[JPRT 115-2-19]
[From the U.S. Government Publishing Office]




                                     

                        [JOINT COMMITTEE PRINT]


 
                         GENERAL EXPLANATION OF
                        CERTAIN TAX LEGISLATION
                     ENACTED IN THE 115TH CONGRESS

                               ----------                              

                         Prepared by the Staff

                                 of the

                      JOINT COMMITTEE ON TAXATION






              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]







                              OCTOBER 2019

                                     
                                     
*                                                     JCS-2-19











                        [JOINT COMMITTEE PRINT]





                         GENERAL EXPLANATION OF 
                        CERTAIN TAX LEGISLATION 
                     ENACTED IN THE 115TH CONGRESS 

                               __________

                         Prepared by the Staff

                                 of the

                      JOINT COMMITTEE ON TAXATION






              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]








                              OCTOBER 2019 
                              
                               __________

                      U.S. GOVERNMENT PUBLISHING OFFICE
                      
*36-999                    WASHINGTON : 2019             JCS-2-19

                              
                              
                              
                              
                              
                              
                              
                              
                              
                      JOINT COMMITTEE ON TAXATION

                      116th Congress, 1st Session

                               __________
              SENATE                                HOUSE
CHUCK GRASSLEY, Iowa                 RICHARD NEAL, Massachusetts
  Vice Chairman                        Chairman
MIKE CRAPO, Idaho                    JOHN LEWIS, Georgia
MICHAEL ENZI, Wyoming                LLOYD DOGGETT, Texas
RON WYDEN, Oregon                    KEVIN BRADY, Texas
DEBBIE STABENOW, Michigan            DEVIN NUNES, California

                 Thomas A. Barthold, Chief of Staff
               Robert P. Harvey, Deputy Chief of Staff
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
                            C O N T E N T S

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                                                                   Page
INTRODUCTION.....................................................     1

PART ONE: DISASTER TAX RELIEF AND AIRPORT AND AIRWAY EXTENSION 
  ACT OF 2017 (PUBLIC LAW 115-63)................................     3

          A. Aviation Revenue Provisions.........................     3
               1. Extension of expenditure authority and taxes 
                  funding Airport and Airway Trust Fund (secs. 
                  201 and 202 of the Act and secs. 4081, 4083, 
                  4261, 4271, and 9502 of the Code)..............     3
          B. Tax Relief for Hurricanes Harvey, Irma, and Maria...     4
               1. Special disaster-related rules for use of 
                  retirement funds (sec. 502 of the Act and sec. 
                  72 of the Code)................................     5
               2. Disaster-related employment relief (sec. 503 of 
                  the Act and sec. 38 of the Code)...............     9
               3. Temporary suspension of limitations on 
                  charitable contributions (sec. 504(a) of the 
                  Act and sec. 170 of the Code)..................    10
               4. Special rules for qualified disaster-related 
                  personal casualty losses (sec. 504(b) of the 
                  Act and sec. 165 of the Code)..................    12
               5. Special rule for determining earned income 
                  (sec. 504(c) of the Act and secs. 24 and 32 of 
                  the Code)......................................    13
               6. Application of disaster-related tax relief to 
                  possessions of the United States (sec. 504(d) 
                  of the Act)....................................    15

PART TWO: FOURTH CONTINUING APPROPRIATIONS FOR FISCAL YEAR 2018, 
  FEDERAL REGISTER PRINTING SAVINGS, HEALTHY KIDS, HEALTH-RELATED 
  TAXES, AND BUDGETARY EFFECTS (PUBLIC LAW 115-120)..............    17

               1. Extension of moratorium on medical device 
                  excise tax (sec. 4001 of the Act and sec. 4191 
                  of the Code)...................................    17
               2. Delay in implementation of excise tax on high 
                  cost employer-sponsored health coverage (sec. 
                  4002 of the Act and sec. 4980I of the Code)....    18
               3. Suspension of annual fee on health insurance 
                  providers (sec. 4003 of the Act and sec. 9010 
                  of the Patient Protection and Affordable Care 
                  Act)...........................................    21

PART THREE: BIPARTISAN BUDGET ACT OF 2018 (PUBLIC LAW 115-123)...    22

          A. Tax Relief and Medicaid Changes Related to Certain 
              Disasters: California Fires........................    22
               1. Special disaster-related rules for use of 
                  retirement funds (sec. 20102 of the Act and 
                  sec. 72 of the Code)...........................    22
               2. Employee retention credit for employers 
                  affected by California wildfires (sec. 20103 of 
                  the Act and sec. 38 of the Code)...............    26
               3. Temporary suspension of limitations on 
                  charitable contributions (sec. 20104(a) of the 
                  Act and sec. 170 of the Code)..................    27
               4. Special rules for qualified disaster-related 
                  personal casualty losses (sec. 20104(b) of the 
                  Act and sec. 165 of the Code)..................    30
               5. Special rule for determining earned income 
                  (sec. 20104(c) of the Act and secs. 24 and 32 
                  of the Code)...................................    30
          B. Tax Relief for Hurricanes Harvey, Irma, And Maria...    32
               1. Tax relief for Hurricanes Harvey, Irma, and 
                  Maria (sec. 20201 of the Act and sec. 501(a)(2) 
                  and (b)(2) of the Disaster Tax Relief and 
                  Airport and Airway Extension Act of 2017, Pub. 
                  L. No. 115-63).................................    32
          C. Tax Relief for Families and Individuals.............    32
               1. Extension of exclusion from gross income of 
                  discharge of qualified principal residence 
                  indebtedness (sec. 40201 of the Act and sec. 
                  108 of the Code)...............................    32
               2. Extension of mortgage insurance premiums 
                  treated as qualified residence interest (sec. 
                  40202 of the Act and sec. 163 of the Code).....    34
               3. Extension of above-the-line deduction for 
                  qualified tuition and related expenses (sec. 
                  40203 of the Act and sec. 222 of the Code).....    35
          D. Incentives for Growth, Jobs, Investment, and 
              Innovation.........................................    37
               1. Extension of Indian employment tax credit (sec. 
                  40301 of the Act and sec. 45A of the Code).....    37
               2. Extension of railroad track maintenance credit 
                  (sec. 40302 of the Act and sec. 45G of the 
                  Code)..........................................    38
               3. Extension of mine rescue team training credit 
                  (sec. 40303 of the Act and sec. 45N of the 
                  Code)..........................................    41
               4. Extension of classification of certain race 
                  horses as three-year property (sec. 40304 of 
                  the Act and sec. 168 of the Code)..............    42
               5. Extension of seven-year recovery period for 
                  motorsports entertainment complexes (sec. 40305 
                  of the Act and sec. 168 of the Code)...........    43
               6. Extension of accelerated depreciation for 
                  business property on an Indian reservation 
                  (sec. 40306 of the Act and sec. 168(j) of the 
                  Code)..........................................    46
               7. Extension of election to expense mine safety 
                  equipment (sec. 40307 of the Act and sec. 179E 
                  of the Code)...................................    47
               8. Extension of special expensing rules for 
                  certain productions (sec. 40308 of the Act and 
                  sec. 181 of the Code)..........................    48
               9. Extension of deduction allowable with respect 
                  to income attributable to domestic production 
                  activities in Puerto Rico (sec. 40309 of the 
                  Act and former sec. 199 of the Code)...........    50
               10. Extension of special rule relating to 
                  qualified timber gain (sec. 40310 of the Act 
                  and former sec. 1201 of the Code)..............    52
               11. Extension of empowerment zone tax incentives 
                  (sec. 40311 of the Act and secs. 1391 and 1394 
                  of the Code)...................................    53
               12. Extension of American Samoa economic 
                  development credit (sec. 40312 of the Act and 
                  sec. 119 of Division A of Pub. L. No. 109-432).    59
          E. Incentives for Energy Production and Conservation...    61
               1. Extension of credit for nonbusiness energy 
                  property (sec. 40401 of the Act and sec. 25C of 
                  the Code)......................................    61
               2. Extension and modification of credit for 
                  residential energy property (sec. 40402 of the 
                  Act and sec. 25D of the Code)..................    62
               3. Extension of credit for new qualified fuel cell 
                  motor vehicles (sec. 40403 of the Act and sec. 
                  30B of the Code)...............................    64
               4. Extension of credit for alternative fuel 
                  vehicle refueling property (sec. 40404 of the 
                  Act and sec. 30C of the Code)..................    64
               5. Extension of credit for two-wheeled plug-in 
                  electric vehicles (sec. 40405 of the Act and 
                  sec. 30D of the Code)..........................    65
               6. Extension of second generation biofuel producer 
                  credit (sec. 40406 of the Act and sec. 40(b)(6) 
                  of the Code)...................................    66
               7. Extension of biodiesel and renewable diesel 
                  incentives (sec. 40407 of the Act and secs. 
                  40A, 6426(c) and 6427(e) of the Code)..........    67
               8. Extension of production credit for Indian coal 
                  facilities (sec. 40408 of the Act and sec. 45 
                  of the Code)...................................    70
               9. Extension of credits with respect to facilities 
                  producing energy from certain renewable 
                  resources (sec. 40409 of the Act and secs. 45 
                  and 48 of the Code)............................    70
              10. Extension of credit for energy-efficient new 
                  homes (sec. 40410 of the Act and sec. 45L of 
                  the Code)......................................    71
              11. Extension and phaseout of energy credit (sec. 
                  40411 of the Act and sec. 48 of the Code)......    72
              12. Extension of special allowance for second 
                  generation biofuel plant property (sec. 40412 
                  of the Act and sec. 168(l) of the Code)........    76
              13. Extension of energy efficient commercial 
                  buildings deduction (sec. 40413 of the Act and 
                  sec. 179D of the Code).........................    78
              14. Extension of special rule for sales or 
                  dispositions to implement FERC or State 
                  electric restructuring policy for qualified 
                  electric utilities (sec. 40414 of the Act and 
                  sec. 451(k) of the Code).......................    80
              15. Extension of excise tax credits relating to 
                  alternative fuel (sec. 40415 of the Act and 
                  secs. 6426 and 6427 of the Code)...............    82
              16. Extension of Oil Spill Liability Trust Fund 
                  financing rate (sec. 40416 of the Act and sec. 
                  4611 of the Code)..............................    83
          F. Modifications of Energy Incentives..................    84
               1. Modifications of credit for production from 
                  advanced nuclear power facilities (sec. 40501 
                  of the Act and sec. 45J of the Code)...........    84
          G. Miscellaneous Provisions............................    86
               1. Modifications to rum cover-over (sec. 41102 of 
                  the Act and sec. 7652 of the Code).............    86
               2. Extension of waiver of limitations with respect 
                  to excluding from gross income amounts received 
                  by wrongly incarcerated individuals (sec. 41103 
                  of the Act and sec. 139F of the Code)..........    88
               3. Individuals held harmless on improper levy on 
                  retirement plans (sec. 41104 of the Act and 
                  sec. 6343 of the Code).........................    89
               4. Modifications of user fees requirements for 
                  installment agreements (sec. 41105 of the Act 
                  and new sec. 6159(f) of the Code)..............    91
               5. Form 1040SR for seniors (sec. 41106 of the Act)    92
               6. Attorneys' fees relating to awards to 
                  whistleblowers (sec. 41107 of the Act and sec. 
                  62(a)(21) of the Code).........................    93
               7. Clarification of whistleblower awards (sec. 
                  41108 of the Act and new sec. 7623(c) of the 
                  Code)..........................................    94
               8. Clarification regarding excise tax based on 
                  investment income of private colleges and 
                  universities (sec. 41109 of the Act and sec. 
                  4968 of the Code)..............................    98
               9. Exception from private foundation excess 
                  business holding tax for independently-operated 
                  philanthropic business holdings (sec. 41110 of 
                  the Act and sec. 4943 of the Code).............   100
              10. Rule of construction for craft beverage 
                  modernization and tax reform (sec. 41111 of the 
                  Act)...........................................   103
              11. Simplification of rules regarding records, 
                  statements, and returns (sec. 41112 of the Act 
                  and sec. 5555 of the Code).....................   103
              12. Modifications of rules governing hardship 
                  distributions (sec. 41113 of the Act, and secs. 
                  401(k) and 403(b) of the Code).................   104
              13. Modification of rules relating to hardship 
                  withdrawals from cash or deferred arrangements 
                  (sec. 41114 of the Act and sec. 401(k) of the 
                  Code)..........................................   105
              14. Opportunity zones rule for Puerto Rico (sec. 
                  41115 of the Act and sec. 1400Z-1 of the Code).   106
              15. Tax home of certain citizens or residents of 
                  the United States living abroad (sec. 41116 of 
                  the Act and sec. 911 of the Code)..............   110
              16. Treatment of foreign persons for returns 
                  relating to payments made in settlement of 
                  payment card and third party network 
                  transactions (sec. 41117 of the Act and sec. 
                  6050W of the Code).............................   111
              17. Repeal of shift in time of payment of corporate 
                  estimated taxes (sec. 41118 of the Act and sec. 
                  6655 of the Code)..............................   114
              18. Credit for carbon oxide sequestration (sec. 
                  41119 of the Act and sec. 45Q of the Code).....   115

PART FOUR: CONSOLIDATED APPROPRIATIONS ACT, 2018 (PUBLIC LAW 115-
  141)...........................................................   118

          A. Aviation Revenue Provisions.........................   118
               1. Extension of expenditure authority and taxes 
                  funding Airport and Airway Trust Fund (secs. 
                  201 and 202 of Division M of the Act (the 
                  ``Airport and Airway Extension Act of 2018'') 
                  and secs. 4081, 4083, 4261, 4271, and 9502 of 
                  the Code)......................................   118
          B. Revenue Provisions..................................   120
               1. Modification of deduction for qualified 
                  business income of a cooperative and its 
                  patrons (sec. 101 of Division T of Pub. L. No. 
                  115-141 and sec. 199A of the Code).............   120
               2. State housing credit ceiling and average income 
                  test for low-income housing credit (secs. 102 
                  and 103 of Division T of the Act and sec. 42 of 
                  the Code)......................................   139

Tax Technical Corrections Act of 2018............................   142

          A. Tax Technical Corrections...........................   142
               1. Amendments relating to Protecting Americans 
                  from Tax Hikes (``PATH'') Act of 2015 (Division 
                  Q of the Consolidated Appropriations Act, 2016) 
                  (sec. 101 of Division U of the Act)............   142
               2. Amendment relating to Consolidated 
                  Appropriations Act, 2016 (sec. 102 of Division 
                  U of the Act)..................................   146
               3. Amendments relating to Fixing America's Surface 
                  Transportation Act (2015) (sec. 103 of Division 
                  U of the Act)..................................   146
               4. Amendments relating to Surface Transportation 
                  and Veterans Health Care Choice Improvement Act 
                  of 2015 (sec. 104 of Division U of the Act)....   147
               5. Amendments relating to Stephen Beck, Jr., ABLE 
                  Act of 2014 (sec. 105 of Division U of the Act)   147
               6. Amendment relating to American Taxpayer Relief 
                  Act of 2012 (sec. 106 of Division U of the Act)   148
               7. Amendment relating to United States--Korea Free 
                  Trade Agreement Implementation Act (2011) (sec. 
                  107 of Division U of the Act)..................   148
               8. Amendment relating to SAFETEA-LU (sec. 108 of 
                  Division U of the Act).........................   148
               9. Amendments relating to the American Jobs 
                  Creation Act of 2004 (``AJCA'') (sec. 109 of 
                  Division U of the Act).........................   148
          B. Technical Corrections Related to Partnership Audit 
              Rules..............................................   149
               1. Scope of adjustments subject to partnership 
                  audit rules (sec. 201 of Division U of the Act 
                  and secs. 6241(2) and (9), 6501(c), 6221, 6225, 
                  6226, 6227, 6231, 6234, and 7485 of the Code)..   149
               2. Netting in the determination of imputed 
                  underpayments (sec. 202 of Division U of the 
                  Act and sec. 6225(a) and (b) of the Code)......   151
               3. Alternative procedure to filing amended returns 
                  for purposes of modifications to imputed 
                  underpayments (secs. 202(b) and (c)(2), 203, 
                  and 206(b) of Division U of the Act and secs. 
                  6225(c) and 6201(a)(1) of the Code)............   152
               4. Push-out treatment of passthrough partners in 
                  tiered structures (sec. 204 of Division U of 
                  the Act and sec. 6226 of the Code).............   157
               5. Treatment of failure of partnership or S 
                  corporation to pay imputed underpayment and 
                  assessment and collection authority with 
                  respect to imputed underpayments (sec. 205 of 
                  Division U of the Act and secs. 6232 and 
                  6501(c)(4)(a) of the Code).....................   158
               6. Amendment of statements (Schedules K-1) to 
                  partners (sec. 206(a) of Division U of the Act 
                  and sec. 6031(b) of the Code)..................   159
               7. Partnership adjustment tracking report and 
                  administrative adjustment request not treated 
                  as amended return (sec. 206(b) of Division U of 
                  the Act and sec. 6225(c)(2) of the Code).......   160
               8. Authority to require e-filing of materials 
                  (sec. 206(c) of Division U of the Act and sec. 
                  6241(10) of the Code)..........................   160
               9. Clarification of assessment authority in a 
                  push-out (sec. 206(d) of Division U of the Act 
                  and sec. 6226 of the Code).....................   160
              10. Treatment of partnership adjustments that 
                  result in decrease in tax in push-out (sec. 
                  206(e) of Division U of the Act and sec. 
                  6226(b) of the Code)...........................   160
              11. Coordination with adjustments related to 
                  foreign tax credits (sec. 206(f) of Division U 
                  of the Act and sec. 6227(d) of the Code).......   161
              12. Clarification of assessment of imputed 
                  underpayments (sec. 206(g) of Division U of the 
                  Act and secs. 6232(a) and (b) of the Code).....   161
              13. Time limit for notice of proposed partnership 
                  adjustment (sec. 206(h) of Division U of the 
                  Act and secs. 6231(a) and (b) of the Code).....   162
              14. Deposit to suspend interest on imputed 
                  underpayment (sec. 206(i) of Division U of the 
                  Act and sec. 6233 of the Code).................   162
              15. Deposit to meet jurisdictional requirement 
                  (sec. 206(j) of Division U of the Act and sec. 
                  6234(b) of the Code)...........................   162
              16. Period of limitations on making adjustments 
                  (sec. 206(k) of Division U of the Act and sec. 
                  6235 of the Code)..............................   162
              17. Treatment of special enforcement matters (sec. 
                  206(l) of Division U of the Act and sec. 
                  6241(10) of the Code)..........................   163
              18. United States shareholders and certain other 
                  persons treated as partners (sec. 206(m) of 
                  Division U of the Act and sec. 6241(12) of the 
                  Code)..........................................   163
              19. Penalties relating to administrative adjustment 
                  requests and partnership adjustment tracking 
                  reports (sec. 206(n) of Division U of the Act 
                  and secs. 6651, 6696, 6698, and 6702 of the 
                  Code)..........................................   164
              20. Statements to partners (adjusted Schedules K-1) 
                  treated as payee statements (sec. 206(o) of 
                  Division U of the Act and sec. 6724 of the 
                  Code)..........................................   164
              21. Clerical corrections relating to partnership 
                  audit rules (sec. 206(p) of Division U of the 
                  Act)...........................................   165
          C. Other Corrections...................................   165
               1. Amendment relating to the Bipartisan Budget Act 
                  of 2015 (sec. 301 of Division U of the Act)....   165
               2. Amendment relating to the Energy Policy Act of 
                  2005 (sec. 302 of Division U of the Act).......   165
          D. Clerical Corrections and Deadwood...................   166
               1. Clerical corrections and deadwood-related 
                  provisions (sec. 401 of Division U of the Act).   166

PART FIVE: AIRPORT AND AIRWAY EXTENSION ACT OF 2018, PART II 
  (PUBLIC LAW 115-250)...........................................   167

               1. Expenditure authority from the Airport and 
                  Airway Trust Fund and extension of taxes 
                  funding the Airport and Airway Trust Fund 
                  (secs. 4 and 5 of the Act and secs. 4081, 4083, 
                  4261, 4271, and 9502 of the Code)..............   167

PART SIX: FAA REAUTHORIZATION ACT OF 2018 (PUBLIC LAW 115-254)...   169

               1. Expenditure authority from the Airport and 
                  Airway Trust Fund and extension of taxes 
                  funding the Airport and Airway Trust Fund 
                  (secs. 801 and 802 of the Act and secs. 4081, 
                  4083, 4261, 4271, and 9502 of the Code)........   169

PART SEVEN: PROTECTING ACCESS TO THE COURTS FOR TAXPAYERS ACT 
  (PUBLIC LAW 115-332)...........................................   171

               1. Transfer of certain cases (sec. 2 of the Act)..   171

APPENDIX: ESTIMATED BUDGET EFFECTS OF CERTAIN TAX LEGISLATION IN 
  THE 115TH CONGRESS.............................................   173
                              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 certain tax legislation 
enacted in the 115th Congress. This document does not include a 
description and explanation of Public Law 115-97; a separate 
document describes the provisions of that Act.\2\
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    \1\ This document may be cited as follows: Joint Committee on 
Taxation, General Explanation of Certain Tax Legislation Enacted in the 
115th Congress (JCS-2-19), October 2019.
    \2\ See Joint Committee on Taxation, General Explanation of Public 
Law 115-97 (JCS-1-18), December 2018.
---------------------------------------------------------------------------
    For each provision, this document includes a description of 
present law, explanation of the provision, and effective date. 
Present law describes the law in effect immediately before 
enactment of the provision and does not reflect changes to the 
law made by the enacting legislation or by subsequent 
legislation. 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. This document follows the 
chronological order of the tax legislation as signed into law.
    Section references are to the Internal Revenue Code of 
1986, as amended, unless otherwise indicated.
    Part One is an explanation of Titles II and V of the 
Disaster Tax Relief and Airport and Airway Extension Act of 
2017 (Pub. L. No. 115-63).
    Part Two is an explanation of Division D of the Fourth 
Continuing Appropriations for Fiscal Year 2018, Federal 
Register Printing Savings, Healthy Kids, Health-Related Taxes, 
and Budgetary Effects (Pub. L. No. 115-120).
    Part Three is an explanation of the revenue provisions of 
the Bipartisan Budget Act of 2018 (Pub. L. No. 115-123).
    Part Four is an explanation of the revenue provisions of 
the Consolidated Appropriations Act, 2018 (Pub. L. No. 115-
141).
    Part Five is an explanation of the revenue provisions of 
the Airport and Airway Extension Act of 2018, Part II (Pub. L. 
No. 115-250).
    Part Six is an explanation of the revenue provisions of the 
FAA Reauthorization Act of 2018 (Pub. L. No. 115-254).
    Part Seven is an explanation of the Protecting Access to 
the Courts for Taxpayers Act (Pub. L. No. 115-332).
    The Appendix provides the estimated budget effects of tax 
legislation described in this document.
    The first footnote in each Part gives the legislative 
history of the Act explained in that Part.

 PART ONE: DISASTER TAX RELIEF AND AIRPORT AND AIRWAY EXTENSION ACT OF 
                      2017 (PUBLIC LAW 115-63) \3\
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    \3\ H.R. 3823. The bill was introduced in the House of 
Representatives on September 25, 2017, and was passed by the House on 
September 28, 2017. The bill passed the Senate with an amendment on 
September 28, 2017, to which the House agreed on September 28, 2017. 
The President signed the bill on September 29, 2017.
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                     A. Aviation Revenue Provisions

1. Extension of expenditure authority and taxes funding Airport and 
        Airway Trust Fund (secs. 201 and 202 of the Act and secs. 4081, 
        4083, 4261, 4271, and 9502 of the Code)

                              Present Law

Taxes dedicated to the Airport and Airway Trust Fund
    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial (i.e., transportation that is not 
``for hire'') aviation to fund the Airport and Airway Trust 
Fund.\4\ The present aviation excise taxes and rates are as 
follows:
---------------------------------------------------------------------------
    \4\ Air transportation through U.S. airspace that neither lands in 
nor takes off from a point in the United States (or the ``225-mile 
zone'') is exempt from the aviation excise taxes, but the 
transportation provider is subject to certain ``overflight fees'' 
imposed by the Federal Aviation Administration pursuant to section 
45301 of Title 49 of the United States Code. The ``225-mile zone'' is 
defined as ``that portion of Canada or Mexico which is not more than 
225 miles from the nearest point in the continental United States.'' 
Sec. 4262(c)(2).

------------------------------------------------------------------------
          Tax (and Code section)                      Tax Rates
------------------------------------------------------------------------
Domestic air passengers (sec. 4261).......  7.5 percent of fare, plus
                                             $4.10 (2017) per domestic
                                             flight segment generally
                                             \5\
International air passengers (sec. 4261)..  $18.00 (2017) per arrival or
                                             departure \6\
Amounts paid for right to award free or     7.5 percent of amount paid
 reduced rate passenger air transportation
 (sec. 4261).
Air cargo (freight) transportation (sec.    6.25 percent of amount
 4271).                                      charged for domestic
                                             transportation; no tax on
                                             international cargo
                                             transportation
Aviation fuels (sec. 4081): \7\
    Commercial aviation...................  4.3 cents per gallon
    Noncommercial (general) aviation:
        Aviation gasoline.................  19.3 cents per gallon
        Jet fuel..........................  21.8 cents per gallon
        Fractional aircraft fuel surtax     14.1 cents per gallon
         (sec. 4043).
------------------------------------------------------------------------

    The Airport and Airway Trust Fund excise taxes (except for 
4.3 cents per gallon of the taxes on aviation fuels and the 
14.1 cents per gallon fractional aircraft fuel surtax) are 
scheduled to expire after September 30, 2017. The 4.3-cents-
per-gallon fuels tax rate is permanent.
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    \5\ The domestic flight segment portion of the tax is adjusted 
annually (effective each January 1) for inflation (adjustments based on 
the changes in the consumer price index (the ``CPI'')). Special rules 
apply to air transportation between the continental United States and 
Alaska or Hawaii and between Alaska and Hawaii. The portion of such 
transportation that is not within the United States (e.g., the portion 
over the Pacific Ocean) is not subject to the 7.5-percent domestic air 
passenger excise tax. In addition to this prorated ad valorem tax, a 
$9.00 (2017) international tax rate for the excluded portion of the 
travel is imposed. The domestic flight segment component of tax applies 
under the same rules as for flights within the continental United 
States. Further, transportation within Alaska or Hawaii is taxed in the 
same manner as domestic transportation within the continental United 
States.
    \6\ The international arrival and departure tax rate is adjusted 
annually for inflation (measured by changes in the CPI).
    \7\ Like most other taxable motor fuels, aviation fuels are subject 
to an additional 0.1-cent-per-gallon excise tax to fund the Leaking 
Underground Storage Tank (``LUST'') Trust Fund.
---------------------------------------------------------------------------
    With respect to fractional aircraft, the exemption from the 
excise tax on commercial transportation for fractional aircraft 
is scheduled to expire after September 30, 2017.\8\ The 
fractional aircraft fuel surtax expires after September 30, 
2021.
---------------------------------------------------------------------------
    \8\ Sec. 4261(j).
---------------------------------------------------------------------------

Airport and Airway Trust Fund expenditure provisions

    The Airport and Airway Trust Fund was established in 1970 
to finance a major portion of national aviation programs 
(previously funded entirely with General Fund revenues). 
Operation of the Trust Fund is governed by parallel provisions 
of the Code and authorizing statutes.\9\ The Code provisions 
govern deposit of revenues into the Trust Fund and approve 
expenditure purposes in authorizing statutes as in effect on 
the date of enactment of the latest authorizing Act. The 
authorizing Acts provide for specific Trust Fund expenditure 
programs.
---------------------------------------------------------------------------
    \9\ Sec. 9502 and 49 U.S.C. sec. 48101, et seq.
---------------------------------------------------------------------------
    No expenditures are permitted to be made from the Airport 
and Airway Trust Fund after September 30, 2017. The purposes 
for which Airport and Airway Trust Fund monies are permitted to 
be expended are fixed as of the date of enactment of the FAA 
Extension, Safety, and Security Act of 2016; therefore, the 
Code must be amended in order to authorize new Airport and 
Airway Trust Fund expenditure purposes.\10\ The Code contains a 
specific enforcement provision to prevent expenditure of Trust 
Fund monies for purposes not authorized under section 9502.\11\ 
This provision provides that, should such unapproved 
expenditures occur, no further aviation excise tax receipts 
will be transferred to the Trust Fund. Rather, the aviation 
taxes will continue to be imposed, but the receipts will be 
retained in the General Fund.
---------------------------------------------------------------------------
    \10\ Sec. 9502(d).
    \11\ Sec. 9502(e)(1).
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                        Explanation of Provision

    The provisions extend the taxes, expenditure authority, and 
exemption for fractional aircraft transportation from the taxes 
on commercial aviation transportation through March 31, 2018.

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).

          B. Tax Relief for Hurricanes Harvey, Irma, and Maria

    The provisions below were enacted to provide temporary tax 
relief to those areas affected by Hurricanes Harvey, Irma, and 
Maria. The provisions use the terms ``disaster area'' and 
``disaster zone'' for each specified hurricane.\12\ As used in 
the Act, a ``disaster area'' refers to an area with respect to 
which a major disaster has been declared by the President 
before October 17, 2017, in the case of Hurricanes Harvey and 
Irma,\13\ or before September 21, 2017, in the case of 
Hurricane Maria, under section 401 of the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act by reason of the 
specified hurricane. A ``disaster zone'' refers to that portion 
of the ``disaster area'' described above that has been 
determined by the President to warrant individual or individual 
and public assistance from the Federal government under the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act 
by reason of the specified hurricane.
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    \12\ See sec. 501 of the Act.
    \13\ With respect to Hurricanes Harvey and Irma, section 20201(a) 
of the Bipartisan Budget Act of 2018, Pub. L. No. 115-123, modified the 
definition of ``disaster area'' in section 501 of the Act by delaying 
the date by which the disaster must be declared from September 21, 
2017, to October 17, 2017.
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1. Special disaster-related rules for use of retirement funds (sec. 502 
        of the Act and sec. 72 of the Code)

                              Present Law


Distributions from tax-favored retirement plans

    A distribution from a qualified retirement plan, a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an 
individual retirement arrangement (an ``IRA'') generally is 
included in income for the year distributed.\14\ These plans 
are referred to collectively as ``eligible retirement plans.'' 
In addition, unless an exception applies, a distribution from a 
qualified retirement plan, a section 403(b) plan, or an IRA 
received before age 59\1/2\ is subject to a 10-percent 
additional tax (referred to as the ``early withdrawal tax'') on 
the amount includible in income.\15\
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    \14\ Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \15\ Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
---------------------------------------------------------------------------
    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The Internal Revenue Service has the 
authority to waive the 60-day requirement if failure to waive 
the requirement would be against equity or good conscience, 
including for cases of casualty, disaster, or other events 
beyond the reasonable control of the individual.
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, in some cases, 
restrictions may apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions. Despite such restrictions, an in-service 
distribution may be permitted in the case of financial hardship 
or an unforeseeable emergency.

Loans from tax-favored retirement plans

    Employer-sponsored retirement plans may provide loans to 
participants. Unless the loan satisfies certain requirements in 
both form and operation, the amount of a retirement plan loan 
is a deemed distribution from the retirement plan. Among the 
requirements that the loan must satisfy are that the loan 
amount must not exceed the lesser of 50 percent of the 
participant's vested account balance (or other accrued 
benefit), or $50,000 (generally taking into account outstanding 
balances of previous loans), and the loan's terms must provide 
for a repayment period of not more than five years (except for 
a loan specifically to purchase a home) and for level 
amortization of loan payments to be made not less frequently 
than quarterly.\16\ Thus, if an employee stops making payments 
on a loan before the loan is repaid, a deemed distribution of 
the outstanding loan balance generally occurs. A deemed 
distribution of an unpaid loan balance generally is taxed as 
though an actual distribution occurred, including being subject 
to the 10-percent early withdrawal tax, if applicable. A deemed 
distribution is not eligible for rollover to another eligible 
retirement plan. Subject to the limit on the amount of loans, 
which treats the amount of any loan that would exceed the limit 
as a deemed distribution, the rules relating to loans do not 
limit the number of loans an employee may obtain from a plan.
---------------------------------------------------------------------------
    \16\ Sec. 72(p).
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Tax-favored retirement plan compliance

    Tax-favored retirement plans generally are required to be 
operated in accordance with the terms of the plan document, and 
amendments to reflect changes to the plan generally must be 
adopted within a limited period.

                        Explanation of Provision


Distributions and recontributions

    In the case of a ``qualified hurricane distribution'' from 
a qualified retirement plan, a section 403(b) plan, or an IRA, 
the provision provides an exception to the 10-percent early 
withdrawal tax. In addition, income attributable to a qualified 
hurricane distribution may be included in income ratably over 
three years, and the amount of a qualified hurricane 
distribution may be recontributed to an eligible retirement 
plan within three years.
    A qualified hurricane distribution is a permissible 
distribution with respect to the relevant hurricane (described 
below) from a qualified retirement plan, section 403(b) plan, 
or governmental section 457(b) plan, regardless of whether a 
distribution otherwise would be permissible.\17\ A plan is not 
treated as violating any Code requirement merely because it 
treats a distribution as a qualified hurricane distribution, 
provided that the aggregate amount of such distributions from 
plans maintained by the employer and members of the employer's 
controlled group or affiliated service group does not exceed 
$100,000. Thus, a plan is not treated as violating any Code 
requirement merely because an individual might receive total 
distributions in excess of $100,000 when taking into account 
distributions from plans of other employers or IRAs.
---------------------------------------------------------------------------
    \17\ A qualified hurricane distribution is subject to income tax 
withholding unless the recipient elects otherwise. Mandatory 20-percent 
withholding does not apply.
---------------------------------------------------------------------------
    With respect to each of the relevant hurricanes, a 
qualified hurricane distribution is any distribution from an 
eligible retirement plan made on or after the date specific to 
the hurricane and before January 1, 2019, to an individual 
whose principal place of abode on the date specific to that 
hurricane was located in that hurricane's disaster area and who 
has sustained an economic loss by reason of that hurricane. The 
dates specific to each hurricane are August 23, 2017, for 
Hurricane Harvey; September 4, 2017, for Hurricane Irma; and 
September 16, 2017, for Hurricane Maria. The total amount of 
distributions to an individual from all eligible retirement 
plans that may be treated as qualified hurricane distributions 
is $100,000. Thus, any distributions in excess of $100,000 are 
not qualified hurricane distributions.
    Any amount required to be included in income as a result of 
a qualified hurricane is included in income ratably over the 
three-year period beginning with the year of distribution 
unless the individual elects not to have ratable inclusion 
apply.
    Any portion of a qualified hurricane distribution may, at 
any time during the three-year period beginning the day after 
the date on which the distribution was received, be 
recontributed to an eligible retirement plan to which a 
rollover can be made. Any amount recontributed within the 
three-year period is treated as a rollover and thus is not 
includible in income. For example, if an individual receives a 
qualified hurricane distribution in 2017, that amount is 
included in income, generally ratably over the year of the 
distribution and the following two years, but is not subject to 
the 10-percent early withdrawal tax. If, in 2019, the amount of 
the qualified hurricane distribution is recontributed to an 
eligible retirement plan, the individual may file an amended 
return to claim a refund of the tax attributable to the amount 
previously included in income. In addition, if, under the 
ratable inclusion provision, a portion of the distribution has 
not yet been included in income at the time of the 
contribution, the remaining amount is not includible in income.

Recontributions of withdrawals for purchase of a home

    Any individual who received a qualified distribution \18\ 
after February 28, 2017, and before September 21, 2017, which 
was to be used to purchase or construct a principal residence 
in the Hurricane Harvey, Hurricane Irma, or Hurricane Maria 
disaster area, but which was not so purchased or constructed on 
account of Hurricane Harvey, Hurricane Irma, or Hurricane Maria 
may, during the period beginning on August 23, 2017, and ending 
on February 28, 2018, make one or more contributions in an 
aggregate amount not to exceed the amount of such qualified 
distribution to an eligible retirement plan of which such 
individual is a beneficiary and to which a rollover 
contribution of such distribution could be made.\19\ A plan is 
not treated as violating any Code requirement merely because an 
individual repays such distributions as provided above, 
provided that the aggregate amount of such repayments from 
plans maintained by the employer and members of the employer's 
controlled group or affiliated service group does not exceed 
$100,000.
---------------------------------------------------------------------------
    \18\ As described in sections 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) 
(but only to the extent such distribution relates to financial 
hardship), 403(b)(11)(B), or 72(t)(2)(F).
    \19\ Under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as 
the case may be.
---------------------------------------------------------------------------

Loans

    In the case of a ``qualified individual'' with respect to 
Hurricane Harvey, Hurricane Irma, or Hurricane Maria who 
obtained a loan from a qualified employer plan \20\ during the 
period beginning on September 29, 2017, and ending on December 
31, 2018, the permitted maximum loan amount is the lesser of 
the present value of the nonforfeitable accrued benefit of the 
employee under the plan (rather than one-half of the present 
value of the nonforfeitable accrued benefit of the employee 
under the plan) or $100,000 (rather than $50,000). A loan 
meeting this limit is not treated as a distribution.\21\ For 
this purpose, a qualified individual with respect to the 
relevant hurricane is an individual whose principal place of 
abode on the date specific to that hurricane was located in 
that hurricane's disaster area and who sustained an economic 
loss by reason of that hurricane. The dates specific to each 
hurricane are August 23, 2017, for Hurricane Harvey, September 
4, 2017, for Hurricane Irma, and September 16, 2017, for 
Hurricane Maria.
---------------------------------------------------------------------------
    \20\ As defined under section 72(p)(4).
    \21\ See sec. 72(p)(2)(A).
---------------------------------------------------------------------------
    In the case of such a qualified individual with an 
outstanding loan on or after the relevant ``qualified beginning 
date'' (August 23, 2017, for Hurricane Harvey, September 4, 
2017, for Hurricane Irma, and September 16, 2017, for Hurricane 
Maria) from a qualified employer plan, if the due date for any 
repayment with respect to such a loan occurs during the period 
beginning on the qualified beginning date and ending on 
December 31, 2018, the due date is delayed for one year and any 
subsequent repayments are appropriately adjusted to reflect the 
delay in any repayment date noted above, but the repayment 
delay is disregarded in determining the five-year period and 
the term of the loan.\22\
---------------------------------------------------------------------------
    \22\ See sec. 72(p)(2)(B) or (C).
---------------------------------------------------------------------------

Plan amendments

    A plan amendment made pursuant to the provision (or a 
regulation issued thereunder) may be retroactively effective 
if, in addition to the requirements described below, the 
amendment is made on or before the last day of the first plan 
year beginning after January 1, 2019 (or in the case of a 
governmental plan, January 1, 2021), or a later date prescribed 
by the Secretary. In addition, the plan is treated as operated 
in accordance with plan terms during the period beginning with 
the date the provision or regulation takes effect (or the date 
specified by the plan if the amendment is not required by the 
provision or regulation) and ending on the last permissible 
date for the amendment (or, if earlier, the date the amendment 
is adopted). For an amendment to be retroactively effective, it 
must apply retroactively for that period, and the plan must be 
operated in accordance with the amendment during that period.

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).

2. Disaster-related employment relief (sec. 503 of the Act and sec. 38 
        of the Code)

                              Present Law

    There is no generally applicable employer tax credit for 
wages paid in connection with employment in disaster areas.\23\
---------------------------------------------------------------------------
    \23\ But see former sec. 1400R, which provided an employer credit 
for employers affected by Hurricane Katrina, Hurricane Rita, and 
Hurricane Wilma. The provision was repealed as deadwood by the 
Consolidated Appropriations Act, Pub L. No. 115-141, sec. 401(d)(6)(A).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides a credit of 40 percent of the 
qualified wages (up to a maximum of $6,000 in qualified wages 
per employee) paid by an eligible employer to an eligible 
employee.
    An eligible employer is any employer (1) that conducted an 
active trade or business on August 23, 2017 (in the case of 
Hurricane Harvey), September 4, 2017 (in the case of Hurricane 
Irma), or September 16, 2017 (in the case of Hurricane Maria) 
in such hurricane's disaster zone and (2) with respect to which 
the trade or business described in (1) is inoperable on any day 
after the specified date and before January 1, 2018, as a 
result of damage sustained by reason of the hurricane.
    An eligible employee is, with respect to an eligible 
employer, an employee whose principal place of employment on 
the date specific to the relevant hurricane with such eligible 
employer was in the disaster zone of the relevant hurricane. 
The dates specific to each hurricane are August 23, 2017, for 
Hurricane Harvey, September 4, 2017, for Hurricane Irma, and 
September 16, 2017, for Hurricane Maria. An employee may not be 
treated as an eligible employee for any period with respect to 
an employer if such employer is allowed a credit under section 
51, the work opportunity credit, with respect to the employee 
for the period.
    Qualified wages are wages (as defined in section 51(c)(1) 
of the Code, but without regard to section 3306(b)(2)(B)) paid 
or incurred by an eligible employer with respect to an eligible 
employee on any day after August 23, 2017, September 4, 2017, 
or September 16, 2017, with respect to the relevant hurricane, 
and before January 1, 2018, during the period (1) beginning on 
the date on which the trade or business first became inoperable 
at the principal place of employment of the employee 
immediately before the hurricane and (2) ending on the date on 
which such trade or business has resumed significant operations 
at such principal place of employment. Qualified wages include 
wages paid without regard to whether the employee performs no 
services, performs services at a different place of employment 
than such principal place of employment, or performs services 
at such principal place of employment before significant 
operations have resumed.
    The credit is treated as a current year business credit 
under section 38(b) and therefore is subject to the tax 
liability limitations of section 38(c). Rules similar to 
sections 51(i)(1), 52, and 280C(a) \24\ apply to the credit.
---------------------------------------------------------------------------
    \24\ Section 20201(b) of the Bipartisan Budget Act of 2018, Pub. L. 
No. 115-123, amended section 503(a)(3), (b)(3), and (c)(3) of the Act 
to provide that rules similar to section 280C(a) apply to the credit.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).

3. Temporary suspension of limitations on charitable contributions 
        (sec. 504(a) of the Act and sec. 170 of the Code)

                              Present Law


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.\25\
---------------------------------------------------------------------------
    \25\ Sec. 170.
---------------------------------------------------------------------------
    Charitable contributions of cash are deductible in the 
amount contributed. In general, contributions of capital gain 
property to a qualified charity 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.

Percentage limitations

            Contributions by individuals
    For individuals, in any taxable year, the amount deductible 
as a charitable contribution is limited to a percentage of the 
taxpayer's contribution base. The applicable percentage of the 
contribution base varies depending on the type of donee 
organization and property contributed. The contribution base is 
defined as the taxpayer's adjusted gross income computed 
without regard to any net operating loss carryback.
    Contributions by an individual taxpayer of property (other 
than appreciated capital gain property) to a charitable 
organization described in section 170(b)(1)(A) (e.g., public 
charities, private foundations other than private non-operating 
foundations, and certain governmental units) may not exceed 50 
percent of the taxpayer's contribution base. Contributions of 
this type of property to nonoperating private foundations and 
certain other organizations generally may be deducted up to 30 
percent of the taxpayer's contribution base.
    Contributions of appreciated capital gain property to 
charitable organizations described in section 170(b)(1)(A) 
generally are deductible up to 30 percent of the taxpayer's 
contribution base. An individual may elect, however, to bring 
all these contributions of appreciated 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 appreciated capital gain property to charitable 
organizations described in section 170(b)(1)(B) (e.g., private 
nonoperating foundations) are deductible up to 20 percent of 
the taxpayer's contribution base.
            Contributions by corporations
    For corporations, in any taxable year, charitable 
contributions are not deductible to the extent the aggregate 
contributions exceed 10 percent of the corporation's taxable 
income computed without regard to net operating loss or capital 
loss carrybacks.
    For purposes of determining whether a corporation'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.
            Carryforward of excess contributions
    Charitable contributions that exceed the applicable 
percentage limitation may be carried forward for up to five 
years.\26\ The amount that may be carried forward from a 
taxable year (``contribution year'') to a succeeding taxable 
year may not exceed the applicable percentage of the 
contribution base for the succeeding taxable year less the sum 
of contributions made in the succeeding taxable year plus 
contributions made in taxable years prior to the contribution 
year and treated as paid in the succeeding taxable year under 
this provision.
---------------------------------------------------------------------------
    \26\ Sec. 170(d).
---------------------------------------------------------------------------

Overall limitation on itemized deductions (``Pease'' limitation)

    For taxable years beginning before January 1, 2018, the 
total amount of otherwise allowable itemized deductions (other 
than medical expenses, investment interest, and casualty, 
theft, or wagering losses) is reduced by three percent of the 
amount of the taxpayer's adjusted gross income in excess of a 
certain threshold. The otherwise allowable itemized deductions 
may not be reduced by more than 80 percent. For 2017, the 
adjusted gross income threshold is $261,500 for an individual 
taxpayer ($313,800 for a married taxpayers filing a joint 
return). These dollar amounts are adjusted for inflation.

                        Explanation of Provision


Suspension of percentage limitations

    Under the provision, in the case of an individual, the 
deduction for qualified contributions is allowed up to the 
amount by which the taxpayer's contribution base exceeds the 
deduction for other charitable contributions. Contributions in 
excess of this amount are carried over to succeeding taxable 
years as contributions described in 170(b)(1)(A), subject to 
the limitations of section 170(d)(1)(A)(i) and (ii).
    In the case of a corporation, the deduction for qualified 
contributions is allowed up to the amount by which the 
corporation's taxable income (as computed under section 
170(b)(2)) exceeds the deduction for other charitable 
contributions. Contributions in excess of this amount are 
carried over to succeeding taxable years, subject to the 
limitations of section 170(d)(2).
    In applying subsections (b) and (d) of section 170 to 
determine the deduction for other contributions, qualified 
contributions are not taken into account (except to the extent 
qualified contributions are carried over to succeeding taxable 
years under the rules described above).
    Qualified contributions are cash contributions paid during 
the period beginning on August 23, 2017, and ending on December 
31, 2017, to a charitable organization described in section 
170(b)(1)(A), other than contributions to (i) a supporting 
organization described in section 509(a)(3) or (ii) for the 
establishment of a new, or maintenance of an existing, donor 
advised fund (as defined in section 4966(d)(2)). Contributions 
of noncash property, such as securities, are not qualified 
contributions. Under the provision, qualified contributions 
must be to an organization described in section 170(b)(1)(A); 
thus, contributions to, for example, a charitable remainder 
trust generally are not qualified contributions, unless the 
charitable remainder interest is paid in cash to an eligible 
charity during the applicable time period. Qualified 
contributions must be made for relief efforts in the Hurricane 
Harvey disaster area, the Hurricane Irma disaster area, or the 
Hurricane Maria disaster area. Taxpayers must substantiate that 
the contribution is made for this purpose. A taxpayer must 
elect to have the contributions treated as qualified 
contributions.

Limitation on overall itemized deductions

    Under the provision, the charitable contribution deduction 
up to the amount of qualified contributions (as defined above) 
paid during the year is not treated as an itemized deduction 
for purposes of the overall limitation on itemized deductions.

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).

4. Special rules for qualified disaster-related personal casualty 
        losses (sec. 504(b) of the Act and sec. 165 of the Code)

                              Present Law

    For tax years beginning before December 31, 2017, a 
taxpayer may generally claim an itemized deduction for any loss 
sustained during the taxable year and not compensated by 
insurance or otherwise.\27\ For individual taxpayers, 
deductible losses must be incurred in a trade or business or 
other profit-seeking activity or consist of property losses 
arising from fire, storm, shipwreck, or other casualty, or from 
theft. Personal casualty or theft losses are deductible only if 
they exceed $100 per casualty or theft. In addition, aggregate 
net casualty and theft losses are deductible only to the extent 
they exceed 10 percent of an individual taxpayer's adjusted 
gross income.
---------------------------------------------------------------------------
    \27\ Sec. 165. For tax years beginning after December 31, 2017, and 
before January 1, 2026, an individual may claim an itemized deduction 
for a personal casualty loss only if such loss was attributable to a 
disaster declared by the President under section 401 of the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act. An exception 
applies to the extent a personal casualty loss of an individual does 
not exceed the individual's personal casualty gains.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, personal casualty losses that arose in 
the disaster area of Hurricane Harvey, Hurricane Irma, or 
Hurricane Maria on or after August 23, 2017 (in the case of 
Hurricane Harvey), September 4, 2017 (in the case of Hurricane 
Irma), or September 16, 2017 (in the case of Hurricane Maria), 
and that were attributable to such hurricane, are deductible 
without regard to whether aggregate net losses exceed 10 
percent of a taxpayer's adjusted gross income. In order to be 
deductible, however, such losses must exceed $500 per casualty. 
Finally, such losses may be claimed in addition to the standard 
deduction and may be claimed by taxpayers subject to the 
alternative minimum tax.

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).

5. Special rule for determining earned income (sec. 504(c) of the Act 
        and secs. 24 and 32 of the Code)

                              Present Law

    Eligible taxpayers are allowed an earned income credit and 
a child credit. In general, the earned income credit is a 
refundable credit for low-income workers.\28\ The amount of the 
credit depends on the earned income of the taxpayer and whether 
the taxpayer has one, more than one, or no qualifying children. 
Earned income generally includes wages, salaries, tips, and 
other employee compensation, plus net earnings from self-
employment.
---------------------------------------------------------------------------
    \28\ Sec. 32.
---------------------------------------------------------------------------
    For taxable years beginning before December 31, 2017, 
taxpayers with incomes below certain threshold amounts are 
eligible for a $1,000 credit for each qualifying child.\29\ In 
some circumstances, all or a portion of the otherwise allowable 
credit is treated as a refundable credit (the ``additional 
child tax credit''). The amount of the additional child tax 
credit equals 15 percent of the taxpayer's earned income in 
excess of $3,000.\30\ A taxpayer with three or more qualifying 
children may take the additional child tax credit in the amount 
by which the taxpayer's Social Security taxes exceed the 
taxpayer's earned income credit, if that amount is greater than 
the additional child tax credit based on the taxpayer's earned 
income.
---------------------------------------------------------------------------
    \29\ Sec. 24.
    \30\ For taxable years beginning after December 31, 2017, and 
before January 1, 2026, the amount of the child credit is $2,000, the 
refundable portion of the child credit is capped at $1,400 (indexed for 
inflation), and the earned income threshold is $2,500.
---------------------------------------------------------------------------
    Bona fide residents of Puerto Rico with only Puerto Rico 
source income do not have U.S. earned income and are ineligible 
to claim the earned income credit. Such residents are allowed 
an additional child tax credit only if they have three or more 
children, and the amount of the credit is limited to Social 
Security taxes paid.

                        Explanation of Provision

    The provision permits qualified individuals to elect to 
calculate their earned income credit and additional child tax 
credit for the taxable year that includes the applicable date 
using their earned income from the prior taxable year. 
Qualified individuals are permitted to make the election only 
if their earned income for the taxable year that includes the 
applicable date is less than their earned income for the 
preceding taxable year. The applicable date is August 23, 2017 
(in the case of Hurricane Harvey), September 4, 2017 (in the 
case of Hurricane Irma), and September 16, 2017 (in the case of 
Hurricane Maria).
    Qualified individuals who are residents of Puerto Rico may 
elect to determine the additional child tax credit for the 
taxable year that includes the applicable date by using their 
Social Security taxes from the prior year, if Social Security 
taxes for the taxable year that includes the applicable date 
are less than Social Security taxes for the preceding taxable 
year.
    Qualified individuals are (1) individuals who on the 
relevant applicable date, had their principal place of abode in 
the disaster zone or (2) individuals who on such date were not 
in the disaster zone but whose principal place of abode was in 
the disaster area and were displaced from such principal place 
of abode by reason of the relevant hurricane.
    For purposes of the provision, in the case of a joint 
return for a taxable year that includes the applicable date, 
the provision applies if either spouse is a qualified 
individual. In such cases, the earned income that is 
attributable to the taxpayer for the preceding taxable year is 
the sum of the earned income that is attributable to each 
spouse for such preceding taxable year.
    Any election to use the prior year's earned income under 
the provision applies with respect to both the earned income 
credit and additional child tax credit. For administrative 
purposes, the incorrect use on a return of earned income 
pursuant to an election under this provision is treated as a 
mathematical or clerical error. An election under the provision 
is disregarded for purposes of calculating gross income in the 
election year.

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).

6. Application of disaster-related tax relief to possessions of the 
        United States (sec. 504(d) of the Act)

                              Present Law

    Citizens of the United States are generally subject to 
Federal income tax on their worldwide income, including those 
citizens in the U.S. territories. Residents of the U.S. Virgin 
Islands and Puerto Rico are generally subject to the Federal 
income tax system based on their status as U.S. citizens or 
residents in the territories, with certain special rules for 
determining residence and sources of income specific to the 
territory. Broadly, a bona fide individual resident of a 
territory is exempt from U.S. tax on income derived from 
sources within that territory but is subject to U.S. tax on 
U.S.-source and non-territory-source income.\31\ A corporation 
that is organized in a territory is generally treated as a 
foreign corporation for U.S. tax purposes.
---------------------------------------------------------------------------
    \31\ See secs. 932, 933, and 937.
---------------------------------------------------------------------------
    Because the U.S. Virgin Islands lacks authority to enact 
its own internal tax laws, its local tax system is a mirrored 
version of the Internal Revenue Code of 1986, as amended, in 
which the U.S. Virgin Islands is substituted for the United 
States wherever the Code refers to the United States. A 
resident of the U.S. Virgin Islands generally files a single 
tax return with the U.S. Virgin Islands and not with the United 
States. Puerto Rico, by contrast, has its own internal tax 
laws, and a resident of Puerto Rico may be required to file 
income tax returns with both Puerto Rico and the United States.

                        Explanation of Provision

    The U.S. Treasury will make a payment to the U.S. Virgin 
Islands in an amount equal to the loss in revenue by reason of 
the temporary tax relief allowable by reason of Title V of the 
Act to residents of the U.S. Virgin Islands against its income 
tax. This amount will be determined by the Treasury Secretary 
based on information provided by the government of the U.S. 
Virgin Islands.
    The U.S. Treasury will make a payment to Puerto Rico in an 
amount estimated by the Treasury Secretary as being equal to 
loss in revenue by reason of the temporary tax relief allowable 
by reason of Title V of the Act that would have been allowed to 
residents of Puerto Rico if a mirror code tax system had been 
in effect in Puerto Rico. Accordingly, the amount of each 
payment to Puerto Rico will be an estimate of the aggregate 
amount of the temporary tax relief that would be allowed to 
residents of Puerto Rico if the relief provided by Title V of 
the Act to U.S. residents were provided by Puerto Rico to its 
residents. This payment will not be made to Puerto Rico unless 
Puerto Rico has a plan that has been approved by the Secretary 
under which Puerto Rico will promptly distribute the payment to 
its residents.
    No temporary tax relief provided by Title V of the Act is 
permitted under the provision for any person to whom relief is 
allowed against possession income taxes as a result of Title V 
of the Act (e.g., under the U.S. Virgin Islands' mirror income 
tax). Similarly, no tax relief against U.S. income taxes is 
permitted for any person who is eligible for a payment under 
Puerto Rico's plan for distributing to its residents the 
payment described above from the U.S. Treasury.

                             Effective Date

    The provision is effective on the date of enactment 
(September 29, 2017).
   PART TWO: FOURTH CONTINUING APPROPRIATIONS FOR FISCAL YEAR 2018, 
FEDERAL REGISTER PRINTING SAVINGS, HEALTHY KIDS, HEALTH-RELATED TAXES, 
            AND BUDGETARY EFFECTS (PUBLIC LAW 115-120) \32\

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    \32\ H.R. 195. The bill was introduced in the House of 
Representatives on January 3, 2017, and was passed by the House on May 
17, 2017. The bill passed the Senate with an amendment on December 21, 
2017, to which the House agreed on January 22, 2018. The President 
signed the bill on that same day.
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1. Extension of moratorium on medical device excise tax (sec. 4001 of 
        the Act and sec. 4191 of the Code)

                              Present Law

    Effective for sales after December 31, 2012, excluding 
sales during the period beginning on January 1, 2016 and ending 
on December 31, 2017, a tax equal to 2.3 percent of the sale 
price is imposed on the sale of any taxable medical device by 
the manufacturer, producer, or importer of such device.\33\ A 
taxable medical device is any device, as defined in section 
201(h) of the Federal Food, Drug, and Cosmetic Act,\34\ 
intended for humans. Regulations further define a medical 
device as one that is listed by the Food and Drug 
Administration (``FDA'') under section 510(j) of the Federal 
Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807, pursuant 
to FDA requirements.\35\
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    \33\ Sec. 4191.
    \34\ 21 U.S.C. sec. 321. Section 201(h) defines device as ``an 
instrument, apparatus, implement, machine, contrivance, implant, in 
vitro reagent, or other similar or related article, including any 
component, part, or accessory, which is (1) recognized in the official 
National Formulary, or the United States Pharmacopeia, or any 
supplement to them, (2) intended for use in the diagnosis of disease or 
other conditions, or in the cure, mitigation, treatment, or prevention 
of disease, in man or other animals, or (3) intended to affect the 
structure or any function of the body of man or other animals, and 
which does not achieve its primary intended purposes through chemical 
action within or on the body of man or other animals and which is not 
dependent upon being metabolized for the achievement of its primary 
intended purposes.''
    \35\ Treas. Reg. sec. 48.4191-2(a). The regulations also include as 
devices items that should have been listed as a device with the FDA as 
of the date the FDA notifies the manufacturer or importer that 
corrective action with respect to listing is required.
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    The excise tax does not apply to eyeglasses, contact 
lenses, hearing aids, or any other medical device determined by 
the Secretary to be of a type that is generally purchased by 
the general public at retail for individual use (``retail 
exemption''). Regulations provide guidance on the types of 
devices that are exempt under the retail exemption. A device is 
exempt under these provisions if: (1) it is regularly available 
for purchase and use by individual consumers who are not 
medical professionals; and (2) the design of the device 
demonstrates that it is not primarily intended for use in a 
medical institution or office or by a medical professional.\36\ 
Additionally, the regulations provide certain safe harbors for 
devices eligible for the retail exemption.\37\
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    \36\ Treas. Reg. sec. 48.4191-2(b)(2).
    \37\ Treas. Reg. sec. 48.4191-2(b)(2)(iii). The safe harbors 
include devices that are described as over-the-counter devices in 
relevant FDA classification headings as well as certain FDA device 
classifications listed in the regulations.
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    The medical device excise tax is generally subject to the 
rules applicable to other manufacturers excise taxes. These 
rules include certain general manufacturers excise tax 
exemptions including the exemption for sales for use by the 
purchaser for further manufacture (or for resale to a second 
purchaser in further manufacture) or for export (or for resale 
to a second purchaser for export).\38\ If a medical device is 
sold free of tax for resale to a second purchaser for further 
manufacture or for export, the exemption does not apply unless, 
within the six-month period beginning on the date of sale by 
the manufacturer, the manufacturer receives proof that the 
medical device has been exported or resold for use in further 
manufacturing.\39\ In general, the exemption does not apply 
unless the manufacturer, the first purchaser, and the second 
purchaser are registered with the Secretary of the Treasury. 
Foreign purchasers of articles sold or resold for export are 
exempt from the registration requirement.
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    \38\ Sec. 4221(a). Other general manufacturers excise tax 
exemptions (i.e., the exemption for sales to purchasers for use as 
supplies for vessels or aircraft, to a State or local government, to a 
nonprofit educational organization, or to a qualified blood collector 
organization) do not apply to the medical device excise tax.
    \39\ Sec. 4221(b).
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    The lease of a medical device is generally considered to be 
a sale of such device.\40\ Special rules apply for the 
imposition of tax to each lease payment. The use of a medical 
device subject to tax by manufacturers, producers, or importers 
of such device, is treated as a sale for the purpose of 
imposition of excise taxes.\41\
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    \40\ Sec. 4217(a).
    \41\ Sec. 4218.
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    There are also rules for determining the price of a medical 
device on which the excise tax is imposed.\42\ These rules 
provide for (1) the inclusion of containers, packaging, and 
certain transportation charges in the price, (2) determining a 
constructive sales price if a medical device is sold for less 
than the fair market price, and (3) determining the tax due in 
the case of partial payments or installment sales.
---------------------------------------------------------------------------
    \42\ Sec. 4216.
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                        Explanation of Provision

    The provision extends the moratorium on the medical device 
excise tax to include sales after December 31, 2017, and before 
January 1, 2020.\43\
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    \43\ Section 4191(c) provides a moratorium under which the medical 
device excise tax does not apply to sales during the period beginning 
on January 1, 2016, and ending on December 31, 2017. The provision 
repeals the medical device excise tax for sales after December 31, 
2017, and before January 1, 2020.
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                             Effective Date

    The provision applies to medical device sales after 
December 31, 2017.

2. Delay in implementation of excise tax on high cost employer-
        sponsored health coverage (sec. 4002 of the Act and sec. 4980I 
        of the Code)

                              Present Law


In general

    Effective for taxable years beginning after December 31, 
2019, an excise tax is imposed on the provider of applicable 
employer-sponsored health coverage (the ``coverage provider'') 
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 
(referred to as ``high cost health coverage''). The tax is 40 
percent of the amount by which the aggregate cost exceeds the 
threshold amount (the ``excess benefit'').
    The annual threshold amount for 2018 is $10,200 for self-
only coverage and $27,500 for other coverage (such as family 
coverage), multiplied by a one-time health cost adjustment 
percentage.\44\ This threshold is then adjusted annually by an 
age and gender adjusted excess premium amount. The age and 
gender adjusted excess premium amount is the excess, if any, of 
(1) the premium cost of standard Federal Employees Health 
Benefit Program (``FEHBP'') coverage for the type of coverage 
provided to an individual if priced for the age and gender 
characteristics of all employees of the employer, over (2) the 
premium cost of standard FEHBP coverage if priced for the age 
and gender characteristics of the national workforce. For this 
purpose, standard FEHBP coverage means the per employee cost of 
Blue Cross/Blue Shield standard benefit coverage under FEHBP.
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    \44\ The health cost adjustment percentage is 100 percent plus the 
excess, if any, of (1) the percentage by which the cost of standard 
FEHBP coverage for 2018 (determined according to specified criteria) 
exceeds the cost of standard FEHBP coverage for 2010, over (2) 55 
percent.
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    The excise tax is determined on a monthly basis, by 
reference to the monthly aggregate cost of applicable employer-
sponsored coverage for the month and \1/12\ of the annual 
threshold amount.

Applicable employer-sponsored coverage and determination of cost

    Subject to certain exceptions, applicable employer-
sponsored coverage is coverage under any group health plan 
offered to an employee by an employer that is excludible from 
the employee's gross income or that would be excludible if it 
were employer-sponsored coverage.\45\ Thus, applicable 
employer-sponsored coverage includes coverage for which an 
employee pays on an after-tax basis. Applicable employer-
sponsored coverage includes coverage under any group health 
plan established and maintained primarily for its civilian 
employees by the Federal government or any Federal agency or 
instrumentality, or the government of any State or political 
subdivision thereof or any agency or instrumentality of a State 
or political subdivision.
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    \45\ Section 106 provides an exclusion for employer-provided 
coverage.
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    Applicable employer-sponsored coverage includes both 
insured and self-insured health coverage, including, in 
general, coverage under a health flexible spending arrangement 
(``health FSA''), a health reimbursement arrangement, a health 
savings account (``HSA''), or Archer medical savings account 
(``Archer MSA'').\46\ In the case of a self-employed 
individual, coverage is treated as applicable employer-
sponsored coverage if the self-employed individual is allowed a 
deduction for all or any portion of the cost of coverage.\47\
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    \46\ Some types of coverage are not included in applicable 
employer-sponsored coverage, such as long-term care coverage, separate 
insurance coverage substantially all the benefits of which are for 
treatment of the mouth (including any organ or structure within the 
mouth) or of the eye, and certain excepted benefits. Excepted benefits 
for this purpose include (whether through insurance or otherwise) 
coverage only for accident, or disability income insurance, or any 
combination thereof; coverage issued as a supplement to liability 
insurance; liability insurance, including general liability insurance 
and automobile liability insurance; workers' compensation or similar 
insurance; automobile medical payment insurance; credit-only insurance; 
and other similar insurance coverage (as specified in regulations), 
under which benefits for medical care are secondary or incidental to 
other insurance benefits. Applicable employer-sponsored coverage does 
not include coverage only for a specified disease or illness or 
hospital indemnity or other fixed indemnity insurance if the cost of 
the coverage is not excludible from an employee's income or deductible 
by a self-employed individual.
    \47\ Section 162(l) allows a deduction to a self-employed 
individual for the cost of health insurance.
---------------------------------------------------------------------------
    For purposes of the excise tax, the cost of applicable 
employer-sponsored coverage is generally determined under rules 
similar to the rules for determining the applicable premium for 
purposes of COBRA continuation coverage,\48\ 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 other coverage. Special valuation rules 
apply to retiree coverage, certain health FSAs, contributions 
to HSAs and Archer MSAs, and qualified small employer health 
reimbursement arrangements (``QSEHRAs'').
---------------------------------------------------------------------------
    \48\ Sec. 4980B(f)(4).
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Calculation of excess benefit and imposition of excise tax

    In determining the excess benefit with respect to an 
employee (i.e., the amount by which the cost of applicable 
employer-sponsored coverage for the employee exceeds the 
threshold amount), the aggregate cost of all applicable 
employer-sponsored coverage of the employee is taken into 
account. The threshold amount for other than self-only coverage 
applies to an employee. The threshold amount for other coverage 
applies to an employee only if the employee and at least one 
other beneficiary are enrolled in coverage other than self-only 
coverage under a group health plan that provides minimum 
essential coverage and under which the benefits provided do not 
vary based on whether the covered individual is the employee or 
the other beneficiary. For purposes of the threshold amount, 
any coverage provided under a multiemployer plan is treated as 
coverage other than self-only coverage.\49\
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    \49\ As defined in section 414(f), a multiemployer plan is 
generally a plan to which more than one employer is required to 
contribute and that is maintained pursuant to one or more collective 
bargaining agreements between one or more employee organizations and 
more than one employer.
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    The excise tax is imposed on the coverage provider.\50\ 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 (``plan administrator'') is generally liable for 
the excise tax. However, in the case of employer contributions 
to an HSA or an Archer MSA, the employer is liable for the 
excise tax.
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    \50\ The excise tax is allocated pro rata among the coverage 
providers, with each responsible for the excise tax on an amount equal 
to the total excess benefit multiplied by a fraction, the numerator of 
which is the cost of the applicable employer-sponsored coverage of that 
coverage provider and the denominator of which is the aggregate cost of 
all applicable employer-sponsored coverage of the employee.
---------------------------------------------------------------------------
    The employer is generally responsible for calculating the 
amount of excess benefit allocable to each coverage provider 
and notifying each coverage provider (and the Internal Revenue 
Service) of the coverage provider's allocable share. In the 
case of applicable employer-sponsored coverage under a 
multiemployer plan, the plan sponsor is responsible for the 
calculation and notification.\51\
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    \51\ The employer or multiemployer plan sponsor may be liable for a 
penalty if the total excise tax due exceeds the tax on the excess 
benefit calculated and allocated among coverage providers by the 
employer or plan sponsor.
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                        Explanation of Provision

    Under the provision, implementation of the excise tax on 
high cost employer-sponsored health coverage is delayed until 
taxable years beginning after December 31, 2021.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2021.

3. Suspension of annual fee on health insurance providers (sec. 4003 of 
        the Act and sec. 9010 of the Patient Protection and Affordable 
        Care Act)

                              Present Law


Annual fee on health insurance providers

    An annual fee applies to any covered entity engaged in the 
business of providing health insurance with respect to United 
States health risks (``U.S. health risks'').\52\ 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. However, a one-year moratorium applies to the annual fee 
on health insurance providers for calendar year 2017. For 
calendar years after 2018, the applicable amount is indexed to 
the rate of premium growth.
---------------------------------------------------------------------------
    \52\ Sec. 9010 of the Patient Protection and Affordable Care Act.
---------------------------------------------------------------------------
    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.

                        Explanation of Provision

    The provision suspends the annual fee on health insurance 
providers for calendar year 2019.

                             Effective Date

    The provision is effective for calendar years beginning 
after December 31, 2018.
    PART THREE: BIPARTISAN BUDGET ACT OF 2018 (PUBLIC LAW 115-123) 
                             53

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    \53\ H.R. 1892. The House passed H.R. 1892 on May 18, 2017. The 
Senate passed the bill with an amendment on November 28, 2017. The 
House agreed to the Senate amendment with an amendment on February 6, 
2018. The Senate agreed to the House amendment with an amendment on 
February 9, 2018. The House agreed to the Senate amendment on February 
9, 2018. The President signed the bill on February 9, 2018.
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   A. Tax Relief and Medicaid Changes Related to Certain Disasters: 
                            California Fires

    The provisions below were enacted to provide temporary tax 
relief to those areas affected by California wildfires. The 
provisions use the terms ``California wildfire disaster area'' 
and ``California wildfire disaster zone.'' \54\ As used in the 
Act, ``California wildfire disaster area'' refers to an area 
with respect to which a major disaster has been declared by the 
President between January 1, 2017, through January 18, 2018, 
under section 401 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act by reason of wildfires in California. 
A ``California wildfire disaster zone'' refers to that portion 
of the ``California wildfire disaster area'' described above 
that has been determined by the President to warrant individual 
or individual and public assistance from the Federal government 
under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act by reason of the relevant wildfires.
---------------------------------------------------------------------------
    \54\ See sec. 20101 of the Act.
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1. Special disaster-related rules for use of retirement funds (sec. 
        20102 of the Act and sec. 72 of the Code)

                              Present Law


Distributions from tax-favored retirement plans

    A distribution from a qualified retirement plan, a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an 
individual retirement arrangement (an ``IRA'') generally is 
included in income for the year distributed.\55\ These plans 
are referred to collectively as ``eligible retirement plans.'' 
In addition, unless an exception applies, a distribution from a 
qualified retirement plan, a section 403(b) plan, or an IRA 
received before age 59\1/2\ is subject to the 10-percent 
additional tax (referred to as the ``early withdrawal tax'') on 
the amount includible in income.\56\
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    \55\ Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \56\ Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
---------------------------------------------------------------------------
    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The Internal Revenue Service has the 
authority to waive the 60-day requirement if failure to waive 
the requirement would be against equity or good conscience, 
including cases of casualty, disaster, or other events beyond 
the reasonable control of the individual.
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, in some cases, 
restrictions may apply to distribution before an employee's 
termination of employment, referred to as ``in-service'' 
distributions. Despite such restrictions, an in-service 
distribution may be permitted in the case of financial hardship 
or an unforeseeable emergency.

Loans from tax-favored retirement plans

    Employer-sponsored retirement plans may provide loans to 
participants. Unless the loan satisfies certain requirements in 
both form and operation, the amount of a retirement plan loan 
is a deemed distribution from the retirement plan. Among the 
requirements that the loan must satisfy are that the loan 
amount must not exceed the lesser of 50 percent of the 
participant's vested account balance (or other accrued benefit) 
or $50,000 (generally taking into account outstanding balances 
of previous loans), and the loan's terms must provide for a 
repayment period of not more than five years (except for a loan 
specifically to purchase a home) and for level amortization of 
loan payments to be made not less frequently than 
quarterly.\57\ Thus, if an employee stops making payments on a 
loan before the loan is repaid, a deemed distribution of the 
outstanding loan balance generally occurs. A deemed 
distribution of an unpaid loan balance is generally taxed as 
though an actual distribution occurred, including being subject 
to the 10-percent early withdrawal tax, if applicable. A deemed 
distribution is not eligible for rollover to another eligible 
retirement plan. Subject to the limit on the amount of loans, 
which treats the amount of any loan that would exceed the limit 
as a deemed distribution, the rules relating to loans do not 
limit the number of loans an employee may obtain from a plan.
---------------------------------------------------------------------------
    \57\ Sec. 72(p).
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Tax-favored retirement plan compliance

    Tax-favored retirement plans are generally required to be 
operated in accordance with the terms of the plan document, and 
amendments to reflect changes to the plan generally must be 
adopted within a limited period.

                        Explanation of Provision


Distributions and recontributions

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of a ``qualified wildfire 
distribution'' from a qualified retirement plan, a section 
403(b) plan, or an IRA. In addition, as discussed further, 
income attributable to a qualified wildfire distribution may be 
included in income ratably over three years, and the amount of 
a qualified wildfire distribution may be recontributed to an 
eligible retirement plan within three years.
    A qualified wildfire distribution is a permissible 
distribution with respect to the relevant wildfires from a 
qualified retirement plan, section 403(b) plan, or governmental 
section 457(b) plan, regardless of whether a distribution 
otherwise would be permissible.\58\ A plan is not treated as 
violating any Code requirement merely because it treats a 
distribution as a qualified wildfire distribution, provided 
that the aggregate amount of such distributions from plans 
maintained by the employer and members of the employer's 
controlled group or affiliated service group does not exceed 
$100,000. Thus, a plan is not treated as violating any Code 
requirement merely because an individual might receive total 
distributions in excess of $100,000, taking into account 
distributions from plans of other employers or IRAs.
---------------------------------------------------------------------------
    \58\ A qualified wildfire distribution is subject to income tax 
withholding unless the recipient elects otherwise. Mandatory 20-percent 
withholding does not apply.
---------------------------------------------------------------------------
    With respect to the wildfires, a qualified wildfire 
distribution is any distribution from an eligible retirement 
plan made on or after October 8, 2017, and before January 1, 
2019, to an individual whose principal place of abode during 
any portion of the period from October 8, 2017, to December 31, 
2017 was located in the California wildfire disaster area and 
who has sustained an economic loss by reason of the wildfires 
giving rise to the Presidential disaster declaration. The total 
amount of distributions to an individual from all eligible 
retirement plans that may be treated as qualified wildfire 
distributions is $100,000. Thus, any distributions in excess of 
$100,000 are not qualified wildfire distributions.
    Any amount required to be included in income as a result of 
a qualified wildfire distribution is included in income ratably 
over the three-year period beginning with the year of 
distribution unless the individual elects not to have ratable 
inclusion apply.
    Any portion of a qualified wildfire distribution may, at 
any time during the three-year period beginning the day after 
the date on which the distribution was received, be 
recontributed to an eligible retirement plan to which a 
rollover can be made. Any amount recontributed within the 
three-year period is treated as a rollover and thus is not 
includible in income. For example, if an individual receives a 
qualified wildfire distribution in 2017, that amount is 
included in income, generally ratably over the year of the 
distribution and the following two years, but is not subject to 
the 10-percent early withdrawal tax. If, in 2019, the amount of 
the qualified wildfire distribution is recontributed to an 
eligible retirement plan, the individual may file an amended 
return to claim a refund of the tax attributable to the amount 
previously included in income. In addition, if, under the 
ratable inclusion provision, a portion of the distribution has 
not yet been included in income at the time of the 
contribution, the remaining amount is not includible in income.

         Recontributions of withdrawals for purchase of a home

    Any individual who received a qualified distribution \59\ 
after March 31, 2017, and before January 15, 2018, which was to 
be used to purchase or construct a principal residence in the 
California disaster area, but which was not so purchased or 
constructed on account of the California wildfires, may, during 
the period beginning on October 8, 2017, and ending on June 30, 
2018, make one or more contributions in an aggregate amount not 
to exceed the amount of such qualified distribution to an 
eligible retirement plan of which such individual is a 
beneficiary and to which a rollover contribution of such 
distribution could be made.\60\ A plan is not treated as 
violating any Code requirement merely because it repays such 
distributions as provided above, provided that the aggregate 
amount of such repayments from plans maintained by the employer 
and members of the employer's controlled group or affiliated 
service group does not exceed $100,000.
---------------------------------------------------------------------------
    \59\ As described in sections 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) 
(but only to the extent such distribution relates to financial 
hardship), 403(b)(11)(B), or 72(t)(2)(F).
    \60\ Under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as 
the case may be.
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Loans

    In the case of a ``qualified individual'' who obtained a 
loan from a qualified employer plan \61\ during the period 
beginning on February 9, 2018, and ending on December 31, 2018, 
the permitted maximum loan amount is the lesser of ``the 
present value of the nonforfeitable accrued benefit of the 
employee under the plan'' (rather than ``one-half of the 
present value of the nonforfeitable accrued benefit of the 
employee under the plan'') or $100,000 (rather than $50,000), 
and a loan meeting this limit is not treated as a 
distribution.\62\ For this purpose, a qualified individual is 
an individual whose principal place of abode during any portion 
of the period from October 8, 2017, to December 31, 2017, was 
located in the California wildfire disaster area and who 
sustained an economic loss by reason of the California 
wildfires.
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    \61\ As defined under section 72(p)(4).
    \62\ See section 72(p)(2)(A).
---------------------------------------------------------------------------
    In the case of such a qualified individual with an 
outstanding loan on or after October 8, 2017, from a qualified 
employer plan, if the due date for any repayment with respect 
to such a loan \63\ occurs during the period beginning on 
October 8, 2017, and ending on December 31, 2018, the due date 
is delayed for one year and any subsequent repayments will be 
appropriately adjusted to reflect the delay in any repayment 
date noted above, but the repayment delay is disregarded in 
determining the five-year period and the term of the loan.\64\
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    \63\ See section 72(p)(2).
    \64\ Under section 72(p)(2)(B) or (C).
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Plan amendments

    A plan amendment made pursuant to the provision (or a 
regulation issued thereunder) may be retroactively effective 
if, in addition to the requirements described below, the 
amendment is made on or before the last day of the first plan 
year beginning after January 1, 2019 (or in the case of a 
governmental plan, January 1, 2021), or a later date prescribed 
by the Secretary. In addition, the plan is treated as operated 
in accordance with plan terms during the period beginning with 
the date the provision or regulation takes effect (or the date 
specified by the plan if the amendment is not required by the 
provision or regulation) and ending on the last permissible 
date for the amendment (or, if earlier, the date the amendment 
is adopted). For an amendment to be retroactively effective, it 
must apply retroactively for that period, and the plan must be 
operated in accordance with the amendment during that period.

                             Effective Date

    The provision is effective on the date of enactment 
(February 9, 2018).

2. Employee retention credit for employers affected by California 
        wildfires (sec. 20103 of the Act and sec. 38 of the Code)

                              Present Law

    There is no generally applicable employer tax credit for 
wages paid in connection with employment in disaster areas. 
There is a credit, however, for employers affected by Hurricane 
Harvey, Hurricane Irma, and Hurricane Maria.\65\
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    \65\ Sec. 503 of the Disaster Tax Relief and Airport and Airway 
Extension Act of 2017, Pub. L. No. 115-63. See also former sec. 1400R, 
which provided an employer credit for employers affected by Hurricane 
Katrina, Hurricane Rita, and Hurricane Wilma. The provision was 
repealed as deadwood by the Consolidated Appropriations Act, Pub L. No. 
115-141, sec. 401(d)(6)(A).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides a credit of 40 percent of the 
qualified wages (up to a maximum of $6,000 in qualified wages 
per employee) paid by an eligible employer to an eligible 
employee.
    An eligible employer is any employer that (1) conducted an 
active trade or business on October 8, 2017, in the California 
wildfire disaster zone and (2) with respect to which the trade 
or business described in (1) is inoperable on any day after 
October 1, 2017, and before January 1, 2018, as a result of 
damage sustained by reason of the wildfires.
    An eligible employee is, with respect to an eligible 
employer, an employee whose principal place of employment on 
October 8, 2017, with such eligible employer was in the 
California wildfire disaster zone. An employee may not be 
treated as an eligible employee for any period with respect to 
an employer if such employer is allowed a credit under section 
51, the work opportunity credit, with respect to the employee 
for the period.
    Qualified wages are wages (as defined in section 51(c)(1) 
of the Code, but without regard to section 3306(b)(2)(B) of the 
Code) paid or incurred by an eligible employer with respect to 
an eligible employee on any day after October 8, 2017, and 
before January 1, 2018, during the period (1) beginning on the 
date on which the trade or business first became inoperable at 
the principal place of employment of the employee immediately 
before the wildfires and (2) ending on the date on which such 
trade or business has resumed significant operations at such 
principal place of employment. Qualified wages include wages 
paid without regard to whether the employee performs no 
services, performs services at a different place of employment 
than such principal place of employment, or performs services 
at such principal place of employment before significant 
operations have resumed.
    The credit is treated as a current year business credit 
under section 38(b) and therefore is subject to the tax 
liability limitations of section 38(c). Rules similar to 
sections 51(i)(1), 52, and 280C(a) apply to the credit.

                             Effective Date

    The provision is effective on the date of enactment 
(February 9, 2018).

3. Temporary suspension of limitations on charitable contributions 
        (sec. 20104(a) of the Act and sec. 170 of the Code)

                              Present Law


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.\66\
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    \66\ Sec. 170.
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    Charitable contributions of cash are deductible in the 
amount contributed. In general, contributions of capital gain 
property to a qualified charity 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.

Percentage limitations

            Contributions by individuals
    For individuals, in any taxable year, the amount deductible 
as a charitable contribution is limited to a percentage of the 
taxpayer's contribution base. The applicable percentage of the 
contribution base varies depending on the type of donee 
organization and property contributed. The contribution base is 
defined as the taxpayer's adjusted gross income computed 
without regard to any net operating loss carryback.
    Contributions by an individual taxpayer of property (other 
than appreciated capital gain property) to a charitable 
organization described in section 170(b)(1)(A) (e.g., public 
charities, private foundations other than private non-operating 
foundations, and certain governmental units) may not exceed 50 
percent of the taxpayer's contribution base. Contributions of 
this type of property to nonoperating private foundations and 
certain other organizations generally may be deducted up to 30 
percent of the taxpayer's contribution base.
    For contributions taken into account for taxable years 
beginning after December 31, 2017, and before January 1, 2026, 
new section 170(b)(1)(G) increases the percentage limit for 
contributions by an individual taxpayer of cash to an 
organization described in section 170(b)(1)(A) to 60 percent. 
The 60-percent limit does not apply to noncash contributions. 
The 60-percent limit is intended to be applied after, and 
reduced by, the amount of noncash contributions to 
organizations described in section 170(b)(1)(A).
    Contributions of appreciated capital gain property to 
charitable organizations described in section 170(b)(1)(A) 
generally are deductible up to 30 percent of the taxpayer's 
contribution base. An individual may elect, however, to bring 
all these contributions of appreciated 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 appreciated capital gain property to charitable 
organizations described in section 170(b)(1)(B) (e.g., private 
nonoperating foundations) are deductible up to 20 percent of 
the taxpayer's contribution base.
            Contributions by corporations
    For corporations, in any taxable year, charitable 
contributions are not deductible to the extent the aggregate 
contributions exceed 10 percent of the corporation's taxable 
income computed without regard to net operating loss or capital 
loss carrybacks.
    For purposes of determining whether a corporation'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.
            Carryforward of excess contributions
    Charitable contributions that exceed the applicable 
percentage limitation may be carried forward for up to five 
years.\67\ The amount that may be carried forward from a 
taxable year (``contribution year'') to a succeeding taxable 
year may not exceed the applicable percentage of the 
contribution base for the succeeding taxable year less the sum 
of contributions made in the succeeding taxable year plus 
contributions made in taxable years prior to the contribution 
year and treated as paid in the succeeding taxable year under 
this provision.
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    \67\ Sec. 170(d).
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Overall limitation on itemized deductions (``Pease'' limitation)

    For taxable years beginning before January 1, 2018, the 
total amount of otherwise allowable itemized deductions (other 
than medical expenses, investment interest, and casualty, 
theft, or wagering losses) is reduced by three percent of the 
amount of the taxpayer's adjusted gross income in excess of a 
certain threshold. The otherwise allowable itemized deductions 
may not be reduced by more than 80 percent. For 2017, the 
adjusted gross income threshold is $261,500 for an individual 
taxpayer ($313,800 for a married taxpayers filing a joint 
return). These dollar amounts are adjusted for inflation. The 
Pease limitation does not apply to any taxable year beginning 
after December 31, 2017, and before January 1, 2026.

                        Explanation of Provision


Suspension of percentage limitations

    Under the provision, in the case of an individual, the 
deduction for qualified contributions is allowed up to the 
amount by which the taxpayer's contribution base exceeds the 
deduction for other charitable contributions. Contributions in 
excess of this amount are carried over to succeeding taxable 
years as contributions described in 170(b)(1)(A), subject to 
the limitations of section 170(d)(1)(A)(i) and (ii).
    In the case of a corporation, the deduction for qualified 
contributions is allowed up to the amount by which the 
corporation's taxable income (as computed under section 
170(b)(2)) exceeds the deduction for other charitable 
contributions. Contributions in excess of this amount are 
carried over to succeeding taxable years, subject to the 
limitations of section 170(d)(2).
    In applying subsections (b) and (d) of section 170 to 
determine the deduction for other contributions, qualified 
contributions are not taken into account (except to the extent 
qualified contributions are carried over to succeeding taxable 
years under the rules described above).
    Qualified contributions are cash contributions paid during 
the period beginning on October 8, 2017, and ending on December 
31, 2018, to a charitable organization described in section 
170(b)(1)(A), other than contributions to (i) a supporting 
organization described in section 509(a)(3) or (ii) for the 
establishment of a new, or maintenance of an existing, donor 
advised fund (as defined in section 4966(d)(2)). Contributions 
of noncash property, such as securities, are not qualified 
contributions. Under the provision, qualified contributions 
must be to an organization described in section 170(b)(1)(A); 
thus, contributions to, for example, a charitable remainder 
trust generally are not qualified contributions, unless the 
charitable remainder interest is paid in cash to an eligible 
charity during the applicable time period. Qualified 
contributions must be made for relief efforts in the California 
wildfire disaster area. Taxpayers must substantiate that the 
contribution is made for this purpose. A taxpayer must elect to 
have the contributions treated as qualified contributions.

Limitation on overall itemized deductions

    Under the provision, the charitable contribution deduction 
up to the amount of qualified contributions (as defined above) 
paid during the year is not treated as an itemized deduction 
for purposes of the overall limitation on itemized deductions 
(the ``Pease'' limitation). As noted above, the Pease 
limitation does not apply to any taxable year beginning after 
December 31, 2017, and before January 1, 2026.

                             Effective Date

    The provision is effective on the date of enactment 
(February 9, 2018).

4. Special rules for qualified disaster-related personal casualty 
        losses (sec. 20104(b) of the Act and sec. 165 of the Code)

                              Present Law

    For tax years beginning before December 31, 2017, a 
taxpayer may generally claim an itemized deduction for any loss 
sustained during the taxable year and not compensated by 
insurance or otherwise.\68\ For individual taxpayers, 
deductible losses must be incurred in a trade or business or 
other profit-seeking activity or consist of property losses 
arising from fire, storm, shipwreck, or other casualty, or from 
theft. Personal casualty or theft losses are deductible only if 
they exceed $100 per casualty or theft. In addition, aggregate 
net casualty and theft losses are deductible only to the extent 
they exceed 10 percent of an individual taxpayer's adjusted 
gross income.
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    \68\ Sec. 165.
---------------------------------------------------------------------------
    For tax years beginning after December 31, 2017, and before 
January 1, 2026, an individual may claim an itemized deduction 
for a personal casualty loss only if such loss was attributable 
to a disaster declared by the President under section 401 of 
the Robert T. Stafford Disaster Relief and Emergency Assistance 
Act.\69\ An exception applies to the extent a personal casualty 
loss of an individual does not exceed the individual's personal 
casualty gains.
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    \69\ Sec. 165(h)(5).
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                        Explanation of Provision

    Under the provision, personal casualty losses that arose in 
the California wildfire disaster area on or after October 8, 
2017, and that were attributable to such wildfire, are 
deductible without regard to whether aggregate net losses 
exceed 10 percent of a taxpayer's adjusted gross income. In 
order to be deductible, however, such losses must exceed $500 
per casualty. Finally, such losses may be claimed in addition 
to the standard deduction and may be claimed by taxpayers 
subject to the alternative minimum tax.

                             Effective Date

    The provision is effective on the date of enactment 
(February 9, 2018).

5. Special rule for determining earned income (sec. 20104(c) of the Act 
        and secs. 24 and 32 of the Code)

                              Present Law

    Eligible taxpayers are allowed an earned income credit and 
a child credit. In general, the earned income credit is a 
refundable credit for low-income workers.\70\ The amount of the 
credit depends on the earned income of the taxpayer and whether 
the taxpayer has one, more than one, or no qualifying children. 
Earned income generally includes wages, salaries, tips, and 
other employee compensation, plus net earnings from self-
employment.
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    \70\ Sec. 32.
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    For taxable years beginning before December 31, 2017, 
taxpayers with incomes below certain threshold amounts are 
eligible for a $1,000 credit for each qualifying child.\71\ In 
some circumstances, all or a portion of the otherwise allowable 
credit is treated as a refundable credit (the ``additional 
child tax credit''). The amount of the additional child tax 
credit equals 15 percent of the taxpayer's earned income in 
excess of $3,000.
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    \71\ Sec. 24.
---------------------------------------------------------------------------
    For taxable years beginning after December 31, 2017, and 
before January 1, 2026, the amount of the credit is $2,000, the 
refundable portion of the child credit is capped at $1,400 
(indexed for inflation), and the earned income threshold is 
$2,500.\72\
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    \72\ Sec. 24(h).
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                        Explanation of Provision

    The provision permits qualified individuals to elect to 
calculate their earned income credit and additional child tax 
credit for a taxable year that includes any portion of the 
period from October 8, 2017, to December 31, 2017, using their 
earned income from the prior taxable year. Qualified 
individuals are permitted to make the election with respect to 
a taxable year only if their earned income for such taxable 
year is less than their earned income for the preceding taxable 
year.
    Qualified individuals are (1) individuals who, during any 
portion of the period from October 8, 2017, to December 31, 
2017, had their principal place of abode in the California 
wildfire disaster zone or (2) individuals who, during any 
portion of such period, were not in the California wildfire 
disaster zone but whose principal place of abode was in the 
California wildfire disaster area, and were displaced from such 
principal place of abode by reason of the wildfires.
    For purposes of the provision, in the case of a joint 
return for a taxable year that includes any portion of the 
period from October 8, 2017, to December 31, 2017, the 
provision applies if either spouse is a qualified individual. 
In such cases, the earned income which is attributable to the 
taxpayer for the preceding taxable year is the sum of the 
earned income which is attributable to each spouse for such 
preceding taxable year.
    Any election to use the prior year's earned income under 
the provision applies with respect to both the earned income 
credit and additional child tax credit. For administrative 
purposes, the incorrect use on a return of earned income 
pursuant to an election under this provision is treated as a 
mathematical or clerical error. An election under the provision 
is disregarded for purposes of calculating gross income in the 
election year.

                             Effective Date

    The provision is effective on the date of enactment 
(February 9, 2018).

          B. Tax Relief for Hurricanes Harvey, Irma, and Maria


1. Tax Relief for Hurricanes Harvey, Irma, and Maria (sec. 20201 of the 
        Act and sec. 501(a)(2) and (b)(2) of the Disaster Tax Relief 
        and Airport and Airway Extension Act of 2017, Pub. L. No. 115-
        63)

                              Present Law

    Section 501 of the Disaster Tax Relief and Airport and 
Airway Extension Act of 2017 \73\ defines the Hurricanes Harvey 
and Irma ``disaster area'' as an area with respect to which a 
major disaster has been declared by the President before 
September 21, 2017.
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    \73\ Pub. L. No. 115-63.
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                        Explanation of Provision

    The provision modifies the definition of ``disaster area'' 
with respect to Hurricanes Harvey and Irma by delaying the date 
by which the disaster must be declared from September 21, 2017, 
to October 17, 2017.

                             Effective Date

    The amendment is effective as if included in the provisions 
of the Disaster Tax Relief and Airport and Airway Extension Act 
of 2017.

               C. Tax Relief for Families and Individuals


1. Extension of exclusion from gross income of discharge of qualified 
        principal residence indebtedness (sec. 40201 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,\74\ 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.\75\ 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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    \74\ A debt cancellation which constitutes a gift or bequest is not 
treated as income to the donee debtor. Sec. 102.
    \75\ Secs. 61(a)(11) and 108.
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    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.\76\
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    \76\ Sec. 1017.
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    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.\77\ 
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.
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    \77\ Sec. 108(h)(2).
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    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 $700,000 is qualified principal residence 
indebtedness. If the residence is sold for $600,000 and 
$400,000 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, 2017.

                        Explanation of Provision

    The provision extends for one additional year (through 
December 31, 2017) the exclusion from gross income for 
discharges of qualified principal residence indebtedness. The 
provision also provides for an exclusion from gross income in 
the case of those taxpayers whose qualified principal residence 
indebtedness was discharged on or after January 1, 2018, if the 
discharge was subject to a written arrangement entered into 
before January 1, 2018.

                             Effective Date

    The provision generally applies to discharges of 
indebtedness after December 31, 2016.

2. Extension of mortgage insurance premiums treated as qualified 
        residence interest (sec. 40202 of the Act and sec. 163 of the 
        Code)

                              Present Law


In general

    Qualified residence interest is deductible notwithstanding 
the general rule that personal interest is nondeductible.\78\
---------------------------------------------------------------------------
    \78\ Sec. 163(h).
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Acquisition indebtedness and home equity indebtedness

    For tax years beginning before December 31, 2017, 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 
acquisition indebtedness is $1,000,000 ($500,000 in the case of 
married taxpayers filing separately) and the maximum amount of 
home equity indebtedness is $100,000 ($50,000 in the case of 
married taxpayers filing separately). 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 qualified 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.
    For tax years beginning after December 31, 2017, and before 
January 1, 2026, qualified residence interest does not include 
home equity indebtedness. The maximum amount of acquisition 
indebtedness is $750,000 ($375,000 in the case of married 
taxpayers filing separately). This reduced limitation on 
acquisition indebtedness does not apply to indebtedness 
incurred on or before December 15, 2017.

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 the end of its term (except in 
the case of qualified mortgage insurance provided by the 
Department of Veterans Affairs or Rural Housing Service).
    The deduction does not apply with respect to any mortgage 
insurance contract issued before January 1, 2007. The deduction 
is disallowed for any amount paid or accrued after December 31, 
2016, or properly allocable to any period after that date.
    Information reporting rules apply to mortgage insurance 
premiums for premiums paid or accrued during periods to which 
the deductibility provision applies.\79\
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    \79\ Sec. 6050H(h) and Treas. Reg. sec. 1.6050H-3.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the deduction for private 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 2017 (and not properly 
allocable to any period after 2017).

                             Effective Date

    The provision applies to amounts paid or accrued after 
December 31, 2016.

3. Extension of above-the-line deduction for qualified tuition and 
        related expenses (sec. 40203 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.\80\ 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 American Opportunity and Lifetime Learning credits,\81\ 
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 is 
allowed a deduction for a personal exemption,\82\ at an 
eligible institution of higher education for courses of 
instruction of such individual at such institution.\83\ 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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    \80\ Sec. 222.
    \81\ See sec. 25A(f). The American Opportunity tax credit allows 
course materials to be taken into account in addition to tuition and 
fees, but such materials are not taken into account for purposes of the 
deduction for qualified tuition and related expenses.
    \82\ Notwithstanding that the exemption amount is zero for taxable 
years beginning after December 31, 2017, and before January 1, 2026, 
the reduction of the exemption amount to zero is not taken into account 
in determining whether a deduction for a personal exemption is still 
allowed or allowable. Sec. 151(d)(5)(B).
    \83\ 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. Secs. 222(d)(1) and 25A(f).
---------------------------------------------------------------------------
    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 
an individual 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 
is allowable to another taxpayer for the taxable year. The 
deduction is not available for taxable years beginning after 
December 31, 2016.
    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,\84\ 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.\85\ 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 an American Opportunity or Lifetime Learning credit is 
elected for such taxable year.
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    \84\ Secs. 222(d)(1) and 25A(g)(2).
    \85\ Sec. 222(c). These reductions are the same as those that apply 
to the American Opportunity and Lifetime Learning credits.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the qualified tuition deduction for 
one year, through 2017.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2016.

       D. Incentives for Growth, Jobs, Investment, and Innovation


1. Extension of Indian employment tax credit (sec. 40301 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.\86\ 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.
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    \86\ 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 \87\ or section 4(10) of the Indian Child Welfare 
Act of 1978.\88\ 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).
---------------------------------------------------------------------------
    \87\ Pub. L. No. 93-262.
    \88\ 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 adjustment for inflation is 
$45,000 for 2016).\89\ 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 specified shareholders, owners, partners, 
grantors, beneficiaries, or fiduciaries, or is a dependent 
thereof.\90\ 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.
---------------------------------------------------------------------------
    \89\ See Instructions for Form 8845, Indian Employment Credit 
(2016).
    \90\ Sec. 51(i)(1).
---------------------------------------------------------------------------
    The wage credit is available for wages paid or incurred in 
taxable years beginning on or before December 31, 2016.

                        Explanation of Provision

    The provision extends the Indian employment tax credit for 
one year (through taxable years beginning on or before December 
31, 2017).

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2016.

2. Extension of railroad track maintenance credit (sec. 40302 of the 
        Act and sec. 45G of the Code)

                              Present Law


In general

    A business tax credit is allowed for 50 percent of 
qualified railroad track maintenance expenditures paid or 
incurred by an eligible taxpayer during taxable years beginning 
before January 1, 2017 (the ``railroad track maintenance 
credit'' or ``credit'').\91\ For purposes of calculating the 
credit, all members of a controlled group of corporations or a 
group of businesses under common control are treated as a 
single taxpayer, and each member's credit is determined on a 
proportionate basis to each member's share of the aggregate 
qualified railroad track maintenance expenditures taken into 
account by the group for the credit.\92\ The credit may reduce 
a taxpayer's tax liability below its tentative minimum tax.\93\
---------------------------------------------------------------------------
    \91\ Sec. 45G(a) and (f). An eligible taxpayer generally claims the 
railroad track maintenance credit by filing Form 8900, Qualified 
Railroad Track Maintenance Credit. If a taxpayer's only source of the 
credit is a partnership or S corporation, the taxpayer may report the 
credit directly on Form 3800, General Business Credit (see Part III, 
line 4g).
    \92\ Sec. 45G(e)(2) and Treas. Reg. sec. 1.45G-1(f). See also 
Notice 2013-20, 2013-15 I.R.B. 902, April 8, 2013; and Field Attorney 
Advice 20151601F, December 19, 2014.
    \93\ Sec. 38(c)(4).
---------------------------------------------------------------------------

Limitation

    The railroad track maintenance credit is limited to the 
product of $3,500 times the number of miles of railroad track 
\94\ (1) owned or leased by an eligible taxpayer as of the 
close of its taxable year,\95\ 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.\96\ Amounts 
that exceed the limitation are not carried over to another 
taxable year.\97\
---------------------------------------------------------------------------
    \94\ Double track is treated as multiple lines of railroad track, 
rather than as a single line of railroad track (i.e., one mile of 
single track is one mile, but one mile of double track is two miles). 
Treas. Reg. sec. 1.45G-1(b)(9).
    \95\ A Class II or Class III owns railroad track if the railroad 
track is subject to the allowance for depreciation under section 167 by 
such Class II or Class III railroad. Treas. Reg. sec. 1.45G-1(b)(2). 
Railroad track generally has a seven-year MACRS recovery period. Sec. 
168(e)(3)(C)(i) and asset class 40.4 of Rev. Proc. 87-56, 1987-2 C.B. 
674. Alternatively, railroad structures and similar improvements (e.g., 
bridges, elevated structures, fences, etc.) generally have a 20-year 
MACRS recovery period (see asset class 40.2 of Rev. Proc. 87-56), while 
railroad grading and tunnel bores have a 50-year recovery period (see 
sec. 168(c)). The term ``railroad grading or tunnel bore'' means all 
improvements resulting from excavations (including tunneling), 
construction of embankments, clearings, diversions of roads and 
streams, sodding of slopes, and from similar work necessary to provide, 
construct, reconstruct, alter, protect, improve, replace, or restore a 
roadbed or right-of-way for railroad track. Sec. 168(e)(4).
    \96\ Sec. 45G(b)(1).
    \97\ Treas. Reg. sec. 1.45G-1(c)(2)(iii).
---------------------------------------------------------------------------
            Assignments
    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.\98\ Any 
assignment of a mile of railroad track may be made only once 
per taxable year of the Class II or Class III railroad, and is 
treated as made of the close of such taxable year.\99\ Such 
assignment is taken into account for the taxable year of the 
assignee that includes the date that such assignment is treated 
as effective.
---------------------------------------------------------------------------
    \98\ Sec. 45G(b)(2). See also Treas. Reg. sec. 1.45G-1(d).
    \99\ An assignor must file Form 8900 with its timely filed 
(including extensions) Federal income tax return for the taxable year 
for which it assigns any mile of eligible railroad track, even if it is 
not itself claiming the railroad track maintenance credit for that 
taxable year. Treas. Reg. sec. 1.45G-1(d)(4). Both the assignor and the 
assignee must attach a statement to Form 8900 detailing the information 
required by Treas. Reg. sec. 1.45G-1(d)(4).
---------------------------------------------------------------------------

Eligible taxpayer

    An eligible taxpayer means any Class II or Class III 
railroad, and any person (including a Class I railroad \100\) 
who transports property using the rail facilities \101\ of a 
Class II or Class III railroad or who furnishes railroad-
related property \102\ or services \103\ 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.\104\
---------------------------------------------------------------------------
    \100\ The Surface Transportation Board currently classifies a Class 
I railroad as a carrier with annual operating revenue of $447,621,226 
or more. The seven Class I railroads are BNSF Railway Company, Kansas 
City Southern Railway Company, Union Pacific Railway Company, Soo Line 
Railroad Company (Canadian Pacific's U.S. operations), CSX 
Transportation Inc., Norfolk Southern Railway Company, and Grand Trunk 
Corporation (Canadian National's U.S. operations). See the Surface 
Transportation Board FAQs--Economic and Industry Information, available 
at https://www.stb.gov/stb/faqs.html.
    \101\ Rail facilities of a Class II or Class III railroad are 
railroad yards, tracks, bridges, tunnels, wharves, docks, stations, and 
other related assets that are used in the transport of freight by a 
railroad and owned or leased by that railroad. Treas. Reg. sec. 1.45G-
1(b)(6).
    \102\ Railroad-related property is property that is unique to 
railroads and provided directly to a Class II or Class III railroad. 
See Treas. Reg. sec. 1.45G-1(b)(7) for a detailed description.
    \103\ Railroad-related services are services that are provided 
directly to, and are unique to, a railroad and that relate to railroad 
shipping, loading and unloading of railroad freight, or repairs of rail 
facilities or railroad-related property. See Treas. Reg. sec. 1.45G-
1(b)(8) for a detailed description.
    \104\ Sec. 45G(c).
---------------------------------------------------------------------------
    The terms Class II or Class III railroad have the meanings 
given by the Surface Transportation Board without regard to the 
controlled group rules under section 45G(e)(2).\105\
---------------------------------------------------------------------------
    \105\ Sec. 45G(e)(1) and Treas. Reg. sec. 1.45G-1(b)(1). The 
Surface Transportation Board currently classifies a Class II railroad 
as a carrier with annual operating revenue of less than $447,621,226 
but in excess of $35,809,698, and a Class III railroad as a carrier 
with annual operating revenue of $35,809,698 or less. See the Surface 
Transportation Board FAQs--Economic and Industry Information, available 
at https://www.stb.gov/stb/faqs.html.
---------------------------------------------------------------------------

Qualified railroad track maintenance expenditures

    Qualified railroad track maintenance expenditures are 
defined as gross expenditures (whether or not otherwise 
chargeable to capital account \106\) for maintaining railroad 
track (including roadbed, bridges, and related track 
structures) owned or leased as of January 1, 2015, 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 that made the assignment of such track.\107\ 
However, consideration received directly or indirectly from 
persons other than the Class II or Class III railroad does 
reduce the amount of qualified railroad track maintenance 
expenditures.\108\ Any amount that an assignee pays an assignor 
in exchange for an assignment of one or more miles of eligible 
railroad is treated as qualified railroad track maintenance 
expenditures paid or incurred by the assignee at the time and 
to the extent the assignor pays or incurs qualified railroad 
track maintenance expenditures.\109\
---------------------------------------------------------------------------
    \106\ All or some of the qualified railroad track maintenance 
expenditures may be required to be capitalized under section 263(a) as 
a tangible or intangible asset. See, e.g., Treas. Reg. sec. 1.263(a)-
4(d)(8), which requires the capitalization of amounts paid or incurred 
by a taxpayer to produce or improve real property owned by another 
(except to the extent the taxpayer is selling services at fair market 
value to produce or improve the real property) if the real property can 
reasonably be expected to produce significant economic benefits for the 
taxpayer. The basis of the tangible or intangible asset includes the 
capitalized amount of the qualified railroad track maintenance 
expenditures. Treas. Reg. sec. 1.45G-1(e)(1). Note that for purposes of 
Treas. Reg. sec. 1.263(a)-4(d)(8), real property includes property that 
is affixed to real property and that will ordinarily remain affixed for 
an indefinite period of time. Treas. Reg. sec. 1.263(a)-4(d)(8)(iii). 
Intangible assets described in Treas. Reg. sec. 1.263(a)-4(d)(8) are 
generally depreciable ratably over 25 years. See Treas. Reg. sec. 
1.167(a)-3.
    \107\ Sec. 45G(d); Treas. Reg. sec. 1.45G-1(b)(5).
    \108\ Treas. Reg. sec. 1.45G-1(c)(3)(ii).
    \109\ Treas. Reg. sec. 1.45G-1(c)(3).
---------------------------------------------------------------------------

Basis adjustment

    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.\110\ The basis reduction is taken into 
account before the depreciation deduction with respect to such 
railroad track is determined for the taxable year for which the 
railroad track maintenance credit is allowable.\111\ If all or 
some of the qualified railroad track maintenance expenditures 
paid or incurred by an eligible taxpayer during the taxable 
year is capitalized under section 263(a) to more than one 
asset, whether tangible or intangible, the reduction to the 
basis of these assets is allocated among each of the assets 
subject to the reduction in proportion to the unadjusted basis 
of each asset at the time the qualified railroad track 
maintenance expenditures are paid or incurred during that 
taxable year.\112\
---------------------------------------------------------------------------
    \110\ Sec. 45G(e)(3). See also sec. 1016(a)(29) and Treas. Reg. 
sec. 1.45G-1(e).
    \111\ Treas. Reg. sec. 1.45G-1(e)(2).
    \112\ Ibid.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for one year, for 
qualified railroad track maintenance expenditures paid or 
incurred in taxable years beginning before January 1, 2018.

                             Effective Date

    The provision generally applies to expenditures paid or 
incurred in taxable years beginning after December 31, 2016.
    The provision also provides a safe harbor that treats 
assignments, including related expenditures paid or incurred, 
for taxable years ending after January 1, 2017, and before 
January 1, 2018, as effective as of the close of such taxable 
year if made pursuant to a written agreement entered into no 
later than 90 days following the date of enactment (i.e., no 
later than May 10, 2018).

3. Extension of mine rescue team training credit (sec. 40303 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.\113\
---------------------------------------------------------------------------
    \113\ Sec. 45N(a).
---------------------------------------------------------------------------
    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.\114\
---------------------------------------------------------------------------
    \114\ Sec. 45N(b).
---------------------------------------------------------------------------
    An eligible employer is any taxpayer that employs 
individuals as miners in underground mines in the United 
States.\115\ The term ``wages'' has the meaning given to such 
term by section 3306(b) \116\ (determined without regard to any 
dollar limitation contained in that section).\117\
---------------------------------------------------------------------------
    \115\ Sec. 45N(c).
    \116\ Section 3306(b) defines wages for purposes of Federal 
Unemployment Tax.
    \117\ Sec. 45N(d).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of the expenses 
otherwise deductible that is equal to the amount of the 
credit.\118\ The credit does not apply to taxable years 
beginning after December 31, 2016.\119\ Additionally, the 
credit is not allowable for purposes of computing the 
alternative minimum tax.\120\
---------------------------------------------------------------------------
    \118\ Sec. 280C(e).
    \119\ Sec. 45N(e).
    \120\ Sec. 38(c).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for one year, through 
taxable years beginning before January 1, 2018.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2016.

4. Extension of classification of certain race horses as three-year 
        property (sec. 40304 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 or held for the production of 
income and recover such cost over time through annual 
deductions for depreciation or amortization.\121\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\122\ Tangible 
property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation for different types of property based on an 
assigned applicable depreciation method, recovery period, and 
convention.\123\
---------------------------------------------------------------------------
    \121\ See secs. 263(a) and 167. In general, only the tax owner of 
property (i.e., the taxpayer with the benefits and burdens of 
ownership) is entitled to claim tax benefits such as cost recovery 
deductions with respect to the property. In addition, where property is 
not used exclusively in a taxpayer's business, the amount eligible for 
a deduction must be reduced by the amount related to personal use. See, 
e.g., sec. 280A.
    \122\ See Treas. Reg. secs. 1.167(a)-10(b), -3, -14, and 1.197-
2(f). See also Treas. Reg. sec. 1.167(a)-11(e)(1)(i).
    \123\ Sec. 168.
---------------------------------------------------------------------------
    The applicable recovery period for an asset is determined 
in part by statute and in part by historic Treasury 
guidance.\124\ The ``type of property'' of an asset is used to 
determine the ``class life'' of the asset, which in turn 
dictates the applicable recovery period for the asset.
---------------------------------------------------------------------------
    \124\ 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.
---------------------------------------------------------------------------
    The MACRS recovery periods applicable to most tangible 
personal property range from three to 20 years. The 
depreciation methods generally applicable to tangible personal 
property are the 200-percent and 150-percent declining balance 
methods,\125\ 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 
yields a larger depreciation allowance.
---------------------------------------------------------------------------
    \125\ Under the declining balance method the depreciation rate is 
determined by dividing the appropriate percentage (here 150 or 200) by 
the appropriate recovery period. This leads to accelerated depreciation 
when the declining balance percentage is greater than 100. The table 
below illustrates depreciation for an asset with a cost of $1,000 and a 
seven-year recovery period under the 200-percent declining balance 
method, the 150-percent declining balance method, and the straight line 
method.

    Recovery method              Year 1 Year 2 Year 3 Year 4 Year 5 
Year 6 Year 7  Total
    200-percent declining balance   285.71 204.08 145.77 104.12 86.77  
86.77 86.77   1,000.00
    150-percent declining balance   214.29 168.37 132.29 121.26 121.26 
121.26  121.26 1,000.00
    Straight-line                142.86 142.86 142.86 142.86 142.86 
142.86 142.86 1,000.00
    * Details may not add to totals due to rounding.
---------------------------------------------------------------------------

Race horses

    The statute assigns a three-year recovery period to any 
race horse that is (1) placed in service before January 1, 
2017, and (2) placed in service after December 31, 2016, and 
more than two years old at such time it is placed in service by 
the purchaser.\126\ A seven-year recovery period applies to any 
race horse that is placed in service after December 31, 2016, 
and that is two years old or younger at the time it is placed 
in service.\127\
---------------------------------------------------------------------------
    \126\ Sec. 168(e)(3)(A)(i). A horse is more than two years old 
after the day that is 24 months after its actual birthdate. See Prop. 
Treas. Reg. sec. 1.168-3(c)(1)(iii) (interpreting ACRS); and Rev. Proc. 
87-56, as clarified and modified by Rev. Proc. 88-22. Note that this 
measurement of a horse's age for depreciation purposes is different 
from the horse racing industry's convention that a race horse ages one 
year each January 1. See, e.g., U.S. Department of the Treasury, Report 
to Congress on the Depreciation of Horses, March 1990, p. 35 
(``Although the conventional age of a horse is usually derived from a 
fictional January 1 birthdate, the current classification of horses for 
depreciation purposes is dependent upon their true ages.''); and 
Jennifer Caldwell, ``Why do Thoroughbreds share the same birth date of 
New Year's Day?'' Kentucky Derby News, November 17, 2017, available at 
https://www.kentuckyderby.com/horses/news/why-do-thoroughbreds-share-
the-same-birth-date-of-new-years-day.
    \127\ See sec. 168(e)(3)(C)(v) and asset class 01.225 of Rev. Proc. 
87-56, as clarified and modified by Rev. Proc. 88-22.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the 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, 2018. 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, 2017.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2016.

5. Extension of seven-year recovery period for motorsports 
        entertainment complexes (sec. 40305 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 or held for the production of 
income and recover such cost over time through annual 
deductions for depreciation or amortization.\128\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\129\ Tangible 
property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation for different types of property based on an 
assigned applicable depreciation method, recovery period, and 
convention.\130\
---------------------------------------------------------------------------
    \128\ See secs. 263(a) and 167. In general, only the tax owner of 
property (i.e., the taxpayer with the benefits and burdens of 
ownership) is entitled to claim tax benefits such as cost recovery 
deductions with respect to the property. In addition, where property is 
not used exclusively in a taxpayer's business, the amount eligible for 
a deduction must be reduced by the amount related to personal use. See, 
e.g., sec. 280A.
    \129\ See Treas. Reg. secs. 1.167(a)-10(b), -3, -14, and 1.197-
2(f). See also Treas. Reg. sec. 1.167(a)-11(e)(1)(i).
    \130\ Sec. 168.
---------------------------------------------------------------------------
    The applicable recovery period for an asset is determined 
in part by statute and in part by historic Treasury 
guidance.\131\ The ``type of property'' of an asset is used to 
determine the ``class life'' of the asset, which in turn 
dictates the applicable recovery period for the asset.
---------------------------------------------------------------------------
    \131\ 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.
---------------------------------------------------------------------------
    The MACRS recovery periods applicable to most tangible 
personal property range from three to 20 years. The 
depreciation methods generally applicable to tangible personal 
property are the 200-percent and 150-percent declining balance 
methods,\132\ 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 
yields a larger depreciation allowance.
---------------------------------------------------------------------------
    \132\ Under the declining balance method the depreciation rate is 
determined by dividing the appropriate percentage (here 150 or 200) by 
the appropriate recovery period. This leads to accelerated depreciation 
when the declining balance percentage is greater than 100. The table 
below illustrates depreciation for an asset with a cost of $1,000 and a 
seven-year recovery period under the 200-percent declining balance 
method, the 150-percent declining balance method, and the straight line 
method.

    Recovery method              Year 1 Year 2 Year 3 Year 4 Year 5 
Year 6 Year 7  Total
    200-percent declining balance   285.71 204.08 145.77 104.12 86.77  
86.77 86.77   1,000.00
    150-percent declining balance   214.29 168.37 132.29 121.26 121.26 
121.26  121.26 1,000.00
    Straight-line                142.86 142.86 142.86 142.86 142.86 
142.86 142.86 1,000.00
    * Details may not add to totals due to rounding.
---------------------------------------------------------------------------

Real property

    The recovery periods for most real property are 39 years 
for nonresidential real property and 27.5 years for residential 
rental property.\133\ The straight line depreciation method is 
required for the aforementioned real property.\134\ In 
addition, nonresidential real and residential rental property 
are both 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.\135\ 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.\136\

    \133\ Sec. 168(c).
    \134\ Sec. 168(b)(3).
    \135\ Sec. 168(d)(2) and (d)(4)(B).
    \136\ 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. Sec. 168(d)(3) and (d)(4)(C). Nonresidential real property, 
residential rental property, and railroad grading or tunnel bore are 
not taken into account for purposes of the mid-quarter convention.
---------------------------------------------------------------------------
    Land improvements (such as roads and fences) are generally 
recovered using the 150-percent declining balance method, a 
recovery period of 15 years, and the half-year convention.\137\ 
An exception exists for the theme and amusement park industry, 
whose assets are generally assigned a recovery period of seven 
years by asset class 80.0 of Rev. Proc. 87-56.\138\ Racetrack 
facilities are excluded from the definition of theme and 
amusement park facilities classified under asset class 
80.0.\139\
---------------------------------------------------------------------------
    \137\ Sec. 168(b)(2)(A) and asset class 00.3 of Rev. Proc. 87-56. 
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).
    \138\ This asset class includes assets used in the provision of 
rides, attractions, and amusements in activities defined as theme and 
amusement parks, and includes appurtenances associated with a ride, 
attraction, amusement or theme setting within the park such as ticket 
booths, facades, shop interiors, and props, special purpose structures, 
and buildings other than warehouses, administration buildings, hotels, 
and motels. It also includes all land improvements for or in support of 
park activities (e.g., parking lots, sidewalks, waterways, bridges, 
fences, and landscaping) and support functions (e.g., food and beverage 
retailing, souvenir vending and other nonlodging accommodations) if 
owned by the park and provided exclusively for the benefit of park 
patrons. Theme and amusement parks are defined as combinations of 
amusements, rides, and attractions which are permanently situated on 
park land and open to the public for the price of admission. This asset 
class is a composite of all assets used in this industry except 
transportation equipment (general purpose trucks, cars, airplanes, 
etc., which are included in asset classes with the prefix 00.2), assets 
used in the provision of administrative services (asset classes with 
the prefix 00.1), and warehouses, administration buildings, hotels and 
motels.
    \139\ See Joint Committee on Taxation, General Explanation of Tax 
Legislation Enacted in the 108th Congress (JCS-5-05), May 2005, p. 328.
---------------------------------------------------------------------------
    Although racetrack facilities are excluded from asset class 
80.0, the statute assigns a recovery period of seven years to 
motorsports entertainment complexes placed in service before 
January 1, 2017.\140\ For this purpose, a motorsports 
entertainment complex means a racing track facility that (i) is 
permanently situated on land, and (ii) during the 36-month 
period following its placed-in-service date hosts one or more 
racing events for automobiles (of any type), trucks, or 
motorcycles that are open to the public for the price of 
admission.\141\
---------------------------------------------------------------------------
    \140\ Sec. 168(e)(3)(C)(ii) and (i)(15)(D).
    \141\ Sec. 168(i)(15)(A).
---------------------------------------------------------------------------
    A motorsports entertainment complex also includes ancillary 
facilities, land improvements (e.g., parking lots, sidewalks, 
waterways, bridges, fences, and landscaping), support 
facilities (e.g., food and beverage retailing, souvenir 
vending, and other nonlodging accommodations), and 
appurtenances associated with such facilities and related 
attractions and amusements (e.g., ticket booths, race track 
surfaces, suites and hospitality facilities, grandstands and 
viewing structures, props, walls, facilities that support the 
delivery of entertainment services, other special purpose 
structures, facades, shop interiors, and buildings).\142\ Such 
ancillary and support facilities must be (i) owned by the 
taxpayer who owns the motorsports entertainment complex, and 
(ii) provided for the benefit of patrons of the motorsports 
entertainment complex.
---------------------------------------------------------------------------
    \142\ Sec. 168(i)(15)(B).
---------------------------------------------------------------------------
    A motorsports entertainment complex does not include any 
transportation equipment, administrative services assets, 
warehouses, administrative buildings, hotels, or motels.\143\
---------------------------------------------------------------------------
    \143\ Sec. 168(i)(15)(C).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the seven-year recovery period for 
motorsports entertainment complexes for one year to apply to 
property placed in service before January 1, 2018.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2016.

6. Extension of accelerated depreciation for business property on an 
        Indian reservation (sec. 40306 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: \144\
---------------------------------------------------------------------------
    \144\ Section 168(j)(2) does not provide shorter recovery periods 
for water utility property, residential rental property, or railroad 
grading and tunnel bores.

 
 
 
 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
 

    ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property described in the 
table above that 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;\145\ 
and (4) is not property placed in service for purposes of 
conducting or housing certain gaming activities.\146\
---------------------------------------------------------------------------
    \145\ For these purposes, the term ``related persons'' is defined 
in section 465(b)(3)(C).
    \146\ Sec. 168(j)(4)(A).
---------------------------------------------------------------------------
    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).\147\
---------------------------------------------------------------------------
    \147\ Sec. 168(j)(4)(C).
---------------------------------------------------------------------------
    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)) \148\ or section 4(10) of the Indian Child Welfare Act 
of 1978 (25 U.S.C. 1903(10)).\149\ 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).\150\
---------------------------------------------------------------------------
    \148\ Pub. L. No. 93-262.
    \149\ Pub. L. No. 95-608.
    \150\ Sec. 168(j)(6).
---------------------------------------------------------------------------
    The depreciation deduction allowed for regular tax purposes 
is also allowed for purposes of the alternative minimum 
tax.\151\
---------------------------------------------------------------------------
    \151\ Sec. 168(j)(3).
---------------------------------------------------------------------------
    The accelerated depreciation for qualified Indian 
reservation property is available with respect to property 
placed in service before January 1, 2017.\152\ A taxpayer may 
annually make an irrevocable election out of section 168(j) on 
a class-by-class basis.\153\
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    \152\ Sec. 168(j)(9).
    \153\ Sec. 168(j)(8).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year the accelerated 
depreciation for qualified Indian reservation property to apply 
to property placed in service before January 1, 2018.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2016.

7. Extension of election to expense mine safety equipment (sec. 40307 
        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.\154\ In computing earnings and profits, the amount 
deductible under section 179E is allowed as a deduction ratably 
over five taxable years beginning with the year the amount is 
deductible under section 179E.\155\
---------------------------------------------------------------------------
    \154\ Sec. 179E(a). Such election may only be revoked with the 
consent of the Secretary. Sec. 179E(b).
    \155\ Sec. 312(k)(3)(B).
---------------------------------------------------------------------------
    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 before January 1, 2017.\156\
---------------------------------------------------------------------------
    \156\ Sec. 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.\157\
---------------------------------------------------------------------------
    \157\ Sec. 179E(d).
---------------------------------------------------------------------------
    The portion of the cost of any property with respect to 
which an expensing election under section 179 is made may not 
be taken into account for purposes of the 50-percent deduction 
under section 179E.\158\ In addition, a taxpayer making an 
election under section 179E must file with the Secretary a 
report containing information with respect to the operation of 
the mines of the taxpayer as required by the Secretary.\159\
---------------------------------------------------------------------------
    \158\ Sec. 179E(e).
    \159\ Sec. 179E(f).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year (through December 31, 
2017) the 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, 2016.

8. Extension of special expensing rules for certain productions (sec. 
        40308 of the Act and sec. 181 of the Code)

                              Present Law

    Under section 181, a taxpayer may elect \160\ to deduct up 
to $15 million of the aggregate production costs of any 
qualified film, television or live theatrical production, 
commencing prior to January 1, 2017,\161\ in the year the costs 
are paid or incurred by the taxpayer, in lieu of capitalizing 
the costs and recovering them through depreciation allowances 
once the production is placed in service.\162\ The dollar 
limitation is increased to $20 million if a significant amount 
of the production costs 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.\163\
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    \160\ See Treas. Reg. sec. 1.181-2 for rules on making (and 
revoking) an election under section 181.
    \161\ For purposes of determining whether a production is eligible 
for section 181 expensing, a qualified film or television production is 
treated as commencing on the first date of principal photography. The 
date on which a qualified live theatrical production commences is the 
date of the first public performance of such production for a paying 
audience.
    \162\ Sec. 181(a)(2)(A). See Treas. Reg. sec. 1.181-1 for rules on 
determining eligible production costs. Eligible production costs under 
section 181 include participations and residuals paid or incurred. 
Treas. Reg. sec. 1.181-1(a)(3)(i). The special rule in section 
167(g)(7) that allows taxpayers using the income forecast method of 
depreciation to include participations and residuals that have not met 
the economic performance requirements in the adjusted basis of the 
property for the taxable year the property is placed in service does 
not apply for purposes of section 181. Treas. Reg. sec. 1.181-1(a)(8). 
Thus, under section 181, a taxpayer may only include participations and 
residuals actually paid or incurred in eligible production costs. 
Further, production costs do not include the cost of obtaining a 
production after its initial release or broadcast. See Treas. Reg. sec. 
1.181-1(a)(3). For this purpose, ``initial release or broadcast'' means 
the first commercial exhibition or broadcast of a production to an 
audience. Treas. Reg. sec. 1.181-1(a)(7). Thus, for example, a taxpayer 
may not expense the purchase of an existing film library under section 
181. See T.D. 9551, 76 Fed. Reg. 64816, October 19, 2011.
    \163\ Sec. 181(a)(2)(B).
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    A section 181 election may only be made by an owner of the 
production.\164\ An owner of a production is any person that is 
required under section 263A to capitalize the costs of 
producing the production into the cost basis of the production, 
or that would be required to do so if section 263A applied to 
that person.\165\ In addition, the aggregate production costs 
of a qualified production that is co-produced include all 
production costs, regardless of funding source, in determining 
if the applicable dollar limit is exceeded. Thus, the term 
``aggregate production costs'' means all production costs paid 
or incurred by any person, whether paid or incurred directly by 
an owner or indirectly on behalf of an owner.\166\ The costs of 
the production in excess of the applicable dollar limitation 
are capitalized and recovered under the taxpayer's method of 
accounting for the recovery of such property once placed in 
service.\167\
---------------------------------------------------------------------------
    \164\ Treas. Reg. sec. 1.181-1(a).
    \165\ Treas. Reg. sec. 1.181-1(a)(2)(i).
    \166\ Treas. Reg. sec. 1.181-1(a)(4). See Treas. Reg. sec. 1.181-
2(c)(3) for the information required to be provided to the Internal 
Revenue Service when more than one person will claim deductions under 
section 181 for a production (to ensure that the applicable deduction 
limitation is not exceeded).
    \167\ See Joint Committee on Taxation, General Explanation of Tax 
Legislation Enacted in the 110th Congress (JCS-1-09), March 2009, p. 
448; and Treas. Reg. sec. 1.181-1(c)(2). A production is generally 
considered to be placed in service at the time of initial release, 
broadcast, or live staged performance (i.e., at the time of the first 
commercial exhibition, broadcast, or live staged performance of a 
production to an audience). See, e.g., Rev. Rul. 79-285, 1979-2 C.B. 
91; and Priv. Ltr. Rul. 9010011, March 9, 1990. See also Treas. Reg. 
sec. 1.181-1(a)(7). However, a production generally may not be 
considered to be placed in service if it is only exhibited, broadcasted 
or performed for a limited test audience in advance of the commercial 
exhibition, broadcast, or performance to general audiences. See Priv. 
Ltr. Rul. 9010011 and Treas. Reg. sec. 1.181-1(a)(7).
---------------------------------------------------------------------------
    A qualified film, television, or live theatrical production 
means any production of a motion picture (whether released 
theatrically or directly to video cassette or any other 
format), television program, or live staged play 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.\168\ Solely for purposes of this rule, the term 
``compensation'' does not include participations and residuals 
(as defined in section 167(g)(7)(B)).\169\
---------------------------------------------------------------------------
    \168\ Sec. 181(d)(3)(A).
    \169\ Sec. 181(d)(3)(B). Participations and residuals are defined 
as, with respect to any property, costs the amount of which by contract 
varies with the amount of income earned in connection with such 
property. See also Treas. Reg. sec. 1.181-3(c).
---------------------------------------------------------------------------
    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.\170\ Qualified 
productions do not include sexually explicit productions as 
referenced by section 2257 of title 18 of the U.S. Code.\171\
---------------------------------------------------------------------------
    \170\ Sec. 181(d)(2)(B).
    \171\ Sec. 181(d)(2)(C).
---------------------------------------------------------------------------
    A qualified live theatrical production is defined as a live 
staged production of a play (with or without music) that is 
derived from a written book or script and is produced or 
presented by a commercial entity in any venue which has an 
audience capacity of not more than 3,000, or a series of venues 
the majority of which have an audience capacity of not more 
than 3,000.\172\ In addition, qualified live theatrical 
productions include any live staged production which is 
produced or presented by a taxable entity no more than 10 weeks 
annually in any venue that has an audience capacity of not more 
than 6,500.\173\ In general, in the case of multiple live-
staged productions, each such live-staged production is treated 
as a separate production. Similar to the exclusion for sexually 
explicit productions from the definition of qualified film or 
television productions, qualified live theatrical productions 
do not include stage performances that would be excluded by 
section 2257(h)(1) of title 18 of the U.S. Code, if such 
provision were extended to live stage performances.\174\
---------------------------------------------------------------------------
    \172\ Sec. 181(e)(2)(A).
    \173\ Sec. 181(e)(2)(D).
    \174\ Sec. 181(e)(2)(E).
---------------------------------------------------------------------------
    For purposes of recapture under section 1245, any deduction 
allowed under section 181 is treated as if it were a deduction 
allowable for amortization.\175\ Thus, the deduction under 
section 181 may be subject to recapture as ordinary income in 
the taxable year in which (i) the taxpayer revokes a section 
181 election, (ii) the production fails to meet the 
requirements of section 181, or (iii) the taxpayer sells or 
otherwise disposes of the production.\176\
---------------------------------------------------------------------------
    \175\ Sec. 1245(a)(2)(C). For a discussion of the recapture rules 
applicable to depreciation and amortization deductions, see Joint 
Committee on Taxation, Background and Present Law Relating to Cost 
Recovery and Domestic Production Activities, (JCX-19-12) February 27, 
2012, pp. 45-46.
    \176\ See Treas. Reg. sec. 1.181-4.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the special treatment for qualified 
film, television, and live theatrical productions under section 
181 for one year to qualified productions commencing prior to 
January 1, 2018.

                             Effective Date

    The provision applies to productions commencing after 
December 31, 2016.

9. Extension of deduction allowable with respect to income attributable 
        to domestic production activities in Puerto Rico (sec. 40309 of 
        the Act and former sec. 199 of the Code)

                              Present Law


In general

    For taxable years beginning before January 1, 2018, former 
section 199 \177\ 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.\178\ For corporations 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.\179\ A similar 
reduction applies to the graduated rates applicable to 
individuals with qualifying domestic production activities 
income.
---------------------------------------------------------------------------
    \177\ Section 199 was repealed by Public Law 115-97, for taxable 
years beginning after December 31, 2017. All references to former 
section 199 in this document refer to section 199 as in effect before 
its repeal.
    \178\ In the case of oil related qualified production activities 
income, the deduction is reduced by three percent of the least of the 
taxpayer's oil related qualified production activities income, 
qualified production activities income, or taxable income (determined 
without regard to the section 199 deduction) for the taxable year. See 
sec. 199(d)(9).
    \179\ This example assumes the deduction does not exceed the wage 
limitation discussed below.
---------------------------------------------------------------------------
    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 that 
are properly allocable to those receipts.\180\
---------------------------------------------------------------------------
    \180\ Sec. 199(c)(1). In computing qualified production activities 
income, the domestic production activities deduction itself is not an 
allocable deduction. Sec. 199(c)(1)(B)(ii). See Treas. Reg. secs. 
1.199-1 through 1.199-9 where the Secretary has prescribed rules for 
the proper allocation of items of income, deduction, expense, and loss 
for purposes of determining qualified production activities income.
---------------------------------------------------------------------------
    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 \181\ 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 \182\ 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.\183\
---------------------------------------------------------------------------
    \181\ Qualifying production property generally includes any 
tangible personal property, computer software, and sound recordings. 
Sec. 199(c)(5).
    \182\ 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. Sec. 199(c)(6).
    \183\ Sec. 199(c)(4)(A).
---------------------------------------------------------------------------
    The amount of the deduction for a taxable year is limited 
to 50 percent of the W-2 wages paid by the taxpayer, and 
properly allocable to domestic production gross receipts, 
during the calendar year that ends in such taxable year.\184\ 
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.\185\
---------------------------------------------------------------------------
    \184\ Sec. 199(b)(1). For purposes of the provision, ``W-2 wages'' 
include the sum of the amounts of wages as defined in section401(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. See sec. 199(b)(2).
    \185\ Section 3401(a)(8)(C) excludes wages paid to U.S. 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.\186\ A special rule for determining 
domestic production gross receipts, however, provides that in 
the case of any taxpayer with gross receipts for a taxable year 
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 for such taxable year.\187\ 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.\188\
---------------------------------------------------------------------------
    \186\ Sec. 7701(a)(9).
    \187\ Sec. 199(d)(8)(A).
    \188\ Sec. 199(d)(8)(B).
---------------------------------------------------------------------------
    The special rules for Puerto Rico apply only with respect 
to the first 11 taxable years of a taxpayer beginning after 
December 31, 2005, and before January 1, 2017.\189\
---------------------------------------------------------------------------
    \189\ Sec. 199(d)(8)(C).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the special domestic production 
activities rules for Puerto Rico to apply for the first 12 
taxable years of a taxpayer beginning after December 31, 2005, 
and before January 1, 2018.

                             Effective Date

    The provision is effective for taxable years beginning 
during 2017.

10. Extension of special rule relating to qualified timber gain (sec. 
        40310 of the Act and former sec. 1201 of the Code)

                           Present Law \190\

---------------------------------------------------------------------------
    \190\ Section 1201 was repealed for taxable years beginning after 
December 31, 2017, by Public Law 115-97 as a conforming amendment to 
changes made to section 11 (which included lowering the top marginal 
corporate tax rate to 21 percent). This provision, enacted after that 
repeal, applies to taxable years beginning in 2017. For that reason, 
this description of present law describes the law in effect immediately 
before the first day on which the provision is effective.
---------------------------------------------------------------------------

Treatment of certain timber gain

    If a taxpayer cuts standing timber, the taxpayer may elect 
to treat the cutting as a sale or exchange eligible for capital 
gains treatment.\191\ The fair market value of the timber on 
the first day of the taxable year in which the timber is cut is 
used to determine the gain attributable to such cutting. Such 
fair market value is thereafter considered the taxpayer's cost 
of the cut timber for all purposes, such as to determine the 
taxpayer's income from later sales of the timber or timber 
products. Also, if a taxpayer disposes of the timber with a 
retained economic interest or makes an outright sale of the 
timber, the gain is eligible for capital gain treatment.\192\ 
This treatment under either section 631(a) or (b) requires that 
the taxpayer has owned the timber or held the contract right 
for a period of more than one year.
---------------------------------------------------------------------------
    \191\ Sec. 631(a).
    \192\ Sec. 631(b).
---------------------------------------------------------------------------
    The maximum regular rate of tax on the net capital gain of 
an individual is 20 percent.\193\ Certain gains are subject to 
an additional 3.8-percent tax.\194\
---------------------------------------------------------------------------
    \193\ Sec. 1(h).
    \194\ Sec. 1411.
---------------------------------------------------------------------------
    The net capital gain of a corporation is taxed at the same 
rates as ordinary income, up to a maximum rate of 35 
percent.\195\
---------------------------------------------------------------------------
    \195\ Secs. 11 and 1201.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year a 23.8-percent 
alternative tax rate for corporations on the portion of a 
corporation's taxable income that consists of qualified timber 
gain (or, if less, the net capital gain) for a taxable year.
    Qualified timber gain means the net gain described in 
section 631(a) and (b) for the taxable year, determined by 
taking into account only trees held more than 15 years.

                             Effective Date

    The provision applies to taxable years beginning in 2017.

11. Extension of empowerment zone tax incentives (sec. 40311 of the Act 
        and secs. 1391 and 1394 of the Code)

                              Present Law

    The Omnibus Budget Reconciliation Act of 1993 (``OBRA 93'') 
\196\ authorized the designation of nine empowerment zones 
(``Round I empowerment zones'') to provide tax incentives for 
businesses to locate within certain targeted areas \197\ 
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,\198\ 
which were located in smaller rural areas and cities.\199\
---------------------------------------------------------------------------
    \196\ Pub. L. No. 103-66.
    \197\ 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.
    \198\ Sec. 1391(b)(1).
    \199\ Enterprise communities were eligible for only one tax 
benefit: tax-exempt bond financing. For tax purposes, the areas 
designated as enterprise communities continued as such for the ten-year 
period starting 1995 and ending at the end of 2004. However, after 2004 
the enterprise communities may still be eligible for other Federal 
benefits (e.g., grants and preferences).
---------------------------------------------------------------------------
    The Taxpayer Relief Act of 1997 \200\ authorized the 
designation of two additional urban Round I empowerment zones, 
and 20 additional empowerment zones (``Round II empowerment 
zones''). The Community Renewal Tax Relief Act of 2000 (``2000 
Community Renewal Act'') \201\ authorized a total of 10 new 
empowerment zones (``Round III empowerment zones''), bringing 
the total number of authorized, and not relinquished, 
empowerment zones to 41.\202\ 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 tax incentives through 
December 31, 2009. Subsequent legislation extended the 
empowerment zone tax incentives through December 31, 2016.\203\
---------------------------------------------------------------------------
    \200\ Pub. L. No. 105-34.
    \201\ Pub. L. No. 106-554. The 2000 Community Renewal Act also 
authorized the designation of 40 ``renewal communities'' within which 
special tax incentives were available. The tax incentives were 
generally available through December 31, 2009 when the renewal 
community designation expired. One of the tax incentives involving the 
exclusion of capital gain from the sale or exchange of a qualified 
community asset continued through 2014.
    \202\ The urban part of the program is administered by HUD and the 
rural part of the program is administered by the USDA. The eight urban 
Round I 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 rural Round I empowerment zones are 
Kentucky Highlands, KY; Mid-Delta, MI; and Rio Grande Valley, TX. The 
15 urban Round II 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 rural Round II empowerment zones are Desert Communities, 
CA; Griggs-Steele, ND; Oglala Sioux Tribe, SD; Southernmost Illinois 
Delta, IL; and Southwest Georgia United, GA. The eight urban Round III 
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 rural Round III empowerment zones are Aroostook 
County, ME; and Futuro, TX.
    \203\ Pub. L. No. 111-312, sec. 753 (2010); Pub. L. No. 112-240, 
sec. 327(a) (2013); Pub. L. No. 113-295, sec. 139 (2014); Pub. L. No. 
114-113, Div. Q, sec. 171(a) (2015); and Pub. L. No. 115-123, sec. 
40311 (2018). The empowerment zone tax incentives may expire earlier 
than December 31, 2017 if a State or local government provided for an 
expiration date in the nomination of an empowerment zone, or the 
appropriate Secretary revokes an empowerment zone's designation. The 
State or local government may, however, amend the nomination to provide 
for a new termination date.
---------------------------------------------------------------------------
    The tax incentives available within the designated 
empowerment zones include a Federal income tax credit for 
employers who hire qualifying employees (the ``wage credit''), 
increased expensing of qualifying depreciable property, tax-
exempt bond financing, deferral of capital gains tax on the 
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 empowerment zone tax 
incentives as in effect through 2016.

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.\204\
---------------------------------------------------------------------------
    \204\ 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, 2017. 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.\205\
---------------------------------------------------------------------------
    \205\ 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, 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.\206\ Wages are not to be taken into account for purposes 
of calculating the wage credit if such wages are taken into 
account in determining the employer's work opportunity tax 
credit under section 51.\207\ In addition, the $15,000 cap is 
reduced by any wages taken into account in calculating the work 
opportunity tax credit.\208\ The wage credit may be used to 
offset up to 25 percent of the employer's alternative minimum 
tax liability.\209\
---------------------------------------------------------------------------
    \206\ Sec. 280C(a).
    \207\ Sec. 1396(c)(3)(A).
    \208\ Sec. 1396(c)(3)(B).
    \209\ Sec. 38(c)(2).
---------------------------------------------------------------------------

Increased section 179 expensing limitation

    An enterprise zone business \210\ is allowed up to an 
additional $35,000 of section 179 expensing for qualified zone 
property placed in service before January 1, 2017.\211\ The 
section 179 expensing allowed to a taxpayer is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds a 
specified dollar amount.\212\ However, an enterprise zone 
business is only required to take into account 50 percent of 
the cost of qualified zone property placed in service during 
the year in determining whether the cost of qualifying property 
exceeds the specified dollar amount.\213\
---------------------------------------------------------------------------
    \210\ Sec. 1397C. The term ``enterprise zone business'' is separate 
and distinct from the term ``enterprise community.'' Enterprise 
community, for purposes of the Code, means the areas designated as such 
under section 1391. Sec. 1393(b). Note, however, that for purposes of 
section 1394 relating to tax-exempt enterprise zone facility bonds, 
references to empowerment zones shall be treated as including 
references to enterprise communities. Sec. 1394(b)(3).
    \211\ Sec. 1397A.
    \212\ For taxable years beginning in 2016, the relevant dollar 
amount is 2,010,000. Sec. 179(b)(2) and 3.03 of Rev. Proc. 2016-14, 
2016-9 I.R.B. 365.
    \213\ Sec. 1397A(a)(2). For example, assume that during 2016 a 
calendar year taxpayer in an enterprise zone business purchased and 
placed in service $4,500,000 of section 179 property that is qualified 
zone property. The $500,000 section 179(b)(1) dollar amount for 2016 is 
increased to $535,000 (by the lesser of $35,000 or $4,500,000). That 
amount is reduced by the excess section 179 property cost amount of 
$240,000 ((50 percent x $4,500,000) - $2,010,000)). The taxpayer's 
expensing limitation is $295,000 ($535,000 - $240,000). If the taxpayer 
had not been an enterprise zone business, its expensing limitation 
would be zero because the taxpayer would have been fully phased out.
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    The term ``qualified zone property'' is defined as 
depreciable tangible property (including buildings) provided 
that (i) the property is acquired by the taxpayer by purchase 
(from an unrelated party) after the date on which the 
designation of the empowerment zone 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 qualified trade or business by the taxpayer in such 
zone.\214\ Special rules are provided in the case of property 
that is substantially renovated by the taxpayer.\215\
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    \214\ Sec. 1397D(a)(1). Note, however, that to be eligible for the 
increased section 179 expensing, the qualified zone property has to 
also meet the definition of section 179 property (e.g., building 
property would only qualify if it constitutes qualified real property 
under section 179(f)), prior to amendment by Pub. L. No. 115-97).
    \215\ Sec. 1397D(a)(2).
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    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.\216\
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    \216\ Sec. 1397C(b).
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    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 that 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 that is 
used in such business is attributable to nonqualified financial 
property.\217\
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    \217\ Sec. 1397C(c). For these purposes, the term ``employee'' 
includes the proprietor.
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    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 empowerment 
zone employment credit.\218\ 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 rental property, and (2) at least 50 percent of the 
gross rental income from the real property is from enterprise 
zone businesses.\219\ 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.
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    \218\ 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). Also, a 
qualified business does not include certain large farms. Sec. 
1397C(d)(5)(B).
    \219\ Sec. 1397C(d)(2).
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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.\220\ These bonds can be 
used in areas designated as enterprise communities as well as 
areas designated as 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.
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    \220\ Sec. 1394.
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    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, an employee is considered a resident of an 
empowerment zone for purposes of the 35-percent in-zone 
employment requirement if they are a resident of an empowerment 
zone, an enterprise community, or a qualified low-income 
community within an applicable nominating jurisdiction.\221\ 
The applicable nominating jurisdiction means, with respect to 
any empowerment zone or enterprise community, any local 
government that nominated such community for designation under 
section 1391. The definition of a qualified low-income 
community is similar to the definition of a low-income 
community provided in section 45D(e) (concerning eligibility 
for the new markets tax credit). A ``qualified low-income 
community'' is a population census tract with either (1) a 
poverty rate of at least 20 percent, or (2) median family 
income that does not exceed 80 percent of the greater of 
metropolitan area median family income or statewide median 
family income (for a nonmetropolitan 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. 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.
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    \221\ Pub. L. No. 114-113, Div. Q, sec. 171 (2015) (effective for 
bonds issued after 2015).
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    The Secretary is authorized to designate ``targeted 
populations'' as qualified low-income communities. 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 (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 nonmetropolitan area, less than 
the greater of (a) 80 percent of the area median family income, 
or (b) 80 percent of the statewide nonmetropolitan area median 
family income.
    Second, 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).\222\
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    \222\ Sec. 1394(b)(3).
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    Third, 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, enterprise community, or a qualified 
low-income community within an applicable nominating 
jurisdiction.
    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 held for more than 
one year and replaced within 60 days by another qualified 
empowerment zone asset in the same zone.\223\ A qualified 
empowerment zone asset generally means stock or a partnership 
interest acquired at original issue for cash in an enterprise 
zone business, or tangible property originally used in an 
enterprise zone business by the taxpayer. 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.
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    \223\ Sec. 1397B.
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                        Explanation of Provision

    The provision extends for one year, through December 31, 
2017, 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 property,\224\ tax-exempt 
bond financing, and deferral of capital gains tax on the 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, 
2016, termination shall not apply with respect to such 
designation if the entity that made such nomination amends the 
nomination to provide for a new termination date in such manner 
as the Secretary may provide.
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    \224\ Thus, for taxable years beginning in 2017, the total amount 
that may be expensed under section 179 is $545,000 ($510,000 section 
179(b)(1) limitation + $35,000 increase for qualified zone property = 
$545,000 maximum dollar limitation). See sec. 179(b)(1) and section 
3.25 of Rev. Proc. 2016-55, 2016-45 I.R.B. 707.
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                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2016.

12. Extension of American Samoa economic development credit (sec. 40312 
        of the Act and sec. 119 of Division A of Pub. L. No. 109-432)

                              Present Law

    Since 2006, certain domestic corporations have been 
entitled to an economic development credit with respect to 
operations in American Samoa. The credit is not part of the 
Code but is computed based on the rules of former sections 30A, 
199, and 936.
    For taxable years beginning before January 1, 2011, as 
originally enacted, the credit was limited to domestic 
corporations that were existing credit claimants with respect 
to American Samoa who had elected the application of section 
936 for its last taxable year beginning before January 1, 2006. 
The credit is based on the corporation's economic activity-
based limitation with respect to American Samoa. An existing 
claimant is a domestic corporation that (1) was engaged in the 
active conduct of a trade or business within American Samoa on 
October 13, 1995, and (2) elected the benefits of the 
possession tax credit \225\ in an election in effect for its 
taxable year that included October 13, 1995.\226\ 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.
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    \225\ 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) and 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.
    \226\ 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.
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    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 the corporation has qualified production 
activities income (as defined in section 199(c) by substituting 
``American Samoa'' for ``the United States'' in each place that 
the 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 eleven 
taxable years of the corporation that begin after December 31, 
2005, and before January 1, 2017. For any other corporation, 
the credit applies to the first five taxable years of that 
corporation that begin after December 31, 2011 and before 
January 1, 2017.

                        Explanation of Provision

    The provision extends the credit 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 12 taxable years of the corporation that 
begin after December 31, 2005, and before January 1, 2018, and 
(b) in the case of any other corporation, to the first six 
taxable years of the corporation that begin after December 31, 
2011 and before January 1, 2018.
    For purposes of this credit, section 119(e) of Division A 
of the Tax Relief and Health Care Act of 2006 \227\ is amended 
to provide that any reference to section 199 of the Code is to 
be treated as a reference to section 199 as in effect before 
its repeal.
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    \227\ Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, 
Division A, sec. 119.
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                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2016.

          E. Incentives for Energy Production and Conservation


1. Extension of credit for nonbusiness energy property (sec. 40401 of 
        the Act and sec. 25C of the Code)

                              Present Law

    A 10-percent credit is available for the purchase of 
qualified energy efficiency improvements to existing 
homes.\228\ A qualified energy efficiency improvement is any 
energy efficient building envelope component (1) 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; (2) the original use of which commences with the 
taxpayer; and (3) that reasonably can be expected to remain in 
use for at least five years. The credit is nonrefundable.
---------------------------------------------------------------------------
    \228\ Sec. 25C.
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    Energy efficient building envelope components are building 
envelope components that meet (1) the applicable Energy Star 
program requirements, in the case of a roof or roof products; 
(2) version 6.0 Energy Star program requirements, in the case 
of an exterior window, a skylights, or an exterior door, and 
(3) the prescriptive criteria for such components established 
by the 2009 International Energy Conservation Code, as in 
effect on the date of enactment of the American Recovery and 
Reinvestment Tax Act of 2009, in the case of any other 
component.
    Building envelope components are (1) insulation materials 
or systems that are specifically and primarily designed to 
reduce the heat loss or gain for a dwelling when installed in 
or on such dwelling unit, (2) exterior windows (including 
skylights); (3) exterior doors; and (4) metal or asphalt roofs 
installed on a dwelling unit, but only if such roof has 
appropriate pigmented coatings or cooling granules that are 
specifically and primarily designed to reduce the heat gain for 
a dwelling.
    Additionally, credits are also available 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 that 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 that yields an energy factor of at least 2.0 
in the standard Department of Energy test procedure, (2) an 
electric heat pump that achieves the highest efficiency tier 
established by the Consortium for Energy Efficiency, as in 
effect on January 1, 2009,\229\ (3) a central air conditioner 
that achieves the highest efficiency tier established by the 
Consortium for Energy Efficiency as in effect on January 1, 
2009,\230\ (4) a natural gas, propane, or oil water heater that 
has an energy factor of at least 0.82 or thermal efficiency of 
at least 90 percent, and (5) a stove that burns biomass fuel to 
heat a dwelling unit located in the United States and used as a 
residence by the taxpayer, or to heat water for use in 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.
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    \229\ 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.
    \230\ 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.
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    Generally, the credit is available for property placed in 
service prior to January 1, 2017. 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 that 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 nonbusiness energy property 
credit through December 31, 2017.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2016.

2. Extension and modification of credit for residential energy property 
        (sec. 40402 of the Act and sec. 25D of the Code)

                              Present Law


In general

    A personal tax credit is available for the purchase of 
qualified solar electric property and qualified solar water 
heating property that is used exclusively for purposes other 
than heating swimming pools and hot tubs.\231\ In general, the 
credit rate is equal to 30 percent of qualifying expenditures.
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    \231\ Sec. 25D.
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    A 30-percent credit is also available for the purchase of 
qualified geothermal heat pump property, qualified small wind 
energy property, and qualified fuel cell power plants. The 
credit for any fuel cell may not exceed $500 for each 0.5 
kilowatt of capacity.
    The credit is nonrefundable. The credit with respect to all 
qualifying property may be claimed against the alternative 
minimum tax.
    The credit for non-solar property expires for property 
placed in service after December 31, 2016. With respect to 
solar property, the credit expires for property placed in 
service after December 31, 2021. The credit rate for solar 
property is reduced to 26 percent for property placed in 
service in calendar year 2020 and to 22 percent for property 
placed in service in calendar year 2021.

Qualified property

    Qualified solar electric property is property that uses 
solar energy to generate electricity for use in a dwelling 
unit. Qualifying solar water heating property is property used 
to heat water for use in a dwelling unit located in the United 
States and used as a residence if at least half of the energy 
used by such property for such purpose is derived from the sun.
    A qualified fuel cell power plant is an integrated system 
comprised of a fuel cell stack assembly and associated balance 
of plant components that (1) converts a fuel into electricity 
using electrochemical means, (2) has an electricity-only 
generation efficiency of greater than 30 percent, and (3) has a 
nameplate capacity of at least 0.5 kilowatt. The qualified fuel 
cell power plant must be installed on or in connection with a 
dwelling unit located in the United States and used by the 
taxpayer as a principal residence.
    Qualified small wind energy property is property that uses 
a wind turbine to generate electricity for use in a dwelling 
unit located in the United States and used as a residence by 
the taxpayer.
    Qualified geothermal heat pump property means any equipment 
that (1) uses the ground or ground water as a thermal energy 
source to heat the dwelling unit or as a thermal energy sink to 
cool such dwelling unit, (2) meets the requirements of the 
Energy Star program that are in effect at the time that the 
expenditure for such equipment is made, and (3) is installed on 
or in connection with a dwelling unit located in the United 
States and used as a residence by the taxpayer.

Additional rules

    The depreciable basis of the property is reduced by the 
amount of the credit. Expenditures for labor costs allocable to 
onsite preparation, assembly, or original installation of 
property eligible for the credit are eligible expenditures.
    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.

                        Explanation of Provision

    The provision extends for five years, through December 31, 
2021, the residential energy efficient property credit with 
respect to the purchase of qualified geothermal heat pump 
property, qualified small wind energy property, and qualified 
fuel cell power plants. The provision modifies the credit rate, 
reducing it to 26 percent for property placed in service in 
2020 and 22 percent for property placed in service in 2021. 
Thus, the provision equalizes the phasedown and expiration 
dates for qualified solar and non-solar property.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2016.

3. Extension of credit for new qualified fuel cell motor vehicles (sec. 
        40403 of the Act and sec. 30B of the Code)

                              Present Law

    A credit is available through 2016 for vehicles propelled 
by chemically combining oxygen with hydrogen and creating 
electricity (``fuel cell vehicles''). The base credit is $4,000 
for vehicles weighing 8,500 pounds or less. Heavier vehicles 
can get up to a $40,000 credit, depending on their weight. An 
additional $1,000 to $4,000 credit is available to cars and 
light trucks to the extent their fuel economy exceeds the 2002 
base fuel economy set forth in the Code.

                        Explanation of Provision

    The provision extends the credit for fuel cell vehicles for 
one year, through December 31, 2017.

                             Effective Date

    The provision applies to property purchased after December 
31, 2016.

4. Extension of credit for alternative fuel vehicle refueling property 
        (sec. 40404 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.\232\ 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.
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    \232\ Sec. 30C.
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    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 
before January 1, 2017.

                        Explanation of Provision

    The provision extends for one year the 30-percent credit 
for alternative fuel refueling property, through December 31, 
2017.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2016.

5. Extension of credit for two-wheeled plug-in electric vehicles (sec. 
        40405 of the Act and sec. 30D of the Code)

                              Present Law

    In general, for vehicles acquired before 2017, a 10-percent 
credit is available for qualifying plug-in electric 
motorcycles.\233\ Qualifying electric motorcycles must have a 
battery capacity of at least 2.5 kilowatt-hours, be 
manufactured primarily for use on public streets, roads, and 
highways, and be capable of achieving speeds of at least 45 
miles per hour. The maximum credit for any qualifying vehicle 
is $2,500.
---------------------------------------------------------------------------
    \233\ Sec. 30D(g). The credit lapsed and was not available for 
vehicles placed in service in calendar year 2014.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the electric motorcycles credit for 
one year, through December 31, 2017.

                             Effective Date

    The provision applies to vehicles acquired after December 
31, 2016.

6. Extension of second generation biofuel producer credit (sec. 40406 
        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 qualified second generation 
biofuel production after December 31, 2016.
    ``Qualified second generation biofuel production'' is any 
second generation biofuel that is produced by the taxpayer and 
that, 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). 
Special rules apply for fuel derived from algae.\234\
---------------------------------------------------------------------------
    \234\ 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 through December 31, 2017.

                             Effective Date

    The provision applies to qualified second generation 
biofuel production after December 31, 2016.

7. Extension of biodiesel and renewable diesel incentives (sec. 40407 
        of the Act and secs. 40A, 6426(c), and 6427(e) of the Code)

                              Present Law


Biodiesel

    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, 2016.
    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. Thus, a 
qualified biodiesel mixture can contain 99.9 percent biodiesel 
and 0.1 percent diesel fuel.

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 that 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. 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.
    The credit is not available for any sale or use for any 
period after December 31, 2016. 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. 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, 2016.

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. 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, 
2016.

                        Explanation of Provision

    The provision extends the income tax credit, excise tax 
credit and payment provisions for biodiesel and renewable 
diesel through December 31, 2017. As it relates to fuel sold or 
used in 2017, the provision creates a special rule to address 
claims regarding excise tax credits and claims for payment for 
the period beginning on January 1, 2017, and ending on December 
31, 2017. 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 2017. 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. 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.

                             Effective Date

    The extension applies to fuel sold or used after December 
31, 2016.

8. Extension of production credit for Indian coal facilities (sec. 
        40408 of the Act and sec. 45 of the Code)

                              Present Law

    In general, a credit is available for each ton of Indian 
coal produced from a qualified facility for during the 11-year 
period beginning January 1, 2006, and ending December 31, 
2016.\235\ Qualified Indian coal must be sold to an unrelated 
third party (either directly by the taxpayer or after sale or 
transfer to one or more related persons). The amount of the 
credit is $2.00 per ton (adjusted for inflation; $2.387 per ton 
for 2016). A qualified Indian coal facility is a facility 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.
---------------------------------------------------------------------------
    \235\ Sec. 45.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for the production of 
Indian coal for one year, through December 31, 2017.

                             Effective Date

    The extension of the credit applies to Indian coal produced 
after December 31, 2016.

9. Extension of credits with respect to facilities producing energy 
        from certain renewable resources (sec. 40409 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'').\236\ Qualified energy resources comprise wind, 
closed-loop biomass, open-loop biomass, geothermal energy, 
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.
---------------------------------------------------------------------------
    \236\ 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
----------------------------------------------------------------------------------------------------------------
 Eligible electricity production activity     Credit amount for 2018 1
                (sec. 45)                    (cents per kilowatt-hour)                 Expiration 2
----------------------------------------------------------------------------------------------------------------
Wind.....................................                           2.4   December 31, 2019
Closed-loop biomass......................                           2.4   December 31, 2016
Open-loop biomass (including agricultural                           1.2   December 31, 2016
 livestock waste nutrient facilities).
Geothermal...............................                           2.4   December 31, 2016
Municipal solid waste....................                           1.2   December 31, 2016
(including landfill gas facilities and
 trash combustion facilities).
Qualified hydropower.....................                           1.2   December 31, 2016
Marine and hydrokinetic..................                           1.2   December 31, 2016
----------------------------------------------------------------------------------------------------------------
1 In general, the credit is available for electricity produced during the first 10 years after a facility has
  been placed in service. For wind facilities, the credit is reduced by 20 percent for facilities the
  construction of which begins in calendar year 2017, by 40 percent for facilities the construction of which
  begins in calendar year 2018, and by 60 percent for facilities the construction of which begins in calendar
  year 2019.
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 that 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 wind 
facilities, the credit is reduced by 20 percent for facilities 
the construction of which begins in calendar year 2017, by 40 
percent for facilities the construction of which begins in 
calendar year 2018, and by 60 percent for facilities the 
construction of which begins in calendar year 2019. For 
purposes of the investment credit, 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

    For non-wind renewable power facilities, the provision 
extends for one year the renewable electricity production 
credit and the election to claim the energy credit in lieu of 
the electricity production credit, through December 31, 2017.

                             Effective Date

    The provision takes effect January 1, 2017.

10. Extension of credit for energy-efficient new homes (sec. 40410 of 
        the Act and sec. 45L of the Code)

                              Present Law

    A credit is available 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 purchased prior to 
January 1, 2017.

                        Explanation of Provision

    The provision extends the credit for one year, to homes 
that are acquired prior to January 1, 2018.

                             Effective Date

    The provision applies to homes acquired after December 31, 
2016.

11. Extension and phaseout of energy credit (sec. 40411 of the Act and 
        sec. 48 of the Code)

                              Present Law

            In general
    A permanent nonrefundable 10-percent business energy credit 
\237\ is allowed for the cost of new property that is equipment 
that either (1) uses solar energy to generate electricity, to 
heat or cool a structure, or to provide solar process heat or 
(2) is used to produce, distribute, or use energy derived from 
a geothermal deposit, but only, in the case of electricity 
generated by geothermal power, up to the electric transmission 
stage. Property used to generate energy for the purposes of 
heating a swimming pool is not eligible solar energy property.
---------------------------------------------------------------------------
    \237\ Sec. 48.
---------------------------------------------------------------------------
    In addition to the permanent credit, a number of energy 
technologies are entitled to the energy credit at rates of 10 
percent or 30 percent, depending on the technology. These 
credits sunset for property placed in service after the 
expiration date for that technology. In addition, the credit 
rate for solar energy property has been temporarily increased.
    The energy credit is a component of the general business 
credit.\238\ An unused general business credit generally may be 
carried back one year and carried forward 20 years.\239\ The 
taxpayer's basis in the property is reduced by one-half of the 
amount of the credit claimed.\240\ For projects whose 
construction time is expected to equal or exceed two years, the 
credit may be claimed as progress expenditures are made on the 
project, rather than during the year the property is placed in 
service. The credit is allowed against the alternative minimum 
tax.
---------------------------------------------------------------------------
    \238\ Sec. 38(b)(1).
    \239\ Sec. 39.
    \240\ Sec. 50(c)(3).
---------------------------------------------------------------------------
            Increased credit rate for solar energy property
    For property the construction of which begins before 
January 1, 2020, the credit rate for otherwise eligible solar 
energy property is increased to 30 percent. For property the 
construction of which begins in calendar year 2020 and that is 
placed in service by the end of calendar year 2023, the credit 
rate for otherwise eligible solar energy property is 26 
percent. For property the construction of which begins in 
calendar year 2021 and that is placed in service by the end of 
calendar year 2023, the credit rate for otherwise eligible 
solar energy property is 22 percent. For property the 
construction of which begins after calendar year 2021 or that 
does not meet the 2023 deadline described above, the credit 
rate drops to the permanent 10-percent rate.
            Fiber optic solar property
    Equipment that uses fiber-optic distributed sunlight to 
illuminate the inside of a structure is eligible for a 30-
percent credit for property placed in service prior to January 
1, 2017.
            Fuel cells and microturbines
    The energy credit applies to qualified fuel cell power 
plants, but only for property placed in service prior to 
January 1, 2017. The credit rate is 30 percent.
    A qualified fuel cell power plant is an integrated system 
composed of a fuel cell stack assembly and associated balance 
of plant components that (1) converts a fuel into electricity 
using electrochemical means, and (2) has an electricity-only 
generation efficiency of greater than 30 percent and a capacity 
of at least one-half kilowatt. The credit may not exceed $1,500 
for each 0.5 kilowatt of capacity.
    The energy credit applies to qualifying stationary 
microturbine power plants for property placed in service prior 
to January 1, 2017. The credit is limited to the lesser of 10 
percent of the basis of the property or $200 for each kilowatt 
of capacity.
    A qualified stationary microturbine power plant is an 
integrated system comprised of a gas turbine engine, a 
combustor, a recuperator or regenerator, a generator or 
alternator, and associated balance of plant components that 
converts a fuel into electricity and thermal energy. Such 
system also includes all secondary components located between 
the existing infrastructure for fuel delivery and the existing 
infrastructure for power distribution, including equipment and 
controls for meeting relevant power standards, such as voltage, 
frequency and power factors. Such system must have an 
electricity-only generation efficiency of not less than 26 
percent at International Standard Organization conditions and a 
capacity of less than 2,000 kilowatts.
            Geothermal heat pump property
    The energy credit applies to qualified geothermal heat pump 
property placed in service prior to January 1, 2017. The credit 
rate is 10 percent. Qualified geothermal heat pump property is 
equipment that uses the ground or ground water as a thermal 
energy source to heat a structure or as a thermal energy sink 
to cool a structure.
            Small wind property
    The energy credit applies to qualified small wind energy 
property placed in service prior to January 1, 2017. The credit 
rate is 30 percent. Qualified small wind energy property is 
property that uses a qualified wind turbine to generate 
electricity. A qualifying wind turbine means a wind turbine of 
100 kilowatts of rated capacity or less.
            Combined heat and power property
    The energy credit applies to combined heat and power 
(``CHP'') property placed in service prior to January 1, 2017. 
The credit rate is 10 percent.
    CHP property is property: (1) that uses the same energy 
source for the simultaneous or sequential generation of 
electrical power, mechanical shaft power, or both, in 
combination with the generation of steam or other forms of 
useful thermal energy (including heating and cooling 
applications); (2) that has an electrical capacity of not more 
than 50 megawatts or a mechanical energy capacity of not more 
than 67,000 horsepower or an equivalent combination of 
electrical and mechanical energy capacities; (3) that produces 
at least 20 percent of its total useful energy in the form of 
thermal energy that is not used to produce electrical or 
mechanical power, and produces at least 20 percent of its total 
useful energy in the form of electrical or mechanical power (or 
a combination thereof); and (4) the energy efficiency 
percentage of which exceeds 60 percent. CHP property does not 
include property used to transport the energy source to the 
generating facility or to distribute energy produced by the 
facility.
    The otherwise allowable credit with respect to CHP property 
is reduced to the extent the property has an electrical 
capacity or mechanical capacity in excess of any applicable 
limits. Property in excess of the applicable limit (15 
megawatts or a mechanical energy capacity of more than 20,000 
horsepower or an equivalent combination of electrical and 
mechanical energy capacities) is permitted to claim a fraction 
of the otherwise allowable credit. The fraction is equal to the 
applicable limit divided by the capacity of the property. For 
example, a 45 megawatt property would be eligible to claim 15/
45ths, or one third, of the otherwise allowable credit. Again, 
no credit is allowed if the property exceeds the 50 megawatt or 
67,000 horsepower limitations described above.
    Additionally, systems whose fuel source is at least 90 
percent open-loop biomass and that would qualify for the credit 
but for the failure to meet the efficiency standard are 
eligible for a credit that is reduced in proportion to the 
degree to which the system fails to meet the efficiency 
standard. For example, a system that would otherwise be 
required to meet the 60-percent efficiency standard, but which 
only achieves 30-percent efficiency, would be permitted a 
credit equal to one-half of the otherwise allowable credit 
(i.e., a 5-percent credit).
            Election of energy credit in lieu of section 45 production 
                    tax credit
    In general, a taxpayer may make an irrevocable election to 
have certain property used in qualified facilities whose 
construction begins before January 1, 2017, be treated as 
energy property. 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. For wind facilities, an election may be for 
property used in facilities whose construction begins before 
January 1, 2020. However, for such wind facilities, the credit 
is reduced by 20 percent for facilities the construction of 
which begins in calendar year 2017, by 40 percent for 
facilities the construction of which begins in calendar year 
2018, and by 60 percent for facilities the construction of 
which begins in calendar year 2019.\241\
---------------------------------------------------------------------------
    \241\ See section 40409 of the Act for the provision extending 
section 45 and the election to claim an energy credit in lieu of that 
credit.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the energy credit for qualified non-
solar energy property.
    For fiber optic solar property, fuel cell property, and 
small wind energy property, the energy credit is extended for 
property the construction of which begins before January 1, 
2022. For property the construction of which begins before 
January 1, 2020, the credit rate is 30 percent. For property 
the construction of which begins in calendar year 2020 and that 
is placed in service by the end of calendar year 2023, the 
credit rate is 26 percent. For property the construction of 
which begins in calendar year 2021 and that is placed in 
service by the end of calendar year 2023, the credit rate is 22 
percent. No credit is available for property the construction 
of which begins after calendar year 2021 or that does not meet 
the 2023 placed-in-service deadline.
    For geothermal heat pump property, microturbine property, 
and combined heat and power system property, the 10-percent 
credit is extended for property the construction of which 
begins before January 1, 2022.

                             Effective Date

    In general, the provision is effective for periods after 
December 31, 2016, under rules similar to the rules of section 
48(m), as in effect for the date of enactment of the Revenue 
Reconciliation Act of 1990. The extension of the credit for 
combined heat and power system property is effective for 
property placed in service after December 31, 2016. The 
phaseouts and terminations are effective on the date of 
enactment.

12. Extension of special allowance for second generation biofuel plant 
        property (sec. 40412 of the Act and sec. 168(l) of the Code)

                              Present Law


In general

    A taxpayer generally must capitalize the cost of property 
used in a trade or business or held for the production of 
income and recover such cost over time through annual 
deductions for depreciation or amortization.\242\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\243\ Tangible 
property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation for different types of property based on an 
assigned applicable depreciation method, recovery period,\244\ 
and convention.\245\
---------------------------------------------------------------------------
    \242\ See secs. 263(a) and 167. In general, only the tax owner of 
property (i.e., the taxpayer with the benefits and burdens of 
ownership) is entitled to claim tax benefits such as cost recovery 
deductions with respect to the property. In addition, where property is 
not used exclusively in a taxpayer's business, the amount eligible for 
a deduction must be reduced by the amount related to personal use. See, 
e.g., sec. 280A.
    \243\ See Treas. Reg. secs. 1.167(a)-10(b), 1.167(a)-3, 1.167(a)-
14, and 1.197-2(f). See also Treas. Reg. sec. 1.167(a)-11(e)(1)(i).
    \244\ 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.
    \245\ Sec. 168.
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Special depreciation allowance for second generation biofuel plant 
        property

    An additional first-year depreciation deduction is allowed 
equal to 50 percent of the adjusted basis of qualified second 
generation biofuel plant property for the taxable year in which 
the property is placed in service.\246\ In order to qualify, 
the property generally must be placed in service before January 
1, 2017.\247\
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    \246\ Sec. 168(l).
    \247\ Sec. 168(l)(2)(D).
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    The additional first-year depreciation deduction is allowed 
for both regular tax and alternative minimum tax purposes,\248\ 
but is not allowed in computed earnings and profits.\249\ The 
additional first-year depreciation deduction is subject to the 
general rules regarding whether a cost 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.\250\
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    \248\ Sec. 168(l)(5).
    \249\ Sec. 312(k)(3).
    \250\ Sec. 168(l)(1)(B).
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            Qualified property
    Qualified second generation biofuel plant property means 
depreciable property used in the U.S. solely to produce any 
liquid fuel that (1) is derived by, or 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.\251\ Qualified feedstock means any lignocellulosic or 
hemicellulosic matter that is available on a renewable or 
recurring basis,\252\ and any cultivated algae, cyanobacteria, 
or lemna.\253\ Second generation biofuel does not include any 
alcohol with a proof of less than 150 or certain unprocessed 
fuel.\254\ 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.\255\
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    \251\ Secs. 168(l)(2)(A) and 40(b)(6)(E).
    \252\ For example, lignocellulosic or hemicellulosic matter that is 
available on a renewable or recurring basis includes bagasse (from 
sugar cane), corn stalks, and switchgrass. See Joint Committee on 
Taxation, General Explanation of Tax Legislation Enacted in the 109th 
Congress (JCS-1-07), January 2007, p. 722.
    \253\ Sec. 40(b)(6)(F).
    \254\ Sec. 40(b)(6)(E)(ii) and (iii).
    \255\ Sec. 40(b)(6)(E)(iii).
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    In order for such property to qualify for the additional 
first-year depreciation deduction, it must also meet the 
following requirements: (1) the original use of the property 
must commence with the taxpayer; and (2) the property must be 
(i) acquired by purchase (as defined under section 179(d)) by 
the taxpayer, and (ii) placed in service before January 1, 
2017.\256\ 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 before January 1, 2017 (and all 
other requirements are met).\257\ 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.
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    \256\ Sec. 168(l)(2). Requirements relating to actions taken before 
2007 are not described herein since they have little (if any) remaining 
effect.
    \257\ Sec. 168(l)(4) and (k)(2)(E).
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            Exceptions
    Property not eligible for the additional first-year 
depreciation deduction under section 168(l) includes (i) any 
property to which the additional first-year depreciation 
allowance under section 168(k) applies,\258\ (ii) any property 
required to be depreciated under the alternative depreciation 
system of section 168(g),\259\ (iii) any property any portion 
of which is financed with the proceeds of a tax-exempt 
obligation under section 103,\260\ and (iv) any property with 
respect to which the taxpayer has elected 50-percent expensing 
under section 179C (relating to election to expense certain 
refineries).\261\
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    \258\ Sec. 168(l)(3)(A).
    \259\ Sec. 168(l)(3)(B).
    \260\ Sec. 168(l)(3)(C).
    \261\ Sec. 168(l)(7).
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    A taxpayer may elect out of the additional first-year 
depreciation for any class of property for any taxable 
year.\262\
---------------------------------------------------------------------------
    \262\ Sec. 168(l)(3)(D).
---------------------------------------------------------------------------
    In addition, recapture rules apply if the property ceases 
to be qualified second generation biofuel plant property.\263\
---------------------------------------------------------------------------
    \263\ Sec. 168(l)(6).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the special depreciation allowance 
for one year, to qualified second generation biofuel plant 
property placed in service prior to January 1, 2018.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2016.

13. Extension of energy efficient commercial buildings deduction (sec. 
        40413 of the Act and sec. 179D of the Code)

                              Present Law

    In general 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 that is (1) installed on or in any building 
located in the United States that is within the scope of 
Standard 90.1-2007 of the American Society of Heating, 
Refrigerating, and Air Conditioning Engineers and the 
Illuminating Engineering Society of North America (``ASHRAE/
IESNA''), (2) 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) 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 that meets the minimum requirements of 
Standard 90.1-2007 (as in effect before the date of the 
adoption of ASHRAE/IESNA Standard 90.1-2010). 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.
    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.\264\ Individuals qualified to determine 
compliance shall only be those recognized by one or more 
organizations certified by the Secretary for such purposes.
---------------------------------------------------------------------------
    \264\ See IRS Notice 2006-52, 2006-1 C.B. 1175, June 2, 2006; IRS 
Notice 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 applies to property placed in service prior 
to January 1, 2017.

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 that 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.\265\ 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-
2007. 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.
---------------------------------------------------------------------------
    \265\ IRS Notice 2008-40 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 systems, effective beginning March 12, 2012. The targets 
from Notice 2008-40 may be used until December 31, 2013, but the 
targets of Notice 2012-26 apply thereafter.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the deduction for one year, through 
December 31, 2017.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2016.

14. Extension of special rule for sales or dispositions to implement 
        FERC or State electric restructuring policy for qualified 
        electric utilities (sec. 40414 of the Act and sec. 451(k) 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.\266\ The realized 
gain is subject to current income tax \267\ unless the 
recognition of the gain is deferred or excluded from income 
under a special tax provision.\268\
---------------------------------------------------------------------------
    \266\ See sec. 1001.
    \267\ See secs. 61 and 451.
    \268\ 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 
\269\ (the ``reinvestment property'').\270\ 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.
---------------------------------------------------------------------------
    \269\ 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.
    \270\ Sec. 451(k).
---------------------------------------------------------------------------
    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, 2017.\271\ 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 \272\) with respect to the transmission 
facilities to which the election applies, and (2) an electric 
utility (as defined in the Federal Power Act \273\).\274\
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    \271\ Sec. 451(k)(3).
    \272\ 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.
    \273\ 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.
    \274\ Sec. 451(k)(6).
---------------------------------------------------------------------------
    In general, an independent transmission company is defined 
as: (1) an independent transmission provider \275\ approved by 
the Federal Energy Regulatory Commission (``FERC''); (2) a 
person (i) who the FERC determines under section 203 of the 
Federal Power Act \276\ (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 that 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).\277\
---------------------------------------------------------------------------
    \275\ For example, a regional transmission organization, an 
independent system operator, or an independent transmission company.
    \276\ 16 U.S.C. sec. 824b.
    \277\ Sec. 451(k)(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).\278\ 
Exempt utility property does not include any property that is 
located outside of the United States.\279\
---------------------------------------------------------------------------
    \278\ Sec. 451(k)(5).
    \279\ Sec. 451(k)(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).\280\
---------------------------------------------------------------------------
    \280\ Sec. 451(k)(7).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year, through December 31, 
2017, the deferral provision for qualifying electric 
transmission transactions.

                             Effective Date

    The provision applies to dispositions after December 31, 
2016.

15. Extension of excise tax credits relating to alternative fuel (sec. 
        40415 of the Act and secs. 6426 and 6427 of the Code)

                              Present Law


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 \281\ 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.
---------------------------------------------------------------------------
    \281\ ``Gasoline gallon equivalent'' means, with respect to any 
nonliquid alternative fuel (e.g., 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, 2016.
    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, 2016.
    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, 2017.
    In light of the retroactive nature of the provision, as it 
relates to alternative fuel sold or used in 2017, the provision 
creates a special rule to address claims regarding excise 
credits and claims for payment for the period beginning January 
1, 2017, and ending on December 31, 2017. 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 2017. 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. 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.

                             Effective Date

    The provision generally applies to fuel sold or used after 
December 31, 2016.

16. Extension of Oil Spill Liability Trust Fund financing rate (sec. 
        40416 of the Act and sec. 4611 of the Code)

                              Present Law

    The Oil Spill Liability Trust Fund financing rate (``oil 
spill tax'') of nine cents per barrel generally applies to 
crude oil received at a U.S. refinery and to petroleum products 
entered into the United States for consumption, use, or 
warehousing.\282\ The oil spill tax also applies to certain 
uses and the exportation of domestic crude oil.\283\ If any 
domestic crude oil is used in or exported from the United 
States, and before such use or exportation no oil spill tax was 
imposed on such crude oil, then the oil spill tax is imposed on 
such crude oil. The tax does not apply to any use of crude oil 
for extracting oil or natural gas on the premises where such 
crude oil was produced.
---------------------------------------------------------------------------
    \282\ The term ``crude oil'' includes crude oil condensates and 
natural gasoline. The term ``petroleum product'' includes crude oil.
    \283\ The term ``domestic crude oil'' means any crude oil produced 
from a well located in the United States.
---------------------------------------------------------------------------
    For crude oil received at a refinery, the operator of the 
U.S. refinery is liable for the tax. For imported petroleum 
products, the person entering the product for consumption, use, 
or warehousing is liable for the tax. For certain uses and 
exports, the person using or exporting the crude oil is liable 
for the tax. No tax is imposed with respect to any petroleum 
product if the person who would be liable for such tax 
establishes that a prior oil spill tax has been imposed with 
respect to such product.
    The tax does not apply to any periods after December 31, 
2017.

                        Explanation of Provision

    The provision extends the oil spill tax through December 
31, 2018.

                             Effective Date

    The provision applies on and after the first day of the 
first calendar month beginning after the date of enactment of 
this Act.

                 F. Modifications of Energy Incentives


1. Modifications of credit for production from advanced nuclear power 
        facilities (sec. 40501 of the Act and sec. 45J of the Code)

                              Present Law

    Taxpayers producing electricity at a qualifying advanced 
nuclear power facility may claim a credit equal to 1.8 cents 
per kilowatt-hour of electricity produced for the eight-year 
period starting when the facility is placed in service.\284\ 
The aggregate amount of credit that a taxpayer may claim in any 
year during the eight-year period is subject to limitation 
based on allocated capacity and an annual limitation as 
described below.
---------------------------------------------------------------------------
    \284\ Sec. 45J. The 1.8-cents credit amount is reduced, but not 
below zero, if the annual average contract price per kilowatt-hour of 
electricity generated from advanced nuclear power facilities in the 
preceding year exceeds eight cents per kilowatt-hour. The eight-cent 
price comparison level is indexed for inflation after 1992 (12.9 cents 
for 2018).
---------------------------------------------------------------------------
    An advanced nuclear facility is any nuclear facility for 
the production of electricity, the reactor design for which was 
approved after 1993 by the Nuclear Regulatory Commission. For 
this purpose, a qualifying advanced nuclear facility does not 
include any facility for which a substantially similar design 
for a facility of comparable capacity was approved before 1994.
    A qualifying advanced nuclear facility is an advanced 
nuclear facility for which the taxpayer has received an 
allocation of megawatt capacity from the Secretary of the 
Treasury (``the Secretary'') and is placed in service before 
January 1, 2021. The taxpayer may only claim credit for 
production of electricity equal to the ratio of the allocated 
capacity that the taxpayer receives from the Secretary to the 
rated nameplate capacity of the taxpayer's facility. For 
example, if the taxpayer receives an allocation of 750 
megawatts of capacity from the Secretary and the taxpayer's 
facility has a rated nameplate capacity of 1,000 megawatts, 
then the taxpayer may claim three-quarters of the otherwise 
allowable credit, or 1.35 cents per kilowatt-hour, for each 
kilowatt-hour of electricity produced at the facility (subject 
to the annual limitation described below). The credit is 
restricted to 6,000 megawatts of national capacity. Once that 
limitation has been reached, the Secretary may make no 
additional allocations. Treasury guidance required allocation 
applications to be filed before February 1, 2014.\285\
---------------------------------------------------------------------------
    \285\ I.R.S. Notice 2013-68, 2013-46 I.R.B. 501, October 24, 2013.
---------------------------------------------------------------------------
    A taxpayer operating a qualified facility may claim no more 
than $125 million in tax credits per 1,000 megawatts of 
allocated capacity in any one year of the eight-year credit 
period. If the taxpayer operates a 1,350 megawatt rated 
nameplate capacity system and has received an allocation from 
the Secretary for 1,350 megawatts of capacity eligible for the 
credit, the taxpayer's annual limitation on credits that may be 
claimed is equal to 1.35 times $125 million, or $168.75 
million. If the taxpayer operates a facility with a nameplate 
rated capacity of 1,350 megawatts, but has received an 
allocation from the Secretary for 750 megawatts of credit 
eligible capacity, then the two limitations apply such that the 
taxpayer may claim a credit effectively equal to one cent per 
kilowatt-hour of electricity produced (calculated as described 
above) subject to an annual credit limitation of $93.75 million 
in credits (three-quarters of $125 million).
    The credit is part of the general business credit.

                        Explanation of Provision

    The provision modifies the national megawatt capacity 
limitation for the advanced nuclear power production credit. To 
the extent any amount of the 6,000 megawatts of authorized 
capacity remains unutilized after December 31, 2020, the 
provision requires the Secretary to allocate such capacity 
first to facilities placed in service before 2021, to the 
extent such facilities did not receive an allocation equal to 
their full nameplate capacity, and then to facilities placed in 
service after such date in the order in which such facilities 
are placed in service. The provision provides that the placed-
in-service sunset date of January 1, 2021, does not apply with 
respect to allocations of such unutilized national megawatt 
capacity.
    The provision also allows qualified public entities to 
elect to forgo credits to which they otherwise would be 
entitled in favor of an eligible project partner. Qualified 
public entities are defined as (1) a Federal, State, or local 
government of any political subdivision, agency, or 
instrumentality thereof; (2) a mutual or cooperative electric 
company; or (3) a not-for-profit electric utility that has or 
had received a loan or loan guarantee under the Rural 
Electrification Act of 1936.\286\ An eligible project partner 
under the provision generally includes any person who designed 
or constructed the nuclear power plant, participates in the 
provision of nuclear steam or nuclear fuel to the power plant, 
or has an ownership interest in the facility. In the case of a 
facility owned by a partnership, where the credit is determined 
at the partnership level, any electing qualified public entity 
is treated as the taxpayer with respect to such entity's 
distributive share of such credits, and any other partner is an 
eligible project partner.
---------------------------------------------------------------------------
    \286\ 7 U.S.C. sec. 901 et seq.
---------------------------------------------------------------------------

                             Effective Date

    The provision requiring the allocation of unutilized 
national megawatt capacity limitation is effective on the date 
of enactment. The provision allowing an election by qualified 
public entities to forgo credits in favor of an eligible 
project partner is effective for taxable years beginning after 
the date of enactment.

                      G. Miscellaneous Provisions


1. Modifications to rum cover-over (sec. 41102 of the Act and sec. 7652 
        of the Code)

                              Present Law

    Section 5001 imposes an excise tax on distilled spirits per 
proof gallon \287\ produced in or imported into the United 
States.\288\
---------------------------------------------------------------------------
    \287\ A proof gallon is a liquid gallon consisting of 50 percent 
alcohol. See sec. 5002(a)(10) and (11).
    \288\ Sec. 5001(a)(1).
---------------------------------------------------------------------------
    Liability for the excise tax on distilled spirits arises 
when the alcohol is produced but is not determined and payable 
until bottled distilled spirits are removed from the bonded 
premises of the distilled spirits plant where they are produced 
or customs custody.\289\ Generally, bulk distilled spirits may 
be transferred in bond between bonded premises; however, tax 
liability follows these products. Imported bulk distilled 
spirits may be released from customs custody without payment of 
tax and transferred in bond to a distillery. Distilled spirits 
may be exported without payment of tax and may be withdrawn 
from a distillery without payment of tax or free of tax for 
certain authorized purposes, including exportation, industrial 
uses, and non-beverage uses.
---------------------------------------------------------------------------
    \289\ Sec. 5006.
---------------------------------------------------------------------------
    The permanent rate of the excise tax is $13.50 per proof 
gallon. For distilled spirits removed after December 31, 2017, 
and before January 1, 2020, the temporary rate of tax is 
reduced to $2.70 per proof gallon on the first 100,000 proof 
gallons of distilled spirits produced, $13.34 for all proof 
gallons in excess of that amount but below 22,130,000 proof 
gallons, and $13.50 thereafter. The temporary provision also 
contains rules so as to prevent members of the same controlled 
group from receiving the lower rate on more than 100,000 proof 
gallons of distilled spirits. Importers of distilled spirits 
are eligible for the temporary lower rates under assignment 
rules.
    For purposes of the excise tax on distilled spirits under 
section 5001, the territories of Puerto Rico and the U.S. 
Virgin Islands are not considered part of the United 
States.\290\ Additionally, distilled spirits brought into the 
United States from these territories are not considered imports 
for purposes of the excise tax.\291\ Thus, distilled spirits 
produced in these territories, whether or not brought into the 
United States, are not subject to tax under section 5001. 
However, section 7652(a) imposes an equalization tax equal to 
the tax imposed in the United States upon like articles of 
merchandise of domestic manufacture, including distilled 
spirits, produced in Puerto Rico and brought into the United 
States, and section 7652(b) imposes an equalization tax equal 
to the tax imposed in the United States upon like articles of 
merchandise of domestic manufacture, including distilled 
spirits, produced in the U.S. Virgin Islands and brought into 
the United States.
---------------------------------------------------------------------------
    \290\ Sec. 7701(a)(9).
    \291\ See 19 C.F.R. sec. 7.2 and 19 C.F.R. sec. 101.1.
---------------------------------------------------------------------------
    The revenue from the equalization tax on rum produced in 
Puerto Rico and brought into the United States is transferred 
(``covered over'') to the Treasury of Puerto Rico.\292\ The 
revenue from the equalization tax on rum produced in the U.S. 
Virgin Islands and brought into the United States is covered 
over to the Treasury of the U.S. Virgin Islands.\293\ In 
addition, the revenues from the excise tax imposed on rum 
imported into the United States (less certain administrative 
costs) are covered over to the Treasury of Puerto Rico and the 
Treasury of the U.S. Virgin Islands.\294\ The revenues are 
apportioned between the two treasuries according to a formula 
determined by the Secretary.\295\
---------------------------------------------------------------------------
    \292\ Sec. 7652(a)(3). For purposes of this provision, only 
distilled spirits for which at least 92 percent of the alcohol content 
is attributable to rum are eligible for cover over of equalization 
taxes. See sec. 7652(c).
    \293\ Sec. 7652(a)(3). For purposes of this provision, only 
distilled spirits for which at least 92 percent of the alcohol content 
is attributable to rum are eligible for cover over of equalization 
taxes. See sec. 7652(c).
    \294\ Sec. 7652(e). For purposes of this provision the term ``rum'' 
means any article classified under subheading 2208.40.00 of the 
Harmonized Tariff Schedule of the United States (19 U.S.C. 1202). Sec. 
7652(e)(4).
    \295\ Sec. 7652(e)(2).
---------------------------------------------------------------------------
    For purposes of both the cover over of the equalization tax 
on rum and the cover over of the tax imposed on rum imported 
into the United States, the amount covered over is the lesser 
of the tax imposed or $10.50 per proof gallon.\296\ The $10.50 
per proof gallon limitation is increased to $13.25 per proof 
gallon during the period from July 1, 1999, through December 
31, 2016.\297\
---------------------------------------------------------------------------
    \296\ Sec. 7652(f)(1).
    \297\ Sec. 7652(f)(1).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the increased limitation of $13.25 
per proof gallon, for purposes of both the cover over of the 
equalization tax on rum and the cover over of the tax imposed 
on rum imported into the United States, for rum brought into or 
imported into the United States after December 31, 2016, and 
before January 1, 2022. After December 31, 2021, the limitation 
reverts to $10.50 per proof gallon.
    The provision also provides that the amount covered over of 
tax imposed on rum imported into the United States is 
determined without regard to the temporary lower rates of tax 
for distilled spirits removed after December 31, 2017, and 
before January 1, 2020.\298\
---------------------------------------------------------------------------
    \298\ Sec. 5001(c).
---------------------------------------------------------------------------

                             Effective Date

    The extension of the increased limitation is effective with 
respect to distilled spirits brought into or imported into the 
United States after December 31, 2016. The provision providing 
for calculation of the cover over of the tax imposed on rum 
imported into the United States without regard to the temporary 
lower rates of tax is effective with respect to distilled 
spirits imported into the United States after December 31, 
2017.

2. Extension of waiver of limitations with respect to excluding from 
        gross income amounts received by wrongly incarcerated 
        individuals (sec. 41103 of the Act and sec. 139F of the Code)

                              Present Law

    Under a provision added in the PATH Act,\299\ with respect 
to any wrongfully incarcerated individual, gross income does 
not include any civil damages, restitution, or other monetary 
award (including compensatory or statutory damages and 
restitution imposed in a criminal matter) relating to the 
incarceration of such individual for the covered offense for 
which such individual was convicted.\300\
---------------------------------------------------------------------------
    \299\ Pub. L. No. 114-113 (2015), Division Q (Protecting Americans 
from Tax Hikes Act of 2015), sec. 304.
    \300\ Sec. 139F.
---------------------------------------------------------------------------
    A wrongfully incarcerated individual means an individual:
    1. who was convicted of a covered offense;
    2. who served all or part of a sentence of imprisonment 
relating to that covered offense; and
    3. (i) was pardoned, granted clemency, or granted amnesty 
for such offense because the individual was innocent, or
         (ii) for whom the judgment of conviction for the 
        offense was reversed or vacated, and for whom the 
        indictment, information, or other accusatory instrument 
        for that covered offense was dismissed or who was found 
        not guilty at a new trial after the judgment of 
        conviction for that covered offense was reversed or 
        vacated.
    For these purposes, a covered offense is any criminal 
offense under Federal or State law, and includes any criminal 
offense arising from the same course of conduct as that 
criminal offense.
    The Code contains a special rule allowing individuals to 
make a claim for credit or refund of any overpayment of tax 
resulting from the exclusion, even if such claim would be 
disallowed under the Code or by operation of any law or rule of 
law (including res judicata), if the claim for credit or refund 
is filed before the close of the one-year period beginning on 
the date of enactment of the PATH Act (December 18, 2015).\301\
---------------------------------------------------------------------------
    \301\ Sec. 139F.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the waiver on the statute of 
limitations with respect to filing a claim for a credit or 
refund of an overpayment of tax resulting from the exclusion 
described above for an additional year. Thus, under the 
provision, such claim for credit or refund must be filed before 
December 18, 2017.

                             Effective Date

    The provision is effective on the date of enactment.

3. Individuals held harmless on improper levy on retirement plans (sec. 
        41104 of the Act and sec. 6343 of the Code)

                              Present Law


Tax-favored retirement savings

    Under the Code, tax-favored treatment applies to 
traditional and Roth individual retirement arrangements 
(``IRAs'') and certain employer-sponsored retirement plans 
(``employer-sponsored plans'').\302\ The rules for tax-favored 
treatment include annual limits on the amount that may be 
contributed to an IRA or employer-sponsored plan.
---------------------------------------------------------------------------
    \302\ Sections 219, 408, and 408A provide rules for IRAs. Tax-
favored employer-sponsored retirement plans consist of qualified 
retirement plans under sections 401(a) and 403(a), tax-deferred annuity 
plans under section 403(b), and State and local government eligible 
deferred compensation plans under section 457(b). Under section 
7701(j), the Thrift Savings Fund is treated as a qualified retirement 
plan.
---------------------------------------------------------------------------
    In general, a distribution from a traditional IRA or 
employer-sponsored plan (other than from a designated Roth 
account under an employer-sponsored plan) is includible in 
income, except to the extent attributable to any contributions 
that were made to the IRA or plan on an after-tax basis.\303\ 
Contributions made to a Roth IRA or a designated Roth account 
are made on an after-tax basis, and with certain exceptions, 
distributions are tax-free.\304\ Amounts that are withdrawn 
from an IRA or employer-sponsored plan before age 59\1/2\ and 
are includible in income are subject to a 10-percent early 
withdrawal tax unless an exception applies.\305\
---------------------------------------------------------------------------
    \303\ Secs. 402 and 408(d).
    \304\ Secs. 402A(a)(2), 402A(d), 408A(c) and 408A(d).
    \305\ Sec. 72(t).
---------------------------------------------------------------------------
    A distribution from a traditional IRA or employer-sponsored 
plan (other than from a designated Roth account) generally may 
be rolled over to another traditional IRA or employer-sponsored 
plan (other than to a designated Roth account).\306\ The 
rollover generally can be achieved by a direct payment from the 
distributing IRA or plan to the recipient IRA or plan (``direct 
rollover'') or by contributing the distribution to the 
recipient IRA or plan within 60 days of receiving the 
distribution (``60-day rollover''). Amounts that are rolled 
over generally are not includible in gross income. A 
distribution from a Roth IRA generally may be rolled over to 
another Roth IRA by direct rollover or a 60-day rollover, and a 
distribution from a designated Roth account generally may be 
rolled over to a Roth IRA or another designated Roth account by 
direct rollover or a 60-day rollover. In general, an individual 
is permitted to make only one 60-day rollover from an IRA to 
another IRA within a one-year period.
---------------------------------------------------------------------------
    \306\ A rollover is not permitted with respect to an IRA that an 
individual has inherited from another individual (``inherited IRA''). 
In addition, the beneficiary of a deceased employee under an employer-
sponsored plan, other than a surviving spouse, may roll a distribution 
from the plan only to an IRA that is designated as an inherited IRA.
---------------------------------------------------------------------------
    In addition to these rollovers, an individual generally may 
convert an amount in a traditional IRA or a non-Roth account 
under an employer-sponsored defined contribution plan into a 
Roth IRA or a designated Roth account, referred to as a ``Roth 
conversion.'' The amount converted is generally includible in 
the individual's income to the same extent as if a distribution 
had been made. The conversion may be accomplished by a direct 
transfer of the amount from the traditional IRA or non-Roth 
account to the Roth IRA or designated Roth account or by a 
distribution from the traditional IRA or non-Roth account and 
contribution to the Roth IRA or designated Roth account within 
60 days.

Levy and seizure of IRAs and employer-sponsored plans

    A taxpayer's property or monies, including property or 
money held in retirement plans, is subject to levy and seizure 
if the taxpayer failed to satisfy a notice and demand for 
payment of an assessed tax. If the property was wrongfully 
levied upon (e.g., the property levied upon did not belong to 
the taxpayer or was exempt from levy), the Secretary is 
authorized to return the property to its owner, with 
interest.\307\ If the property seized belongs to the taxpayer, 
but the Secretary determines that the levy was inadvisable on 
one of several grounds, the property may be returned to the 
taxpayer without interest.\308\ If the property subject to an 
improper levy is money, the amount to be returned to the 
taxpayer is an amount equal to the amount levied upon.
---------------------------------------------------------------------------
    \307\ Sec. 6343(b) and (c).
    \308\ Sec. 6343(d) identifies four grounds for returning the 
property to a taxpayer as if the levy had been improper, but without 
interest thereon. The four grounds are (1) the levy was premature or 
not in accordance with administrative procedure, (2) the return of the 
property would facilitate collection of the tax liability, (3) the 
taxpayer has entered into an installment agreement, or (4) return of 
the property is in the best interests of the taxpayer (as determined by 
the National Taxpayer Advocate) and the United States.
---------------------------------------------------------------------------
    If the property levied upon is an IRA or employer-sponsored 
plan, the amount withdrawn is applied toward the individual's 
unpaid tax and is includible in income of that individual in 
the same manner as other distributions. However, the 10-percent 
early withdrawal tax does not apply.\309\ If the amounts 
withdrawn from a retirement plan pursuant to levy are later 
returned to an individual, and the individual wishes to 
contribute such returned amounts to an IRA or employer-
sponsored plan, the contribution is subject to the normally 
applicable rules, including limits on contributions and the 
time for making a rollover.
---------------------------------------------------------------------------
    \309\ Sec. 72(t)(2)(vii).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, if an amount withdrawn on behalf of an 
individual from an IRA (``original IRA'') or employer-sponsored 
plan pursuant to a levy is returned to the individual by the 
Secretary because the levy on the original IRA or employer-
sponsored plan was wrongful or is determined to be premature or 
otherwise not in accordance with administrative procedures, the 
individual may contribute the amount returned, and any interest 
thereon, either to the original IRA or to the employer-
sponsored plan, if permissible,\310\ or to a different IRA to 
which a rollover from the original IRA or employer-sponsored 
plan would be permitted.\311\ The contribution is allowed 
without regard to the normally applicable limits on IRA 
contributions and rollovers.
---------------------------------------------------------------------------
    \310\ The terms of an employer-sponsored plan might not permit the 
amount returned by the Internal Revenue Service to be contributed to 
the plan. In addition, in the case of an amount withdrawn from a 
designated Roth account pursuant to the levy, the returned amount could 
be contributed only to the original designated Roth account (or to a 
Roth IRA).
    \311\ The provision allows a rollover with respect to an inherited 
IRA to an inherited IRA of the same type (traditional or Roth) as the 
original IRA.
---------------------------------------------------------------------------
    A contribution under this provision must be made by the due 
date (not including extensions) for the individual's income tax 
return for the year in which the Internal Revenue Service 
returns the amount previously levied on. The contribution is 
treated as a rollover (``rollover contribution'') made for the 
taxable year in which the distribution on account of the levy 
occurred. It is not taken into account for purposes of the 
limit of one IRA rollover within a one-year period. In 
addition, except in the case of a rollover contribution that is 
treated as a Roth conversion, any tax attributable to the 
amount distributed from the original IRA or employer-sponsored 
plan by reason of a levy (1) is not to be assessed, (2) if 
assessed, is to be abated, and (3) if collected, is to be 
credited or refunded as an overpayment made on the due date for 
the return for the taxable year in which the amount was levied 
on.
    Interest at the overpayment rate is allowable on amounts 
returned to the taxpayer under this provision (i.e., in the 
case of a levy that is determined to be premature or otherwise 
not in accordance with administrative procedures) as well as in 
cases of a wrongful levy. Such interest on the amount returned 
to the individual and contributed to an IRA or employer-
sponsored plan is treated as earnings within the IRA or 
employer-sponsored plan after the rollover contribution was 
made and is not includible in gross income upon receipt.
    When property or money is returned to a taxpayer under this 
provision, the Secretary is required to notify the individual 
that a contribution as described above may be made.

                             Effective Date

    The provision is effective for amounts paid to individuals 
in taxable years beginning after December 31, 2017, as 
reimbursement for amounts wrongfully levied upon or subject to 
levies that the Secretary determines were premature or 
otherwise not in accordance with administrative procedures, 
plus any applicable interest thereon.

4. Modifications of user fee requirements for installment agreements 
        (sec. 41105 of the Act and new sec. 6159(f) of the Code)

                              Present Law

    The Code authorizes the IRS to enter into written 
agreements with any taxpayer under which the taxpayer agrees to 
pay taxes owed, as well as interest and penalties, in 
installments over an agreed schedule, if the IRS determines 
that doing so will facilitate collection of the amounts owed. 
This agreement provides for a period during which payments may 
be made and while other IRS enforcement actions are held in 
abeyance.\312\ An installment agreement generally does not 
reduce the amount of taxes, interest, or penalties owed. 
However, the IRS is authorized to enter into installment 
agreements with taxpayers that do not provide for full payment 
of the taxpayer's liability over the life of the agreement. The 
IRS is required to review such partial payment installment 
agreements at least every two years to determine whether the 
financial condition of the taxpayer has significantly changed 
so as to warrant an increase in the value of the payments being 
made.
---------------------------------------------------------------------------
    \312\ Sec. 6331(k).
---------------------------------------------------------------------------
    Taxpayers can request an installment agreement by filing 
Form 9465, Installment Agreement Request.\313\ If the request 
for an installment agreement is approved by the IRS, the IRS 
charges a user fee.\314\ The IRS currently charges $225 for 
entering into an installment agreement.\315\ If the application 
is for a direct debit installment agreement, whereby the 
taxpayer authorizes the IRS to request the monthly electronic 
transfer of funds from the taxpayer's bank account to the IRS, 
the fee is reduced to $107.\316\ In addition, regardless of the 
method of payment, the fee is $43 for low-income 
taxpayers.\317\ For this purpose, low-income is defined as a 
person who falls below 250 percent of the Federal poverty 
guidelines published annually. Finally, there is no user fee if 
the agreement qualifies for a short-term agreement (120 days or 
less).
---------------------------------------------------------------------------
    \313\ The IRS accepts applications for installment agreements 
online, from individuals and businesses, if the total tax, penalties 
and interest is below $50,000 for the former, and $25,000 for the 
latter.
    \314\ 31 U.S.C. sec. 9701; Treas. Reg. sec. 300.1; The Independent 
Offices Appropriations Act of 1952 (IOAA) 65 Stat. B70 (June 27, 1951). 
A discussion of the IRS practice regarding user fees and a list of 
actions for which fees are charged is included in the Internal Revenue 
Manual. See ``User Fees,'' paragraph 1.32.19 IRM, available at https://
www.irs.gov/irm/part1/irm_01-035-019.
    \315\ Treas. Reg. sec. 300.1.
    \316\ Ibid.
    \317\ Ibid.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision generally prohibits increases in the amount 
of user fees charged by the IRS for installment agreements. For 
low-income taxpayers (those whose income falls below 250 
percent of the Federal poverty guidelines), it alleviates the 
user fee requirement in two ways. First, it waives the user fee 
if the low-income taxpayer enters into an installment agreement 
under which the taxpayer agrees to make automated installment 
payments through a debit account. Second, it provides that low-
income taxpayers who are unable to agree to make payments 
electronically remain subject to the required user fee, but the 
fee is reimbursed upon completion of the installment agreement.

                             Effective Date

    The provision is effective for agreements entered into on 
or after the date that is 60 days after the date of enactment.

5. Form 1040SR for seniors (sec. 41106 of the Act)

                              Present Law

    Persons required to make returns of income are generally 
required to file returns in the form prescribed by the 
Secretary in regulations.\318\ Income tax returns are required 
from each individual whose taxable year gross income equals or 
exceeds the exemption amount, with certain exceptions.\319\ The 
income tax returns are due on April 15 of the year following 
the taxable year, for taxpayers using a calendar year.
---------------------------------------------------------------------------
    \318\ Sec. 6011.
    \319\ See section 6012(a)(1)(A), which enumerates several 
conditions under which individuals with gross income in excess of the 
exemption amount in section 151(d) are nevertheless excused from the 
filing requirements.
---------------------------------------------------------------------------
    The standard form available for individuals subject to 
income tax are in the series of forms known as Form 1040, and 
include two simplified versions, the Form 1040A and the Form 
1040EZ. In recent filing seasons, the majority of returns filed 
by individuals were filed electronically.\320\
---------------------------------------------------------------------------
    \320\ The Internal Revenue Service Restructuring and Reform Act of 
1998 (``RRA 1998'') states a Congressional policy to promote the 
paperless filing of Federal tax returns, and set a goal for the IRS to 
have at least 80 percent of all Federal tax and information returns 
filed electronically by 2007. See sec. 2001(a) of RRA 1998. The 
Electronic Tax Administration Advisory Committee, the body charged with 
oversight of IRS progress in reaching that goal reported that e-filing 
by individuals exceeded 80 percent in the 2013 filing season, but 
projected an overall rate of 72.8 percent based on all Federal returns. 
See Electronic Tax Administration Advisory Committee, Annual Report to 
Congress, June 2013, IRS Pub. 3415, p. 6.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision requires that the IRS publish a simplified 
income tax return form designated a Form 1040SR, for use by 
persons who are age 65 or older by the close of the taxable 
year for which the form is to be used. The form is to be as 
similar as practicable to the Form 1040EZ with certain 
exceptions. The use of Form 1040SR cannot be restricted based 
on the amount of taxable income to be shown on the return, or 
the fact that the income to be reported for the taxable year 
includes social security benefits, distributions from qualified 
retirement plans, annuities or other such deferred payment 
arrangements, interest and dividends, or capital gains and 
losses taken into account in determining adjusted net capital 
gain.

                             Effective Date

    The provision requires that the form be available for 
taxable years beginning after the date of enactment.

6. Attorneys' fees relating to awards to whistleblowers (sec. 41107 of 
        the Act and sec. 62(a)(21) of the Code)

                              Present Law

    The Code provides an above-the-line deduction for 
attorneys' fees and costs paid by, or on behalf of, the 
taxpayer in connection with any action involving a claim of 
unlawful discrimination, certain claims against the Federal 
government, or a private cause of action under the Medicare 
Secondary Payer statute.\321\ The amount that may be deducted 
above the line may not exceed the amount includible in the 
taxpayer's gross income for the taxable year on account of a 
judgment or settlement (whether by suit or agreement and 
whether as lump sum or periodic payments) resulting from such 
claim. Additionally, the Code provides an above-the-line 
deduction for attorneys' fees and costs paid by, or on behalf 
of, the individual in connection with any award for providing 
information regarding violations of the tax laws.\322\ The 
amount that may be deducted above the line may not exceed the 
amount includible in the taxpayer's gross income for the 
taxable year on account of such award.\323\
---------------------------------------------------------------------------
    \321\ Sec. 62(a)(20) and (e). Section 62(e) defines ``unlawful 
discrimination'' to include a number of specific statutes, any Federal 
whistleblower statute, and any Federal, State, or local law ``providing 
for the enforcement of civil rights'' or ``regulating any aspect of the 
employment relationship . . . or prohibiting the discharge of an 
employee, the discrimination against an employee, or any other form of 
retaliation or reprisal against an employee for asserting rights or 
taking other actions permitted by law.''
    \322\ Secs. 7623 and 62(a)(21).
    \323\ Secs. 7623 and 62(a)(21).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides an above-the-line deduction for 
attorneys' fees and court costs paid by, or on behalf of, the 
taxpayer in connection with any action involving a claim under 
the SEC whistleblower program,\324\ State False Claim Acts, and 
the Commodity Future Trading Commission whistleblower 
program.\325\
---------------------------------------------------------------------------
    \324\ 15 U.S.C. secs. 78u-6 and 78u-7.
    \325\ 7 U.S.C. sec. 26.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2017.

7. Clarification of whistleblower awards (sec. 41108 of the Act and new 
        sec. 7623(c) of the Code)

                              Present Law


Awards to whistleblowers

    The Code authorizes the Internal Revenue Service (``IRS'') 
to pay such sums as deemed necessary for: ``(1) detecting 
underpayments of tax; or (2) detecting and bringing to trial 
and punishment persons guilty of violating the internal revenue 
laws or conniving at the same.'' \326\ Generally, amounts are 
paid based on a percentage of proceeds collected based on the 
information provided.
---------------------------------------------------------------------------
    \326\ Sec. 7623.
---------------------------------------------------------------------------
    The Tax Relief and Health Care Act of 2006 (the ``Act'') 
\327\ established an enhanced reward program for actions in 
which the tax, penalties, interest, additions to tax, and 
additional amounts in dispute exceed $2,000,000 and, if the 
taxpayer is an individual, the individual's gross income 
exceeds $200,000 for any taxable year in issue. In such cases, 
the award is calculated to be at least 15 percent but not more 
than 30 percent of collected proceeds (including penalties, 
interest, additions to tax, and additional amounts).
---------------------------------------------------------------------------
    \327\ Pub. L. No. 109-432.
---------------------------------------------------------------------------
    The Act permits an individual to appeal the amount or a 
denial of an award determination to the United States Tax Court 
(the ``Tax Court'') within 30 days of such determination. Tax 
Court review of an award determination may be assigned to a 
special trial judge.

Rules relating to taxpayers with foreign assets

    U.S. persons who transfer assets to, and hold interests in, 
foreign bank accounts or foreign entities may be subject to 
self-reporting requirements under both the Foreign Account Tax 
Compliance Act provisions in the Code and the provisions in the 
Bank Secrecy Act and its underlying regulations (which provide 
for FinCEN Form 114, Report of Foreign Bank and Financial 
Accounts, known as the ``FBAR''), as discussed below. Amounts 
recovered for violations of FATCA provisions in the Code may be 
considered for purposes of computing a whistleblower award 
under the Code. However, the IRS has found that amounts 
recovered for violations of non-tax laws, including the 
provisions of the Bank Secrecy Act (and FBAR) for which the IRS 
has delegated authority, may not be considered for purposes of 
computing an award under the Code.\328\
---------------------------------------------------------------------------
    \328\ Chief Counsel Memorandum, ``Scope of Awards Payable Under 
I.R.C. section 7623,'' April 23, 2012, available at http://www.tax-
whistleblower.com/resources/PMTA-2012-10.pdf. Under Title 31, ``[t]he 
Secretary may pay a reward to an individual who provides original 
information which leads to a recovery of a criminal fine, civil 
penalty, or forfeiture, which exceeds $50,000, for a violation of 
[chapter 53 of Title 31]. The Secretary shall determine the amount of a 
reward . . . [and] may not award more than 25 per centum of the net 
amount of the fine, penalty, or forfeiture collected or $150,000, 
whichever is less.'' 31 U.S.C. sec. 5323.
---------------------------------------------------------------------------
            Foreign Account Tax Compliance Act
    The Code imposes a withholding and reporting regime for 
U.S. persons engaged in foreign activities, directly or 
indirectly, through a foreign business entity.\329\ This regime 
for outbound payments,\330\ commonly referred to as the Foreign 
Account Tax Compliance Act (``FATCA''),\331\ imposes a 
withholding tax of 30 percent of the gross amount of certain 
payments to foreign financial institutions (``FFIs'') unless 
the FFI establishes that it is compliant with the information 
reporting requirements of FATCA, which include identifying 
certain U.S. accounts held in the FFI. An FFI must report with 
respect to a U.S. account (1) the name, address, and taxpayer 
identification number of each U.S. person holding an account or 
a foreign entity with one or more substantial U.S. owners 
holding an account; (2) the account number; (3) the account 
balance or value; and (4) except as provided by the Secretary, 
the gross receipts, including from dividends and interest, and 
gross withdrawals or payments from the account.\332\
---------------------------------------------------------------------------
    \329\ See, e.g., secs. 6038, 6038B, and 6046.
    \330\  Hiring Incentives to Restore Employment Act of 2010, Pub. L. 
No. 111-147.
    \331\ Foreign Account Tax Compliance Act of 2009 is the name of the 
House and Senate bills in which the provisions first appeared. See H.R. 
3933 and S. 1934 (October 27, 2009).
    \332\ Sec. 1471(c).
---------------------------------------------------------------------------
    Individuals are required to disclose with their annual 
Federal income tax return any interest in foreign accounts and 
certain foreign securities if the aggregate value of such 
assets is in excess of the greater of $50,000 or an amount 
determined by the Secretary in regulations. Failure to do so is 
punishable by a penalty of $10,000, which may increase for each 
30-day period during which the failure continues after 
notification by the IRS, up to a maximum penalty of 
$50,000.\333\
---------------------------------------------------------------------------
    \333\ Sec. 6038D. Guidance on the scope of reporting required, the 
threshold values triggering reporting requirements for various fact 
patterns and how the value of assets is to be determined is found in 
Treas. Reg. secs. 1.6038D-1 to -8.
---------------------------------------------------------------------------
            Report of Foreign Bank and Financial Accounts
    In addition to the reporting requirements under the Code, 
U.S. persons who transfer assets to, and hold interests in, 
foreign bank accounts or foreign entities may be subject to 
self-reporting requirements under the Bank Secrecy Act.\334\
---------------------------------------------------------------------------
    \334\ Bank Secrecy Act, 31 U.S.C. secs. 5311-5332.
---------------------------------------------------------------------------
    The Bank Secrecy Act imposes reporting obligations on both 
financial institutions and account holders. With respect to 
account holders, a U.S. citizen, resident, or person doing 
business in the United States is required to keep records and 
file reports, as specified by the Secretary, when that person 
enters into a transaction or maintains an account with a 
foreign financial agency.\335\ Regulations promulgated pursuant 
to broad regulatory authority granted to the Secretary in the 
Bank Secrecy Act \336\ provide additional guidance regarding 
the disclosure obligation with respect to foreign accounts.
---------------------------------------------------------------------------
    \335\ 31 U.S.C. sec. 5314. The term ``agency'' in the Bank Secrecy 
Act includes financial institutions.
    \336\ 31 U.S.C. sec. 5314(a) provides: ``Considering the need to 
avoid impeding or controlling the export or import of monetary 
instruments and the need to avoid burdening unreasonably a person 
making a transaction with a foreign financial agency, the Secretary of 
the Treasury shall require a resident or citizen of the United States 
or a person in, and doing business in, the United States, to keep 
records, file reports, or keep records and file reports, when the 
resident, citizen, or person makes a transaction or maintains a 
relation for any person with a foreign financial agency.''
---------------------------------------------------------------------------
    The FBAR must be filed by June 30 \337\ of the year 
following the year in which the $10,000 filing threshold is 
met.\338\ Failure to file the FBAR is subject to both 
criminal\339\ and civil penalties.\340\ Willful failure to file 
an FBAR may be subject to penalties in amounts not to exceed 
the greater of $100,000 or 50 percent of the amount in the 
account at the time of the violation.\341\ A non-willful, but 
negligent, failure to file is subject to a penalty of $10,000 
for each negligent violation.\342\ The penalty may be waived if 
(1) there is reasonable cause for the failure to report and (2) 
the amount of the transaction or balance in the account was 
properly reported. In addition, serious violations are subject 
to criminal prosecution, potentially resulting in both monetary 
penalties and imprisonment. Civil and criminal sanctions are 
not mutually exclusive.
---------------------------------------------------------------------------
    \337\ The Surface Transportation and Veterans Health Care Choice 
Improvement Act of 2015, Pub. L. No. 114-41, changed the filing date 
for FinCEN Form 114 from June 30 to April 15 (with a maximum extension 
for a 6-month period ending on October 15 and with provision for an 
extension under rules similar to the rules in Treas. Reg. section 
1.6081-5) for tax returns for taxable years beginning after December 
31, 2015.
    \338\ 31 C.F.R. sec. 103.27(c). The $10,000 threshold is the 
aggregate value of all foreign financial accounts in which a U.S. 
person has a financial interest or over which the U.S. person has 
signature or other authority.
    \339\ 31 U.S.C. sec. 5322 (failure to file is punishable by a fine 
up to $250,000 and imprisonment for five years, which may double if the 
violation occurs in conjunction with certain other violations).
    \340\ 31 U.S.C. sec. 5321(a)(5).
    \341\ 31 U.S.C. sec. 5321(a)(5)(C).
    \342\ 31 U.S.C. sec. 5321(a)(5)(B)(i), (ii).
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            FBAR enforcement responsibility
    Until 2003, the Financial Crimes Enforcement Network 
(``FinCEN''), an agency of the Department of the Treasury, had 
exclusive responsibility for civil penalty enforcement of FBAR, 
although administration of the FBAR reporting regime was 
delegated to the IRS.\343\ As a result, persons who were more 
than 180 days delinquent in paying any FBAR penalties were 
referred for collection action to the Financial Management 
Service of the Treasury Department, which is responsible for 
such non-tax collections.\344\ Continued nonpayment resulted in 
a referral to the Department of Justice for institution of 
court proceedings against the delinquent person. In 2003, the 
Secretary delegated FBAR civil enforcement authority to the 
IRS.\345\ The authority delegated to the IRS in 2003 included 
the authority to determine and enforce civil penalties,\346\ as 
well as to revise the form and instructions. However, the Bank 
Secrecy Act does not include collection powers similar to those 
available for enforcement of the tax laws under the Code. As a 
consequence, FBAR civil penalties remain collectible only in 
accord with the procedures for non-tax collection described 
above.
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    \343\ Treas. Directive 15-14 (December 1, 1992), in which the 
Secretary delegated to the IRS authority to investigate violations of 
the Bank Secrecy Act. If the IRS Criminal Investigation Division 
declines to pursue a possible criminal case, it is to refer the matter 
to FinCEN for civil enforcement.
    \344\ 31 U.S.C. sec. 3711(g).
    \345\ 31 C.F.R. sec. 103.56(g). Memorandum of Agreement and 
Delegation of Authority for Enforcement of FBAR Requirements (April 2, 
2003); News Release, Internal Revenue Service, IR-2003-48 (April 10, 
2003). Secretary of the Treasury, ``A Report to Congress in Accordance 
with sec. 361(b) of the Uniting and Strengthening America by Providing 
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 
2001 (USA Patriot Act)'' (April 24, 2003).
    \346\ A penalty may be assessed before the end of the six-year 
period beginning on the date of the transaction with respect to which 
the penalty is assessed. 31 U.S.C. sec. 5321(b)(1). A civil action for 
collection may be commenced within two years of the later of the date 
of assessment and the date a judgment becomes final in any a related 
criminal action. 31 U.S.C. sec. 5321(b)(2).
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FBAR and awards to whistleblowers

    Recent cases have considered FBAR penalties in connection 
with IRS whistleblower awards.\347\ One case analyzed the 
provision dealing with ``additional amounts in dispute'' and 
linked that concept to amounts assessed and collected under the 
Code, which FBAR is not.\348\ The issue was whether FBAR 
penalties constituted ``additional amounts'' for purposes of 
determining whether ``additional amounts in dispute exceed 
$2,000,000.'' The case was disposed on summary judgment on the 
grounds that FBAR penalties are not assessed, collected or paid 
in the same manner as taxes. As such, they are not additional 
amounts in dispute and therefore the threshold was not 
exceeded. Notably, the court suggested that the petitioner 
present its policy arguments to Congress based on the fact that 
the connection between FBAR and tax enforcement justified the 
Secretary to redelegate FBAR administrative authority to the 
IRS.\349\
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    \347\ Whistleblower 22716-13W v. Commissioner, 146 T.C. No. 6 
(March 14, 2016); and Whistleblower 21276-13W v. Commissioner, 147 T.C. 
No. 4 (August 3, 2016).
    \348\ Whistleblower 22716-13W v. Commissioner, 146 T.C. No. 6 
(March 14, 2016).
    \349\ Whistleblower 22716-13W v. Commissioner, 146 T.C. No. 6 at 
26-27.
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    Another case dealt with the provision ``collected 
proceeds'' and held that the term is not limited to amounts 
assessed and collected under Title 26.\350\ The issue in the 
case was whether payments of a criminal fine and civil 
forfeitures constitute collected proceeds.
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    \350\ Whistleblower 21276-13W v. Commissioner, 147 T.C. No. 4 
(August 3, 2016).
---------------------------------------------------------------------------
    The criminal fine was imposed under Title 18 as a result of 
guilty plea to conspiring to defraud the IRS, file false 
Federal income tax returns, and evade Federal income taxes. The 
money was forfeited pursuant to Title 18. The IRS argued that 
criminal fines and forfeitures are not collected proceeds 
because only amounts assessed and collected under Title 26 can 
be used to pay a whistleblower award. The IRS also argued that 
a criminal fine collected by the Government cannot be 
considered collected proceeds because (1) pursuant to 42 U.S.C. 
sec. 10601 all criminal fines collected from persons convicted 
of offenses against the United States are to be deposited in 
the Crime Victims Fund; (2) criminal fines are paid by the 
taxpayer directly to the imposing court, which in turn deposits 
them into the Crime Victims Fund; and (3) at no time are 
criminal fines available to the Secretary. The court said that 
the Code did not refer to, or require, the availability of 
funds to be used in making an award.\351\
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    \351\ Whistleblower 21276-13W v. Commissioner, 147 T.C. No. 4 at 
28-29.
---------------------------------------------------------------------------
    Petitioners said the payment resulted from action taken by 
Secretary and relates to acts committed by taxpayer in 
violation of Title 26 provisions. The court agreed and held 
that collected proceeds are not limited to amounts assessed and 
collected under Title 26. In reaching its holding it referenced 
Whistleblower 21276-13W v. Commissioner, discussed above, and 
noted there is no inconsistency because the issue there was 
about whether the threshold of $2,000,000 was exceeded. It is 
not clear whether FBAR penalties would be included under the 
holding because in the case, the taxpayer did violate Title 26 
(even if the penalties were imposed under Title 18).

                        Explanation of Provision

    Under the provision, collected proceeds eligible for awards 
under the Code are defined to include: (1) penalties, interest, 
additions to tax, and additional amounts; and (2) any proceeds 
under enforcement programs that the Treasury has delegated to 
the IRS the authority to administer, enforce, or investigate, 
including criminal fines and civil forfeitures, and violations 
of reporting requirements. This definition is also used to 
determine eligibility for the enhanced reward program under 
which proceeds and additional amounts in dispute exceed 
$2,000,000.
    The collected proceeds amounts are determined without 
regard to whether such proceeds are available to the Secretary.

                             Effective Date

    The provision is effective for information provided before, 
on, or after the date of enactment (February 9, 2018) with 
respect to which a final determination has not been made before 
such date.

8. Clarification regarding excise tax based on investment income of 
        private colleges and universities (sec. 41109 of the Act and 
        sec. 4968 of the Code)

                              Present Law

    Section 4968 imposes an excise tax on an applicable 
educational institution for each taxable year equal to 1.4 
percent of the net investment income of the institution for the 
taxable year. Net investment income is determined using rules 
similar to the rules of section 4940(c) (relating to the net 
investment income of a private foundation).
    An applicable educational institution is an eligible 
education institution (as defined in section 25A): \352\ (1) 
that has at least 500 students during the preceding taxable 
year; (2) more than 50 percent of the students of which are 
located in the United States; (3) that is not described in the 
first section of section 511(a)(2)(B) of the Code (generally 
describing State colleges and universities); and (4) the 
aggregate fair market value of the assets of which at the end 
of the preceding taxable year (other than those assets that are 
used directly in carrying out the institution's exempt purpose) 
\353\ is at least $500,000 per student. For these purposes, the 
number of students of an institution is based on the average 
daily number of full-time students attending the institution, 
with part-time students being taken into account on a full-time 
student equivalent basis.
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    \352\ Section 25A(f)(2) defines an eligible educational institution 
as an institution (1) is described in section 481 of the Higher 
Education Act of 1965 (20 U.S.C. sec. 1088), as in effect on August 5, 
1977, and (2) which is eligible to participate in a program under title 
IV of such Act.
    \353\ Assets used directly in carrying out the institution's exempt 
purpose include, for example, classroom buildings and physical 
facilities used for educational activities and office equipment or 
other administrative assets used by employees of the institution in 
carrying out exempt activities, among other assets.
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    For purposes of determining whether an educational 
institution meets the asset-per-student threshold \354\ and for 
purposes of determining net investment income, assets and net 
investment income of a related organization with respect to the 
educational institution are treated as assets and net 
investment income, respectively, of the educational 
institution, except that:
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    \354\ In cross-referencing the asset-per-student threshold for this 
purpose, new section 4968(d)(1) includes a reference to subsection 
``(b)(1)(C)'' that should instead read ``(b)(1)(D).'' A clerical 
correction may be necessary to correct this cross-reference.
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           No such amount is taken into account with 
        respect to more than one educational institution; and
           Unless the related organization is 
        controlled by the educational institution or is a 
        supporting organization (described in section 
        509(a)(3)) with respect to the institution for the 
        taxable year, assets and net investment income that are 
        not intended or available for the use or benefit of the 
        educational institution are not taken into account. For 
        example, assets of a related organization that are 
        earmarked or restricted for (or fairly attributable to) 
        the educational institution would be treated as assets 
        of the educational institution, whereas assets of a 
        related organization that are held for unrelated 
        purposes (and are not fairly attributable to the 
        educational institution) would be disregarded.
    An organization is treated as related to the institution 
for this purpose if the organization: (1) controls, or is 
controlled by, the institution; (2) is controlled by one or 
more persons that control the institution; or (3) is a 
supported organization \355\ or a supporting organization \356\ 
during the taxable year with respect to the institution.
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    \355\ Sec. 509(f)(3).
    \356\ Sec. 509(a)(3).
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    It is intended that the Secretary promulgate regulations to 
carry out the intent of the provision, including regulations 
that describe: (1) assets that are used directly in carrying 
out the educational institution's exempt purpose; (2) the 
computation of net investment income; and (3) assets that are 
intended or available for the use or benefit of the educational 
institution.
    The IRS and Treasury Department have issued a notice 
addressing this provision.\357\
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    \357\ Notice 2018-55, 2018-26 I.R.B. 773, June 25, 2018.
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                        Explanation of Provision

    The provision modifies the definition of ``applicable 
educational institution'' by requiring that students be tuition 
paying students for purposes of the requirements that (1) the 
institution must have at least 500 students during the 
preceding taxable year,\358\ and (2) more than 50 percent of 
the institution's students must be located in the United 
States.\359\
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    \358\ Sec. 4968(b)(1)(A).
    \359\ Sec. 4968(b)(1)(B).
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                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2017.

9. Exception from private foundation excess business holding tax for 
        independently-operated philanthropic business holdings (sec. 
        41110 of the Act and sec. 4943 of the Code)

                              Present Law


Public charities and private foundations

    An organization qualifying for tax-exempt status under 
section 501(c)(3) is further classified as either a public 
charity or a private foundation. An organization may qualify as 
a public charity in several ways.\360\ Certain organizations 
are classified as public charities per se, regardless of their 
sources of support. These include churches, certain schools, 
hospitals and other medical organizations (including medical 
research organizations), certain organizations providing 
assistance to colleges and universities, and governmental 
units.\361\ Other organizations qualify as public charities 
because they are broadly publicly supported. First, a charity 
may qualify as publicly supported if at least one-third of its 
total support is from gifts, grants, or other contributions 
from governmental units or the general public.\362\ 
Alternatively, it may qualify as publicly supported if it 
receives more than one-third of its total support from a 
combination of gifts, grants, and contributions from 
governmental units and the public plus revenue arising from 
activities related to its exempt purposes (e.g., fee-for-
service income). In addition, this category of public charity 
must not rely excessively on endowment income as a source of 
support.\363\ A supporting organization (i.e., an organization 
that provides support to another section 501(c)(3) entity that 
is not a private foundation and meets certain other 
requirements of the Code) also is classified as a public 
charity.\364\
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    \360\ The Code does not expressly define the term ``public 
charity,'' but rather provides exceptions for those entities that are 
treated as private foundations.
    \361\ Sec. 509(a)(1) (referring to sec. 170(b)(1)(A)(i) through 
(iv) for a description of these organizations).
    \362\ Treas. Reg. sec. 1.170A-9(f)(2). Failing this mechanical 
test, the organization may qualify as a public charity if it passes a 
``facts and circumstances'' test. Treas. Reg. sec. 1.170A-9(f)(3).
    \363\ To meet this requirement, the organization must normally 
receive more than one-third of its support from a combination of (1) 
gifts, grants, contributions, or membership fees and (2) certain gross 
receipts from admissions, sales of merchandise, performance of 
services, and furnishing of facilities in connection with activities 
that are related to the organization's exempt purposes. Sec. 
509(a)(2)(A). In addition, the organization must not normally receive 
more than one-third of its public support in each taxable year from the 
sum of (1) gross investment income and (2) the excess of unrelated 
business taxable income as determined under section 512 over the amount 
of unrelated business income tax imposed by section 511. Sec. 
509(a)(2)(B).
    \364\ Sec. 509(a)(3). Organizations organized and operated 
exclusively for testing for public safety also are classified as public 
charities. Sec. 509(a)(4). Such organizations, however, are not 
eligible to receive deductible charitable contributions under section 
170.
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    A section 501(c)(3) organization that does not fit within 
any of the above categories is a private foundation. In 
general, private foundations receive funding from a limited 
number of sources (e.g., an individual, a family, or a 
corporation).
    The deduction for charitable contributions to private 
foundations is in some instances less generous than the 
deduction for charitable contributions to public charities. In 
addition, private foundations are subject to a number of 
operational rules and restrictions that do not apply to public 
charities, as well as a tax on their net investment 
income.\365\
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    \365\ Unlike public charities, private foundations are subject to 
tax on their net investment income at a rate of two percent (one 
percent in some cases). Sec. 4940. Private foundations also are subject 
to more restrictions on their activities than are public charities. For 
example, private foundations are prohibited from engaging in self-
dealing transactions (sec. 4941), are required to make a minimum amount 
of charitable distributions each year (sec. 4942), are limited in the 
extent to which they may control a business (sec. 4943), may not make 
speculative investments (sec. 4944), and may not make certain 
expenditures (sec. 4945). Violations of these rules result in excise 
taxes on the foundation and, in some cases, may result in excise taxes 
on the managers of the foundation.
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            Excess business holdings of private foundations

    Private foundations are subject to tax on excess business 
holdings.\366\ In general, a private foundation is permitted to 
hold 20 percent of the voting stock in a corporation, reduced 
by the amount of voting stock held by all disqualified persons 
(as defined in section 4946). If it is established that no 
disqualified person has effective control of the corporation, a 
private foundation and disqualified persons together may own up 
to 35 percent of the voting stock of a corporation. A private 
foundation shall not be treated as having excess business 
holdings in any corporation if it owns (together with certain 
other related private foundations) not more than two percent of 
the voting stock and not more than two percent in value of all 
outstanding shares of all classes of stock in that corporation. 
Similar rules apply with respect to holdings in a partnership 
(substituting ``profits interest'' for ``voting stock'' and 
``capital interest'' for ``nonvoting stock'') and to other 
unincorporated enterprises (by substituting ``beneficial 
interest'' for ``voting stock''). Private foundations are not 
permitted to have holdings in a proprietorship. Foundations 
generally have a five-year period to dispose of excess business 
holdings (acquired other than by purchase) without being 
subject to tax.\367\ This five-year period may be extended an 
additional five years in limited circumstances.\368\ The excess 
business holdings rules do not apply to holdings in a 
functionally related business or to holdings in a trade or 
business at least 95 percent of the gross income of which is 
derived from passive sources.\369\
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    \366\ Sec. 4943. Taxes imposed may be abated if certain conditions 
are met. Secs. 4961 and 4962.
    \367\ Sec. 4943(c)(6).
    \368\ Sec. 4943(c)(7).
    \369\ Sec. 4943(d)(3).
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    The initial tax is equal to five percent of the value of 
the excess business holdings held during the foundation's 
applicable taxable year. An additional tax is imposed if an 
initial tax is imposed and at the close of the applicable 
taxable period, the foundation continues to hold excess 
business holdings. The amount of the additional tax is equal to 
200 percent of such holdings.

                        Explanation of Provision

    The provision creates an exception to the excess business 
holdings rules for certain philanthropic business holdings. 
Specifically, the tax on excess business holdings does not 
apply with respect to the holdings of a private foundation in 
any business enterprise that, for the taxable year, satisfies 
the following requirements: (1) the ownership requirements; (2) 
the ``all profits to charity'' distribution requirement; and 
(3) the independent operation requirements.
    The ownership requirements are satisfied if: (1) all 
ownership interests in the business enterprise are held by the 
private foundation at all times during the taxable year; and 
(2) all the private foundation's ownership interests in the 
business enterprise were acquired by means other than by 
purchase.
    The ``all profits to charity'' distribution requirement is 
satisfied if the business enterprise, not later than 120 days 
after the close of the taxable year, distributes an amount 
equal to its net operating income for such taxable year to the 
private foundation. For this purpose, the net operating income 
of any business enterprise for any taxable year is an amount 
equal to the gross income of the business enterprise for the 
taxable year, reduced by the sum of: (1) the deductions allowed 
by chapter 1 of the Code for the taxable year that are directly 
connected with the production of the income; (2) the tax 
imposed by chapter 1 on the business enterprise for the taxable 
year; and (3) an amount for a reasonable reserve for working 
capital and other business needs of the business enterprise.
    The independent operation requirements are met if, at all 
times during the taxable year, the following three requirements 
are satisfied. First, no substantial contributor to the private 
foundation, or family member of such a contributor, is a 
director, officer, trustee, manager, employee, or contractor of 
the business enterprise (or an individual having powers or 
responsibilities similar to any of the foregoing). Second, at 
least a majority of the board of directors of the private 
foundation are not also directors or officers of the business 
enterprise or members of the family of a substantial 
contributor to the private foundation. Third, there is no loan 
outstanding from the business enterprise to a substantial 
contributor to the private foundation or a family member of 
such contributor. For purposes of the independent operation 
requirements, ``substantial contributor'' has the meaning given 
to the term under section 4958(c)(3)(C), and family members are 
determined under section 4958(f)(4).
    The provision does not apply to the following 
organizations: (1) donor advised funds or supporting 
organizations that are subject to the excess business holdings 
rules by reason of section 4943(e) or (f); (2) any trust 
described in section 4947(a)(1) (relating to charitable 
trusts); or (3) any trust described in section 4947(a)(2) 
(relating to split-interest trusts).

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2017.

10. Rule of construction for Craft Beverage Modernization and Tax 
        Reform (sec. 41111 of the Act)

                              Present Law

    Subpart A of part IX of subtitle C of title I of Public Law 
115-97 amended the Code to reform the taxation of alcoholic 
beverages. That subpart includes eight provisions that address 
the production period for beer, wine, and distilled spirits; 
reduce the rate of excise tax on beer; address the transfer of 
beer between bonded facilities; reduce the rate of excise tax 
on certain wine; adjust the alcohol content level for 
application of excise tax rates; address the definition of mead 
and low alcohol by volume wine; reduce the rate of excise tax 
on certain distilled spirits; and address the taxation of bulk 
distilled spirits.

                        Explanation of Provision

    The provision adds a rule of construction to Subpart A of 
part IX of subtitle C of title I of Public Law 115-97, 
clarifying that nothing in the reforms to the taxation of 
alcoholic beverages made by such subpart or any regulations 
promulgated under such subpart should be construed to preempt, 
supersede, or otherwise limit or restrict any State, local, or 
tribal law that prohibits or regulates the production or sale 
of distilled spirits, wine, or malt beverages.

                             Effective Date

    The provision is effective as if included in Public Law 
115-97.

11. Simplification of rules regarding records, statements, and returns 
        (sec. 41112 of the Act and sec. 5555 of the Code)

                              Present Law

    The Code requires those liable for taxation on alcoholic 
beverages to keep such records, render such statements, make 
such returns, and comply with such rules and regulations as 
prescribed by the Secretary.\370\
---------------------------------------------------------------------------
    \370\ Sec. 5555(a).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, the Secretary shall permit a unified 
system for any records, statements, and returns required to be 
kept, rendered, or made for any beer produced in a brewery for 
which tax is imposed, including any beer that has been removed 
for consumption on the premises of the brewery.

                             Effective Date

    The provision is effective for calendar quarters beginning 
after February 9, 2018, and before January 1, 2020.

12. Modifications of rules governing hardship distributions (sec. 41113 
        of the Act and secs. 401(k) and 403(b) of the Code)

                              Present Law

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan''). A section 403(b) plan may also include an elective 
deferral arrangement. Amounts attributable to elective 
deferrals under a section 401(k) plan or a section 403(b) plan 
generally cannot be distributed before the occurrence of one or 
more specified events, including financial hardship of the 
employee.\371\
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    \371\ Secs. 401(k)(2)(B)(i)(IV) and 403(b)(7)(A)(ii) and (11)(B). 
Other types of contributions may also be subject to this restriction. 
Under section 72(t), distributions on account of hardship may be 
subject to an additional 10-percent early withdrawal tax.
---------------------------------------------------------------------------
    Applicable Treasury regulations provide that a distribution 
is made on account of hardship only if the distribution is made 
on account of an immediate and heavy financial need of the 
employee and is necessary to satisfy the heavy need.\372\ 
Generally, the determination of whether these two requirements 
is met is based on the relevant facts and circumstances. 
However, the Treasury regulations provide a safe harbor under 
which a distribution may be deemed necessary to satisfy an 
immediate and heavy financial need. One requirement of this 
safe harbor is that the employee be prohibited from making 
elective deferrals and employee contributions to the plan and 
all other plans maintained by the employer for at least six 
months after receipt of the hardship distribution.
---------------------------------------------------------------------------
    \372\ Treas. Reg. sec. 1.401(k)-1(d)(3).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision directs the Secretary of the Treasury to 
modify the applicable regulations \373\ relating to the 
hardship safe harbor within one year of the date of enactment 
to (1) delete the requirement that an employee be prohibited 
from making elective deferrals and employee contributions for 
six months after the receipt of a hardship distribution in 
order for the distribution to be deemed necessary to satisfy an 
immediate and heavy financial need, and (2) make any other 
modifications necessary to carry out the purposes of the rule 
allowing elective deferrals to be distributed in the case of 
hardship. Thus, under the modified regulations, an employee 
would not be prevented for any period after the receipt of a 
hardship distribution from continuing to make elective 
deferrals and employee contributions.
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    \373\ Treas. Reg. sec. 1.401(k)-1(d)(3)(iv)(E).
---------------------------------------------------------------------------

                             Effective Date

    The regulations as revised by the provision shall apply to 
plan years beginning after December 31, 2018.

13. Modification of rules relating to hardship withdrawals from cash or 
        deferred arrangements (sec. 41114 of the Act and sec. 401(k) of 
        the Code)

                              Present Law

    Amounts attributable to elective deferrals (including 
earnings thereon) under a section 401(k) plan generally cannot 
be distributed before the earliest of the employee's severance 
from employment, death, disability or attainment of age 59\1/
2\, or termination of the plan. Elective deferrals, but not 
associated earnings, may be distributed on account of 
hardship.\374\
---------------------------------------------------------------------------
    \374\ Sec. 401(k)(2)(B)(i). Under section 72(t), distributions on 
account of hardship may be subject to an additional 10-percent early 
withdrawal tax.
---------------------------------------------------------------------------
    An employer may also make nonelective and matching 
contributions for employees under a section 401(k) plan. 
Elective deferrals, and matching contributions and after-tax 
employee contributions, are subject to special tests 
(``nondiscrimination tests'') to prevent discrimination in 
favor of highly compensated employees. Nonelective 
contributions and matching contributions that satisfy certain 
requirements (``qualified nonelective contributions and 
qualified matching contributions'') may be used to enable the 
plan to satisfy these nondiscrimination tests. One of the 
requirements is that these contributions be subject to the same 
distribution restrictions as elective deferrals, except that 
these contributions (and associated earnings) are not permitted 
to be distributed on account of hardship.
    Applicable Treasury regulations provide that a distribution 
is made on account of hardship only if the distribution is made 
on account of an immediate and heavy financial need of the 
employee and is necessary to satisfy the heavy need.\375\ 
Generally, the determination of whether these two requirements 
is met is based on the relevant facts and circumstances. 
However, the Treasury regulations provide a safe harbor under 
which a distribution may be deemed necessary to satisfy an 
immediate and heavy financial need. One requirement of the safe 
harbor is that the employee represent that the need cannot be 
satisfied through currently available plan loans. This in 
effect requires an employee to take any available plan loan 
before receiving a hardship distribution.
---------------------------------------------------------------------------
    \375\ Treas. Reg. sec. 1.401(k)-1(d)(3).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision allows earnings on elective deferrals under a 
section 401(k) plan, as well as qualified nonelective 
contributions and qualified matching contributions (and 
associated earnings), to be distributed on account of hardship. 
Further, a distribution is not treated as failing to be on 
account of hardship solely because the employee does not take 
any available plan loan.

                             Effective Date

    The provision applies to plan years beginning after 
December 31, 2018.

14. Opportunity zones rule for Puerto Rico (sec. 41115 of the Act and 
        sec. 1400Z-1 of the Code)

                              Present Law


In general

    The provision allows taxpayers to make an election when 
investing in a qualified opportunity fund. The election results 
in the following three tax benefits: (1) the temporary deferral 
of inclusion in gross income of capital gains,\376\ (2) the 
partial exclusion of such capital gains from gross income to 
the extent invested in the qualified opportunity fund for a 
certain length of time, and (3) the permanent exclusion of 
post-acquisition capital gains from the sale or exchange of an 
interest in a qualified opportunity fund held for at least 10 
years.
---------------------------------------------------------------------------
    \376\ A technical correction may be needed to reflect this intent.
---------------------------------------------------------------------------
    The provision allows for the designation of certain low-
income community population census tracts as qualified 
opportunity zones.\377\ In addition, a limited number of other 
census tracts that are not low-income communities can be 
designated if they are contiguous to a designated low-income 
community and the median family income of such tracts does not 
exceed 125 percent of the median family income of the 
contiguous low-income community. The designation of a 
population census tract as a qualified opportunity zone remains 
in effect for the period beginning on the date of the 
designation and ending at the close of the tenth calendar year 
beginning on or after the date of designation.
---------------------------------------------------------------------------
    \377\ See sec. 45D(e) for the definition of low-income community.
---------------------------------------------------------------------------
    The chief executive officer of the State, possession, or 
the District of Columbia (i.e., Governor or mayor in the case 
of the District of Columbia) may submit nominations for a 
limited number of opportunity zones to the Secretary for 
certification and designation. If the number of low-income 
communities in a State is fewer than 100, the Governor may 
designate up to 25 tracts, otherwise the Governor may designate 
tracts not exceeding 25 percent of the number of low-income 
communities in the State.

Qualified opportunity funds

    A qualified opportunity fund is an investment vehicle 
organized as a corporation or a partnership for the purpose of 
investing in qualified opportunity zone property (other than 
another qualified opportunity fund) that holds at least 90 
percent of its assets in qualified opportunity zone property. 
The provision intends that the certification process for a 
qualified opportunity fund will be carried out in a manner 
similar to the process for allocating the new markets tax 
credit. The Secretary is granted the authority to administer 
this process.
    If a qualified opportunity fund fails to meet the 90 
percent requirement, unless the fund establishes reasonable 
cause, the fund is required to pay a monthly penalty of the 
excess of the amount equal to 90 percent of its aggregate 
assets, over the aggregate amount of qualified opportunity zone 
property held by the fund multiplied by the underpayment rate 
in the Code.\378\ If the fund is a partnership, the penalty is 
taken into account proportionately as part of each partner's 
distributive share.
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    \378\ Sec. 6621.
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Qualified opportunity zone property

    Qualified opportunity zone property means: (1) qualified 
opportunity zone stock, (2) qualified opportunity zone 
partnership interest, and (3) qualified opportunity zone 
business property.
    Qualified opportunity zone stock consists of stock in a 
domestic corporation that is a qualified opportunity zone 
business. There are three requirements that must be met for 
property to be considered qualified opportunity zone 
stock.\379\ First, the stock must be acquired at original 
issuance (directly or indirectly through an underwriter) solely 
for cash after December 31, 2017. Second, the corporation must 
have been a qualified opportunity zone business when the stock 
was issued (or, for a new corporation, was being organized to 
be a qualified opportunity zone business). Third, the 
corporation must qualify as a qualified opportunity zone 
business during substantially all of the qualified opportunity 
fund's holding period for the stock.
---------------------------------------------------------------------------
    \379\ Sec. 1400Z-2(d)(2)(B).
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    Qualified opportunity zone partnership interest consists of 
capital or profits interests in a domestic partnership that is 
a qualified opportunity zone business. There are three 
requirements that must be met for property to be considered a 
qualified opportunity zone partnership interest.\380\ First, 
the interest must be acquired from the partnership solely for 
cash after December 31, 2017. Second, the partnership must have 
been a qualified opportunity zone business when the interest 
was acquired (or, for a new partnership, was being organized to 
be a qualified opportunity zone business). Third, the 
partnership must qualify as a qualified opportunity zone 
business during substantially all of the qualified opportunity 
fund's holding period for the interest.
---------------------------------------------------------------------------
    \380\ Sec. 1400Z-2(d)(2)(C).
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    Qualified opportunity zone business property consists of 
tangible property used in the trade or business of a qualified 
opportunity fund or qualified opportunity zone business. There 
are three main requirements that must be met for property to be 
considered qualified opportunity zone business property.\381\ 
First, the property must be acquired by purchase \382\ after 
December 31, 2017. Second, the original use of the property in 
the qualified opportunity zone must begin with the qualified 
opportunity fund or qualified opportunity zone business, or the 
qualified opportunity fund or qualified opportunity zone 
business must substantially improve the property. Only new or 
substantially improved property qualifies as opportunity zone 
business property.\383\ Third, substantially all of the 
property must be in a qualified opportunity zone during 
substantially all of qualified opportunity fund's or qualified 
opportunity zone business's holding period for the property. 
Property is treated as substantially improved only if capital 
expenditures on the property in the 30 months after acquisition 
exceeds the property's adjusted basis on the date of 
acquisition.
---------------------------------------------------------------------------
    \381\ Sec. 1400Z-2(d)(2)(D).
    \382\ Certain related party purchases are excluded. See secs. 
1400Z-2(d)(2)(D)(i)(I), 1400Z-2(d)(2)(D)(iii), and 1400Z-2(e)(2).
    \383\ A technical correction may be necessary to reflect this 
intent.
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    A qualified opportunity zone business is any trade or 
business in which substantially all of the underlying value of 
the tangible property owned or leased by the business is 
qualified opportunity zone business property.
    In addition, (1) at least 50 percent of the total gross 
income of the trade or business must be derived from the active 
conduct of business in the qualified opportunity zone, (2) a 
substantial portion of the business's intangible property must 
be used in the active conduct of business in the qualified 
opportunity zone, and (3) less than five percent of the average 
of the aggregate adjusted bases of the property of the business 
is attributable to nonqualified financial property.\384\ 
Nonqualified financial property means debt, stock, partnership 
interests, annuities, and derivative financial instruments 
(including options, futures, forward contracts, and notional 
principal contracts), other than (1) reasonable amounts of 
working capital held in cash, cash equivalents, or debt 
instruments with a term of no more than 18 months, and (2) 
accounts or notes receivable acquired in the ordinary course of 
a trade or business for services rendered or from the sale of 
inventory property.\385\ The business cannot be a golf course, 
country club, massage parlor, hot tub or suntan facility, 
racetrack or other facility used for gambling, or store whose 
principal business is the sale of alcoholic beverages for 
consumption off premises.\386\
---------------------------------------------------------------------------
    \384\ Sec. 1400Z-2(d)(3)(A)(ii).
    \385\ Secs. 1400Z-2(d)(3)(A)(ii), 1397C(b)(8), and 1397C(e).
    \386\ Secs. 1400Z-2(d)(3)(A)(iii) and 144(c)(6)(B).
---------------------------------------------------------------------------
    Tangible property that ceases to be a qualified opportunity 
zone business property continues to be treated as a qualified 
opportunity zone business property for the lesser of five years 
after the date on which such tangible property ceases to be so 
qualified, or the date on which such tangible property is no 
longer held by the qualified opportunity zone business.\387\
---------------------------------------------------------------------------
    \387\ Sec. 1400Z-2(d)(3)(B).
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Tax treatment of a deferred-gain investment

    A taxpayer may elect to temporarily defer and partially 
exclude capital gains from gross income to the extent that the 
taxpayer invests the amount of those gains in a qualified 
opportunity fund. The maximum amount of the deferred gain is 
equal to the amount invested in a qualified opportunity fund by 
the taxpayer during the 180-day period beginning on the date of 
the asset sale that produced the gain to be deferred. Capital 
gains in excess of the deferred amount must be recognized and 
included in gross income.
    In the case of any investment in a qualified opportunity 
fund, only a portion of which consists of the investment of 
gain with respect to which an election is made, such investment 
is treated as two separate investments, consisting of one 
investment that includes only amounts to which the election 
applies (herein ``deferred-gain investment''), and a separate 
investment consisting of other amounts. The temporary deferral 
and permanent exclusion provisions do not apply to the separate 
investment. For example, if a taxpayer sells stock at a gain 
and invests the entire sales proceeds (capital and return of 
basis) in a qualified opportunity zone fund, an election may be 
made only with respect to the capital gain amount. No election 
may be made with respect to amounts attributable to a return of 
basis, and no special tax benefits apply to such amounts.
    The basis of a deferred-gain investment in a qualified 
opportunity zone fund immediately after its acquisition is 
zero. If the deferred-gain investment in the qualified 
opportunity zone fund is held by the taxpayer for at least five 
years, the basis in the deferred-gain investment is increased 
by 10 percent of the original deferred gain. If the opportunity 
zone asset or investment is held by the taxpayer for at least 
seven years, the basis in the deferred gain investment is 
increased by an additional five percent of the original 
deferred gain. Some or all of the deferred gain is recognized 
on the earlier of the date on which the qualified opportunity 
zone investment is disposed of or December 31, 2026. The amount 
of gain recognized is the excess of the lesser of the amount 
deferred and the current fair market value of the investment 
(taking into account any increases at the end of five or seven 
years). The taxpayer's basis in the investment is increased by 
the amount of gain recognized. No election under the provision 
may be made after December 31, 2026.

Exclusion of capital gains from the sale or exchange of an investment 
        in a qualified opportunity fund

    The provision excludes from gross income the post-
acquisition capital gains on deferred-gain investments in 
opportunity zone funds that are held for at least 10 years. 
Specifically, in the case of the sale or exchange of an 
investment in a qualified opportunity zone fund held for more 
than 10 years, a further election is allowed by the taxpayer to 
modify the basis of such deferred-gain investment in the hands 
of the taxpayer to be the fair market value of the deferred-
gain investment at the date of such sale or exchange.
    In the case of a fund organized as a pass-through entity, 
investors recognize gains and losses associated with both 
deferred-gain and non-deferred gain investments in the fund, 
under the rules generally applicable to pass-through entities. 
Thus, for example, investor-partners in a fund organized as a 
partnership would recognize income and increase their basis 
with respect to their distributive share of the fund's taxable 
income.
    The Treasury Department has proposed guidance addressing 
this provision.\388\
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    \388\ Notice 2018-48, I.R.B. 2018-28 (July 9, 2018) and Prop. 
Treas. Reg. sec. 1.1400Z-2.
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Example

    Assume a taxpayer sells stock for a gain of $1,000 on 
January 1, 2019, and invests $1,000 in the stock of a qualified 
opportunity fund. Assume also that the taxpayer holds the 
investment for 10 years and then sells the investment for 
$1,500.
    The taxpayer's initial basis in the deferred-gain 
investment is zero. After five years, the basis is increased to 
$100. After seven years, the basis is increased to $150. At the 
end of 2026, assume that the fair market value of the deferred-
gain investment is at least $1,000, and thus the taxpayer has 
to recognize $850 of the deferred capital gain. So at that 
point the basis in the deferred-gain investment is $1,000 ($150 
+ $850). If the taxpayer holds the deferred-gain investment for 
10 years and makes the election to increase the basis, the $500 
post-acquisition capital gain on the sale is excluded.

                        Explanation of Provision

    Each population census tract in Puerto Rico that is a low-
income community is deemed certified and designated as a 
qualified opportunity zone.

                             Effective Date

    The provision is effective on the date of enactment of Pub. 
L. No. 115-97 (December 22, 2017).

15. Tax home of certain citizens or residents of the United States 
        living abroad (sec. 41116 of the Act and sec. 911 of the Code)

                              Present Law

    U.S. citizens generally are subject to U.S. income tax on 
all their income, whether derived in the United States or 
elsewhere. Under section 911, a U.S. citizen or resident living 
abroad may be eligible to exclude from U.S. taxable income 
certain foreign earned income and foreign housing costs, 
without regard to whether any foreign tax is paid on the 
foreign earned income or housing costs, if the individual can 
establish that he or she is a ``qualified individual.'' \389\
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    \389\ Sec. 911. Amounts paid by the United States or any U.S. 
agency to an employee thereof are not treated as foreign earned income 
and therefore are not eligible for the exclusion from income. See sec. 
911(b)(1)(B). Officers and employees may be eligible to exclude certain 
payments for service abroad under section 912 (civilian Federal 
employees and Peace Corps volunteers) or section 112 (exempting certain 
combat zone compensation for members of the U.S. Armed Forces).
---------------------------------------------------------------------------
    A qualified individual is a taxpayer with a tax home in a 
foreign country who meets one of two tests of foreign 
residency. First, a U.S. citizen may establish foreign 
residence by proving bona fide residence in a foreign country 
or countries for an uninterrupted period that includes an 
entire taxable year. Alternatively, both U.S. citizens and U.S. 
residents may establish foreign residence by demonstrating 
physical presence in a foreign country or countries for at 
least 330 full days in any 12-consecutive-month period.
    For purposes of the qualified individual tests, a special 
definition of tax home is used. It is based on the general 
principle that tax home is the taxpayer's principal place of 
employment or business, unless such employment is temporary 
rather than indefinite, as used to determine deductibility of 
travel expenses. Unlike the general rules regarding existence 
of a tax home, a foreign tax home cannot be established for any 
period in which a person maintains his abode in the United 
States.\390\ The determination of whether an individual 
maintains an abode in the United States is based on facts and 
circumstances, sometimes leading to anomalous results.\391\
---------------------------------------------------------------------------
    \390\ Sec. 911(d)(3).
    \391\ Compare Linde v. Commissioner, T.C. Memo. 2017-180 
(helicopter pilot in Iraq working for a government contractor entitled 
to foreign earned income exclusion despite maintaining home for wife 
and children in Alabama, based on testimony) with Lock v. Commissioner, 
T.C. Summary Opinion, 2017-10 (government contractor employee working 
in Iraq, with wife and children in Florida, not entitled to foreign 
income exclusion).
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    The maximum amount of foreign earned income that an 
individual may exclude is adjusted annually. For taxable year 
2018, the maximum exclusion is $103,900.\392\ The maximum 
amount of foreign housing costs that an individual may exclude 
is also adjusted annually, based on the maximum foreign earned 
income excludible as well as Treasury adjustments for 
geographic differences in housing costs.\393\ The combined 
foreign earned income exclusion and housing cost exclusion may 
not exceed the taxpayer's total foreign earned income for the 
taxable year. The taxpayer's foreign tax credit is reduced by 
the amount of the credit that is attributable to excluded 
income.
---------------------------------------------------------------------------
    \392\ Sec. 911(b)(2)(D)(i). This amount is adjusted annually for 
inflation. Rev. Proc. 2017-58, available at https://www.irs.gov/pub/
irs-drop/rp-17-58.pdf.
    \393\ Sec. 911(c)(1) and (2).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision creates an exception to the definition of tax 
home for purposes of the foreign earned income exclusion. An 
individual who maintains an abode in the United States may 
satisfy the tax home requirement for the foreign earned income 
exclusion if his principal place of employment is in an area 
designated by the President as a combat zone for purposes of 
determining military personnel eligibility for certain benefits 
and the individual's services are in support of the U.S. 
military.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2017.

16. Treatment of foreign persons for returns relating to payments made 
        in settlement of payment card and third party network 
        transactions (sec. 41117 of the Act and sec. 6050W of the Code)

                              Present Law

    A variety of information reporting requirements apply to 
participants in certain transactions.\394\ These requirements 
are intended to assist taxpayers in preparing their income tax 
returns and to help the IRS determine whether such returns are 
correct and complete.
---------------------------------------------------------------------------
    \394\ Secs. 6031 through 6060.
---------------------------------------------------------------------------
    The primary provision governing information reporting by 
payors requires an information return by every person engaged 
in a trade or business who makes payments aggregating $600 or 
more in any taxable year to a single payee in the course of the 
payor's trade or business.\395\ Payments to corporations 
generally are excepted from this requirement. Payments subject 
to reporting include fixed or determinable income or 
compensation, but do not include payments for goods or certain 
enumerated types of payments that are subject to other specific 
reporting requirements.\396\ Detailed rules are provided for 
the reporting of various types of investment income, including 
interest, dividends, and gross proceeds from brokered 
transactions (such as a sale of stock) paid to U.S. 
persons.\397\
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    \395\ The information return generally is submitted electronically 
as a Form 1099 or Form 1096, although certain payments to beneficiaries 
or employees may require use of Form 1041 or Forms W-2 and W-3, 
respectively. Treas. Reg. sec. 1.6041-1(a)(2).
    \396\ Sec. 6041(a) requires reporting as to fixed or determinable 
gains, profits, and income (other than payments to which secs. 
6042(a)(1), 6044(a)(1), 6047(c), 6049(a), or 6050N(a) apply and other 
than payments with respect to which a statement is required under 
authority of section 6042(a), 6044(a)(2) or 6045). These payments 
excepted from section 6041(a) include most interest, royalties, and 
dividends.
    \397\ Secs. 6042 (dividends), 6045 (broker reporting), and 6049 
(interest), and the Treasury regulations thereunder.
---------------------------------------------------------------------------
    Special information reporting requirements exist for 
employers required to deduct and withhold tax from employees' 
income.\398\ In addition, any service recipient engaged in a 
trade or business and paying for services is required to make a 
return according to regulations when the aggregate of payments 
is $600 or more.\399\
---------------------------------------------------------------------------
    \398\ Sec. 6051(a).
    \399\ Sec. 6041A.
---------------------------------------------------------------------------
    The payor of amounts described above is required to provide 
the recipient of the payment with an annual statement showing 
the aggregate payments made and contact information for the 
payor.\400\ The statement must be supplied to taxpayers by the 
payors by January 31 of the following calendar year. Payors 
generally must file the information return with the IRS on or 
before January 31 of the year following the calendar year to 
which such returns relate.\401\
---------------------------------------------------------------------------
    \400\ Secs. 6041(d) and 6041A(e).
    \401\ Sec. 6071(c).
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            Returns relating to payments made in settlement of third 
                    party network transactions
    Any payment settlement entity making payment to a 
participating payee in settlement of reportable payment 
transactions must report annually to the IRS and to the 
participating payee the gross amount of such reportable payment 
transactions, as well as the name, address, and taxpayer 
identification number of the participating payees. A 
``reportable payment transaction'' means any payment card 
transaction and any third party network transaction.
    A ``payment settlement entity'' means, in the case of a 
payment card transaction, a merchant acquiring entity and, in 
the case of a third party network transaction, a third party 
settlement organization. A ``participating payee'' means, in 
the case of a third party network transaction, any person who 
accepts payment from a third party settlement organization in 
settlement of such transaction.
    For purposes of the reporting requirement, the term ``third 
party network transaction'' means any transaction that is 
settled through a third party payment network. A ``third party 
payment network'' is defined as any agreement or arrangement 
(1) that involves the establishment of accounts with a central 
organization by a substantial number of persons (i.e., more 
than 50) who are unrelated to such organization, provide goods 
or services, and have agreed to settle transactions for the 
provision of such goods or services pursuant to such agreement 
or arrangement; (2) that provides for standards and mechanisms 
for settling such transactions; and (3) that guarantees persons 
providing goods or services pursuant to such agreement or 
arrangement that such persons will be paid for providing such 
goods or services. In the case of a third party network 
transaction, the payment settlement entity is the third party 
settlement organization, which is defined as the central 
organization that has the contractual obligation to make 
payment to participating payees of third party network 
transactions. Thus, an organization generally is required to 
report if it provides a network enabling buyers to transfer 
funds to sellers who have established accounts with the 
organization and have a contractual obligation to accept 
payment through the network. However, an organization operating 
a network that merely processes electronic payments (such as 
wire transfers, electronic checks, and direct deposit payments) 
between buyers and sellers, but does not have contractual 
agreements with sellers to use such network, is not required to 
report under the provision. Similarly, an agreement to transfer 
funds between two demand deposit accounts will not, by itself, 
constitute a third party network transaction.
    A third party payment network does not include any 
agreement or arrangement that provides for the issuance of 
payment cards. In addition, a third party settlement 
organization is not required to report unless the aggregate 
value of third party network transactions for the year exceeds 
$20,000 and the aggregate number of such transactions exceeds 
200.\402\ If a payment of funds is made to a third party 
settlement organization by means of a payment card (e.g., as 
part of a transaction that is a payment card transaction), the 
$20,000 and 200 transaction de minimis rule continues to apply 
to any reporting obligation with respect to payment of such 
funds to a participating payee by the third party settlement 
organization made as part of a third party network transaction.
---------------------------------------------------------------------------
    \402\ Sec. 6050W(e).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision amends the reporting requirements for payment 
settlement entities making payments from inside the United 
States to accounts outside the United States. In such cases, a 
payment settlement entity will not be required to report 
payments to a payee with only a foreign address merely because 
that payee submits requests for payment in U.S. dollars.

                             Effective Date

    The provision applies to returns for calendar years 
beginning after December 31, 2017.

17. Repeal of shift in time of payment of corporate estimated taxes 
        (sec. 41118 of the Act and sec. 6655 of the Code)

                              Present Law

    In general, corporations are required to make quarterly 
estimated tax payments of their income tax liability.\403\ For 
a corporation whose taxable year is a calendar year, these 
estimated tax payments must be made by April 15, June 15, 
September 15, and December 15. The amount of any required 
estimated payment is 25 percent of the required annual 
payment.\404\ The required annual payment is 100 percent of the 
tax liability for the taxable year or the preceding taxable 
year. The option to use the preceding taxable year is not 
available if the preceding taxable year was not a 12-month 
taxable year or the corporation did not file a return in the 
preceding taxable year showing a liability for tax. Further, in 
the case of a corporation with taxable income of at least $1 
million in any of the three immediately preceding taxable 
years, the option to use the preceding taxable year is only 
available for the first installment of such corporation's 
taxable year.\405\
---------------------------------------------------------------------------
    \403\ Sec. 6655.
    \404\ Sec. 6655(d)(1).
    \405\ Sec. 6655(d)(2) and (g)(2).
---------------------------------------------------------------------------
    In the case of a corporation with assets of at least $1 
billion (determined as of the end of the preceding taxable 
year), the amount of the required installment due in July, 
August, or September of 2020, is increased by eight percent of 
that amount (determined without regard to any increase in such 
amount not contained in the Internal Revenue Code) (i.e., the 
installment due in July, August, or September of 2020, is 
increased to 108 percent of the payment otherwise due).\406\ 
The next required installment is reduced accordingly (i.e., the 
payment due in October, November, or December of 2020 is 
reduced by the amount that the prior payment was increased).
---------------------------------------------------------------------------
    \406\ Trade Preferences Extension Act of 2015, Pub. L. No. 114-27, 
sec. 803.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision repeals the shift in the timing of corporate 
estimated tax payments for 2020. Thus, corporations will be 
required to make estimated tax payments in 2020 as if the prior 
legislation (i.e., section 803 of the Trade Preferences 
Extension Act of 2015 \407\) had never been enacted.
---------------------------------------------------------------------------
    \407\ Pub. L. No. 114-27.
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                             Effective Date

    The provision is effective on the date of enactment 
(February 9, 2018).

18. Credit for carbon oxide sequestration (sec. 41119 of the Act and 
        sec. 45Q of the Code)

                              Present Law

    A credit of $10 per metric ton is available for qualified 
carbon dioxide that is captured by the taxpayer at a qualified 
facility, used by such taxpayer as a tertiary injectant 
(including carbon dioxide augmented waterflooding and 
immiscible carbon dioxide displacement) in a qualified enhanced 
oil or natural gas recovery project (``EOR uses'') and disposed 
of by such taxpayer in secure geological storage.\408\ In 
addition, a credit of $20 per metric ton is available for 
qualified carbon dioxide captured by a taxpayer at a qualified 
facility and disposed of by such taxpayer in secure geological 
storage without being used as a tertiary injectant. Both credit 
amounts are adjusted for inflation after 2009. For 2018, as 
adjusted for inflation, the two credit amounts are $11.44 per 
metric ton and $22.87 per metric ton of carbon dioxide.\409\
---------------------------------------------------------------------------
    \408\ Sec. 45Q.
    \409\ IRS Notice 2018-40, May 14, 2018.
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    Secure geological storage includes storage at deep saline 
formations, oil and gas reservoirs, and unminable coal seams. 
The Secretary, in consultation with the Administrator of the 
Environmental Protection Agency, the Secretary of Energy, and 
the Secretary of the Interior, is required to establish 
regulations for determining adequate security measures for the 
secure geological storage of carbon dioxide such that the 
carbon dioxide does not escape into the atmosphere.
    Qualified carbon dioxide is defined as carbon dioxide 
captured from an industrial source that (1) would otherwise be 
released into the atmosphere as an industrial emission of 
greenhouse gas, and (2) is measured at the source of capture 
and verified at the point or points of injection. Qualified 
carbon dioxide includes the initial deposit of captured carbon 
dioxide used as a tertiary injectant but does not include 
carbon dioxide that is recaptured, recycled, and re-injected as 
part of an enhanced oil or natural gas recovery project 
process. A qualified enhanced oil or natural gas recovery 
project is a project that would otherwise meet the definition 
of an enhanced oil recovery project under section 43, if 
natural gas projects were included within that definition.
    A qualified facility means any industrial facility (1) that 
is owned by the taxpayer, (2) at which carbon capture equipment 
is placed in service, and (3) that captures not less than 
500,000 metric tons of carbon dioxide during the taxable year. 
The credit applies only with respect to qualified carbon 
dioxide captured and sequestered or injected in the United 
States \410\ or one of its possessions.\411\
---------------------------------------------------------------------------
    \410\ Sec. 638(1).
    \411\ Sec. 638(2).
---------------------------------------------------------------------------
    Except as provided in regulations, credits are attributable 
to the person that captures and physically or contractually 
ensures the disposal, or use as a tertiary injectant, of the 
qualified carbon dioxide. Credits are subject to recapture, as 
provided by regulation, with respect to any qualified carbon 
dioxide that ceases to be recaptured, disposed of, or used as a 
tertiary injectant in a manner consistent with the rules of the 
provision.
    The credit is part of the general business credit. The 
credit sunsets at the end of the calendar year in which the 
Secretary, in consultation with the Administrator of the 
Environmental Protection Agency, certifies that 75 million 
metric tons of qualified carbon dioxide have been captured and 
sequestered. As of May 11, 2018, the credit had been claimed 
for 59,767,924 tons of qualified carbon dioxide.\412\
---------------------------------------------------------------------------
    \412\ IRS Notice 2018-40, May 14, 2018.
---------------------------------------------------------------------------

                        Explanation of Provision


In general

    The provision makes significant changes to the credit for 
carbon dioxide sequestration. For carbon dioxide captured using 
equipment placed in service before February 9, 2018 (the 
provision's date of enactment), the provision adds a qualified 
use for the carbon that does not involve secure geological 
storage. For carbon dioxide captured using equipment placed in 
service on or after February 9, 2018, the provision extends, 
enhances, and modifies the credit.

Carbon dioxide captured using equipment placed in service before 
        February 9, 2018

    For carbon dioxide captured using equipment placed in 
service before February 9, 2018, the provision expands the $10 
per metric ton credit (adjusted for inflation; $11.44 per 
metric ton for 2018) to permit such credit where the taxpayer 
``utilizes'' the carbon dioxide in a prescribed manner. For 
this purpose, ``utilization'' of qualified carbon dioxide 
means: (1) the fixation of such carbon dioxide through 
photosynthesis or chemosynthesis, such as through the growing 
of algae or bacteria; (2) the chemical conversion of such 
qualified carbon dioxide to a material or compound that results 
in secure storage; or (3) the use of such carbon dioxide for 
any other purpose for which a commercial market exists (except 
for EOR uses), as determined by the Secretary of the 
Treasury.\413\
---------------------------------------------------------------------------
    \413\ Sec. 45Q(f)(5).
---------------------------------------------------------------------------

Carbon dioxide captured using equipment placed in service on or after 
        February 9, 2018

    For carbon dioxide captured using equipment placed in 
service on or after February 9, 2018, the provision modifies 
the carbon dioxide sequestration credit to include 
``utilization,'' as described above, as a credit-eligible means 
of capturing the carbon. The provision also expands the 
definition of qualified carbon to include carbon oxide as well 
as carbon dioxide, and allows for the direct air capture of 
carbon dioxide. Direct air capture involves the use of carbon 
capture equipment to capture carbon dioxide directly from the 
ambient air, excluding the capture of carbon dioxide 
deliberately released from naturally occurring subsurface 
springs or carbon dioxide captured using natural 
photosynthesis.
    For EOR uses and for qualified carbon utilization, the 
provision increases the credit to $12.83 per metric ton 
increasing linearly each calendar year to $35 per metric ton by 
December 31, 2026, and adjusted for inflation thereafter. For 
direct sequestration in secure geological storage, the 
provision increases the credit to $22.66 per metric ton 
increasing linearly each calendar year to $50 per metric ton by 
December 31, 2026, and adjusted for inflation thereafter.
    The provision eliminates the 75 million metric ton cap for 
carbon captured using equipment placed in service on or after 
February 9, 2018. Instead, taxpayers may claim the credit 
during the 12-year period beginning on the date the carbon 
capture equipment is originally placed in service. For this 
purpose, eligible carbon capture equipment must be placed in 
service at a qualified facility the construction of which 
begins before January 1, 2024.\414\ In general, a qualified 
facility is any industrial facility or direct air capture 
facility subject to certain minimum capture requirements 
depending on the type of sequestration activity.
---------------------------------------------------------------------------
    \414\ Sec. 45Q(d).
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2017.
 PART FOUR: CONSOLIDATED APPROPRIATIONS ACT, 2018 (PUBLIC LAW 115-141) 
                                 \415\

---------------------------------------------------------------------------
    \415\ H.R. 1625. The House passed H.R. 1625 on May 22, 2017. The 
Senate passed the bill with an amendment on February 28, 2018. The 
House agreed to the Senate amendment with an amendment on March 22, 
2018. The Senate agreed to the House amendment on March 23, 2018. The 
President signed the bill on March 23, 2018.
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                     A. Aviation Revenue Provisions


1. Extension of expenditure authority and taxes funding Airport and 
        Airway Trust Fund (secs. 201 and 202 of Division M of the Act 
        (the ``Airport and Airway Extension Act of 2018'') and secs. 
        4081, 4083, 4261, 4271, and 9502 of the Code)

                              Present Law


Taxes dedicated to the Airport and Airway Trust Fund

    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial (i.e., transportation that is not 
``for hire'') aviation to fund the Airport and Airway Trust 
Fund.\416\ The present aviation excise taxes are as follows:
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    \416\ Air transportation through U.S. airspace that neither lands 
in nor takes off from a point in the United States (or the ``225-mile 
zone'') is exempt from the aviation excise taxes, but the 
transportation provider is subject to certain ``overflight fees'' 
imposed by the Federal Aviation Administration pursuant to section 
45301 of Title 49 of the United States Code. The ``225 mile zone'' is 
defined as ``that portion of Canada or Mexico that is not more than 225 
miles from the nearest point in the continental United States.'' Sec. 
4262(c)(2).

------------------------------------------------------------------------
           Tax (and Code section)                     Tax Rates
------------------------------------------------------------------------
 Domestic air passengers (sec. 4261)......   7.5 percent of fare, plus
                                             $4.10 (2018) per domestic
                                             flight segment generally
                                             \417\
 International air passengers (sec. 4261).   $18.30 (2018) per arrival
                                             or departure \418\
Amounts paid for right to award free or      7.5 percent of amount paid
 reduced rate passenger air transportation   (and the value of any other
 (sec. 4261).                                benefit provided) to an air
                                             carrier (or any related
                                             person)
 Air cargo (freight) transportation (sec.    6.25 percent of amount
 4271).                                      charged for domestic
                                             transportation; no tax on
                                             international cargo
                                             transportation
 Aviation fuels (sec. 4081): \419\
     Commercial aviation..................   4.3 cents per gallon
     Noncommercial (general) aviation:
         Aviation gasoline................   19.3 cents per gallon
         Jet fuel.........................   21.8 cents per gallon
     Fractional aircraft fuel surtax (sec.   14.1 cents per gallon
     4043).
------------------------------------------------------------------------

      
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    \417\ The domestic flight segment portion of the tax is adjusted 
annually (effective each January 1) for inflation.
    \418\ The international arrival and departure tax rate is adjusted 
annually for inflation. Under a special rule for Alaska and Hawaii, the 
tax only applies to departures at a rate of $9.10 per departure for 
2018.
    \419\ Like most other taxable motor fuels, aviation fuels are 
subject to an additional 0.1-cent-per-gallon excise tax to fund the 
LUST Trust Fund.
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    The Airport and Airway Trust Fund excise taxes (except for 
4.3 cents per gallon of the taxes on aviation fuels and the 
14.1 cents per gallon fractional aircraft fuel surtax) are 
scheduled to expire after March 31, 2018. The 4.3-cents-per-
gallon fuels tax rate is permanent. The fractional aircraft 
fuel surtax expires after September 30, 2021.

Airport and Airway Trust Fund expenditure provisions

    The Airport and Airway Trust Fund was established in 1970 
to finance a major portion of national aviation programs 
(previously funded entirely with General Fund revenues). 
Operation of the Trust Fund is governed by parallel provisions 
of the Code and authorizing statutes.\420\ The Code provisions 
govern deposit of revenues into the Trust Fund and approve 
expenditure purposes in authorizing statutes as in effect on 
the date of enactment of the latest authorizing Act. The 
authorizing Acts provide for specific Trust Fund expenditure 
programs.
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    \420\ Sec. 9502 and 49 U.S.C. sec. 48101, et seq.
---------------------------------------------------------------------------
    No expenditures are permitted to be made from the Airport 
and Airway Trust Fund after March 31, 2018. The purposes for 
which Airport and Airway Trust Fund monies are permitted to be 
expended are fixed as of the date of enactment of the Disaster 
Tax Relief and Airport and Airway Extension Act of 2017; 
therefore, the Code must be amended in order to authorize new 
Airport and Airway Trust Fund expenditure purposes.\421\ The 
Code contains a specific enforcement provision to prevent 
expenditure of Trust Fund monies for purposes not authorized 
under section 9502.\422\ This provision provides that, should 
such unapproved expenditures occur, no further aviation excise 
tax receipts will be transferred to the Trust Fund. Rather, the 
aviation taxes will continue to be imposed, but the receipts 
will be retained in the General Fund.
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    \421\ Sec. 9502(d).
    \422\ Sec. 9502(e)(1).
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                        Explanation of Provision

    The Airport and Airway Extension Act of 2018 extends 
through September 30, 2018, the taxes and expenditure authority 
that were scheduled to expire on March 31, 2018.

                             Effective Date

    The provision is effective on the date of enactment (March 
23, 2018).

                         B. Revenue Provisions


1. Modification of deduction for qualified business income of a 
        cooperative and its patrons (sec. 101 of Division T of Pub. L. 
        No. 115-141 and sec. 199A of the Code)

                         Prior and Present Law


Treatment of taxpayers with domestic production activities income 
        (prior-law section 199)

            In general
    Former section 199 \423\ provides a deduction from taxable 
income (or, in the case of an individual, adjusted gross income 
\424\) that is equal to nine percent of the lesser of the 
taxpayer's qualified production activities income or taxable 
income (determined without regard to the section 199 deduction) 
for the taxable year.\425\ The amount of the deduction for a 
taxable year is limited to 50 percent of the W-2 wages paid by 
the taxpayer, and properly allocable to domestic production 
gross receipts, during the calendar year that ends in such 
taxable year.\426\ W-2 wages are the total wages subject to 
wage withholding,\427\ elective deferrals,\428\ and deferred 
compensation \429\ paid by the taxpayer with respect to 
employment of its employees during the calendar year ending 
during the taxable year of the taxpayer.\430\ W-2 wages do not 
include any amount that is not properly allocable to domestic 
production gross receipts as a qualified item of 
deduction.\431\ In addition, W-2 wages do not include any 
amount that was not properly included in a return filed with 
the Social Security Administration on or before the 60th day 
after the due date (including extensions) for such return.\432\
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    \423\ Section 199 was repealed by Pub. L. No. 115-97, An Act to 
Provide for Reconciliation Pursuant to Titles II and V of the 
Concurrent Resolution on the Budget for Fiscal Year 2018, for taxable 
years beginning after December 31, 2017. All references to former 
section 199 in this document refer to section 199 as in effect before 
its repeal.
    \424\ For this purpose, adjusted gross income is determined after 
application of sections 86, 135, 137, 219, 221, 222, and 469, and 
without regard to the section 199 deduction. Sec. 199(d)(2).
    \425\ Sec. 199(a).
    \426\ Sec. 199(b).
    \427\ Defined in sec. 3401(a).
    \428\ Within the meaning of sec. 402(g)(3).
    \429\ Deferred compensation includes compensation deferred under 
section 457, as well as the amount of any designated Roth contributions 
(as defined in section 402A).
    \430\ Sec. 199(b). In the case of a taxpayer with a short taxable 
year that does not contain a calendar year ending during such short 
taxable year, the following amounts are treated as the W-2 wages of the 
taxpayer for the short taxable year: (1) wages paid during the short 
taxable year to employees of the qualified trade or business; (2) 
elective deferrals (within the meaning of section 402(g)(3)) made 
during the short taxable year by employees of the qualified trade or 
business; and (3) compensation actually deferred under section 457 
during the short taxable year with respect to employees of the 
qualified trade or business. Amounts that are treated as W-2 wages for 
a taxable year are not treated as W-2 wages of any other taxable year. 
See Treas. Reg. sec. 1.199-2(b). In addition, in the case of a taxpayer 
who is an individual with otherwise qualified production activities 
income from sources within the Commonwealth of Puerto Rico, if all the 
income for the taxable year is taxable under section 1 (income tax 
rates for individuals), the determination of W-2 wages with respect to 
the taxpayer's trade or business conducted in Puerto Rico is made 
without regard to any exclusion under the wage withholding rules (as 
provided in section 3401(a)(8)) for remuneration paid for services in 
Puerto Rico. See sec. 199(d)(8)(B).
    \431\ Sec. 199(b)(2)(B).
    \432\ Sec. 199(b)(2)(C).
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    In the case of oil related qualified production activities 
income, the deduction is reduced by three percent of the least 
of the taxpayer's oil related qualified production activities 
income, qualified production activities income, or taxable 
income (determined without regard to the section 199 deduction) 
for the taxable year.\433\ For this purpose, oil related 
qualified production activities income for any taxable year is 
the portion of qualified production activities income 
attributable to the production, refining, processing, 
transportation, or distribution of oil, gas, or any primary 
product thereof \434\ during the taxable year.
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    \433\ Sec. 199(d)(9).
    \434\ Within the meaning of sec. 927(a)(2)(C) as in effect before 
its repeal.
---------------------------------------------------------------------------
    In general, qualified production activities income is equal 
to domestic production gross receipts reduced by the sum of: 
(1) the cost of goods sold that are allocable to those 
receipts; \435\ and (2) other expenses, losses, or deductions 
that are properly allocable to those receipts.\436\ 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 \437\ that was manufactured, 
produced, grown, or extracted by the taxpayer in whole or in 
significant part within the United States; \438\ (2) any sale, 
exchange, or other disposition, or any lease, rental, or 
license, of any qualified film \439\ produced by the taxpayer; 
(3) any sale, exchange, or other disposition, or any lease, 
rental, or license, 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 by the taxpayer for the 
construction of real property in the United States.\440\
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    \435\ For this purpose, any item or service brought into the United 
States is treated as acquired by purchase, and its cost is treated as 
not less than its value immediately after it entered the United States. 
A similar rule applies in determining the adjusted basis of leased or 
rented property where the lease or rental gives rise to domestic 
production gross receipts. In addition, for any property exported by 
the taxpayer for further manufacture, the increase in cost or adjusted 
basis may not exceed the difference between the value of the property 
when exported and the value of the property when brought back into the 
United States after the further manufacture. See sec. 199(c)(3)(A) and 
(B).
    \436\ Sec. 199(c)(1). In computing qualified production activities 
income, the domestic production activities deduction itself is not an 
allocable deduction. Sec. 199(c)(1)(B)(ii). See Treas. Reg. secs. 
1.199-1 through 1.199-9 where the Secretary has prescribed rules for 
the proper allocation of items of income, deduction, expense, and loss 
for purposes of determining qualified production activities income.
    \437\ Qualifying production property generally includes any 
tangible personal property, computer software, and sound recordings. 
Sec. 199(c)(5).
    \438\ When used in the Code in a geographical sense, the term 
``United States'' generally includes only the States and the District 
of Columbia. Sec. 7701(a)(9). A special rule for determining domestic 
production gross receipts, however, provides that for taxable years 
beginning after December 31, 2005, and before January 1, 2018, 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 for such taxable year. Sec. 
199(d)(8)(A) and (C). 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. Sec. 
199(d)(8)(B).
    \439\ 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. Sec. 199(c)(6).
    \440\ Sec. 199(c)(4)(A).
---------------------------------------------------------------------------
    Domestic production gross receipts do not include any gross 
receipts of the taxpayer derived from property leased, 
licensed, or rented by the taxpayer for use by any related 
person.\441\ In addition, domestic production gross receipts do 
not include gross receipts that are derived from (1) the sale 
of food and beverages prepared by the taxpayer at a retail 
establishment, (2) the transmission or distribution of 
electricity, natural gas, or potable water, or (3) the lease, 
rental, license, sale, exchange, or other disposition of 
land.\442\
---------------------------------------------------------------------------
    \441\ Sec. 199(c)(7). For this purpose, a person is treated as 
related to another person if such persons are treated as a single 
employer under subsection (a) or (b) of section 52 or subsection (m) or 
(o) of section 414, except that determinations under subsections (a) 
and (b) of section 52 are made without regard to section 1563(b).
    \442\ Sec. 199(c)(4)(B).
---------------------------------------------------------------------------
            Special rules
    All members of an expanded affiliated group \443\ are 
treated as a single corporation and the deduction is allocated 
among the members of the expanded affiliated group in 
proportion to each member's respective amount, if any, of 
qualified production activities income. In addition, for 
purposes of determining domestic production gross receipts, if 
all of the interests in the capital and profits of a 
partnership are owned by members of a single expanded 
affiliated group at all times during the taxable year of such 
partnership, the partnership and all members of such group are 
treated as a single taxpayer during such period.\444\
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    \443\ For this purpose, an expanded affiliated group is an 
affiliated group as defined in section 1504(a) determined (i) by 
substituting ``more than 50 percent'' for ``more than 80 percent'' each 
place it appears, and (ii) without regard to paragraphs (2) and (4) of 
section 1504(b). See sec. 199(d)(4)(B).
    \444\ Sec. 199(d)(4)(D).
---------------------------------------------------------------------------
    For a tax-exempt taxpayer subject to tax on its unrelated 
business taxable income by section 511, the section 199 
deduction is determined by substituting unrelated business 
taxable income for taxable income where applicable.\445\
---------------------------------------------------------------------------
    \445\ Sec. 199(d)(7).
---------------------------------------------------------------------------
    The section 199 deduction is determined by only taking into 
account items that are attributable to the actual conduct of a 
trade or business.\446\
---------------------------------------------------------------------------
    \446\ Sec. 199(d)(5).
---------------------------------------------------------------------------
            Partnerships and S corporations
    With regard to the domestic production activities income of 
a partnership or S corporation, the deduction is determined at 
the partner or shareholder level. Each partner or shareholder 
generally takes into account such person's allocable share of 
the components of the calculation (including domestic 
production gross receipts; the cost of goods sold allocable to 
such receipts; and other expenses, losses, or deductions 
allocable to such receipts) from the partnership or S 
corporation, as well as any items relating to the partner's or 
shareholder's own qualified production activities income, if 
any.\447\
---------------------------------------------------------------------------
    \447\ Sec. 199(d)(1)(A).
---------------------------------------------------------------------------
    In applying the wage limitation, each partner or 
shareholder is treated as having been allocated wages from the 
partnership or S corporation in an amount that is equal to such 
person's allocable share of W-2 wages.\448\
---------------------------------------------------------------------------
    \448\ In the case of a trust or estate, the components of the 
calculation are apportioned between (and among) the beneficiaries and 
the fiduciary. See sec. 199(d)(1)(B) and Treas. Reg. sec. 1.199-5(d) 
and (e).
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            Specified agricultural and horticultural cooperatives
                In general
    With regard to specified agricultural and horticultural 
cooperatives, section 199 provides the same treatment of 
qualified production activities income derived from 
agricultural or horticultural products that are manufactured, 
produced, grown, or extracted by such cooperatives,\449\ as it 
provides for qualified production activities income of other 
taxpayers, including non-specified cooperatives (i.e., the 
cooperative may claim a deduction for qualified production 
activities income). The cooperative is treated as having 
manufactured, produced, grown, or extracted in whole or 
significant part any qualifying production property marketed by 
the cooperative if such items were manufactured, produced, 
grown, or extracted in whole or significant part by its 
patrons.\450\ In addition, the cooperative is treated as having 
manufactured, produced, grown, or extracted agricultural 
products with respect to which the cooperative performs 
storage, handling, or other processing activities (other than 
transportation activities) within the United States related to 
the sale, exchange, or other disposition of agricultural 
products, provided the products are consumed in connection with 
or incorporated into the manufacturing, production, growth, or 
extraction of qualifying production property (whether or not by 
the cooperative).\451\ Finally, for purposes of determining the 
cooperative's section 199 deduction, qualified production 
activities income and taxable income are determined without 
regard to any deduction allowable under section 1382(b) and (c) 
(relating to patronage dividends, per-unit retain allocations, 
and nonpatronage distributions) for the taxable year.\452\
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    \449\ For this purpose, agricultural or horticultural products also 
include fertilizer, diesel fuel, and other supplies used in 
agricultural or horticultural production that are manufactured, 
produced, grown, or extracted by the cooperative. See Treas. Reg. sec. 
1.199-6(f).
    \450\ Sec. 199(d)(3)(D) and Treas. Reg. sec. 1.199-6(d).
    \451\ See Treas. Reg. sec. 1.199-3(e)(1).
    \452\ See sec. 199(d)(3)(C) and Treas. Reg. sec. 1.199-6(c).
---------------------------------------------------------------------------
            Definition of a specified agricultural or horticultural 
                    cooperative
    A specified agricultural or horticultural cooperative is an 
organization to which part I of subchapter T applies that is 
engaged in (a) the manufacturing, production, growth, or 
extraction in whole or significant part of any agricultural or 
horticultural product, or (b) the marketing of agricultural or 
horticultural products that its patrons have so manufactured, 
produced, grown, or extracted.\453\
---------------------------------------------------------------------------
    \453\ Sec. 199(d)(3)(F). For this purpose, agricultural or 
horticultural products also include fertilizer, diesel fuel and other 
supplies used in agricultural or horticultural production that are 
manufactured, produced, grown, or extracted by the cooperative. See 
Treas. Reg. sec. 1.199-6(f).
---------------------------------------------------------------------------
            Allocation of the cooperative's deduction to patrons
    Any patron that receives a qualified payment from a 
specified agricultural or horticultural cooperative is allowed 
as a deduction for the taxable year in which such payment is 
received an amount equal to the portion of the cooperative's 
deduction for qualified production activities income that is 
(i) allowed with respect to the portion of the qualified 
production activities income to which such payment is 
attributable, and (ii) identified by the cooperative in a 
written notice mailed to the patron during the payment period 
described in section 1382(d).\454\ A qualified payment is any 
amount that (i) is described in paragraph (1) or (3) of section 
1385(a) (i.e., patronage dividends and per-unit retain 
allocations), (ii) is received by an eligible patron from a 
specified agricultural or horticultural cooperative, and (iii) 
is attributable to qualified production activities income with 
respect to which a deduction is allowed to such 
cooperative.\455\
---------------------------------------------------------------------------
    \454\ Sec. 199(d)(3)(A) and Treas. Reg. sec. 1.199-6(a). The 
written notice must be mailed by the cooperative to it patrons no later 
than the 15th day of the ninth month following the close of the taxable 
year. The cooperative must report the amount of the patron's section 
199 deduction on Form 1099-PATR, ``Taxable Distributions Received From 
Cooperatives,'' issued to the patron. Treas. Reg. sec. 1.199-6(g).
    \455\ Sec. 199(d)(3)(E). For this purpose, patronage dividends and 
per-unit retain allocations include any advances on patronage and per-
unit retains paid in money during the taxable year. Treas. Reg. sec. 
1.199-6(e).
---------------------------------------------------------------------------
    The cooperative cannot reduce its income under section 1382 
for any deduction allowable to its patrons under this rule 
(i.e., the cooperative must reduce its deductions allowed for 
certain payments to its patrons in an amount equal to the 
section 199 deduction allocated to its patrons).\456\
---------------------------------------------------------------------------
    \456\ Sec. 199(d)(3)(B) and Treas. Reg. sec. 1.199-6(b).
---------------------------------------------------------------------------

Treatment of taxpayers other than corporations, in general

            Individual income tax rates
    To determine regular tax liability, an individual taxpayer 
generally must apply the tax rate schedules (or the tax tables) 
to his or her regular taxable income. The rate schedules are 
broken into several ranges of income, known as income brackets, 
and the marginal tax rate increases as a taxpayer's income 
increases. Separate rate schedules apply based on an 
individual's filing status (i.e., single, head of household, 
married filing jointly, or married filing separately). For 
2018, the regular individual income tax rate schedule provides 
rates of 10, 12, 22, 24, 32, 35, and 37 percent.
            Partnerships
    Partnerships generally are treated for Federal income tax 
purposes as pass-through entities not subject to tax at the 
entity level.\457\ Items of income (including tax-exempt 
income), gain, loss, deduction, and credit of the partnership 
are taken into account by the partners in computing their 
income tax liability (based on the partnership's method of 
accounting and regardless of whether the income is distributed 
to the partners).\458\ A partner's deduction for partnership 
losses is limited to the partner's adjusted basis in its 
partnership interest.\459\ Losses not allowed as a result of 
that limitation generally are carried forward to the next year. 
A partner's adjusted basis in the partnership interest 
generally equals the sum of (1) the partner's capital 
contributions to the partnership, (2) the partner's 
distributive share of partnership income, and (3) the partner's 
share of partnership liabilities, less (1) the partner's 
distributive share of losses allowed as a deduction and certain 
nondeductible expenditures, and (2) any partnership 
distributions to the partner.\460\ Partners generally may 
receive distributions of partnership property without 
recognition of gain or loss, subject to some exceptions.\461\
---------------------------------------------------------------------------
    \457\ Sec. 701.
    \458\ Sec. 702(a).
    \459\ Sec. 704(d). In addition, passive loss and at-risk 
limitations limit the extent to which certain types of income can be 
offset by partnership deductions (sections 469 and 465). These 
limitations do not apply to corporate partners (except certain closely-
held corporations) and may not be important to individual partners who 
have partner-level passive income from other investments.
    \460\ Sec. 705.
    \461\ Sec. 731. Gain or loss may nevertheless be recognized, for 
example, on the distribution of money or marketable securities, 
distributions with respect to contributed property, or in the case of 
disproportionate distributions (which can result in ordinary income).
---------------------------------------------------------------------------
    Partnerships may allocate items of income, gain, loss, 
deduction, and credit among the partners, provided the 
allocations have substantial economic effect.\462\ In general, 
an allocation has substantial economic effect to the extent the 
partner to which the allocation is made receives the economic 
benefit or bears the economic burden of such allocation and the 
allocation substantially affects the dollar amounts to be 
received by the partners from the partnership independent of 
tax consequences.\463\
---------------------------------------------------------------------------
    \462\ Sec. 704(b)(2).
    \463\ Treas. Reg. sec. 1.704-1(b)(2).
---------------------------------------------------------------------------
    State laws of every State provide for limited liability 
companies \464\ (``LLCs''), which are neither partnerships nor 
corporations under applicable State law, but which are 
generally treated as partnerships for Federal tax 
purposes.\465\
---------------------------------------------------------------------------
    \464\ The first LLC statute was enacted in Wyoming in 1977. All 
States (and the District of Columbia) now have an LLC statute, though 
the tax treatment of LLCs for State tax purposes may differ.
    \465\ Any domestic nonpublicly traded unincorporated entity with 
two or more members generally is treated as a partnership for federal 
income tax purposes, while any single-member domestic unincorporated 
entity generally is treated as disregarded for Federal income tax 
purposes (i.e., treated as not separate from its owner). Instead of the 
applicable default treatment, however, an LLC may elect to be treated 
as a corporation for Federal income tax purposes. Treas. Reg. sec. 
301.7701-3 (known as the ``check-the-box'' regulations).
---------------------------------------------------------------------------
    A publicly traded partnership generally is treated as a 
corporation for Federal tax purposes.\466\ For this purpose, a 
publicly traded partnership means any partnership if interests 
in the partnership are traded on an established securities 
market or interests in the partnership are readily tradable on 
a secondary market (or the substantial equivalent 
thereof).\467\
---------------------------------------------------------------------------
    \466\ Sec. 7704(a).
    \467\ Sec. 7704(b).
---------------------------------------------------------------------------
    An exception from corporate treatment is provided for 
certain publicly traded partnerships, 90 percent or more of 
whose gross income is qualifying income.\468\
---------------------------------------------------------------------------
    \468\ Sec. 7704(c)(2). Qualifying income is defined to include 
interest, dividends, and gains from the disposition of a capital asset 
(or of property described in section 1231(b)) that is held for the 
production of income that is qualifying income. Sec. 7704(d). 
Qualifying income also includes rents from real property, gains from 
the sale or other disposition of real property, and income and gains 
from the exploration, development, mining or production, processing, 
refining, transportation (including pipelines transporting gas, oil, or 
products thereof), or the marketing of any mineral or natural resource 
(including fertilizer, geothermal energy, and timber), industrial 
source carbon dioxide, or the transportation or storage of certain fuel 
mixtures, alternative fuel, alcohol fuel, or biodiesel fuel. Qualifying 
income also includes income and gains from commodities (not described 
in section 1221(a)(1)) or futures, options, or forward contracts with 
respect to such commodities (including foreign currency transactions of 
a commodity pool) where a principal activity of the partnership is the 
buying and selling of such commodities, futures, options, or forward 
contracts. However, the exception for partnerships with qualifying 
income does not apply to any partnership resembling a mutual fund 
(i.e., that would be described in section 851(a) if it were a domestic 
corporation), which includes a corporation registered under the 
Investment Company Act of 1940 (Pub. L. No. 76-768 (1940)) as a 
management company or unit investment trust. Sec. 7704(c)(3).
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            S corporations
    For Federal income tax purposes, an S corporation \469\ 
generally is not subject to tax at the corporate level.\470\ 
Items of income (including tax-exempt income), gain, loss, 
deduction, and credit of the S corporation are taken into 
account by the S corporation shareholders in computing their 
income tax liabilities (based on the S corporation's method of 
accounting and regardless of whether the income is distributed 
to the shareholders). A shareholder's deduction for corporate 
losses is limited to the sum of the shareholder's adjusted 
basis in its S corporation stock and the indebtedness of the S 
corporation to such shareholder. Losses not allowed as a result 
of that limitation generally are carried forward to the next 
year. A shareholder's adjusted basis in the S corporation stock 
generally equals the sum of (1) the shareholder's capital 
contributions to the S corporation and (2) the shareholder's 
pro rata share of S corporation income, less (1) the 
shareholder's pro rata share of losses allowed as a deduction 
and certain nondeductible expenditures, and (2) any S 
corporation distributions to the shareholder.\471\
---------------------------------------------------------------------------
    \469\ An S corporation is so named because its Federal tax 
treatment is governed by subchapter S of the Code.
    \470\ Secs. 1363 and 1366.
    \471\ Sec. 1367. If any amount that would reduce the adjusted basis 
of a shareholder's S corporation stock exceeds the amount that would 
reduce that basis to zero, the excess is applied to reduce (but not 
below zero) the shareholder's basis in any indebtedness of the S 
corporation to the shareholder. If, after a reduction in the basis of 
such indebtedness, there is an event that would increase the adjusted 
basis of the shareholder's S corporation stock, such increase is 
instead first applied to restore the reduction in the basis of the 
shareholder's indebtedness. Sec. 1367(b)(2).
---------------------------------------------------------------------------
    In general, an S corporation shareholder is not subject to 
tax on corporate distributions unless the distributions exceed 
the shareholder's basis in the stock of the corporation.
    To be eligible to elect S corporation status, a corporation 
may not have more than 100 shareholders and may not have more 
than one class of stock.\472\ Only individuals (other than 
nonresident aliens), certain tax-exempt organizations, and 
certain trusts and estates are permitted shareholders of an S 
corporation.
---------------------------------------------------------------------------
    \472\ Sec. 1361. For this purpose, a husband and wife and all 
members of a family are treated as one shareholder. Sec. 1361(c)(1).
---------------------------------------------------------------------------
            Sole proprietorships
    Unlike a C corporation, partnership, or S corporation, a 
business conducted as a sole proprietorship is not treated as 
an entity distinct from its owner for Federal income tax 
purposes.\473\ Rather, the business owner is taxed directly on 
business income, and files Schedule C (sole proprietorships 
generally), Schedule E (rental real estate and royalties), or 
Schedule F (farms) with his or her individual tax return. 
Furthermore, transfer of a sole proprietorship is treated as a 
transfer of each individual asset of the business. Nonetheless, 
a sole proprietorship is treated as an entity separate from its 
owner for employment tax purposes,\474\ for certain excise 
taxes,\475\ and certain information reporting 
requirements.\476\
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    \473\ A single-member unincorporated entity is disregarded for 
Federal income tax purposes, unless its owner elects to be treated as a 
Corporation. Treas. Reg. sec. 301.7701-3(b)(1)(ii). Sole 
proprietorships often are conducted through legal entities for nontax 
reasons. While sole proprietorships generally may have no more than one 
owner, a married couple that files a joint return and jointly owns and 
operates a business may elect to have that business treated as a sole 
proprietorship under section 761(f).
    \474\ Treas. Reg. sec. 301.7701-2(c)(2)(iv).
    \475\ Treas. Reg. sec. 301.7701-2(c)(2)(v).
    \476\ Treas. Reg. sec. 301.7701-2(c)(2)(vi).
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Taxpayers other than corporations with qualified business income \477\
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    \477\ The provision, section 199A, as originally enacted in 2017, 
is described in more detail in Joint Committee on Taxation, General 
Explanation of Public Law 115-97, JCS-1-18, December 2018, pages 11-38.
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    For taxable years beginning after December 31, 2017, and 
before January 1, 2026, an individual taxpayer generally may 
deduct 20 percent of qualified business income from a 
partnership, S corporation, or sole proprietorship, as well as 
20 percent of aggregate qualified REIT dividends, qualified 
cooperative dividends, and qualified publicly traded 
partnership income.\478\ Limitations based on W-2 wages and 
capital investment phase in above a threshold amount of taxable 
income.\479\ A disallowance of the deduction on income of 
specified service trades or businesses also phases in above the 
threshold amount of taxable income.
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    \478\ Sec. 199A. Eligible taxpayers also include fiduciaries and 
beneficiaries of trusts and estates with qualified business income.
    \479\ For this purpose, taxable income is computed without regard 
to the 20-percent deduction. Sec. 199A(e)(1).
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            Qualified business income
              In general
    Qualified business income is determined for each qualified 
trade or business of the taxpayer. For any taxable year, 
qualified business income means the net amount of qualified 
items of income, gain, deduction, and loss with respect to the 
qualified trade or business of the taxpayer. The determination 
of qualified items of income, gain, deduction, and loss takes 
into account such items only to the extent included or allowed 
in the determination of taxable income for the year.
    Items are treated as qualified items of income, gain, 
deduction, and loss only to the extent they are effectively 
connected with the conduct of a trade or business within the 
United States.\480\ In the case of an individual with qualified 
business income from sources within the Commonwealth of Puerto 
Rico, if all such income for the taxable year is taxable under 
section 1 (income tax rates for individuals), then the term 
``United States'' is considered to include Puerto Rico for 
purposes of determining the individual's qualified business 
income.\481\
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    \480\ For this purpose, section 864(c) is applied by substituting 
``qualified trade or business (within the meaning of section 199A)'' 
for ``nonresident alien individual or a foreign corporation'' or for 
``a foreign corporation,'' each place they appear. Sec. 199A(c)(3)(A).
    \481\ Sec. 199A(f)(1)(C).
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    Certain items are not qualified items of income, gain, 
deduction, or loss.\482\ Specifically, qualified items of 
income, gain, deduction, and loss do not include (1) any item 
taken into account in determining net capital gain or net 
capital loss, (2) dividends, income equivalent to a dividend, 
or payments in lieu of dividends, (3) interest income other 
than that which is properly allocable to a trade or business, 
(4) the excess of gain over loss from commodities transactions 
other than (i) those entered into in the normal course of the 
trade or business or (ii) with respect to stock in trade or 
property held primarily for sale to customers in the ordinary 
course of the trade or business, property used in the trade or 
business, or supplies regularly used or consumed in the trade 
or business, (5) the excess of foreign currency gains over 
foreign currency losses from section 988 transactions other 
than transactions directly related to the business needs of the 
business activity, (6) net income from notional principal 
contracts other than clearly identified hedging transactions 
that are treated as ordinary (i.e., not treated as capital 
assets), and (7) any amount received from an annuity that is 
not received in connection with the trade or business. 
Qualified items do not include any item of deduction or loss 
properly allocable to any of the preceding items.
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    \482\ See sec. 199A(c)(3)(B).
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    If the net amount of qualified business income from all 
qualified trades or businesses during the taxable year is a 
loss, then such loss is carried forward and in the next taxable 
year is treated as a loss from a qualified trade or 
business.\483\ Any deduction that would otherwise be allowed in 
a subsequent taxable year with respect to the taxpayer's 
qualified trades or businesses is reduced by 20 percent of any 
carryover qualified business loss.
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    \483\ Sec. 199A(c)(2).
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            Reasonable compensation and guaranteed payments
    Qualified business income does not include any amount paid 
by an S corporation that is treated as reasonable compensation 
of the taxpayer.\484\ Similarly, qualified business income does 
not include any guaranteed payment for services rendered with 
respect to the trade or business,\485\ and, to the extent 
provided in regulations, does not include any amount paid or 
incurred by a partnership to a partner, acting other than in 
his or her capacity as a partner, for services.\486\
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    \484\ Sec. 199A(c)(4).
    \485\ Described in sec. 707(c).
    \486\ Described in sec. 707(a).
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            Qualified trade or business
    A qualified trade or business means any trade or business 
other than a specified service trade or business and other than 
the trade or business of performing services as an 
employee.\487\
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    \487\ Sec. 199A(d)(1).
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            Specified service trade or business
    A specified service trade or business means any trade or 
business involving the performance of services in the fields of 
health, law, accounting, actuarial science, performing arts, 
consulting, athletics, financial services, brokerage services, 
or any trade or business where the principal asset of such 
trade or business is the reputation or skill of one or more of 
its employees or owners, or which involves the performance of 
services that consist of investing and investment management, 
trading, or dealing in securities, partnership interests, or 
commodities.\488\ For this purpose the terms ``security'' and a 
``commodity'' have the meanings provided in the rules for the 
mark-to-market accounting method for dealers in securities 
(section 475(c)(2) and (e)(2), respectively).
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    \488\ Sec. 199A(d)(2).
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    The exclusion from the definition of a qualified trade or 
business for specified service trades or businesses phases in 
for a taxpayer with taxable income in excess of a threshold 
amount. The threshold amount is $157,500 (200 percent of that 
amount, or $315,000, in the case of a joint return) (together, 
the ``threshold amount''), adjusted for inflation in taxable 
years beginning after 2018.\489\ The exclusion from the 
definition of a qualified trade or business for specified 
service trades or businesses is fully phased in for a taxpayer 
with taxable income in excess of the threshold amount plus 
$50,000 ($100,000 in the case of a joint return).\490\
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    \489\ Sec. 199A(e)(2).
    \490\ See sec. 199A(d)(3).
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            Tentative deductible amount for a qualified trade or 
                    business
              In general
    For a taxpayer with taxable income below the threshold 
amount, the deductible amount for each qualified trade or 
business is equal to 20 percent of the qualified business 
income with respect to the trade or business.\491\ For a 
taxpayer with taxable income above the threshold, the taxpayer 
is allowed a deductible amount for each qualified trade or 
business equal to the lesser of (1) 20 percent of the qualified 
business income with respect to such trade or business, or (2) 
the greater of (a) 50 percent of the W-2 wages paid with 
respect to the qualified trade or business, or (b) the sum of 
25 percent of the W-2 wages paid with respect to the qualified 
trade or business plus 2.5 percent of the unadjusted basis, 
immediately after acquisition, of all qualified property of the 
qualified trade or business.\492\
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    \491\ Sec. 199A(b)(3).
    \492\ Sec. 199A(b)(2).
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              Limitations based on W-2 wages and capital
    The wage and capital limitations phase in for a taxpayer 
with taxable income in excess of the threshold amount.\493\ The 
wage and capital limitations apply fully for a taxpayer with 
taxable income in excess of the threshold amount plus $50,000 
($100,000 in the case of a joint return).
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    \493\ See sec. 199A(b)(3)(B).
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    W-2 wages are the total wages subject to wage 
withholding,\494\ elective deferrals,\495\ and deferred 
compensation \496\ paid by the qualified trade or business with 
respect to employment of its employees during the calendar year 
ending during the taxable year of the taxpayer.\497\ In the 
case of a taxpayer who is an individual with otherwise 
qualified business income from sources within the Commonwealth 
of Puerto Rico, if all the income for the taxable year is 
taxable under section 1 (income tax rates for individuals), the 
determination of W-2 wages with respect to the taxpayer's trade 
or business conducted in Puerto Rico is made without regard to 
any exclusion under the wage withholding rules \498\ for 
remuneration paid for services in Puerto Rico. W-2 wages do not 
include any amount that is not properly allocable to qualified 
business income as a qualified item of deduction.\499\ In 
addition, W-2 wages do not include any amount that was not 
properly included in a return filed with the Social Security 
Administration on or before the 60th day after the due date 
(including extensions) for such return.\500\
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    \494\ Defined in sec. 3401(a).
    \495\ Within the meaning of sec. 402(g)(3).
    \496\ Deferred compensation includes compensation deferred under 
section 457, as well as the amount of any designated Roth contributions 
(as defined in section 402A).
    \497\ Sec. 199A(b)(4). In the case of a taxpayer with a short 
taxable year that does not contain a calendar year ending during such 
short taxable year, the following amounts are treated as the W-2 wages 
of the taxpayer for the short taxable year: (1) wages paid during the 
short taxable year to employees of the qualified trade or business; (2) 
elective deferrals (within the meaning of section 402(g)(3)) made 
during the short taxable year by employees of the qualified trade or 
business; and (3) compensation actually deferred under section 457 
during the short taxable year with respect to employees of the 
qualified trade or business. Amounts that are treated as W-2 wages for 
a taxable year are not treated as W-2 wages of any other taxable year. 
See Conference Report to accompany H.R. 1, Tax Cuts and Jobs Act, H.R. 
Rep. No. 115-466, December 15, 2017, p. 217.
    \498\ As provided in sec. 3401(a)(8).
    \499\ Sec. 199A(b)(4)(B).
    \500\ Sec. 199A(b)(4)(C).
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    Qualified property means tangible property of a character 
subject to depreciation under section 167 that is held by, and 
available for use in, the qualified trade or business at the 
close of the taxable year, which is used at any point during 
the taxable year in the production of qualified business 
income, and for which the depreciable period has not ended 
before the close of the taxable year.\501\ The depreciable 
period with respect to qualified property of a taxpayer means 
the period beginning on the date the property is first placed 
in service by the taxpayer and ending on the later of (a) the 
date that is 10 years after the date the property is first 
placed in service, or (b) the last day of the last full year in 
the applicable recovery period that would apply to the property 
under section 168 (determined without regard to section 
168(g)).
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    \501\ Sec. 199A(b)(6).
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              Partnerships and S corporations
    In the case of a partnership or S corporation, the section 
199A deduction is determined at the partner or shareholder 
level. Each partner in a partnership takes into account the 
partner's allocable share of each qualified item of income, 
gain, deduction, and loss, and is treated as having W-2 wages 
and unadjusted basis of qualified property for the taxable year 
equal to the partner's allocable share of W-2 wages and 
unadjusted basis of qualified property of the partnership. The 
partner's allocable share of W-2 wages and unadjusted basis of 
qualified property are required to be determined in the same 
manner as the partner's allocable share of wage expenses and 
depreciation, respectively. Similarly, each shareholder of an S 
corporation takes into account the shareholder's pro rata share 
of each qualified item of income, gain, deduction, and loss of 
the S corporation, and is treated as having W-2 wages and 
unadjusted basis of qualified property for the taxable year 
equal to the shareholder's pro rata share of W-2 wages and 
unadjusted basis of qualified property of the S corporation.
            Qualified REIT dividends, cooperative dividends, and 
                    publicly traded partnership income
    A deduction is allowed for 20 percent of the taxpayer's 
aggregate amount of qualified REIT dividends, qualified 
cooperative dividends, and qualified publicly traded 
partnership income for the taxable year.\502\
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    \502\ See sec. 199A(a) and (b).
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    Qualified REIT dividends do not include any portion of a 
dividend received from a REIT that is a capital gain dividend 
\503\ or a qualified dividend.\504\
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    \503\ Defined in sec. 857(b)(3).
    \504\ Defined in sec. 1(h)(11). See sec. 199A(e)(3).
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    A qualified cooperative dividend means any patronage 
dividend,\505\ per-unit retain allocation,\506\ qualified 
written notice of allocation,\507\ or any other similar amount, 
provided such amount is includible in gross income and is 
received from either (1) a tax-exempt organization described in 
section 501(c)(12) \508\ or a taxable or tax-exempt cooperative 
that is described in section 1381(a), or (2) a taxable 
cooperative governed by tax rules applicable to cooperatives 
before the enactment of subchapter T of the Code in 1962.\509\
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    \505\ Defined in sec. 1388(a).
    \506\ Defined in sec. 1388(f).
    \507\ Defined in sec. 1388(c).
    \508\ Organizations described in section 501(c)(12) are benevolent 
life insurance associations of a purely local character, mutual ditch 
or irrigation companies, mutual or cooperative telephone companies, or 
like organizations; but only if 85 percent or more of the income 
consists of amounts collected from members for the sole purpose of 
meeting losses and expenses. Sec. 501(c)(12)(A).
    \509\ Sec. 199A(e)(4).
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    Qualified publicly traded partnership income means (with 
respect to any qualified trade or business of the taxpayer) the 
sum of (a) the net amount of the taxpayer's allocable share of 
each qualified item of income, gain, deduction, and loss of the 
partnership from a publicly traded partnership not treated as a 
corporation,\510\ and (b) gain recognized by the taxpayer on 
disposition of its interest in such partnership that is treated 
as ordinary income (for example, by reason of section 
751).\511\
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    \510\ Such items must be effectively connected with a U.S. trade or 
business, be included or allowed in determining taxable income for the 
taxable year, and not constitute excepted enumerated investment-type 
income. Such items do not include the taxpayer's reasonable 
compensation, guaranteed payments for services, or (to the extent 
provided in regulations) section 707(a) payments for services.
    \511\ Sec. 199A(e)(5).
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            Determination of the taxpayer's deduction
    The taxpayer's deduction for qualified business income for 
the taxable year is equal to the sum of (1) the lesser of (a) 
the combined qualified business income amount for the taxable 
year, or (b) an amount equal to 20 percent of taxable income 
(reduced by any net capital gain \512\ and qualified 
cooperative dividends), plus (2) the lesser of (a) 20 percent 
of qualified cooperative dividends, or (b) taxable income 
(reduced by net capital gain). This sum may not exceed the 
taxpayer's taxable income for the taxable year (reduced by net 
capital gain).\513\ The combined qualified business income 
amount for the taxable year is the sum of the deductible 
amounts determined for each qualified trade or business carried 
on by the taxpayer and 20 percent of the taxpayer's qualified 
REIT dividends and qualified publicly traded partnership 
income.\514\
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    \512\ Defined in sec. 1(h).
    \513\ Sec. 199A(a).
    \514\ Sec. 199A(b)(1).
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    The taxpayer's deduction for qualified business income is 
not allowed in computing adjusted gross income; instead, the 
deduction is allowed in computing taxable income.\515\ The 
deduction is available to both individuals who do itemize their 
deductions and individuals who do not itemize their 
deductions.\516\
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    \515\ Sec. 62(a).
    \516\ Sec. 63(b) and (d).
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Treatment of cooperatives and their patrons

            In general
    Certain corporations are eligible to be treated as 
cooperatives and taxed under the special rules of subchapter T 
of the Code.\517\ In general, the subchapter T rules apply to 
any corporation operating on a cooperative basis (except mutual 
savings banks, insurance companies, most tax-exempt 
organizations, and certain utilities).
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    \517\ Secs. 1381-1388.
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    For Federal income tax purposes, a cooperative subject to 
the cooperative tax rules of subchapter T generally computes 
its income as if it were a taxable corporation, except that, in 
determining its taxable income, the cooperative does not take 
into account amounts paid for the taxable year as (1) patronage 
dividends, to the extent paid in money, qualified written 
notices of allocation,\518\ or other property (except 
nonqualified written notices of allocation) \519\ with respect 
to patronage occurring during such taxable year, and (2) per-
unit retain allocations, to the extent paid in money, qualified 
per-unit retain certificates,\520\ or other property (except 
nonqualified per-unit retain certificates) \521\ with respect 
to marketing occurring during such taxable year.\522\
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    \518\ As defined in sec. 1388(c).
    \519\ As defined in sec. 1388(d).
    \520\ As defined in sec. 1388(h).
    \521\ As defined in sec. 1388(i).
    \522\ Sec. 1382(b)(1) and (3). In determining its taxable income, 
the cooperative also does not take into account amounts paid in money 
or other property in redemption of a nonqualified written notice of 
allocation which was paid as a patronage dividend during the payment 
period for the taxable year during which the patronage occurred, or in 
redemption of a nonqualified per-unit retain certificate which was paid 
as a per-unit retain allocation during the payment period for the 
taxable year during which the marketing occurred. Sec. 1382(b)(2) and 
(4).
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    Patronage dividends are amounts paid to a patron (1) on the 
basis of quantity or value of business done with or for such 
patron, (2) under an obligation of the cooperative to pay such 
amount that existed before the cooperative received the amount 
so paid, and (3) that are determined by reference to the net 
earnings of the cooperative from business done with or for its 
patrons. \523\ Per-unit retain allocations are allocations to a 
patron with respect to products marketed for him, the amount of 
which is fixed without reference to the net earnings of the 
organization pursuant to an agreement between the organization 
and the patron.\524\
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    \523\ Sec. 1388(a).
    \524\ Sec. 1388(f).
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    Because a patron of a cooperative that receives patronage 
dividends or per-unit retain allocations generally must include 
such amounts in gross income,\525\ excluding patronage 
dividends and per-unit retain allocations paid by the 
cooperative from the cooperative's taxable income in effect 
allows the cooperative to be a conduit with respect to profits 
derived from transactions with its patrons.
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    \525\ Sec. 1385(a)(1) and (3).
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            Specified agricultural or horticultural cooperatives with 
                    qualified business income
    For taxable years beginning after December 31, 2017, and 
before January 1, 2026, a deduction is allowed to any specified 
agricultural or horticultural cooperative equal to the lesser 
of (a) 20 percent of the excess (if any) of the cooperative's 
gross income over the qualified cooperative dividends paid 
during the taxable year for the taxable year, or (b) the 
greater of 50 percent of the W-2 wages paid by the cooperative 
with respect to its trade or business or the sum of 25 percent 
of the W-2 wages of the cooperative with respect to its trade 
or business plus 2.5 percent of the unadjusted basis 
immediately after acquisition of qualified property of the 
cooperative.\526\ The cooperative's section 199A(g) deduction 
may not exceed its taxable income \527\ for the taxable year.
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    \526\ Sec. 199A(g).
    \527\ For this purpose, taxable income is computed without regard 
to the cooperative's deduction under section 199A(g).
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    A specified agricultural or horticultural cooperative is an 
organization to which part I of subchapter T applies that is 
engaged in (a) the manufacturing, production, growth, or 
extraction in whole or significant part of any agricultural or 
horticultural product, (b) the marketing of agricultural or 
horticultural products that its patrons have so manufactured, 
produced, grown, or extracted, or (c) the provision of 
supplies, equipment, or services to farmers or organizations 
described in the foregoing.

                        Explanation of Provision


Treatment of specified agricultural or horticultural cooperatives

            Deduction for qualified production activities income under 
                    section 199A
    The provision modifies the deduction for qualified business 
income of a specified agricultural or horticultural cooperative 
under section 199A(g) to instead provide a deduction for 
qualified production activities income of a specified 
agricultural or horticultural cooperative that is similar to 
the deduction for qualified production activities income under 
former section 199.
    The provision provides a deduction from taxable income that 
is equal to nine percent of the lesser of the cooperative's 
qualified production activities income or taxable income 
(determined without regard to the cooperative's section 199A(g) 
deduction and any deduction allowable under section 1382(b) and 
(c) (relating to patronage dividends, per-unit retain 
allocations, and nonpatronage distributions)) for the taxable 
year. The amount of the deduction for a taxable year is limited 
to 50 percent of the W-2 wages paid by the cooperative during 
the calendar year that ends in such taxable year. For this 
purpose, W-2 wages are determined in the same manner as under 
the other provisions of section 199A, except that such wages do 
not include any amount that is not properly allocable to 
domestic production gross receipts.\528\
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    \528\ Under the provision, because Puerto Rico is not treated as 
part of the United States for purposes of determining domestic 
production gross receipts under section 199A(g), W-2 wages do not 
include any remuneration paid for services in Puerto Rico.
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    In the case of oil related qualified production activities 
income, the provision provides that the section 199A(g) 
deduction is reduced by three percent of the least of the 
cooperative's oil related qualified production activities 
income, qualified production activities income, or taxable 
income (determined without regard to the cooperative's section 
199A(g) deduction and any deduction allowable under section 
1382(b) and (c) (relating to patronage dividends, per-unit 
retain allocations, and nonpatronage distributions)) for the 
taxable year. For this purpose, oil related qualified 
production activities income for any taxable year is the 
portion of qualified production activities income attributable 
to the production, refining, processing, transportation, or 
distribution of oil, gas, or any primary product thereof \529\ 
during the taxable year.
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    \529\ Within the meaning of section 927(a)(2)(C) as in effect 
before its repeal.
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    In general, qualified production activities income is equal 
to domestic production gross receipts reduced by the sum of: 
(1) the cost of goods sold that are allocable to such receipts; 
\530\ and (2) other expenses, losses, or deductions that are 
properly allocable to such receipts.\531\ Domestic production 
gross receipts generally are gross receipts of the cooperative 
that are derived from any lease, rental, license, sale, 
exchange, or other disposition of any agricultural or 
horticultural product \532\ that was manufactured, produced, 
grown, or extracted by the cooperative in whole or in 
significant part within the United States.\533\ The cooperative 
is treated as having manufactured, produced, grown, or 
extracted in whole or significant part any agricultural or 
horticultural products marketed by the cooperative if such 
items were manufactured, produced, grown, or extracted in whole 
or significant part by its patrons.
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    \530\ For this purpose, any item or service brought into the United 
States is treated as acquired by purchase, and its cost is treated as 
not less than its value immediately after it entered the United States. 
A similar rule applies in determining the adjusted basis of leased or 
rented property where the lease or rental gives rise to domestic 
production gross receipts. In addition, for any property exported by 
the cooperative for further manufacture, the increase in cost or 
adjusted basis may not exceed the difference between the value of the 
property when exported and the value of the property when brought back 
into the United States after the further manufacture.
    \531\ In computing qualified production activities income, the 
section 199A(g) deduction itself is not an allocable deduction. As 
under former section 199, the cooperative's qualified production 
activities income is determined without regard to any deduction 
allowable under section 1382(b) and (c) (relating to patronage 
dividends, per-unit retain allocations, and nonpatronage 
distributions). See Treas. Reg. sec. 1.199-6(c).
    \532\ Consistent with former section 199, it is intended that 
agricultural or horticultural products also include fertilizer, diesel 
fuel, and other supplies used in agricultural or horticultural 
production that are manufactured, produced, grown, or extracted by the 
cooperative. See Treas. Reg. sec. 1.199-6(f).
    \533\ Consistent with former section 199, it is intended that 
domestic production gross receipts include gross receipts of a 
cooperative derived from any sale, exchange, or other disposition of 
agricultural products with respect to which the cooperative performs 
storage, handling, or other processing activities (other than 
transportation activities) within the United States, provided such 
products are consumed in connection with, or incorporated into, the 
manufacturing, production, growth, or extraction of agricultural or 
horticultural products (whether or not by the cooperative). See Treas. 
Reg. sec. 1.199-3(e)(1).
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    Domestic production gross receipts do not include any gross 
receipts of the cooperative derived from property leased, 
licensed, or rented by the taxpayer for use by any related 
person.\534\ In addition, domestic production gross receipts do 
not include gross receipts that are derived from the lease, 
rental, license, sale, exchange, or other disposition of land.
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    \534\ For this purpose, a person is treated as related to another 
person if such persons are treated as a single employer under 
subsection (a) or (b) of section 52 or subsection (m) or (o) of section 
414, except that determinations under subsections (a) and (b) of 
section 52 are made without regard to section 1563(b).
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            Definition of specified agricultural or horticultural 
                    cooperative
    The provision limits the definition of specified 
agricultural or horticultural cooperative to organizations to 
which part I of subchapter T applies that (1) manufacture, 
produce, grow, or extract in whole or significant part any 
agricultural or horticultural product, or (2) market any 
agricultural or horticultural product that their patrons have 
so manufactured, produced, grown, or extracted in whole or 
significant part.\535\ The definition no longer includes a 
cooperative solely engaged in the provision of supplies, 
equipment, or services to farmers or other specified 
agricultural or horticultural cooperatives.
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    \535\ Consistent with former section 199, it is intended that 
agricultural or horticultural products also include fertilizer, diesel 
fuel, and other supplies used in agricultural or horticultural 
production that are manufactured, produced, grown, or extracted by the 
cooperative. See Treas. Reg. sec. 1.199-6(f).
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            Special rules
    All members of an expanded affiliated group \536\ are 
treated as a single corporation and the deduction is allocated 
among the members of the expanded affiliated group in 
proportion to each member's respective amount, if any, of 
qualified production activities income. In addition, for 
purposes of determining domestic production gross receipts, if 
all of the interests in the capital and profits of a 
partnership are owned by members of a single expanded 
affiliated group at all times during the taxable year of such 
partnership, the partnership and all members of such group are 
treated as a single taxpayer during such period.
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    \536\ For this purpose, an expanded affiliated group is an 
affiliated group as defined in section 1504(a) determined (i) by 
substituting ``more than 50 percent'' for ``more than 80 percent'' each 
place it appears, and (ii) without regard to paragraphs (2) and (4) of 
section 1504(b).
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    In the case of a specified agricultural or horticultural 
cooperative that is a partner in a partnership, rules similar 
to the rules applicable to a partner in a partnership under 
section 199A(f)(1) apply.
    For a tax-exempt cooperative subject to tax on its 
unrelated business taxable income by section 511, the provision 
is applied by substituting unrelated business taxable income 
for taxable income where applicable.
    The section 199A(g) deduction is determined by only taking 
into account items that are attributable to the actual conduct 
of a trade or business.
            Allocation of the cooperative's deduction to patrons
    The provision provides that an eligible patron that 
receives a qualified payment from a specified agricultural or 
horticultural cooperative is allowed as a deduction for the 
taxable year in which such payment is received an amount equal 
to the portion of the cooperative's deduction for qualified 
production activities income that is (i) allowed with respect 
to the portion of the qualified production activities income to 
which such payment is attributable, and (ii) identified by the 
cooperative in a written notice mailed to the patron during the 
payment period described in section 1382(d).\537\
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    \537\ Consistent with the allocation of the cooperative's deduction 
to its patrons under former section 199 and consistent with the 
requirements for the payment of patronage dividends in section 
1388(a)(1), the cooperative's section 199A(g) deduction is allocated 
among its patrons on the basis of the quantity or value of business 
done with or for such patron by the cooperative.
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    The patron's deduction of such amount may not exceed the 
patron's taxable income for the taxable year (determined 
without regard to such deduction but after taking into account 
the patron's other deductions under section 199A(a)). A 
qualified payment is any amount that (i) is described in 
paragraph (1) or (3) of section 1385(a) (i.e., patronage 
dividends and per-unit retain allocations), (ii) is received by 
an eligible patron from a specified agricultural or 
horticultural cooperative, and (iii) is attributable to 
qualified production activities income with respect to which a 
deduction is allowed to such cooperative. An eligible patron is 
(i) a taxpayer other than a corporation,\538\ or (ii) another 
specified agricultural or horticultural cooperative.
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    \538\ For this purpose, corporation does not include an S 
corporation.
---------------------------------------------------------------------------
    Finally, the cooperative cannot reduce its income under 
section 1382 for any deduction allowable to its patrons under 
this rule (i.e., the cooperative must reduce its deductions 
allowed for certain payments to its patrons in an amount equal 
to the section 199A(g) deduction allocated to its patrons).
            Regulatory authority
    Specific regulatory authority is provided for the Secretary 
of the Treasury to promulgate necessary regulations under 
section 199A(g), including regulations that prevent more than 
one cooperative taxpayer from being allowed a deduction with 
respect to the same activity (i.e., the same lease, rental, 
license, sale, exchange, or other disposition of any 
agricultural or horticultural product that was manufactured, 
produced, grown, or extracted in whole or in significant part 
within the United States). In addition, regulatory authority is 
provided to address the proper allocation of items of income, 
deduction, expense, and loss for purposes of determining 
qualified production activities income. The provision provides 
that the regulations be based on the regulations applicable to 
cooperatives and their patrons under former section 199 (as in 
effect before its repeal).\539\
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    \539\ See Treas. Reg. secs. 1.199-1 through -9.
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Treatment of cooperative patrons

            Repeal of special deduction for qualified cooperative 
                    dividends
    The provision repeals the special deduction for qualified 
cooperative dividends. In addition, the provision repeals the 
rule that excludes qualified cooperative dividends from 
qualified business income of a qualified trade or business. The 
provision also clarifies that items of income excluded from 
qualified items of income, and thus excluded from qualified 
business income, do not include any amount described in section 
1385(a)(1) (i.e., patronage dividends). Accordingly, qualified 
business income of a qualified trade or business includes any 
patronage dividend,\540\ per-unit retain allocation,\541\ 
qualified written notice of allocation,\542\ or any other 
similar amount received from a cooperative, provided such 
amount is otherwise a qualified item of income, gain, 
deduction, or loss (i.e., such amount is (i) effectively 
connected with the conduct of a trade or business within the 
United States, and (ii) included or allowed in determining 
taxable income for the taxable year).\543\
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    \540\ Defined in sec. 1388(a).
    \541\ Defined in sec. 1388(f).
    \542\ Defined in sec. 1388(c).
    \543\ See sec. 199A(c)(3)(A).
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            Reduced deduction for qualified payments received from a 
                    specified agricultural or horticultural cooperative
    In the case of any qualified trade or business of a patron 
of a specified agricultural or horticultural cooperative, the 
deductible amount determined under section 199A(b)(2) for such 
trade or business is reduced by the lesser of (1) nine percent 
of the amount of qualified business income with respect to such 
trade or business as is properly allocable to qualified 
payments received from such specified agricultural or 
horticultural cooperative, or (2) 50 percent of the amount of 
W-2 wages with respect to such qualified trade or business that 
are properly allocable to such amount.

Transition rule relating to the repeal of section 199

    The provision clarifies that the repeal of section 199 for 
taxable years beginning after December 31, 2017, does not apply 
to a qualified payment received by a patron from a specified 
agricultural or horticultural cooperative in a taxable year 
beginning after December 31, 2017, to the extent such qualified 
payment is attributable to qualified production activities 
income with respect to which a deduction is allowable to the 
cooperative under former section 199 for a taxable year of the 
cooperative beginning before January 1, 2018. Such qualified 
payment remains subject to former section 199 and any section 
199 deduction allocated by the cooperative to its patrons 
related to such qualified payment may be deducted by such 
patrons in accordance with former section 199. In addition, no 
deduction is allowed under section 199A for such qualified 
payments.

Examples

    The following examples illustrate the provision.
            Example 1
    Cooperative is a grain marketing cooperative with 
$5,250,000 in gross receipts during 2018 from the sale of grain 
grown by its patrons. Cooperative paid $4,000,000 to its 
patrons at the time the grain was delivered in the form of per-
unit retain allocations and another $1,000,000 in patronage 
dividends after the close of the 2018 taxable year. Cooperative 
has other expenses of $250,000 during 2018, including $100,000 
of W-2 wages.
    Cooperative has domestic production gross receipts of 
$5,250,000 and qualified production activities income of 
$5,000,000 \544\ for 2018. Cooperative's section 199A(g) 
deduction is $50,000 and is equal to the least of nine percent 
of qualified production activities income ($450,000),\545\ nine 
percent of taxable income ($450,000),\546\ or 50 percent of W-2 
wages ($50,000).\547\ Cooperative passes through the entire 
section 199A(g) deduction to its patrons. Accordingly, 
Cooperative reduces its $5,000,000 deduction allowable under 
section 1382(b) and (c) (relating to the $1,000,000 patronage 
dividends and $4,000,000 per-unit retain allocations) by 
$50,000.
---------------------------------------------------------------------------
    \544\ $5,250,000 gross receipts - $250,000 expenses = $5,000,000.
    \545\ $5,000,000 * 0.09 = $450,000.
    \546\ For this purpose, taxable income is $5,000,000 and is 
determined without regarding to the section 199A(g) deduction and 
without regard to the $5,000,000 deduction allowable under section 
1382(b) and (c) relating to the $1,000,000 patronage dividends and 
$4,000,000 per-unit retain allocations.
    \547\ $100,000 * 0.50 = $50,000.
---------------------------------------------------------------------------
    Patron's grain delivered to Cooperative during 2018 is two 
percent of all grain marketed through Cooperative during such 
year. During 2019, Patron receives $20,000 in patronage 
dividends and $1,000 of allocated section 199A(g) deduction 
from Cooperative related to the grain delivered to Cooperative 
during 2018.
    Patron is a grain farmer with taxable income of $75,000 for 
2019 (determined without regard to section 199A) and has a 
filing status of married filing jointly. Patron's qualified 
business income related to its grain trade or business for 2019 
is $50,000, which consists of gross receipts of $150,000 from 
sales to an independent grain elevator, per-unit retain 
allocations received from Cooperative during 2019 of $80,000, 
patronage dividends received from Cooperative during 2019 
related to Cooperative's 2018 net earnings of $20,000, and 
expenses of $200,000 (including $50,000 of W-2 wages).
    The portion of the qualified business income from Patron's 
grain trade or business related to qualified payments received 
from Cooperative during 2019 is $10,000, which consists of per-
unit retain allocations received from Cooperative during 2019 
of $80,000, patronage dividends received from Cooperative 
during 2019 related to Cooperative's 2018 net earnings of 
$20,000, and properly allocable expenses of $90,000 (including 
$25,000 of W-2 wages).\548\
---------------------------------------------------------------------------
    \548\ Which expenses are properly allocable in a given case will 
depend on all the facts and circumstances. The example assumes that the 
fraction of properly allocable W-2 wages differs from the fraction of 
other properly allocable expenses.
---------------------------------------------------------------------------
    Patron's deductible amount related to the grain trade or 
business is 20 percent of qualified business income ($10,000) 
\549\ reduced by the lesser of nine percent of qualified 
business income related to qualified payments received from 
Cooperative ($900) \550\ or 50 percent of W-2 wages related to 
qualified payments received from Cooperative ($12,500),\551\ or 
$9,100. As Patron does not have any other qualified trades or 
business, the combined qualified business income amount is also 
$9,100.
---------------------------------------------------------------------------
    \549\ $50,000 * 0.20 = $10,000.
    \550\ $10,000 * 0.09 = $900.
    \551\ $25,000 * 0.50 = $12,500.
---------------------------------------------------------------------------
    Patron's deduction under section 199A for 2019 is $10,100, 
which consists of the combined qualified business income amount 
of $9,100, plus Patron's deduction passed through from 
Cooperative of $1,000.
            Example 2
    Cooperative and Patron have the same facts as above for 
2018 and 2019 except that Patron has expenses of $200,000 that 
include zero W-2 wages during 2019.
    Patron's deductible amount related to the grain trade or 
business is 20 percent of qualified business income ($10,000) 
reduced by the lesser of nine percent of qualified business 
income related to qualified payments received from Cooperative 
($900), or 50 percent of W-2 wages related to qualified 
payments received from Cooperative ($0), or $10,000.
    Patron's deduction under section 199A for 2019 is $11,000, 
which consists of the combined qualified business income amount 
of $10,000, plus Patron's deduction passed through from 
Cooperative of $1,000.
    The Treasury Department has issued proposed guidance 
addressing this provision.\552\
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    \552\ See REG-118425-18, 84. Fed. Reg. 28668, June 19, 2019, and 
Notice 2019-27, June 18, 2019.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective as if included in the amendments 
made by sections 11011 and 13305 of Public Law 115-97, that is, 
for taxable years beginning after December 31, 2017.

2. State housing credit ceiling and average income test for low-income 
        housing credit (secs. 102 and 103 of Division T of the Act and 
        sec. 42 of the Code)

                              Present Law

    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. A State housing 
credit ceiling applies to potential housing credits allocated 
by a State or local housing credit agency. For determining the 
current-year State dollar amount of the ceiling in any calendar 
year, the greater of (i) $1.75 multiplied by the State 
population, or (ii) $2,000,000, is taken into account. These 
amounts are indexed for inflation. For calendar year 2019, the 
amounts are $2.75625 and $3,166,875.
    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 the 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''). A residential unit is rent-restricted if the gross 
rent from the unit does not exceed 30 percent of the imputed 
income limitation applicable to the unit.
    A unit occupied by individuals whose incomes rise above 140 
percent of the applicable income limit shall continue to be 
treated as a low-income unit if the income of such occupants 
initially met such income limitation and such unit continues to 
be rent-restricted so long as the next available unit is 
occupied by a tenant whose income does not exceed such 
limitation. In the case of deep rent skewed projects, special 
rules apply. A deep rent skewed project is a project in which 
(i) 15 percent or more of the low-income units in the project 
are occupied by individuals whose incomes are 40 percent or 
less of area median gross income, (ii) the gross rent with 
respect to each low-income unit in the project does not exceed 
30 percent of the applicable income limit that applies to 
individuals occupying the unit, and (iii) the gross rent with 
respect to each low-income unit in the project does not exceed 
half of the average gross rent with respect to units of 
comparable size that are not occupied by individuals who meet 
the applicable income limit.

                       Explanation of Provisions


State housing credit ceiling

    The first provision provides an increase in the State 
housing credit ceiling for 2018, 2019, 2020, and 2021. In each 
of those calendar years, the dollar amounts in effect for 
determining the current-year ceiling (after any increase due to 
the applicable cost of living adjustment) are increased by 
multiplying the dollar amounts for that year by 1.125.

Average income test for qualified low-income housing project

    The second provision adds a third optional test to the 20-
50 and 40-60 tests for a qualified low-income housing project. 
A project meets the minimum requirements of the average income 
test if 40 percent or more (25 percent or more in the case of a 
project located in a high cost housing area) of the residential 
units in such project are both rent-restricted and occupied by 
individuals whose income does not exceed the imputed income 
limitation designated by the taxpayer with respect to the 
respective unit.
    The taxpayer designates the imputed income limitation. The 
imputed income limitation is determined in 10-percentage-point 
increments, and may be designated as 20, 30, 40, 50, 60, 70, or 
80 percent. The average of the imputed income limitations 
designated must not exceed 60 percent of area median gross 
income.
    For purposes of the rental of the next available unit in a 
project with respect to which the taxpayer elects the average 
income test, if the income of the occupants of the unit 
increases above 140 percent of the greater of (i) 60 percent of 
area median gross income, or (ii) the imputed income limitation 
designated by the taxpayer with respect to the unit, then the 
unit ceases to be treated as a low-income unit if any 
residential rental unit in the building (of a size comparable 
to, or smaller than, such unit) is occupied by a new resident 
whose income exceeds the applicable imputed income limitation. 
In the case of a deep rent skewed project, 170 percent applies 
instead of 140 percent, and other special rules apply.

                             Effective Date

    The provision relating to the State housing credit ceiling 
is effective for calendar years beginning after December 31, 
2017, and before January 1, 2022.
    The provision relating to the average income test is 
effective for elections made after the date of enactment.

                 TAX TECHNICAL CORRECTIONS ACT OF 2018

    Division U of the Act includes technical corrections, other 
corrections, and clerical and deadwood corrections to recent 
tax legislation enacted before 2017. Except as otherwise 
provided, the amendments made by the technical corrections and 
other corrections contained in Division U of the Act take 
effect as if included in the original legislation to which each 
amendment relates.

                      A. Tax Technical Corrections


1. Amendments relating to Protecting Americans from Tax Hikes 
        (``PATH'') Act of 2015 (Division Q of the Consolidated 
        Appropriations Act, 2016) (sec. 101 of Division U of the Act)

    Earned income tax credit permanent rules (Act sec. 103)._
The PATH Act made permanent the $5,000 increase in the phase-
out amount for married couples filing joint returns. The Act 
retained rules providing for the indexation of the prior-law 
$3,000 amount (notwithstanding that this amount had been 
repealed). The provision deletes references to the prior law 
amount and consolidates the inflation adjustment in one 
subsection.
    Transit parity (Act sec. 105)._Under section 132(f)(2) as 
in effect before the changes made by the PATH Act, the monthly 
limit on the fringe benefit exclusion for employer-provided 
parking was $175, and the monthly limit on employer-provided 
benefits for mass transit and van pooling combined was $100. 
These monthly limits were indexed under section 132(f)(6) using 
a base year determined by when the particular monthly limit 
became effective--a base year of 1998 for parking and 2001 for 
transit/vanpooling. Parity between the exclusions was provided 
on a temporary basis from 2009 through 2014. The PATH Act 
created permanent parity in the exclusions by changing the 
monthly transit/vanpooling limit in section 132(f)(2) to $175. 
However, the PATH Act failed to include a conforming change to 
repeal the base-year rule in section 132(f)(6) for transit/
vanpooling. The provision repeals the transit/vanpooling base-
year rule.
    Research credit: not reinstate alternative incremental 
credit (Act sec. 121)._The alternative incremental credit 
expired in 2008. The provision clarifies that the alternative 
incremental credit is not reinstated by the PATH Act, and makes 
conforming changes.
    Bonus depreciation (Act sec. 143)._The provision clarifies 
that, among the criteria enacted in the PATH Act defining 
certain property having a longer production period that is 
treated as qualified property, the requirement that the 
property be acquired pursuant to a written contract before 2020 
requires that the contract be a written binding contract. This 
corrects an unintended error that changed prior law.
    The provision clarifies that the preproductive period under 
section 168(k)(5)(B)(ii) is consistent with the preproductive 
period under section 263A(e)(3).
    The provision amends section 168(k)(6), as in effect prior 
to the amendments made by section 13201 of Public Law 115-97, 
to provide the intended applicable percentages. Thus, the 
provision clarifies that in the case of longer production 
period property and certain aircraft acquired before September 
28, 2017, and placed in service in 2018, the 50-percent 
applicable percentage applies to the entire adjusted basis, and 
if placed in service in 2019, the 40-percent applicable 
percentage applies to the entire adjusted basis.
    The provision clarifies that if, for a taxable year, a 
taxpayer makes both an election under section 168(k)(7) not to 
claim bonus depreciation for all property in a particular class 
of property and an election under section 168(k)(4) to claim 
AMT credits in lieu of bonus depreciation, section 168(k)(4) 
does not apply to property in the particular class. This 
corrects an unintended error which changed prior law.
    Election out of accelerated recovery periods for qualified 
Indian reservation property (Act sec. 167)._As amended by the 
PATH Act, section 168(j) permits taxpayers to elect out of the 
otherwise applicable accelerated recovery periods in the case 
of qualified Indian reservation property. In general, if 
section 168(j) applies, there is no AMT adjustment (see section 
168(j)(3)). The provision clarifies that no AMT adjustment 
applies in the case of qualified Indian reservation property if 
the taxpayer makes the election out.
    Failure to furnish correct payee statements (Act sec. 
202)._The provision clarifies section 6722(c)(3)(A), relating 
to failure to furnish correct payee statements, to refer to the 
payee statement (rather than to information returns) that are 
furnished (rather than filed). A corresponding change in the 
effective date stated in the PATH Act refers to statements that 
are furnished (rather than provided). Similarly structured 
language in section 6721(c)(3)(A) is conformed so that it 
refers to the information return (rather than to any 
information return).
    Requirements for the issuance of Individual Taxpayer 
Identification Numbers (``ITINs'') (Act sec. 203)._The 
provision clarifies that community-based Certifying Acceptance 
Agents are among the entities that are available to individuals 
living abroad who wish to obtain ITINs for purposes of meeting 
their U.S. tax filing obligations.
    The provision clarifies that the expiration of ITINs that 
have not been used for three consecutive taxable years is to 
occur on the date following the due date of the tax return for 
such third consecutive taxable year. For ITINs issued prior to 
January 1, 2013, the ITIN will expire on the applicable date, 
or if earlier, the day following the due date of the tax return 
for the third consecutive taxable year such ITIN was not used 
on a return. In the event that such an ITIN has not been used 
for three (or more) consecutive taxable years on the tax return 
due date for the 2015 taxable year, such ITIN shall expire on 
the day following that date.
    The provision clarifies that the effective date of section 
203 of the PATH Act, which provides that PATH Act section 203 
is effective for ITIN applications made after the date of 
enactment, does not prevent the provision relating to 
outstanding ITINs from taking effect.
    Retroactive claims of credits (Act secs. 204, 205, and 
206)._The provision conforms a reference in section 24(e)(2) to 
the taxpayer identification number (not to the identifying 
number). The provisions remove special effective date rules in 
each of these PATH Act sections that have no practical effect.
    Effective date for treatment of credits for certain 
penalties (Act sec. 209)._The PATH Act inadvertently failed to 
state the effective date for the rule providing a reasonable 
cause exception for erroneous claims for refund or credit. The 
provision states that the effective date is for claims filed 
after the date of enactment of the PATH Act.
    Making American Opportunity Tax Credit permanent (Act secs. 
102, 206, 207, 208, and 211)._The provision reflects the 
permanent extension of the American Opportunity Tax Credit by 
eliminating deadwood and consolidating the provisions of 
section 25A.
    Section 529 programs and qualified ABLE programs (Act secs. 
302(b))._Among other changes made by the PATH Act to section 
529 qualified tuition programs, the PATH Act repealed the rules 
providing that section 529 accounts must be aggregated for 
purposes of calculating the amount of a distribution that is 
included in a taxpayer's income. Though PATH Act section 303 
modified certain rules for qualified ABLE programs, it did not 
make a parallel change to the rules for distributions from ABLE 
accounts. The provision makes a parallel change that conforms 
the treatment of multiple distributions during a taxable year 
from an ABLE account in Code section 529A to the treatment of 
multiple distributions during a taxable year from a section 529 
account.
    Restriction on tax-free distributions involving Real Estate 
Investment Trusts (``REITs'') (Act sec. 311)._The provision 
clarifies that, for purposes of section 355(h)(2)(B)(iii), 
control of a partnership means ownership of at least 80 percent 
of the profits interests and at least 80 percent of the capital 
interests. That is, control of a partnership for purposes of 
section 355(h)(2)(B)(iii) does not require exactly 80-percent 
ownership of the profits interests and 80-percent ownership of 
the capital interests of the partnership.
    Ancillary personal property of a REIT (Act sec. 318)._
Section 856(c)(9) treats ancillary personal property as a real 
estate asset for purposes of the REIT 75-percent asset test to 
the extent that rents attributable to such ancillary personal 
property are treated, under a separate provision, as rents from 
real property. The provision makes two conforming changes with 
respect to the REIT income tests. First, the provision treats 
gain from the sale or disposition of such ancillary personal 
property as gain from the sale or disposition of a real estate 
asset for purposes of the REIT income tests. Second, the 
provision treats gain from the sale or disposition of certain 
obligations secured by mortgages on both real property and 
personal property as gain from the sale or disposition of real 
property for purposes of the REIT income tests.
    Exception from Foreign Investment in U.S. Real Property Tax 
Act (``FIRPTA'') for certain stock of REITs (Act sec. 322)._The 
provision restates provisions of section 897(k) as amended, 
makes clerical conforming changes, and strikes a modification 
to a repealed provision.
    Further, under section 897(k) as amended, the provision 
addresses the definition of a qualified collective investment 
vehicle that is eligible for benefits of a comprehensive income 
tax treaty with the United States that includes an exchange of 
information program. Specifically, the provision clarifies that 
the definition can be met only if the dividends article in the 
treaty imposes conditions on the benefits allowable in the case 
of dividends paid by a REIT.
    The provision clarifies the effective date for the 
determination of domestic control by stating that the rule 
applies with respect to each testing period ending on or after 
the date of enactment (not that the rule takes effect on the 
date of enactment).
    FIRPTA exception for qualified foreign pension funds (Act 
sec. 323)._Section 897(l)(1) provides that section 897 does not 
apply (i) to any United States real property interest held 
directly (or indirectly through one or more partnerships) by, 
or (ii) to any distribution received from a REIT by, a 
qualified foreign pension fund or an entity all the interests 
of which are held by a qualified foreign pension fund. The 
provision clarifies that, for purposes of section 897, a 
qualified foreign pension fund is not treated as a nonresident 
alien individual or as a foreign corporation; in other words, 
in determining the U.S. income tax of a qualified foreign 
pension fund, section 897 does not apply. The provision 
provides that, also for that purpose, an entity all the 
interests of which are held by a qualified foreign pension fund 
is treated as such a fund.
    Section 897(l)(2) establishes a five-prong definition of 
the term ``qualified foreign pension fund.'' The provision 
revises the second prong of the definition to clarify that a 
government-established fund to provide public retirement or 
pension benefits may qualify, as well as a fund established by 
more than one employer to provide retirement or pension 
benefits to their employees, such as a multiple-employer or 
multiemployer plan. In addition, the provision makes clarifying 
changes to the fourth and fifth prongs of the definition.
    Election of certain small insurance companies to be taxed 
only on taxable investment income (Act sec. 333)._Section 
831(b) requires that an otherwise eligible electing insurance 
company meet one of two diversification requirements. The first 
requires that no more than 20 percent of the company's net (or 
if greater, direct) written premiums for the taxable year is 
attributable to any one policyholder. The second, applicable if 
the first is not met, requires that no person holds (directly 
or indirectly) aggregate interests in the company that 
constitute a percentage of the entire interest in the company 
that is more than a de minimis percentage higher than the 
percentage of interests in specified assets with respect to the 
company held (directly or indirectly) by a specified holder.
    The provision clarifies the first diversification rule to 
provide a look-through rule with respect to an intermediary 
(for example, an aggregate fund). Specifically, the provision 
provides that in the case of reinsurance or any fronting, 
intermediary, or similar arrangement, a policyholder means each 
policyholder of the underlying direct written insurance with 
respect to the reinsurance or arrangement.
    The provision clarifies the determination of percentages 
under the second diversification rule by making the 
determination with respect to relevant specified assets. They 
are defined (with respect to any specified holder with respect 
to any insurance company) to mean the aggregate amount of the 
specified assets, with respect to the insurance company, any 
interest in which is held directly or indirectly by a spouse or 
specified relation. A specified relation is a lineal descendent 
(including by adoption) of an individual who holds, directly or 
indirectly, an interest in the insurance company, and the 
lineal descendant's spouse. Thus, for example, a specified 
relation of an individual includes the individual's step-
children. The provision further clarifies that relevant 
specified assets do not include any specified asset that was 
acquired by the spouse or specified relation by bequest, 
devise, or inheritance from a decedent for a two-year period.
    A specified holder is defined to include a lineal 
descendent (including by adoption) of an individual who holds, 
directly or indirectly, an interest in the insurance company, 
and the lineal descendant's spouse. Thus, a specified holder 
includes an individual's step-children. A specified holder is 
defined also to include a non-U.S.-citizen spouse of an 
individual who holds, directly or indirectly, an interest in 
the specified assets with respect to the insurance company. A 
non-U.S.-citizen spouse would generally not be an eligible 
recipient for purposes of the unified estate and gift tax 
marital deduction, for example, and so assets passing to such a 
spouse from such an individual would not be deductible for 
estate and gift tax purposes. By contrast, a U.S.-citizen 
spouse could receive assets from the individual without giving 
rise to estate tax or gift tax with respect to those assets.
    Treasury Department guidance under the provision may 
provide that factors such as ownership, premiums, gross 
revenue, and factors taken into account under applicable State 
law for assessing risk are taken into account, to the extent 
this is consistent with the purpose of the provision to 
accurately determine percentages based on the real economic 
arrangement among the parties.

2. Amendment relating to Consolidated Appropriations Act, 2016 (sec. 
        102 of Division U of the Act)

    Treatment of transportation costs of independent refiners 
(Act sec. 305)._The provision clarifies that section 
199(c)(3)(C) applies for purposes of calculating qualified 
production activities income under section 199(c) and for 
purposes of calculating oil related qualified production 
activities income under section 199(d)(9), as in effect before 
the repeal of section 199 as part of Public Law 115-97.
    The provision clarifies that an independent refiner may 
elect to apply section 199(c)(3)(C) to its oil transportation 
costs for purposes of calculating its deduction under section 
199 (i.e., it is not required to apply the provision to its oil 
transportation costs). It is anticipated that the Secretary 
will issue guidance prescribing the manner in which such 
election shall be made.

3. Amendments relating to Fixing America's Surface Transportation Act 
        (2015) (sec. 103 of Division U of the Act)

    Revocation or denial of passport in case of certain unpaid 
taxes (Act sec. 32101)._The Fixing America's Surface 
Transportation Act (2015) provides for judicial review of the 
Secretary's certification that an individual has a seriously 
delinquent tax debt, either in a U.S. district court or in the 
Tax Court. The provision clarifies that the party against whom 
a Tax Court petition is filed is the Commissioner of Internal 
Revenue. The provision also provides a tie-breaker rule 
clarifying that the court first acquiring jurisdiction over the 
action has sole jurisdiction, and corrects a cross reference.

4. Amendments relating to Surface Transportation and Veterans Health 
        Care Choice Improvement Act of 2015 (sec. 104 of Division U of 
        the Act)

    Consistent value for transfer and income tax purposes (Act 
sec. 2004)._Section 1014(f) generally requires that an heir who 
acquires property from a decedent (whether or not reported on 
an estate tax return) claim a basis no greater than the final 
value of the property for estate tax purposes. Section 
6662(b)(8) imposes a penalty in the case of an inconsistent 
estate basis. Under the provision, the term ``inconsistent 
estate basis'' means any portion of an underpayment 
attributable to the failure to comply with section 1014(f). The 
penalty could have been viewed as applying when an heir claims 
a basis higher than the final estate tax value by reason of 
making basis adjustments relating to post-acquisition events 
(e.g., improvements to the property). This result is not 
intended. The provision modifies the definition of inconsistent 
estate basis to avoid this unintended result.
    Mass Transit Account (``MTA'') financing (Act sec. 2008)._
The Surface Transportation and Veterans Health Care Choice 
Improvement Act of 2015 changes the taxation of liquefied 
natural gas (LNG) and liquefied petroleum gas (LPG) from a per-
gallon basis to an energy-equivalent basis. That is, it 
provides that the tax is based on the LNG energy equivalent to 
a gallon of diesel (DGE) (24.3 cents per DGE, which is 6.06 
pounds of LNG), and on the LPG energy equivalent to a gallon of 
gasoline (GGE) (18.3 cents per GGE, which is 5.75 pounds of 
LPG). Section 9503(e)(2) allocates 1.86 cents per gallon of LNG 
and 2.13 cents per gallon of LPG to the MTA of the Highway 
Trust Fund, but it does not specifically conform the per-gallon 
basis to an energy-equivalent basis for purposes of the 
allocation. The provision conforms the per-gallon basis in 
section 9503(e)(2) to the energy-equivalent basis, using DGE 
for LNG and GGE for LPG, to reflect the energy-equivalent basis 
used for the taxes imposed on LNG and LPG.

5. Amendments relating to Stephen Beck, Jr., ABLE Act of 2014 (sec. 105 
        of Division U of the Act)

    Inflation adjustment for certain civil penalties under the 
Internal Revenue Code of 1986 (Act sec. 208)._An annual 
inflation adjustment is provided for fixed-dollar civil tax 
penalties in the case of: (i) section 6651(a), failure to file 
a tax return; (ii) section 6652(c), failure to file or disclose 
information returns by exempt organizations and certain trusts, 
(iii) section 6695, preparation of tax returns for other 
persons, (iv) section 6698, failure to file a partnership 
return, (v) section 6699, failure to file an S corporation 
return, (vi) section 6721, failure to file correct information 
returns, and (vii) section 6722, failure to furnish correct 
payee statements. The provision clarifies that the effective 
date of the annual inflation adjustments added to these civil 
penalties generally is for returns required to be filed, and 
statements required to be furnished, after December 31, 2014, 
and in the case of the annual inflation adjustment for 
penalties relating to preparation of tax returns for other 
persons, is for returns or claims for refund filed after 
December 31, 2014.

6. Amendment relating to American Taxpayer Relief Act of 2012 (sec. 106 
        of Division U of the Act)

    Reference in definition of a deficiency to American 
Opportunity Tax Credit (Act sec. 104)._The provision conforms a 
reference in section 6211(b)(4)(A), relating to the definition 
of a deficiency, to a provision of the American Opportunity Tax 
Credit that was renumbered by the American Taxpayer Relief Act 
of 2012.

7. Amendment relating to United States-Korea Free Trade Agreement 
        Implementation Act (2011) (sec. 107 of Division U of the Act)

    Increase in penalty on paid preparers who fail to comply 
with earned income tax credit due diligence requirements (Act 
sec. 501).--The provision clarifies that the effective date of 
the section 6695(g) penalty increase is for documents prepared 
(not returns required to be filed) after December 31, 2011.

8. Amendment relating to SAFETEA-LU (sec. 108 of Division U of the Act)

    Penalty relating to signs (Act sec. 1125).--Persons engaged 
in distilled spirits operations are required to place and keep 
conspicuously on the outside of such place of business a sign 
showing the name of such person and denoting the business, or 
businesses, in which engaged. Section 5681 imposes penalties 
for failure to post a required sign and posting or displaying a 
false sign. Under section 5681(b), a wholesale dealer in 
liquors may display a distilled spirits operations sign only if 
that person has paid the special occupational tax applicable to 
those wholesalers, payment of the tax being the indication that 
such person was eligible to post such a sign. SAFETEA-LU 
repealed the special occupational taxes, but did not make a 
conforming change to the penalty provision under 5681(b). The 
provision corrects the outdated reference in the penalty for 
displaying a false sign. Specifically, the provision modifies 
section 5681(b) to provide that a wholesale dealer in liquors 
may post a sign indicating that it is engaged in distilled 
spirits operations only if that person has complied with the 
recordkeeping requirements required by section 5121(a) and the 
registration requirements under section 5124.

9. Amendments relating to the American Jobs Creation Act of 2004 
        (``AJCA'') (sec. 109 of Division U of the Act)

    Treatment of certain trusts as shareholder of S corporation 
(Act sec. 233).--AJCA amended Code section 1361 to permit a 
trust that is an IRA or ROTH IRA to be a shareholder of a bank 
that is an S corporation, but only to the extent of bank stock 
held by the trust on enactment (October 22, 2004). The 
provision clarifies that only the individual for whose benefit 
the trust is created is treated as ``the shareholder.''
    Rural electric cooperatives (Act sec. 319).--Section 
501(c)(12) provides an income tax exemption for rural electric 
cooperatives if at least 85 percent of the cooperative's income 
consists of amounts collected from members for the sole purpose 
of meeting losses and expenses of providing service to its 
members. The Energy Policy Act of 2005 made permanent a rule to 
exclude from the 85 percent test income from transactions 
related to open access transmission if approved by the Federal 
Energy Regulatory Commission (``FERC''). FERC regulates 
transmission lines in all States except Alaska, Hawaii, and 
most of Texas. Because of an oversight, only transmission 
systems in Texas received the treatment accorded to FERC-
regulated electric cooperatives. Electric cooperatives in 
Alaska are regulated by the Regulatory Commission of Alaska 
(``RCA''). Regulated utilities in Alaska with an RCA-approved 
open access transmission tariff modeled after FERC should have 
received the same tax treatment as their similarly-situated 
counterparts in the other States. The provision clarifies that 
that such utilities in Alaska and Hawaii are treated the same 
as those in Texas for purposes of the exclusion from the 85-
percent test.

      B. Technical Corrections Related to Partnership Audit Rules

    The provisions correct and clarify provisions relating to 
the partnership audit rules enacted in the Bipartisan Budget 
Act of 2015, as amended by the PATH Act of 2015, to express the 
intended rule. Section and chapter references are to the 
Internal Revenue Code of 1986 unless otherwise indicated.

1. Scope of adjustments subject to partnership audit rules (sec. 201 of 
        Division U of the Act and secs. 6241(2) and (9), 6501(c), 6221, 
        6225, 6226, 6227, 6231, 6234, and 7485 of the Code)

    The provision clarifies the scope of the partnership audit 
rules. The provision eliminates references to adjustments to 
partnership income, gain, loss, deduction, or credit, and 
instead refers to partnership-related items, defined as any 
item or amount with respect to the partnership that is relevant 
in determining the income tax liability of any person, without 
regard to whether the item or amount appears on the 
partnership's return and including an imputed underpayment and 
an item or amount relating to any transaction with, basis in, 
or liability of, the partnership. Thus, these partnership audit 
rules are not narrower than the Tax Equity and Fiscal 
Responsibility Act of 1982 (``TEFRA'') partnership audit rules, 
but rather, are intended to have a scope sufficient to address 
those items described as partnership items, affected items, and 
computational items in the TEFRA context in TEFRA-related 
Treasury Regulations sections 301.6231(a)(3), 301.6231(a)(5), 
and 301.6231(a)(6), as well as any other items meeting the 
statutory definition of a partnership-related item.
    For example, because a partnership-related item includes an 
item or amount relating to any transaction with the 
partnership, an item or amount relating to a partner's 
transaction with a partnership other than in his capacity as a 
member of the partnership (which is considered as occurring 
between the partnership and one who is not a partner under 
section 707) is a partnership-related item. As another example, 
because a partnership-related item includes an item or amount 
relating to basis in the partnership, an item or amount 
relating to the determination of the adjusted basis of a 
partner's interest in the partnership or relating to the basis 
of the partnership in partnership property is a partnership-
related item. As a further example, because a partnership-
related item includes an item or amount relating to liability 
of the partnership, an item or amount relating to the 
determination of partnership liabilities is a partnership-
related item. Similarly, an item or amount relating to the 
effect on a partner of a decrease or increase in a partner's 
share of partnership liabilities is a partnership-related item.
    The provision clarifies that the partnership audit rules do 
not apply to taxes imposed, or to amounts required to be 
deducted or withheld, under Code chapters 2 (tax on self-
employment income) or 2A (tax on net investment income), 3 
(withholding tax on nonresident alien individuals or foreign 
corporations), or 4 (withholding tax for certain foreign 
accounts), except as otherwise specifically provided. However, 
any partnership adjustment determined under the income tax is 
taken into account for purposes of determining and assessing 
tax under these chapters of the Code to the extent that the 
partnership adjustment is relevant to the determination. 
Further, a timing rule applies in the case of chapters 3 and 4.
    For example, if a partnership adjustment results in a 
change in the amount of income of an individual from a 
partnership, the change is reflected as required under the 
rules of chapter 2 in the calculation of the individual's net 
earnings from self-employment with respect to the partnership, 
and the chapter 2 tax may be collected through a process that 
is outside the partnership audit rules.
    The period for assessing any tax under chapter 2 or 2A that 
is attributable to a partnership adjustment does not expire 
before the date that is one year after (1) in the case of an 
adjustment pursuant to the decision of a court in a proceeding 
brought under section 6234, such decision becomes final, or (2) 
in any other case, 90 days after the date on which the notice 
of final partnership adjustment is mailed under section 6231.
    The provision applies a specific timing rule in the case of 
any tax imposed, including any amount that is required to be 
deducted or withheld, under chapter 3 (withholding tax on 
nonresident alien individuals or foreign corporations) or 4 
(withholding tax for certain foreign accounts). In these cases, 
the tax is determined with respect to the reviewed year. The 
tax is imposed with respect to the adjustment year; similarly, 
the amount required to be deducted or withheld is deducted or 
withheld with respect to the adjustment year. The reviewed year 
and the adjustment year are defined in section 6225(d). For 
example, assume that a partnership has foreign partners, and 
that following an audit of the partnership, an adjustment is 
made to the amount of the partnership's effectively connected 
taxable income. The adjustment results in an increase of $100x 
of such income that is allocable to foreign partners with 
respect to the reviewed year. Pursuant to section 1446, assume 
that the amount of withholding tax that the partnership is 
required to pay with respect to this income allocable to the 
foreign partners is $35x. The $35x is required to be paid by 
the partnership with respect to the adjustment year (as defined 
in section 6225(d)(2)). As a further example, assume that a 
partnership, P, with foreign partners is not the audited 
partnership, but rather, is an upper-tier partner of an audited 
partnership that has elected to push out under section 6226. 
Partnership P has received a statement pursuant to section 
6226, described below. The amount of withholding tax 
partnership P is required to pay is determined with respect to 
the reviewed year of the audited partnership, as it affects the 
relevant taxable year of partnership P. The amount of 
withholding tax is required to be paid by partnership P for the 
partnership taxable year that is the adjustment year, in this 
case, the adjustment year of the audited partnership (sec. 
6225(d)). The due date for partnership P's payment of the 
withholding tax is no later than the due date (including 
allowable extensions) for the return for the adjustment year of 
the audited partnership.
    In determining the amount of any deficiency, adjustments to 
partnership-related items are made only as provided under the 
partnership audit rules (Subchapter C of Chapter 63 of the 
Code), except to the extent otherwise provided. Conforming 
references to partnership-related items are made in several 
other provisions, including the provision relating to the scope 
of judicial review of a partnership adjustment (sec. 6234(c)).
    Thus, it is clarified that the court has jurisdiction to 
determine all partnership-related items of the partnership for 
the partnership taxable year to which the notice of final 
partnership adjustment relates, the proper allocation of such 
items among the partners, and the applicability of any penalty, 
addition to tax, or additional amount for which the partnership 
may be liable under subchapter C of chapter 63 of the Code. For 
example, because partnership-related items include items or 
amounts with respect to (a) section 707 transactions, (b) 
liabilities of the partnership and the partners' shares of the 
liabilities, and (c) the basis of a partnership interest or of 
partnership property, determination of these items or amounts 
is within the scope of judicial review.

2. Netting in the determination of imputed underpayments (sec. 202 of 
        Division U of the Act and sec. 6225(a) and (b) of the Code)

    When the Secretary makes adjustments to any partnership-
related item with respect to the reviewed year of a 
partnership, if the adjustments result in an imputed 
underpayment, the partnership pays an amount equal to the 
imputed underpayment, and if the adjustments do not result in 
an imputed underpayment, the adjustments are taken into account 
by the partnership in the adjustment year and passed through to 
the adjustment year partners. The provision clarifies this rule 
by conforming the language referring to partnership-related 
items and by striking erroneous references to separately stated 
income or loss.
    The provision clarifies the manner of netting items to 
determine the amount of an imputed underpayment of a 
partnership. The provision clarifies that items of different 
character (capital or ordinary), for example, are not netted 
together in determining the amount of an imputed underpayment. 
Rather, an imputed underpayment of a partnership with respect 
to a reviewed year is determined by the Secretary by 
appropriately netting partnership adjustments for that year and 
by applying the highest rate of tax in effect for the reviewed 
year under section 1 or 11.
    In the case of partners' distributive shares, like items 
within categories under section 702(a)(1)-(8) are separately 
netted. For example, netting within categories of items that 
are netted for purposes of reporting to partners on Schedule K-
1 pursuant to section 702 may be considered as appropriately 
netting.
    In determining an imputed underpayment, any adjustment that 
reallocates the distributive share of any item from one partner 
to another is taken into account by disregarding any part of 
the adjustment that results in a decrease in the amount of the 
imputed underpayment. For example, this rule could be 
implemented by disregarding the decrease in any item of income 
or gain and disregarding the increase in any item of deduction, 
loss, or credit.
    Limitations that would apply at the direct or indirect 
partner level are treated as applying, unless otherwise 
determined. Under the provision, if an adjustment would 
decrease the imputed underpayment, and could be subject to a 
limitation or not be allowed against ordinary income if the 
adjustment were taken into account by any person, then the 
adjustment is not taken into account in determining the imputed 
underpayment of the partnership, except to the extent the 
Secretary otherwise provides.
    For example, if an adjustment would increase the amount of 
a partnership loss allocable to partners, but the loss could be 
subject to the passive loss rule of section 469 in the hands of 
direct and indirect partners of the partnership, then the 
Secretary does not take into account the adjustment increasing 
the loss in determining the amount of the partnership's imputed 
underpayment, unless the Secretary provides otherwise. For 
example, the Secretary may provide otherwise if the partnership 
supplies accurate information that all direct and indirect 
partners of the partnership are publicly-traded domestic C 
corporations not subject to the passive loss rule.
    Adjustments to credits are separately determined and netted 
as appropriate. Adjustments to credits are not multiplied by 
the tax rate, but rather, adjustments to items of credit are 
taken into account as an increase or decrease in determining 
the amount of the imputed underpayment.
    It is intended that an imputed underpayment may be modified 
under procedures described in section 6225(c).

3. Alternative procedure to filing amended returns for purposes of 
        modifications to imputed underpayments (secs. 202(b) and 
        (c)(2), 203, and 206(b) of Division U of the Act and secs. 
        6225(c) and 6201(a)(1) of the Code)

    The provision clarifies the modification rules of section 
6225(c) to better carry out their function as intended by 
Congress, that is, to determine the amount of tax due as 
closely as possible to the tax due if the partnership and 
partners had correctly reported and paid while at the same time 
to implement the most efficient and prompt assessment and 
collection of tax attributable to the income of the partnership 
and partners.
    The provision clarifies the procedures under section 
6225(c)(2) that permit a partnership to seek modification of an 
imputed underpayment. These procedures allow reviewed-year 
partners to take adjustments into account so that the 
partnership's imputed underpayment can be determined by the 
Secretary without regard to that portion of the adjustments. 
Like other modification procedures in section 6225(c), these 
procedures take place within the period ending 270 days after 
the date the notice of proposed partnership adjustment is 
mailed, unless the period is extended with the consent of the 
Secretary, as provided in section 6225(c)(7).
            Amended returns of partners
    The provision clarifies the requirements for reviewed-year 
partners filing amended returns with payment of any tax due. 
First, the amended return procedure requires the partner to 
file returns for the taxable year of the partner that includes 
the end of the partnership's reviewed year, as well as for any 
taxable year with respect to which any tax attribute of the 
partner is affected by reason of any adjustment to a reviewed-
year partnership-related item. Second, the amended returns are 
required to take into account all such adjustments that are 
properly allocable to the partner, as well as the effect of the 
adjustments on any tax attributes. Third, payment of any tax 
due is required to be included with the amended returns. As is 
the case for other amended returns, the Secretary may require 
the payment of interest, penalties, and additions to tax (for 
example, by billing the partner as under present practice).
    If the requirements are satisfied, then the partnership's 
imputed underpayment amount is determined without regard to the 
portion of the adjustments taken into account by such partners. 
The amended return modification procedure does not require the 
participation of all reviewed-year partners of the partnership. 
Direct and indirect reviewed-year partners may participate. The 
amended return procedure is not intended to cover adjustments 
to items on an amended return of a partner that do not 
correspond to adjustments to a reviewed-year partnership-
related item and the effect of the adjustments on tax 
attributes.
            Alternative procedure to filing amended returns (pull-in)
    The provision sets forth an alternative procedure to filing 
amended returns. The alternative procedure is referred to as 
the pull-in procedure. Under the pull-in procedure, the 
Secretary determines the partnership's imputed underpayment as 
reduced by the portion of the adjustments to partnership-
related items that direct and indirect reviewed-year partners 
take into account and with respect to which those partners pay 
the tax due, provided the requirements of the pull-in procedure 
are met.
    Under pull-in, reviewed-year partners pay the tax that 
would be due with amended returns, make binding changes to 
their tax attributes for subsequent years, and provide the 
Secretary with the information necessary to substantiate that 
the tax was correctly computed and paid. However, the partners 
file no amended returns. Thus, there are generally no corollary 
effects on the partners' returns beyond the effects on tax 
attributes, in other taxable years, of the adjustments to 
partnership-related items.
    Pull-in, as well as the amended return modification 
procedure, is available generally to direct and indirect 
reviewed-year partners, in the case of tiered partnerships. The 
pull-in procedure generally does not require the participation 
of all direct and indirect reviewed-year partners of the 
partnership.
    Pull-in requires the participating partner to pay the tax 
that would be due under the amended return filing procedure. 
The partner is responsible for remitting the payment unless the 
Secretary provides that another person, such as the partnership 
or a third party, may remit the payment on the partner's 
behalf. Payment is due within the period ending 270 days after 
the date the notice of proposed partnership adjustment is 
mailed (unless the period is extended with the Secretary's 
consent).
    Pull-in requires that the partner agree to take into 
account, in the form and manner required by the Secretary, the 
adjustments and the effects on the partner's tax attributes of 
the adjustments to partnership-related items properly allocable 
to the partner.
    Pull-in requires that the partner provide, in the form and 
manner specified by the Secretary, such information as the 
Secretary may require to carry out the pull-in procedure. This 
requirement can include information in the same form as on an 
amended return, if the Secretary so specifies. The information 
is to be provided within the period ending 270 days after the 
date the notice of proposed partnership adjustment is mailed 
(unless the period is extended with the Secretary's consent).
    If all of the requirements are satisfied, the imputed 
underpayment can be modified. In the event that a partner 
provides the required information, but does not make the 
required payment, for example, the imputed underpayment of the 
partnership is not modified with respect to those adjustments.
    For the administrative convenience of taxpayers and the 
Secretary, it is intended that partner payments and partner 
information may be collected centrally and remitted to the 
Secretary under the pull-in procedure. This centralization 
could be administered by the Secretary, by the partnership 
representative, or by a third party. For example, the procedure 
may permit a third party such as an accounting or law firm 
designated by the partnership representative to collect partner 
information required under the procedure and tally partner 
payments before remitting this information to the Secretary. 
Such a practice may be useful both to facilitate centralized 
tracking and collection of the information and payments, and to 
address privacy concerns partners may have in sharing 
information with the partnership representative. Particularly 
in the case of partnerships with numerous partners or direct 
and indirect partners, such a practice may alleviate the 
administrative burdens on the Secretary and taxpayers, 
consistently with the Congressional intent for the centralized 
partnership audit system to improve the efficiency, promptness, 
and accuracy of collection of partners' taxes due with respect 
to partnership-related items.
    Assessment authority with respect to payments under the 
pull-in procedure is provided under section 6201.
            Rules applicable both to the amended returns of partners 
                    and to the pull-in procedure
    If an adjustment involves reallocation of an item from one 
partner to another, the opportunity to modify the imputed 
underpayment under amended return procedure (sec. 
6225(c)(2)(A)) or pull-in procedures (sec. 6225(c)(2)(B)) is 
available only if the requirements of one or the other of the 
amended return or pull-in procedures are satisfied with respect 
to all partners affected by the adjustment involving 
reallocation.
    For purposes of the amended return and pull-in procedures, 
tax relating to adjustments to a reviewed-year partnership-
related item and the effect of the adjustments on tax 
attributes may be determined and assessed without regard to the 
otherwise applicable statute of limitations of sections 6501 
and 6511. For example, if a notice of proposed partnership 
adjustment is mailed to a partnership by the Secretary more 
than three years after a partner filed his or her return for 
the year including the end of the reviewed year, the three-year 
statute of limitations under section 6501 or 6511 does not 
preclude the filing of an amended return, the assessment and 
payment of the partner's tax due for that year, or the proper 
crediting or refund of an amount paid by a partner, but these 
results apply only with respect to adjustments to partnership-
related items for the reviewed year (and the effect of such 
adjustments on any tax attributes).
    In the case of adjustments taken into account on an amended 
return of a partner or in a pull-in with respect to a partner, 
the effects of these adjustments on tax attributes are binding. 
This binding effect applies for the taxable year of the partner 
that includes the end of the reviewed year of the partnership 
and any taxable year for which a tax attribute is affected by 
such an adjustment. Any failure to take into account the 
effects of adjustments on tax attributes is treated for all 
Federal tax purposes in the same manner as a failure by a 
partner to treat a partnership-related item consistently with 
the treatment of the item on the partnership return (as 
provided in section 6222). For example, if a partner who files 
an amended return or provides information in a pull-in fails to 
take into account in other taxable years the effect on tax 
attributes of adjustments to partnership-related items that are 
properly allocable to the partner, any underpayment 
attributable to the failure may be assessed under math error 
procedures as provided in section 6222(b).
    The provision clarifies the rules applicable in the case of 
partnerships and S corporations in tiered structures when a 
partner files an amended return and pays, or provides 
information to the Secretary and pays in a pull-in. 
Specifically, in the case of any partnership, any partner of 
which is a partnership, the amended return and pull-in rules of 
section 6225(c)(2)(A) and (B) apply with respect to any partner 
(the ``relevant partner'') in the chain of ownership of such 
partnerships, provided that certain requirements are met. As a 
practical matter, this rule generally permits the filing of 
amended returns even if some, but not all, of the partners (or 
S corporation shareholders treated as partners for this 
purpose) file amended returns. Similarly, this rule generally 
permits some but not all partners to participate in a pull-in, 
provided requirements are met.
    Requirements applicable to both the amended return 
procedure and the pull-in procedure include the requirement 
that such information as the Secretary may require be furnished 
to the Secretary for purposes of administering the amended 
return or pull-in rules in the case of tiered structures. In 
this context, the Secretary may require information with 
respect to any chain of ownership of the relevant partner. The 
Secretary may require that each partnership in the chain of 
ownership between the relevant partner and the audited 
partnership must satisfy the requirements for filing amended 
returns or for participating in the pull-in, so that all 
partnerships in the chain of ownership between the relevant 
partner and the audited partnership either meets the 
requirement of filing an amended return, or meets the 
requirements for supplying information in a pull-in.
    For example, an audited partnership has three partners, A, 
B, and C, each of which is a partnership. Partnership B in turn 
has two partners, D and E, each of which is a partnership. 
Partnerships A, C, D, and E each have only five partners. 
Individual Q is a partner in partnership E, and agrees to 
participate in a pull-in, pay the tax due, and provide 
information as required by the Secretary (including information 
similar to information that would be supplied on an amended 
return of Q, and information with respect to the chain of 
ownership between Q as the relevant partner and the audited 
partnership). The provision does not contemplate that the 
Secretary may require Q to supply information about the chain 
of ownership between the audited partnership and upper-tier 
partners of partnerships A, C, or D. However, partners of A, C, 
or D that file amended returns or participate in the pull-in 
may be required to supply information on the chain of ownership 
between themselves and the audited partnership, as well as 
information on their own chains of ownership should they be 
partnerships or S corporations.
            Other modification procedures: references to adjustments
    The provision clarifies the operation of modification 
procedures under sections 6225(c)(3) (relating to tax-exempt 
partners), 6225(c)(4) (relating to applicable highest tax 
rates), and 6225(c)(5) (relating to certain passive losses of 
publicly traded partnerships). In each of these modification 
procedures, the provision clarifies that the determination of 
the imputed underpayment is made without regard to the 
adjustment or portion of the adjustment being described (not 
without regard to a portion of the imputed underpayment).
            Other modification procedures: adjustment not resulting in 
                    an imputed underpayment
    The provision states specifically that the modification 
procedures are available if adjustments to partnership-related 
items do not result in an imputed underpayment. Under section 
6225(c)(9), information relating to a modification may be 
offered by the partnership in the case of adjustments that do 
not result in an imputed underpayment, and such adjustments may 
be modified by the Secretary as the Secretary determines 
appropriate.

4. Push-out treatment of passthrough partners in tiered structures 
        (sec. 204 of Division U of the Act and sec. 6226 of the Code)

    The provision addresses the situation of a partnership (or 
an S corporation, which is treated similarly to a partnership 
under this rule) that is a direct or indirect partner of an 
audited partnership that has elected to push out adjustments of 
partnership-related items to partners (or S corporation 
shareholders, which are treated similarly to partners under 
this rule) under section 6226. The provision sets forth 
requirements applicable to such partners and the time frame for 
satisfying these requirements.
    If a partner that receives a statement in a push-out is a 
partnership, that partner must satisfy two requirements. First, 
the partner must file with the Secretary a partnership 
adjustment tracking report that includes information required 
by the Secretary. For example, the required information may 
include identifying the partner's own partners or shareholders, 
describing and quantifying adjustments necessary to determine 
partnership-related items or the equivalent in the hands of 
those partners or shareholders, or other information necessary 
or appropriate to assessment and collection from tiers of 
partners in a push-out.
    Second, that partner is required to furnish statements to 
its partners under rules similar to section 6226(a)(2), or, if 
no such statements are furnished, to compute and pay its 
imputed underpayment under rules similar to section 6225 (other 
than certain modification-related rules). That is, the 
partnership must push out the adjustments to its partners, or 
if not, it must compute and pay its imputed underpayment. If 
such a partnership computes and pays its imputed underpayment, 
the rules of section 6225 apply (other than the modifications 
provided in sections 6225(c)(2) (amended returns and pull-in), 
6225(c)(7) (270-day period for modifications), and 6225(c)(9) 
(modification of adjustment not resulting in imputed 
underpayment)). The imputed underpayment of the partnership is 
determined by appropriately netting all partnership adjustments 
on the statement (taking into account limitations to which 
adjustments that decrease the imputed underpayment could be 
subject) and applying the highest rate of tax in effect for the 
reviewed year under section 1 or 11, as provided in section 
6225. The partnership pays its imputed underpayment as so 
determined.
    The due date for the payment of the imputed underpayment or 
furnishing of partner statements and the filing of the 
partnership adjustment tracking report is the return due date 
(including allowable extensions) for the adjustment year of the 
audited partnership. That is, the partnership adjustment 
tracking report must be filed with the Secretary, and the 
imputed underpayment paid or statements furnished to partners 
or S corporation shareholders (or if not so furnished, an 
imputed underpayment must be paid), not later than the return 
due date for the adjustment year of the audited partnership. In 
the case of a partner that is not a partnership or an S 
corporation and that receives a statement in a push-out, the 
partner's tax is increased for the partner's taxable year that 
includes the date of the statement, as provided in section 
6226(b). In the case of a partner that is a trust and that 
receives a statement in a push-out, regulatory authority to 
provide any necessary rules is set forth.
    The provision defines an audited partnership for purposes 
of the push-out treatment of passthrough partners in tiered 
structures under section 6226(b)(4). With respect to a partner 
that is a partnership or an S corporation and that receives a 
statement in a push-out, the audited partnership is the 
partnership in the chain of ownership originally electing the 
application of section 6226.

5. Treatment of failure of partnership or S corporation to pay imputed 
        underpayment and assessment and collection authority with 
        respect to imputed underpayments (sec. 205 of Division U of the 
        Act and secs. 6232 and 6501(c)(4)(a) of the Code)

    Under the provision, if, following an assessment, a 
partnership fails to pay an imputed underpayment within 10 days 
after the date of notice and demand by the Secretary, the 
applicable interest rate increases, and assessment and 
collection against adjustment-year partners for their 
proportionate shares may be made. The interest rate under the 
provision is the underpayment rate as modified, that is, the 
rate is the sum of the Federal short-term rate (determined 
monthly) plus five percentage points. An S corporation and its 
shareholders are treated like a partnership and its partners 
under the provision.
    The provision applies if, within 10 days of notice and 
demand for payment, a partnership fails to pay an imputed 
underpayment under section 6225 or any interest or penalties 
under section 6233. For example, the increased interest rate 
applies and assessment and collection from adjustment-year 
partners may be made in the case in which a partnership that 
has not elected under section 6226 to push out adjustments to 
partners nevertheless fails to pay within 10 days of notice and 
demand.
    The provision also applies if any specified similar amount 
(or interest or penalties with respect to the amount) have not 
been paid. A specified similar amount arises if a partner that 
is an upper-tier partnership or S corporation in a push-out 
fails to pay an imputed underpayment under section 
6226(b)(4)(A)(ii) (including any failure to furnish statements 
that is treated as a failure to pay an imputed underpayment 
under section 6651(i)). A specified similar amount also 
includes an amount required to be paid by former partners 
(including partners that are themselves partnerships) of a 
partnership that has ceased to exist or terminated as well as 
interest or penalties with respect to the amount.
    The date of the notice and demand for payment initiates a 
two-year period in which the Secretary may assess against the 
adjustment-year partners (or former partners). The two-year 
period of limitations also applies to a proceeding begun in 
court without assessment with respect to a partner. The period 
may be extended by agreement.
    The provision expands the present-law section 6501(c)(4) 
rule permitting extension by agreement between the Secretary 
and the taxpayer of the time period for assessment. As a 
result, that rule permitting extension by agreement is not 
limited to assessment periods prescribed in section 6501, but 
rather, applies more broadly to assessment periods and in 
particular applies to the period for assessment against 
partners in the case of failure of a partnership to pay an 
imputed underpayment after notice and demand under section 
6232(f).
    If a partnership has ceased to exist or terminated within 
the meaning of section 6241(7), the provision applies with 
respect to the former partners of the partnership. For example, 
the former partners of the partnership may be the partners for 
the most recent period before the partnership ceased to exist 
or terminated, such as the partners for purposes of the last 
return filed by the partnership.
    A partner is liable for no more than the partner's 
proportionate share of the imputed underpayment, interest, and 
penalties, measured as the Secretary determines on the basis of 
the partner's distributive share of items. For example, the 
distributive shares set forth in the partnership agreement, or 
as determined for purposes of Schedule K-1, may serve as a 
measure of a partner's proportionate share. The Secretary is 
required to determine partners' proportionate shares so that 
the aggregate proportionate shares so determined total 100 
percent. Thus, no partner is required to pay more than the 
partner's proportionate share of the imputed underpayment, 
interest, and penalties.
    Partner payments under this provision reduce the 
partnership's liability to pay. The partnership's liability is 
not reduced by partner payments if such payments are made after 
the date on which the partnership pays, however. For example, 
if a partnership's liability is $100, and partner payments 
aggregating $60 before July 15 reduce the partnership's 
liability to $40, and the partnership pays $40 on July 15, a 
partner payment of $40 on August 1 does not reduce the 
partnership's liability. The partnership may not receive a 
credit or refund for any part of the partner payment of $40; 
the partner, however, may.
    The Secretary may assess the tax, interest, and penalties 
on the proportionate share of each partner (as of the close of 
the adjustment year) of the partnership without regard to the 
deficiency procedures generally applicable to income tax. Under 
the provision, assessment may not be made (or proceeding in 
court begun without assessment) after the date that is two 
years after the date on which the Secretary provides notice and 
demand.

6. Amendment of statements (Schedules K-1) to partners (sec. 206(a) of 
        Division U of the Act and sec. 6031(b) of the Code)

    The provision clarifies that a partnership that has validly 
elected out of the partnership audit rules under section 
6221(b), and therefore is not subject to the partnership audit 
rules, may amend partner statements (Schedules K-1) after the 
due date of the partnership return to which the statements 
relate.

7. Partnership adjustment tracking report and administrative adjustment 
        request not treated as amended return (sec. 206(b) of Division 
        U of the Act and sec. 6225(c)(2) of the Code)

    The provision clarifies that neither the partnership 
adjustment tracking report required to be filed in a push-out, 
nor an administrative adjustment request submitted under 
section 6227, is treated as a return for purposes of modifying 
an imputed underpayment of a partnership through partner 
amended return filings and payments under section 
6225(c)(2)(A). Only a return of a partner satisfies the 
requirement under the partner amended return filing 
modification procedure.

8. Authority to require e-filing of materials (sec. 206(c) of Division 
        U of the Act and sec. 6241(10) of the Code)

    Authority is provided for the Secretary to require 
electronic filing or submission of anything that has to be 
filed or submitted in connection with procedures for modifying 
the imputed underpayment amount under section 6225(c). 
Authority is also provided for the Secretary to require 
electronic filing or furnishing of anything that has to be 
furnished to or filed with the Secretary in connection with the 
push-out procedures under section 6226.

9. Clarification of assessment authority in a push-out (sec. 206(d) of 
        Division U of the Act and sec. 6226 of the Code)

    The provision clarifies that, in the case of a partnership 
that has validly elected under section 6226 (push-out) in the 
manner that the Secretary provides, no assessment of tax, levy, 
or proceeding in court for the collection of the imputed 
underpayment is to be made against the audited partnership.

10. Treatment of partnership adjustments that result in decrease in tax 
        in push-out (sec. 206(e) of Division U of the Act and sec. 
        6226(b) of the Code)

    As an alternative to partnership payment of the imputed 
underpayment in the adjustment year, the audited partnership 
may elect to furnish to the Secretary and to each partner of 
the partnership for the reviewed year a statement of the 
partner's share of any adjustments to partnership-related items 
as determined by reference to the final determination with 
respect to the adjustment. In this situation section 6225, 
requiring the audited partnership to pay the imputed 
underpayment, does not apply. Instead, each reviewed-year 
partner takes the adjustments into account for the taxable year 
that includes the date of the statement and pays the tax as 
provided in section 6226 (taking into account section 
6226(b)(4)).
    The provision provides that in taking into account 
adjustments to determine a partner's tax in a push-out, 
decreases as well as increases in the partner's tax are taken 
into account. The provision clarifies that in a push-out, the 
partner's tax for the taxable year that includes the date of 
the statement is adjusted by the aggregate of the correction 
amounts (not adjustment amounts).
    The correction amount for a particular taxable year of a 
partner takes into account both decreases and increases. That 
is, the correction amount for the partner's taxable year that 
includes the end of the reviewed year is the amount by which 
the income tax would increase or decrease if the partner's 
share of adjustments were taken into account for that year. 
Similarly, the correction amount for any taxable year of the 
partner after that year, and before the year that includes the 
date of the statement, is the amount by which the income tax 
would increase or decrease if the partner's share of 
adjustments were taken into account for that year. The present-
law treatment of mathematical or clerical errors applies with 
respect to correction amounts and aggregate correction amounts.

11. Coordination with adjustments related to foreign tax credits (sec. 
        206(f) of Division U of the Act and sec. 6227(d) of the Code)

    The provision clarifies that the Secretary is to issue 
regulations or other guidance providing for the proper 
coordination of section 6227, relating to administrative 
adjustment requests by the partnership, with the rule of 
section 905(c), relating to foreign tax credits and 
redetermination of the amount of tax in certain circumstances.

12. Clarification of assessment of imputed underpayments (sec. 206(g) 
        of Division U of the Act and sec. 6232(a) and (b) of the Code)

    The provision clarifies that the assessment of any imputed 
underpayment is not subject to the deficiency procedures of 
subchapter B of chapter 63. Rather, they are assessed and 
collected in accordance with the rules of subchapter C of 
chapter 63. Any imputed underpayment (including an imputed 
underpayment under section 6226(b)(4)(A)(ii) of a partnership 
or S corporation that is a direct or indirect partner of an 
audited partnership in a push-out) is assessable under the 
provision.
    The provision clarifies that in the case of an 
administrative adjustment request to which section 6227(b)(1) 
applies, the underpayment must be paid, and may be assessed, 
when the request is filed.
    A reference in section 6232(b) to the assessment of a 
deficiency is corrected to refer to the assessment of an 
imputed underpayment. Generally, then, an imputed underpayment 
of a partnership may not be assessed or collected before the 
close of the 90th day after the day on which a notice of final 
partnership adjustment was mailed, and if a petition is filed 
under section 6234 with respect to the notice, the decision of 
the court has become final.
    However, the restrictions on assessment and collection of 
an imputed underpayment provided generally under section 
6232(b) do not apply in the case of any specified similar 
amount within the meaning of section 6232(f)(2). A specified 
similar amount includes not only the amount described in 
section 6226(b)(4)(A)(ii)(II) in the case of a pushout, but 
also includes any failure to furnish statements to partners or 
S corporation shareholders that is treated as a failure to pay 
that amount under section 6651(i). As a result, the 
restrictions on assessment and collection do not apply to the 
imputed underpayment of a partner that is a partnership or S 
corporation, or, in the case of a partnership that has ceased 
to exist, to an amount required to be paid by the former 
partners. For example, the restrictions do not apply to 
assessment and collection of an imputed underpayment of a 
partnership or S corporation that receives a statement in a 
push-out and neither timely furnishes statements to its 
partners or shareholders nor pays its imputed underpayment.

13. Time limit for notice of proposed partnership adjustment (sec. 
        206(h) of Division U of the Act and sec. 6231(a) and (b) of the 
        Code)

    The provision clarifies that a notice of proposed 
partnership adjustment must be mailed within the applicable 
period of limitations on making adjustments under the 
partnership audit rules (subchapter C of chapter 63 of the 
Code). The notice of proposed partnership adjustment cannot be 
relied upon to revive an otherwise expired limitations period 
under section 6235. For purposes of determining whether a 
notice of proposed partnership adjustment is timely, the 
applicable limitations period is determined under section 6235, 
determined without regard to section 6235(a)(2) (relating to 
the period for modification of an imputed underpayment under 
section 6225(c)(7)), and without regard to section 6235(a)(3) 
(relating to the 330-day period (or the period as extended) for 
making an adjustment after the date of a notice of proposed 
partnership adjustment).
    The provision does not alter the section 6231(b)(2) 
prohibition against mailing any notice of final partnership 
adjustment earlier than 270 days after the date on which the 
notice of proposed partnership adjustment is mailed (except to 
the extent the partnership elects to waive the prohibition).

14. Deposit to suspend interest on imputed underpayment (sec. 206(i) of 
        Division U of the Act and sec. 6233 of the Code)

    The provision clarifies that, before the due date for 
payment of an imputed underpayment, a partnership (or, in the 
case of a partner payment pursuant to an election under section 
6226, a partner) may make a cash deposit to suspend the running 
of interest as provided under present-law rules in section 
6603. The deposit is not treated as a tax payment.

15. Deposit to meet jurisdictional requirement (sec. 206(j) of Division 
        U of the Act and sec. 6234(b) of the Code)

    The provision clarifies that the amount of the 
jurisdictional deposit that the partnership must make in order 
to file a readjustment petition in court is the amount of (as 
of the date of the filing of the petition) the imputed 
underpayment, penalties, additions to tax, and additional 
amounts with respect to the imputed underpayment (not just the 
imputed underpayment amount).

16. Period of limitations on making adjustments (sec. 206(k) of 
        Division U of the Act and sec. 6235 of the Code)

    The provision clarifies several rules relating to the 
period of limitations on making adjustments. The provision 
makes clear that the period of limitations on making 
adjustments under subchapter C of chapter 63 does not limit the 
period for notification of the Secretary and redetermination of 
tax under section 905(c). The provision corrects a cross 
reference so that it refers to subchapter C of chapter 63 
(rather than to a nonexistent subpart). The provision clarifies 
a reference to the penalty for substantial omission of income 
to incorporate a reference to constructive dividends, not just 
to other omitted items. The provision clarifies that the time 
for making any adjustment under subchapter C of chapter 63 with 
respect to any tax return, event, or period does not expire 
before the date determined under section 6501(c)(8) (relating 
to the failure to notify the Secretary of certain foreign 
transfers), that is, generally, the date that is three years 
after the date on which the Secretary is furnished the 
information required to be reported. The provision clarifies 
that the time for making any adjustment under subchapter C of 
chapter 63 with respect to a listed transaction described in 
section 6501(c)(10) does not expire on the date determined 
under section 6501(c)(10), that is, generally, the date that is 
one year after the earlier of the date on which the Secretary 
is furnished the information required to be reported or the 
date on which a material advisor meets certain applicable 
requirements. The provision is clarified by striking section 
6235(d), a provision included in prior law that has no effect 
under subchapter C of chapter 63.

17. Treatment of special enforcement matters (sec. 206(l) of Division U 
        of the Act and sec. 6241(10) of the Code)

    The provision provides regulatory authority similar to that 
under the prior-law TEFRA partnership audit rules. It provides 
that in the case of partnership-related items involving special 
enforcement matters, the Secretary may prescribe guidance under 
which the partnership audit rules (or any portion of the rules) 
do not apply, and the special enforcement items are subject to 
special rules, including rules related to assessment and 
collection that are needed for effective and efficient 
enforcement. Special enforcement matters mean: failure to 
comply with the requirements of section 6226(b)(4)(A)(ii) to 
pay the imputed underpayment if the requirement to furnish 
statements has not been satisfied, termination and jeopardy 
assessments, criminal investigations, indirect methods of proof 
of income, foreign partners or partnerships, and other matters 
presenting special enforcement considerations.

18. United States shareholders and certain other persons treated as 
        partners (sec. 206(m) of Division U of the Act and sec. 
        6241(12) of the Code)

    The provision clarifies the treatment under the rules of 
subchapter C of chapter 63 of United States shareholders and 
certain other persons treated as partners. Except as otherwise 
provided in guidance promulgated by the Secretary, in the case 
of a controlled foreign corporation (defined in section 957 or 
953(c)(1)) that is a partner of a partnership, each United 
States shareholder is treated under subchapter C of chapter 63 
as a partner in the partnership. For this purpose, except as 
otherwise provided by the Secretary, the distributive share 
with respect to the partnership equals the United States 
shareholder's pro rata share with respect to the controlled 
foreign corporation, determined under rules similar to the 
rules for determining its pro rata share of subpart F income 
under section 951(a)(2).
    The provision also makes clear the treatment under 
subchapter C of chapter 63 of a passive foreign investment 
company (``PFIC'') that is a partner in a partnership and that 
is a qualified electing fund with respect to a taxpayer 
pursuant to the taxpayer's election under section 1295. In the 
case of such a taxpayer, for purposes of the foregoing rule 
treating the taxpayer as a partner in the partnership, the 
taxpayer's distributive share with respect to the partnership 
equals the taxpayer's pro rata share with respect to the PFIC, 
determined under rules similar to the rules for determining the 
taxpayer's pro rata share under section 1293(b) (relating to 
pro rata share for purposes of current taxation of income from 
qualified electing funds).
    Under the provision, authority for Treasury regulations or 
other guidance is provided as is necessary or appropriate to 
carry out the legislative purpose or to apply the rule treating 
persons as partners in similar circumstances or with respect to 
similarly-situated persons.

19. Penalties relating to administrative adjustment requests and 
        partnership adjustment tracking reports (sec. 206(n) of 
        Division U of the Act and secs. 6651, 6696, 6698, and 6702 of 
        the Code)

    The provision clarifies existing penalty provisions to 
ensure that they address compliance with the partnership audit 
rules. A partnership adjustment tracking report required to be 
filed pursuant to a section 6226 election is treated as a 
return for purposes of penalties relating to failure to file a 
partnership return, frivolous position submissions, and 
preparation of tax returns for other persons. A failure to 
comply with section 6226(b)(4)(A)(ii)(II), relating to the 
requirement to furnish statements in a push-out, is treated as 
a failure to pay an imputed underpayment for purposes of the 
penalty relating to failure to file a tax return or to pay tax. 
An administrative adjustment request under section 6227 is 
treated as a return for purposes of penalties relating to 
frivolous position submissions and the preparation of tax 
returns for other persons. Section 206(b) of Division U of the 
amendment, however, clarifies that neither an administrative 
adjustment request under section 6227 nor a partnership 
adjustment tracking report under section 6226(b)(4)(A) is 
treated as a return for purposes of the partner amended return 
modification procedure of section 6225(c)(2)(A).

20. Statements to partners (adjusted Schedules K-1) treated as payee 
        statements (sec. 206(o) of Division U of the Act and sec. 6724 
        of the Code)

    The provision clarifies that for purposes of the penalty 
for failure to furnish correct payee statements and the penalty 
for failure to file correct information returns, statements 
required to be furnished to partners in a push-out under 
section 6226(a)(2), or statements required to be furnished to 
partners under rules similar to section 6226(a)(2), are treated 
as payee statements. Statements required to be furnished to 
partners under rules similar to section 6226(a)(2) include 
statements furnished to partners pursuant to an administrative 
adjustment request under section 6227.

21. Clerical corrections relating to partnership audit rules (sec. 
        206(p) of Division U of the Act)

    The provision makes clerical corrections to the partnership 
audit rules.

                          C. Other Corrections


1. Amendment relating to the Bipartisan Budget Act of 2015 (sec. 301 of 
        Division U of the Act)

    Electronic filing of partnership returns.--Section 6011 
requires that, under regulations, a person may be required to 
file returns electronically if the person is required to file 
at least 250 returns during the calendar year. Regulations 
provide that for purposes of determining the 250-return 
threshold, returns filed within one calendar year by a 
corporation include any type, including information returns 
(e.g., Forms W-2, Forms 1099), income tax returns, employment 
tax returns, and excise tax returns. However, partnerships 
having more than 100 partners are required to file returns 
electronically. For partnerships only, the provision phases in 
reductions in the number of returns and statements during a 
calendar year that can subject the partnership to a regulatory 
requirement to file returns electronically. Specifically, the 
provision provides that under regulations, partnerships are 
required to file returns electronically if the partnership is 
required to file at least 200 returns for calendar year 2018, 
150 returns for calendar year 2019, 100 returns for calendar 
year 2020, 50 returns for calendar year 2021, or 20 returns for 
calendar years after 2021. The provision is effective as if 
included with the partnership audit provisions of section 1101 
of the Bipartisan Budget Act of 2015.

2. Amendment relating to the Energy Policy Act of 2005 (sec. 302 of 
        Division U of the Act)

    Qualifying small power production facility (Act sec. 
1253(b)(1)).--A provision of the MACRS depreciation rules, 
originally enacted in 1986 (sec. 168(e)(3)(B)(vi)(II)), refers 
to a provision of the Federal Power Act, as then in effect, 
defining a ``qualifying small power production facility'' as a 
facility that is ``small'' (i.e., power production capacity not 
greater than 80 megawatts) and not owned by an electric utility 
(as determined by FERC). The ownership limitation was repealed 
by the Energy Policy Act of 2005 (the ``2005 Act''). Since that 
2005 repeal, the determination is made by relying on FERC to 
determine whether a facility was a ``qualifying small power 
production facility'' as that term was defined prior to the 
2005 Act, a determination no longer relevant to FERC (see, 
e.g., Private Letter Ruling 201539024). The provision adds to 
the Code the language of FERC's definition of a qualifying 
small power production facility (retaining the power production 
capacity not greater than 80 megawatts) without the electric 
utility ownership prohibition. The effect of the provision is 
that such a power production facility is five-year property for 
purposes of section 168(e)(3)(B)(vi)(II), not 15-year property. 
The provision is effective for property placed in service after 
the date of enactment.

                  D. Clerical Corrections and Deadwood


1. Clerical corrections and deadwood-related provisions (sec. 401 of 
        Division U of the Act)

    The provision includes clerical corrections and deadwood-
related provisions.
 PART FIVE: AIRPORT AND AIRWAY EXTENSION ACT OF 2018, PART II (PUBLIC 
                           LAW 115-250) \553\

---------------------------------------------------------------------------
    \553\ H.R. 6897. The House passed H.R. 6897 on September 26, 2018. 
The Senate passed the bill without amendment on September 28, 2018. The 
President signed the bill on September 29, 2018.
---------------------------------------------------------------------------

1. Expenditure authority from the Airport and Airway Trust Fund and 
        extension of taxes funding the Airport and Airway Trust Fund 
        (secs. 4 and 5 of the Act and secs. 4081, 4083, 4261, 4271, and 
        9502 of the Code)

                              Present Law


Taxes dedicated to the Airport and Airway Trust Fund

    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial (i.e., transportation that is not 
``for hire'') aviation to fund the Airport and Airway Trust 
Fund.\554\ The present aviation excise taxes are as follows:
---------------------------------------------------------------------------
    \554\ Air transportation through U.S. airspace that neither lands 
in nor takes off from a point in the United States (or the ``225-mile 
zone'') is exempt from the aviation excise taxes, but the 
transportation provider is subject to certain ``overflight fees'' 
imposed by the Federal Aviation Administration pursuant to section 
45301 of Title 49 of the United States Code. The ``225 mile zone'' is 
defined as ``that portion of Canada or Mexico which is not more than 
225 miles from the nearest point in the continental United States.'' 
Sec. 4262(c)(2).

------------------------------------------------------------------------
          Tax (and Code section)                      Tax Rates
------------------------------------------------------------------------
Domestic air passengers (sec. 4261).......  7.5 percent of fare, plus
                                             $4.10 (2018) per domestic
                                             flight segment generally
                                             \555\
International air passengers (sec. 4261)..  $18.30 (2018) per arrival or
                                             departure \556\
Amounts paid for right to award free or     7.5 percent of amount paid
 reduced rate passenger air transportation   (and the value of any other
 (sec. 4261)                                 benefit provided) to an air
 .................................           carrier (or any related
                                             person)
 
Air cargo (freight) transportation (sec.    6.25 percent of amount
 4271).                                      charged for domestic
                                             transportation; no tax on
                                             international cargo
                                             transportation
Aviation fuels (sec. 4081): \557\
    Commercial aviation...................  4.3 cents per gallon
    Noncommercial (general) aviation:.....
        Aviation gasoline.................  19.3 cents per gallon
        Jet fuel..........................  21.8 cents per gallon
    Fractional aircraft fuel surtax (sec.   14.1 cents per gallon
     4043).
------------------------------------------------------------------------

    The Airport and Airway Trust Fund excise taxes (except for 
4.3 cents per gallon of the taxes on aviation fuels and the 
14.1 cents per gallon fractional aircraft fuel surtax) are 
scheduled to expire after September 30, 2018. The 4.3-cents-
per-gallon fuels tax rate is permanent. The fractional aircraft 
fuel surtax expires after September 30, 2021.
---------------------------------------------------------------------------
    \555\ The domestic flight segment portion of the tax is adjusted 
annually (effective each January 1) for inflation.
    \556\ The international arrival and departure tax rate is adjusted 
annually for inflation. Under a special rule for Alaska and Hawaii, the 
tax only applies to departures at a rate of $9.10 per departure for 
2018.
    \557\ Like most other taxable motor fuels, aviation fuels are 
subject to an additional 0.1-cent-per-gallon excise tax to fund the 
LUST Trust Fund.
---------------------------------------------------------------------------

Airport and Airway Trust Fund expenditure provisions

    The Airport and Airway Trust Fund was established in 1970 
to finance a major portion of national aviation programs 
(previously funded entirely with General Fund revenues). 
Operation of the Trust Fund is governed by parallel provisions 
of the Code and authorizing statutes.\558\ The Code provisions 
govern deposit of revenues into the Trust Fund and approve 
expenditure purposes in authorizing statutes as in effect on 
the date of enactment of the latest authorizing Act. The 
authorizing Acts provide for specific Trust Fund expenditure 
programs.
---------------------------------------------------------------------------
    \558\ Sec. 9502 and 49 U.S.C. sec. 48101, et seq.
---------------------------------------------------------------------------
    No expenditures are permitted to be made from the Airport 
and Airway Trust Fund after September 30, 2018. The purposes 
for which Airport and Airway Trust Fund monies are permitted to 
be expended are fixed as of the date of enactment of the 
Airport and Airway Extension Act of 2018; therefore, the Code 
must be amended in order to authorize new Airport and Airway 
Trust Fund expenditure purposes.\559\ The Code contains a 
specific enforcement provision to prevent expenditure of Trust 
Fund monies for purposes not authorized under section 
9502.\560\ This provision provides that, should such unapproved 
expenditures occur, no further aviation excise tax receipts 
will be transferred to the Trust Fund. Rather, the aviation 
taxes will continue to be imposed, but the receipts will be 
retained in the General Fund.
---------------------------------------------------------------------------
    \559\ Sec. 9502(d).
    \560\ Sec. 9502(e)(1).
---------------------------------------------------------------------------

                       Explanation of Provisions

    The Airport and Airway Extension Act of 2018, Part II 
extends through October 7, 2018, the taxes and expenditure 
authority that were scheduled to expire on September 30, 2018.

                             Effective Date

    The provisions are effective on the date of enactment 
(September 29, 2018).
  PART SIX: FAA REAUTHORIZATION ACT OF 2018 (PUBLIC LAW 115-254) \561\

---------------------------------------------------------------------------
    \561\ H.R. 302. The House passed H.R. 302 on January 9, 2017. 
Senate passed H.R. 302 with an amendment on September 6, 2018. On 
September 26, 2018, the House agreed to the Senate amendment with an 
amendment. Senate agreed to the House amendment to the Senate amendment 
to H.R. 302 on October 3, 2018. The President signed the bill on 
October 5, 2018.
---------------------------------------------------------------------------

1. Expenditure authority from the Airport and Airway Trust Fund and 
        extension of taxes funding the Airport and Airway Trust Fund 
        (secs. 801 and 802 of the Act and secs. 4081, 4083, 4261, 4271, 
        and 9502 of the Code)

                              Present Law


Taxes dedicated to the Airport and Airway Trust Fund

    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial (i.e., transportation that is not 
``for hire'') aviation to fund the Airport and Airway Trust 
Fund.\562\ The present aviation excise taxes are as follows:
---------------------------------------------------------------------------
    \562\ Air transportation through U.S. airspace that neither lands 
in nor takes off from a point in the United States (or the ``225-mile 
zone'') is exempt from the aviation excise taxes, but the 
transportation provider is subject to certain ``overflight fees'' 
imposed by the Federal Aviation Administration pursuant to section 
45301 of Title 49 of the United States Code. The ``225 mile zone'' is 
defined as ``that portion of Canada or Mexico which is not more than 
225 miles from the nearest point in the continental United States.'' 
Sec. 4262(c)(2).

------------------------------------------------------------------------
          Tax (and Code section)                      Tax Rates
------------------------------------------------------------------------
Domestic air passengers (sec. 4261).......  7.5 percent of fare, plus
                                             $4.10 (2018) per domestic
                                             flight segment
                                             generally.\563\
International air passengers (sec. 4261)..  $18.30 (2018) per arrival or
                                             departure.\564\
Amounts paid for right to award free or     7.5 percent of amount paid
 reduced rate passenger air transportation   (and the value of any other
 (sec. 4261)                                 benefit provided) to an air
 .................................           carrier (or any related
                                             person).
Air cargo (freight) transportation (sec.    6.25 percent of amount
 4271).                                      charged for domestic
                                             transportation; no tax on
                                             international cargo
                                             transportation.
Aviation fuels (sec. 4081): \565\
    Commercial aviation...................  4.3 cents per gallon
    Noncommercial (general) aviation:.....
        Aviation gasoline.................  19.3 cents per gallon
        Jet fuel..........................  21.8 cents per gallon
    Fractional aircraft fuel surtax (sec.   14.1 cents per gallon
     4043).
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    The Airport and Airway Trust Fund excise taxes (except for 
4.3 cents per gallon of the taxes on aviation fuels and the 
14.1 cents per gallon fractional aircraft fuel surtax) are 
scheduled to expire after October 7, 2018. The 4.3-cents-per-
gallon fuels tax rate is permanent. The fractional aircraft 
fuel surtax expires after September 30, 2021.
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    \563\ The domestic flight segment portion of the tax is adjusted 
annually (effective each January 1) for inflation.
    \564\ The international arrival and departure tax rate is adjusted 
annually for inflation. Under a special rule for Alaska and Hawaii, the 
tax only applies to departures at a rate of $9.10 per departure for 
2018.
    \565\ Like most other taxable motor fuels, aviation fuels are 
subject to an additional 0.1-cent-per-gallon excise tax to fund the 
LUST Trust Fund.
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Airport and Airway Trust Fund expenditure provisions

    The Airport and Airway Trust Fund was established in 1970 
to finance a major portion of national aviation programs 
(previously funded entirely with General Fund revenues). 
Operation of the Trust Fund is governed by parallel provisions 
of the Code and authorizing statutes.\566\ The Code provisions 
govern deposit of revenues into the Trust Fund and approve 
expenditure purposes in authorizing statutes as in effect on 
the date of enactment of the latest authorizing Act. The 
authorizing Acts provide for specific Trust Fund expenditure 
programs.
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    \566\ Sec. 9502 and 49 U.S.C. sec. 48101, et seq.
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    No expenditures are permitted to be made from the Airport 
and Airway Trust Fund after October 7, 2018. The purposes for 
which Airport and Airway Trust Fund monies are permitted to be 
expended are fixed as of the date of enactment of the Airport 
and Airway Extension Act of 2018, Part II; therefore, the Code 
must be amended in order to authorize new Airport and Airway 
Trust Fund expenditure purposes.\567\ The Code contains a 
specific enforcement provision to prevent expenditure of Trust 
Fund monies for purposes not authorized under section 
9502.\568\ This provision provides that, should such unapproved 
expenditures occur, no further aviation excise tax receipts 
will be transferred to the Trust Fund. Rather, the aviation 
taxes will continue to be imposed, but the receipts will be 
retained in the General Fund.
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    \567\ Sec. 9502(d).
    \568\ Sec. 9502(e)(1).
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                        Explanation of Provision

    The FAA Reauthorization Act of 2018 extends through 
September 30, 2023, all of the taxes dedicated to, and the 
expenditure authority for, the Airport and Airway Trust Fund.

                             Effective Date

    The provisions are effective on the date of enactment 
(October 5, 2018).
 PART SEVEN: PROTECTING ACCESS TO THE COURTS FOR TAXPAYERS ACT (PUBLIC 
                           LAW 115-332) \569\

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    \569\ H.R. 3996. The House passed H.R. 3996 on March 14, 2018. The 
Senate passed the bill without amendment on December 11, 2018. The 
President signed the bill on December 19, 2018.
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1. Transfer of certain cases (sec. 2 of the Act)

                              Present Law

    Certain Federal courts \570\ are authorized to transfer 
civil actions and appeals to other of these courts when (1) the 
transferor court lacks jurisdiction, (2) the transferee court 
would have had jurisdiction at the time the original complaint 
or appeal was filed, and (3) the transfer would serve the 
interests of justice.\571\ The United States Tax Court (the 
``Tax Court'') is not included in the definition of courts for 
this purpose. Accordingly, the courts cannot transfer to the 
Tax Court a case over which the Tax Court has jurisdiction.
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    \570\ Section 610 of Title 28 of the United States Code provides 
that ``courts'' includes the court of appeals and district courts of 
the United States, the United States District Court for the District of 
the Canal Zone, the District Court of Guam, the District Court of the 
Virgin Islands, the United States Court of Federal Claims, and the 
Court of International Trade.
    \571\ 28 U.S.C. sec. 1631.
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                        Explanation of Provision

    The provision amends section 1631 of Title 28 of the United 
States Code to enable Federal courts to transfer cases within 
the jurisdiction of the Tax Court to that court.

                             Effective Date

    The provision is effective on the date of enactment 
(December 19, 2018).

 APPENDIX: ESTIMATED BUDGET EFFECTS OF CERTAIN TAX LEGISLATION ENACTED 
                         IN THE 115TH CONGRESS 
                         
                         
              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]