------------

Wage credit for differential pay

    If an employer qualifies as an eligible small business 
employer, the employer is allowed a credit against its income 
tax liability for a taxable year in an amount equal to 20 
percent of the sum of the eligible differential wage payments 
for each of the employer's qualified employees during the year.
    An eligible small business employer means, with respect to 
a taxable year, an employer that (1) employed on average less 
than 50 employees on business days during the taxable year, and 
(2) under a written plan of the taxpayer, provides eligible 
differential wage payments to every qualified employee. For 
this purpose, members of controlled groups, groups under common 
control, and affiliated service groups are treated as a single 
employer.\343\ The credit is not available with respect to an 
employer that has failed to comply with the employment and 
reemployment rights of members of the uniformed services.\344\
---------------------------------------------------------------------------
    \343\ Sec. 414(b), (c), (m) and (o).
    \344\ Chapter 43 of Title 38 of the United States Code deals with 
these rights.
---------------------------------------------------------------------------
    Differential wage payment means any payment that (1) is 
made by an employer to an individual with respect to any period 
during which the individual is performing service in the 
uniformed services of the United States while on active duty 
for a period of more than 30 days, and (2) represents all or a 
portion of the wages that the individual would have received 
from the employer if the individual were performing services 
for the employer.\345\ Eligible differential wage payments are 
so much of the differential wage payments paid to a qualified 
employee as does not exceed $20,000. A qualified employee is an 
individual who has been an employee of the employer for the 91-
day period immediately preceding the period for which any 
differential wage payment is made.
---------------------------------------------------------------------------
    \345\ Sec. 3401(h)(2).
---------------------------------------------------------------------------
    No deduction may be taken for that portion of compensation 
that is equal to the credit.\346\ In addition, the amount of 
any other income tax credit otherwise allowable with respect to 
compensation paid to an employee must be reduced by the 
differential wage payment credit allowed with respect to the 
employee. The credit is not allowable against a taxpayer's 
alternative minimum tax liability. Certain rules applicable to 
the work opportunity tax credit in the case of tax-exempt 
organizations, estates and trusts, and regulated investment 
companies, real estate investment trusts and certain 
cooperatives apply also to the differential wage payment 
credit.\347\
---------------------------------------------------------------------------
    \346\ Sec. 280C(a).
    \347\ Sec. 52(c), (d), (e).
---------------------------------------------------------------------------
    The credit is available with respect to amounts paid after 
June 17, 2008,\348\ and before January 1, 2014.
---------------------------------------------------------------------------
    \348\ The credit was originally provided by the Heroes Earnings 
Assistance and Relief Tax Act of 2008 (``HEART Act''), Pub. L. No. 110-
245, effective for amounts paid after June 17, 2008, the date of 
enactment of the HEART Act.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the availability of the differential 
wage payment credit for one year to amounts paid before January 
1, 2015.

                             Effective Date

    The provision applies to payments made after December 31, 
2013.

9. Extension of work opportunity tax credit (sec. 119 of the Act and 
        secs. 51 and 52 of the Code)

                              Present Law


In general

    The work opportunity tax credit is available on an elective 
basis for employers hiring individuals from one or more of nine 
targeted groups. The amount of the credit available to an 
employer is determined by the amount of qualified wages paid by 
the employer. Generally, qualified wages consist of wages 
attributable to service rendered by a member of a targeted 
group during the one-year period beginning with the day the 
individual begins work for the employer (two years in the case 
of an individual in the long-term family assistance recipient 
category).

Targeted groups eligible for the credit

    Generally, an employer is eligible for the credit only for 
qualified wages paid to members of a targeted group.
            (1) Families receiving TANF
    An eligible recipient is an individual certified by a 
designated local employment agency (e.g., a State employment 
agency) as being a member of a family eligible to receive 
benefits under the Temporary Assistance for Needy Families 
Program (``TANF'') for a period of at least nine months part of 
which is during the 18-month period ending on the hiring date. 
For these purposes, members of the family are defined to 
include only those individuals taken into account for purposes 
of determining eligibility for the TANF.
            (2) Qualified veteran
    Prior to enactment of the ``VOW to Hire Heroes Act of 
2011'' (the ``VOW Act''),\349\ there were two subcategories of 
qualified veterans to whom wages paid by an employer were 
eligible for the credit. Employers who hired veterans who were 
eligible to receive assistance under a supplemental nutritional 
assistance program were entitled to a maximum credit of 40 
percent of $6,000 of qualified first-year wages paid to such 
individual.\350\ Employers who hired veterans who were entitled 
to compensation for a service-connected disability were 
entitled to a maximum wage credit of 40 percent of $12,000 of 
qualified first-year wages paid to such individual.\351\
---------------------------------------------------------------------------
    \349\ Pub. L. No. 112-56 (Nov. 21, 2011).
    \350\ For these purposes, a qualified veteran must be certified by 
the designated local agency as a member of a family receiving 
assistance under a supplemental nutrition assistance program under the 
Food and Nutrition Act of 2008 for a period of at least three months 
part of which is during the 12-month period ending on the hiring date. 
For these purposes, members of a family are defined to include only 
those individuals taken into account for purposes of determining 
eligibility for a supplemental nutrition assistance program under the 
Food and Nutrition Act of 2008.
    \351\ The qualified veteran must be certified as entitled to 
compensation for a service-connected disability and (1) have a hiring 
date which is not more than one year after having been discharged or 
released from active duty in the Armed Forces of the United States; or 
(2) have been unemployed for six months or more (whether or not 
consecutive) during the one-year period ending on the date of hiring. 
For these purposes, being entitled to compensation for a service-
connected disability is defined with reference to section 101 of Title 
38, U.S. Code, which means having a disability rating of 10 percent or 
higher for service connected injuries.
---------------------------------------------------------------------------
    The VOW Act modified the work opportunity credit with 
respect to qualified veterans, by adding additional 
subcategories. There are now five subcategories of qualified 
veterans: (1) in the case of veterans who were eligible to 
receive assistance under a supplemental nutritional assistance 
program (for at least a three month period during the year 
prior to the hiring date) the employer is entitled to a maximum 
credit of 40 percent of $6,000 of qualified first-year wages; 
(2) in the case of a qualified veteran who is entitled to 
compensation for a service connected disability, who is hired 
within one year of discharge, the employer is entitled to a 
maximum credit of 40 percent of $12,000 of qualified first-year 
wages; (3) in the case of a qualified veteran who is entitled 
to compensation for a service connected disability, and who has 
been unemployed for an aggregate of at least six months during 
the one year period ending on the hiring date, the employer is 
entitled to a maximum credit of 40 percent of $24,000 of 
qualified first-year wages; (4) in the case of a qualified 
veteran unemployed for at least four weeks but less than six 
months (whether or not consecutive) during the one-year period 
ending on the date of hiring, the maximum credit equals 40 
percent of $6,000 of qualified first-year wages; and (5) in the 
case of a qualified veteran unemployed for at least six months 
(whether or not consecutive) during the one-year period ending 
on the date of hiring, the maximum credit equals 40 percent of 
$14,000 of qualified first-year wages.
    A veteran is an individual who has served on active duty 
(other than for training) in the Armed Forces for more than 180 
days or who has been discharged or released from active duty in 
the Armed Forces for a service-connected disability. However, 
any individual who has served for a period of more than 90 days 
during which the individual was on active duty (other than for 
training) is not a qualified veteran if any of this active duty 
occurred during the 60-day period ending on the date the 
individual was hired by the employer. This latter rule is 
intended to prevent employers who hire current members of the 
armed services (or those departed from service within the last 
60 days) from receiving the credit.
            (3) Qualified ex-felon
    A qualified ex-felon is an individual certified as: (1) 
having been convicted of a felony under any State or Federal 
law; and (2) having a hiring date within one year of release 
from prison or the date of conviction.
            (4) Designated community resident
    A designated community resident is an individual certified 
as being at least age 18 but not yet age 40 on the hiring date 
and as having a principal place of abode within an empowerment 
zone, enterprise community, renewal community or a rural 
renewal community. For these purposes, a rural renewal county 
is a county outside a metropolitan statistical area (as defined 
by the Office of Management and Budget) which had a net 
population loss during the five-year periods 1990-1994 and 
1995-1999. Qualified wages do not include wages paid or 
incurred for services performed after the individual moves 
outside an empowerment zone, enterprise community, renewal 
community or a rural renewal community.
            (5) Vocational rehabilitation referral
    A vocational rehabilitation referral is an individual who 
is certified by a designated local agency as an individual who 
has a physical or mental disability that constitutes a 
substantial handicap to employment and who has been referred to 
the employer while receiving, or after completing: (a) 
vocational rehabilitation services under an individualized, 
written plan for employment under a State plan approved under 
the Rehabilitation Act of 1973; (b) under a rehabilitation plan 
for veterans carried out under Chapter 31 of Title 38, U.S. 
Code; or (c) an individual work plan developed and implemented 
by an employment network pursuant to subsection (g) of section 
1148 of the Social Security Act. Certification will be provided 
by the designated local employment agency upon assurances from 
the vocational rehabilitation agency that the employee has met 
the above conditions.
            (6) Qualified summer youth employee
    A qualified summer youth employee is an individual: (1) who 
performs services during any 90-day period between May 1 and 
September 15; (2) who is certified by the designated local 
agency as being 16 or 17 years of age on the hiring date; (3) 
who has not been an employee of that employer before; and (4) 
who is certified by the designated local agency as having a 
principal place of abode within an empowerment zone, enterprise 
community, or renewal community. As with designated community 
residents, no credit is available on wages paid or incurred for 
service performed after the qualified summer youth moves 
outside of an empowerment zone, enterprise community, or 
renewal community. If, after the end of the 90-day period, the 
employer continues to employ a youth who was certified during 
the 90-day period as a member of another targeted group, the 
limit on qualified first-year wages will take into account 
wages paid to the youth while a qualified summer youth 
employee.
            (7) Qualified supplemental nutrition assistance program 
                    benefits recipient
    A qualified supplemental nutrition assistance program 
benefits recipient is an individual at least age 18 but not yet 
age 40 certified by a designated local employment agency as 
being a member of a family receiving assistance under a food 
and nutrition program under the Food and Nutrition Act of 2008 
for a period of at least six months ending on the hiring date. 
In the case of families that cease to be eligible for food and 
nutrition assistance under section 6(o) of the Food and 
Nutrition Act of 2008, the six-month requirement is replaced 
with a requirement that the family has been receiving food and 
nutrition assistance for at least three of the five months 
ending on the date of hire. For these purposes, members of the 
family are defined to include only those individuals taken into 
account for purposes of determining eligibility for a food and 
nutrition assistance program under the Food and Nutrition Act 
of 2008.
            (8) Qualified SSI recipient
    A qualified SSI recipient is an individual designated by a 
local agency as receiving supplemental security income 
(``SSI'') benefits under Title XVI of the Social Security Act 
for any month ending within the 60-day period ending on the 
hiring date.
            (9) Long-term family assistance recipient
    A qualified long-term family assistance recipient is an 
individual certified by a designated local agency as being: (1) 
a member of a family that has received family assistance for at 
least 18 consecutive months ending on the hiring date; (2) a 
member of a family that has received such family assistance for 
a total of at least 18 months (whether or not consecutive) 
after August 5, 1997 (the date of enactment of the welfare-to-
work tax credit) if the individual is hired within two years 
after the date that the 18-month total is reached; or (3) a 
member of a family who is no longer eligible for family 
assistance because of either Federal or State time limits, if 
the individual is hired within two years after the Federal or 
State time limits made the family ineligible for family 
assistance.

Qualified wages

    Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. The employer's 
deduction for wages is reduced by the amount of the credit.
    For purposes of the credit, generally, wages are defined by 
reference to the FUTA definition of wages contained in sec. 
3306(b) (without regard to the dollar limitation therein 
contained). Special rules apply in the case of certain 
agricultural labor and certain railroad labor.

Calculation of the credit

    The credit available to an employer for qualified wages 
paid to members of all targeted groups except for long-term 
family assistance recipients equals 40 percent (25 percent for 
employment of 400 hours or less) of qualified first-year wages. 
Generally, qualified first-year wages are qualified wages (not 
in excess of $6,000) attributable to service rendered by a 
member of a targeted group during the one-year period beginning 
with the day the individual began work for the employer. 
Therefore, the maximum credit per employee is $2,400 (40 
percent of the first $6,000 of qualified first-year wages). 
With respect to qualified summer youth employees, the maximum 
credit is $1,200 (40 percent of the first $3,000 of qualified 
first-year wages). Except for long-term family assistance 
recipients, no credit is allowed for second-year wages.
    In the case of long-term family assistance recipients, the 
credit equals 40 percent (25 percent for employment of 400 
hours or less) of $10,000 for qualified first-year wages and 50 
percent of the first $10,000 of qualified second-year wages. 
Generally, qualified second-year wages are qualified wages (not 
in excess of $10,000) attributable to service rendered by a 
member of the long-term family assistance category during the 
one-year period beginning on the day after the one-year period 
beginning with the day the individual began work for the 
employer. Therefore, the maximum credit per employee is $9,000 
(40 percent of the first $10,000 of qualified first-year wages 
plus 50 percent of the first $10,000 of qualified second-year 
wages).
    For calculation of the credit with respect to qualified 
veterans, see the description of ``qualified veteran'' above.

Certification rules

    Generally, an individual is not treated as a member of a 
targeted group unless: (1) on or before the day on which an 
individual begins work for an employer, the employer has 
received a certification from a designated local agency that 
such individual is a member of a targeted group; or (2) on or 
before the day an individual is offered employment with the 
employer, a pre-screening notice is completed by the employer 
with respect to such individual, and not later than the 28th 
day after the individual begins work for the employer, the 
employer submits such notice, signed by the employer and the 
individual under penalties of perjury, to the designated local 
agency as part of a written request for certification. For 
these purposes, a pre-screening notice is a document (in such 
form as the Secretary may prescribe) which contains information 
provided by the individual on the basis of which the employer 
believes that the individual is a member of a targeted group.
    An otherwise qualified unemployed veteran is treated as 
certified by the designated local agency as having aggregate 
periods of unemployment (whichever is applicable under the 
qualified veterans rules described above) if such veteran is 
certified by such agency as being in receipt of unemployment 
compensation under a State or Federal law for such applicable 
periods. The Secretary of the Treasury is authorized to provide 
alternative methods of certification for unemployed veterans.

Minimum employment period

    No credit is allowed for qualified wages paid to employees 
who work less than 120 hours in the first year of employment.

Qualified tax-exempt organizations employing qualified veterans

    The credit is not available to qualified tax-exempt 
organizations other than those employing qualified veterans. 
The special rules, described below, were enacted in the VOW 
Act.
    If a qualified tax-exempt organization employs a qualified 
veteran (as described above) a tax credit against the FICA 
taxes of the organization is allowed on the wages of the 
qualified veteran which are paid for the veteran's services in 
furtherance of the activities related to the function or 
purpose constituting the basis of the organization's exemption 
under section 501.
    The credit available to such tax-exempt employer for 
qualified wages paid to a qualified veteran equals 26 percent 
(16.25 percent for employment of 400 hours or less) of 
qualified first-year wages. The amount of qualified first-year 
wages eligible for the credit is the same as those for non-tax-
exempt employers (i.e., $6,000, $12,000, $14,000 or $24,000, 
depending on the category of qualified veteran).
    A qualified tax-exempt organization means an employer that 
is described in section 501(c) and exempt from tax under 
section 501(a).
    The Social Security Trust Funds are held harmless from the 
effects of this provision by a transfer from the Treasury 
General Fund.

Treatment of possessions

    The VOW Act provided a reimbursement mechanism for the U.S. 
possessions (American Samoa, Guam, the Commonwealth of the 
Northern Mariana Islands, the Commonwealth of Puerto Rico, and 
the United States Virgin Islands). The Treasury Secretary is to 
pay to each mirror code possession (Guam, the Commonwealth of 
the Northern Mariana Islands, and the United States Virgin 
Islands) an amount equal to the loss to that possession as a 
result of the VOW Act changes to the qualified veterans rules. 
Similarly, the Treasury Secretary is to pay to each non-mirror 
Code possession (American Samoa and the Commonwealth of Puerto 
Rico) the amount that the Secretary estimates as being equal to 
the loss to that possession that would have occurred as a 
result of the VOW Act changes if a mirror code tax system had 
been in effect in that possession. The Secretary will make this 
payment to a non-mirror Code possession only if that possession 
establishes to the satisfaction of the Secretary that the 
possession has implemented (or, at the discretion of the 
Secretary, will implement) an income tax benefit that is 
substantially equivalent to the qualified veterans credit 
allowed under the VOW Act modifications.
    An employer that is allowed a credit against U.S. tax under 
the VOW Act with respect to a qualified veteran must reduce the 
amount of the credit claimed by the amount of any credit (or, 
in the case of a non-mirror Code possession, another tax 
benefit) that the employer claims against its possession income 
tax.

Other rules

    The work opportunity tax credit is not allowed for wages 
paid to a relative or dependent of the taxpayer. No credit is 
allowed for wages paid to an individual who is a more than 
fifty-percent owner of the entity. Similarly, wages paid to 
replacement workers during a strike or lockout are not eligible 
for the work opportunity tax credit. Wages paid to any employee 
during any period for which the employer received on-the-job 
training program payments with respect to that employee are not 
eligible for the work opportunity tax credit. The work 
opportunity tax credit generally is not allowed for wages paid 
to individuals who had previously been employed by the 
employer. In addition, many other technical rules apply.

Expiration

    The work opportunity tax credit is not available for 
individuals who begin work for an employer after December 31, 
2013.

                        Explanation of Provision

    The provision extends for one year the present-law 
employment credit provision (for individuals who begin work for 
the employer on or before December 31, 2014).

                             Effective Date

    The provision is effective for individuals who begin work 
for the employer after December 31, 2013.

10. Extension of qualified zone academy bonds (sec. 120 of the Act and 
        sec. 54E of the Code)

                              Present Law


Tax-exempt bonds

    Interest on State and local governmental bonds generally is 
excluded from gross income for Federal income tax purposes if 
the proceeds of the bonds are used to finance direct activities 
of these governmental units or if the bonds are repaid with 
revenues of the governmental units. These can include tax-
exempt bonds which finance public schools.\352\ An issuer must 
file with the Internal Revenue Service certain information 
about the bonds issued in order for that bond issue to be tax-
exempt.\353\ Generally, this information return is required to 
be filed no later than the 15th day of the second month after 
the close of the calendar quarter in which the bonds were 
issued.
---------------------------------------------------------------------------
    \352\ Sec. 103.
    \353\ Sec. 149(e).
---------------------------------------------------------------------------
    The tax exemption for State and local bonds does not apply 
to any arbitrage bond.\354\ An arbitrage bond is defined as any 
bond that is part of an issue if any proceeds of the issue are 
reasonably expected to be used (or intentionally are used) to 
acquire higher yielding investments or to replace funds that 
are used to acquire higher yielding investments.\355\ In 
general, arbitrage profits may be earned only during specified 
periods (e.g., defined ``temporary periods'') before funds are 
needed for the purpose of the borrowing or on specified types 
of investments (e.g., ``reasonably required reserve or 
replacement funds''). Subject to limited exceptions, investment 
profits that are earned during these periods or on such 
investments must be rebated to the Federal Government.
---------------------------------------------------------------------------
    \354\ Sec. 103(a) and (b)(2).
    \355\ Sec. 148.
---------------------------------------------------------------------------

Qualified zone academy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments were given the authority to issue 
``qualified zone academy bonds.'' \356\ A total of $400 million 
of qualified zone academy bonds is authorized to be issued 
annually in calendar years 1998 through 2008, $1,400 million in 
2009 and 2010, and $400 million in 2011, 2012 and 2013. Each 
calendar year's bond limitation is allocated to the States 
according to their respective populations of individuals below 
the poverty line. Each State, in turn, allocates the bond 
authority to qualified zone academies within such State.
---------------------------------------------------------------------------
    \356\ See secs. 54E and 1397E.
---------------------------------------------------------------------------
    A taxpayer holding a qualified zone academy bond on the 
credit allowance date is entitled to a credit. The credit is 
includible in gross income (as if it were a taxable interest 
payment on the bond), and may be claimed against regular income 
tax and alternative minimum tax liability.
    Qualified zone academy bonds are a type of qualified tax 
credit bond and subject to the general rules applicable to 
qualified tax credit bonds.\357\ The Treasury Department sets 
the credit rate at a rate estimated to allow issuance of 
qualified zone academy bonds without discount and without 
interest cost to the issuer.\358\ The Secretary determines 
credit rates for tax credit bonds based on general assumptions 
about credit quality of the class of potential eligible issuers 
and such other factors as the Secretary deems appropriate. The 
Secretary may determine credit rates based on general credit 
market yield indexes and credit ratings. The maximum term of 
the bond is determined by the Treasury Department, so that the 
present value of the obligation to repay the principal on the 
bond is 50 percent of the face value of the bond.
---------------------------------------------------------------------------
    \357\ Sec. 54A.
    \358\ Given the differences in credit quality and other 
characteristics of individual issuers, the Secretary cannot set credit 
rates in a manner that will allow each issuer to issue tax credit bonds 
at par.
---------------------------------------------------------------------------
    ``Qualified zone academy bonds'' are defined as any bond 
issued by a State or local government, provided that (1) at 
least 100 percent of the available project proceeds are used 
for the purpose of renovating, providing equipment to, 
developing course materials for use at, or training teachers 
and other school personnel in a ``qualified zone academy'' and 
(2) private entities have promised to contribute to the 
qualified zone academy certain equipment, technical assistance 
or training, employee services, or other property or services 
with a value equal to at least 10 percent of the bond proceeds.
    A school is a ``qualified zone academy'' if (1) the school 
is a public school that provides education and training below 
the college level, (2) the school operates a special academic 
program in cooperation with businesses to enhance the academic 
curriculum and increase graduation and employment rates, and 
(3) either (a) the school is located in an empowerment zone or 
enterprise community designated under the Code, or (b) it is 
reasonably expected that at least 35 percent of the students at 
the school will be eligible for free or reduced-cost lunches 
under the school lunch program established under the National 
School Lunch Act.
    Under section 6431 of the Code, an issuer of specified tax 
credit bonds, may elect to receive a payment in lieu of a 
credit being allowed to the holder of the bond (``direct-pay 
bonds''). The Code provides that section 6431 is not available 
for qualified zone academy bond allocations from the 2011 
national limitation or any carry forward of the 2011 
allocation.\359\
---------------------------------------------------------------------------
    \359\ Sec. 6431(f)(3)(A)(iii). Section 202(d) of the Act (described 
infra) contains a technical correction to provide that section 6431 is 
not available for any allocations from national limitation or 
carryforward for years 2011 and thereafter.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the qualified zone academy bond 
program for one year. The provision authorizes issuance of up 
to $400 million of qualified zone academy bonds for 2014. The 
option to issue direct-pay bonds is not available for the 2014 
bond limitation.

                             Effective Date

    The provision generally applies to obligations issued after 
December 31, 2013.

11. Extension of classification of certain race horses as three-year 
        property (sec. 121 of the Act and sec. 168 of the Code)

                              Present Law

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or 
amortization.\360\ Tangible property generally is depreciated 
under the modified accelerated cost recovery system 
(``MACRS''), which determines depreciation by applying specific 
recovery periods,\361\ placed-in-service conventions, and 
depreciation methods to the cost of various types of 
depreciable property.\362\ In particular, the statute assigns a 
three-year recovery period for any race horse (1) that is 
placed in service after December 31, 2008 and before January 1, 
2014 \363\ and (2) that is placed in service after December 31, 
2013 and that is more than two years old at such time it is 
placed in service by the purchaser.\364\ A seven-year recovery 
period is assigned to any race horse that is placed in service 
after December 31, 2013 and that is two years old or younger at 
the time it is placed in service.\365\
---------------------------------------------------------------------------
    \360\ See secs. 263(a) and 167.
    \361\ The applicable recovery period for an asset is determined in 
part by statute and in part by historic Treasury guidance. Exercising 
authority granted by Congress, the Secretary issued Rev. Proc. 87-56, 
1987-2 C.B. 674, laying out the framework of recovery periods for 
enumerated classes of assets. The Secretary clarified and modified the 
list of asset classes in Rev. Proc. 88-22, 1988-1 C.B. 785. In November 
1988, Congress revoked the Secretary's authority to modify the class 
lives of depreciable property. Rev. Proc. 87-56, as modified, remains 
in effect except to the extent that the Congress has, since 1988, 
statutorily modified the recovery period for certain depreciable 
assets, effectively superseding any administrative guidance with regard 
to such property.
    \362\ Sec. 168.
    \363\ Sec. 168(e)(3)(A)(i)(I), as in effect after amendment by the 
Food, Conservation and Energy Act of 2008, Pub. L. No. 110-246, sec. 
15344(b).
    \364\ Sec. 168(e)(3)(A)(i)(II). A horse is more than 2 years old 
after the day that is 24 months after its actual birthdate. Rev. Proc. 
87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785.
    \365\ Rev. Proc. 87-56, 1987-2 C.B. 674, asset class 01.225.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the present-law three-year recovery 
period for race horses for one year to apply to any race horse 
(regardless of age when placed in service) which is placed in 
service before January 1, 2015. Subsequently, the three-year 
recovery period for race horses will only apply to those which 
are more than two years old when placed in service by the 
purchaser after December 31, 2014.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2013.

12. Extension of 15-year straight-line cost recovery for qualified 
        leasehold improvements, qualified restaurant buildings and 
        improvements, and qualified retail improvements (sec. 122 of 
        the Act and sec. 168 of the Code)

                              Present Law


In general

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or amortization. 
Tangible property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property.\366\ The cost of 
nonresidential real property is recovered using the straight-
line method of depreciation and a recovery period of 39 years. 
Nonresidential real property is subject to the mid-month 
placed-in-service convention. Under the mid-month convention, 
the depreciation allowance for the first year in which property 
is placed in service is based on the number of months the 
property was in service, and property placed in service at any 
time during a month is treated as having been placed in service 
in the middle of the month.
---------------------------------------------------------------------------
    \366\ Sec. 168.
---------------------------------------------------------------------------

Depreciation of leasehold improvements

    Generally, depreciation allowances for improvements made on 
leased property are determined under MACRS, even if the MACRS 
recovery period assigned to the property is longer than the 
term of the lease. This rule applies regardless of whether the 
lessor or the lessee places the leasehold improvements in 
service. If a leasehold improvement constitutes an addition or 
improvement to nonresidential real property already placed in 
service, the improvement generally is depreciated using the 
straight-line method over a 39-year recovery period, beginning 
in the month the addition or improvement was placed in service. 
However, exceptions exist for certain qualified leasehold 
improvements, qualified restaurant property, and qualified 
retail improvement property.

Qualified leasehold improvement property

    Section 168(e)(3)(E)(iv) provides a statutory 15-year 
recovery period for qualified leasehold improvement property 
placed in service before January 1, 2014. Qualified leasehold 
improvement property is any improvement to an interior portion 
of a building that is nonresidential real property, provided 
certain requirements are met.\367\ The improvement must be made 
under or pursuant to a lease either by the lessee (or 
sublessee), or by the lessor, of that portion of the building 
to be occupied exclusively by the lessee (or sublessee). The 
improvement must be placed in service more than three years 
after the date the building was first placed in service. 
Qualified leasehold improvement property does not include any 
improvement for which the expenditure is attributable to the 
enlargement of the building, any elevator or escalator, any 
structural component benefiting a common area, or the internal 
structural framework of the building.\368\ If a lessor makes an 
improvement that qualifies as qualified leasehold improvement 
property, such improvement does not qualify as qualified 
leasehold improvement property to any subsequent owner of such 
improvement.\369\ An exception to the rule applies in the case 
of death and certain transfers of property that qualify for 
non-recognition treatment.\370\
---------------------------------------------------------------------------
    \367\ Sec. 168(e)(6).
    \368\ Sec. 168(e)(6) and (k)(3).
    \369\ Sec. 168(e)(6)(A).
    \370\ Sec. 168(e)(6)(B).
---------------------------------------------------------------------------
    Qualified leasehold improvement property is generally 
recovered using the straight-line method and a half-year 
convention.\371\ Qualified leasehold improvement property 
placed in service after December 31, 2013 is subject to the 
general rules described above.
---------------------------------------------------------------------------
    \371\ Sec. 168(b)(3)(G) and (d).
---------------------------------------------------------------------------

Qualified restaurant property

    Section 168(e)(3)(E)(v) provides a statutory 15-year 
recovery period for qualified restaurant property placed in 
service before January 1, 2014. Qualified restaurant property 
is any section 1250 property that is a building or an 
improvement to a building, if more than 50 percent of the 
building's square footage is devoted to the preparation of, and 
seating for on-premises consumption of, prepared meals.\372\ 
Qualified restaurant property is recovered using the straight-
line method and a half-year convention.\373\ Additionally, 
qualified restaurant property is not eligible for bonus 
depreciation.\374\ Qualified restaurant property placed in 
service after December 31, 2013 is subject to the general rules 
described above.
---------------------------------------------------------------------------
    \372\ Sec. 168(e)(7).
    \373\ Sec. 168(b)(3)(H) and (d).
    \374\ Sec. 168(e)(7)(B). Property that satisfies the definition of 
both qualified leasehold improvement property and qualified restaurant 
property is eligible for bonus depreciation. Sec. 3.03(3) of Rev. Proc. 
2011-26, 2011-16 I.R.B. 664, 2011.
---------------------------------------------------------------------------

Qualified retail improvement property

    Section 168(e)(3)(E)(ix) provides a statutory 15-year 
recovery period for qualified retail improvement property 
placed in service before January 1, 2014. Qualified retail 
improvement property is any improvement to an interior portion 
of a building which is nonresidential real property if such 
portion is open to the general public \375\ and is used in the 
retail trade or business of selling tangible personal property 
to the general public, and such improvement is placed in 
service more than three years after the date the building was 
first placed in service.\376\ Qualified retail improvement 
property does not include any improvement for which the 
expenditure is attributable to the enlargement of the building, 
any elevator or escalator, any structural component benefiting 
a common area, or the internal structural framework of the 
building.\377\ In the case of an improvement made by the owner 
of such improvement, the improvement is a qualified retail 
improvement only so long as the improvement is held by such 
owner.\378\
---------------------------------------------------------------------------
    \375\ Improvements to portions of a building not open to the 
general public (e.g., stock room in back of retail space) do not 
qualify under the provision.
    \376\ Sec. 168(e)(8).
    \377\ Sec. 168(e)(8)(C).
    \378\ Sec. 168(e)(8)(B).
---------------------------------------------------------------------------
    Retail establishments that qualify for the 15-year recovery 
period include those primarily engaged in the sale of goods. 
Examples of these retail establishments include, but are not 
limited to, grocery stores, clothing stores, hardware stores, 
and convenience stores. Establishments primarily engaged in 
providing services, such as professional services, financial 
services, personal services, health services, and 
entertainment, do not qualify. Generally, it is intended that 
businesses defined as a store retailer under the current North 
American Industry Classification System (industry sub-sectors 
441 through 453) qualify while those in other industry classes 
do not qualify.
    Qualified retail improvement property is recovered using 
the straight-line method and a half-year convention.\379\ 
Additionally, qualified retail improvement property is not 
eligible for bonus depreciation.\380\ Qualified retail 
improvement property placed in service after December 31, 2013 
is subject to the general rules described above.
---------------------------------------------------------------------------
    \379\ Sec. 168(b)(3)(I) and (d).
    \380\ Sec. 168(e)(8)(D). Property that satisfies the definition of 
both qualified leasehold improvement property and qualified retail 
improvement property is eligible for bonus depreciation. Sec. 3.03(3) 
of Rev. Proc. 2011-26, 2011-16 I.R.B. 664, 2011.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the present-law provisions for 
qualified leasehold improvement property, qualified restaurant 
property, and qualified retail improvement property for one 
year to apply to property placed in service before January 1, 
2015.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2013.

13. Extension of seven-year recovery period for motorsports 
        entertainment complexes (sec. 123 of the Act and sec. 168 of 
        the Code)

                              Present Law

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or 
amortization.\381\ Tangible property generally is depreciated 
under the modified accelerated cost recovery system 
(``MACRS''), which determines depreciation by applying specific 
recovery periods,\382\ placed-in-service conventions, and 
depreciation methods to the cost of various types of 
depreciable property.\383\ The cost of nonresidential real 
property is recovered using the straight-line method of 
depreciation and a recovery period of 39 years.\384\ 
Nonresidential real property is subject to the mid-month 
convention, which treats all property placed in service during 
any month (or disposed of during any month) as placed in 
service (or disposed of) on the mid-point of such month.\385\ 
All other property generally is subject to the half-year 
convention, which treats all property placed in service during 
any taxable year (or disposed of during any taxable year) as 
placed in service (or disposed of) on the mid-point of such 
taxable year.\386\ Land improvements (such as roads and fences) 
are recovered using the 150-percent declining balance method 
and a recovery period of 15-years.\387\ An exception exists for 
the theme and amusement park industry, whose assets are 
assigned a recovery period of seven years.\388\ Additionally, a 
motorsports entertainment complex placed in service on or 
before December 31, 2013 is assigned a recovery period of seven 
years.\389\ For these purposes, a motorsports entertainment 
complex means a racing track facility which is permanently 
situated on land and which during the 36-month period following 
its placed-in-service date hosts a racing event.\390\ The term 
motorsports entertainment complex also includes ancillary 
facilities, land improvements (e.g., parking lots, sidewalks, 
fences), support facilities (e.g., food and beverage retailing, 
souvenir vending), and appurtenances associated with such 
facilities (e.g., ticket booths, grandstands).
---------------------------------------------------------------------------
    \381\ See secs. 263(a) and 167.
    \382\ The applicable recovery period for an asset is determined in 
part by statute and in part by historic Treasury guidance. Exercising 
authority granted by Congress, the Secretary issued Rev. Proc. 87-56, 
1987-2 C.B. 674, laying out the framework of recovery periods for 
enumerated classes of assets. The Secretary clarified and modified the 
list of asset classes in Rev. Proc. 88-22, 1988-1 C.B. 785. In November 
1988, Congress revoked the Secretary's authority to modify the class 
lives of depreciable property. Rev. Proc. 87-56, as modified, remains 
in effect except to the extent that the Congress has, since 1988, 
statutorily modified the recovery period for certain depreciable 
assets, effectively superseding any administrative guidance with regard 
to such property.
    \383\ Sec. 168.
    \384\ Sec. 168(b)(3)(A) and 168(c).
    \385\ Sec. 168(d)(2)(A) and (d)(4)(B).
    \386\ Sec. 168(d)(1) and (d)(4)(A). However, if substantial 
property is placed in service during the last three months of a taxable 
year, a special rule requires use of the mid-quarter convention, which 
treats all property placed in service (or disposed of) during any 
quarter as placed in service (or disposed of) on the mid-point of such 
quarter. Secs. 168(d)(3) and (d)(4)(C).
    \387\ Sec. 168(b)(2)(A) and asset class 00.3 of Rev. Proc. 87-56, 
1987-2 C.B. 674, 1987. Under the 150-percent declining balance method, 
the depreciation rate is determined by dividing 150-percent by the 
appropriate recovery period, switching to the straight-line method for 
the first taxable year where using the straight-line method with 
respect to the adjusted basis as of the beginning of that year will 
yield a larger depreciation allowance. Sec. 168(b)(2) and (b)(1)(B).
    \388\ Asset class 80.0 of Rev. Proc. 87-56, 1987-2 C.B. 674, 1987.
    \389\ Sec. 168(e)(3)(C)(ii).
    \390\ Sec. 168(i)(15).
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                        Explanation of Provision

    The provision extends the present-law seven-year recovery 
period for motorsports entertainment complexes for one year to 
apply to property placed in service on or before December 31, 
2014.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2013.

14. Extension of accelerated depreciation for business property on an 
        Indian reservation (sec. 124 of the Act and sec. 168(j) of the 
        Code)

                              Present Law

    With respect to certain property used in connection with 
the conduct of a trade or business within an Indian 
reservation, depreciation deductions under section 168(j) are 
determined using the following recovery periods:

3-year property.........................................         2 years
5-year property.........................................         3 years
7-year property.........................................         4 years
10-year property........................................         6 years
15-year property........................................         9 years
20-year property........................................        12 years
Nonresidential real property............................  22 years \391\

    ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property described in the 
table above which is: (1) used by the taxpayer predominantly in 
the active conduct of a trade or business within an Indian 
reservation; (2) not used or located outside the reservation on 
a regular basis; (3) not acquired (directly or indirectly) by 
the taxpayer from a person who is related to the taxpayer; 
\392\ and (4) is not property placed in service for purposes of 
conducting gaming activities.\393\ Certain ``qualified 
infrastructure property'' may be eligible for the accelerated 
depreciation even if located outside an Indian reservation, 
provided that the purpose of such property is to connect with 
qualified infrastructure property located within the 
reservation (e.g., roads, power lines, water systems, railroad 
spurs, and communications facilities).\394\
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    \391\ Section 168(j)(2) does not provide shorter recovery periods 
for water utility property, residential rental property, or railroad 
grading and tunnel bores.
    \392\ For these purposes, the term ``related persons'' is defined 
in section 465(b)(3)(C).
    \393\ Sec. 168(j)(4)(A).
    \394\ Sec. 168(j)(4)(C).
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    An ``Indian reservation'' means a reservation as defined in 
section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 
1452(d)) \395\ or section 4(10) of the Indian Child Welfare Act 
of 1978 (25 U.S.C. 1903(10)).\396\ For purposes of the 
preceding sentence, section 3(d) is applied by treating 
``former Indian reservations in Oklahoma'' as including only 
lands that are (1) within the jurisdictional area of an 
Oklahoma Indian tribe as determined by the Secretary of the 
Interior, and (2) recognized by such Secretary as an area 
eligible for trust land status under 25 C.F.R. Part 151 (as in 
effect on August 5, 1997).\397\
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    \395\ Pub. L. No. 93-262.
    \396\ Pub. L. No. 95-608.
    \397\ Sec. 168(j)(6).
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    The depreciation deduction allowed for regular tax purposes 
is also allowed for purposes of the alternative minimum 
tax.\398\ The accelerated depreciation for qualified Indian 
reservation property is available with respect to property 
placed in service on or before December 31, 2013.\399\
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    \398\ Sec. 168(j)(3).
    \399\ Sec. 168(j)(8).
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                        Explanation of Provision

    The provision extends for one year the present-law 
accelerated depreciation for qualified Indian reservation 
property to apply to property placed in service on or before 
December 31, 2014.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2013.

15. Extension of bonus depreciation (sec. 125 of the Act and sec. 
        168(k) of the Code)

                              Present Law


In general

    An additional first-year depreciation deduction is allowed 
equal to 50 percent of the adjusted basis of qualified property 
acquired and placed in service after December 31, 2007 and 
before January 1, 2014 (January 1, 2015 for certain longer-
lived and transportation property).\400\
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    \400\ Sec. 168(k). The additional first-year depreciation deduction 
is subject to the general rules regarding whether an item must be 
capitalized under section 263A. An additional first-year depreciation 
deduction is allowed equal to 100 percent of the adjusted basis of 
qualified original-use property if it meets the requirements for the 
additional first-year depreciation and the taxpayer acquired and placed 
the property in service after September 8, 2010 and before January 1, 
2012 (January 1, 2013 for certain longer-lived and transportation 
property). Sec. 168(k)(5). See also Rev. Proc. 2011-26, 2011-16 I.R.B. 
664, 2011.
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    The additional first-year depreciation deduction is allowed 
for both the regular tax and the alternative minimum tax 
(``AMT''),\401\ but is not allowed in computing earnings and 
profits.\402\ The basis of the property and the depreciation 
allowances in the year of purchase and later years are 
appropriately adjusted to reflect the additional first-year 
depreciation deduction.\403\ The amount of the additional 
first-year depreciation deduction is not affected by a short 
taxable year.\404\ The taxpayer may elect out of additional 
first-year depreciation for any class of property for any 
taxable year.\405\
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    \401\ Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)-1(d).
    \402\ Treas. Reg. sec. 1.168(k)-1(f)(7).
    \403\ Sec. 168(k)(1)(B).
    \404\ Ibid. 
    \405\ Sec. 168(k)(2)(D)(iii). For the definition of a class of 
property, see Treas. Reg. sec. 1.168(k)-1(e)(2).
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    The interaction of the additional first-year depreciation 
allowance with the otherwise applicable depreciation allowance 
may be illustrated as follows. Assume that in 2013, a taxpayer 
purchased new depreciable property and placed it in 
service.\406\ The property's cost is $1,000, and it is five-
year property subject to the 200 percent declining balance 
method and half-year convention. The amount of additional 
first-year depreciation allowed is $500. The remaining $500 of 
the cost of the property is depreciable under the rules 
applicable to five-year property. Thus $100 \407\ also is 
allowed as a depreciation deduction in 2013. The total 
depreciation deduction with respect to the property for 2013 is 
$600. The remaining $400 adjusted basis of the property 
generally is recovered through otherwise applicable 
depreciation rules.
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    \406\ Assume that the cost of the property is not eligible for 
expensing under section 179.
    \407\ $100 results from the application of the half-year convention 
and the 200 percent declining balance method to the remaining $500.
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    Property qualifying for the additional first-year 
depreciation deduction must meet all of the following 
requirements. First, the property must be (1) property to which 
the modified accelerated cost recovery system (``MACRS'') 
applies with an applicable recovery period of 20 years or less; 
(2) water utility property (as defined in section 168(e)(5)); 
(3) computer software other than computer software covered by 
section 197; or (4) qualified leasehold improvement property 
(as defined in section 168(k)(3)).\408\ Second, the original 
use \409\ of the property must commence with the taxpayer after 
December 31, 2007.\410\ Third, the taxpayer must acquire the 
property within the applicable time period (as described 
below). Finally, the property must be placed in service before 
January 1, 2014. An extension of the placed-in-service date of 
one year (i.e., before January 1, 2015) is provided for certain 
property with a recovery period of 10 years or longer and 
certain transportation property.\411\
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    \408\ The additional first-year depreciation deduction is not 
available for any property that is required to be depreciated under the 
alternative depreciation system of MACRS. Sec. 168(k)(2)(D)(i). The 
additional first-year depreciation deduction also is not available for 
qualified New York Liberty Zone leasehold improvement property as 
defined in section 1400L(c)(2). Sec. 168(k)(2)(D)(ii).
    \409\ The term ``original use'' means the first use to which the 
property is put, whether or not such use corresponds to the use of such 
property by the taxpayer. If in the normal course of its business a 
taxpayer sells fractional interests in property to unrelated third 
parties, then the original use of such property begins with the first 
user of each fractional interest (i.e., each fractional owner is 
considered the original user of its proportionate share of the 
property). Treas. Reg. sec. 1.168(k)-1(b)(3).
    \410\ A special rule applies in the case of certain leased 
property. In the case of any property that is originally placed in 
service by a person and that is sold to the taxpayer and leased back to 
such person by the taxpayer within three months after the date that the 
property was placed in service, the property would be treated as 
originally placed in service by the taxpayer not earlier than the date 
that the property is used under the leaseback. If property is 
originally placed in service by a lessor, such property is sold within 
three months after the date that the property was placed in service, 
and the user of such property does not change, then the property is 
treated as originally placed in service by the taxpayer not earlier 
than the date of such sale. Sec. 168(k)(2)(E)(ii).
    \411\ Property qualifying for the extended placed-in-service date 
must have an estimated production period exceeding one year and a cost 
exceeding $1 million. Transportation property generally is defined as 
tangible personal property used in the trade or business of 
transporting persons or property. Certain aircraft which is not 
transportation property, other than for agricultural or firefighting 
uses, also qualifies for the extended placed-in-service-date, if at the 
time of the contract for purchase, the purchaser made a nonrefundable 
deposit of the lesser of 10 percent of the cost or $100,000, and which 
has an estimated production period exceeding four months and a cost 
exceeding $200,000.
---------------------------------------------------------------------------
    To qualify, property must be acquired (1) after December 
31, 2007, and before January 1, 2014, but only if no binding 
written contract for the acquisition is in effect before 
January 1, 2008, or (2) pursuant to a binding written contract 
which was entered into after December 31, 2007, and before 
January 1, 2014.\412\ With respect to property that is 
manufactured, constructed, or produced by the taxpayer for use 
by the taxpayer, the taxpayer must begin the manufacture, 
construction, or production of the property after December 31, 
2007, and before January 1, 2014.\413\ Property that is 
manufactured, constructed, or produced for the taxpayer by 
another person under a contract that is entered into prior to 
the manufacture, construction, or production of the property is 
considered to be manufactured, constructed, or produced by the 
taxpayer.\414\ For property eligible for the extended placed-
in-service date, a special rule limits the amount of costs 
eligible for the additional first-year depreciation. With 
respect to such property, only the portion of the basis that is 
properly attributable to the costs incurred before January 1, 
2014 (``progress expenditures'') is eligible for the additional 
first-year depreciation deduction.\415\
---------------------------------------------------------------------------
    \412\ In the case of a binding written contract to acquire one or 
more components of a larger self-constructed asset, the larger self-
constructed asset will not fail to qualify for the additional first-
year depreciation merely because a binding written contract to acquire 
one or more components of such property was in effect prior to January 
1, 2008. See Treas. Reg. sec. 1.168(k)-1(b)(4)(iii)(C). See also, 
Treas. Reg. sec. 1.168(k)-1(b)(4)(v), Examples 6 and 7.
    \413\ Sec. 168(k)(2)(E)(i).
    \414\ Treas. Reg. sec. 1.168(k)-1(b)(4)(iii).
    \415\ Sec. 168(k)(2)(B)(ii). For purposes of determining the amount 
of eligible progress expenditures, rules similar to section 46(d)(3) as 
in effect prior to the Tax Reform Act of 1986 apply.
---------------------------------------------------------------------------
    Property does not qualify for the additional first-year 
depreciation deduction when the user of such property (or a 
related party) would not have been eligible for the additional 
first-year depreciation deduction if the user (or a related 
party) were treated as the owner.\416\ For example, if a 
taxpayer sells to a related party property that was under 
construction prior to January 1, 2008, the property does not 
qualify for the additional first-year depreciation deduction. 
Similarly, if a taxpayer sells to a related party property that 
was subject to a binding written contract prior to January 1, 
2008, the property does not qualify for the additional first-
year depreciation deduction. As a further example, if a 
taxpayer (the lessee) sells property in a sale-leaseback 
arrangement, and the property otherwise would not have 
qualified for the additional first-year depreciation deduction 
if it were owned by the taxpayer-lessee, then the lessor is not 
entitled to the additional first-year depreciation deduction.
---------------------------------------------------------------------------
    \416\ Sec. 168(k)(2)(E)(iv).
---------------------------------------------------------------------------
    The limitation under section 280F on the amount of 
depreciation deductions allowed with respect to certain 
passenger automobiles is increased in the first year by $8,000 
for automobiles that qualify (and for which the taxpayer does 
not elect out of the additional first-year deduction).\417\ The 
$8,000 amount is not indexed for inflation.
---------------------------------------------------------------------------
    \417\ Sec. 168(k)(2)(F).
---------------------------------------------------------------------------

Special rule for long-term contracts

    In general, in the case of a long-term contract, the 
taxable income from the contract is determined under the 
percentage-of-completion method.\418\ Solely for purposes of 
determining the percentage of completion under section 
460(b)(1)(A), the cost of qualified property with a MACRS 
recovery period of seven years or less is taken into account as 
a cost allocated to the contract as if bonus depreciation had 
not been enacted for property placed in service (1) after 
December 31, 2009 and before January 1, 2011 (January 1, 2012 
in the case of certain longer-lived and transportation 
property) or (2) after December 31, 2012 and before January 1, 
2014 (January 1, 2015 in the case of certain longer-lived and 
transportation property).\419\ Bonus depreciation generally is 
taken into account in determining taxable income under the 
percentage-of-completion method for property placed in service 
after December 31, 2010 and before January 1, 2013.
---------------------------------------------------------------------------
    \418\ See sec. 460.
    \419\ Sec. 460(c)(6).
---------------------------------------------------------------------------

Election to accelerate AMT credits in lieu of bonus depreciation

    A corporation otherwise eligible for additional first-year 
depreciation may elect to claim additional AMT credits in lieu 
of claiming additional depreciation with respect to ``eligible 
qualified property.'' \420\ In the case of a corporation making 
this election, the straight line method is used for the regular 
tax and the AMT with respect to eligible qualified 
property.\421\
---------------------------------------------------------------------------
    \420\ Sec. 168(k)(4). Eligible qualified property means qualified 
property eligible for bonus depreciation with minor effective date 
differences having little (if any) remaining significance.
    \421\ Sec. 168(k)(4)(A).
---------------------------------------------------------------------------
    Generally, an election under this provision for a taxable 
year applies to subsequent taxable years. However, each time 
the provision has been extended, a corporation which has 
previously made an election has been allowed to elect not to 
claim additional minimum tax credits, or, if no election had 
previously been made, to make an election to claim additional 
credits with respect to property subject to the extension.\422\
---------------------------------------------------------------------------
    \422\ Secs. 168(k)(4)(H), (I), and (J).
---------------------------------------------------------------------------
    A corporation making an election increases the tax 
liability limitation under section 53(c) on the use of minimum 
tax credits by the bonus depreciation amount.\423\ The 
aggregate increase in credits allowable by reason of the 
increased limitation is treated as refundable.\424\
---------------------------------------------------------------------------
    \423\ Sec. 168(k)(4)(B)(ii).
    \424\ Sec. 168(k)(4)(F).
---------------------------------------------------------------------------
    The bonus depreciation amount generally is equal to 20 
percent of bonus depreciation \425\ for eligible qualified 
property that could be claimed as a deduction absent an 
election under this provision. As originally enacted, the bonus 
depreciation amount for all taxable years was limited to the 
lesser of (1) $30 million, or (2) six percent of the minimum 
tax credits allocable to the adjusted net minimum tax imposed 
for taxable years beginning before January 1, 2006.\426\ 
However, extensions of this provision have provided that this 
limitation applies separately to property subject to each 
extension.
---------------------------------------------------------------------------
    \425\ For this purpose, bonus depreciation is the difference 
between (i) the aggregate amount of depreciation determined if section 
168(k)(1) applied to all eligible qualified property placed in service 
during the taxable year and (ii) the amount of depreciation that would 
be so determined if section 168(k)(1) did not so apply. This 
determination is made using the most accelerated depreciation method 
and the shortest life otherwise allowable for each property. Sec. 
168(k)(4)(C).
    \426\ Sec. 168(k)(4)(C)(iii).
---------------------------------------------------------------------------
    All corporations treated as a single employer under section 
52(a) are treated as one taxpayer for purposes of the 
limitation, as well as for electing the application of this 
provision.\427\
---------------------------------------------------------------------------
    \427\ Sec. 168(k)(4)(C)(iv).
---------------------------------------------------------------------------
    In the case of a corporation making an election which is a 
partner in a partnership, for purposes of determining the 
electing partner's distributive share of partnership items, 
bonus depreciation does not apply to any eligible qualified 
property and the straight line method is used with respect to 
that property.\428\
---------------------------------------------------------------------------
    \428\ Sec. 168(k)(4)(G)(ii).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the 50-percent additional first-year 
depreciation deduction for one year, generally through 2014 
(through 2015 for certain longer-lived and transportation 
property).
    The provision provides that solely for purposes of 
determining the percentage of completion under section 
460(b)(1)(A), the cost of qualified property with a MACRS 
recovery period of seven years or less which is placed in 
service after December 31, 2012 and before January 1, 2015 
(January 1, 2016, in the case of certain longer-lived and 
transportation property) is taken into account as a cost 
allocated to the contract as if bonus depreciation had not been 
enacted.
    The provision also extends the election to increase the AMT 
credit limitation in lieu of bonus depreciation for one year to 
property placed in service before January 1, 2015 (January 1, 
2016, in the case of certain longer-lived property and 
transportation property). A bonus depreciation amount, maximum 
amount, and maximum increase amount is computed separately with 
respect to property to which the extension of additional first-
year depreciation applies (``round 4 extension 
property'').\429\
---------------------------------------------------------------------------
    \429\ An election with respect to round 4 extension property is 
binding for all property that is eligible qualified property solely by 
reason of the extension of the 50-percent additional first-year 
depreciation deduction.
---------------------------------------------------------------------------
    Under the provision, a corporation that has an election in 
effect with respect to round 3 extension property to claim 
minimum tax credits in lieu of bonus depreciation is treated as 
having an election in effect for round 4 extension property, 
unless the corporation elects otherwise. The provision also 
allows a corporation that does not have an election in effect 
with respect to round 3 extension property to elect to claim 
minimum tax credits in lieu of bonus depreciation for round 4 
extension property. A separate bonus depreciation amount, 
maximum amount, and maximum increase amount is computed and 
applied to round 4 extension property.\430\
---------------------------------------------------------------------------
    \430\ In computing the maximum amount, the maximum increase amount 
for round 4 extension property is reduced by bonus depreciation amounts 
for preceding taxable years only with respect to round 4 extension 
property.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2013, in taxable years ending after such 
date.

16. Extension of enhanced charitable deduction for contributions of 
        food inventory (sec. 126 of the Act and sec. 170 of the Code) 

                              Present Law


Charitable contributions in general

    In general, an income tax deduction is permitted for 
charitable contributions, subject to certain limitations that 
depend on the type of taxpayer, the property contributed, and 
the donee organization.\431\
---------------------------------------------------------------------------
    \431\ Sec. 170.
---------------------------------------------------------------------------
    Charitable contributions of cash are deductible in the 
amount contributed. In general, contributions of capital gain 
property are deductible at fair market value with certain 
exceptions. Capital gain property means any capital asset or 
property used in the taxpayer's trade or business the sale of 
which at its fair market value, at the time of contribution, 
would have resulted in gain that would have been long-term 
capital gain. Contributions of other appreciated property 
generally are deductible at the donor's basis in the property. 
Contributions of depreciated property generally are deductible 
at the fair market value of the property.

General rules regarding contributions of inventory

    Under present law, a taxpayer's deduction for charitable 
contributions of inventory generally is limited to the 
taxpayer's basis (typically, cost) in the inventory, or if less 
the fair market value of the inventory.
    For certain contributions of inventory, C corporations may 
claim an enhanced deduction equal to the lesser of (1) basis 
plus one-half of the item's appreciation (i.e., basis plus one-
half of fair market value in excess of basis) or (2) two times 
basis.\432\ In general, a C corporation's charitable 
contribution deductions for a year may not exceed 10 percent of 
the corporation's taxable income.\433\ To be eligible for the 
enhanced deduction, the contributed property generally must be 
inventory of the taxpayer and must be contributed to a 
charitable organization described in section 501(c)(3) (except 
for private nonoperating foundations), and the donee must (1) 
use the property consistent with the donee's exempt purpose 
solely for the care of the ill, the needy, or infants; (2) not 
transfer the property in exchange for money, other property, or 
services; and (3) provide the taxpayer a written statement that 
the donee's use of the property will be consistent with such 
requirements.\434\ In the case of contributed property subject 
to the Federal Food, Drug, and Cosmetic Act, as amended, the 
property must satisfy the applicable requirements of such Act 
on the date of transfer and for 180 days prior to the 
transfer.\435\
---------------------------------------------------------------------------
    \432\ Sec. 170(e)(3).
    \433\ Sec. 170(b)(2).
    \434\ Sec. 170(e)(3)(A)(i)-(iii).
    \435\ Sec. 170(e)(3)(A)(iv).
---------------------------------------------------------------------------
    A donor making a charitable contribution of inventory must 
make a corresponding adjustment to the cost of goods sold by 
decreasing the cost of goods sold by the lesser of the fair 
market value of the property or the donor's basis with respect 
to the inventory.\436\
---------------------------------------------------------------------------
    \436\ Treas. Reg. sec. 1.170A-4A(c)(3).
---------------------------------------------------------------------------
    To use the enhanced deduction, the taxpayer must establish 
that the fair market value of the donated item exceeds basis. 
The valuation of food inventory has been the subject of 
disputes between taxpayers and the IRS.\437\
---------------------------------------------------------------------------
    \437\ Lucky Stores Inc. v. Commissioner, 105 T.C. 420 (1995) 
(holding that the value of surplus bread inventory donated to charity 
was the full retail price of the bread rather than half the retail 
price, as the IRS asserted).
---------------------------------------------------------------------------

Temporary rule expanding and modifying the enhanced deduction for 
        contributions of food inventory

    Under a temporary provision, any taxpayer engaged in a 
trade or business, whether or not a C corporation, is eligible 
to claim the enhanced deduction for donations of food 
inventory.\438\ For taxpayers other than C corporations, the 
total deduction for donations of food inventory in a taxable 
year generally may not exceed 10 percent of the taxpayer's net 
income for such taxable year from all sole proprietorships, S 
corporations, or partnerships (or other non C corporations) 
from which contributions of apparently wholesome food are made. 
For example, if a taxpayer is a sole proprietor, a shareholder 
in an S corporation, and a partner in a partnership, and each 
business makes charitable contributions of food inventory, the 
taxpayer's deduction for donations of food inventory is limited 
to 10 percent of the taxpayer's net income from the sole 
proprietorship and the taxpayer's interests in the S 
corporation and partnership. However, if only the sole 
proprietorship and the S corporation made charitable 
contributions of food inventory, the taxpayer's deduction would 
be limited to 10 percent of the net income from the trade or 
business of the sole proprietorship and the taxpayer's interest 
in the S corporation, but not the taxpayer's interest in the 
partnership.\439\
---------------------------------------------------------------------------
    \438\ Sec. 170(e)(3)(C).
    \439\ The 10 percent limitation does not affect the application of 
the generally applicable percentage limitations. For example, if 10 
percent of a sole proprietor's net income from the proprietor's trade 
or business was greater than 50 percent of the proprietor's 
contribution base, the available deduction for the taxable year (with 
respect to contributions to public charities) would be 50 percent of 
the proprietor's contribution base. Consistent with present law, such 
contributions may be carried forward because they exceed the 50 percent 
limitation. Contributions of food inventory by a taxpayer that is not a 
C corporation that exceed the 10 percent limitation but not the 50 
percent limitation could not be carried forward.
---------------------------------------------------------------------------
    Under the temporary provision, the enhanced deduction for 
food is available only for food that qualifies as ``apparently 
wholesome food.'' Apparently wholesome food is defined as food 
intended for human consumption that meets all quality and 
labeling standards imposed by Federal, State, and local laws 
and regulations even though the food may not be readily 
marketable due to appearance, age, freshness, grade, size, 
surplus, or other conditions.
    The provision does not apply to contributions made after 
December 31, 2013.

                        Explanation of Provision

    The provision extends the special rule for charitable 
contributions of food inventory to contributions made before 
January 1, 2015.

                             Effective Date

    The provision is effective for contributions made after 
December 31, 2013.

17. Extension of increased expensing limitations and treatment of 
        certain real property as section 179 property (sec. 127 of the 
        Act and sec. 179 of the Code)

                              Present Law

    A taxpayer may elect under section 179 to deduct (or 
``expense'') the cost of qualifying property, rather than to 
recover such costs through depreciation deductions, subject to 
limitation.\440\ For taxable years beginning in 2013, the 
maximum amount a taxpayer may expense is $500,000 of the cost 
of qualifying property placed in service for the taxable 
year.\441\ The $500,000 amount is reduced (but not below zero) 
by the amount by which the cost of qualifying property placed 
in service during the taxable year exceeds $2,000,000.\442\ The 
$500,000 and $2,000,000 amounts are not indexed for inflation. 
In general, qualifying property is defined as depreciable 
tangible personal property that is purchased for use in the 
active conduct of a trade or business.\443\ For taxable years 
beginning before 2014, qualifying property also includes off-
the-shelf computer software and qualified real property (i.e., 
qualified leasehold improvement property, qualified restaurant 
property, and qualified retail improvement property).\444\ Of 
the $500,000 expense amount available under section 179, the 
maximum amount available with respect to qualified real 
property is $250,000 for each taxable year.\445\
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    \440\ Additional section 179 incentives have been provided with 
respect to qualified property meeting applicable requirements that is 
used by a business in an enterprise zone (sec. 1397A), a renewal 
community (sec. 1400J), the New York Liberty Zone (sec. 1400L(f)), or 
the Gulf Opportunity Zone (sec. 1400N(e)). In addition, section 179(e) 
provides for an enhanced section 179 deduction for qualified disaster 
assistance property.
    \441\ For the years 2003 through 2006, the relevant dollar amount 
is $100,000 (indexed for inflation); in 2007, the dollar limitation is 
$125,000; for the 2008 and 2009 years, the relevant dollar amount is 
$250,000; and for 2010, 2011, and 2012, the relevant dollar limitation 
is $500,000. Sec. 179(b)(1).
    \442\ For the years 2003 through 2006, the relevant dollar amount 
is $400,000 (indexed for inflation); in 2007, the dollar limitation is 
$500,000; for the 2008 and 2009 years, the relevant dollar amount is 
$800,000; and for 2010, 2011, and 2012, the relevant dollar limitation 
is $2,000,000. Sec. 179(b)(2).
    \443\ Qualifying property does not include any property described 
in section 50(b), air conditioning units, or heating units. Sec. 
179(d)(1). Passenger automobiles subject to the section 280F limitation 
are eligible for section 179 expensing only to the extent of the dollar 
limitations in section 280F. For sport utility vehicles above the 6,000 
pound weight rating, which are not subject to the limitation under 
section 280F, the maximum cost that may be expensed for any taxable 
year under section 179 is $25,000. Sec. 179(b)(5).
    \444\ Secs. 179(d)(1)(A)(ii) and (f).
    \445\ Sec. 179(f)(3).
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    For taxable years beginning in 2014 and thereafter, a 
taxpayer may elect to deduct up to $25,000 of the cost of 
qualifying property placed in service for the taxable year, 
subject to limitation. The $25,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$200,000. The $25,000 and $200,000 amounts are not indexed for 
inflation. In general, qualifying property is defined as 
depreciable tangible personal property (not including off-the-
shelf computer software or qualified real property) that is 
purchased for use in the active conduct of a trade or business.
    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for such taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision).\446\ Any amount 
that is not allowed as a deduction because of the taxable 
income limitation may be carried forward to succeeding taxable 
years (subject to limitations). However, amounts attributable 
to qualified real property that are disallowed under the trade 
or business income limitation may only be carried over to 
taxable years in which the definition of eligible section 179 
property includes qualified real property.\447\ Thus, if a 
taxpayer's section 179 deduction for 2012 with respect to 
qualified real property is limited by the taxpayer's active 
trade or business income, such disallowed amount may be carried 
over to 2013. Any such carryover amounts that are not used in 
2013 are treated as property placed in service in 2013 for 
purposes of computing depreciation. That is, the unused 
carryover amount from 2012 is considered placed in service on 
the first day of the 2013 taxable year.\448\
---------------------------------------------------------------------------
    \446\ Sec. 179(b)(3).
    \447\ Section 179(f)(4) details the special rules that apply to 
disallowed amounts.
    \448\ For example, assume that during 2012, a company's only asset 
purchases are section 179-eligible equipment costing $100,000 and 
qualifying leasehold improvements costing $200,000. Assume the company 
has no other asset purchases during 2012, and has a taxable income 
limitation of $150,000. The maximum section 179 deduction the company 
can claim for 2012 is $150,000, which is allocated pro rata between the 
properties, such that the carryover to 2013 is allocated $100,000 to 
the qualified leasehold improvements and $50,000 to the equipment.
    Assume further that in 2013, the company had no asset purchases and 
had no taxable income. The $100,000 carryover from 2012 attributable to 
qualified leasehold improvements is treated as placed in service as of 
the first day of the company's 2013 taxable year. The $50,000 carryover 
allocated to equipment is carried over to 2013 under section 
179(b)(3)(B).
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    No general business credit under section 38 is allowed with 
respect to any amount for which a deduction is allowed under 
section 179.\449\ If a corporation makes an election under 
section 179 to deduct expenditures, the full amount of the 
deduction does not reduce earnings and profits. Rather, the 
expenditures that are deducted reduce corporate earnings and 
profits ratably over a five-year period.\450\
---------------------------------------------------------------------------
    \449\ Sec. 179(d)(9).
    \450\ Sec. 312(k)(3)(B).
---------------------------------------------------------------------------
    An expensing election is made under rules prescribed by the 
Secretary.\451\ In general, any election or specification made 
with respect to any property may not be revoked except with the 
consent of the Commissioner. However, an election or 
specification under section 179 may be revoked by the taxpayer 
without consent of the Commissioner for taxable years beginning 
after 2002 and before 2014.\452\
---------------------------------------------------------------------------
    \451\ Sec. 179(c)(1).
    \452\ Sec. 179(c)(2).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides that the maximum amount a taxpayer 
may expense, for taxable years beginning in 2014, is $500,000 
of the cost of qualifying property placed in service for the 
taxable year. The $500,000 amount is reduced (but not below 
zero) by the amount by which the cost of qualifying property 
placed in service during the taxable year exceeds $2,000,000.
    In addition, the provision extends, for taxable years 
beginning in 2014, the treatment of off-the-shelf computer 
software as qualifying property. The provision also extends the 
treatment of qualified real property as eligible section 179 
property for taxable years beginning in 2014, including the 
limitation on carryovers and the maximum amount available with 
respect to qualified real property of $250,000 for each taxable 
year. For taxable years beginning in 2014, the provision 
continues to permit a taxpayer to amend or irrevocably revoke 
an election for a taxable year under section 179 without the 
consent of the Commissioner.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2013.

18. Extension of election to expense mine safety equipment (sec. 128 of 
        the Act and sec. 179E of the Code)

                              Present Law

    A taxpayer may elect to treat 50 percent of the cost of any 
qualified advanced mine safety equipment property as an expense 
in the taxable year in which the equipment is placed in 
service.\453\ ``Qualified advanced mine safety equipment 
property'' means any advanced mine safety equipment property 
for use in any underground mine located in the United States 
the original use of which commences with the taxpayer and which 
is placed in service after December 20, 2006, and before 
January 1, 2014.\454\
---------------------------------------------------------------------------
    \453\  Sec. 179E(a).
    \454\  Secs. 179E(c) and (g).
---------------------------------------------------------------------------
    Advanced mine safety equipment property means any of the 
following: (1) emergency communication technology or devices 
used to allow a miner to maintain constant communication with 
an individual who is not in the mine; (2) electronic 
identification and location devices that allow individuals not 
in the mine to track at all times the movements and location of 
miners working in or at the mine; (3) emergency oxygen-
generating, self-rescue devices that provide oxygen for at 
least 90 minutes; (4) pre-positioned supplies of oxygen 
providing each miner on a shift the ability to survive for at 
least 48 hours; and (5) comprehensive atmospheric monitoring 
systems that monitor the levels of carbon monoxide, methane, 
and oxygen that are present in all areas of the mine and that 
can detect smoke in the case of a fire in a mine.\455\
---------------------------------------------------------------------------
    \455\  Sec. 179E(d).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year (through December 31, 
2014) the present-law placed-in-service date allowing a 
taxpayer to expense 50 percent of the cost of any qualified 
advanced mine safety equipment property.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2013.

19. Extension of special expensing rules for certain film and 
        television productions (sec. 129 of the Act and sec. 181 of the 
        Code)

                              Present Law 

    Under section 181, a taxpayer may elect \456\ to deduct the 
cost of any qualifying film and television production, 
commencing prior to January 1, 2014, in the year the 
expenditure is incurred in lieu of capitalizing the cost and 
recovering it through depreciation allowances.\457\ A taxpayer 
may elect to deduct up to $15 million of the aggregate cost of 
the film or television production under this section.\458\ The 
threshold is increased to $20 million if a significant amount 
of the production expenditures are incurred in areas eligible 
for designation as a low-income community or eligible for 
designation by the Delta Regional Authority as a distressed 
county or isolated area of distress.\459\
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    \456\  See Treas. Reg. section 1.181-2 for rules on making an 
election under this section.
    \457\  For this purpose, a production is treated as commencing on 
the first date of principal photography.
    \458\  Sec. 181(a)(2)(A).
    \459\  Sec. 181(a)(2)(B).
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    A qualified film or television production means any 
production of a motion picture (whether released theatrically 
or directly to video cassette or any other format) or 
television program if at least 75 percent of the total 
compensation expended on the production is for services 
performed in the United States by actors, directors, producers, 
and other relevant production personnel.\460\ The term 
``compensation'' does not include participations and residuals 
(as defined in section 167(g)(7)(B)).\461\ Each episode of a 
television series is treated as a separate production, and only 
the first 44 episodes of a particular series qualify under the 
provision.\462\ Qualified productions do not include sexually 
explicit productions as referenced by section 2257 of title 18 
of the U.S. Code.\463\
---------------------------------------------------------------------------
    \460\  Sec. 181(d)(3)(A).
    \461\  Sec. 181(d)(3)(B).
    \462\  Sec. 181(d)(2)(B).
    \463\  Sec. 181(d)(2)(C).
---------------------------------------------------------------------------
    For purposes of recapture under section 1245, any deduction 
allowed under section 181 is treated as if it were a deduction 
allowable for amortization.\464\
---------------------------------------------------------------------------
    \464\  Sec. 1245(a)(2)(C).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the special treatment for film and 
television productions under section 181 for one year to 
qualified film and television productions commencing prior to 
January 1, 2015.

                             Effective Date

    The provision applies to productions commencing after 
December 31, 2013.

20. Extension of deduction allowable with respect to income 
        attributable to domestic production activities in Puerto Rico 
        (sec. 130 of the Act and sec. 199 of the Code)

                              Present Law


General

    Present law generally provides a deduction from taxable 
income (or, in the case of an individual, adjusted gross 
income) that is equal to nine percent of the lesser of the 
taxpayer's qualified production activities income or taxable 
income for the taxable year. For taxpayers subject to the 35-
percent corporate income tax rate, the nine-percent deduction 
effectively reduces the corporate income tax rate to slightly 
less than 32 percent on qualified production activities income.
    In general, qualified production activities income is equal 
to domestic production gross receipts reduced by the sum of: 
(1) the costs of goods sold that are allocable to those 
receipts; and (2) other expenses, losses, or deductions which 
are properly allocable to those receipts.
    Domestic production gross receipts generally are gross 
receipts of a taxpayer that are derived from: (1) any sale, 
exchange, or other disposition, or any lease, rental, or 
license, of qualifying production property \465\ that was 
manufactured, produced, grown or extracted by the taxpayer in 
whole or in significant part within the United States; (2) any 
sale, exchange, or other disposition, or any lease, rental, or 
license, of qualified film \466\ produced by the taxpayer; (3) 
any lease, rental, license, sale, exchange, or other 
disposition of electricity, natural gas, or potable water 
produced by the taxpayer in the United States; (4) construction 
of real property performed in the United States by a taxpayer 
in the ordinary course of a construction trade or business; or 
(5) engineering or architectural services performed in the 
United States for the construction of real property located in 
the United States.
---------------------------------------------------------------------------
    \465\  Qualifying production property generally includes any 
tangible personal property, computer software, and sound recordings.
    \466\ Qualified film includes any motion picture film or videotape 
(including live or delayed television programming, but not including 
certain sexually explicit productions) if 50 percent or more of the 
total compensation relating to the production of the film (including 
compensation in the form of residuals and participations) constitutes 
compensation for services performed in the United States by actors, 
production personnel, directors, and producers.
---------------------------------------------------------------------------
    The amount of the deduction for a taxable year is limited 
to 50 percent of the wages paid by the taxpayer, and properly 
allocable to domestic production gross receipts, during the 
calendar year that ends in such taxable year.\467\ Wages paid 
to bona fide residents of Puerto Rico generally are not 
included in the definition of wages for purposes of computing 
the wage limitation amount.\468\
---------------------------------------------------------------------------
    \467\ For purposes of the provision, ``wages'' include the sum of 
the amounts of wages as defined in section 3401(a) and elective 
deferrals that the taxpayer properly reports to the Social Security 
Administration with respect to the employment of employees of the 
taxpayer during the calendar year ending during the taxpayer's taxable 
year.
    \468\ Section 3401(a)(8)(C) excludes wages paid to United States 
citizens who are bona fide residents of Puerto Rico from the term wages 
for purposes of income tax withholding.
---------------------------------------------------------------------------

Rules for Puerto Rico

    When used in the Code in a geographical sense, the term 
``United States'' generally includes only the States and the 
District of Columbia.\469\ A special rule for determining 
domestic production gross receipts, however, provides that in 
the case of any taxpayer with gross receipts from sources 
within the Commonwealth of Puerto Rico, the term ``United 
States'' includes the Commonwealth of Puerto Rico, but only if 
all of the taxpayer's Puerto Rico-sourced gross receipts are 
taxable under the Federal income tax for individuals or 
corporations.\470\ In computing the 50-percent wage limitation, 
the taxpayer is permitted to take into account wages paid to 
bona fide residents of Puerto Rico for services performed in 
Puerto Rico.\471\
---------------------------------------------------------------------------
    \469\ Sec. 7701(a)(9).
    \470\ Sec. 199(d)(8)(A).
    \471\ Sec. 199(d)(8)(B).
---------------------------------------------------------------------------
    The special rules for Puerto Rico apply only with respect 
to the first eight taxable years of a taxpayer beginning after 
December 31, 2005 and before January 1, 2014.

                        Explanation of Provision

    The provision extends the special domestic production 
activities rules for Puerto Rico to apply for the first nine 
taxable years of a taxpayer beginning after December 31, 2005 
and before January 1, 2015.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2013.

21. Extension of modification of tax treatment of certain payments to 
        controlling exempt organizations (sec. 131 of the Act and sec. 
        512 of the Code)

                               Present Law

    In general, organizations exempt from Federal income tax 
are subject to the unrelated business income tax on income 
derived from a trade or business regularly carried on by the 
organization that is not substantially related to the 
performance of the organization's tax-exempt functions.\472\ In 
general, interest, rents, royalties, and annuities are excluded 
from the unrelated business income of tax-exempt 
organizations.\473\
---------------------------------------------------------------------------
    \472\ Sec. 511.
    \473\ Sec. 512(b).
---------------------------------------------------------------------------
    Section 512(b)(13) provides rules regarding income derived 
by an exempt organization from a controlled subsidiary. In 
general, section 512(b)(13) treats otherwise excluded rent, 
royalty, annuity, and interest income as unrelated business 
taxable income if such income is received from a taxable or 
tax-exempt subsidiary that is 50-percent controlled by the 
parent tax-exempt organization to the extent the payment 
reduces the net unrelated income (or increases any net 
unrelated loss) of the controlled entity (determined as if the 
entity were tax exempt).
    In the case of a stock subsidiary, ``control'' means 
ownership by vote or value of more than 50 percent of the 
stock. In the case of a partnership or other entity, 
``control'' means ownership of more than 50 percent of the 
profits, capital, or beneficial interests. In addition, present 
law applies the constructive ownership rules of section 318 for 
purposes of section 512(b)(13). Thus, a parent exempt 
organization is deemed to control any subsidiary in which it 
holds more than 50 percent of the voting power or value, 
directly (as in the case of a first-tier subsidiary) or 
indirectly (as in the case of a second-tier subsidiary).
    For payments made pursuant to a binding written contract in 
effect on August 17, 2006 (or renewal of such a contract on 
substantially similar terms), the general rule of section 
512(b)(13) applies only to the portion of payments received or 
accrued in a taxable year that exceeds the amount of the 
payment that would have been paid or accrued if the amount of 
such payment had been determined under the principles of 
section 482 (i.e., at arm's length).\474\ A 20-percent penalty 
is imposed on the larger of such excess determined without 
regard to any amendment or supplement to a return of tax, or 
such excess determined with regard to all such amendments and 
supplements. This special rule does not apply to payments 
received or accrued after December 31, 2013.
---------------------------------------------------------------------------
    \474\ Sec. 512(b)(13)(E).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the special rule for one year to 
payments received or accrued before January 1, 2015. 
Accordingly, under the provision, payments of rent, royalties, 
annuities, or interest by a controlled organization to a 
controlling organization pursuant to a binding written contract 
in effect on August 17, 2006 (or renewal of such a contract on 
substantially similar terms), may be includible in the 
unrelated business taxable income of the controlling 
organization only to the extent the payment exceeds the amount 
of the payment determined under the principles of section 482 
(i.e., at arm's length). Any such excess is subject to a 20-
percent penalty on the larger of such excess determined without 
regard to any amendment or supplement to a return of tax, or 
such excess determined with regard to all such amendments and 
supplements.

                             Effective Date

    The provision is effective for payments received or accrued 
after December 31, 2013.

22. Extension of treatment of certain dividends of regulated investment 
        companies (sec. 132 of the Act and sec. 871(k) of the Code)

                               Present Law


In general

    A regulated investment company (``RIC'') is an entity that 
meets certain requirements (including a requirement that its 
income generally be derived from passive investments such as 
dividends and interest and a requirement that it distribute at 
least 90 percent of its income) and that elects to be taxed 
under a special tax regime. Unlike an ordinary corporation, an 
entity that is taxed as a RIC can deduct amounts paid to its 
shareholders as dividends. In this manner, tax on RIC income is 
generally not paid by the RIC but rather by its shareholders. 
Income of a RIC distributed to shareholders as dividends is 
generally treated as an ordinary income dividend by those 
shareholders, unless other special rules apply. Dividends 
received by foreign persons from a RIC are generally subject to 
gross-basis tax under sections 871(a) or 881, and the RIC payor 
of such dividends is obligated to withhold such tax under 
sections 1441 and 1442.
    Under a temporary provision of prior law, a RIC that earned 
certain interest income that generally would not be subject to 
U.S. tax if earned by a foreign person directly could, to the 
extent of such net interest income, designate a dividend it 
paid as derived from such interest income for purposes of the 
treatment of a foreign RIC shareholder. A foreign person who is 
a shareholder in the RIC generally could treat such a 
designated dividend as exempt from gross-basis U.S. tax. Also, 
subject to certain requirements, the RIC was exempt from 
withholding the gross-basis tax on such dividends. Similar 
rules applied with respect to the designation of certain short-
term capital gain dividends. However, these provisions relating 
to dividends with respect to interest income and short-term 
capital gain of the RIC have expired, and therefore do not 
apply to dividends with respect to any taxable year of a RIC 
beginning after December 31, 2013.\475\
---------------------------------------------------------------------------
    \475\ Secs. 871(k), 881(e), 1441(c)(12), 1441(a), and 1442.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the rules exempting from gross-basis 
tax and from withholding of such tax the interest-related 
dividends and short-term capital gain dividends received from a 
RIC, to dividends with respect to taxable years of a RIC 
beginning before January 1, 2015.

                             Effective Date

    The provision applies to dividends paid with respect to any 
taxable year of a RIC beginning after December 31, 2013.

23. Extension of RIC qualified investment entity treatment under FIRPTA 
        (sec. 133 of the Act and secs. 897 and 1445 of the Code)

                              Present Law

    Special U.S. tax rules apply to capital gains of foreign 
persons that are attributable to dispositions of interests in 
U.S. real property. In general, although a foreign person (a 
foreign corporation or a nonresident alien individual) is not 
generally taxed on U.S. source capital gains unless certain 
personal presence or active business requirements are met, a 
foreign person who sells a U.S. real property interest 
(``USRPI'') is subject to tax at the same rates as a U.S. 
person, under the Foreign Investment in Real Property Tax Act 
(``FIRPTA'') provisions codified in section 897 of the Code. 
Withholding tax is also imposed under section 1445.
    A USRPI includes stock or a beneficial interest in any 
domestic corporation unless such corporation has not been a 
U.S. real property holding corporation (as defined) during the 
testing period. A USRPI does not include an interest in a 
domestically controlled ``qualified investment entity.'' A 
distribution from a ``qualified investment entity'' that is 
attributable to the sale of a USRPI is also subject to tax 
under FIRPTA unless the distribution is with respect to an 
interest that is regularly traded on an established securities 
market located in the United States and the recipient foreign 
corporation or nonresident alien individual did not hold more 
than five percent of that class of stock or beneficial interest 
within the one-year period ending on the date of 
distribution.\476\ Special rules apply to situations involving 
tiers of qualified investment entities.
---------------------------------------------------------------------------
    \476\ Sections 857(b)(3)(F), 852(b)(3)(E), and 871(k)(2)(E) require 
dividend treatment, rather than capital gain treatment, for certain 
distributions to which FIRPTA does not apply by reason of this 
exception. See also section 881(e)(2).
---------------------------------------------------------------------------
    The term ``qualified investment entity'' includes a real 
estate investment trust (``REIT'') and also includes a 
regulated investment company (``RIC'') that meets certain 
requirements, although the inclusion of a RIC in that 
definition does not apply for certain purposes after December 
31, 2013.\477\
---------------------------------------------------------------------------
    \477\ Section 897(h).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the inclusion of a RIC within the 
definition of a ``qualified investment entity'' under section 
897 through December 31, 2014, for those situations in which 
that inclusion would otherwise have expired after December 31, 
2013.

                             Effective Date

    The provision is generally effective on January 1, 2014.
    The provision does not apply with respect to the 
withholding requirement under section 1445 for any payment made 
before the date of enactment (December 19, 2014), but a RIC 
that withheld and remitted tax under section 1445 on 
distributions made after December 31, 2013 and before the date 
of enactment is not liable to the distributee with respect to 
such withheld and remitted amounts.

24. Extension of subpart F exception for active financing income (sec. 
        134 of the Act and secs. 953 and 954 of the Code)

                              Present Law

    Under the subpart F rules,\478\ 10-percent-or-greater U.S. 
shareholders of a controlled foreign corporation (``CFC'') are 
subject to U.S. tax currently on certain income earned by the 
CFC, whether or not such income is distributed to the 
shareholders. The income subject to current inclusion under the 
subpart F rules includes, among other things, insurance income 
and foreign base company income. Foreign base company income 
includes, among other things, foreign personal holding company 
income and foreign base company services income (i.e., income 
derived from services performed for or on behalf of a related 
person outside the country in which the CFC is organized).
---------------------------------------------------------------------------
    \478\ Secs. 951-964.
---------------------------------------------------------------------------
    Foreign personal holding company income generally consists 
of the following: (1) dividends, interest, royalties, rents, 
and annuities; (2) net gains from the sale or exchange of (a) 
property that gives rise to the preceding types of income, (b) 
property that does not give rise to income, and (c) interests 
in trusts, partnerships, and real estate mortgage investment 
conduits (``REMICs''); (3) net gains from commodities 
transactions; (4) net gains from certain foreign currency 
transactions; (5) income that is equivalent to interest; (6) 
income from notional principal contracts; (7) payments in lieu 
of dividends; and (8) amounts received under personal service 
contracts.
    Insurance income subject to current inclusion under the 
subpart F rules includes any income of a CFC attributable to 
the issuing or reinsuring of any insurance or annuity contract 
in connection with risks located in a country other than the 
CFC's country of organization. Subpart F insurance income also 
includes income attributable to an insurance contract in 
connection with risks located within the CFC's country of 
organization, as the result of an arrangement under which 
another corporation receives a substantially equal amount of 
consideration for insurance of other country risks. Investment 
income of a CFC that is allocable to any insurance or annuity 
contract related to risks located outside the CFC's country of 
organization is taxable as subpart F insurance income.\479\
---------------------------------------------------------------------------
    \479\ Prop. Treas. Reg. sec. 1.953-1(a).
---------------------------------------------------------------------------
    Temporary exceptions from foreign personal holding company 
income, foreign base company services income, and insurance 
income apply for subpart F purposes for certain income that is 
derived in the active conduct of a banking, financing, or 
similar business, as a securities dealer, or in the conduct of 
an insurance business (so-called ``active financing income'').
    With respect to income derived in the active conduct of a 
banking, financing, or similar business, a CFC is required to 
be predominantly engaged in such business and to conduct 
substantial activity with respect to such business to qualify 
for the active financing exceptions. In addition, certain nexus 
requirements apply, which provide that income derived by a CFC 
or a qualified business unit (``QBU'') of a CFC from 
transactions with customers is eligible for the exceptions if, 
among other things, substantially all of the activities in 
connection with such transactions are conducted directly by the 
CFC or QBU in its home country, and such income is treated as 
earned by the CFC or QBU in its home country for purposes of 
such country's tax laws. Moreover, the exceptions apply to 
income derived from certain cross border transactions, provided 
that certain requirements are met. Additional exceptions from 
foreign personal holding company income apply for certain 
income derived by a securities dealer within the meaning of 
section 475 and for gain from the sale of active financing 
assets.
    In the case of a securities dealer, the temporary exception 
from foreign personal holding company income applies to certain 
income. The income covered by the exception is any interest or 
dividend (or certain equivalent amounts) from any transaction, 
including a hedging transaction or a transaction consisting of 
a deposit of collateral or margin, entered into in the ordinary 
course of the dealer's trade or business as a dealer in 
securities within the meaning of section 475. In the case of a 
QBU of the dealer, the income is required to be attributable to 
activities of the QBU in the country of incorporation, or to a 
QBU in the country in which the QBU both maintains its 
principal office and conducts substantial business activity. A 
coordination rule provides that this exception generally takes 
precedence over the exception for income of a banking, 
financing or similar business, in the case of a securities 
dealer.
    In the case of insurance, a temporary exception from 
foreign personal holding company income applies for certain 
income of a qualifying insurance company with respect to risks 
located within the CFC's country of creation or organization. 
In the case of insurance, temporary exceptions from insurance 
income and from foreign personal holding company income also 
apply for certain income of a qualifying branch of a qualifying 
insurance company with respect to risks located within the home 
country of the branch, provided certain requirements are met 
under each of the exceptions. Further, additional temporary 
exceptions from insurance income and from foreign personal 
holding company income apply for certain income of certain CFCs 
or branches with respect to risks located in a country other 
than the United States, provided that the requirements for 
these exceptions are met. In the case of a life insurance or 
annuity contract, reserves for such contracts are determined 
under rules specific to the temporary exceptions. Present law 
also permits a taxpayer in certain circumstances, subject to 
approval by the IRS through the ruling process or in published 
guidance, to establish that the reserve of a life insurance 
company for life insurance and annuity contracts is the amount 
taken into account in determining the foreign statement reserve 
for the contract (reduced by catastrophe, equalization, or 
deficiency reserve or any similar reserve). IRS approval is to 
be based on whether the method, the interest rate, the 
mortality and morbidity assumptions, and any other factors 
taken into account in determining foreign statement reserves 
(taken together or separately) provide an appropriate means of 
measuring income for Federal income tax purposes.
    The temporary exceptions apply for taxable years of foreign 
corporations beginning after December 31, 1998 and before 
January 1, 2014, and for taxable years of U.S. shareholders 
with or within which such taxable years of such foreign 
corporations end.

                        Explanation of Provision

    The provision extends for one year (for taxable years 
beginning before January 1, 2015) the temporary exceptions from 
subpart F foreign personal holding company income, foreign base 
company services income, and insurance income for certain 
income that is derived in the active conduct of a banking, 
financing, or similar business, as a securities dealer, or in 
the conduct of an insurance business.

                             Effective Date

    The provision is effective for taxable years of foreign 
corporations beginning after December 31, 2013, and for taxable 
years of U.S. shareholders with or within which such taxable 
years of such foreign corporations end.

25. Extension of look-thru treatment of payments between related 
        controlled foreign corporations under foreign personal holding 
        company rules (sec. 135 of the Act and sec. 954(c)(6) of the 
        Code)

                              Present Law


In general

    The rules of subpart F \480\ require U.S. shareholders with 
a 10-percent or greater interest in a controlled foreign 
corporation (``CFC'') to include certain income of the CFC 
(referred to as ``subpart F income'') on a current basis for 
U.S. tax purposes, regardless of whether the income is 
distributed to the shareholders.
---------------------------------------------------------------------------
    \480\ Secs. 951-964.
---------------------------------------------------------------------------
    Subpart F income includes foreign base company income. One 
category of foreign base company income is foreign personal 
holding company income. For subpart F purposes, foreign 
personal holding company income generally includes dividends, 
interest, rents, and royalties, among other types of income. 
There are several exceptions to these rules. For example, 
foreign personal holding company income does not include 
dividends and interest received by a CFC from a related 
corporation organized and operating in the same foreign country 
in which the CFC is organized, or rents and royalties received 
by a CFC from a related corporation for the use of property 
within the country in which the CFC is organized. Interest, 
rent, and royalty payments do not qualify for this exclusion to 
the extent that such payments reduce the subpart F income of 
the payor. In addition, subpart F income of a CFC does not 
include any item of income from sources within the United 
States that is effectively connected with the conduct by such 
CFC of a trade or business within the United States (``ECI'') 
unless such item is exempt from taxation (or is subject to a 
reduced rate of tax) pursuant to a tax treaty.

The ``look-thru rule''

    Under the ``look-thru rule'' (sec. 954(c)(6)), dividends, 
interest (including factoring income that is treated as 
equivalent to interest under section 954(c)(1)(E)), rents, and 
royalties received or accrued by one CFC from a related CFC are 
not treated as foreign personal holding company income to the 
extent attributable or properly allocable to income of the 
payor that is neither subpart F income nor treated as ECI. For 
this purpose, a related CFC is a CFC that controls or is 
controlled by the other CFC, or a CFC that is controlled by the 
same person or persons that control the other CFC. Ownership of 
more than 50 percent of the CFC's stock (by vote or value) 
constitutes control for these purposes.
    The Secretary is authorized to prescribe regulations that 
are necessary or appropriate to carry out the look-thru rule, 
including such regulations as are necessary or appropriate to 
prevent the abuse of the purposes of such rule.
    The look-thru rule applies to taxable years of foreign 
corporations beginning after December 31, 2005 and before 
January 1, 2014, and to taxable years of U.S. shareholders with 
or within which such taxable years of foreign corporations end.

                        Explanation of Provision

    The provision extends for one year the application of the 
look-thru rule, to taxable years of foreign corporations 
beginning before January 1, 2015, and to taxable years of U.S. 
shareholders with or within which such taxable years of foreign 
corporations end.

                             Effective Date

    The provision is effective for taxable years of foreign 
corporations beginning after December 31, 2013, and for taxable 
years of U.S. shareholders with or within which such taxable 
years of foreign corporations end.

26. Extension of exclusion of 100 percent of gain on certain small 
        business stock (sec. 136 of the Act and sec. 1202 of the Code)

                              Present Law


In general

    A taxpayer other than a corporation may exclude 50 percent 
(60 percent for certain empowerment zone businesses) of the 
gain from the sale of certain small business stock acquired at 
original issue and held for at least five years.\481\ The 
amount of gain eligible for the exclusion by an individual with 
respect to the stock of any corporation is the greater of (1) 
ten times the taxpayer's basis in the stock or (2) $10 million 
(reduced by the amount of gain eligible for exclusion in prior 
years). To qualify as a small business, when the stock is 
issued, the aggregate gross assets (i.e., cash plus aggregate 
adjusted basis of other property) held by the corporation may 
not exceed $50 million. The corporation also must meet certain 
active trade or business requirements.
---------------------------------------------------------------------------
    \481\ Sec. 1202.
---------------------------------------------------------------------------
    The portion of the gain includible in taxable income is 
taxed at a maximum rate of 28 percent under the regular 
tax.\482\ Seven percent of the excluded gain is an alternative 
minimum tax preference.\483\
---------------------------------------------------------------------------
    \482\ Sec. 1(h).
    \483\ Sec. 57(a)(7).
---------------------------------------------------------------------------

Special rules for stock acquired after February 17, 2009, and before 
        January 1, 2014

    For stock acquired after February 17, 2009, and before 
September 28, 2010, the percentage exclusion for qualified 
small business stock sold by an individual is increased to 75 
percent.
    For stock acquired after September 27, 2010, and before 
January 1, 2014, the percentage exclusion for qualified small 
business stock sold by an individual is increased to 100 
percent and the minimum tax preference does not apply.

                        Explanation of Provision

    The provision extends the 100-percent exclusion and the 
exception from minimum tax preference treatment for one year 
(for stock acquired before January 1, 2015).

                             Effective Date

    The provision is effective for stock acquired after 
December 31, 2013.

  27. Extension of basis adjustment to stock of S corporations making 
charitable contributions of property (sec. 137 of the Act and sec. 1367 
                              of the Code)


                              Present Law

    Under present law, if an S corporation contributes money or 
other property to a charity, each shareholder takes into 
account the shareholder's pro rata share of the contribution in 
determining its own income tax liability.\484\ A shareholder of 
an S corporation reduces the basis in the stock of the S 
corporation by the amount of the charitable contribution that 
flows through to the shareholder.\485\
---------------------------------------------------------------------------
    \484\ Sec. 1366(a)(1)(A).
    \485\ Sec. 1367(a)(2)(B).
---------------------------------------------------------------------------
    In the case of charitable contributions made in taxable 
years beginning before January 1, 2014, the amount of a 
shareholder's basis reduction in the stock of an S corporation 
by reason of a charitable contribution made by the corporation 
is equal to the shareholder's pro rata share of the adjusted 
basis of the contributed property. For contributions made in 
taxable years beginning after December 31, 2013, the amount of 
the reduction is the shareholder's pro rata share of the fair 
market value of the contributed property.

                        Explanation of Provision

    The provision extends the rule relating to the basis 
reduction on account of charitable contributions of property 
for one year to contributions made in taxable years beginning 
before January 1, 2015.

                             Effective Date

    The provision applies to charitable contributions made in 
taxable years beginning after December 31, 2013.

  28. Extension of reduction in S corporation recognition period for 
   built-in gains tax (sec. 138 of the Act and sec. 1374 of the Code)


                              Present Law


In general

    A ``small business corporation'' (as defined in section 
1361(b)) may elect to be treated as an S corporation. Unlike C 
corporations, S corporations generally pay no corporate-level 
tax. Instead, items of income and loss of an S corporation pass 
through to its shareholders. Each shareholder takes into 
account separately its share of these items on its own income 
tax return.\486\
---------------------------------------------------------------------------
    \486\ Sec. 1366.
---------------------------------------------------------------------------
    Under section 1374, a corporate level built-in gains tax, 
at the highest marginal rate applicable to corporations 
(currently 35 percent), is imposed on an S corporation's net 
recognized built-in gain \487\ that arose prior to the 
conversion of the C corporation to an S corporation and is 
recognized by the S corporation during the recognition period, 
i.e., the 10-year period beginning with the first day of the 
first taxable year for which the S election is in effect.\488\ 
If the taxable income of the S corporation is less than the 
amount of net recognized built-in gain in the year such built-
in gain is recognized (for example, because of post-conversion 
losses), no tax under section 1374 is imposed on the excess of 
such built-in gain over taxable income for that year. However, 
the untaxed excess of net recognized built-in gain over taxable 
income for that year is treated as recognized built-in gain in 
the succeeding taxable year.\489\ Treasury regulations provide 
that if a corporation sells an asset before or during the 
recognition period and reports the income from the sale using 
the installment method under section 453 during or after the 
recognition period, that income is subject to tax under section 
1374.\490\
---------------------------------------------------------------------------
    \487\ Certain built-in income items are treated as recognized 
built-in gain for this purpose. Sec. 1374(d)(5).
    \488\ Sec. 1374(d)(7)(A). The 10-year period refers to ten calendar 
years from the first day of the first taxable year for which the 
corporation was an S corporation. Treas. Reg. sec. 1.1374-1(d). A 
regulated investment company (RIC) or a real estate investment trust 
(REIT) that was formerly a C corporation (or that acquired assets from 
a C corporation) generally is subject to the rules of section 1374 as 
if the RIC or REIT were an S corporation, unless the relevant C 
corporation elects ``deemed sale'' treatment. Treas. Reg. secs. 
1.337(d)-7(b)(1) and (c)(1).
    \489\ Sec. 1374(d)(2).
    \490\ Treas. Reg. sec. 1.1374-4(h).
---------------------------------------------------------------------------
    The built-in gains tax also applies to net recognized 
built-in gain attributable to any asset received by an S 
corporation from a C corporation in a transaction in which the 
S corporation's basis in the asset is determined (in whole or 
in part) by reference to the basis of such asset (or other 
property) in the hands of the C corporation.\491\ In the case 
of such a transaction, the recognition period for any asset 
transferred by the C corporation starts on the date the asset 
was acquired by the S corporation in lieu of the beginning of 
the first taxable year for which the corporation was an S 
corporation.\492\
---------------------------------------------------------------------------
    \491\ Sec. 1374(d)(8).
    \492\ Sec. 1374(d)(8)(B).
---------------------------------------------------------------------------
    The amount of the built-in gains tax under section 1374 is 
treated as a loss by each of the S corporation shareholders in 
computing its own income tax.\493\
---------------------------------------------------------------------------
    \493\ Sec. 1366(f)(2). Shareholders continue to take into account 
all items of gain and loss under section 1366.
---------------------------------------------------------------------------

Special rules for 2009, 2010, and 2011

    For any taxable year beginning in 2009 and 2010, no tax was 
imposed on the net recognized built-in gain of an S corporation 
under section 1374 if the seventh taxable year in the 
corporation's recognition period preceded such taxable 
year.\494\ Thus, with respect to gain that arose prior to the 
conversion of a C corporation to an S corporation, no tax was 
imposed under section 1374 if the seventh taxable year that the 
S corporation election was in effect preceded the taxable year 
beginning in 2009 or 2010.
---------------------------------------------------------------------------
    \494\ Sec. 1374(d)(7)(B).
---------------------------------------------------------------------------
    For any taxable year beginning in 2011, no tax was imposed 
on the net recognized built-in gain of an S corporation under 
section 1374 if the fifth year in the corporation's recognition 
period preceded such taxable year.\495\ Thus, with respect to 
gain that arose prior to the conversion of a C corporation to 
an S corporation, no tax was imposed under section 1374 if the 
S corporation election was in effect for five years preceding 
the taxable year beginning in 2011.
---------------------------------------------------------------------------
    \495\ Sec. 1374(d)(7)(C).
---------------------------------------------------------------------------

Special rules for 2012 and 2013

    For taxable years beginning in 2012 and 2013, the term 
``recognition period'' in section 1374, for purposes of 
determining the net recognized built-in gain, is applied by 
substituting a five-year period for the otherwise applicable 
10-year period. Thus, for such taxable years, the recognition 
period is the five-year period beginning with the first day of 
the first taxable year for which the corporation was an S 
corporation (or beginning with the date of acquisition of 
assets if the rules applicable to assets acquired from a C 
corporation apply). If an S corporation with assets subject to 
section 1374 disposes of such assets in a taxable year 
beginning in 2012 or 2013 and the disposition occurs more than 
five years after the first day of the relevant recognition 
period, gain or loss on the disposition will not be taken into 
account in determining the net recognized built-in gain.
    The rule requiring the excess of net recognized built-in 
gain over taxable income for a taxable year to be carried over 
and treated as recognized built-in gain in the succeeding 
taxable year applies only to gain recognized within the 
recognition period. Thus, for example, built-in gain recognized 
in a taxable year beginning in 2013, from a disposition in that 
year that occurs beyond the end of the temporary 5-year 
recognition period, will not be carried forward under the 
income limitation rule and treated as recognized built-in gain 
in the taxable year beginning in 2014 (after the temporary 
provision has expired and the recognition period is again 10 
years).\496\
---------------------------------------------------------------------------
    \496\ Sec. 1374(d)(2)(B).
---------------------------------------------------------------------------
    If an S corporation subject to section 1374 sells a built-
in gain asset and reports the income from the sale using the 
installment method under section 453, the treatment of all 
payments received will be governed by the provisions of section 
1374(d)(7) applicable to the taxable year in which the sale was 
made. Thus, for example, if an S corporation sold a built-in 
gain asset in 2008 in a sale occurring before or during the 
recognition period in effect at that time, and reported the 
gain using the installment method under section 453, gain 
recognized under that method in 2012 or 2013 (including, for 
example, any gain under section 453B from a disposition of the 
installment obligation in those years) \497\ is subject to tax 
under section 1374. On the other hand, if a corporation sold an 
asset in a taxable year beginning in 2012 or 2013, and the sale 
occurred beyond the end of the then-effective 5-year 
recognition period (but not beyond the end of the otherwise 
applicable 10-year recognition period), then gain reported 
using the installment method under section 453 in a taxable 
year beginning in 2014 (after the temporary provision expires) 
is not subject to tax under section 1374, because the sale was 
made after the end of the recognition period applicable to that 
sale. As a third example, if an S corporation sold an asset in 
a taxable year beginning in 2011, and no tax would have been 
imposed on the net recognized built-in gain from the sale under 
section 1374(d)(7)(B)(ii) because the fifth taxable year in the 
recognition period preceded such taxable year, then gain from 
such sale reported using the installment method under section 
453 in a taxable year beginning in 2014 is not subject to tax 
under section 1374.\498\
---------------------------------------------------------------------------
    \497\ Section 453B requires gain or loss to be recognized on 
disposition of an installment obligation and treated as gain or loss 
resulting from the sale or exchange of the property in respect of which 
the installment obligation was received.
    \498\ Report of the Senate Committee on Finance to Accompany S. 
3521, the Family and Business Tax Cut Certainty Act of 2012, S. Rep. 
112-208, August 28, 2012, pp 69-72.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year, to taxable years 
beginning in 2014, the special rules that applied to taxable 
years beginning in 2012 and 2013.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2013.

 29. Extension of empowerment zone tax incentives (sec. 139 of the Act 
                       and sec. 1391 of the Code)


                              Present Law

    The Omnibus Budget Reconciliation Act of 1993 (``OBRA 93'') 
\499\ authorized the designation of nine empowerment zones 
(``Round I empowerment zones'') to provide tax incentives for 
businesses to locate within certain targeted areas \500\ 
designated by the Secretaries of the Department of Housing and 
Urban Development (``HUD'') and the U.S. Department of 
Agriculture (``USDA''). The first empowerment zones were 
established in large rural areas and large cities. OBRA 93 also 
authorized the designation of 95 enterprise communities, which 
were located in smaller rural areas and cities. For tax 
purposes, the areas designated as enterprise communities 
continued as such for the ten-year period starting in the 
beginning of 1995 and ending at the end of 2004.
---------------------------------------------------------------------------
    \499\ Pub. L. No. 103-66.
    \500\ The targeted areas are those that have pervasive poverty, 
high unemployment, and general economic distress, and that satisfy 
certain eligibility criteria, including specified poverty rates and 
population and geographic size limitations.
---------------------------------------------------------------------------
    The Taxpayer Relief Act of 1997 \501\ authorized the 
designation of two additional Round I urban empowerment zones, 
and 20 additional empowerment zones (``Round II empowerment 
zones''). The Community Renewal Tax Relief Act of 2000 (``2000 
Community Renewal Act'') \502\ authorized a total of ten new 
empowerment zones (``Round III empowerment zones''), bringing 
the total number of authorized empowerment zones to 40.\503\ In 
addition, the 2000 Community Renewal Act conformed the tax 
incentives that are available to businesses in the Round I, 
Round II, and Round III empowerment zones, and extended the 
empowerment zone incentives through December 31, 2009.\504\ The 
Tax Relief, Unemployment Insurance Reauthorization and Job 
Creation Act of 2010 (``TRUIRJCA'') extended for two years, 
through December 31, 2011, the period for which the designation 
of an empowerment zone was in effect, thus extending for two 
years the empowerment zone tax incentives discussed below.\505\ 
The American Taxpayer Relief Act of 2012 (``ATRA'') extended 
the designation period and tax incentives for two additional 
years, through December 31, 2013.\506\
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    \501\ Pub. L. No. 105-34.
    \502\ Pub. L. No. 106-554.
    \503\ The urban part of the program is administered by HUD and the 
rural part of the program is administered by the USDA. The eight Round 
I urban empowerment zones are Atlanta, GA; Baltimore, MD; Chicago, IL; 
Cleveland, OH; Detroit, MI; Los Angeles, CA; New York, NY; and 
Philadelphia, PA/Camden, NJ. Atlanta relinquished its empowerment zone 
designation in Round III. The three Round I rural empowerment zones are 
Kentucky Highlands, KY; Mid-Delta, MI; and Rio Grande Valley, TX. The 
15 Round II urban empowerment zones are Boston, MA; Cincinnati, OH; 
Columbia, SC; Columbus, OH; Cumberland County, NJ; El Paso, TX; Gary/
Hammond/East Chicago, IN; Ironton, OH/Huntington, WV; Knoxville, TN; 
Miami/Dade County, FL; Minneapolis, MN; New Haven, CT; Norfolk/
Portsmouth, VA; Santa Ana, CA; and St. Louis, Missouri/East St. Louis, 
IL. The five Round II rural empowerment zones are Desert Communities, 
CA; Griggs-Steele, ND; Oglala Sioux Tribe, SD; Southernmost Illinois 
Delta, IL; and Southwest Georgia United, GA. The eight Round III urban 
empowerment zones are Fresno, CA; Jacksonville, FL; Oklahoma City, OK; 
Pulaski County, AR; San Antonio, TX; Syracuse, NY; Tucson, AZ; and 
Yonkers, NY. The two Round III rural empowerment zones are Aroostook 
County, ME; and Futuro, TX.
    \504\  If an empowerment zone designation were terminated prior to 
December 31, 2009, the tax incentives would cease to be available as of 
the termination date.
    \505\ Pub. L. No. 111-312, sec. 753 (2010). In the case of a 
designation of an empowerment zone the nomination for which included a 
termination date which is December 31, 2009, termination shall not 
apply with respect to such designation if the entity which made such 
nomination amends the nomination to provide for a new termination date 
in such manner as the Secretary may provide.
    \506\ Pub. L. No. 112-240, sec. 327 (2013).
---------------------------------------------------------------------------
    The tax incentives available within the designated 
empowerment zones include a Federal income tax credit for 
employers who hire qualifying employees (the ``wage credit''), 
accelerated depreciation deductions on qualifying equipment, 
tax-exempt bond financing, deferral of capital gains tax on 
sale of qualified assets sold and replaced, and partial 
exclusion of capital gains tax on certain sales of qualified 
small business stock.
    The following is a description of the tax incentives:

Wage credit

    A 20-percent wage credit is available to employers for the 
first $15,000 of qualified wages paid to each employee (i.e., a 
maximum credit of $3,000 with respect to each qualified 
employee) who (1) is a resident of the empowerment zone, and 
(2) performs substantially all employment services within the 
empowerment zone in a trade or business of the employer.\507\
---------------------------------------------------------------------------
    \507\ Sec. 1396. The $15,000 limit is annual, not cumulative such 
that the limit is the first $15,000 of wages paid in a calendar year 
which ends with or within the taxable year.
---------------------------------------------------------------------------
    The wage credit rate applies to qualifying wages paid 
before January 1, 2012. Wages paid to a qualified employee who 
earns more than $15,000 are eligible for the wage credit 
(although only the first $15,000 of wages is eligible for the 
credit). The wage credit is available with respect to a 
qualified full-time or part-time employee (employed for at 
least 90 days), regardless of the number of other employees who 
work for the employer. In general, any taxable business 
carrying out activities in the empowerment zone may claim the 
wage credit, regardless of whether the employer meets the 
definition of an ``enterprise zone business.'' \508\
---------------------------------------------------------------------------
    \508\ Secs. 1397C(b) and 1397C(c). However, the wage credit is not 
available for wages paid in connection with certain business activities 
described in section 144(c)(6)(B), including a golf course, country 
club, massage parlor, hot tub facility, suntan facility, racetrack, or 
liquor store, or certain farming activities. In addition, wages are not 
eligible for the wage credit if paid to: (1) a person who owns more 
than five percent of the stock (or capital or profits interests) of the 
employer, (2) certain relatives of the employer, or (3) if the employer 
is a corporation or partnership, certain relatives of a person who owns 
more than 50 percent of the business.
---------------------------------------------------------------------------
    An employer's deduction otherwise allowed for wages paid is 
reduced by the amount of wage credit claimed for that taxable 
year.\509\ Wages are not to be taken into account for purposes 
of the wage credit if taken into account in determining the 
employer's work opportunity tax credit under section 51 or the 
welfare-to-work credit under section 51A.\510\ In addition, the 
$15,000 cap is reduced by any wages taken into account in 
computing the work opportunity tax credit or the welfare-to-
work credit.\511\ The wage credit may be used to offset up to 
25 percent of alternative minimum tax liability.\512\
---------------------------------------------------------------------------
    \509\ Sec. 280C(a).
    \510\ Secs. 1396(c)(3)(A) and 51A(d)(2).
    \511\ Secs. 1396(c)(3)(B) and 51A(d)(2).
    \512\ Sec. 38(c)(2).
---------------------------------------------------------------------------

Increased section 179 expensing limitation

    An enterprise zone business is allowed an additional 
$35,000 of section 179 expensing (for a total of up to $535,000 
in 2010 and 2011) \513\ for qualified zone property placed in 
service before January 1, 2012.\514\ The section 179 expensing 
allowed to a taxpayer is phased out by the amount by which 50 
percent of the cost of qualified zone property placed in 
service during the year by the taxpayer exceeds 
$2,000,000.\515\ The term ``qualified zone property'' is 
defined as depreciable tangible property (including buildings) 
provided that (i) the property is acquired by the taxpayer 
(from an unrelated party) after the designation took effect, 
(ii) the original use of the property in an empowerment zone 
commences with the taxpayer, and (iii) substantially all of the 
use of the property is in an empowerment zone in the active 
conduct of a trade or business by the taxpayer. Special rules 
are provided in the case of property that is substantially 
renovated by the taxpayer.
---------------------------------------------------------------------------
    \513\ The Small Business Jobs Act of 2010, Pub. L. No. 111-240, 
sec. 2021.
    \514\ Secs. 1397A, 1397D.
    \515\ Sec. 1397A(a)(2), 179(b)(2). For 2012 the limit is $500,000. 
For taxable years beginning after 2012, the limit is $200,000.
---------------------------------------------------------------------------
    An enterprise zone business means any qualified business 
entity and any qualified proprietorship. A qualified business 
entity means, any corporation or partnership if for such year: 
(1) every trade or business of such entity is the active 
conduct of a qualified business within an empowerment zone; (2) 
at least 50 percent of the total gross income of such entity is 
derived from the active conduct of such business; (3) a 
substantial portion of the use of the tangible property of such 
entity (whether owned or leased) is within an empowerment zone; 
(4) a substantial portion of the intangible property of such 
entity is used in the active conduct of any such business; (5) 
a substantial portion of the services performed for such entity 
by its employees are performed in an empowerment zone; (6) at 
least 35 percent of its employees are residents of an 
empowerment zone; (7) less than five percent of the average of 
the aggregate unadjusted bases of the property of such entity 
is attributable to collectibles other than collectibles that 
are held primarily for sale to customers in the ordinary course 
of such business; and (8) less than five percent of the average 
of the aggregate unadjusted bases of the property of such 
entity is attributable to nonqualified financial property.\516\
---------------------------------------------------------------------------
    \516\ Sec. 1397C(b).
---------------------------------------------------------------------------
    A qualified proprietorship is any qualified business 
carried on by an individual as a proprietorship if for such 
year: (1) at least 50 percent of the total gross income of such 
individual from such business is derived from the active 
conduct of such business in an empowerment zone; (2) a 
substantial portion of the use of the tangible property of such 
individual in such business (whether owned or leased) is within 
an empowerment zone; (3) a substantial portion of the 
intangible property of such business is used in the active 
conduct of such business; (4) a substantial portion of the 
services performed for such individual in such business by 
employees of such business are performed in an empowerment 
zone; (5) at least 35 percent of such employees are residents 
of an empowerment zone; (6) less than five percent of the 
average of the aggregate unadjusted bases of the property of 
such individual which is used in such business is attributable 
to collectibles other than collectibles that are held primarily 
for sale to customers in the ordinary course of such business; 
and (7) less than five percent of the average of the aggregate 
unadjusted bases of the property of such individual which is 
used in such business is attributable to nonqualified financial 
property.\517\
---------------------------------------------------------------------------
    \517\ Sec. 1397C(c).
---------------------------------------------------------------------------
    A qualified business is defined as any trade or business 
other than a trade or business that consists predominantly of 
the development or holding of intangibles for sale or license 
or any business prohibited in connection with the employment 
credit.\518\ In addition, the leasing of real property that is 
located within the empowerment zone is treated as a qualified 
business only if (1) the leased property is not residential 
property, and (2) at least 50 percent of the gross rental 
income from the real property is from enterprise zone 
businesses. The rental of tangible personal property is not a 
qualified business unless at least 50 percent of the rental of 
such property is by enterprise zone businesses or by residents 
of an empowerment zone.
---------------------------------------------------------------------------
    \518\ Sec. 1397C(d). Excluded businesses include any private or 
commercial golf course, country club, massage parlor, hot tub facility, 
sun tan facility, racetrack, or other facility used for gambling or any 
store the principal business of which is the sale of alcoholic 
beverages for off-premises consumption. Sec. 144(c)(6).
---------------------------------------------------------------------------

Expanded tax-exempt financing for certain zone facilities

    States or local governments can issue enterprise zone 
facility bonds to raise funds to provide an enterprise zone 
business with qualified zone property.\519\ These bonds can be 
used in areas designated enterprise communities as well as 
areas designated empowerment zones. To qualify, 95 percent (or 
more) of the net proceeds from the bond issue must be used to 
finance: (1) qualified zone property whose principal user is an 
enterprise zone business, and (2) certain land functionally 
related and subordinate to such property.
---------------------------------------------------------------------------
    \519\ Sec. 1394.
---------------------------------------------------------------------------
    The term enterprise zone business is the same as that used 
for purposes of the increased section 179 deduction limitation 
(discussed above) with certain modifications for start-up 
businesses. First, a business will be treated as an enterprise 
zone business during a start-up period if (1) at the beginning 
of the period, it is reasonable to expect the business to be an 
enterprise zone business by the end of the start-up period, and 
(2) the business makes bona fide efforts to be an enterprise 
zone business. The start-up period is the period that ends with 
the start of the first tax year beginning more than two years 
after the later of (1) the issue date of the bond issue 
financing the qualified zone property, and (2) the date this 
property is first placed in service (or, if earlier, the date 
that is three years after the issue date).\520\
---------------------------------------------------------------------------
    \520\ Sec. 1394(b)(3).
---------------------------------------------------------------------------
    Second, a business that qualifies as an enterprise zone 
business at the end of the start-up period must continue to 
qualify during a testing period that ends three tax years after 
the start-up period ends. After the three-year testing period, 
a business will continue to be treated as an enterprise zone 
business as long as 35 percent of its employees are residents 
of an empowerment zone or enterprise community.
    The face amount of the bonds may not exceed $60 million for 
an empowerment zone in a rural area, $130 million for an 
empowerment zone in an urban area with zone population of less 
than 100,000, and $230 million for an empowerment zone in an 
urban area with zone population of at least 100,000.

Elective rollover of capital gain from the sale or exchange of any 
        qualified empowerment zone asset

    Taxpayers can elect to defer recognition of gain on the 
sale of a qualified empowerment zone asset \521\ held for more 
than one year and replaced within 60 days by another qualified 
empowerment zone asset in the same zone.\522\ The deferral is 
accomplished by reducing the basis of the replacement asset by 
the amount of the gain recognized on the sale of the asset.
---------------------------------------------------------------------------
    \521\ The term ``qualified empowerment zone asset'' means any 
property which would be a qualified community asset (as defined in 
section 1400F, relating to certain tax benefits for renewal 
communities) if in section 1400F: (i) references to empowerment zones 
were substituted for references to renewal communities, (ii) references 
to enterprise zone businesses (as defined in section 1397C) were 
substituted for references to renewal community businesses, and (iii) 
the date of the enactment of this paragraph were substituted for 
``December 31, 2001'' each place it appears. Sec. 1397B(b)(1)(A).
    A ``qualified community asset'' includes: (1) qualified community 
stock (meaning original-issue stock purchased for cash in an enterprise 
zone business), (2) a qualified community partnership interest (meaning 
a partnership interest acquired for cash in an enterprise zone 
business), and (3) qualified community business property (meaning 
tangible property originally used in an enterprise zone business by the 
taxpayer) that is purchased or substantially improved after the date of 
the enactment of this paragraph.
    \522\ Sec. 1397B.
---------------------------------------------------------------------------

Partial exclusion of capital gains on certain small business stock

    Generally, individuals may exclude a percentage of gain 
from the sale of certain small business stock acquired at 
original issue and held at least five years.\523\ For stock 
acquired prior to February 18, 2009, or after December 31, 
2013, the percentage is generally 50 percent, except that for 
empowerment zone stock the percentage is 60 percent for gain 
attributable to periods before January 1, 2019. For stock 
acquired after February 17, 2009, and before January 1, 2014, a 
higher percentage (either 75-percent or 100-percent) applies to 
all small business stock with no additional percentage for 
empowerment zone stock.\524\
---------------------------------------------------------------------------
    \523\ Sec. 1202.
    \524\ Section 136 of the Act extends the 100-percent exclusion to 
small business stock acquired during 2014.
---------------------------------------------------------------------------

Other tax incentives

    Other incentives not specific to empowerment zones but 
beneficial to these areas include the work opportunity tax 
credit for employers based on the first year of employment of 
certain targeted groups, including empowerment zone residents 
(up to $2,400 per employee), and qualified zone academy bonds 
for certain public schools located in an empowerment zone, or 
expected (as of the date of bond issuance) to have at least 35 
percent of its students receiving free or reduced lunches.

                        Explanation of Provision

    The provision extends for one year, through December 31, 
2014, the period for which the designation of an empowerment 
zone is in effect, thus extending for one year the empowerment 
zone tax incentives, including the wage credit, increased 
section 179 expensing for qualifying equipment, tax-exempt bond 
financing, and deferral of capital gains tax on sale of 
qualified assets replaced with other qualified assets. In the 
case of a designation of an empowerment zone the nomination for 
which included a termination date which is December 31, 2013, 
termination shall not apply with respect to such designation if 
the entity which made such nomination amends the nomination to 
provide for a new termination date in such manner as the 
Secretary may provide.

                             Effective Date

    The provision applies to periods after December 31, 2013.

30. Extension of temporary increase in limit on cover over of rum 
        excise taxes to Puerto Rico and the Virgin Islands (sec. 140 of 
        the Act and sec. 7652(f) of the Code)

                              Present Law

    A $13.50 per proof gallon \525\ excise tax is imposed on 
distilled spirits produced in or imported into the United 
States.\526\ The excise tax does not apply to distilled spirits 
that are exported from the United States, including exports to 
U.S. possessions (e.g., Puerto Rico and the Virgin 
Islands).\527\
---------------------------------------------------------------------------
    \525\ A proof gallon is a liquid gallon consisting of 50 percent 
alcohol. See sec. 5002(a)(10) and (11).
    \526\ Sec. 5001(a)(1).
    \527\ Secs. 5214(a)(1)(A), 5002(a)(15), 7653(b) and (c). See also 
Treas. Reg. Sec. 48.0-2(a)(11) for the definition of ``possession of 
the United States'' for purposes of the manufacturers and retailers 
excise tax regulations.
---------------------------------------------------------------------------
    The Code provides for cover over (payment) to Puerto Rico 
and the Virgin Islands of the excise tax imposed on rum 
imported (or brought) into the United States, without regard to 
the country of origin.\528\ The amount of the cover over is 
limited under Code section 7652(f) to $10.50 per proof gallon 
($13.25 per proof gallon after June 30, 1999, and before 
January 1, 2014).
---------------------------------------------------------------------------
    \528\ Secs. 7652(a)(3), (b)(3), and (e)(1). One percent of the 
amount of excise tax collected from imports into the United States of 
articles produced in the Virgin Islands is retained by the United 
States under section 7652(b)(3).
---------------------------------------------------------------------------
    Tax amounts attributable to shipments to the United States 
of rum produced in Puerto Rico are covered over to Puerto Rico. 
Tax amounts attributable to shipments to the United States of 
rum produced in the Virgin Islands are covered over to the 
Virgin Islands. Tax amounts attributable to shipments to the 
United States of rum produced in neither Puerto Rico nor the 
Virgin Islands are divided and covered over to the two 
possessions under a formula.\529\ Amounts covered over to 
Puerto Rico and the Virgin Islands are deposited into the 
treasuries of the two possessions for use as those possessions 
determine.\530\ All of the amounts covered over are subject to 
the limitation.
---------------------------------------------------------------------------
    \529\ Sec. 7652(e)(2).
    \530\ Secs. 7652(a)(3), (b)(3), and (e)(1).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision suspends for one year the $10.50 per proof 
gallon limitation on the amount of excise taxes on rum covered 
over to Puerto Rico and the Virgin Islands. Under the 
provision, the cover over limitation of $13.25 per proof gallon 
is extended for rum brought into the United States after 
December 31, 2013 and before January 1, 2015. After December 
31, 2014, the cover over amount reverts to $10.50 per proof 
gallon.

                             Effective Date

    The provision is effective for articles brought into the 
United States after December 31, 2013.

31. Extension of American Samoa Economic Development Credit (sec. 141 
        of the Act and sec. 119 of Pub. L. No. 109-432)

                              Present Law

    A domestic corporation that was an existing credit claimant 
with respect to American Samoa and that elected the application 
of section 936 for its last taxable year beginning before 
January 1, 2006 is allowed a credit based on the corporation's 
economic activity-based limitation with respect to American 
Samoa. The credit is not part of the Code but is computed based 
on the rules of sections 30A and 936. The credit is allowed for 
the first eight taxable years of a corporation that begin after 
December 31, 2005, and before January 1, 2014.
    A corporation was an existing credit claimant with respect 
to American Samoa if (1) the corporation was engaged in the 
active conduct of a trade or business within American Samoa on 
October 13, 1995, and (2) the corporation elected the benefits 
of the possession tax credit \531\ in an election in effect for 
its taxable year that included October 13, 1995.\532\ A 
corporation that added a substantial new line of business 
(other than in a qualifying acquisition of all the assets of a 
trade or business of an existing credit claimant) ceased to be 
an existing credit claimant as of the close of the taxable year 
ending before the date on which that new line of business was 
added.
---------------------------------------------------------------------------
    \531\ For taxable years beginning before January 1, 2006, certain 
domestic corporations with business operations in the U.S. possessions 
were eligible for the possession tax credit. Secs. 27(b), 936. This 
credit offset the U.S. tax imposed on certain income related to 
operations in the U.S. possessions. Subject to certain limitations, the 
amount of the possession tax credit allowed to any domestic corporation 
equaled the portion of that corporation's U.S. tax that was 
attributable to the corporation's non-U.S. source taxable income from 
(1) the active conduct of a trade or business within a U.S. possession, 
(2) the sale or exchange of substantially all of the assets that were 
used in such a trade or business, or (3) certain possessions 
investment. No deduction or foreign tax credit was allowed for any 
possessions or foreign tax paid or accrued with respect to taxable 
income that was taken into account in computing the credit under 
section 936. Under the economic activity-based limit, the amount of the 
credit could not exceed an amount equal to the sum of (1) 60 percent of 
the taxpayer's qualified possession wages and allocable employee fringe 
benefit expenses, (2) 15 percent of depreciation allowances with 
respect to short-life qualified tangible property, plus 40 percent of 
depreciation allowances with respect to medium-life qualified tangible 
property, plus 65 percent of depreciation allowances with respect to 
long-life qualified tangible property, and (3) in certain cases, a 
portion of the taxpayer's possession income taxes. A taxpayer could 
elect, instead of the economic activity-based limit, a limit equal to 
the applicable percentage of the credit that otherwise would have been 
allowable with respect to possession business income, beginning in 
1998, the applicable percentage was 40 percent.
    To qualify for the possession tax credit for a taxable year, a 
domestic corporation was required to satisfy two conditions. First, the 
corporation was required to derive at least 80 percent of its gross 
income for the three-year period immediately preceding the close of the 
taxable year from sources within a possession. Second, the corporation 
was required to derive at least 75 percent of its gross income for that 
same period from the active conduct of a possession business. Sec. 
936(a)(2). The section 936 credit generally expired for taxable years 
beginning after December 31, 2005.
    \532\ A corporation will qualify as an existing credit claimant if 
it acquired all the assets of a trade or business of a corporation that 
(1) actively conducted that trade or business in a possession on 
October 13, 1995, and (2) had elected the benefits of the possession 
tax credit in an election in effect for the taxable year that included 
October 13, 1995.
---------------------------------------------------------------------------
    The amount of the credit allowed to a qualifying domestic 
corporation under the provision is equal to the sum of the 
amounts used in computing the corporation's economic activity-
based limitation with respect to American Samoa, except that no 
credit is allowed for the amount of any American Samoa income 
taxes. Thus, for any qualifying corporation the amount of the 
credit equals the sum of (1) 60 percent of the corporation's 
qualified American Samoa wages and allocable employee fringe 
benefit expenses and (2) 15 percent of the corporation's 
depreciation allowances with respect to short-life qualified 
American Samoa tangible property, plus 40 percent of the 
corporation's depreciation allowances with respect to medium-
life qualified American Samoa tangible property, plus 65 
percent of the corporation's depreciation allowances with 
respect to long-life qualified American Samoa tangible 
property.
    The section 936(c) rule denying a credit or deduction for 
any possessions or foreign tax paid with respect to taxable 
income taken into account in computing the credit under section 
936 does not apply with respect to the credit allowed by the 
provision.
    For taxable years beginning after December 31, 2011 the 
credit rules are modified in two ways. First, domestic 
corporations with operations in American Samoa are allowed the 
credit even if those corporations are not existing credit 
claimants. Second, the credit is available to a domestic 
corporation (either an existing credit claimant or a new credit 
claimant) only if, in addition to satisfying all the present 
law requirements for claiming the credit, the corporation also 
has qualified production activities income (as defined in 
section 199(c) by substituting ``American Samoa'' for ``the 
United States'' in each place that latter term appears).
    In the case of a corporation that is an existing credit 
claimant with respect to American Samoa and that elected the 
application of section 936 for its last taxable year beginning 
before January 1, 2006, the credit applies to the first eight 
taxable years of the corporation which begin after December 31, 
2005, and before January 1, 2014. For any other corporation, 
the credit applies to the first two taxable years of that 
corporation which begin after December 31, 2011 and before 
January 1, 2014.

                        Explanation of Provision

    The provision extends the credit for one year to apply (a) 
in the case of a corporation that is an existing credit 
claimant with respect to American Samoa and that elected the 
application of section 936 for its last taxable year beginning 
before January 1, 2006, to the first nine taxable years of the 
corporation which begin after December 31, 2005, and before 
January 1, 2015, and (b) in the case of any other corporation, 
to the first three taxable years of the corporation which begin 
after December 31, 2011 and before January 1, 2015.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2013.

                  C. Subtitle C--Energy Tax Extenders


1. Extension of credit for nonbusiness energy property (sec. 151 of the 
        Act and sec. 25C of the Code)

                              Present Law

    Present law provides a 10-percent credit for the purchase 
of qualified energy efficiency improvements to existing 
homes.\533\ A qualified energy efficiency improvement is any 
energy efficiency building envelope component (1) that meets or 
exceeds the prescriptive criteria for such a component 
established by the 2009 International Energy Conservation Code 
as such Code (including supplements) is in effect on the date 
of the enactment of the American Recovery and Reinvestment Tax 
Act of 2009 \534\ (or, in the case of windows, skylights and 
doors, and metal roofs with appropriate pigmented coatings or 
asphalt roofs with appropriate cooling granules, meets the 
Energy Star program requirements); (2) that is installed in or 
on a dwelling located in the United States and owned and used 
by the taxpayer as the taxpayer's principal residence; (3) the 
original use of which commences with the taxpayer; and (4) that 
reasonably can be expected to remain in use for at least five 
years. The credit is nonrefundable.
---------------------------------------------------------------------------
    \533\ Sec. 25C.
    \534\ Pub. L. No. 111-5, February 17, 2009.
---------------------------------------------------------------------------
    Building envelope components are: (1) insulation materials 
or systems which are specifically and primarily designed to 
reduce the heat loss or gain for a dwelling and which meet the 
prescriptive criteria for such material or system established 
by the 2009 International Energy Conservation Code, as such 
Code (including supplements) is in effect on the date of the 
enactment of the American Recovery and Reinvestment Tax Act of 
2009; \535\ (2) exterior windows (including skylights) and 
doors; and (3) metal or asphalt roofs with appropriate 
pigmented coatings or cooling granules that are specifically 
and primarily designed to reduce the heat gain for a dwelling.
---------------------------------------------------------------------------
    \535\ Ibid.
---------------------------------------------------------------------------
    Additionally, present law provides specified credits for 
the purchase of specific energy efficient property originally 
placed in service by the taxpayer during the taxable year. The 
allowable credit for the purchase of certain property is (1) 
$50 for each advanced main air circulating fan, (2) $150 for 
each qualified natural gas, propane, or oil furnace or hot 
water boiler, and (3) $300 for each item of energy efficient 
building property.
    An advanced main air circulating fan is a fan used in a 
natural gas, propane, or oil furnace and which has an annual 
electricity use of no more than two percent of the total annual 
energy use of the furnace (as determined in the standard 
Department of Energy test procedures).
    A qualified natural gas, propane, or oil furnace or hot 
water boiler is a natural gas, propane, or oil furnace or hot 
water boiler with an annual fuel utilization efficiency rate of 
at least 95.
    Energy-efficient building property is: (1) an electric heat 
pump water heater which yields an energy factor of at least 2.0 
in the standard Department of Energy test procedure, (2) an 
electric heat pump which achieves the highest efficiency tier 
established by the Consortium for Energy Efficiency, as in 
effect on January 1, 2009,\536\ (3) a central air conditioner 
which achieves the highest efficiency tier established by the 
Consortium for Energy Efficiency as in effect on January 1, 
2009,\537\ (4) a natural gas, propane, or oil water heater 
which has an energy factor of at least 0.82 or thermal 
efficiency of at least 90 percent, and (5) biomass fuel 
property.
---------------------------------------------------------------------------
    \536\ These standards are a seasonal energy efficiency ratio 
(``SEER'') greater than or equal to 15, an energy efficiency ratio 
(``EER'') greater than or equal to 12.5, and heating seasonal 
performance factor (``HSPF'') greater than or equal to 8.5 for split 
heat pumps, and SEER greater than or equal to 14, EER greater than or 
equal to 12, and HSPF greater than or equal to 8.0 for packaged heat 
pumps.
    \537\ These standards are a SEER greater than or equal to 16 and 
EER greater than or equal to 13 for split systems, and SEER greater 
than or equal to 14 and EER greater than or equal to 12 for packaged 
systems.
---------------------------------------------------------------------------
    Biomass fuel property is a stove that burns biomass fuel to 
heat a dwelling unit located in the United States and used as a 
principal residence by the taxpayer, or to heat water for such 
dwelling unit, and that has a thermal efficiency rating of at 
least 75 percent. Biomass fuel is any plant-derived fuel 
available on a renewable or recurring basis, including 
agricultural crops and trees, wood and wood waste and residues 
(including wood pellets), plants (including aquatic plants), 
grasses, residues, and fibers.
    The credit is available for property placed in service 
prior to January 1, 2014. The maximum credit for a taxpayer for 
all taxable years is $500, and no more than $200 of such credit 
may be attributable to expenditures on windows.
    The taxpayer's basis in the property is reduced by the 
amount of the credit. Special proration rules apply in the case 
of jointly owned property, condominiums, and tenant-
stockholders in cooperative housing corporations. If less than 
80 percent of the property is used for nonbusiness purposes, 
only that portion of expenditures that is used for nonbusiness 
purposes is taken into account.
    For purposes of determining the amount of expenditures made 
by any individual with respect to any dwelling unit, 
expenditures which are made from subsidized energy financing 
are not taken into account. The term ``subsidized energy 
financing'' means financing provided under a Federal, State, or 
local program a principal purpose of which is to provide 
subsidized financing for projects designed to conserve or 
produce energy.

                        Explanation of Provision

    The provision extends the credit for one year, through 
December 31, 2014.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2013.

2. Extension of second generation biofuel producer credit (sec. 152 of 
        the Act and sec. 40(b)(6) of the Code)

                              Present Law

    The second generation biofuel producer credit is a 
nonrefundable income tax credit for each gallon of qualified 
second generation biofuel fuel production of the producer for 
the taxable year. The amount of the credit per gallon is $1.01. 
The provision does not apply to fuel sold or used after 
December 31, 2013.
    ``Qualified second generation biofuel production'' is any 
second generation biofuel which is produced by the taxpayer and 
which, during the taxable year, is: (1) sold by the taxpayer to 
another person (a) for use by such other person in the 
production of a qualified second generation biofuel mixture in 
such person's trade or business (other than casual off-farm 
production), (b) for use by such other person as a fuel in a 
trade or business, or (c) who sells such second generation 
biofuel at retail to another person and places such cellulosic 
biofuel in the fuel tank of such other person; or (2) used by 
the producer for any purpose described in (1)(a), (b), or 
(c).\538\ Special rules apply for fuel derived from algae.
---------------------------------------------------------------------------
    \538\ In addition, for fuels derived from algae, cyanobacterial or 
lemna, a special rule provides that qualified second generation biofuel 
includes fuel that is sold by the taxpayer to another person for 
refining by such other person into a fuel that meets the registration 
requirements for fuels and fuel additives under section 211 of the 
Clean Air Act.
---------------------------------------------------------------------------
    ``Second generation biofuel'' means any liquid fuel that 
(1) is produced in the United States and used as fuel in the 
United States, (2) is derived by or from qualified feedstocks 
and (3) meets the registration requirements for fuels and fuel 
additives established by the Environmental Protection Agency 
(``EPA'') under section 211 of the Clean Air Act. ``Qualified 
feedstock'' means any lignocellulosic or hemicellulosic matter 
that is available on a renewable or recurring basis, and any 
cultivated algae, cyanobacteria or lemna. Second generation 
biofuel does not include fuels that (1) are more than four 
percent (determined by weight) water and sediment in any 
combination, (2) have an ash content of more than one percent 
(determined by weight), or (3) have an acid number greater than 
25 (``unprocessed or excluded fuels''). It also does not 
include any alcohol with a proof of less than 150.
    The second generation biofuel producer credit cannot be 
claimed unless the taxpayer is registered by the Internal 
Revenue Service (``IRS'') as a producer of second generation 
biofuel. Second generation biofuel eligible for the section 40 
credit is precluded from qualifying as biodiesel, renewable 
diesel, or alternative fuel for purposes of the applicable 
income tax credit, excise tax credit, or payment provisions 
relating to those fuels.
    Because it is a credit under section 40(a), the second 
generation biofuel producer credit is part of the general 
business credits in section 38. However, the credit can only be 
carried forward three taxable years after the termination of 
the credit. The credit is also allowable against the 
alternative minimum tax. Under section 87, the credit is 
included in gross income.

                        Explanation of Provision

    The provision extends the credit for one year, through 
December 31, 2014.

                             Effective Date

    The provision is effective for qualified second generation 
biofuel production after December 31, 2013.

3. Extension of incentives for biodiesel and renewable diesel (secs. 
        153 of the Act and secs. 40A, 6426 and 6427(e) of the Code)

                              Present Law


Biodiesel

    Present law provides an income tax credit for biodiesel 
fuels (the ``biodiesel fuels credit'').\539\ The biodiesel 
fuels credit is the sum of three credits: (1) the biodiesel 
mixture credit, (2) the biodiesel credit, and (3) the small 
agri-biodiesel producer credit. The biodiesel fuels credit is 
treated as a general business credit. The amount of the 
biodiesel fuels credit is includible in gross income. The 
biodiesel fuels credit is coordinated to take into account 
benefits from the biodiesel excise tax credit and payment 
provisions discussed below. The credit does not apply to fuel 
sold or used after December 31, 2013.
---------------------------------------------------------------------------
    \539\ Sec. 40A.
---------------------------------------------------------------------------
    Biodiesel is monoalkyl esters of long chain fatty acids 
derived from plant or animal matter that meet (1) the 
registration requirements established by the EPA under section 
211 of the Clean Air Act (42 U.S.C. sec. 7545) and (2) the 
requirements of the American Society of Testing and Materials 
(``ASTM'') D6751. Agri-biodiesel is biodiesel derived solely 
from virgin oils including oils from corn, soybeans, sunflower 
seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, 
flaxseeds, rice bran, mustard seeds, camelina, or animal fats.
    Biodiesel may be taken into account for purposes of the 
credit only if the taxpayer obtains a certification (in such 
form and manner as prescribed by the Secretary) from the 
producer or importer of the biodiesel that identifies the 
product produced and the percentage of biodiesel and agri-
biodiesel in the product.
            Biodiesel mixture credit
    The biodiesel mixture credit is $1.00 for each gallon of 
biodiesel (including agri-biodiesel) used by the taxpayer in 
the production of a qualified biodiesel mixture. A qualified 
biodiesel mixture is a mixture of biodiesel and diesel fuel 
that is (1) sold by the taxpayer producing such mixture to any 
person for use as a fuel, or (2) used as a fuel by the taxpayer 
producing such mixture. The sale or use must be in the trade or 
business of the taxpayer and is to be taken into account for 
the taxable year in which such sale or use occurs. No credit is 
allowed with respect to any casual off-farm production of a 
qualified biodiesel mixture.
    Per IRS guidance a mixture need only contain 1/10th of one 
percent of diesel fuel to be a qualified mixture.\540\ Thus, a 
qualified biodiesel mixture can contain 99.9 percent biodiesel 
and 0.1 percent diesel fuel.
---------------------------------------------------------------------------
    \540\ Notice 2005-62, I.R.B. 2005-35, 443 (2005). ``A biodiesel 
mixture is a mixture of biodiesel and diesel fuel containing at least 
0.1 percent (by volume) of diesel fuel. Thus, for example, a mixture of 
999 gallons of biodiesel and 1 gallon of diesel fuel is a biodiesel 
mixture.''
---------------------------------------------------------------------------
            Biodiesel credit (B-100)
    The biodiesel credit is $1.00 for each gallon of biodiesel 
that is not in a mixture with diesel fuel (100 percent 
biodiesel or B-100) and which during the taxable year is (1) 
used by the taxpayer as a fuel in a trade or business or (2) 
sold by the taxpayer at retail to a person and placed in the 
fuel tank of such person's vehicle.
            Small agri-biodiesel producer credit
    The Code provides a small agri-biodiesel producer income 
tax credit, in addition to the biodiesel and biodiesel mixture 
credits. The credit is 10 cents per gallon for up to 15 million 
gallons of agri-biodiesel produced by small producers, defined 
generally as persons whose agri-biodiesel production capacity 
does not exceed 60 million gallons per year. The agri-biodiesel 
must (1) be sold by such producer to another person (a) for use 
by such other person in the production of a qualified biodiesel 
mixture in such person's trade or business (other than casual 
off-farm production), (b) for use by such other person as a 
fuel in a trade or business, or, (c) who sells such agri-
biodiesel at retail to another person and places such agri-
biodiesel in the fuel tank of such other person; or (2) used by 
the producer for any purpose described in (a), (b), or (c).
            Biodiesel mixture excise tax credit
    The Code also provides an excise tax credit for biodiesel 
mixtures.\541\ The credit is $1.00 for each gallon of biodiesel 
used by the taxpayer in producing a biodiesel mixture for sale 
or use in a trade or business of the taxpayer. A biodiesel 
mixture is a mixture of biodiesel and diesel fuel that (1) is 
sold by the taxpayer producing such mixture to any person for 
use as a fuel or (2) is used as a fuel by the taxpayer 
producing such mixture. No credit is allowed unless the 
taxpayer obtains a certification (in such form and manner as 
prescribed by the Secretary) from the producer of the biodiesel 
that identifies the product produced and the percentage of 
biodiesel and agri-biodiesel in the product.\542\
---------------------------------------------------------------------------
    \541\ Sec. 6426(c).
    \542\ Sec. 6426(c)(4).
---------------------------------------------------------------------------
    The credit is not available for any sale or use for any 
period after December 31, 2013. This excise tax credit is 
coordinated with the income tax credit for biodiesel such that 
credit for the same biodiesel cannot be claimed for both income 
and excise tax purposes.
            Payments with respect to biodiesel fuel mixtures
    If any person produces a biodiesel fuel mixture in such 
person's trade or business, the Secretary is to pay such person 
an amount equal to the biodiesel mixture credit.\543\ The 
biodiesel fuel mixture credit must first be taken against tax 
liability for taxable fuels. To the extent the biodiesel fuel 
mixture credit exceeds such tax liability, the excess may be 
received as a payment. Thus, if the person has no section 4081 
liability, the credit is refundable. The Secretary is not 
required to make payments with respect to biodiesel fuel 
mixtures sold or used after December 31, 2013.
---------------------------------------------------------------------------
    \543\ Sec. 6427(e).
---------------------------------------------------------------------------

Renewable diesel

    ``Renewable diesel'' is liquid fuel that (1) is derived 
from biomass (as defined in section 45K(c)(3)), (2) meets the 
registration requirements for fuels and fuel additives 
established by the EPA under section 211 of the Clean Air Act, 
and (3) meets the requirements of the ASTM D975 or D396, or 
equivalent standard established by the Secretary. ASTM D975 
provides standards for diesel fuel suitable for use in diesel 
engines. ASTM D396 provides standards for fuel oil intended for 
use in fuel-oil burning equipment, such as furnaces. Renewable 
diesel also includes fuel derived from biomass that meets the 
requirements of a Department of Defense specification for 
military jet fuel or an ASTM specification for aviation turbine 
fuel.
    For purposes of the Code, renewable diesel is generally 
treated the same as biodiesel. In the case of renewable diesel 
that is aviation fuel, kerosene is treated as though it were 
diesel fuel for purposes of a qualified renewable diesel 
mixture. Like biodiesel, the incentive may be taken as an 
income tax credit, an excise tax credit, or as a payment from 
the Secretary.\544\ The incentive for renewable diesel is $1.00 
per gallon. There is no small producer credit for renewable 
diesel. The incentives for renewable diesel expired after 
December 31, 2013.
---------------------------------------------------------------------------
    \544\ Secs. 40A(f), 6426(c), and 6427(e).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the income tax credit, excise tax 
credit and payment provisions for biodiesel and renewable 
diesel for one year, through December 31, 2014.
    In light of the retroactive nature of the provision, as it 
relates to fuel sold or used in 2014, the provision creates a 
special rule to address claims regarding excise credits and 
claims for payment associated with periods occurring during 
2014. In particular the provision directs the Secretary to 
issue guidance within 30 days of the date of enactment. Such 
guidance is to provide for a one-time submission of claims 
covering periods occurring during 2014. The guidance is to 
provide for a 180-day period for the submission of such claims 
(in such manner as prescribed by the Secretary) to begin no 
later than 30 days after such guidance is issued.\545\ Such 
claims shall be paid by the Secretary of the Treasury not later 
than 60 days after receipt. If the claim is not paid within 60 
days of the date of the filing, the claim shall be paid with 
interest from such date determined by using the overpayment 
rate and method under section 6621 of the Code.
---------------------------------------------------------------------------
    \545\ This guidance is provided by Notice 2015-3, 2015-6 I.R.B 583.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for fuel sold or used after 
December 31, 2013.

4. Extension of credit for the production of Indian coal facilities 
        placed in service before 2009 (sec. 154 of the Act and sec. 
        45(e)(10) of the Code)

                              Present Law

    A credit is available for the production of Indian coal 
sold to an unrelated third party from a qualified facility for 
a seven-year period beginning January 1, 2006, and ending 
December 31, 2013. The amount of the credit for Indian coal is 
$1.50 per ton for the first four years of the seven-year period 
and $2.00 per ton for the last three years of the seven-year 
period. Beginning in calendar years after 2006, the credit 
amounts are indexed annually for inflation using 2005 as the 
base year. The credit amount for 2014 is $2.317 per ton.
    A qualified Indian coal facility is a facility placed in 
service before January 1, 2009, that produces coal from 
reserves that on June 14, 2005, were owned by a Federally 
recognized tribe of Indians or were held in trust by the United 
States for a tribe or its members.
    The credit is a component of the general business 
credit,\546\ allowing excess credits to be carried back one 
year and forward up to 20 years. The credit is also subject to 
the alternative minimum tax.
---------------------------------------------------------------------------
    \546\ Sec. 38(b)(8).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for the production of 
Indian coal for one year (through December 31, 2014).

                             Effective Date

    The provision is effective for Indian coal produced after 
December 31, 2013.

5. Extension of credits with respect to facilities producing energy 
        from certain renewable resources (sec. 155 of the Act and secs. 
        45 and 48 of the Code)

                              Present Law


Renewable electricity production credit

    An income tax credit is allowed for the production of 
electricity from qualified energy resources at qualified 
facilities (the ``renewable electricity production 
credit'').\547\ Qualified energy resources comprise wind, 
closed-loop biomass, open-loop biomass, geothermal energy, 
solar energy, small irrigation power, municipal solid waste, 
qualified hydropower production, and marine and hydrokinetic 
renewable energy. Qualified facilities are, generally, 
facilities that generate electricity using qualified energy 
resources. To be eligible for the credit, electricity produced 
from qualified energy resources at qualified facilities must be 
sold by the taxpayer to an unrelated person.
---------------------------------------------------------------------------
    \547\ Sec. 45. In addition to the renewable electricity production 
credit, section 45 also provides income tax credits for the production 
of Indian coal and refined coal at qualified facilities.

    SUMMARY OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE
                                RESOURCES
------------------------------------------------------------------------
                                Credit amount
     Eligible electricity       for 2014 \1\
production activity (sec. 45)    (cents per          Expiration \2\
                               kilowatt-hour)
------------------------------------------------------------------------
Wind.........................             2.3  December 31, 2013
Closed-loop biomass..........             2.3  December 31, 2013
Open-loop biomass (including              1.1  December 31, 2013
 agricultural livestock waste
 nutrient facilities).
Geothermal...................             2.3  December 31, 2013
Solar (pre-2006 facilities                2.3  December 31, 2005
 only).
Small irrigation power.......             1.1  December 31, 2013
Municipal solid waste                     1.1  December 31, 2013
 (including landfill gas
 facilities and trash
 combustion facilities).
Qualified hydropower.........             1.1  December 31, 2013
Marine and hydrokinetic......             1.1  December 31, 2013
------------------------------------------------------------------------
\1\ In general, the credit is available for electricity produced during
  the first 10 years after a facility has been placed in service.
\2\ Expires for property the construction of which begins after this
  date.

Election to claim energy credit in lieu of renewable electricity 
        production credit

    A taxpayer may make an irrevocable election to have certain 
property which is part of a qualified renewable electricity 
production facility be treated as energy property eligible for 
a 30 percent investment credit under section 48. For this 
purpose, qualified facilities are facilities otherwise eligible 
for the renewable electricity production credit with respect to 
which no credit under section 45 has been allowed. A taxpayer 
electing to treat a facility as energy property may not claim 
the renewable electricity production credit. The eligible basis 
for the investment credit for taxpayers making this election is 
the basis of the depreciable (or amortizable) property that is 
part of a facility capable of generating electricity eligible 
for the renewable electricity production credit.

                        Explanation of Provision

    The provision extends the renewable electricity production 
credit and the election to claim the energy credit in lieu of 
the electricity production credit for one year, through 
December 31, 2014.

                             Effective Date

    The provision is effective on January 1, 2014.

6. Extension of credit for energy-efficient new homes (sec. 156 of the 
        Act and sec. 45L of the Code)

                              Present Law

    Present law provides a credit to an eligible contractor for 
each qualified new energy-efficient home that is constructed by 
the eligible contractor and acquired by a person from such 
eligible contractor for use as a residence during the taxable 
year. To qualify as a new energy-efficient home, the home must 
be: (1) a dwelling located in the United States, (2) 
substantially completed after August 8, 2005, and (3) certified 
in accordance with guidance prescribed by the Secretary to have 
a projected level of annual heating and cooling energy 
consumption that meets the standards for either a 30-percent or 
50-percent reduction in energy usage, compared to a comparable 
dwelling constructed in accordance with the standards of 
chapter 4 of the 2006 International Energy Conservation Code as 
in effect (including supplements) on January 1, 2006, and any 
applicable Federal minimum efficiency standards for equipment. 
With respect to homes that meet the 30-percent standard, one-
third of such 30-percent savings must come from the building 
envelope, and with respect to homes that meet the 50-percent 
standard, one-fifth of such 50-percent savings must come from 
the building envelope.
    Manufactured homes that conform to Federal manufactured 
home construction and safety standards are eligible for the 
credit provided all the criteria for the credit are met. The 
eligible contractor is the person who constructed the home, or 
in the case of a manufactured home, the producer of such home.
    The credit equals $1,000 in the case of a new home that 
meets the 30-percent standard and $2,000 in the case of a new 
home that meets the 50-percent standard. Only manufactured 
homes are eligible for the $1,000 credit.
    In lieu of meeting the standards of chapter 4 of the 2006 
International Energy Conservation Code, manufactured homes 
certified by a method prescribed by the Administrator of the 
Environmental Protection Agency under the Energy Star Labeled 
Homes program are eligible for the $1,000 credit provided 
criteria (1) and (2), above, are met.
    The credit applies to homes that are acquired prior to 
January 1, 2014. The credit is part of the general business 
credit.

                        Explanation of Provision

    The provision extends the credit for one year for homes 
that are acquired prior to January 1, 2015.

                             Effective Date

    The provision is effective for homes acquired after 
December 31, 2013.

7. Extension of special allowance for second generation biofuel plant 
        property (sec. 157 of the Act and sec. 168(l) of the Code)

                              Present Law

    Present law \548\ allows an additional first-year 
depreciation deduction equal to 50 percent of the adjusted 
basis of qualified second generation biofuel plant property. In 
order to qualify, the property generally must be placed in 
service before January 1, 2014.\549\
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    \548\ Sec. 168(l).
    \549\ Sec. 168(l)(2)(D).
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    Qualified second generation biofuel plant property means 
depreciable property used in the U.S. solely to produce any 
liquid fuel that (1) is derived from qualified feedstocks, and 
(2) meets the registration requirements for fuels and fuel 
additives established by the Environmental Protection Agency 
(``EPA'') under section 211 of the Clean Air Act.\550\ 
Qualified feedstocks means any lignocellulosic or 
hemicellulosic matter that is available on a renewable or 
recurring basis \551\ and any cultivated algae, cyanobacteria, 
or lemna.\552\ Second generation biofuel does not include any 
alcohol with a proof of less than 150 or certain unprocessed 
fuel.\553\ Unprocessed fuels are fuels that (1) are more than 
four percent (determined by weight) water and sediment in any 
combination, (2) have an ash content of more than one percent 
(determined by weight), or (3) have an acid number greater than 
25.\554\
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    \550\ Secs. 168(l)(2)(A) and 40(b)(6)(E).
    \551\ For example, lignocellulosic or hemicellulosic matter that is 
available on a renewable or recurring basis includes bagasse (from 
sugar cane), corn stalks, and switchgrass.
    \552\ Sec. 40(b)(6)(F).
    \553\ Sec. 40(b)(6)(E)(ii) and (iii).
    \554\ Sec. 40(b)(6)(E)(iii).
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    The additional first-year depreciation deduction is allowed 
for both regular tax and alternative minimum tax purposes for 
the taxable year in which the property is placed in 
service.\555\ The additional first-year depreciation deduction 
is subject to the general rules regarding whether an item is 
subject to capitalization under section 263A. The basis of the 
property and the depreciation allowances in the year of 
purchase and later years are appropriately adjusted to reflect 
the additional first-year depreciation deduction.\556\ In 
addition, there is no adjustment to the allowable amount of 
depreciation for purposes of computing a taxpayer's alternative 
minimum taxable income with respect to property to which the 
provision applies.\557\ A taxpayer is allowed to elect out of 
the additional first-year depreciation for any class of 
property for any taxable year.\558\
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    \555\ Sec. 168(l)(5).
    \556\ Sec. 168(l)(1)(B).
    \557\ Sec. 168(l)(5) and 168(k)(2)(G).
    \558\ Sec. 168(l)(3)(D).
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    In order for property to qualify for the additional first-
year depreciation deduction, it must meet the following 
requirements: (1) the original use of the property must 
commence with the taxpayer on or after December 20, 2006; and 
(2) the property must be (i) acquired by purchase (as defined 
under section 179(d)) by the taxpayer after December 20, 2006, 
and (ii) placed in service before January 1, 2014.\559\ 
Property does not qualify if a binding written contract for the 
acquisition of such property was in effect on or before 
December 20, 2006.
---------------------------------------------------------------------------
    \559\ Sec. 168(l)(2).
---------------------------------------------------------------------------
    Property that is manufactured, constructed, or produced by 
the taxpayer for use by the taxpayer qualifies if the taxpayer 
begins the manufacture, construction, or production of the 
property after December 20, 2006, and the property is placed in 
service before January 1, 2014 (and all other requirements are 
met).\560\ Property that is manufactured, constructed, or 
produced for the taxpayer by another person under a contract 
that is entered into prior to the manufacture, construction, or 
production of the property is considered to be manufactured, 
constructed, or produced by the taxpayer.
---------------------------------------------------------------------------
    \560\ Sec. 168(l)(4) and 168(k)(2)(E).
---------------------------------------------------------------------------
    Property any portion of which is financed with the proceeds 
of a tax-exempt obligation under section 103 is not eligible 
for the additional first-year depreciation deduction.\561\ 
Recapture rules apply if the property ceases to be qualified 
second generation biofuel plant property.\562\
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    \561\ Sec. 168(l)(3)(C).
    \562\ Sec. 168(l)(6).
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    Property with respect to which the taxpayer has elected 50 
percent expensing under section 179C is not eligible for the 
additional first-year depreciation deduction.\563\
---------------------------------------------------------------------------
    \563\ Sec. 168(l)(7).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the present law special depreciation 
allowance for one year, to qualified second generation biofuel 
plant property placed in service prior to January 1, 2015.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2013.

8. Extension of energy efficient commercial buildings deduction (sec. 
        158 of the Act and sec. 179D of the Code)

                              Present Law


In general

    Code section 179D provides an election under which a 
taxpayer may take an immediate deduction equal to energy-
efficient commercial building property expenditures made by the 
taxpayer. Energy-efficient commercial building property is 
defined as property (1) which is installed on or in any 
building located in the United States that is within the scope 
of Standard 90.1-2001 of the American Society of Heating, 
Refrigerating, and Air Conditioning Engineers and the 
Illuminating Engineering Society of North America (``ASHRAE/
IESNA''), (2) which is installed as part of (i) the interior 
lighting systems, (ii) the heating, cooling, ventilation, and 
hot water systems, or (iii) the building envelope, and (3) 
which is certified as being installed as part of a plan 
designed to reduce the total annual energy and power costs with 
respect to the interior lighting systems, heating, cooling, 
ventilation, and hot water systems of the building by 50 
percent or more in comparison to a reference building which 
meets the minimum requirements of Standard 90.1-2001 (as in 
effect on April 2, 2003). The deduction is limited to an amount 
equal to $1.80 per square foot of the property for which such 
expenditures are made. The deduction is allowed in the year in 
which the property is placed in service.
    Certain certification requirements must be met in order to 
qualify for the deduction. The Secretary, in consultation with 
the Secretary of Energy, will promulgate regulations that 
describe methods of calculating and verifying energy and power 
costs using qualified computer software based on the provisions 
of the 2005 California Nonresidential Alternative Calculation 
Method Approval Manual or, in the case of residential property, 
the 2005 California Residential Alternative Calculation Method 
Approval Manual.
    The Secretary is granted authority to prescribe procedures 
for the inspection and testing for compliance of buildings that 
are comparable, given the difference between commercial and 
residential buildings, to the requirements in the Mortgage 
Industry National Accreditation Procedures for Home Energy 
Rating Systems.\564\ Individuals qualified to determine 
compliance shall only be those recognized by one or more 
organizations certified by the Secretary for such purposes.
---------------------------------------------------------------------------
    \564\ See IRS Notice 2006-52, 2006-1 C.B. 1175, June 2, 2006; IRS 
2008-40, 2008-14 I.R.B. 725 March 11, 2008.
---------------------------------------------------------------------------
    For energy-efficient commercial building property 
expenditures made by a public entity, such as public schools, 
the deduction may be allocated to the person primarily 
responsible for designing the property in lieu of the public 
entity.
    If a deduction is allowed under this section, the basis of 
the property is reduced by the amount of the deduction.
    The deduction is effective for property placed in service 
prior to January 1, 2014.

Partial allowance of deduction

            System-specific deductions
    In the case of a building that does not meet the overall 
building requirement of 50-percent energy savings, a partial 
deduction is allowed with respect to each separate building 
system that comprises energy efficient property and which is 
certified by a qualified professional as meeting or exceeding 
the applicable system-specific savings targets established by 
the Secretary. The applicable system-specific savings targets 
to be established by the Secretary are those that would result 
in a total annual energy savings with respect to the whole 
building of 50 percent, if each of the separate systems met the 
system specific target. The separate building systems are (1) 
the interior lighting system, (2) the heating, cooling, 
ventilation and hot water systems, and (3) the building 
envelope. The maximum allowable deduction is $0.60 per square 
foot for each separate system.
            Interim rules for lighting systems
    In general, in the case of system-specific partial 
deductions, no deduction is allowed until the Secretary 
establishes system-specific targets.\565\ However, in the case 
of lighting system retrofits, until such time as the Secretary 
issues final regulations, the system-specific energy savings 
target for the lighting system is deemed to be met by a 
reduction in lighting power density of 40 percent (50 percent 
in the case of a warehouse) of the minimum requirements in 
Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-
2001. Also, in the case of a lighting system that reduces 
lighting power density by 25 percent, a partial deduction of 30 
cents per square foot is allowed. A pro-rated partial deduction 
is allowed in the case of a lighting system that reduces 
lighting power density between 25 percent and 40 percent. 
Certain lighting level and lighting control requirements must 
also be met in order to qualify for the partial lighting 
deductions under the interim rule.
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    \565\ IRS Notice 2008-40, supra, set a target of a 10-percent 
reduction in total energy and power costs with respect to the building 
envelope, and 20 percent each with respect to the interior lighting 
system and the heating, cooling, ventilation and hot water systems. IRS 
Notice 2012-26 (2012-17 I.R.B. 847 April 23, 2012) established new 
targets of 10-percent reduction in total energy and power costs with 
respect to the building envelope, 25 percent with respect to the 
interior lighting system and 15 percent with respect to the heating, 
cooling, ventilation and hot water syhstems, effective beginning March 
12, 2012. The targets from Notice 2008-40 may continue to be used until 
December 31, 2013, but only the new targets of Notice 2012-26 will be 
available under any extension of section 179D beyond December 31, 2013.
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                        Explanation of Provision

    The provision extends the deduction for one year, through 
December 31, 2014.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2013.

9. Extension of special rule for sales or dispositions to implement 
        FERC or State electric restructuring policy for qualified 
        electric utilities (sec. 159 of the Act and sec. 451(i) of the 
        Code)

                              Present Law

    A taxpayer selling property generally realizes gain to the 
extent the sales price (and any other consideration received) 
exceeds the taxpayer's basis in the property.\566\ The realized 
gain is subject to current income tax \567\ unless the 
recognition of the gain is deferred or excluded from income 
under a special tax provision.\568\
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    \566\ See sec. 1001.
    \567\ See secs. 61 and 451.
    \568\ See, e.g., secs. 453, 1031 and 1033.
---------------------------------------------------------------------------
    One such special tax provision permits taxpayers to elect 
to recognize gain from qualifying electric transmission 
transactions ratably over an eight-year period beginning in the 
year of sale if the amount realized from such sale is used to 
purchase exempt utility property within the applicable period 
\569\ (the ``reinvestment property'').\570\ If the amount 
realized exceeds the amount used to purchase reinvestment 
property, any realized gain is recognized to the extent of such 
excess in the year of the qualifying electric transmission 
transaction.
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    \569\ The applicable period for a taxpayer to reinvest the proceeds 
is four years after the close of the taxable year in which the 
qualifying electric transmission transaction occurs.
    \570\ Sec. 451(i).
---------------------------------------------------------------------------
    A qualifying electric transmission transaction is the sale 
or other disposition of property used by a qualified electric 
utility to an independent transmission company prior to January 
1, 2014.\571\ A qualified electric utility is defined as an 
electric utility, which as of the date of the qualifying 
electric transmission transaction, is vertically integrated in 
that it is both (1) a transmitting utility (as defined in the 
Federal Power Act) \572\ with respect to the transmission 
facilities to which the election applies, and (2) an electric 
utility (as defined in the Federal Power Act \573\).\574\
---------------------------------------------------------------------------
    \571\ Sec. 451(i)(3).
    \572\ Sec. 3(23), 16 U.S.C. sec. 796, defines ``transmitting 
utility'' as any electric utility, qualifying cogeneration facility, 
qualifying small power production facility, or Federal power marketing 
agency that owns or operates electric power transmission facilities 
that are used for the sale of electric energy at wholesale.
    \573\ Sec. 3(22), 16 U.S.C. sec. 796, defines ``electric utility'' 
as any person or State agency (including any municipality) that sells 
electric energy; such term includes the Tennessee Valley Authority, but 
does not include any Federal power marketing agency.
    \574\ Sec. 451(i)(6).
---------------------------------------------------------------------------
    In general, an independent transmission company is defined 
as: (1) an independent transmission provider \575\ approved by 
the Federal Energy Regulatory Commission (``FERC''); (2) a 
person (i) who the FERC determines under section 203 of the 
Federal Power Act \576\ (or by declaratory order) is not a 
``market participant'' and (ii) whose transmission facilities 
are placed under the operational control of a FERC-approved 
independent transmission provider no later than four years 
after the close of the taxable year in which the transaction 
occurs; or (3) in the case of facilities subject to the 
jurisdiction of the Public Utility Commission of Texas, (i) a 
person which is approved by that Commission as consistent with 
Texas State law regarding an independent transmission 
organization, or (ii) a political subdivision, or affiliate 
thereof, whose transmission facilities are under the 
operational control of an organization described in (i).\577\
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    \575\ For example, a regional transmission organization, an 
independent system operator, or an independent transmission company.
    \576\ 16 U.S.C. sec. 824b.
    \577\ Sec. 451(i)(4).
---------------------------------------------------------------------------
    Exempt utility property is defined as: (1) property used in 
the trade or business of (i) generating, transmitting, 
distributing, or selling electricity or (ii) producing, 
transmitting, distributing, or selling natural gas; or (2) 
stock in a controlled corporation whose principal trade or 
business consists of the activities described in (1).\578\ 
Exempt utility property does not include any property that is 
located outside of the United States.\579\
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    \578\ Sec. 451(i)(5).
    \579\ Sec. 451(i)(5)(C).
---------------------------------------------------------------------------
    If a taxpayer is a member of an affiliated group of 
corporations filing a consolidated return, the reinvestment 
property may be purchased by any member of the affiliated group 
(in lieu of the taxpayer).\580\
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    \580\ Sec. 451(i)(7).
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                        Explanation of Provision

    The provision extends for one year the treatment under the 
present-law deferral provision to sales or dispositions by a 
qualified electric utility that occur prior to January 1, 2015.

                             Effective Date

    The provision applies to dispositions after December 31, 
2013.

10. Extension of excise tax credits relating to certain fuels (sec. 160 
        of the Act and sec. 6426 and 6427(e) of the Code)

                              Present Law


Fuel excise taxes

    Fuel excise taxes are imposed on taxable fuel (gasoline, 
diesel fuel or kerosene) under section 4081. In general, these 
fuels are taxed when removed from a refinery, terminal rack, 
upon entry into the United States, or upon sale to an 
unregistered person. A back-up tax under section 4041 is 
imposed on previously untaxed fuel and alternative fuel used or 
sold for use as fuel in a motor vehicle or motorboat to the 
supply tank of a highway vehicle. In general, the rates of tax 
are 18.3 cents per gallon (or in the case of compressed natural 
gas 18.3 cents per gasoline gallon equivalent), and in the case 
of liquefied natural gas, and liquid fuel derived from coal or 
biomass, 24.3 cents per gallon.

Alternative fuel and alternative fuel mixture credits and payments

    The Code provides two per-gallon excise tax credits with 
respect to alternative fuel: the alternative fuel credit, and 
the alternative fuel mixture credit. For this purpose, the term 
``alternative fuel'' means liquefied petroleum gas, P Series 
fuels (as defined by the Secretary of Energy under 42 U.S.C. 
sec. 13211(2)), compressed or liquefied natural gas, liquefied 
hydrogen, liquid fuel derived from coal through the Fischer-
Tropsch process (``coal-to-liquids''), compressed or liquefied 
gas derived from biomass, or liquid fuel derived from biomass. 
Such term does not include ethanol, methanol, or biodiesel.
    For coal-to-liquids produced after December 30, 2009, the 
fuel must be certified as having been derived from coal 
produced at a gasification facility that separates and 
sequesters 75 percent of such facility's total carbon dioxide 
emissions.
    The alternative fuel credit is allowed against section 4041 
liability, and the alternative fuel mixture credit is allowed 
against section 4081 liability. Neither credit is allowed 
unless the taxpayer is registered with the Secretary. The 
alternative fuel credit is 50 cents per gallon of alternative 
fuel or gasoline gallon equivalents \581\ of nonliquid 
alternative fuel sold by the taxpayer for use as a motor fuel 
in a motor vehicle or motorboat, sold for use in aviation or so 
used by the taxpayer.
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    \581\ ``Gasoline gallon equivalent'' means, with respect to any 
nonliquid alternative fuel (for example, compressed natural gas), the 
amount of such fuel having a Btu (British thermal unit) content of 
124,800 (higher heating value).
---------------------------------------------------------------------------
    The alternative fuel mixture credit is 50 cents per gallon 
of alternative fuel used in producing an alternative fuel 
mixture for sale or use in a trade or business of the taxpayer. 
An ``alternative fuel mixture'' is a mixture of alternative 
fuel and taxable fuel (gasoline, diesel fuel or kerosene) that 
contains at least 1/10 of one percent taxable fuel. The mixture 
must be sold by the taxpayer producing such mixture to any 
person for use as a fuel, or used by the taxpayer producing the 
mixture as a fuel. The credits expired after December 31, 2013 
(September 30, 2014 for liquefied hydrogen).
    A person may file a claim for payment equal to the amount 
of the alternative fuel credit (but not the alternative fuel 
mixture credit). The alternative fuel credit must first be 
applied to the applicable excise tax liability under section 
4041 or 4081, and any excess credit may be taken as a payment. 
These payment provisions generally also expire after December 
31, 2013. With respect to liquefied hydrogen, the payment 
provisions expire after September 30, 2014.
    For purposes of the alternative fuel credit, alternative 
fuel mixture credit and related payment provisions, 
``alternative fuel'' does not include fuel (including lignin, 
wood residues, or spent pulping liquors) derived from the 
production of paper or pulp.

                        Explanation of Provision

    The provision extends the alternative fuel credit and 
related payment provisions, and the alternative fuel mixture 
credit through December 31, 2014 (including those related to 
liquefied hydrogen).
    In light of the retroactive nature of the provision, as it 
relates to alternative fuel sold or used in 2014, the provision 
creates a special rule to address claims regarding excise 
credits and claims for payment associated with periods 
occurring during 2014. In particular the provision directs the 
Secretary to issue guidance within 30 days of the date of 
enactment. Such guidance is to provide for a one-time 
submission of claims covering periods occurring during 2014. 
The guidance is to provide for a 180-day period for the 
submission of such claims (in such manner as prescribed by the 
Secretary) to begin no later than 30 days after such guidance 
is issued.\582\ Such claims shall be paid by the Secretary of 
the Treasury not later than 60 days after receipt. If the claim 
is not paid within 60 days of the date of the filing, the claim 
shall be paid with interest from such date determined by using 
the overpayment rate and method under section 6621 of such 
Code.
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    \582\ This guidance is provided by Notice 2015-3, 2015-6 I.R.B 583.
---------------------------------------------------------------------------
    The provision, as it relates to biodiesel and renewable 
diesel, is described above in connection with section 153 of 
the Act ``Incentives for Biodiesel and Renewable Diesel.''

                             Effective Date

    The provision is generally effective for fuel sold or used 
after December 31, 2013. As it relates to liquefied hydrogen, 
the provision is effective for fuels sold or used after 
September 30, 2014.

11. Extension of credit for alternative fuel vehicle refueling property 
        (sec. 161 of the Act and sec. 30C of the Code)

                              Present Law

    Taxpayers may claim a 30-percent credit for the cost of 
installing qualified clean-fuel vehicle refueling property to 
be used in a trade or business of the taxpayer or installed at 
the principal residence of the taxpayer.\583\ The credit may 
not exceed $30,000 per taxable year per location, in the case 
of qualified refueling property used in a trade or business and 
$1,000 per taxable year per location, in the case of qualified 
refueling property installed on property which is used as a 
principal residence.
---------------------------------------------------------------------------
    \583\ Sec. 30C.
---------------------------------------------------------------------------
    Qualified refueling property is property (not including a 
building or its structural components) for the storage or 
dispensing of a clean-burning fuel or electricity into the fuel 
tank or battery of a motor vehicle propelled by such fuel or 
electricity, but only if the storage or dispensing of the fuel 
or electricity is at the point of delivery into the fuel tank 
or battery of the motor vehicle. The original use of such 
property must begin with the taxpayer.
    Clean-burning fuels are any fuel at least 85 percent of the 
volume of which consists of ethanol, natural gas, compressed 
natural gas, liquefied natural gas, liquefied petroleum gas, or 
hydrogen. In addition, any mixture of biodiesel and diesel 
fuel, determined without regard to any use of kerosene and 
containing at least 20 percent biodiesel, qualifies as a clean 
fuel.
    Credits for qualified refueling property used in a trade or 
business are part of the general business credit and may be 
carried back for one year and forward for 20 years. Credits for 
residential qualified refueling property cannot exceed for any 
taxable year the difference between the taxpayer's regular tax 
(reduced by certain other credits) and the taxpayer's tentative 
minimum tax. Generally, in the case of qualified refueling 
property sold to a tax-exempt entity, the taxpayer selling the 
property may claim the credit.
    A taxpayer's basis in qualified refueling property is 
reduced by the amount of the credit. In addition, no credit is 
available for property used outside the United States or for 
which an election to expense has been made under section 179.
    The credit is available for property placed in service 
after December 31, 2005, and (except in the case of hydrogen 
refueling property) before January 1, 2014. In the case of 
hydrogen refueling property, the property must be placed in 
service before January 1, 2015.

                        Explanation of Provision

    The provision extends the 30-percent credit for alternative 
fuel refueling property (other than hydrogen refueling property 
which presently expires December 31, 2014) for one year, 
through December 31, 2014.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2013.

  D. Subtitle D--Extenders Relating to Multiemployer Defined Benefit 
                             Pension Plans


1. Multiemployer defined benefit plans (secs. 171-172 of the Act and 
        sec. 221(c) of the Pension Protection Act of 2006, secs. 431-
        432 of the Code, and secs. 304-305 of ERISA)

    Certain provisions under the Pension Protection Act of 2006 
relating to the funding rules for multiemployer defined benefit 
plans were scheduled to expire as of December 31, 2014 
(``temporary multiemployer plan provisions''). The expiration 
dates for the temporary multiemployer plan provisions were 
repealed by the Multiemployer Pension Reform Act of 2014, thus 
making the multiemployer plan provisions permanent.\584\
---------------------------------------------------------------------------
    \584\ Sec. 101 of Division O of Pub. L. No. 113-235. The temporary 
multiemployer plan provisions and expiration dates, and repeal of the 
expiration dates, are described in Part Nine, Division O.A.1.
---------------------------------------------------------------------------
    Provisions of the Tax Increase Prevention Act of 2014 
extended the expiration dates for the temporary multiemployer 
plan provisions for one year. However, because the expiration 
dates were earlier repealed by the Multiemployer Pension Reform 
Act of 2014, these provisions have no effect.

                    TITLE II--TECHNICAL CORRECTIONS


                      A. Tax Technical Corrections


                       (secs. 201-220 of the Act)

    The Act includes technical corrections to recently enacted 
tax legislation. Except as otherwise provided, the amendments 
made by the technical corrections contained in the Act take 
effect as if included in the original legislation to which each 
amendment relates.

Amendments to the American Taxpayer Relief Act of 2012 (Pub. L. No. 
        112-240)

    Phaseout of personal exemption amount for qualified 
disability trusts (Act sec. 101(b)).--The provision corrects an 
obsolete statutory reference to the computation of the 
exemption amount for a qualified disability trust.
    Capital gain rate for certain high-income individuals (Act 
sec. 102).--The provision contains a conforming amendment to 
the computation of the foreign earned income exclusion.
    Permanent alternative minimum tax relief for individuals 
(Act sec. 104).--The provision clarifies that, as adjusted for 
inflation, the exemption amount for married individuals filing 
a separate return is one-half the exemption amount for married 
individuals filing a joint return. The provision also clarifies 
that the exemption amount for individuals filing a joint 
return, as adjusted for inflation, is rounded to the nearest 
$100.
    Qualified zone academy bonds (Act sec. 310).--The provision 
conforms the Code to Congressional intent that qualified zone 
academy bonds cannot be issued as direct-pay bonds using 
national limitation allocations from years after 2010 or 
carryforwards of such allocations.
    Election to accelerate the AMT credit in lieu of bonus 
depreciation (Act sec. 331).--The provision clarifies the 
taxable year for which an election under section 168(k)(4) is 
made.

Amendment to the Middle Class Tax Relief and Job Creation Act of 2012 
        (Pub. L. No. 112-96)

    Repeal of certain shifts in the timing of corporate 
estimated tax payments (Act sec. 7001).--The provision corrects 
a reference to the repeal of certain shifts in the timing of 
estimated corporate taxes with respect to the Corporate 
Estimated Tax Shift Act of 2009 (Pub. L. No. 111-42).

Amendment to the FAA Modernization and Reform Act of 2012 (Pub. L. No. 
        112-95)

    Small aircraft on nonestablished lines (Act sec. 1107).--
Under Code section 4281, small aircraft (excluding jet 
aircraft) that are operated on nonestablished lines (e.g., for 
sightseeing) are exempt from the taxes imposed on the 
transportation of persons and property by air. The provision 
clarifies that rotorcraft (i.e., helicopters) and propeller 
aircraft are not ``jet aircraft'' for purposes of section 4281.

Amendments to the Regulated Investment Company Modernization Act of 
        2010 (Pub. L. No. 111-325)

    Capital loss carryovers (Act sec. 101).--The Regulated 
Investment Company Modernization Act of 2010 provides capital 
loss carryover treatment for a regulated investment company 
(``RIC'') similar to the net capital loss carryovers applicable 
to individuals, effective for taxable years beginning after 
December 22, 2010. The Internal Revenue Service ruled that this 
provision is effective for purposes of the excise tax under 
section 4982 for calendar years after 2010.\585\ Thus, this 
provision applies to 1-year periods beginning after October 31, 
2010, which are taken into account in computing the excise tax 
for calendar years beginning after 2010.
---------------------------------------------------------------------------
    \585\ Rev. Rul. 2012-29, 2012-42 I. R. B. 475.
---------------------------------------------------------------------------
    The Act also provides that capital loss carryovers for 
taxable years beginning after December 22, 2010, are used prior 
to capital losses carryovers under the provisions of prior law. 
As a result of the interaction of these two provisions of the 
Act, there are situations where capital loss carryovers may 
expire for purposes of the excise tax but not for purposes of 
determining investment company taxable income.
    The provision allows a RIC to elect to delay the new 
capital loss carryover provisions for purposes of section 4982 
for one calendar year. For an electing RIC, the provision will 
apply to 1-year periods beginning after October 31, 2011, which 
are taken into account in computing the excise tax for calendar 
years beginning after 2011. The provision also provides that 
the capital loss carryovers of a RIC will not prevent the RIC 
from having sufficient earnings and profits to make the 
required distribution of its capital gain net income under 
section 4982 (as provided in section 852(c)(2)).
    Spillover dividends (Act sec. 304).--The Act provides that 
a spillover dividend must be declared before the later of the 
15th day of the 9th month following the close of the taxable 
year or the extended due date for filing the return for the 
taxable year. The provision provides the declaration may be 
made on or before the relevant date.
    Certain late year losses (Act sec. 308).--Under the law in 
effect both before and after enactment the Act, the amount 
which may be treated as a capital gain dividend for a taxable 
year of a RIC is determined without regard to the post-October 
capital loss for the year, and the post-October capital loss is 
treated as arising on the first day of the next taxable year. 
Under the law in effect before enactment of the Act, the term 
``post-October capital loss'' was defined as any net capital 
loss attributable to the portion of the taxable year after 
October 31, or if there was no net capital loss, any net-long 
term capital loss attributable to the portion of the taxable 
year after that date.\586\ Under the Act, the term ``post-
October capital loss'' is the greatest of (i) the net capital 
loss attributable to the portion of the taxable year after 
October 31, (ii) the net-long term capital loss attributable to 
the portion of the taxable year after that date, or (iii) the 
net-short term capital loss attributable to the portion of the 
taxable year after that date.
---------------------------------------------------------------------------
    \586\ Treas. Reg. sec. 1.852-11. Also, Notice 97-64, 1997-2 C.B. 
323, provides guidance on the application of the multiple tax rates 
under section 1(h) to capital gain dividends of RICs.
---------------------------------------------------------------------------
    Under the provision, the term ``post-October capital loss'' 
is the net capital loss attributable to the portion of the 
taxable year after October 31, or if there is no net capital 
loss, any net long-term capital loss or any net short-term 
capital loss attributable to the portion of the taxable year 
after that date.
    Under the law in effect before enactment of the Act, to the 
extent provided in regulations, a RIC could elect to push the 
post-October net foreign currency losses and the net reduction 
in the value of stock in a PFIC (passive foreign investment 
company) with respect to which an election is in effect under 
section 1296(k) forward to the next taxable year. Regulations 
had been issued allowing RICs to elect to defer all or part of 
any post-October net foreign currency losses for the portion of 
the taxable year after October 31 to the first day of the 
succeeding taxable year. The Act expanded this rule to provide 
that any late-year ordinary loss may be deferred.
    The provision corrects the definition of late-year ordinary 
loss by defining the loss to be the sum of the post-October 
specified loss (if any) and the post-December ordinary loss (if 
any).
    In the case of an election by a RIC with respect to a 
taxable year beginning before the date of enactment of this 
Act, the RIC may treat the amendments made by this provision as 
not applying with respect to any such election.
    Deferral of certain gains and losses for excise tax 
purposes (Act sec. 402).--For purposes of the section 4982 
excise tax, the Act applies the mark to market provisions of 
the Code and regulations thereunder as if the taxable year 
ended on October 31. Also, the Act allows a taxable year RIC, 
except as provided in regulations, to elect to ``push'' any net 
ordinary loss (determined without regard to ordinary gains and 
losses that are automatically ``pushed'' to the next calendar 
year) attributable to the portion of the calendar year after 
the beginning of the taxable year that begins in the calendar 
year to the first day of the next calendar year.
    The provision provides that any rule that determines income 
by reference to the value of an item on the last day of the 
taxable year is treated as a mark to market provision for which 
value will be determined on October 31 for purposes of the 
excise tax.
    The provision allows a RIC to elect to push any portion of 
a net ordinary loss to the next calendar year in determining 
its ordinary income or net ordinary loss for a calendar year.

Amendments to the Tax Relief, Unemployment Insurance Reauthorization, 
        and Job Creation Act of 2010 (Pub. L. No. 111-312)

    Indexing of amount of reduction of marriage penalty for 
earned income credit (Act sec. 103).--The earned income tax 
credit in section 32 of the Code is clarified to provide that 
the $5,000 amount, by which the phase-out thresholds for 
married couples filing jointly are increased, is indexed for 
inflation for all taxable years after 2009, not just taxable 
years beginning in 2010.
    Nonrecognition of gain on rollover of empowerment zone 
investments (Act sec. 753).--Code section 1397B provides that 
taxpayers can elect to defer recognition of gain on the sale of 
a qualified empowerment zone asset held for more than one year 
and replaced within 60 days by another qualified empowerment 
zone asset in the same zone. The provision clarifies that Code 
section 1397B applies to qualified empowerment zone assets 
acquired during the period the empowerment zone designation is 
in effect.

Amendments to the Creating Small Business Jobs Act of 2010 (Pub. L. No. 
        111-240)

    Failure to furnish correct payee statements (Act sec. 
2102).--The provision clarifies that the effective date for the 
amendments to both Code sections 6721 and 6722 applies with 
respect to both information returns required to be filed and 
payee statements required to be furnished on or after January 
1, 2011.
    Amendments to the American Recovery and Reinvestment Act of 
2009, Division B (Pub. L. No. 111-5)
    Refundable portion of child credit for certain taxable 
years (Act sec. 1003).--The child tax credit in section 24 of 
the Code is clarified regarding the determination of the 
refundable credit in any taxable years beginning after 2008 and 
before 2018. The provision provides that, to the extent that 
the child credit exceeds the taxpayer's tax liability, the 
taxpayer is eligible for a refundable credit equal to 15 
percent of earned income in excess of $3,000 not indexed for 
inflation (in lieu of $10,000 indexed for inflation). The 
present-law alternative formula for families with three or more 
children is unchanged.
    American Opportunity Tax Credit (Act sec. 1004).--The Act 
includes a reference to ``tuition, fees, and course 
materials.'' The reference to course materials was intended to 
apply to the Hope credit, but not to the Lifetime learning 
credit. The provision corrects this reference to the inclusion 
of course materials so that it applies only to the Hope credit 
and not to the Lifetime learning credit.
    Deduction for State sales tax and excise tax on the 
purchase of certain motor vehicles (Act sec. 1008).--The Act 
provides an itemized deduction and increased standard deduction 
for qualified motor vehicle taxes. The provision strikes Code 
section 164(b)(6)(E) (which refers to the last sentence of 
section 164(a)) as inoperative, because the taxes referred to 
in that last sentence do not include qualified motor vehicle 
taxes.
    Coordination with renewable energy grants (Act sec. 
1104).--The provision provides that grants in lieu of energy 
credits under section 1603 of the Act are not includible in 
alternative minimum taxable income (including adjusted current 
earnings of a corporation). This treatment is consistent with 
the treatment of energy credits.
    Credits for certain vehicles and refueling property (Act 
secs. 1141 and 1142, and secs. 1341 and 1342 of the Energy Tax 
Incentives Act of 2005 (Pub. L. No. 109-58)).--The provisions 
conform the rules relating to the amount of basis reduction, as 
well as the reduction of other credits and deductions, on 
account of the credits for certain vehicles and refueling 
property under sections 30, 30B, 30C, and 30D of the Code.
    Qualifying advanced energy project credit (Act sec. 
1302).--The provision restores missing words, clarifying that 
the amount subject to the limitation in Code section 48C(b)(3) 
is the amount that is treated as the qualified investment.
    Regulated investment companies allowed to pass through tax 
credit bond credits (Act sec. 1541).--The provision clarifies 
that a regulated investment company electing to pass through 
credits on tax credit bonds, and its shareholders, are treated 
in a manner similar to that which would occur if the company 
distributed to its shareholders an amount of money equal to the 
amount of the credits passed through.
    Special credit for certain government retirees (Act sec. 
2202).--The provision clarifies the credit with respect to 
treatment of the U.S. possessions. The provision is intended to 
operate in a manner similar to the operation of the Making Work 
Pay Credit with respect to the U.S. possessions (see H.R. Rep. 
111-16, February 12, 2009, at 516-517).

Amendments to the Emergency Economic Stabilization Act of 2008 (Pub. L. 
        No 110-343)

            Division B, the Energy Improvement and Extension Act of 
                    2008
    Credit for steel industry fuel (Act Div. B sec. 108).--The 
provision clarifies that coke and coke gas produced using fuel 
qualifying for a steel industry fuel credit is not eligible for 
the credit under present-law section 45K(g).
    Temporary increase in coal excise tax; funding of Black 
Lung Disability Trust Fund (Act Div. B sec. 113).--The 
provision clarifies that the term ``trust fund'' means the 
Black Lung Disability Trust Fund.
    Accelerated recovery period for depreciation of smart 
meters and smart grid systems (Act Div. B sec. 306).--The 
provision clarifies that the accelerated recovery period for 
smart meters and smart grid systems does not apply to property 
with a class life of less than 16 years.
    Special depreciation allowance for certain reuse and 
recycling property (Act Div. B sec. 308).--Consistent with the 
intent of the Act, the provision clarifies that a taxpayer does 
not qualify for the special depreciation allowance under this 
provision if it elects out of bonus depreciation under Code 
section 168(k)(4), which permits a taxpayer to accelerate the 
recognition of AMT and research credits in lieu of claiming 
bonus depreciation. This conforms to the parallel rule in 
section 168(n)(2)(B)(i)(I) (excluding such property from the 
definition of qualified disaster assistance property) under the 
qualified disaster assistance property provisions.
    Special rules in case of foreign oil and gas income (Act 
Div. B sec. 402).--The Act expands the foreign oil and gas 
extraction income (``FOGEI'') rules to apply to all foreign 
income from production and other activity related to the sale 
of oil and gas product (the sum of prior-law foreign oil-
related income (``FORI'') and FOGEI). A transition rule in the 
Act unintentionally fails to properly apply pre-effective date 
law to pre-2009 credit carryforwards. The provision clarifies 
that pre-2009 credits carried forward to post-2008 years 
continue to be governed by prior law for purposes of 
determining the amount of carryforward credits eligible to be 
claimed in a post-2008 year.
    Broker reporting of customer's basis in securities 
transactions (Act Div. B sec. 403).--The provision makes 
conforming changes necessitated by the deletion of the defined 
term ``open-end fund,'' so that the provision refers to 
regulated investment companies rather than open-end funds.
    The Act provides a definition of a dividend reinvestment 
plan (``DRP''), and also permits use of average cost basis for 
stock acquired after December 31, 2010 in connection with a 
DRP. The Act further provides that stock acquired before 2012 
for which an average basis method is permissible is treated as 
a separate account from any such stock acquired after 2011, and 
provides an election for a regulated investment company to 
treat as a single account all stock held by a customer without 
regard to the date of acquisition of the stock. For stock for 
which an average basis method is permissible, the Act's basis 
reporting requirements apply to stock acquired after December 
31, 2011. The provision conforms the effective date for the 
availability of an average basis method for DRP stock to the 
effective date for the basis reporting requirement for stock 
for which an average basis method is permissible by making the 
former rule applicable to DRP stock acquired after December 31, 
2011 (rather than December 31, 2010). The provision makes a 
conforming change to the effective date provision applicable to 
required basis reporting related to DRP stock. Under this 
change, unless a broker elects otherwise, basis reporting for 
DRP stock remains mandatory, as under the Act, only for stock 
acquired on or after January 1, 2012.
    The provision also clarifies that if an election is made to 
treat as a single account all stock acquired in connection with 
a DRP, the average basis method is permissible with respect to 
all such stock without regard to the date of acquisition of the 
stock.
            Division C, Tax Extenders and Alternative Minimum Tax 
                    Relief Act of 2008
    Qualified investment entities (Act Div. C sec. 208).--The 
Act generally extends the inclusion of a RIC within the 
definition of a ``qualified investment entity'' under the 
FIRPTA rules of section 897 through December 31, 2009. The Act 
imposes withholding tax on certain RIC distributions to foreign 
shareholders; however, distributions may have been made after 
the provision had expired on December 31, 2007, but before the 
extension was enacted. The provision clarifies that no 
withholding is required for distributions that were made on or 
before the date of enactment (October 4, 2008). The provision 
also clarifies that a RIC is not liable to a foreign 
shareholder to whom a distribution was made before October 4, 
2008, for amounts that were withheld from such a distribution 
and paid over to the Secretary.
    Extension of 15-year straight-line cost recovery for 
qualified leasehold improvements and qualified restaurant 
improvements; 15-year straight-line cost recovery for certain 
improvements to retail space (Act Div. C sec. 305).--The Act 
expands the application of the 15-year MACRS recovery period to 
restaurant property, for property placed in service after 
December 31, 2008, and to a new category of retail improvement 
property, also for property placed in service after December 
31, 2008. Both of these rules provide that bonus depreciation 
generally is not available for such property. The provision 
clarifies, however, that assets that qualify as both qualified 
leasehold improvement property and either qualified restaurant 
property or qualified retail improvement property qualify for 
bonus depreciation, consistent with the legislative intent with 
respect to assets that overlap in this manner.

 Amendments to the Heroes Earnings Assistance and Relief Tax Act of 
        2008 (Pub. L. No. 110-245)

    Special period of limitation when uniformed services 
retired pay is reduced as result of award of disability 
compensation (Act sec. 106).--The provision clarifies that the 
date of enactment, June 17, 2008, applies for purposes of the 
portion of the transition rule specifying what date should be 
substituted for the date of the determination.
    Disposition of unused health benefits in flexible spending 
accounts (Act sec. 114).--The Act provides that a plan does not 
fail to be treated as a cafeteria plan or health FSA merely 
because the plan provides for qualified reservist 
distributions. The provision clarifies that a plan does not 
fail to be treated as an accident or health plan under Code 
section 105 merely because it provides for qualified reservist 
distributions.

Amendments to the Economic Stimulus Act of 2008 (Pub. L. No. 110-185)

    2008 recovery rebates for individuals (Act sec. 101).--The 
provision clarifies that summary assessment procedures can 
apply with respect to the omission of any correct valid 
identification number that is required.

Amendments to the Tax Technical Corrections Act of 2007 (Pub. L. No. 
        110-172)

    Act section 4(c).--The provision reinstates a part of Code 
section 911, relating to the netting of disallowed deductions 
against excluded income that was inadvertently deleted by the 
Act.

Amendments to the Tax Relief and Health Care Act of 2006 (Pub. L. No. 
        109-432)

    WOTC and Indian employment credit (Act sec. 105).--Code 
section 45A(b)(1)(B) coordinates the Indian employment credit 
with WOTC. It provides that wages are not taken into account 
during the one-year period beginning on the date the individual 
begins work for the employer if wages are taken into account 
under WOTC. In 2006, a second year was added to WOTC for long-
term family assistance recipients (section 51(e)). The 
provision clarifies that the two-year period is taken into 
account for purposes of section 45A(b)(1)(B) if any portion of 
wages are taken into account under subsection (e)(1)(A) of 
section 51.

Amendments to the Safe, Accountable, Flexible, Efficient Transportation 
        Equity Act of 2005: A Legacy for Users (SAFETY-LU) (Pub. L. No. 
        109-59)

    Transfer to Highway Trust Fund of amounts equivalent to 
certain taxes and penalties (Act sec. 11161).--The taxes on 
aviation fuel and aviation gasoline, imposed on removal from a 
terminal directly into the fuel tank of an aircraft, are 
credited to the Airport and Airways Trust Fund (sec. 
9502(b)(1)(D)). The provision makes a technical amendment to 
section 9503(b)(1)(D) to clarify that the Highway Trust Fund is 
not credited with these same amounts.

Amendments to the American Jobs Creation Act of 2004 (Pub. L. No. 108-
        357)

    ETI and Code section 199 circularity (Act sec. 101).--The 
provision incorporates an ordering rule for purposes of section 
114 of the Code that requires the computation of the section 
114 extraterritorial income (``ETI'') exclusion without regard 
to the section 199 deduction. Under this ordering rule, a 
taxpayer must first compute the amount of the section 114 
exclusion, determined without regard to the section 199 
deduction, before the taxpayer computes its section 199 
deduction. As under present law, any amount excluded from gross 
income pursuant to section 114 continues to be taken into 
account in determining qualified production activities income 
(``QPAI''). The provision is consistent with technical 
corrections previously made to provide ordering rules to avoid 
circular calculations resulting from the interaction between 
the computations under section 199 and sections 163(j), 170, 
and 613A.
    Section 199 W-2 wages (Act sec. 102).--Section 199(b)(2)(A) 
provides that the amounts included as W-2 wages are only those 
amounts paid during the calendar year ending during the taxable 
year of a taxpayer. In some instances, this results in taxable 
years in which no W-2 wages are included (e.g., short years 
that do not include December 31). Consequently, in such 
instances, the taxpayer may be precluded from claiming a 
section 199 deduction due to the W-2 wage limitation. Although 
section 199(b)(3) provides the Secretary with authority to 
address cases in which there may be a short taxable year as a 
result of a taxpayer's acquisition or disposition of a trade or 
business (or a major portion of a separate unit of a trade or 
business), it does not provide explicit authority to address 
other circumstances that result in a short taxable year (e.g., 
change in accounting period).
    The provision provides the Secretary the authority to issue 
guidance for short taxable years (outside of the context of an 
acquisition or disposition) permitting the allocation of W-2 
wages to a short taxable year that does not include the end of 
a calendar year. For example, the Secretary may issue guidance 
that permits a taxpayer to allocate a portion of the annual W-2 
wages to a short taxable year that does not include the end of 
the calendar year and the full amount of such W-2 wages to the 
subsequent 12-month taxable year that includes such calendar 
year end.

Clerical corrections

    The Act makes clerical and typographical corrections.

              B. Deadwood Provisions (sec. 221 of the Act)

    A number of provisions in the Internal Revenue Code are not 
used in computing current taxes and thus are obsolete. These 
provisions are referred to as ``deadwood.'' The Act repeals 16 
sections of the Code and repeals or amends portions of more 
than 100 other sections of the Code to remove deadwood. The Act 
does not change substantive law.
    The amendments relating to deadwood made by the Act are 
effective on the date of enactment (December 19, 2014). The Act 
includes savings provisions to mitigate the effects of 
repealing the deadwood items in the event those items have any 
remaining applicability to past transactions. For example, if a 
transfer of property took place before the date of enactment, 
the basis of the property is not changed by reason of any 
provision of the Act that amends a Code section relating to the 
determination of basis.

                 TITLE III--JOINT COMMITTEE ON TAXATION


    A. Increased Refund and Credit Threshold for Joint Committee on 
 Taxation Review of C Corporation Return (sec. 301 of the Act and sec. 
                           6405 of the Code)


                              Present Law

    No refund or credit in excess of a specified dollar 
threshold of any income tax, estate or gift tax, or certain 
other specified taxes, may be made until 30 days after the date 
a report on the refund is provided to the Joint Committee on 
Taxation.\587\ The specified dollar threshold for review is 
$2,000,000. A report is also required in the case of certain 
tentative refunds. Additionally, the staff of the Joint 
Committee on Taxation conducts post-audit reviews of large 
deficiency cases and other select issues.
---------------------------------------------------------------------------
    \587\ Sec. 6405.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision increases the threshold above which refunds 
must be submitted to the Joint Committee on Taxation for review 
from $2,000,000 to $5,000,000 in the case of a C 
corporation.\588\ The staff of the Joint Committee on Taxation 
continues to be authorized to conduct a program of expanded 
post-audit reviews of large deficiency cases and other select 
issues.
---------------------------------------------------------------------------
    \588\ A C corporation is a corporation which is not an S 
corporation for the taxable year (sec. 1361(a)(2)).
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment 
(December 19, 2014), except that the higher threshold does not 
apply to a refund or credit with respect to which a report was 
made before the date of enactment.

 DIVISION B--STEPHEN BECK, JR., ACHIEVING A BETTER LIFE EXPERIENCE ACT 
           OF 2014 OR THE STEPHEN BECK, JR., ABLE OF ACT 2014


                    TITLE I--QUALIFIED ABLE PROGRAMS


 A. Qualified Able Programs (secs. 101-105 of the Act and section 529 
                   and new section 529A of the Code)


                              Present Law


In general

    Although present law does not contain tax-advantaged 
savings vehicles specifically targeted to persons with 
disabilities, present law does contain other tax-advantaged 
savings vehicles, as well as a trust and estates provision 
intended for those with disabilities. Below is a description of 
one such savings vehicle and that trust and estates provision.

Section 529 qualified tuition programs

    A qualified tuition program is a program established and 
maintained by a State or agency or instrumentality thereof, or 
by one or more eligible educational institutions, which 
satisfies certain requirements and under which a person may 
purchase tuition credits or certificates on behalf of a 
designated beneficiary that entitle the beneficiary to the 
waiver or payment of qualified higher education expenses of the 
beneficiary (a ``prepaid tuition program''). In the case of a 
program established and maintained by a State or agency or 
instrumentality thereof, a qualified tuition program also 
includes a program under which a person may make contributions 
to an account that is established for the purpose of satisfying 
the qualified higher education expenses of the designated 
beneficiary of the account, provided it satisfies certain 
specified requirements (a ``savings account program''). Under 
both types of qualified tuition programs, a contributor 
establishes an account for the benefit of a particular 
designated beneficiary to provide for that beneficiary's higher 
education expenses. Section 529 provides specified income tax 
and transfer tax rules for the treatment of accounts and 
contracts established under qualified tuition programs.\589\
---------------------------------------------------------------------------
    \589\ For purposes of this description, the term ``account'' is 
used interchangeably to refer to a prepaid tuition benefit contract or 
a tuition savings account established pursuant to a qualified tuition 
program.
---------------------------------------------------------------------------
    For this purpose, qualified higher education expenses means 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of a designated beneficiary at an 
eligible educational institution, and expenses for special 
needs services in the case of a special needs beneficiary that 
are incurred in connection with such enrollment or attendance. 
Qualified higher education expenses generally also include room 
and board for students who are enrolled at least half-time.
    Contributions to a qualified tuition program must be made 
in cash. Section 529 does not impose a specific dollar limit on 
the amount of contributions, account balances, or prepaid 
tuition benefits relating to a qualified tuition account; 
however, the program is required to have adequate safeguards to 
prevent contributions in excess of amounts necessary to provide 
for the beneficiary's qualified higher education expenses. 
Contributions generally are treated as a completed gift 
eligible for the gift tax annual exclusion. Contributions are 
not tax deductible for Federal income tax purposes, although 
they may be deductible for State income tax purposes. Amounts 
in the account accumulate on a tax-deferred basis (i.e., income 
on accounts under the program is not subject to current income 
tax).
    A qualified tuition program may not permit any contributor 
to, or designated beneficiary under, the program to direct 
(directly or indirectly) the investment of any contributions 
(or earnings thereon) and must provide separate accounting for 
each designated beneficiary.\590\ A qualified tuition program 
may not allow any interest in an account or contract (or any 
portion thereof) to be used as security for a loan.
---------------------------------------------------------------------------
    \590\ However, see IRS Notice 2001-55, 2001-2 C.B. 299, which 
provides that a program does not violate the investment restriction 
under section 529(b)(4) if it permits a change in the investment 
strategy selected for a section 529 account once per calendar year, and 
upon a change in the designated beneficiary of the account.
---------------------------------------------------------------------------
    Distributions from a qualified tuition program are 
excludable from the distributee's gross income to the extent 
that the total distribution does not exceed the qualified 
higher education expenses incurred for the beneficiary. If a 
distribution from a qualified tuition program exceeds the 
qualified higher education expenses incurred for the 
beneficiary, the portion of the excess that is treated as 
earnings generally is subject to income tax and an additional 
10-percent tax. Amounts in a qualified tuition program may be 
rolled over without income tax liability to another qualified 
tuition program for the same beneficiary or for a member of the 
family of that beneficiary.
    In general, prepaid tuition contracts and tuition savings 
accounts established under a qualified tuition program involve 
prepayments or contributions made by one or more individuals 
for the benefit of a designated beneficiary. Decisions with 
respect to the contract or account are made by an individual 
who is not the designated beneficiary. Qualified tuition 
accounts or contracts generally require the designation of a 
person (generally referred to as an ``account owner'') \591\ 
whom the program administrator (oftentimes a third party 
administrator retained by the State or by the educational 
institution that established the program) may look to for 
decisions, recordkeeping, and reporting with respect to the 
account established for a designated beneficiary. The person or 
persons who make the contributions to the account need not be 
the same person who is regarded as the account owner for 
purposes of administering the account. Under many qualified 
tuition programs, the account owner generally has control over 
the account or contract, including the ability to change 
designated beneficiaries and to withdraw funds at any time and 
for any purpose. Thus, in practice, qualified tuition accounts 
or contracts generally involve a contributor, a designated 
beneficiary, an account owner (who oftentimes is not the 
contributor or the designated beneficiary), and an 
administrator of the account or contract.
---------------------------------------------------------------------------
    \591\ Section 529 refers to contributors and designated 
beneficiaries, but does not define or otherwise refer to the term 
``account owner,'' which is a commonly used term among qualified 
tuition programs.
---------------------------------------------------------------------------

Treatment of savings accounts under Federal programs \592\
---------------------------------------------------------------------------

    \592\ The description in this paragraph was prepared by the staff 
of the Ways and Means Human Resources Subcommittee.
---------------------------------------------------------------------------
    Means-tested programs typically include income and 
resources limits designed to properly target benefits to 
individuals with limited income and other financial resources 
on which to depend for support. Income is the money an 
individual receives in a month from wages and other sources 
while resources are savings and other items of significant 
value that individuals may own, such as a home or vehicle. 
Income and resources limits vary from program to program and 
sometimes from State to State for State-administered programs 
such as Medicaid. The Supplemental Security Income (``SSI'') 
program is Federally-administered and has a $2,000 resource 
limit for individuals. In most States, SSI receipt confers 
Medicaid eligibility. When SSI recipients have income and 
resources over the limit, their SSI benefits are suspended but 
they remain eligible for Medicaid.

Use of a trust to provide for the needs of a disabled person

            In general
    A specially designed trust, sometimes referred to as 
special needs trusts or supplemental needs trust, may be used 
to provide financial assistance to a disabled person (the trust 
beneficiary) without disqualifying the beneficiary for certain 
government benefits, such as Medicaid. The trust may be 
established using the disabled person's own funds (a self-
settled trust) or the funds of a third party who does not have 
a legal obligation to support the trust beneficiary (a third-
party trust).
    The assets of a carefully drafted third-party trust 
generally are not counted when determining the beneficiary's 
eligibility for Medicaid. Assets held in a self-settled trust, 
however, generally are counted when determining Medicaid 
eligibility unless, for example, the trust is described in 
section 1917(d)(4)(A) of the Social Security Act. That section 
describes a trust: (1) containing the assets of an individual 
who is disabled (within the meaning of section 1614(a)(3) of 
the Social Security Act); (2) which is established for the 
benefit of the individual by a parent, grandparent, legal 
guardian, or a court; and (3) pursuant to the terms of which 
the State will be reimbursed upon the individual's death for 
the total amount of medical assistance paid on behalf of the 
individual under the State's Medicaid plan, up to the amount of 
the assets remaining in the trust upon the death of the 
individual.
            Income tax deduction for qualified disability trusts
    Under present law, a qualified disability trust is allowed 
a deduction for a personal exemption equal to that of an 
unmarried individual (for 2014, $3,900 subject to phaseout if 
adjusted gross income exceeds $254,200)).\593\
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    \593\ Sec. 642(b)(2)(C). The exemption amount of a trust generally 
is either $100 or $300 (if required to distribute all its income 
currently).
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    In addition, amounts distributed to a child who is a 
beneficiary of a qualified disability trust are treated as 
earned income for purposes of the ``kiddie'' tax and thus are 
not taxed at parents' tax rates.\594\
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    \594\ Sec. 1(g)(4)(C).
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    For these purposes a qualified disability trust means a 
disability trust described in section 1917(c)(2)(B)(iv) of the 
Social Security Act \595\ all the beneficiaries of which are 
determined to be disabled (within the meaning of section 
1614(a)(3) of that Act).
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    \595\ Section 1917(c)(2)(B)(iv) of the Social Security Act 
describes trusts, including disability trusts described in section 
1917(d)(4) of that Act, established solely for the benefit of an 
individual under 65 years of age who is disabled (within the meaning of 
section 1614(a)(3) of that Act).
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                           Reasons for Change

    The Congress recognized the special financial burdens borne 
by families raising children with disabilities and the fact 
that increased financial needs generally continue throughout 
the child's lifetime. Present law provided for various types of 
tax-advantaged savings arrangements; however, none of these 
arrangements adequately served the goal of promoting saving for 
these financial needs. The creation of qualified ABLE programs 
with tax-favored treatment of ABLE accounts for eligible 
beneficiaries will assist families and disabled individuals in 
meeting their financial needs.

                        Explanation of Provision


In general

    The provision provides rules for a new type of tax-favored 
savings program, qualified ABLE programs. A qualified ABLE 
program is a program established and maintained by a State or 
agency or instrumentality thereof. A qualified ABLE program 
must meet the following conditions: (1) under the provisions of 
the program, contributions may be made to an account (an ``ABLE 
account''), established for the purpose of meeting the 
qualified disability expenses of the designated beneficiary of 
the account; (2) the program must limit a designated 
beneficiary to one ABLE account; (3) the program must allow for 
the establishment of ABLE accounts only for a designated 
beneficiary who is either a resident of the State maintaining 
such ABLE program or a resident of a State that has not 
established an ABLE program (a ``contracting State'') which has 
entered into a contract with such State to provide the 
contracting State's residents with access to the State's ABLE 
program; and (4) the program must meet certain other 
requirements discussed below. A qualified ABLE program is 
generally exempt from income tax, but is otherwise subject to 
the taxes imposed on the unrelated business income of tax-
exempt organizations.
    A designated beneficiary of an ABLE account is the owner of 
the ABLE account. A designated beneficiary must be an eligible 
individual (defined below) who established the ABLE account and 
who is designated at the commencement of participation in the 
qualified ABLE program as the beneficiary of amounts paid (or 
to be paid) into and from the program.
    Contributions to an ABLE account must be made in cash and 
are not deductible for Federal income tax purposes. Under the 
provision, except in the case of a rollover contribution from 
another ABLE account, an ABLE account must provide that it may 
not receive aggregate contributions during a taxable year in 
excess of the amount under section 2503(b) of the Code (the 
annual gift tax exemption). For 2014, this is $14,000.\596\ 
Additionally, a qualified ABLE program must provide adequate 
safeguards to ensure that ABLE account contributions do not 
exceed the limit imposed on accounts under the qualified 
tuition program\597\ of the State maintaining the qualified 
ABLE program. Amounts in the account accumulate on a tax-
deferred basis (i.e., income on accounts under the program is 
not subject to current income tax).
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    \596\ This amount is indexed for inflation. In the case that 
contributions to an ABLE account exceed the annual limit, an excise tax 
in the amount of six percent of the excess contribution to such account 
is imposed on the designated beneficiary. Such tax does not apply in 
the event that the trustee of such account makes a corrective 
distribution of such excess amounts by the due date (including 
extensions) of the individual's tax return for the taxable year in 
which the contribution was made.
    \597\ As described in Present Law, rules for qualified tuition 
programs are contained in section 529.
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    A qualified ABLE program may permit a designated 
beneficiary to direct (directly or indirectly) the investment 
of any contributions (or earnings thereon) no more than two 
times in any calendar year and must provide separate accounting 
for each designated beneficiary. A qualified ABLE program may 
not allow any interest in the program (or any portion thereof) 
to be used as security for a loan.
    Distributions from an ABLE account are generally includible 
in the distributee's income to the extent consisting of 
earnings on the account.\598\ Distributions from an ABLE 
account are excludable from income to the extent that the total 
distribution does not exceed the qualified disability expenses 
of the designated beneficiary during the taxable year. If a 
distribution from an ABLE account exceeds the qualified 
disability expenses of the designated beneficiary, a pro rata 
portion of the distribution is excludable from income. The 
portion of any distribution that is includible in income is 
subject to an additional 10-percent tax unless the distribution 
is made after the death of the beneficiary. Amounts in an ABLE 
account may be rolled over without income tax liability to 
another ABLE account for the same beneficiary\599\ or another 
ABLE account for the designated beneficiary's brother, sister, 
stepbrother or stepsister who is also an eligible individual.
---------------------------------------------------------------------------
    \598\ The rules of section 72 apply in determining the portion of a 
distribution that consists of earnings.
    \599\ For instance, if a designated beneficiary were to relocate to 
a different State.
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    Under the provision, except in the case of an ABLE account 
established in a different ABLE program for purposes of 
transferring ABLE accounts,\600\ no more than one ABLE account 
may be established by a designated beneficiary. Thus, once an 
ABLE account has been established by a designated beneficiary, 
no account subsequently established by such beneficiary shall 
be treated as an ABLE account. The provision provides the 
Secretary of the Treasury (``Secretary'') with the authority to 
prescribe regulations to enforce the one ABLE account 
limitation.
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    \600\ In which case the contributor ABLE account must be closed 60 
days after the transfer to the new ABLE account is made.
---------------------------------------------------------------------------
    Under the provision, a contribution to an ABLE account is 
treated as a completed gift of a present interest to the 
designated beneficiary of the account. Such contributions 
qualify for the per-donee annual gift tax exclusion ($14,000 
for 2014) and, to the extent of such exclusion, are exempt from 
the generation skipping transfer (``GST'') tax. A distribution 
from an ABLE account generally is not subject to gift tax or 
GST tax.

Eligible individuals

    As described above, under the provision a qualified ABLE 
program may provide for the establishment of ABLE accounts only 
if those accounts are established and owned by an eligible 
individual, such owner referred to as a designated beneficiary. 
For these purposes, an eligible individual is an individual 
either (1) for whom a disability certification has been filed 
with the Secretary for the taxable year, or (2) who is entitled 
to Social Security Disability Insurance benefits or SSI 
benefits\601\ based on blindness or disability, and such 
blindness or disability occurred before the individual attained 
age 26.
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    \601\ These are benefits, respectively, under Title II or Title XVI 
of the Social Security Act.
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    A disability certification means a certification to the 
satisfaction of the Secretary, made by the eligible individual 
or the parent or guardian of the eligible individual, that the 
individual has a medically determinable physical or mental 
impairment, which results in marked and severe functional 
limitations, and which can be expected to result in death or 
which has lasted or can be expected to last for a continuous 
period of not less than 12 months, or is blind (within the 
meaning of section 1614(a)(2) of the Social Security Act). Such 
blindness or disability must have occurred before the date the 
individual attained age 26. Such certification must include a 
copy of the diagnosis of the individual's impairment and be 
signed by a licensed physician.\602\
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    \602\ No inference may be drawn from a disability certification for 
purposes of eligibility for Social Security, SSI or Medicaid benefits.
---------------------------------------------------------------------------
    As discussed further below, the provision provides that, 
not later than six months after the date of enactment, the 
Secretary shall develop regulations or other guidance on 
certain aspects of the proposal. Among these aspects are 
regulations, to be developed in consultation with the 
Commissioner of Social Security, relating to disability 
certifications and determinations of disability including those 
conditions which are deemed to have occurred prior to age 26. 
It is intended that individuals with those conditions shall be 
required to present only limited (or no) evidence demonstrating 
that the condition occurred prior to age 26. This list of 
conditions should operate in a manner similar to the SSA's 
Compassionate Allowances, which targets the most obviously 
disabled individuals for allowances based on objective medical 
information that can be obtained quickly. Compassionate 
Allowances are selected using information received at public 
outreach hearings, comments received from the Social Security 
and Disability Determination Services communities, the counsel 
of medical and scientific experts, and research conducted by 
the National Institutes of Health.

Qualified disability expenses

    As described above, the earnings on distributions from an 
ABLE account are excluded from income only to the extent total 
distributions do not exceed the qualified disability expenses 
of the designated beneficiary. For this purpose, qualified 
disability expenses are any expenses related to the eligible 
individual's blindness or disability which are made for the 
benefit of the designated beneficiary. Such expenses include 
the following expenses: education, housing, transportation, 
employment training and support, assistive technology and 
personal support services, health, prevention and wellness, 
financial management and administrative services, legal fees, 
expenses for oversight and monitoring, funeral and burial 
expenses, and other expenses, which are approved by the 
Secretary under regulations and consistent with the purposes of 
the provision.

Reporting requirements

    Under the provision, each officer or employee having 
control of the qualified ABLE program (or their designee) is 
required to make reports to the Secretary and to the designated 
beneficiaries of ABLE accounts. Such reports must provide 
information with respect to contributions, distributions, the 
return of excess contributions, and other matters as required 
by the Secretary.
    The provision also requires that a qualified ABLE program 
submit a notice to the Secretary upon the establishment of the 
ABLE account. Such notice shall contain the name and State of 
residence of the beneficiary, and other such information as the 
Secretary may require.
    These reports and notices must be filed at such time and in 
such manner as required by the Secretary. A penalty of $50 may 
apply with respect to any failure to provide a required report 
or notice.
    For purposes of the rules relating to eligibility for SSI 
(discussed below), officers and employees having control of a 
qualified ABLE program must submit statements on account 
balances and distributions from all ABLE accounts to the 
Commissioner of the Social Security Administration. The 
statements must be submitted electronically on at least a 
monthly basis in the manner specified by the Commissioner of 
the Social Security Administration.
    In addition, for research purposes, the Secretary shall 
make available to the public reports containing aggregate 
information, by diagnosis and other relevant characteristics, 
on contributions and distributions to and from qualified ABLE 
programs. However, an item of information may not be made 
publicly available if it can be associated with, or otherwise 
identify, directly or indirectly, a particular individual.

Transfer to State

    Under the provision, in the event that the designated 
beneficiary dies, subject to any outstanding payments due for 
qualified disability expenses incurred by the designated 
beneficiary, all amounts remaining in the deceased designated 
beneficiary's ABLE account not in excess of the amount equal to 
the total medical assistance paid such individual under any 
State Medicaid plan established under title XIX of the Social 
Security Act shall be distributed to such State upon filing of 
a claim for payment by such State. Such repaid amounts shall be 
net of any premiums paid from the account or by or on behalf of 
the beneficiary to the State's Medicaid Buy-In program.

Regulations

    The Secretary is directed to issue regulations or other 
guidance as the Secretary determines is necessary or 
appropriate to carry out the purposes of the qualified ABLE 
program rules, including regulations (1) to enforce the one 
ABLE account per eligible individual limit; (2) providing for 
the information required to be presented to open an ABLE 
account; (3) to generally define disability expenses; (4) 
relating to disability certifications and determinations of 
disability, to be developed in consultation with the 
Commissioner of Social Security, as discussed above; (5) to 
prevent fraud and abuse with respect to amounts claimed as 
qualified disability expenses; (6) under the estate tax, gift 
tax, and generation-skipping transfer tax provisions of the 
Code; and (7) to allow for transfers from one ABLE account to 
another ABLE account. The Secretary is directed to issue such 
regulations or other guidance no later than six months after 
the date of enactment.

Treatment of ABLE accounts under Federal programs

    Under the provision, any amounts in an ABLE account, and 
any distribution for qualified disability expenses, shall be 
disregarded for purposes of determining eligibility to receive, 
or the amount of, any assistance or benefit authorized by any 
Federal means-tested program. However, in the case of the SSI 
program, a distribution for housing expenses is not 
disregarded, nor are amounts in an ABLE account in excess of 
$100,000. In the case that an individual's ABLE account balance 
exceeds $100,000, such individual's SSI benefits shall not be 
terminated, but instead shall be suspended until such time as 
the individual's resources fall below $100,000. However, such 
suspension shall not apply for purposes of Medicaid 
eligibility.

Treatment of ABLE accounts in bankruptcy

    Property of a bankruptcy estate may not include certain 
amounts contributed to an ABLE account, if the designated 
beneficiary of such account was a child, stepchild, grandchild 
or stepgrandchild of the debtor during the taxable year in 
which funds were placed in the account. Such funds shall be 
excluded from the bankruptcy estate only to the extent that 
they were contributed to an ABLE account at least 365 days 
prior to the filing of the title 11 petition, are not pledged 
or promised to any entity in connection with any extension of 
credit, and are not excess contributions as defined in new 
section 4973(h). In the case of funds contributed to an ABLE 
account that are contributed not earlier than 720 days (and not 
later than 365 days) prior to the filing of the petition, only 
up to $6,225 may be excluded.

Investment direction for qualified tuition programs

    The provision includes a modification of the present-law 
restriction on investment direction for qualified tuition 
programs. The provision permits a contributor to, or designated 
beneficiary of, a qualified tuition program, to direct the 
investment of any contributions to the program (or any earnings 
thereon), directly or indirectly, no more than two times in any 
calendar year. This rule is consistent with the rule provided 
for designated beneficiaries under new Code section 529A.

                             Effective Date

    The amendments made by the provision relating to the 
establishment of ABLE programs are effective for taxable years 
beginning after December 31, 2014. The directive that the 
Secretary issue regulations within six months and the disregard 
of ABLE accounts and distributions from such accounts in the 
case of certain means-tested Federal programs are effective on 
the date of enactment (December 19, 2014).

                        TITLE II--OFFSETS \603\

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    \603\ The offsets described herein are revenue provisions. 
Provisions included in the Act that reduce Federal spending (sections 
201-205 of the Act) are not discussed.
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A. Modification Relating to Inland Waterways Trust Fund Financing Rate 
            (sec. 205 of the Act and sec. 4042 of the Code)


                              Present Law

    The Code imposes a tax of 20 cents per gallon on fuel used 
in a vessel in commercial waterway transportation to fund the 
Inland Waterways Trust Fund. Commercial waterway transportation 
means any use of a vessel on any inland or intracoastal 
waterway of the United States in the business of transporting 
property for compensation or hire, or in transporting property 
in the business of the owner, lessee, or operator of the vessel 
(other than fish or other aquatic animal life caught on the 
voyage).
    The Code provides several exemptions from the tax. The tax 
does not apply to fuel for vessels primarily used for passenger 
transportation. Nor does it apply to fuel used in deep-draft 
ocean-going vessels. Additional exemptions are provided for 
fuels used by State and local governments in transporting 
property in governmental business and for fuels used by tugs 
moving LASH (lighter-aboard-ships) and seabee oceangoing barges 
released by their oceangoing carriers solely to pick up or 
deliver international cargoes.
    The Army Corps of Engineers is responsible for the 
construction, operation and maintenance of inland waterway 
infrastructure. Present law allows up to 50 percent of the cost 
of construction projects to be funded by the Inland Waterway 
Trust Fund, the remainder to be funded from general revenues.

                        Explanation of Provision

    The provision changes the rate of tax on fuel used in a 
vessel in commercial waterway transportation from 20 cents per 
gallon to 29 cents per gallon.

                             Effective Date

    The provision is effective for fuel used after March 31, 
2015.

 B. Certified Professional Employer Organizations (sec. 206 of the Act 
           and new secs. 3511, 6652(n), and 7705 of the Code)


                              Present Law


Background on professional employer organizations

    ``Professional employer organization'' is a term used for a 
firm that provides employees to perform services in the 
businesses of the professional employer organization's 
customers, often small and medium-sized businesses.\604\ In 
many cases, before the professional employer organization 
arrangement is entered into, the employees already work in the 
customer's business as employees of the customer. The terms of 
a professional employer organization arrangement typically 
provide that the professional employer organization is the 
employer of the employees and is responsible for paying the 
employees and for the related employment tax compliance. The 
customer typically pays the professional employer organization 
a fee based on payroll costs plus an additional amount.\605\
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    \604\ ``Professional employer organization'' (or ``PEO'') is not a 
legal term with a specific definition. The term ``employee leasing 
company'' is also sometimes used and is also not a legal term with a 
specific definition. When used, these terms can refer to any of a 
variety of arrangements.
    \605\ A professional employer organization may also provide 
employees with employee benefit coverage, such as under a retirement 
plan or a health plan, even if the customer does not maintain such a 
plan. In that case, the fee paid by the customer also covers employee 
benefit costs.
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    In some cases, the employees provided to work in the 
customer's business are legally the employees of the customer, 
and the customer is legally responsible for employment tax 
compliance. Nonetheless, customers generally rely on the 
professional employer organization for employment tax 
compliance (without designating the professional employer 
organization as a reporting agent, as discussed below) and 
treat the employees as employees of the professional employer 
organization.

Employment taxes

    Employment taxes generally consist of the taxes under the 
Federal Insurance Contributions Act (``FICA''), the taxes under 
the Railroad Retirement Tax Act (``RRTA''), the tax under the 
Federal Unemployment Tax Act (``FUTA''), and income taxes 
required to be withheld by employers from wages paid to 
employees (``income tax withholding'').\606\
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    \606\ Secs. 3101-3128 (FICA), 3201-3241 (RRTA), 3301-3311 (FUTA), 
and 3401-3404 (income tax withholding). Sections 3501-3510 provide 
additional rules.
---------------------------------------------------------------------------
    FICA tax consists of two parts: (1) old age, survivor, and 
disability insurance (``OASDI''), which correlates to the 
Social Security program that provides monthly benefits after 
retirement, disability, or death; and (2) Medicare hospital 
insurance (``HI''). The OASDI tax rate is 6.2 percent on both 
the employee and employer (for a total rate of 12.4 percent). 
The OASDI tax rate applies to remuneration up to the OASDI wage 
base for the calendar year ($117,000 for 2014). The HI tax rate 
is 1.45 percent on both the employee and the employer (for a 
total rate of 2.9 percent). Unlike the OASDI tax, the HI tax is 
not limited by a wage base; all remuneration that otherwise 
meets the definition of wages for FICA purposes is subject to 
HI tax.\607\
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    \607\ Beginning 2013, the employee portion of the HI tax under FICA 
(not the employer portion) is increased by an additional tax of 0.9 
percent on wages received in excess of a threshold amount. The 
threshold amount is $250,000 in the case of a joint return, $125,000 in 
the case of a married individual filing a separate return, and $200,000 
in any other case.
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    RRTA taxes consist of tier 1 taxes and tier 2 taxes. Tier 1 
taxes parallel the OASDI and HI taxes applicable to employers 
and employees. Tier 2 taxes consist of employer and employee 
taxes on railroad compensation up to the tier 2 wage base for 
the calendar year ($87,000 for 2014).
    Under FUTA, employers must pay a tax of six percent of 
wages up to the FUTA wage base of $7,000. An employer may take 
a credit against its FUTA tax liability for its contributions 
to a State unemployment fund and, in certain cases, an 
additional credit for contributions that would have been 
required if the employer had been subject to a higher 
contribution rate under State law. For purposes of the credit, 
the term ``contributions'' means payments required by State law 
to be made by an employer into an unemployment fund, to the 
extent the payments are made by the employer without being 
deducted or deductible from employees' remuneration.
    Employers are required to withhold income taxes from wages 
paid to employees. Withholding rates vary depending on the 
amount of wages paid, the length of the payroll period, and the 
number of withholding allowances claimed by the employee.
    Wages paid to employees, and FICA, RRTA, and income taxes 
withheld from the wages, are required to be reported on 
employment tax returns, generally on a quarterly basis, and on 
Form W-2.\608\ Employment taxes are required to be deposited 
(that is, paid to the IRS) within a certain period after 
liability for the taxes arises (that is, after wages are 
paid).\609\ The period within which employment taxes must be 
deposited depends on the amount of liability for a preceding 12 
month period.
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    \608\ Secs. 6011 and 6051.
    \609\ Sec. 6656.
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    Employment taxes generally apply to all remuneration paid 
by an employer to an employee. In addition, various exclusions 
apply to certain types of remuneration or certain types of 
services, which may depend on the type of employer for whom an 
employee performs services.\610\ For example, remuneration 
(subject to a dollar limit) paid to an employee by a tax-exempt 
organization is excluded from wages for FICA purposes, and 
services performed in the employ of certain tax-exempt 
organizations are excluded from employment for FUTA 
purposes.\611\ In addition, various definitions and special 
rules apply to certain types of employers.\612\
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    \610\ See, for example, secs. 3121(a) and (b), 3231(e), 3306(b) and 
(c), and 3401(a).
    \611\ Secs. 3121(a)(16) and 3306(c)(8).
    \612\ See, for example, secs. 3121, 3122, 3125, 3126, 3127, 3231, 
3306, 3308, 3309, 3401(a), 3404, 3506, and 3510.
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    Similarly, as indicated above, remuneration with respect to 
employment with a particular employer for a year is excepted 
from OASDI, RRTA tier 1 or tier 2, or FUTA taxes to the extent 
it exceeds the applicable OASDI, RRTA tier 1 or tier 2, or FUTA 
wage base.\613\ In contrast, if an employee works for multiple 
employers during a year, a separate wage base generally applies 
in determining each employer's tax liability with respect to 
remuneration for employment with each employer.\614\ However, a 
single wage base applies in certain cases in which an employer 
(a ``successor'' employer) takes over the business of another 
employer (the ``predecessor'' employer) and employs the 
employees of the predecessor employer.
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    \613\ An employee is subject to OASDI or RRTA tax only with respect 
to remuneration up to the applicable wage base for a year, regardless 
of whether the employee works for only one employer or for more than 
one employer during the year. If, as a result of working for more than 
one employer, OASDI or RRTA tax is withheld with respect to 
remuneration above the applicable wage base, the employee is allowed a 
credit under section 31(b).
    \614\ A single wage base applies with respect to remuneration for 
employment with a particular employer for a year, regardless of whether 
the remuneration for that employment is paid solely by the employer or 
is paid in part (or instead) by another person who is not an employer 
of the employee. In a case in which (1) an employee works for an 
employer that, during a year, enters into an arrangement with a 
professional employer organization as a customer of the professional 
employer organization and (2) the employee continues to perform 
services for the customer pursuant to the arrangement, whether a single 
wage base applies with respect to remuneration already paid for the 
year by the customer and remuneration paid by the professional employer 
organization depends on whether the professional employer organization 
is an employer of the employee. See IRS Chief Counsel Advice 200017041, 
March 3, 2000, for a discussion of this issue.
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Responsibility for employment tax compliance

    Employment tax responsibility generally rests with the 
person who is the employer of an employee under a common-law 
test that has been incorporated into Treasury regulations.\615\ 
Under the regulations, an employer-employee relationship 
generally exists if the person for whom services are performed 
has the right to control and direct the individual who performs 
the services, not only as to the result to be accomplished by 
the work, but also as to the details and means by which that 
result is accomplished. That is, an employee is subject to the 
will and control of the employer, not only as to what is to be 
done, but also as to how it is to be done. It is not necessary 
that the employer actually control the manner in which the 
services are performed, rather it is sufficient that the 
employer have a right to control. Whether the requisite control 
exists is determined on the basis of all the relevant facts and 
circumstances. The test of whether an employer-employee 
relationship exists often arises in determining whether a 
worker is an employee or an independent contractor. However, 
the same test applies in determining whether a worker is an 
employee of one person or another.
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    \615\ Treas. Reg. secs. 31.3121(d)-1(c)(1), 31.3306(i)-1(a), and 
31.3401(c)-1. A similar concept applies for RRTA purposes under Treas. 
Reg. sec. 31.3231(b)-1(a)(1)(i).
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    In some cases, a person other than the common-law employer 
(a ``third party'') may be liable for employment taxes. For 
example, if wages are paid to an employee by a third party and 
the third party, rather than the employer, has control of the 
payment of the wages, the third party is the statutory employer 
responsible for complying with applicable employment tax 
requirements.\616\ In addition, an employer may designate an 
agent to be responsible for FICA tax and income tax withholding 
compliance,\617\ including filing employment tax returns and 
issuing Forms W-2 to employees.\618\ In that case, the agent 
and the employer are jointly and severally liable for 
compliance.\619\
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    \616\ Sec. 3401(d)(1) (for purposes of income tax withholding, if 
the employer does not have control of the payment of wages, the person 
having control of the payment of such wages is treated as the 
employer); Otte v. United States, 419 U.S. 43 (1974) (the person who 
has the control of the payment of wages is treated as the employer for 
purposes of withholding the employee's share of FICA from wages); In re 
Armadillo Corporation, 561 F.2d 1382 (10th Cir. 1977), and In re The 
Laub Baking Company v. United States, 642 F.2d 196 (6th Cir. 1981) (the 
person who has control of the payment of wages is the employer for 
purposes of the employer's share of FICA and FUTA). The mere fact that 
wages are paid by a person other than the employer does not necessarily 
mean that the payor has control of the payment of the wages. Rather, 
control depends on the facts and circumstances. See, for example, 
Consolidated Flooring Services v. United States, 38 Fed. Cl. 450 
(1997), and Winstead v. United States, 109 F. 2d 989 (4th Cir. 1997).
    \617\ The designated reporting agent rules generally do not apply 
for purposes of FUTA compliance.
    \618\ Sec. 3504. Treas. Reg. sec. 31.3504-1 provides rules for the 
explicit designation of an agent by application to the IRS. Form 2678 
is used for this purpose. In addition, under Treas. Reg. sec. 31.3504-
2, designation of an agent may result from the payment of wages or 
compensation by a payor to an individual performing services for a 
client of the payor pursuant to a service agreement meeting certain 
criteria. The rules for designating an agent for FICA and income tax 
withholding purposes is a departure from the general principle that a 
taxpayer has a nondelegable duty with respect to tax obligations. See 
United States v. Boyle, 469 U.S. 241 (1985).
    \619\ Designation of an agent under section 3504 differs from an 
employer's use of a payroll service to handle payroll and employment 
tax filings on its behalf. In that case, the employer, not the payroll 
service, continues to be legally responsible for employment tax 
compliance.
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Income tax credits based on wages for employment tax purposes

    The Code provides various income tax credits to employers 
under which the amount of the credit is determined by reference 
to the amount of wages for employment tax purposes. For 
example, the amount of an employer's work opportunity credit is 
based on a portion of FUTA wages paid by the employer to 
employees who are members of certain targeted groups.\620\ In 
addition, the credit for employer FICA tax paid on tips is 
based on the employer's share of FICA tax paid by the employer 
with respect to certain tips treated as wages for FICA 
purposes.\621\
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    \620\ Sec. 51(c)(1).
    \621\ Sec. 45B(b)(1).
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Reporting by large food and beverage establishments

    Certain reporting requirements relating to tips apply to 
large food or beverage establishments.\622\ In the case of such 
an establishment, an employer is generally required to report 
the following information to the IRS each calendar year: (1) 
the gross receipts of the establishment from the provision of 
food and beverages, (2) the aggregate amount of charge 
receipts, (3) the aggregate amount of charged tips on the 
charge receipts, (4) the sum of the aggregate amount of tips 
reported to the employer by employees and certain amounts 
required to be reported by the employer on employees' Forms W-
2, and (5) with respect to each employee, the amount of tips 
allocated to the employee based on the receipts of the 
establishment. The employer must also provide employees with 
written statements showing certain information each calendar 
year, including the amount of tips allocated to the employee 
for the year.
---------------------------------------------------------------------------
    \622\ Sec. 6053(c).
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Certain tax administration provisions

            Taxpayer bonds 
    In certain situations, the Code provides for a taxpayer to 
provide a bond to assure payment of a tax liability.\623\
---------------------------------------------------------------------------
    \623\ See, for example, sections 6165 (furnishing of bond in 
connection with an extension of time to pay a tax or deficiency) and 
6325(b) (release of a tax lien on furnishing of a bond). See sections 
7101-7103 and Internal Revenue Manual Part 5.6.1, Collateral Agreements 
and Security Type Collateral (in particular, Part 5.6.1.2.1) and Part 
5.6.2, Maintenance (in particular Part 5.6.2.6.1 and 5.6.2.7.1) for 
procedures relating to bonds provided by a taxpayer to assure payment 
of a tax liability.
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            Confidentiality and public disclosure of tax information
    Returns (including information returns) and return 
information received by the IRS are generally subject to 
confidentiality protections and cannot be disclosed unless 
specifically authorized.\624\ The prohibition on disclosure 
does not apply with respect to Code provisions that 
specifically require the public disclosure of certain 
information.\625\
---------------------------------------------------------------------------
    \624\ Sec. 6103.
    \625\ See, for example, section 6104, requiring the public 
disclosure of certain information relating to tax-exempt organizations 
and tax-favored retirement savings arrangements.
---------------------------------------------------------------------------
            User fees
    User fees apply to requests to the IRS for ruling letters, 
opinion letters, determination letters, and similar 
requests.\626\ The user fees that apply are determined by the 
IRS and are generally required to be determined after taking 
into account the average time and difficulty involved in a 
request.
---------------------------------------------------------------------------
    \626\ Sec. 7528.
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                        Explanation of Provision


Treatment of certified professional employer organization as employer 
        for employment tax purposes

    Under the provision, if certain requirements are met, for 
purposes of employment taxes and other obligations under the 
employment tax rules, a certified professional employer 
organization is treated as the employer of any work site 
employee performing services for any customer of the certified 
professional employer organization, but only with respect to 
remuneration remitted to the work site employee by the 
certified professional employer organization. In addition, no 
other person is treated as the employer for employment tax 
purposes with respect to remuneration remitted by the certified 
professional employer organization to a work site employee.
    Under the provision, exceptions, exclusions, definitions, 
and other rules that are based on type of employer and that 
would apply if the certified professional employer organization 
were not treated as the employer under the provision continue 
to apply. Thus, for example, if services performed in the 
employ of a customer that is a tax-exempt organization would be 
excluded from employment for FUTA purposes, the fact that a 
certified professional employer organization is treated as the 
employer for employment tax purposes does not affect the 
application of the exclusion.
    The provision contains rules under which, on entering into 
a service contract with a customer with respect to a work site 
employee, a certified professional employer organization is 
treated as a successor employer and the customer is treated as 
the predecessor employer. Similarly, on termination of a 
service contract with respect to a worksite employee, the 
customer is treated as a successor employer and the certified 
professional employer organization is treated as a predecessor 
employer. Thus, remuneration paid by the customer and 
remuneration paid by the certified professional employer 
organization to a work site employee during a calendar year are 
both subject to a single OASDI, RRTA tier 1 or tier 2, or FUTA 
wage base.\627\
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    \627\ Under this provision, a single wage base applies with respect 
to remuneration paid to a work site employee by the customer and the 
certified professional employer organization, regardless of whether the 
certified professional employer organization is an employer of the 
employee.
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    The provision does not apply in the case of a customer who 
is related to the certified professional employer 
organization.\628\ In addition, an individual with net earnings 
from self-employment derived from a customer's trade or 
business (that is, a self-employed individual), including a 
customer who is a sole proprietor or a partner of a customer 
that is a partnership, is not a work site employee for 
employment tax purposes with respect to remuneration paid by a 
certified professional employer organization.
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    \628\ Whether a customer and a certified professional employer 
organization are related is determined under the rules of section 
267(b) (relating to transactions between related taxpayers) or 707(b) 
(relating to transactions between a partner and partnership). However, 
rules based on more than 50 percent ownership are applied by 
substituting 10 percent for 50 percent.
---------------------------------------------------------------------------
    As discussed more fully below, a work site employee is an 
individual who performs services (1) for a customer pursuant to 
a contract between the customer and the certified professional 
employer organization that meets certain requirements and (2) 
at a work site that meets certain requirements. Thus, if the 
contract or work site fails to meet these requirements, the 
individual is not a work site employee. The provision applies 
also in the case of an individual (other than a self-employed 
individual) who is not a work site employee, but who performs 
services under a contract that meets the specified 
requirements. In this case, solely for purposes of a certified 
professional employer organization's liability for employment 
taxes and other obligations under the employment tax rules, a 
certified professional employer organization is treated as the 
employer of such an individual, but only with respect to 
remuneration remitted to the individual by the certified 
professional employer organization.\629\ With respect to such 
an individual, exceptions, exclusions, definitions, and other 
rules that are based on the type of employer and that would 
apply if the certified professional employer organization were 
not treated as the employer under the provision continue to 
apply.
---------------------------------------------------------------------------
    \629\ In this case, the provision does not preclude another person 
from being treated as the employer, in addition to the certified 
professional employer organization, and potentially also bearing 
employment tax and related liability with respect to remuneration 
remitted by the certified professional employer organization.
---------------------------------------------------------------------------
    A certified professional employer organization is eligible 
for the FUTA credit for contributions made to a State 
unemployment fund by the certified professional employer 
organization or a customer with respect to wages paid to a work 
site employee. An additional FUTA credit may be claimed by a 
certified professional employer organization if, under State 
law, a certified professional employer organization is 
permitted to collect and remit contributions with respect to a 
work site employee to the State unemployment fund.
    Except to the extent necessary for purposes of the 
provision treating a certified professional employer 
organization as the employer for employment tax purposes, 
nothing in the provision is to be construed to affect the 
determination of who is an employee or employer for purposes of 
the Code.

Certified professional employer organization

    A certified professional employer organization is a person 
(``applicant'') who applies to the Secretary of the Treasury 
(``Secretary'') to be treated as a certified professional 
employer organization for purposes of the provision and has 
been certified by the Secretary as meeting certain 
requirements. These requirements are met if the applicant--
           demonstrates that the applicant (and any 
        owner, officer, and other persons as may be specified 
        in regulations) meets requirements established by the 
        Secretary, including requirements with respect to tax 
        status, background, experience, business location, and 
        annual financial audits,
           agrees to satisfy the bond and independent 
        financial review requirements (described below) on an 
        ongoing basis,
           agrees to satisfy any reporting obligations 
        imposed by the Secretary,
           computes its taxable income using an accrual 
        method of accounting unless the Secretary approves 
        another method,
           agrees to verify on a periodic basis as 
        prescribed by the Secretary that it continues to meet 
        the requirements for certification, and
           agrees to notify the Secretary in writing 
        within the time prescribed by the Secretary of any 
        change that materially affects the continuing accuracy 
        of any agreement or information that was previously 
        made or provided.
    As described above, the provision includes a nonexhaustive 
list of requirements that an applicant, as well as any owner, 
officer, or other person as may be specified in regulations, 
must demonstrate are met in order to be certified. To the 
extent considered appropriate by the Secretary, regulations 
could include requirements such as the following for 
certification:
           proven history of tax compliance in any 
        applicable tax areas, such as income, employment and 
        excise taxes,
           favorable credit and criminal background 
        checks,
           adequate experience with respect to Federal 
        and State employment tax and related requirements, 
        handling of and accounting for funds on behalf of 
        others, effective record-keeping systems, and retention 
        of qualified personnel and legal advisors as needed,
           existence of an established business 
        location within the United States at which significant 
        operations regularly take place, and
           expected continuity of business existence, 
        regardless of change in ownership.
    Under the bond requirement, a certified professional 
employer organization must post a bond for the payment of 
employment taxes in a minimum amount and in a form acceptable 
to the Secretary. The minimum amount is determined for the 
period April 1 of any calendar year through March 31 of the 
following calendar year and is the greater of (1) five percent 
of the employment taxes for which the certified professional 
employer organization is liable under the provision during the 
preceding calendar year (but not to exceed $1,000,000), or (2) 
$50,000.
    Under the independent financial review requirements, a 
certified professional employer organization must (1) as of the 
most recent audit date (that is, six months after the 
completion of the certified professional employer 
organization's fiscal year), have caused to be prepared and 
provided to the Secretary an opinion of an independent 
certified public accountant as to whether the certified 
professional employer organization's financial statements are 
presented fairly in accordance with generally accepted 
accounting principles, and (2) not later than the last day of 
the second month beginning after the end of each calendar 
quarter, provide the Secretary with an assertion regarding 
Federal employment tax payments and an examination level 
attestation on the assertion from an independent certified 
public accountant. The assertion must state that the certified 
professional employer organization has withheld and made 
deposits of all required FICA, RRTA, and withheld income taxes 
for the calendar quarter, and the attestation must state that 
the assertion is fairly stated in all material respects. If a 
certified professional employer organization fails to file the 
required assertion and attestation for any calendar quarter, 
the independent financial review requirements are treated as 
not satisfied for the period beginning on the due date for the 
attestation.
    For purposes of the bond and independent financial review 
requirements, all professional employer organizations that are 
members of a controlled group of corporations or under common 
control are treated as a single organization.\630\
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    \630\ Whether entities are members of a controlled group of 
corporations or under common control is determined under the rules of 
section 414(b) and (c).
---------------------------------------------------------------------------
    The Secretary may suspend or revoke the certification of a 
person's certified professional employer organization status if 
the Secretary determines that the person does not satisfy the 
agreements or other requirements for certification or fails to 
satisfy the applicable accounting, reporting, payment, or 
deposit requirements.

Work site employee

    A work site employee is an individual who (1) performs 
services for a customer of a certified professional employer 
organization pursuant to a contract between the customer and 
the certified professional employer organization that meets 
certain requirements, described below (referred to herein as a 
``qualifying service contract'') and (2) performs services at a 
work site meeting certain requirements, described below.\631\
---------------------------------------------------------------------------
    \631\ As discussed above, a self-employed individual is not a work 
site employee.
---------------------------------------------------------------------------
    In order to be a qualifying service contract, the contract 
between the customer and the certified professional employer 
organization must be in writing and, with respect to an 
individual performing services for the customer, must provide 
that the certified professional employer organization will--
           assume responsibility for payment of wages 
        to the individual, without regard to the receipt or 
        adequacy of payment from the customer,
           assume responsibility for reporting, 
        withholding, and paying any employment taxes with 
        respect to the individual's wages, without regard to 
        the receipt or adequacy of payment from the customer,
           assume responsibility for any employee 
        benefits that the contract may require the certified 
        professional employer organization to provide, without 
        regard to the receipt or adequacy of payment from the 
        customer,
           assume responsibility for recruiting, hiring 
        and firing workers in addition to the customer's 
        responsibility for recruiting, hiring and firing 
        workers,
           maintain employee records relating to the 
        individual, and
           agree to be treated as a certified 
        professional employer organization for employment tax 
        purposes with respect to such individual.
    For purposes of whether an individual is a work site 
employee, the work site where the individual performs services 
meets the applicable requirements if at least 85 percent of the 
individuals performing services for the customer at the work 
site are subject to one or more qualifying service contracts 
with the certified professional employer organization.\632\
---------------------------------------------------------------------------
    \632\ For this purpose, excluded employees under section 414(q)(5), 
such as employees who are under age 21 or have not completed six months 
of service, are not taken into account.
---------------------------------------------------------------------------

Income tax credits based on wages for employment tax purposes

    Under the provision, for purposes of various income tax 
credits under which the amount of the credit is determined by 
reference to the amount of employment tax wages or employment 
taxes (``specified'' credits), (1) the credit with respect to a 
worksite employee performing services for a customer applies to 
the customer, not to the certified professional employer 
organization, (2) the customer, and not the certified 
professional employer organization, is to take into account 
wages and employment taxes paid by the certified professional 
employer organization with respect to the worksite employee and 
for which the certified professional employer organization 
receives payment from the customer, and (3) the certified 
professional employer organization is required to furnish the 
customer and the Secretary with any information necessary for 
the customer to claim the credit.\633\
---------------------------------------------------------------------------
    \633\ Section 199 provides a deduction from taxable income (or, in 
the case of an individual, adjusted gross income) for a portion of the 
taxpayer's qualified production activities income or taxable income. 
The amount of the deduction for a taxable year is limited to 50 percent 
of the Form W-2 wages paid by the taxpayer, and properly allocable to 
domestic production gross receipts, during the calendar year that ends 
in the calendar year. For this purpose, Form W-2 wages means wages 
subject to income tax withholding, as well as elective deferrals and 
certain other amounts, that the taxpayer properly reports on Forms W-2 
for the calendar year. Under regulations dealing with wages paid by an 
entity other than the common-law employer, a taxpayer may take into 
account wages paid by another entity and reported by the other entity 
on Form W-2 (with the other entity listed as the employer on the Form 
W-2), provided that the wages were paid to employees of the taxpayer 
for employment by the taxpayer. Treas. Reg. sec. 1.199-2(a)(2). The 
provision does not affect the application of these rules.
---------------------------------------------------------------------------
    For this purpose, specified credits include the credit for 
research expenses, the Indian employment credit, the credit for 
employer FICA tax paid on tips, the credit for certain clinical 
drug testing expenses, the credit for employee health insurance 
expenses of small employers, the work opportunity credit, the 
empowerment zone employment credit, and any credit specified by 
the Secretary.\634\
---------------------------------------------------------------------------
    \634\ These credits are provided, respectively, under sections 41, 
45A, 45B, 45C, 45R, 51, and 1396.
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Reporting by large food and beverage establishments

    Under the provision, if a certified professional employer 
organization is treated for employment tax purposes as the 
employer of a work site employee, the customer for whom the 
work site employee performs services is the employer for 
purposes of the reporting required with respect to a large food 
or beverage establishment. The certified professional employer 
organization is required to furnish the customer and the 
Secretary with any information the Secretary prescribes as 
necessary to complete the required reporting. The certified 
professional employer organization is required to furnish the 
required information no later than the time the Secretary 
prescribes.

Regulations and reporting and record-keeping requirements

    The Secretary is directed to prescribe regulations as may 
be necessary or appropriate to carry out the purposes of the 
provision.
    In addition, the Secretary is directed to develop reporting 
and record-keeping rules, regulations and procedures as the 
Secretary determines necessary or appropriate to ensure tax 
compliance by certified professional employer organizations or 
persons that have been so certified. These rules are to include 
(1) notification of the Secretary, in the manner prescribed by 
the Secretary, of the commencement or termination of a 
qualifying service contract with a customer and the employer 
identification number of the customer, (2) information the 
Secretary determines necessary for the customer to claim 
specified credits and the manner in which the information is to 
be provided, and (3) other information as the Secretary 
determines is essential to promote compliance with respect to 
specified credits and FUTA credits. In the case of a failure to 
make a report containing the required information by the time 
required, a penalty of $50 may apply ($100 in the case of a 
failure due to negligence or intentional disregard).
    The rules, regulations and procedures are to be designed in 
a manner that streamlines, to the extent possible, the 
application of the requirements of the provision, the exchange 
of information between a certified professional employer 
organization and its customers, and the reporting and 
recordkeeping obligations of the certified professional 
employer organization.

Other rules

            Disclosure
    The provision directs the Secretary to make available to 
the public the name and address of each person certified as a 
professional employer organization and each person whose 
certification as a professional employer organization is 
suspended or revoked.
            User fees
    Under the provision, the user fee charged under the program 
for certifying a professional employer organization is an 
annual fee and may not exceed $1,000.
            No inference as to effect of provision
    Nothing contained in the provision or the amendments made 
by the provision is to be construed to create any inference 
with respect to the determination of who is an employee or 
employer (1) for Federal tax purposes (other than the purposes 
set forth in the amendments made by the provision), or (2) for 
purposes of any other provision of law.

                             Effective Date

    The provision is effective with respect to wages paid for 
services performed on or after January 1 of the first calendar 
year beginning more than 12 months after the date of enactment 
of the provision (December 19, 2014). The Secretary is directed 
to establish the certification program for professional 
employer organizations not later than six months before the 
provision becomes effective.

C. Exclusion of Dividends From Controlled Foreign Corporations From the 
   Definition of Personal Holding Company Income for Purposes of the 
Personal Holding Company Rules (sec. 207 of the Act and sec. 543 of the 
                                 Code)


                              Present Law


Personal holding company tax

    In addition to the regular corporate tax, an additional tax 
is imposed on a corporation that is a personal holding company. 
The tax is an amount equal to the maximum rate of tax on 
qualified dividends of individuals (currently 20 percent), 
multiplied by the corporation's undistributed personal holding 
company income above a dollar threshold.\635\ A personal 
holding company is a closely held corporation at least 60 
percent of the adjusted ordinary gross income (as defined) of 
which is personal holding company income.\636\ Personal holding 
company income includes dividends, interest, certain rents, and 
other generally passive investment income.\637\
---------------------------------------------------------------------------
    \635\ Sec. 541.
    \636\ Sec. 542.
    \637\ Sec. 543.
---------------------------------------------------------------------------

Controlled foreign corporations

    In general, the U.S. does not impose tax on the income of a 
foreign corporation unless and until that income is distributed 
to U.S. shareholders. However, the rules of subpart F \638\ 
provide an exception for certain passive or readily movable 
income of a foreign corporation that, for a period of at least 
30 days during the taxable year, is more than 50-percent owned 
(by voting power or value) by U.S. shareholders each of which 
owns at least 10 percent of the voting power of the corporate 
stock after applying attribution rules (a controlled foreign 
corporation). The pro rata share of such corporate earnings is 
currently included as income of the 10-percent (or greater) 
shareholders (by voting power) that hold their stock on the 
last day of the taxable year. Except as otherwise provided for 
specific purposes of the Code, the inclusions are not treated 
as dividends. When the earnings are distributed to the U.S. 
shareholders, they are not again subject to tax.\639\
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    \638\ Secs. 951-965.
    \639\ Sec. 959. A separate set of rules applies to income of a 
foreign corporation that is a passive foreign investment corporation, 
generally defined as a foreign corporation 75 percent or more of the 
gross income of which is passive income, or 50 percent or more of the 
assets of which produce or are held for the production of passive 
income (sec. 1297). Such income is either subject to the highest rate 
of tax for ordinary income applicable to individuals and an interest 
charge for deferral when it is ultimately distributed to a U.S. 
shareholder, or an election can be made to include income currently 
even if not distributed (secs. 1291-1298). A corporation is not treated 
as a passive foreign investment corporation with respect to any U.S. 
shareholder during the period such corporation is a controlled foreign 
corporation of which the shareholder is a 10-percent or greater owner 
(by voting power) under the rules relating to controlled foreign 
corporations (sec. 1297(d)).
---------------------------------------------------------------------------
    When a controlled foreign corporation distributes money or 
other property to a U.S. shareholder out of its earnings and 
profits not previously included in the income of the 
shareholder under the rules of subpart F, the amount of money 
or fair market value of the property is included in gross 
income as a dividend.\640\
---------------------------------------------------------------------------
    \640\ A 10-percent corporate shareholder may be allowed a foreign 
tax credit for the foreign income taxes paid on the earnings and 
profits distributed as a dividend (sec. 902). Also, a dividends-
received deduction is allowed to a corporate shareholder to the extent 
the dividend is attributable to certain U.S. source income, and no 
foreign tax credit is allowed with respect to any such amount. (sec. 
245). A dividend received by an individual is a qualified dividend, 
eligible for the maximum 20-percent tax rates, if the dividend is from 
a qualified foreign corporation (generally, a corporation (i) that is 
eligible for certain treaty benefits or is incorporated in a U.S. 
possession, or (ii) the stock of which with respect to which the 
dividend is paid is readily tradable on a U.S. securities market; and 
that in either case is not a passive foreign investment company (sec. 
1(h)(11)(C)).
---------------------------------------------------------------------------

                           Reasons for Change

    The Congress believed that dividends paid by a controlled 
foreign corporation to a 10-percent U.S. shareholder, out of 
the controlled foreign corporation's earnings and profits that 
were not treated as passive or readily movable income 
inclusions to the shareholder under the rules of subpart F, are 
attributable to active business income of the controlled 
foreign corporation. Accordingly, it was appropriate to exclude 
these dividends from personal holding company income of the 
shareholder.
    The Congress also believed that the personal holding 
company tax currently deters the repatriation of earnings that 
would be repatriated if the U.S. corporate tax alone (but not 
the personal holding company tax) were applicable to the 
repatriated earnings.

                        Explanation of Provision

    Under the provision, dividends received by a 10-percent 
U.S. shareholder (as defined in section 951(b)) from a 
controlled foreign corporation (as defined in section 957(a)) 
are excluded from the definition of personal holding company 
income for purposes of the personal holding company tax.

                             Effective Date

    The provision applies to taxable years ending on or after 
the date of enactment (December 19, 2014).

D. Inflation Adjustment for Certain Civil Penalties Under the Internal 
        Revenue Code (sec. 208 of the Act and secs. 6651, 6652(c), 
        6695, 6698, 6699, 6721, and 6722 of the Code)

                              Present Law

    The Code provides for both civil and criminal penalties to 
ensure complete and accurate reporting of tax liability and to 
discourage fraudulent attempts to defeat or evade tax. Civil 
and criminal penalties are applied separately. Thus, a taxpayer 
convicted of a criminal tax offense may be subject to both 
criminal and civil penalties, and a taxpayer acquitted of a 
criminal tax offense may nonetheless be subject to civil tax 
penalties. In cases involving both criminal and civil 
penalties, the IRS generally does not pursue both 
simultaneously, but delays pursuit of civil penalties until the 
criminal proceedings have concluded.
    Civil penalties are provided in Chapter 68 of the 
Code.\641\ Civil penalties are categorized into two types: 
additions to the tax and additional amounts (herein ``additions 
to tax''), and assessable penalties. The additions to tax are 
generally subject to deficiency proceedings, and some may be 
waived under certain circumstances, including a showing of 
reasonable cause.\642\ Assessable penalties can be assessed 
without restrictions (such as the opportunity for preassessment 
judicial review) applicable in deficiency cases.\643\ 
Assessable penalties may also be waived under certain 
circumstances, including a showing of reasonable cause.\644\
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    \641\ Secs. 6651-6751.
    \642\ Secs. 6651-6663; Sec. 6664.
    \643\ Secs. 6671-6725.
    \644\ Sec. 6724.
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    Some penalties are calculated by reference to the tax 
liability, while others are fixed dollar amounts. Penalties 
with a fixed dollar amount include penalties in the case of (i) 
failure to file a tax return or to pay tax,\645\ (ii) failure 
to file certain information returns, registration statements, 
and certain other statements,\646\ (iii) failure to furnish a 
copy of the tax return to the taxpayer, failure to sign the 
return, failure to furnish an identifying number, failure to 
retain a completed copy of the tax return or retain on a list 
the name and taxpayer identification number of the taxpayer for 
whom the return was prepared, failure to file correct 
information returns, negotiation of a taxpayer's check by the 
tax return preparer, and failure to be diligent in determining 
eligibility for the earned income credit,\647\ (iv) failure of 
a partnership to file a return,\648\ (v) failure of an S 
corporation to file a return,\649\ (vi) failure to file correct 
information returns,\650\ and (vii) failure to file correct 
payee statements.\651\
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    \645\ Sec. 6651(a).
    \646\ Sec. 6652(c).
    \647\ Sec. 6695.
    \648\ Sec. 6698.
    \649\ Sec. 6699.
    \650\ Sec. 6721.
    \651\ Sec. 6722.
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    The penalty provisions generally contain no automatic 
mechanism to adjust the amount of the penalty for inflation. 
However, the penalty provisions relating to the failure to file 
correct information returns and the failure to furnish correct 
payee statements are adjusted for inflation every five years 
and provide a rounding rule.

                           Reasons for Change

    The Congress believed that indexing these fixed-dollar 
penalties would encourage compliance with the tax law. By 
correlating increases in the amounts to increases in other 
types of dollar amounts in the economy generally, the penalties 
can continue to serve as a meaningful economic deterrent to 
non-compliant behavior.

                        Explanation of Provision

    The provision indexes the fixed-dollar civil tax penalties 
in the case of: (i) failure to file a tax return),\652\ (ii) 
failure to file or disclose information return by exempt 
organizations and certain trusts),\653\ (iii) preparation of 
tax returns of other persons,\654\ (iv) failure to file 
partnership return,\655\ (v) failure to file S corporation 
returns,\656\ (vi) failure to file correct information 
return),\657\ and (vii) failure to furnish correct payee 
statements.\658\ The provision rounds penalty amounts down to 
the nearest multiple of five dollars if less than $5,000, 
otherwise the provision rounds penalty amounts down to the 
nearest multiple of $500. The provision does not modify the 
present-law rounding rules relating to the failure to file 
correct information returns and the failure to furnish correct 
payee statements.
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    \652\ Sec. 6651(a).
    \653\ Sec. 6652(c).
    \654\ Sec. 6695.
    \655\ Sec. 6698.
    \656\ Sec. 6699.
    \657\ Sec. 6721.
    \658\ Sec. 6722.
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                             Effective Date

    The provision is generally effective for returns required 
to be filed after December 31, 2014. The amendment relating to 
the failure to file or disclose information returns by exempt 
organizations and certain trusts is effective for failures 
relating to returns required to be filed or disclosed after 
that date.. The amendment relating to the preparation of tax 
returns of other persons is effective for failures relating to 
returns or claims for refund filed after that date (or, in the 
case of the penalty relating to the negotiation of checks, to 
checks negotiated after that date). The amendment relating to 
the failure to furnish correct payee statements is effective 
for statements required to be furnished after that date.

E. Increase Continuous Levy Authority on Payments to Medicare Providers 
     and Suppliers (sec. 209 of the Act and sec. 6331 of the Code)


                              Present Law


In general

    Levy is the administrative authority of the IRS to seize a 
taxpayer's property, or rights to property, to pay the 
taxpayer's tax liability.\659\ Generally, the IRS is entitled 
to seize a taxpayer's property by levy if a Federal tax lien 
has attached to such property,\660\ the property is not exempt 
from levy, \661\ and the IRS has provided both notice of 
intention to levy\662\ and notice of the right to an 
administrative hearing (the notice is referred to as a 
``collections due process notice'' or ``CDP notice'' and the 
hearing is referred to as the ``CDP hearing'') \663\ at least 
30 days before the levy is made. A levy on salary or wages 
generally is continuously in effect until released.\664\ A 
Federal tax lien arises automatically when: (1) a tax 
assessment has been made; (2) the taxpayer has been given 
notice of the assessment stating the amount and demanding 
payment; and (3) the taxpayer has failed to pay the amount 
assessed within 10 days after the notice and demand.\665\
---------------------------------------------------------------------------
    \659\ Sec. 6331(a). Levy specifically refers to the legal process 
by which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \660\ Ibid.
    \661\ Sec. 6334.
    \662\ Sec. 6331(d).
    \663\ Sec. 6330. The notice and the hearing are referred to 
collectively as the CDP requirements.
    \664\ Secs. 6331(e) and 6343.
    \665\ Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable when determining whether assessment 
of tax without following the normal deficiency procedures is 
permitted.\666\
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    \666\ Secs. 6331(d)(3), 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if: (1) the Secretary finds that collection would be 
jeopardized by delay; (2) the Secretary has served a levy on a 
State to collect a Federal tax liability from a State tax 
refund; (3) the taxpayer subject to the levy requested a CDP 
hearing with respect to unpaid employment taxes arising in the 
two-year period before the beginning of the taxable period with 
respect to which the employment tax levy is served; or (4) the 
Secretary has served a Federal contractor levy. In each of 
these four cases, however, the taxpayer is provided an 
opportunity for a hearing within a reasonable period of time 
after the levy.\667\
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    \667\ Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997 \668\ authorized the establishment 
of the Federal Payment Levy Program (``FPLP''), which allows 
the IRS to continuously levy up to 15 percent of certain 
``specified payments'' by the Federal government if the payees 
are delinquent on their tax obligations. With respect to 
payments to vendors of goods, services, or property sold or 
leased to the Federal government, the continuous levy may be up 
to 100 percent of each payment.\669\ For payments to Medicare 
providers and suppliers, the levy is up to 15 percent. The levy 
(either up to 15 percent or up to 100 percent) generally 
continues in effect until the liability is paid or the IRS 
releases the levy.
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    \668\ Pub. L. No. 105-34.
    \669\ Sec. 6331(h)(3).
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    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by Treasury's Bureau of 
Fiscal Service (``BFS''), such as certain Social Security 
benefit and Federal wage records. When these records match, the 
delinquent taxpayer is provided both the notice of intention to 
levy and the CDP notice. If the taxpayer does not respond after 
30 days, the IRS can instruct BFS to levy the taxpayer's 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or the IRS releases 
the levy.

                           Reasons for Change

    It has been reported that many thousands of Medicare 
providers and suppliers have outstanding Federal employment and 
income tax liability.\670\ Consequently, the Congress believed 
that it was appropriate to increase the permissible percentage 
of payments to a Medicare provider subject to levy.
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    \670\ Government Accountability Office, Medicare: Thousands of 
Medicare Providers Abuse the Federal Tax System (GAO-08-618), June 13, 
2008.
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                        Explanation of Provision

    The provision allows the Secretary to levy up to 30 percent 
of a payment to Medicare providers and suppliers to collect 
unpaid taxes.

                             Effective Date

    The provision is effective for payments made after 180 days 
after the date of enactment (December 19, 2014).

 APPENDIX: ESTIMATED BUDGET EFFECTS OF TAX LEGISLATION ENACTED IN THE 
                             113TH CONGRESS
                             
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