[JPRT 116-1-22]
[From the U.S. Government Publishing Office]


                       [JOINT COMMITTEE PRINT]

                                                              
                         GENERAL EXPLANATION OF
             TAX LEGISLATION ENACTED IN THE 116TH CONGRESS

                               ----------                              

                         Prepared by the Staff

                                 OF THE

                      JOINT COMMITTEE ON TAXATION


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                             FEBRUARY 2022
                             
                             
                             
                                                       JCS-1-22                          
                             
                             
                             
  GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN THE 116TH CONGRESS
  
  
  
  
                         [JOINT COMMITTEE PRINT]

                                                              
                         GENERAL EXPLANATION OF
             TAX LEGISLATION ENACTED IN THE 116TH CONGRESS

                               ----------                              

                         Prepared by the Staff

                                 OF THE

                      JOINT COMMITTEE ON TAXATION


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                             FEBRUARY 2022
                             
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
45-906                      WASHINGTON : 2022                         JCS-1-22    
          
-----------------------------------------------------------------------------------   
                          
                             
                      JOINT COMMITTEE ON TAXATION
                      117th Congress, 2nd Session

                                 ------                                

               HOUSE                               SENATE
RICHARD NEAL, Massachusetts          RON WYDEN, Oregon
    Vice Chairman                        Chairman
LLOYD DOGGETT, Texas                 DEBBIE STABENOW, Michigan
MIKE THOMPSON, California            MARIA CANTWELL, Washington
KEVIN BRADY, Texas                   MIKE CRAPO, Idaho
VERN BUCHANAN, Florida               CHUCK GRASSLEY, Iowa

                Thomas A. Barthold, Chief of Staff
                 Robert P. Harvey, Deputy Chief of Staff


                            C O N T E N T S

                              ----------                              
                                                                   Page

INTRODUCTION.....................................................     1

PART ONE: THE TAXPAYER FIRST ACT (PUBLIC LAW 116-25).............     3

TITLE I--PUTTING TAXPAYERS FIRST.................................     3

Subtitle A--Independent Appeals Process..........................     3

  1. Establishment of Internal Revenue Service Independent Office 
    of Appeals (sec. 1001 of the Act and sec. 7803 of the Code)..     3

Subtitle B--Improved Service.....................................     6

  1. Comprehensive customer service strategy (sec. 1101 of the 
    Act).........................................................     6
  2. Low-income exception for payments otherwise required in 
    connection with a submission of an offer-in-compromise (sec. 
    1102 of the Act and sec. 7122 of the Code)...................     7

Subtitle C--Sensible Enforcement.................................     8

  1. Internal Revenue Service seizure requirements with respect 
    to structuring transactions (sec. 1201 of the Act)...........     8
  2. Exclusion of interest received in action to recover property 
    seized by the Internal Revenue Service based on structuring 
    transaction (sec. 1202 of the Act and new sec. 139H of the 
    Code)........................................................    10
  3. Clarification of equitable relief from joint liability (sec. 
    1203 of the Act and sec. 6015 of the Code)...................    11
  4. Modification of procedures for issuance of third-party 
    summons (sec. 1204 of the Act and sec. 7609 of the Code).....    13
  5. Private debt collection and special compliance personnel 
    program (sec. 1205 of the Act and sec. 6306 of the Code).....    14
  6. Reform of notice of contact of third parties (sec. 1206 of 
    the Act and sec. 7602 of the Code)...........................    16
  7. Modification of authority to issue designated summons (sec. 
    1207 of the Act and sec. 6503(j) of the Code)................    17
  8. Limitation on access of non-Internal Revenue Service 
    employees to returns and return information (sec. 1208 of the 
    Act and sec. 7602 of the Code)...............................    19

Subtitle D--Organizational Modernization.........................    21

  1. Office of the National Taxpayer Advocate (sec. 1301 of the 
    Act and sec. 7803(c) of the Code)............................    21
  2. Modernization of Internal Revenue Service organizational 
    structure (sec. 1302 of the Act).............................    24

Subtitle E--Other Provisions.....................................    24

  1. Return preparation programs for applicable taxpayers (sec. 
    1401 of the Act and new sec. 7526A of the Code)..............    24
  2. Provision of information regarding low-income taxpayer 
    clinics (sec. 1402 of the Act and sec. 7526 of the Code).....    27
  3. Notice from IRS regarding closure of Taxpayer Assistance 
    Centers (sec. 1403 of the Act)...............................    28
  4. Rules for seizure and sale of perishable goods restricted to 
    only perishable goods (sec. 1404 of the Act and sec. 6336 of 
    the Code)....................................................    28
  5. Whistleblower reforms (sec. 1405 of the Act and secs. 6103 
    and 7623 of the Code)........................................    29
  6. Customer service information (sec. 1406 of the Act).........    31
  7. Misdirected tax refund deposits (sec. 1407 of the Act and 
    sec. 6402 of the Code).......................................    31

TITLE II--21ST CENTURY IRS.......................................    32

Subtitle A--Cybersecurity and Identity Protection................    32

  1. Public-private partnership to address identity theft tax 
    refund fraud (sec. 2001 of the Act)..........................    32
  2. Recommendations of Electronic Tax Administration Advisory 
    Committee regarding identity theft refund fraud (sec. 2002 of 
    the Act).....................................................    33
  3. Information sharing and analysis center (sec. 2003 of the 
    Act and sec. 6103 of the Code)...............................    33
  4. Compliance by contractors with confidentiality safeguards 
    (sec. 2004 of the Act and sec. 6103 of the Code).............    37
  5. Identity protection personal identification numbers (sec. 
    2005 of the Act).............................................    39
  6. Single point of contact for tax-related identity theft 
    victims (sec. 2006 of the Act)...............................    40
  7. Notification of suspected identity theft (sec. 2007 of Act 
    and new sec. 7529 of the Code)...............................    41
  8. Guidelines for stolen identity theft refund fraud cases 
    (sec. 2008 of the Act).......................................    43
  9. Increased penalty for improper disclosure or use of 
    information by preparers of returns (sec. 2009 of the Act and 
    sec. 6713 of the Code).......................................    44

Subtitle B--Development of Information Technology................    45

  1. Management of IRS information technology (sec. 2101 of the 
    Act and sec. 7803 of the Code)...............................    45
  2. Internet platform for Form 1099 filings (sec. 2102 of the 
    Act).........................................................    46
  3. Streamlined critical pay authority for information 
    technology positions (sec. 2103 of the Act and new sec. 7812 
    of the Code).................................................    47

Subtitle C--Modernization of Consent-Based Income Verification 
  System.........................................................    48

  1. Disclosure of taxpayer information for third-party income 
    verification (sec. 2201 of the Act and sec. 6103 of the Code)    48
  2. Limit redisclosures and uses of consent-based disclosures of 
    tax return information (sec. 2202 of the Act and sec. 6103 of 
    the Code)....................................................    50

Subtitle D--Expanded Use of Electronic Systems...................    52

  1. Electronic filing of returns (sec. 2301 of the Act and sec. 
    6011 of the Code)............................................    52
  2. Uniform standards for the use of electronic signatures for 
    disclosure authorizations to, and other authorizations of, 
    practitioners (sec. 2302 of the Act and sec. 6061 of the 
    Code)........................................................    54
  3. Payment of taxes by debit and credit cards (sec. 2303 of the 
    Act and sec. 6311 of the Code)...............................    55
  4. Authentication of users of electronic services accounts 
    (sec. 2304 of the Act).......................................    56

 Subtitle E--Other Provisions....................................    56

  1. Repeal of provision regarding certain tax compliance 
    procedures and reports (sec. 2401 of the Act)................    56
  2. Comprehensive training strategy (sec. 2402 of the Act)......    56

TITLE III--MISCELLANEOUS PROVISIONS..............................    58

Subtitle A--Reform of Laws Governing Internal Revenue Service 
  Employees......................................................    58

  1. Prohibition on rehiring any employee of the Internal Revenue 
    Service who was involuntarily separated from service for 
    misconduct (sec. 3001 of the Act and sec. 7804 of the Code)..    58
  2. Notification of unauthorized inspection or disclosure of 
    returns and return information (sec. 3002 of the Act and sec. 
    7431 of the Code)............................................    59

Subtitle B--Provisions Relating to Exempt Organizations..........    60

  1. Mandatory e-filing by exempt organizations (sec. 3101 of the 
    Act and secs. 6033 and 6104 of the Code).....................    60
  2. Notice required before revocation of tax-exempt status for 
    failure to file return (sec. 3102 of the Act and sec. 6033(j) 
    of the Code).................................................    62

Subtitle C--Revenue Provision....................................    65

  1. Increase in penalty for failure to file (sec. 3201 of the 
    Act and sec. 6651(a) of the Code)............................    65

PART TWO: FOSTERING UNDERGRADUATE TALENT BY UNLOCKING RESOURCES 
  FOR EDUCATION (``FUTURE'') ACT (PUBLIC LAW 116-91).............    67

  1. Secure disclosure of tax-return information to carry out the 
    Higher Education Act of 1965 (sec. 3 of the Act and section 
    6103(l)(13) of the Code).....................................    67

PART THREE: FURTHER CONSOLIDATED APPROPRIATIONS ACT, 2020 (PUBLIC 
  LAW 116-94)....................................................    71

DIVISION M--BIPARTISAN AMERICAN MINERS ACT OF 2019...............    71

  1. Transfers to 1974 UMWA pension plan and inclusion in 
    multiemployer health benefit plan (secs. 102 and 103 of the 
    Act and sec. 402 of the Surface Mining Control and 
    Reclamation Act of 1977).....................................    71
  2. Reduction in minimum age for allowable in-service 
    distributions (sec. 104 of the Act and secs. 401 and 457 of 
    the Code)....................................................    77

DIVISION N--HEALTH AND HUMAN SERVICES EXTENDERS..................    78

TITLE I--HEALTH AND HUMAN SERVICES EXTENDERS.....................    78

Subtitle A--Medicare Provisions..................................    78

  1. Extension of appropriations to the Patient-Centered Outcomes 
    Research Trust Fund; extension of certain health insurance 
    fees (sec. 104 of Div. N of the Act and secs. 4375, 4376, and 
    9511 of the Code)............................................    78

Subtitle E--Revenue Provisions...................................    81

  1. Repeal of medical device excise tax (sec. 501 of Div. N of 
    the Act and sec. 4191 of the Code)...........................    81
  2. Repeal of annual fee on health insurance providers (sec. 502 
    of Div. N of the Act)........................................    83
  3. Repeal of excise tax on high cost employer-sponsored health 
    coverage (sec. 503 of Div. N of the Act and sec. 4980I of the 
    Code)........................................................    83

DIVISION O--SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT 
  ACT OF 2019....................................................    86

TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS.............    86

  1. Multiple employer plans; pooled employer plans (sec. 101 of 
    the Act, secs. 3, 103, and 104 of ERISA, and sec. 413 of the 
    Code)........................................................    86
  2. Increase in 10 percent cap for automatic enrollment safe 
    harbor after first plan year (sec. 102 of the Act and sec. 
    401(k) of the Code)..........................................    99
  3. Rules relating to election of safe harbor 401(k) status 
    (sec. 103 of the Act and sec. 401(k) of the Code)............   100
  4. Increase in credit limitation for small employer pension 
    plan startup costs (sec. 104 of the Act and sec. 45E of the 
    Code)........................................................   104
  5. Small employer automatic enrollment credit (sec. 105 of the 
    Act and new sec. 45T of the Code)............................   105
  6. Certain taxable non-tuition fellowship and stipend payments 
    treated as compensation for IRA purposes (sec. 106 of the Act 
    and sec. 219 of the Code)....................................   106
  7. Repeal of maximum age for traditional IRA contributions 
    (sec. 107 of the Act and sec. 219 of the Code)...............   107
  8. Qualified employer plans prohibited from making loans 
    through credit cards and other similar arrangements (sec. 108 
    of the Act and sec. 72(p) of the Code).......................   109
  9. Portability of lifetime income options (sec. 109 of the Act 
    and secs. 401(a), 401(k), 403(b), and 457(d) of the Code)....   110
  10. Treatment of custodial accounts on termination of section 
    403(b) plans (sec. 110 of the Act and sec. 403(b) of the 
    Code)........................................................   113
  11. Clarification of retirement income account rules relating 
    to church-controlled organizations (sec. 111 of the Act and 
    sec. 403(b)(9) of the Code)..................................   116
  12. Qualified cash or deferred arrangements must allow long-
    term employees working more than 500 but less than 1,000 
    hours per year to participate (sec. 112 of the Act and secs. 
    401(k) and 410 of the Code)..................................   117
  13. Penalty-free withdrawals from retirement plans for 
    individuals in case of birth of child or adoption (sec. 113 
    of the Act and secs. 72(t), 401-403, 408, 457, and 3405 of 
    the Code)....................................................   124
  14. Increase in age for required beginning date for mandatory 
    distributions (sec. 114 of the Act and sec. 401(a)(9) of the 
    Code)........................................................   126
  15. Special rules for minimum funding standards for community 
    newspaper plans (sec. 115 of the Act, sec. 303 of ERISA, and 
    sec. 430 of the Code)........................................   129
  16. Treating excluded difficulty of care payments as 
    compensation for determining retirement contribution 
    limitations (sec. 116 of the Act and secs. 408 and 415 of the 
    Code)........................................................   132

TITLE II--ADMINISTRATIVE IMPROVEMENTS ...........................   134

  1. Plan adopted by filing due date for year may be treated as 
    in effect as of close of year (sec. 201 of the Act and sec. 
    401(b) of the Code)..........................................   134
  2. Combined annual report for group of plans (sec. 202 of the 
    Act, sec. 104 of ERISA, and sec. 6058 of the Code)...........   135
  3. Disclosure regarding lifetime income (sec. 203 of the Act 
    and sec. 105 of ERISA).......................................   136
  4. Fiduciary safe harbor for selection of lifetime income 
    provider (sec. 204 of the Act and sec. 404 of ERISA).........   137
  5. Modification of nondiscrimination rules to protect older, 
    longer service participants (sec. 205 of the Act and sec. 401 
    of the Code).................................................   140
  6. Modification of PBGC premiums for CSEC plans (sec. 206 of 
    the Act and sec. 4006 of ERISA)..............................   150

TITLE III--OTHER BENEFITS........................................   152

  1. Benefits provided to volunteer firefighters and emergency 
    medical responders (sec. 301 of the Act and sec. 139B of the 
    Code)........................................................   152
  2. Expansion of section 529 plans (sec. 302 of the Act and sec. 
    529 of the Code).............................................   153

TITLE IV--REVENUE PROVISIONS.....................................   156

  1. Modification of required minimum distribution rules for 
    designated beneficiaries (sec. 401 of the Act and sec. 
    401(a)(9) of the Code).......................................   156
  2. Increase in penalty for failure to file (sec. 402 of the Act 
    and sec. 6651 of the Code)...................................   165
  3. Increased penalties for failure to file retirement plan 
    returns (sec. 403 of the Act and sec. 6652 of the Code)......   166
  4. Increase information sharing to administer excise taxes 
    (sec. 404 of the Act and sec. 6103(o) of the Code)...........   168

TITLE V--TAX RELIEF FOR CERTAIN CHILDREN.........................   169

  1. Modification of rules relating to the taxation of unearned 
    income of certain children (sec. 501 of the Act and sec. 1 of 
    the Code)....................................................   169

TITLE VI--ADMINISTRATIVE PROVISIONS..............................   173

  1. Provisions relating to plan amendments (sec. 601 of the Act 
    and sec. 401 of the Code)....................................   173

DIVISION Q--TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF 
  2019...........................................................   175

TITLE I--EXTENSION OF CERTAIN EXPIRING PROVISIONS................   175

Subtitle A--Tax Relief and Support for Families and Individuals..   175

  1. Exclusion from gross income of discharge of qualified 
    principal residence indebtedness (sec. 101 of the Act and 
    sec. 108(a)(1)(E) of the Code)...............................   175
  2. Treatment of mortgage insurance premiums as qualified 
    residence interest (sec. 102 of the Act and sec. 163(h) of 
    the Code)....................................................   177
  3. Reduction in medical expense deduction floor (sec. 103 of 
    the Act and sec. 213 of the Code)............................   178
  4. Deduction of qualified tuition and related expenses (sec. 
    104 of the Act and sec. 222 of the Code).....................   178
  5. Black Lung Disability Trust Fund excise tax (sec. 105 of the 
    Act and sec. 4121 of the Code)...............................   180

Subtitle B--Incentives for Employment, Economic Growth, and 
  Community Development..........................................   180

  1. Indian employment credit (sec. 111 of the Act and sec. 45A 
    of the Code).................................................   180
  2. Railroad track maintenance credit (sec. 112 of the Act and 
    sec. 45G of the Code)........................................   182
  3. Mine rescue team training credit (sec. 113 of the Act and 
    sec. 45N of the Code)........................................   185
  4. Classification of certain race horses as three-year property 
    (sec. 114 of the Act and sec. 168(e)(3)(A) of the Code)......   186
  5. Seven-year recovery period for motorsports entertainment 
    complexes (sec. 115 of the Act and sec. 168(i)(15) of the 
    Code)........................................................   187
  6. Accelerated depreciation for business property on Indian 
    reservations (sec. 116 of the Act and sec. 168(j) of the 
    Code)........................................................   190
  7. Expensing rules for certain productions (sec. 117 of the Act 
    and sec. 181 of the Code)....................................   191
  8. Empowerment zone tax incentives (sec. 118 of the Act and 
    secs. 1391, 1394, 1396, 1397A, and 1397B of the Code)........   193
  9. American Samoa economic development credit (sec. 119 of the 
    Act).........................................................   199

Subtitle C--Incentives for Energy Production, Efficiency, and 
  Green Economy Jobs.............................................   201

  1. Biodiesel and renewable diesel (sec. 121 of the Act and 
    secs. 40A, 6426(c), and 6427(e) of the Code).................   201
  2. Second generation biofuel producer credit (sec. 122 of the 
    Act and sec. 40 of the Code).................................   204
  3. Nonbusiness energy property (sec. 123 of the Act and sec. 
    25C of the Code).............................................   205
  4. Qualified fuel cell motor vehicles (sec. 124 of the Act and 
    sec. 30B of the Code)........................................   207
  5. Alternative fuel refueling property credit (sec. 125 of the 
    Act and sec. 30C of the Code)................................   208
  6. Two-wheeled plug-in electric vehicle credit (sec. 126 of the 
    Act and sec. 30D of the Code)................................   209
  7. Credit for electricity produced from certain renewable 
    resources (sec. 127 of the Act and sec. 45 of the Code)......   209
  8. Production credit for Indian coal facilities (sec. 128 of 
    the Act and sec. 45 of the Code).............................   210
  9. Energy-efficient homes credit (sec. 129 of the Act and sec. 
    45L of the Code).............................................   211
  10. Special allowance for second generation biofuel plant 
    property (sec. 130 of the Act and sec. 168(l) of the Code)...   212
  11. Energy efficient commercial buildings deduction (sec. 131 
    of the Act and sec. 179D of the Code)........................   214
  12. Special rule for sales or dispositions to implement FERC or 
    State electric restructuring policy for qualified electric 
    utilities (sec. 132 of the Act and sec. 451(k) of the Code)..   216
  13. Extension and clarification of excise tax credits relating 
    to alternative fuels (sec. 133 of the Act and secs. 6426 and 
    6427 of the Code)............................................   218
  14. Oil Spill Liability Trust Fund rate (sec. 134 of the Act 
    and sec. 4611 of the Code)...................................   219

Subtitle D--Certain Provisions Expiring at the End of 2019.......   220

  1. New markets tax credit (sec. 141 of the Act and sec. 45D of 
    the Code)....................................................   220
  2. Employer credit for paid family and medical leave (sec. 142 
    of the Act and sec. 45S of the Code).........................   224
  3. Work opportunity credit (sec. 143 of the Act and sec. 51 of 
    the Code)....................................................   226
  4. Certain provisions related to beer, wine, and distilled 
    spirits (sec. 144 of the Act and secs. 263A, 5001, 5041, 
    5051, 5212, 5415, and 5555 of the Code)......................   232
  5. Extension of look-through treatment of payments between 
    related controlled foreign corporations under foreign 
    personal holding company rules (sec. 145 of the Act and sec. 
    954(c)(6) of the Code).......................................   239
  6. Credit for health insurance costs of eligible individuals 
    (sec. 146 of the Act and sec. 35 of the Code)................   240

TITLE II--DISASTER TAX RELIEF....................................   242

  1. Definitions (sec. 201 of the Act and secs. 24, 32, 38, 72, 
    165, and 170 of the Code)....................................   242
  2. Special disaster-related rules for use of retirement funds 
    (sec. 202 of the Act and sec. 72 of the Code)................   243
  3. Employee retention credit for employers affected by 
    qualified disasters (sec. 203 of the Act and sec. 38 of the 
    Code)........................................................   247
  4. Temporary suspension of limitation on charitable 
    contributions (sec. 204(a) of the Act and sec. 170 of the 
    Code)........................................................   248
  5. Special rules for qualified disaster-related personal 
    casualty losses (sec. 204(b) of the Act and sec. 165 of the 
    Code)........................................................   250
  6. Special rule for determining earned income (sec. 204(c) of 
    the Act and secs. 24 and 32 of the Code).....................   251
  7. Automatic extension of filing deadlines in case of certain 
    taxpayers affected by Federally declared disasters (sec. 205 
    of the Act and sec. 7508A of the Code).......................   252
  8. Modification of the tax rate for the excise tax on 
    investment income of private foundations (sec. 206 of the Act 
    and sec. 4940 of the Code)...................................   254
  9. Additional low-income housing tax credit allocations for 
    qualified 2017 and 2018 California disaster areas (sec. 207 
    of the Act and sec. 42 of the Code)..........................   256
  10. Treatment of certain possessions (sec. 208 of the Act).....   258

TITLE III--OTHER PROVISIONS......................................   259

  1. Modification of income for purposes of determining tax-
    exempt status of certain mutual or cooperative telephone or 
    electric companies (sec. 301 of the Act and sec. 501(c)(12) 
    of the Code).................................................   259
  2. Repeal of increase in unrelated business taxable income for 
    certain fringe benefit expenses (sec. 302 of the Act and sec. 
    512(a)(7) of the Code).......................................   260

PART FOUR: VIRGINIA BEACH STRONG ACT (PUBLIC LAW 116-98).........   265

  1. Special rules for contributions for relief of the families 
    of the mass shooting in Virginia Beach (sec. 2 of the Act)...   265

PART FIVE: FAMILIES FIRST CORONAVIRUS RESPONSE ACT (PUBLIC LAW 
  116-127).......................................................   267

DIVISION G--TAX CREDITS FOR PAID SICK AND PAID FAMILY AND MEDICAL 
  LEAVE..........................................................   267

  1. Payroll credit for required paid sick leave (sec. 7001 of 
    the Act).....................................................   272
  2. Credit for sick leave for certain self-employed individuals 
    (sec. 7002 of the Act).......................................   275
  3. Payroll credit for required paid family leave (sec. 7003 of 
    the Act).....................................................   277
  4. Credit for family leave for certain self-employed 
    individuals (sec. 7004 of the Act)...........................   280
  5. Special rule related to tax on employers (sec. 7005 of the 
    Act).........................................................   282

PART SIX: CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY 
  (``CARES'') ACT (PUBLIC LAW 116-136)...........................   285

TITLE II--ASSISTANCE FOR AMERICAN WORKERS, FAMILIES, AND 
  BUSINESSES.....................................................   285

Subtitle B--Rebates and Other Individual Provisions..............   285

  1. 2020 recovery rebates for individuals (sec. 2201 of the Act 
    and sec. 6428 of the Code)...................................   285
  2. Special rules for use of retirement funds (sec. 2202 of the 
    Act and sec. 72 of the Code).................................   295
  3. Temporary waiver of required minimum distribution rules for 
    certain retirement plans and accounts (sec. 2203 of the Act 
    and secs. 401 and 402 of the Code)...........................   298
  4. Allowance of partial above-the-line deduction for charitable 
    contributions (sec. 2204 of the Act and sec. 62 of the Code).   302
  5. Modification of limitations on charitable contributions 
    during 2020 (sec. 2205 of the Act and sec. 170 of the Code)..   305
  6. Exclusion for certain employer payments of student loans 
    (sec. 2206 of the Act and secs. 127, 3121, 3306, and 3401 of 
    the Code)....................................................   308

Subtitle C--Business Provisions..................................   311

  1. Employee retention credit for employers subject to closure 
    due to COVID-19 (sec. 2301 of the Act).......................   311
  2. Delay of payment of employer payroll taxes (sec. 2302 of the 
    Act and secs. 6302 and 6654 of the Code).....................   319
  3. Modifications for net operating losses (sec. 2303 of the Act 
    and sec. 172 of the Code)....................................   325
  4. Modification of limitation on losses for taxpayers other 
    than corporations (sec. 2304 of the Act and secs. 461(l) and 
    (j) of the Code).............................................   330
  5. Modification of credit for prior year minimum tax liability 
    of corporations (sec. 2305 of the Act and sec. 53 of the 
    Code)........................................................   333
  6. Modifications of limitation on business interest (sec. 2306 
    of the Act and sec. 163(j) of the Code)......................   335
  7. Technical amendments regarding qualified improvement 
    property (sec. 2307 of the Act and sec. 168(e) of the Code)..   340
  8. Temporary exception from excise tax for alcohol used to 
    produce hand sanitizer (sec. 2308 of the Act and sec. 5214 of 
    the Code)....................................................   343

TITLE III--SUPPORTING AMERICA'S HEALTH CARE SYSTEM IN THE FIGHT 
  AGAINST THE CORONAVIRUS........................................   345

Subtitle B--Education Provisions.................................   345

  1. Technical and other amendments relating to the FUTURE Act 
    (sec. 3516 of the Act and sec. 6103 of the Code).............   345

Subtitle C--Labor Provisions.....................................   348

  1. Advance refunding of credits (sec. 3606 of the Act).........   348
  2. Expansion of DOL authority to postpone certain deadlines 
    (sec. 3607 of the Act, sec. 518 of ERISA, and sec. 319 of the 
    Public Health Service Act)...................................   352
  3. Single-employer plan funding rules (sec. 3608 of the Act and 
    secs. 430(j and 436 of the Code).............................   353
  4. Application of cooperative and small employer charity 
    pension plan rules to certain charitable employers whose 
    primary exempt purpose is providing services with respect to 
    mothers and children (sec. 3609 of the Act, sec. 210(f) of 
    ERISA, and sec. 414(y) of the Code)..........................   360

Subtitle D--Finance Committee....................................   365

  1. Exemption for telehealth services (sec. 3701 of the Act and 
    sec. 223 of the Code)........................................   365
  2. Inclusion of certain over-the-counter medical products as 
    qualified medical expenses (sec. 3702 of the Act and secs. 
    106, 220, and 223 of the Code)...............................   367

TITLE IV--ECONOMIC STABILIZATION AND ASSISTANCE TO SEVERELY 
  DISTRESSED SECTORS OF THE UNITED STATES ECONOMY................   369

Subtitle A--Coronavirus Economic Stabilization Act of 2020.......   369

  1. Suspension of certain aviation excise taxes (sec. 4007 of 
    the Act).....................................................   369

OTHER PROVISIONS.................................................   371

  1. Loan forgiveness (sec. 1106 of the Act).....................   371
  2. Emergency relief and taxpayer protections (sec. 4003 of the 
    Act).........................................................   372

PART SEVEN: CONTINUING APPROPRIATIONS ACT, 2021 AND OTHER 
  EXTENSIONS ACT (PUBLIC LAW 116-159)............................   375

DIVISION B--SURFACE TRANSPORTATION PROGRAM EXTENSION.............   375

TITLE II--TRUST FUNDS............................................   375

  1. Extension of expenditure and contract liquidation authority 
    for the Highway Trust Fund, the Sport Fish Restoration and 
    Boating Trust Fund, and the Leaking Underground Storage Tank 
    Trust Fund (secs. 1201, 1202, and 1203 of the Act and secs. 
    9503, 9504, and 9508 of the Code)............................   375
  2. Further additional transfers to the Highway Trust Fund and 
    additional transfer to the Airport and Airway Trust Fund 
    (secs. 1204 and 1205 of the Act and secs. 9502 and 9503 of 
    the Code)....................................................   375

PART EIGHT: CONSOLIDATED APPROPRIATIONS ACT, 2021 (PUBLIC LAW 
  116-260).......................................................   377

DIVISION N--ADDITIONAL CORONAVIRUS RESPONSE AND RELIEF...........   377

TITLE II--ASSISTANCE TO INDIVIDUALS, FAMILIES, AND BUSINESSES....   377

Subtitle B--COVID-Related Tax Relief Act of 2020.................   377

  1. Additional 2020 recovery rebates for individuals (sec. 272 
    of the Act and sec. 6428A of the Code).......................   377
  2. Amendments to recovery rebates under the CARES Act (sec. 273 
    of the Act and sec. 6428 of the Code)........................   381
  3. Extension of certain deferred payroll taxes (sec. 274 of the 
    Act).........................................................   382
  4. Regulations or guidance clarifying application of educator 
    expense tax deduction (sec. 275 of the Act and sec. 62 of the 
    Code)........................................................   388
  5. Clarification of tax treatment of forgiveness of covered 
    loans, clarification of tax treatment of certain loan 
    forgiveness and other business financial assistance, and 
    authority to waive certain information reporting requirements 
    (secs. 276, 278, and 279 of the Act).........................   389
  6. Emergency financial aid grants (sec. 277 of the Act and 
    secs. 25A, 117, and 139 of the Code).........................   402
  7. Application of special rules to money purchase pension plans 
    (sec. 280 of the Act and sec. 401 of the Code)...............   405
  8. Election to waive application of certain modifications to 
    farming losses (sec. 281 of the Act and sec. 172 of the Code)   407
  9. Oversight and audit reporting (sec. 282 of the Act and sec. 
    19010 of the CARES Act)......................................   409
  10. Disclosures to identify tax receivables not eligible for 
    collection pursuant to qualified tax collection contracts 
    (sec. 283 of the Act and new sec. 6103(k)(15) and current 
    sec. 6306 of the Code).......................................   410
  11. Modification of certain protections for taxpayer return 
    information (sec. 284 of the Act and sec. 6103(l)(13) of the 
    Code)........................................................   412
  12. 2020 election to terminate transfer period for qualified 
    transfers from pension plan for covering future retiree costs 
    (sec. 285 of the Act and sec. 420 of the Code)...............   417
  13. Extension of credits for paid sick and family leave (sec. 
    286 of the Act)..............................................   421
  14. Election to use prior year net earnings from self-
    employment in determining average daily self-employment 
    income for purposes of credits for paid sick and family leave 
    (sec. 287 of the Act)........................................   429
  15. Certain technical improvements to credits for paid sick and 
    family leave (sec. 288 of the Act)...........................   432

DIVISION Y--AMERICAN MINER BENEFITS IMPROVEMENT ACT OF 2020......   440

  1. Transfers to 1974 UMWA pension plan (sec. 2 of the Act and 
    sec. 402 of the Surface of Mining Control and Reclamation Act 
    of 1977).....................................................   440

DIVISION BB--PRIVATE HEALTH INSURANCE AND PUBLIC HEALTH 
  PROVISIONS.....................................................   445

TITLE I--NO SURPRISES ACT........................................   445

  1. Health savings accounts and the No Surprises Act (sec. 102 
    of the Act and sec. 223 of the Code).........................   445

DIVISION EE--TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF 
  2020...........................................................   450

TITLE I--EXTENSION OF CERTAIN EXPIRING PROVISIONS................   450

Subtitle A--Certain Provisions Made Permanent....................   450

  1. Reduction in medical expense deduction floor (sec. 101 of 
    the Act and sec. 213 of the Code)............................   450
  2. Energy efficient commercial buildings deduction (sec. 102 of 
    the Act and sec. 179D of the Code)...........................   450
  3. Benefits provided to volunteer firefighters and emergency 
    medical responders (sec. 103 of the Act and sec. 139B of the 
    Code)........................................................   453
  4. Lifetime learning credit (sec. 104 of the Act and secs. 25A 
    and 222 of the Code).........................................   453
  5. Railroad track maintenance credit (sec. 105 of the Act and 
    sec. 45G of the Code)........................................   456
  6. Provisions related to beer, wine, and distilled spirits 
    (secs. 106-110 of the Act and sec. 263A, sec. 5001, sec. 
    5041, sec. 5051, new sec. 5067, sec. 5212, sec. 5415, sec. 
    5555, new sec. 6038E, and sec. 7652 of the Code).............   459

Subtitle B--Certain Provisions Extended Through 2025.............   472

  1. Extension of look-through treatment of payments between 
    related controlled foreign corporations under foreign 
    personal holding company rules (sec. 111 of the Act and sec. 
    954(c)(6) of the Code).......................................   472
  2. New markets tax credit (sec. 112 of the Act and sec. 45D of 
    the Code)....................................................   473
  3. Work opportunity credit (sec. 113 of the Act and sec. 51 of 
    the Code)....................................................   477
  4. Exclusion from gross income of discharge of qualified 
    principal residence indebtedness (sec. 114 of the Act and 
    sec. 108 of the Code)........................................   477
  5. Seven-year recovery period for motorsports entertainment 
    complexes (sec. 115 of the Act and sec. 168(i)(15) of the 
    Code)........................................................   478
  6. Expensing rules for certain productions (sec. 116 of the Act 
    and sec. 181 of the Code)....................................   480
  7. Oil Spill Liability Trust Fund rate (sec. 117 of the Act and 
    sec. 4611 of the Code).......................................   482
  8. Empowerment zone tax incentives (sec. 118 of the Act and 
    secs. 1391, 1394, 1396, 1397A, and 1397B of the Code)........   483
  9. Employer credit for paid family and medical leave (sec. 119 
    of the Act and sec. 45S of the Code).........................   489
  10. Exclusion for certain employer payments of student loans 
    (sec. 120 of the Act and secs. 127, 3121, 3306, and 3401 of 
    the Code)....................................................   491
  11. Credit for carbon oxide sequestration (sec. 121 of the Act 
    and sec. 45Q of the Code)....................................   494

Subtitle C--Extension of Certain Other Provisions................   497

  1. Credit for electricity produced from certain renewable 
    resources (secs. 131 and 204 of the Act and secs. 45 and 48 
    of the Code).................................................   497
  2. Modification of energy investment credit (secs. 132 and 203 
    of the Act and sec. 48 of the Code)..........................   498
  3. Treatment of mortgage insurance premiums as qualified 
    residence interest (sec. 133 of the Act and sec. 163(h) of 
    the Code)....................................................   503
  4. Credit for health insurance costs of eligible individuals 
    (sec. 134 of the Act and sec. 35 of the Code)................   503
  5. Indian employment credit (sec. 135 of the Act and sec. 45A 
    of the Code).................................................   503
  6. Mine rescue team training credit (sec. 136 of the Act and 
    sec. 45N of the Code)........................................   504
  7. Classification of certain race horses as three-year property 
    (sec. 137 of the Act and sec. 168(e)(3)(A) of the Code)......   505
  8. Accelerated depreciation for business property on Indian 
    reservations (sec. 138 of the Act and sec. 168(j) of the 
    Code)........................................................   506
  9. American Samoa economic development credit (sec. 139 of the 
    Act).........................................................   508
  10. Second generation biofuel producer credit (sec. 140 of the 
    Act and sec. 40 of the Code).................................   510
  11. Nonbusiness energy property (sec. 141 of the Act and sec. 
    25C of the Code).............................................   510
  12. Qualified fuel cell motor vehicles (sec. 142 of the Act and 
    sec. 30B of the Code)........................................   510
  13. Alternative fuel refueling property credit (sec. 143 of the 
    Act and sec. 30C of the Code)................................   511
  14. Two-wheeled plug-in electric vehicle credit (sec. 144 of 
    the Act and sec. 30D of the Code)............................   511
  15. Production credit for Indian coal facilities (sec. 145 of 
    the Act and sec. 45 of the Code).............................   512
  16. Energy-efficient homes credit (sec. 146 of the Act and sec. 
    45L of the Code).............................................   512
  17. Extension of excise tax credits relating to alternative 
    fuels (sec. 147 of the Act and secs. 6426 and 6427 of the 
    Code)........................................................   512
  18. Extension and modification of credit for residential energy 
    efficient property (sec. 148 of the Act and secs. 25C and 25D 
    of the Code).................................................   513
  19. Black Lung Disability Trust Fund excise tax (sec. 149 of 
    the Act and sec. 4121 of the Code)...........................   515

TITLE II--OTHER PROVISIONS.......................................   515

  1. Minimum low-income housing tax credit rate (sec. 201 of the 
    Act and sec. 42 of the Code).................................   515
  2. Depreciation of certain residential rental property over 30-
    year period (sec. 202 of the Act and sec. 168 of the Code)...   516
  3. Modification of energy investment credit (sec. 203 of the 
    Act and sec. 48 of the Code).................................   519
  4. Extension of energy credit for offshore wind facilities 
    (sec. 204 of the Act and sec. 48 of the Code)................   519
  5. Minimum rate of interest for certain determinations related 
    to life insurance contracts (sec. 205 of the Act and sec. 
    7702 of the Code)............................................   520
  6. Clarification and technical improvements to CARES Act 
    employee retention credit (sec. 206 of the Act and sec. 2301 
    of the CARES Act)............................................   523
  7. Extension and modification of employee retention and 
    rehiring credit (sec. 207 of the Act and sec. 2301 of the 
    CARES Act)...................................................   525
  8. Minimum age for distributions during working retirement 
    (sec. 208 of the Act and sec. 401(a) of the Code)............   527
  9. Temporary rule preventing partial plan termination (sec. 209 
    of the Act and sec. 411 of the Code).........................   528
  10. Temporary allowance of full deduction for business meals 
    (sec. 210 of the Act and sec. 274 of the Code)...............   530
  11. Temporary special rule for determination of earned income 
    (sec. 211 of the Act and secs. 24 and 32 of the Code)........   532
  12. Certain charitable contributions deductible by non-
    itemizers (sec. 212 of the Act and secs. 170, 6662, and 6751 
    of the Code).................................................   533
  13. Modification of limitations on charitable contributions 
    (sec. 213 of the Act and sec. 170 of the Code)...............   537
  14. Temporary special rules for health and dependent care 
    flexible spending arrangements (sec. 214 of the Act and sec. 
    125 of the Code).............................................   540

TITLE III--DISASTER TAX RELIEF...................................   545

  1. Definitions (sec. 301 of the Act and secs. 24, 32, 38, 42, 
    72, 165, and 170 of the Code)................................   545
  2. Special disaster-related rules for use of retirement funds 
    (sec. 302 of the Act and sec. 72 of the Code)................   545
  3. Employee retention credit for employers affected by 
    qualified disasters (sec. 303 of the Act and sec. 38 of the 
    Code)........................................................   549
  4. Special rules for qualified disaster relief contributions of 
    corporations (sec. 304(a) of the Act and sec. 170 of the 
    Code)........................................................   554
  5. Special rules for qualified disaster-related personal 
    casualty losses (sec. 304(b) of the Act and sec. 165 of the 
    Code)........................................................   557
  6. Low-income housing tax credit (sec. 305 of the Act and sec. 
    42 of the Code)..............................................   558
  7. Treatment of certain possessions (sec. 306 of the Act)......   559
                              
                              
                              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 116th Congress.
---------------------------------------------------------------------------
    \1\ This document may be cited as follows: Joint Committee on 
Taxation, General Explanation of Tax Legislation Enacted in the 116th 
Congress (JCS-1-22), February 2022.
---------------------------------------------------------------------------
    For each provision, this document includes a description of 
present law, an explanation of the provision, and the 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. For a bill with a Committee report (or, in the 
absence of one, 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 report 
(or 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 stated.
    Part One is an explanation of the Taxpayer First Act (Pub. 
L. No. 116-25).
    Part Two is an explanation of certain provisions of the 
Fostering Undergraduate Talent by Unlocking Resources for 
Education (``FUTURE'') Act (Pub. L. No. 116-91).
    Part Three is an explanation of the revenue provisions of 
Divisions M, N, O, and Q of the Further Consolidated 
Appropriations Act, 2020 (Pub. L. No. 116-94).
    Part Four is an explanation of the Virginia Beach Strong 
Act (Pub. L. No. 116-98).
    Part Five is an explanation of Division G of the Families 
First Coronavirus Response Act (Pub. L. No. 116-127).
    Part Six is an explanation of the revenue provisions of the 
Coronavirus Aid, Relief, and Economic Security (``CARES'') Act 
(Pub. L. No. 116-136).
    Part Seven is an explanation of the revenue provisions of 
the Continuing Appropriations Act, 2021 and Other Extensions 
Act (Pub. L. No. 116-159).
    Part Eight is an explanation of the revenue provisions of 
the Consolidated Appropriations Act, 2021 (Pub. L. No. 116-
260).
    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: THE TAXPAYER FIRST ACT 
                        (PUBLIC LAW 116-25) \2\
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    \2\ H.R. 3151. The bill was introduced in the House of 
Representatives on June 6, 2019, and was passed by the House on June 
10, 2019. The Senate passed the bill without amendment by voice vote on 
June 13, 2019. The President signed the bill on July 1, 2019, together 
with an accompanying signing statement regarding appointments of IRS 
officials under sections 1001(a) and 2101(a) of the Act. See Statement 
on Signing The Taxpayer First Act, Washington, D.C., July 1, 2019, 
Daily Comp. Pres. Docs., 2019, DCPD No. 201900450, available at https:/
/www.govinfo.gov/content/pkg/DCPD-201900450/html/DCPD-201900450.htm.
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                    TITLE I--PUTTING TAXPAYERS FIRST

                Subtitle A--Independent Appeals Process

1. Establishment of Internal Revenue Service Independent Office of 
        Appeals (sec. 1001 of the Act and sec. 7803 of the Code)

                              Present Law

    The IRS Reform and Restructuring Act of 1998 (``RRA98'') 
directed the Commissioner of Internal Revenue (the 
``Commissioner'') to restructure the Internal Revenue Service 
(``IRS'') by establishing and implementing an organizational 
structure that features operating units serving particular 
groups of taxpayers with similar needs and ensures an 
independent appeals function within the IRS.\3\ Although the 
Code does not mandate the existence of an independent office 
within the IRS to review administrative determinations, it does 
require an independent administrative review of certain 
determinations,\4\ and further requires that the Commissioner 
ensure that the duties of IRS employees are executed in a 
manner consistent with rights inferred from other Code 
provisions.\5\
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    \3\ Pub. L. No. 105-206, sec. 1001(a).
    \4\ See, e.g., secs. 6320 (notice and opportunity for hearing upon 
filing of notice of lien), 6330 (notice and opportunity for hearing 
before levy), 7122 (rejection of a proposed offer-in-compromise or 
installment agreement), as well as 7123 (alternative dispute resolution 
procedures).
    \5\ Section 7803, as amended in 2015, requires that the 
Commissioner ensure that the enumerated taxpayer rights are 
incorporated in the training and evaluation of all employees.
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    Under the general authority of the Secretary of the 
Treasury (``Secretary'') to interpret the Code and that of the 
Commissioner to administer the Code and to employ the persons 
necessary to do so,\6\ the IRS operates an Office of Appeals 
(``Appeals'') headed by a Chief, Appeals.\7\ That office 
traditionally functions as the settlement arm of the IRS. In 
doing so, it reviews administrative determinations arising both 
from collection and examination activities, and attempts to 
resolve them without need for litigation, including by using 
alternative dispute resolution methods. As a result, review of 
administrative actions is generally available prior to payment 
of any tax underlying the controversy. Exceptions occur, and 
include cases in which inadequate time remains on the 
limitations period for assessment and collection or those in 
which the only arguments raised by the taxpayer are frivolous 
positions.\8\
---------------------------------------------------------------------------
    \6\ Secs. 7803(a) (The duties and powers include the power to 
administer, manage, conduct, direct, and supervise the execution and 
application of the internal revenue laws or related statutes and tax 
conventions to which the United States is a party, and to recommend to 
the President a candidate for Chief Counsel (and recommend the removal 
of the Chief Counsel)); 7804 (The Commissioner is authorized to employ 
such persons as the Commissioner deems proper for the administration 
and enforcement of the internal revenue laws and is required to issue 
all necessary directions, instructions, orders, and rules applicable to 
such persons, including determination and designation of posts of 
duty); and 7805 (Secretary authority to interpret the Code).
    \7\ According to its website, the Office of Appeals and its 
predecessors have existed since 1927. https://www.irs.gov/compliance/
appeals/appeals-an-independent-organization.
    \8\ See section 6702(c), which requires that the Secretary 
periodically review and list positions that have been identified as 
frivolous for purposes of the frivolous return penalty.
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    Similarly, if a case has reached a point at which 
litigation is initiated, the availability of consideration by 
Appeals may be limited. First, authority to settle cases 
referred to the Department of Justice for defense or initiation 
of litigation rests solely with that Department. such cases are 
therefore ineligible for referral to Appeals.\9\ The terms 
under which a case pending in the United States Tax Court 
(``Tax Court'') may be referred to Appeals are described in 
published guidance that centralizes the decision to withhold a 
case from Appeals to assure consistent standards are 
applied.\10\
---------------------------------------------------------------------------
    \9\ Sec. 7122.
    \10\ Rev. Proc. 2016-22, 26 C.F.R. sec. 601.106. Exceptions to the 
general rule in favor of requiring Appeals consideration include cases 
that are withheld in the interests of sound tax administration, among 
other reasons.
---------------------------------------------------------------------------
    Employees of Appeals are compensated in accordance with the 
rules governing Federal employment generally.\11\
---------------------------------------------------------------------------
    \11\ Part III of Title 5 of the United States Code prescribes rules 
for Federal employment, including employment, retention, and management 
and employee issues.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision codifies the requirement of an independent 
administrative appeals function by establishing within the IRS 
an office to be known as the Internal Revenue Service 
Independent Office of Appeals (``Independent Appeals'') and to 
be headed by an official known as the Chief of Appeals, as 
described below. The purposes and duties of the office as well 
as the taxpayers' general right to seek consideration by that 
office, subject to certain limitations, are described below.
Chief of Appeals and staff
    The provision grants authority to the Commissioner to 
appoint the Chief of Appeals, who is to be compensated at the 
same rate as the highest rate of basic pay established for the 
Senior Executive Service.\12\ The appointment is not subject to 
the rules under Title 5 of the United States Code that govern 
competitive service or the Senior Executive Service. The Chief 
of Appeals reports directly to the Commissioner of the IRS. The 
person appointed to the position is required to have experience 
in a broad range of Federal tax law controversies and 
management of large service organizations.
---------------------------------------------------------------------------
    \12\ 5 U.S.C. sec. 5382.
---------------------------------------------------------------------------
    The provision also confirms that the Chief of Appeals and 
her employees are to have access to legal assistance and advice 
from staff within the Office of Chief Counsel about cases 
pending at Independent Appeals. Chief Counsel is responsible 
for ensuring that the attorneys are able to provide independent 
advice. In doing so, to the extent practicable, staff assigned 
to answer inquiries from Independent Appeals should not include 
those involved in advising the IRS employees working directly 
on the case prior to its referral to Independent Appeals or in 
preparation of the case for litigation.
Functions of Independent Appeals
    Independent Appeals is intended to perform functions 
similar to those of the current Appeals. Independent Appeals is 
to resolve tax controversies and review administrative 
decisions of the IRS in a fair and impartial manner, for the 
purposes of enhancing public confidence, promoting voluntary 
compliance, and ensuring consistent application and 
interpretation of Federal tax laws. Resolution of tax 
controversies in this manner is generally available to all 
taxpayers, subject to reasonable exceptions that the Secretary 
may provide. Thus, cases of a type that are referred to Appeals 
under present law remain eligible for referral to Independent 
Appeals.
    The provision includes a savings clause that requires 
application of rules similar to those in RRA98 to ensure 
continuity of the validity of administrative and legal 
proceedings, including legal documents related to such 
proceedings and existing delegations of authority.
Enhancement of taxpayer access to Independent Appeals
    In making access to Independent Appeals generally available 
to all taxpayers, the establishment of the new office clarifies 
the rights of taxpayers to review administrative case files and 
to protest denial of access to Independent Appeals.
            Taxpayer access to case files
    The provision requires that the administrative case file 
referred to Independent Appeals be available to certain 
individual and small business taxpayers. The specified 
taxpayers that are eligible are (1) individuals with adjusted 
gross incomes not exceeding $400,000 and (2) entities with 
gross receipts not exceeding $5 million for the taxable year to 
which the dispute relates. In determining whether persons are 
within the scope of the latter category, rules similar to those 
used to determine whether persons should be treated as a single 
employer for purposes of cash method accounting are to be 
applied.\13\ Eligible taxpayers must be able to review the non-
privileged portions of materials developed by the IRS not later 
than 10 days prior to the requested conference with Independent 
Appeals. In providing the materials, the IRS need not produce 
for the taxpayer the documents that were initially provided to 
the IRS by the taxpayer. In addition, the taxpayer may elect to 
waive the 10-day period and accept access to the materials on 
the date of the scheduled conference.
---------------------------------------------------------------------------
    \13\ The aggregation rules are found at section 448(c)(2).
---------------------------------------------------------------------------
            Cases not referred to Independent Appeals
    In cases in which the IRS has issued a notice of deficiency 
to a taxpayer, the Commissioner must prescribe notice and 
protest procedures for taxpayers whose request for Independent 
Appeals consideration is denied. Such protest procedures will 
be available to taxpayers who have received a notice of 
deficiency in cases other than those involving only frivolous 
positions within the meaning of the Code.\14\ The procedures 
must include a requirement that the Commissioner notify a 
taxpayer of the denial in a written statement that includes a 
statement of the facts underlying the basis for the denial of 
the request together with a detailed explanation of the reasons 
for denying the request for referral to Independent Appeals. In 
addition, the written notice must advise the taxpayer of the 
right to protest the denial of the request to the Commissioner 
and include information about how to lodge such a protest.
---------------------------------------------------------------------------
    \14\ Sec. 6702(c).
---------------------------------------------------------------------------
    The Commissioner must provide to Congress an annual written 
report detailing the number of denials of access to Independent 
Appeals and the reasons for such denials.

                             Effective Date

    The provision is generally effective upon the date of 
enactment (July 1, 2019), except with regard to the portion of 
the provision allowing taxpayer access to case files, which is 
effective for cases in which the conference occurs more than 
one year after the date of enactment.

                      Subtitle B--Improved Service

1. Comprehensive customer service strategy (sec. 1101 of the Act)

                              Present Law

    The Code provides that the Commissioner has such duties and 
powers as prescribed by the Secretary.\15\ Unless otherwise 
specified by the Secretary, such duties and powers include the 
power to administer, manage, conduct, direct, and supervise the 
execution and application of the internal revenue laws or 
related statutes. In executing these duties, the Commissioner 
depends upon strategic plans that prioritize goals and manage 
its resources. In the current strategic plan, adding and 
enhancing tools and support to improve taxpayers and tax 
professionals' interactions with the IRS to meet their tax 
obligations is identified as one of the IRS's six strategic 
goals.\16\
---------------------------------------------------------------------------
    \15\ Sec. 7803(a).
    \16\ See Internal Revenue Service Strategic Plan FY2018-2022, 
Publication 3744, available at https://www.irs.gov/pub/irs-pdf/
p3744.pdf.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision requires the Secretary to develop a 
comprehensive strategy for customer service and to submit such 
plan to Congress not later than the date which is one year 
after the date of enactment. The strategy will include: (1) a 
plan to determine appropriate levels of online services, 
telephone call back services, and training of employees 
providing customer services, based on best practices of 
businesses and designed to meet reasonable customer 
expectations; (2) an assessment of all services that the IRS 
can co-locate with other Federal services or offer as self-
service options; (3) proposals for long-term improvements over 
the next 10 fiscal years, with appropriate short-term goals 
over the current and following fiscal year and mid-term goals 
over the next three to five fiscal years; (4) a plan to update 
guidance and training materials, including the Internal Revenue 
Manual, for customer service employees of the IRS to reflect 
such strategy; and (5) metrics for measuring the IRS's progress 
in implementing its strategy. Within two years after the date 
of enactment, the Secretary or the Secretary's delegate is 
required to make public the updated guidance and training 
materials in a user-friendly fashion.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).
2. Low-income exception for payments otherwise required in connection 
        with a submission of an offer-in-compromise (sec. 1102 of the 
        Act and sec. 7122 of the Code)

                              Present Law

    The IRS is authorized to enter into offers-in-compromise 
under which the taxpayer and Federal government agree that a 
tax liability may be satisfied by payment of less than the full 
amount owed.\17\ An offer-in-compromise may be accepted on one 
of three grounds: (1) doubt as to liability, available in cases 
in which the validity of the actual tax liability is in 
question; (2) doubt as to collectability based on lack of 
sufficient assets from which the tax, interest, and penalties 
can be paid in full; or (3) effective tax administration, 
applicable in a case in which collection in full would cause 
the taxpayer economic hardship such that compromise rather than 
collection would better encourage tax compliance.\18\ If the 
unpaid tax liabilities total $50,000 or more, an offer-in-
compromise can be accepted only if a public report is filed, 
supported by a written opinion from the IRS Chief Counsel, 
stating the reasons for the compromise, the amounts of assessed 
tax, penalties and interest, and the amounts actually paid 
pursuant to the offer-in-compromise.\19\
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    \17\ Sec. 7122.
    \18\ Treas. Reg. sec. 1.7122-1(b). For this purpose, economic 
hardship is defined under Treas. Reg.sec. 301.6343-1.
    \19\ Sec. 7122(b); Treas. Reg. sec. 1.7122-1(e)(6). The $50,000 
threshold was raised from $500 in 1996. Sec. 503 of the Taxpayer Bill 
of Rights 2, Pub. L. No. 104-168.
---------------------------------------------------------------------------
    Taxpayers making a lump sum offer-in-compromise must 
include a nonrefundable payment of 20 percent of the lump sum 
with the initial offer (herein, ``upfront partial 
payment'').\20\ The IRS waives this upfront partial payment 
when an offer is submitted by a low-income taxpayer, defined as 
an individual who falls at or below 250 percent of the poverty 
guidelines published by the Department of Health and Human 
Services, or such other measure that is adopted by the 
Secretary (herein, ``low-income taxpayer'').\21\ Taxpayers 
seeking an offer-in-compromise involving periodic payments must 
provide a nonrefundable payment of the first installment that 
would be due if the offer were accepted.\22\
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    \20\ Sec. 7122(c)(1)(A).
    \21\ Notice 2006-68, 2006-31 I.R.B. 105, July 31, 2006.
    \22\ Sec. 7122(c)(1)(B).
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    In general, a taxpayer is required to provide a user fee 
for processing the offer-in-compromise.\23\ However, no fee 
will be charged if an offer either is based solely on doubt as 
to liability or is made by a low-income taxpayer.\24\
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    \23\ Treas. Reg. sec. 300.3(b). The fee for processing an offer to 
compromise submitted before April 27, 2020, is $186. The fee for 
processing an offer to compromise submitted on or after April 27, 2020, 
is $205.
    \24\ Treas. Reg. sec. 300.3(b)(i) and (ii).
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                        Explanation of Provision

    The provision codifies the current low-income taxpayer 
exception with respect to any user fee or upfront partial 
payment imposed with respect to any offer-in-compromise. The 
provision makes clear that the determination of low-income is 
based on the individual's adjusted gross income as determined 
for the most recent tax year for which such information is 
available.

                             Effective Date

    The provision applies to offers-in-compromise submitted 
after the date of enactment (July 1, 2019).

                    Subtitle C--Sensible Enforcement


1. Internal Revenue Service seizure requirements with respect to 
        structuring transactions (sec. 1201 of the Act)

                              Present Law

    The Bank Secrecy Act of 1970 (``BSA'') mandates a reporting 
and recordkeeping system that assists Federal law enforcement 
and regulatory agencies in the detection, monitoring, and 
tracing of certain monetary transactions.\25\ The reporting 
requirements are imposed on individuals, financial 
institutions, and non-financial trades and businesses that act 
similar to financial institutions.\26\ The requirements include 
reporting currency transactions exceeding $10,000.
---------------------------------------------------------------------------
    \25\ The Bank Secrecy Act, 31 U.S.C. secs. 5311-5332.
    \26\ 31 U.S.C. sec. 5312(a)(1).
---------------------------------------------------------------------------
    To circumvent these reporting requirements, individuals 
sometimes structure cash transactions to fall below the $10,000 
reporting threshold (referred to as ``structuring''). In other 
words, instead of conducting a single transaction in currency 
in an amount that would require a report to be filed or record 
made by a financial institution, an individual conducts a 
series of currency transactions, willfully keeping each 
individual transaction at an amount below $10,000 to evade 
reporting or recording. Structuring can be used to conceal 
illegal cash-generating activities, such as the selling of 
narcotics, and to conceal income earned legally in order to 
evade the payment of taxes. Structuring (or attempts to 
structure) for the purpose of evading the reporting and 
recordkeeping requirements \27\ is subject to both civil and 
criminal penalties.\28\
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    \27\ 31 U.S.C. sec. 5324(a); 31 U.S.C. sec 5322.
    \28\ A person who willfully violates the law is subject to a fine 
of not more than $250,000, or imprisonment for not more than five 
years, or both. 31 U.S.C. sec. 5324(a); 31 U.S.C. sec. 5322.
---------------------------------------------------------------------------
    Present law authorizes forfeiture of property involved in 
transactions or attempted transactions \29\ in violation of 
these rules in accordance with the procedures governing civil 
forfeitures in money laundering cases.\30\
---------------------------------------------------------------------------
    \29\ 31 U.S.C. sec. 5317(c)(2).
    \30\ See 18 U.S.C. sec. 981.
---------------------------------------------------------------------------
    The Secretary has delegated responsibility for implementing 
and enforcing the BSA to the Director, Financial Crimes 
Enforcement Network (``FinCEN''), who in turn re-delegated 
responsibility for civil compliance with the law to various 
Federal agencies including the IRS.\31\ The scope of that 
delegation of authority was expanded by the USA PATRIOT Act of 
2001,\32\ and includes authority to determine and enforce civil 
penalties.\33\ The IRS administers its delegated authority 
under the BSA through the IRS Small Business/Self-Employed 
Division, with assistance from the IRS Criminal Investigation 
Division (``IRS-CID'').
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    \31\ Treasury Order 180-01, available at https://www.treasury.gov/
about/role-of-treasury/orders-directives/Pages/to180-01.aspx, 
delegating authority to FinCEN. 31 C.F.R. sec. 103.56(b)(8). At the 
time of the initial delegation, FinCEN was an entity created by 
regulatory action, but has since been explicitly authorized by statute. 
31 U.S.C. sec. 310.
    \32\ Treasury Order 180-01. For a discussion of the relationship 
between FinCEN and the agencies to which it re-delegated authority, 
see, Office of Inspector General, ``TERRORIST FINANCING/MONEY 
LAUNDERING: Responsibility for Bank Secrecy Act Is Spread Across Many 
Organizations,'' OIG-08-030 (April 9, 2008), available at https://
www.treasury.gov/about/organizational-structure/ig/Documents/
oig08030.pdf.
    \33\ 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).
---------------------------------------------------------------------------
    If a person prevails in a civil forfeiture proceeding 
involving seizure of currency, the United States is liable for 
reasonable attorney fees and other litigation costs reasonably 
incurred by the claimant, post-judgment interest, and interest 
actually paid to the United States from the date of seizure or 
arrest of the property that resulted from the investment of the 
property in an interest-bearing account or instrument as well 
as imputed interest for any period for which no interest was 
paid.\34\
---------------------------------------------------------------------------
    \34\ 28 U.S.C. sec. 2465(b)(1). The imputed interest that may be 
paid under that section is the amount that such currency, instruments, 
or proceeds would have earned at the rate applicable to the 30-day 
Treasury Bill, for any period for which no interest was paid (not 
including any period when the property reasonably was in use as 
evidence in an official proceeding or in conducting scientific tests 
for the purpose of collecting evidence), commencing 15 days after the 
property was seized by a Federal law enforcement agency, or was turned 
over to a Federal law enforcement agency by a State or local law 
enforcement agency.
---------------------------------------------------------------------------
    Prior to October 2014, the IRS provided partial relief in 
structuring transactions involving a first offense, a 
legitimate funding source, and no criminal conviction. The IRS 
procedures also required its criminal investigation division to 
consider additional mitigating or aggravating factors. On 
October 17, 2014, IRS-CID issued guidance on how it will 
conduct seizures and forfeitures in its structuring cases.\35\ 
Pursuant to this guidance, the IRS will not pursue seizure and 
forfeiture of funds associated only with so-called ``legal 
source'' structuring unless (1) there are exceptional 
circumstances justifying the seizure and forfeiture and (2) the 
case is approved by the Director of Field Operations.
---------------------------------------------------------------------------
    \35\ Memorandum for Special Agents in Charge Criminal 
Investigation, October 17, 2014, available at http://ij.org/wp-content/
uploads/2015/07/IJ068495.pdf. Written Testimony of John A. Koskinen and 
Richard Weber, House Committee on Ways and Means Subcommittee on 
Oversight on Financial Transaction Structuring, May 25, 2016, available 
at https://www.irs.gov/uac/newsroom/written-testimony-of-john-a-
koskinen-and-richard-weber-before-the-house-committee-on-ways-and-
means-subcommittee-on-oversight-on-financial-transaction-structuring-
may-25-2016; New IRS Special Procedure to Allow Property Owners to 
Request Return of Property, Funds in Specific Structuring Cases, June 
16, 2016, available at https://www.irs.gov/uac/newsroom/new-irs-
special-procedure-to-allow-property-owners-to-request-return-of-
property-funds-in-specific-structuring-cases; Letter to Chairman Roskam 
and Ranking Member Lewis summarizing planned actions, June 10, 2016, 
available at http://waysandmeans.house.gov/wp-content/uploads/2016/06/
6.9-Roskam-Lewis-Response-Letter-and-Enclosure.pdf.
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                        Explanation of Provision

    The provision provides that in the case of a suspected 
structuring violation, the IRS may only pursue seizure or 
forfeiture of assets if either the property to be seized was 
derived from an illegal source or the transactions were 
structured for the purpose of concealing a violation of a 
criminal law or regulation other than rules against 
structuring.
    The provision establishes post-seizure notice and review 
procedures for IRS seizures based on suspected structuring 
violations. The IRS must, within 30 days, make a good faith 
effort to find all persons with an ownership interest in the 
property seized and inform him or her of certain post-seizure 
hearing rights provided under the provision. This 30-day notice 
requirement may be extended an additional 30 days if the IRS 
can establish to a court probable cause of an imminent threat 
to national security or personal safety. If a notice recipient 
requests a court hearing within 30 days of the notice, the 
property is required to be returned unless the court finds that 
there is probable cause to believe that a structuring violation 
occurred involving such property and the property to be seized 
was derived from an illegal source or the funds were structured 
for the purpose of concealing the violation of a criminal law 
or regulation other than the structuring provisions of the BSA.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

2. Exclusion of interest received in action to recover property seized 
        by the Internal Revenue Service based on structuring 
        transaction (sec. 1202 of the Act and new sec. 139H of the 
        Code)

                              Present Law

    Nothing in the BSA or the administrative guidance issued by 
the IRS affects the Federal tax treatment of the interest that 
may be paid to a successful litigant in civil asset forfeiture 
proceedings. The Code provides no specific exclusion from gross 
income or deduction from adjusted gross income for interest 
received by a successful litigant pursuant to an action to 
recover property seized by the IRS pursuant to the BSA. 
Accordingly, the interest received is includable in gross 
income under the Code.

                        Explanation of Provision

    The provision amends the Code to exclude from gross income 
any interest received from the Federal Government in connection 
with an action to recover property seized by the IRS pursuant 
to a claimed violation of the structuring provisions of the 
BSA.

                             Effective Date

    The provision applies to interest received on or after the 
date of enactment (July 1, 2019).

3. Clarification of equitable relief from joint liability (sec. 1203 of 
        the Act and sec. 6015 of the Code)

                              Present Law

    If a married couple elects to file a tax return on which 
they report their income jointly, they are generally jointly 
and severally liable for the entire tax liability that should 
have been reported on the joint return.\36\ A spouse may be 
entitled to relief from joint liability, in whole or in part, 
under the innocent spouse relief provisions of the Code.
---------------------------------------------------------------------------
    \36\ Sec. 6103(d).
---------------------------------------------------------------------------

Grounds for relief from joint liability

    There are three types of relief: general innocent spouse 
relief; relief for spouses no longer married or legally 
separated (separation of liabilities); and equitable relief. 
The grounds for relief and its scope differ among these three 
types of relief. In addition, the first two types of relief 
must be sought no later than two years after the date the IRS 
began collection activities against the electing spouse. For 
equitable relief, there is no limitations period in the 
statute.
    General relief from joint liability with respect to an 
understatement of tax is available to all joint filers who make 
a timely election for such relief and who are able to establish 
the following three elements.\37\ First, the electing spouse 
must establish that the underpayment is attributable to the 
erroneous items of the other spouse. Second, the electing 
spouse must show that at the time of signing the return, he or 
she neither knew nor had reason to know that there was an 
understatement of tax. Finally, relief is granted only if it is 
inequitable to hold the electing spouse liable for the 
deficiency in tax, based on all facts and circumstances.
---------------------------------------------------------------------------
    \37\ Sec. 6015(b).
---------------------------------------------------------------------------
    Separation of liabilities relief from joint liability with 
respect to a deficiency is available to persons who are no 
longer married, are legally separated, or were no longer living 
together in the 12 months ending with the date innocent spouse 
relief is elected.\38\ The individual electing relief on this 
basis must establish the portion of any deficiency that is 
appropriately allocable to him or her. Special rules are 
provided in the Code for determining allocation of items that 
benefit one spouse more than the other, property transfers, and 
children's liability. Relief otherwise available is not 
permitted with respect to items of which a spouse was aware at 
the time the return was signed and which contributed to a 
deficiency.
---------------------------------------------------------------------------
    \38\ Sec. 6015(c).
---------------------------------------------------------------------------
    Equitable relief from joint liability may be available to 
those spouses who are ineligible under the provisions for 
general relief or separation of liabilities relief.\39\ Such 
relief is granted only if, taking into account all facts and 
circumstances, it is inequitable to hold the individual liable 
for the unpaid portion of tax or for a deficiency with respect 
to the joint return.
---------------------------------------------------------------------------
    \39\ Sec. 6015(f).
---------------------------------------------------------------------------

Availability and scope of judicial review

    If an individual elects to have the general relief 
provision or the separation of liabilities relief provision 
apply with respect to a deficiency, the individual may petition 
the Tax Court to review unfavorable determinations by the IRS 
with respect to the claimed relief. The Tax Court has held that 
its authority to review such IRS determinations is under a de 
novo standard.\40\
---------------------------------------------------------------------------
    \40\ Sec. 6015(e)(1).
---------------------------------------------------------------------------
    The claim for relief from joint liability must be filed no 
later than 90 days after the notice of final determination on 
relief from joint liability and no earlier than the earlier of 
the mailing of such notice of final determination or the date 
which is six months after electing such relief. During the 
pendency of the Tax Court proceeding, or during the period in 
which a petition may be filed, collection action is restricted.
    In contrast to claims under the general relief or 
separation of liabilities provisions described above, the 
extent to which a denial of a claim for equitable relief from 
joint liability is also subject to judicial review by the Tax 
Court, the scope of that review, and the standard for any 
review have been the subject of conflicting appellate 
decisions. An abuse of discretion standard based on court 
review of the administrative record was held to be the correct 
standard in some instances,\41\ but other courts have permitted 
review of information beyond the administrative record while 
applying an abuse of discretion standard.\42\ Still others have 
applied a de novo standard to both the scope of the review and 
the standard of review.\43\
---------------------------------------------------------------------------
    \41\ Jonson v. Commissioner, 118 T.C. 106, 125 (2002), aff'd on 
other grounds, 353 F.3d 1181 (10th Cir. 2003); Mitchell v. 
Commissioner, 292 F.3d 800, 807 (D.C. Cir. 2002); Cheshire v. 
Commissioner, 282 F.3d 326, 337-38 (5th Cir. 2002).
    \42\ Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009).
    \43\ Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013), acq'd, 
I.R.B. 2013-25 (June 17, 2013); Porter v. Commissioner, 132 T.C. 203, 
132 T.C. No. 11 (2009).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, Tax Court review of innocent spouse 
equitable relief cases is not limited to the administrative 
record, but it may consider evidence that is newly discovered 
or was previously unavailable. The provision also clarifies 
that the Tax Court has jurisdiction to review a denial of 
equitable claims for relief from joint liability and that such 
review is not limited to a review for abuse of discretion by 
the IRS.
    The provision allows taxpayers to request equitable relief 
with respect to any unpaid liability before the expiration of 
the collection period or, if paid, before the expiration of the 
applicable limitations period for claiming a refund or credit.

                             Effective Date

    The provision applies to petitions or requests filed or 
pending on or after the date of enactment (July 1, 2019).\44\
---------------------------------------------------------------------------
    \44\ Commissioner v. Sutherland, 155 T.C. No. 6, Slip Opinion at 
pp. 15-16 (September 8, 2020) (holding that the changes to section 
6105(e)(7) are effective for petitions filed on or after the date of 
enactment and that changes to subsection 6105(f)(7) are effective for 
requests pending with the IRS on or after the date of enactment).
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4. Modification of procedures for issuance of third-party summons (sec. 
        1204 of the Act and sec. 7609 of the Code)

                              Present Law

    The IRS has broad statutory authority to require production 
of information in the course of an examination.\45\ A request 
for information in the form of an administrative summons is 
enforceable if the IRS establishes its good faith, as evidenced 
by the factors enunciated by the Supreme Court in United States 
v. Powell.\46\ The U.S. Supreme Court articulated four basic 
elements necessary to establish that the government issued a 
summons in good faith: (1) the investigation must be conducted 
for a legitimate purpose; (2) the information sought is 
relevant to and ``may shed light on'' that legitimate purpose; 
(3) the requested information is not already in the possession 
of the IRS; and (4) the IRS complied with all statutorily 
required administrative steps.\47\ Subsequent to United States 
v. Powell, the legitimacy of using an administrative summons in 
furtherance of an investigation into criminal violations was 
validated in United States v. LaSalle National Bank,\48\ in 
which the Supreme Court determined that the dual civil and 
criminal purpose was legitimate, so long as there had not yet 
been a commitment to refer the case for prosecution.
---------------------------------------------------------------------------
    \45\ Sec. 7602.
    \46\ United States v. Powell, 379 U.S. 48 (1964).
    \47\ United States v. Powell, 379 U.S. 48, pp. 57-58 (1964).
    \48\ 437 U.S. 298 (1978); codified in section 7609(c).
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    The use of this summons authority to obtain information 
from third-parties is subject to certain procedural 
safeguards,\49\ but otherwise the same good faith elements are 
analyzed to determine whether the summons should be 
enforced.\50\ When the existence of a possibly non-compliant 
taxpayer is known but not his identity, as in the case of 
holders of offshore bank accounts or investors in particular 
abusive transactions, the IRS is able to issue a summons 
(referred to as a ``John Doe'' summons) to learn the identity 
of the taxpayer, but must first meet significantly greater 
statutory requirements to guard against fishing expeditions.
---------------------------------------------------------------------------
    \49\ Sec. 7609.
    \50\ Tiffany Fine Arts, Inc. v. United States, 479 U.S. 310 (1985).
---------------------------------------------------------------------------
    An effort to learn the identity of unnamed John Does 
requires that the United States seek judicial review in an ex 
parte proceeding prior to issuance of the John Doe summons. In 
its application and supporting documents,\51\ the United States 
must establish that the information sought pertains to an 
ascertainable group of persons, that there is a reasonable 
basis to believe that taxes have been avoided, and that the 
information is not otherwise available.\52\ The reviewing court 
does not determine whether the John Doe summons will ultimately 
be enforceable. Once a court has determined that the predicate 
for issuance of a summons is met, the summons is served, and 
the summoned party served may challenge enforcement of the 
summons, based on the Powell factors. It is not entitled to 
judicial review of the ex parte ruling that permitted issuance 
of the summons.\53\ Nevertheless, enforcement of a John Doe 
summons is likely to be subject to time-consuming challenges, 
possibly warranting an extension of the limitations period.
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    \51\ Sec. 7609(h)(2) provides that the determination will be made 
ex parte, solely on the pleadings.
    \52\ Sec. 7609(f).
    \53\ United States v. Samuels, Kramer & Co., and First Western 
Government Securities, Inc., 712 F.2d 1342 (9th Cir. 1983), which 
affirmed a lower court determination that the issuance of the John Doe 
summons was not subject to review, but reversed and remanded to permit 
a limited evidentiary hearing on whether the Powell standard was met.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision prevents the Secretary from issuing a John 
Doe summons unless the information sought to be obtained is 
narrowly tailored and pertains to the failure (or potential 
failure) of the person or group or class of persons referred to 
in the statute to comply with one or more provisions of the 
Code which have been identified. The provision is not intended 
to change the Powell standard or otherwise affect the IRS's 
burden of proof.

                             Effective Date

    The provision applies to summonses served after the date 
that is 45 days after the date of enactment (45 days after July 
1, 2019).

5. Private debt collection and special compliance personnel program 
        (sec. 1205 of the Act and sec. 6306 of the Code)

                              Present Law


Qualified tax collection contracts

    The Code permits the IRS to use private debt collection 
companies to locate and contact taxpayers owing outstanding tax 
liabilities of any type \54\ and to arrange payment of those 
taxes by the taxpayers.\55\ For this purpose, the Secretary 
enters into qualified tax collection contracts for the 
collection of inactive tax receivables. Under these contracts, 
if the taxpayer cannot pay in full immediately, the private 
debt collection company offers the taxpayer an installment 
agreement providing for full payment of the taxes over a period 
of as long as five years.
---------------------------------------------------------------------------
    \54\ This provision generally applies to any type of tax imposed 
under the Internal Revenue Code.
    \55\ Sec. 6306.
---------------------------------------------------------------------------
    Inactive tax receivables are defined as any tax receivable 
(i) removed from the active inventory for lack of resources or 
inability to locate the taxpayer, (ii) for which more than 1/3 
of the applicable limitations period has lapsed and no IRS 
employee has been assigned to collect the receivable, and (iii) 
for which a receivable has been assigned for collection but 
more than 365 days have passed without interaction with the 
taxpayer or a third party for purposes of furthering the 
collection. Tax receivables are defined as any outstanding 
assessment which the IRS includes in potentially collectible 
inventory.
    Certain tax receivables are not eligible for collection 
under qualified tax collection contracts, if such receivable: 
(i) is subject to a pending or active offer-in-compromise or 
installment agreement; (ii) is classified as an innocent spouse 
case; (iii) involves a taxpayer identified by the Secretary as 
being (a) deceased, (b) under the age of 18, (c) in a 
designated combat zone, or (d) a victim of tax-related identity 
theft; (iv) is currently under examination, litigation, 
criminal investigation, or levy; or (v) is currently subject to 
a proper exercise of a right of appeal.

Special compliance personnel program

    An amount not greater than 25 percent of the amount 
collected under any qualified tax collection contract is to be 
used to fund a special compliance personnel program. The 
Secretary is required to establish an account for the hiring, 
training, and employment of special compliance personnel. No 
other source of funding for the program is permitted, and funds 
deposited in the special account are restricted to use for the 
program, including reimbursement of the IRS and other agencies 
for the cost of administering the qualified debt collection 
program and all costs associated with employment of special 
compliance personnel and the retraining and reassignment of 
other personnel as special compliance personnel. Special 
compliance personnel are individuals employed by the IRS to 
serve either as revenue officers performing field collection 
functions, or as persons operating the automated collection 
system.

                        Explanation of Provision

    The provision makes certain additional tax receivables of 
individual taxpayers ineligible for collection under qualified 
tax collection contracts. Such receivables involve a taxpayer 
(1) substantially all of whose income consists of disability 
insurance benefits under section 233 of the Social Security Act 
(referred to as Social Security Disability Insurance or SSDI) 
or supplemental security income benefits under title XVI of the 
Social Security Act (referred to as Supplemental Security 
Income or SSI) or (2) whose adjusted gross income, as 
determined for the most recent taxable year for which 
information is available, does not exceed 200 percent of the 
applicable poverty level (as determined by the Secretary).
    The provision also modifies the definition of inactive tax 
receivable by replacing the condition that more than 1/3 of the 
applicable limitations period has lapsed with the requirement 
that ``more than two years has passed since assessment.'' The 
provision retains the requirement that no IRS employee has been 
assigned to collect the receivable.
    The provision also modifies the definition of a qualified 
tax collection contract to allow the private debt collection 
company to offer the taxpayer an installment agreement 
providing for full payment of the taxes over a period of as 
long as seven years, replacing the current law period of five 
years.
    The provision clarifies that the IRS may use funds from the 
special compliance personnel program account for various 
program costs, including the costs of hiring any personnel, 
communications, software, technology, and reimbursement of the 
IRS or other government agencies for the cost of administering 
the qualified tax collection program.

                             Effective Date

    The provision to make certain tax receivables of individual 
taxpayers ineligible for collection under qualified tax 
collection contracts and the provision to modify the definition 
of inactive tax receivables applies to tax receivables 
identified by the Secretary (or the Secretary's delegate) after 
December 31, 2020.
    The provision to modify the definition of a qualified tax 
collection contract applies to contracts entered into after the 
date of enactment (July 1, 2019).
    The provision relating to the use of the special compliance 
personnel program account applies to amounts expended from the 
account after the date of enactment (July 1, 2019).

6. Reform of notice of contact of third parties (sec. 1206 of the Act 
        and sec. 7602 of the Code)

                              Present Law

    The IRS may not contact any person other than the taxpayer 
with respect to the determination or collection of the tax 
liability of the taxpayer without providing reasonable notice 
in advance to the taxpayer that the IRS may contact persons 
other than the taxpayer. The IRS is required to provide 
periodically to the taxpayer a record of persons contacted 
during the prior period by the IRS with respect to the 
determination or collection of that taxpayer's tax liability. 
This record is also required to be provided upon request of the 
taxpayer. This notice requirement does not apply to criminal 
tax matters, if the collection of the tax liability is in 
jeopardy, if the Secretary determines for good cause shown that 
disclosure may involve reprisal against any person, or if the 
taxpayer authorized the contact.

                        Explanation of Provision

    The provision replaces the requirement that the IRS provide 
reasonable notice in advance to the taxpayer with a requirement 
that the taxpayer be provided, at least 45 days before the 
beginning of the period of contact, notice that contacts with 
persons other than the taxpayer are intended. The period of 
contact may not be greater than one year. However, notices are 
permitted to be issued to the same taxpayer with respect to the 
same tax liability with periods specified that, in the 
aggregate, exceed one year. The provision requires the notice 
to be provided only if there is a present intent at the time 
such notice is given for the IRS to make such contacts. This 
intent can be met on the basis of the assumption that the 
information sought to be obtained will not be obtained by other 
means before such contact.

                             Effective Date

    The provision applies to notices provided and contacts made 
after the date which is 45 days after the date of enactment (45 
days after July 1, 2019).

7. Modification of authority to issue designated summons (sec. 1207 of 
        the Act and sec. 6503(j) of the Code)

                              Present Law

    During an audit, the IRS may informally request that the 
taxpayer provide additional information necessary to arrive at 
a fair and accurate audit adjustment, if any adjustment is 
warranted. Not all taxpayers cooperate with such requests, 
whether by failing to respond or by providing inadequate or 
incomplete responses. In such cases, if the necessary 
information cannot be developed from other witnesses or 
sources, the IRS seeks information by issuing an administrative 
summons.\56\ If the taxpayer does not cooperate with the 
request in the summons, the IRS may refer the summons to the 
Department of Justice to seek and obtain an order for 
enforcement in Federal court. If the summons in question was 
issued to a third-party rather than the taxpayer, the taxpayer 
may petition the court to quash an administrative summons.\57\
---------------------------------------------------------------------------
    \56\ Sec. 7602.
    \57\ Sec. 7609.
---------------------------------------------------------------------------
    In United States v. Powell,\58\ the U.S. Supreme Court 
articulated four basic elements necessary to establish that the 
government issued a summons in good faith: (1) the 
investigation must be conducted for a legitimate purpose; (2) 
the information sought is relevant to and ``may shed light on'' 
that legitimate purpose; (3) the requested information is not 
already in the possession of the IRS; and (4) the IRS complied 
with all statutorily required administrative steps. All 
petitions to enforce an administrative summons must include 
allegations and supporting declarations to establish that the 
good faith standards are met.\59\ Although the good faith 
standards established in United States v. Powell apply to all 
administrative summonses, they are not the sole source of 
limitations on the IRS's ability to compel production of 
information during an examination.\60\
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    \58\ United States v. Powell, 379 U.S. 48, pp. 57-58 (1964).
    \59\ Department of Justice, Tax Division, Summons Enforcement 
Manual, (updated through July 2011), available at https://
www.justice.gov/sites/default/files/tax/legacy/2011/08/31/
SumEnfMan_July2011.pdf.
    \60\ See, e.g., secs. 7602 (summonses in furtherance of a criminal 
investigation may be issued, provided that the IRS has not referred the 
investigation to the Department of Justice for prosecution of the 
taxpayer whose tax liability is the subject of the summons), 7609 
(summons issued to a third-party record-keeper), 7611 (examinations of 
churches), 7612 (summons for computer software). Summonses to obtain 
information responsive to a request for exchange of information under a 
tax treaty present special enforcement issues, both procedural and 
substantive as well. Mazurek v. United States, 271 F.3d 226 (5th Cir. 
2001).
---------------------------------------------------------------------------
    Neither service of an administrative summons nor 
government-initiated action for judicial enforcement is 
sufficient to suspend the limitations period.\61\ As a result, 
in the case of an examination of complicated issues of a large 
corporation, involving voluminous records, numerous witness 
interviews, and possible expert reports, the general three-year 
period for assessment may be inadequate to allow for completion 
of an examination.\62\ In such cases, the limitations period is 
often but not always extended by agreement of the parties. An 
uncooperative taxpayer could force a premature conclusion to an 
audit by delaying responses and allowing the statute to expire. 
To guard against such situations in cases in which the IRS 
requires additional information and time to complete its 
work,\63\ the Code authorizes issuance of a designated summons 
that triggers suspension of the limitations period if judicial 
enforcement proceedings are initiated.
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    \61\ In the case of third-party summonses, the limitations period 
is suspended if a taxpayer named in the summons initiates a proceeding 
to quash the summons, or if compliance with the summons remains 
unresolved as of the date which is six months after service of the 
summons.
    \62\ Sec. 6501 (income taxes are generally required to be assessed 
within three years after a taxpayer's return is filed, whether or not 
it was timely filed); sec. 6501(c)(there are several circumstances 
under which the general three-year limitations period does not begin to 
run, including failure to file a return or filing a false or fraudulent 
return with the intent to evade tax, extensions by agreement of the 
taxpayer and IRS, substantial omissions of income, or failure to 
disclose or report a listed transaction as required under section 6011 
on any return or statement for a taxable year); sec. 6503 (there are 
also circumstances under which the three-year limitations period is 
suspended, including the issuance of a designated summons).
    \63\ In describing the provision when it was first enacted, the 
Conference report for the Omnibus Reconciliation Act of 1990 explained, 
``This provision is designed to preserve the ability of the IRS to 
conclude the audit and assess any taxes that may be due regardless of 
the length of time that it might take to obtain judicial resolution of 
the summons enforcement lawsuit.'' H. Rept. 101-964, p. 1073. Omnibus 
Budget Reconciliation Act of 1990, Conf. Rept. to Accompany H.R. 5835.
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    A designated summons is an administrative summons that is 
issued to a large corporation (or person to whom the 
corporation has transferred the requested books and records) 
with respect to one or more taxable periods currently under 
examination in the Coordinated Industry Case program and meets 
three conditions. First, it must be reviewed and approved by 
the Division Commissioner and Division Counsel of the relevant 
IRS operating division or organization with jurisdiction over 
the return. Second, it must be issued at least 60 days before 
the expiration of the assessment limitations period (as 
extended). Finally, it must clearly state that it is a 
``designated summons.'' \64\ No more than one designated 
summons may be issued with respect to a return under 
examination.
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    \64\ Section 6503(j) refers to the regional officials and the 
Coordinated Examination Program or their successors. The Division 
Counsel and Commissioner of the relevant office with jurisdiction over 
the return have been identified in regulation as the appropriate 
successor officials. Treas. Reg. sec. 301.6503(j)-1. In addition, the 
Coordinated Industry Case program is the successor to the Coordinated 
Examination Program.
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    If a designated summons is issued, and the taxpayer 
complies without any judicial enforcement proceeding, no 
suspension of the limitations period occurs. If the government 
initiates enforcement proceedings, the limitations period is 
suspended for the judicial enforcement period of that summons 
and any related summonses, i.e., summonses relating to the same 
return and issued within 30 days after the issuance of the 
designated summons. If the court proceeding results in an order 
to comply with the summons, the limitations period is also 
suspended for a period of 120 days from the first day after the 
close of the judicial enforcement period. In addition, the 
limitations period expires no earlier than 60 days after the 
close of the judicial enforcement period, if the court does not 
order compliance with the summons.
    Since enactment of the designated summons provision in 
1990, few such summonses have been issued.\65\ The IRS is now 
required to submit annual reports to Congress on the number of 
designated summonses issued each year.\66\ Since 1995, three 
have been issued, most recently in 2014.\67\
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    \65\ The earliest designated summons, involving a request to 
require testimony from an officer of Chevron Corporation, was enforced. 
United States v. Derr, 968, F.2d 943 (9th Cir. 1992). See also United 
States v. Norwest, 116 F.3d 1227 (8th Cir. 1997) (court enforced IRS 
request to produce tax preparation software licensed to Norwest) and 
United States v. Caltex Petroleum, 12 F. Supp. 2d 545 (N.D. Tex. 1998) 
(denied IRS request to produce the software code used to calculate 
foreign tax credits).
    \66\ Sec. 1002(b) Taxpayers Bill of Rights Act 2, Pub. L. 104-168 
(1996).
    \67\ United States v. Microsoft, Case No. C15-00102-RSM (W.D. Wash. 
May 5, 2017) (in ruling on validity of privileges, the Court ordered 
further document production in compliance with the designated summons 
and related summonses, pursuant to the earlier opinion enforcing the 
designated summons, at United States v. Microsoft, 154 F. Supp. 3d 1134 
(W.D. Wash. 2015)).
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                        Explanation of Provision

    Under the provision, issuance of a designated summons must 
be preceded by review and written approval of the summons by 
the head of the relevant operating division and the Chief 
Counsel. The written approval must state facts establishing 
that the IRS had previously made reasonable requests for the 
information and must be attached to the summons. In subsequent 
judicial proceedings concerning the enforceability of the 
summons, the IRS must establish that the prior reasonable 
requests for information were made.

                             Effective Date

    The provision applies to summonses issued after the date 
that is 45 days after the date of enactment (45 days after July 
1, 2019); that is, summonses issued after August 15, 2019.\68\
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    \68\ By transmittal dated August 2, 2019, the IRS revised manual 
instructions necessary to reflect the changes to Code sec. 6503(j). 
See, IRM par. 25.3.3 et seq., applicable to summonses issued after 
August 15, 2019, the effective date of the provision.
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8. Limitation on access of non-Internal Revenue Service employees to 
        returns and return information (sec. 1208 of the Act and sec. 
        7602 of the Code)

                              Present Law


Returns and return information

            General rule of confidentiality
    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by the 
Code.\69\ The definition of return information is very broad 
and generally includes any information received or collected by 
the IRS with respect to liability under the Code of any person 
for any tax, penalty, interest or offense. The term ``return 
information'' includes, among other items:
---------------------------------------------------------------------------
    \69\ Sec. 6103(a).
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        a taxpayer's identity, the nature, source, or amount of 
        his income, payments, receipts, deductions, exemptions, 
        credits, assets, liabilities, net worth, tax liability, 
        tax withheld, deficiencies, overassessments, or tax 
        payments, whether the taxpayer's return was, is being, 
        or will be examined or subject to other investigation 
        or processing, or any other data, received by, recorded 
        by, prepared by, furnished to, or collected by the 
        Secretary with respect to a return or with respect to 
        the determination of the existence, or possible 
        existence, of liability (or the amount thereof) of any 
        person under this title for any tax, penalty, interest, 
        fine, forfeiture, or other imposition, or offense . . . 
        .\70\
---------------------------------------------------------------------------
    \70\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
            Disclosure exception for tax administration contracts 
                    (section 6103(n))
    There are several exceptions to the general rule of 
confidentiality. One exception permits the disclosure of 
returns and return information in connection with written 
contracts or agreements for the acquisition of property or 
services for tax administration purposes (``tax administration 
contractor'').\71\
---------------------------------------------------------------------------
    \71\ Sec. 6103(n).
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Summons authority

            In general
    For the purposes of ascertaining the correctness of any 
return, making a return when none has been made, determining 
the liability of any person for any internal revenue tax, and 
certain other purposes, the Secretary is authorized to examine 
any books, records, or other data which may be relevant or 
material to such inquiry, and to take such testimony of the 
person concerned, under oath, as may be relevant or material to 
such inquiry. The Secretary also is authorized to issue 
summonses to appear before the Secretary at the time and place 
named in the summons to produce books, records and other data 
and to give testimony, under oath, as may be relevant or 
material to such inquiry.
            Summons interview regulations
    Under the Treasury regulations, a person authorized to 
receive returns and return information as a tax administration 
contractor may receive and examine books, papers, records, or 
other data produced to comply with the summons, and, in the 
presence and under the guidance of an IRS officer or employee, 
participate fully in the interview of a witness summoned by the 
IRS to provide testimony under oath.\72\
---------------------------------------------------------------------------
    \72\ Treas. Reg. sec. 301.7602-1(b)(3).
---------------------------------------------------------------------------
    Proposed Treasury regulations would narrow this authority 
by excluding non-government attorneys from receiving summoned 
books, papers, records, or other data, or from participating in 
the interview of a witness summoned by the IRS to provide 
testimony under oath.\73\ An exception to this general 
exclusion is provided with respect to non-government attorneys 
hired for their expertise in an area other than Federal tax 
law. The proposed regulations would allow the IRS to hire an 
attorney who has specialized knowledge of foreign, state, or 
local law, including tax law, or in non-tax substantive law, 
such as patent law, property law, or environmental law. It 
would not permit the IRS to hire an attorney for non-
substantive specialized knowledge, such as civil litigation 
skills. These changes are proposed to be effective for 
examinations begun and summonses served by the IRS on or after 
March 27, 2018.
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    \73\ Prop. Treas. Reg. sec. 301.7602-1(b)(3), 83 Fed. Reg. 13206 
(March 28, 2018).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides that the Secretary shall not, under 
the authority of section 6103(n) (relating to tax 
administration contracts), provide to a tax administration 
contractor any books, papers, records or other data obtained by 
summons, except when such person requires such information for 
the sole purpose of providing expert evaluation and assistance 
to the IRS (including, for example, access to such information 
by translators). Further, no person other than an officer or 
employee of the IRS or Office of Chief Counsel may on behalf of 
the Secretary question a witness under oath whose testimony was 
obtained by summons. The provision is not intended to restrict 
the Office of Chief Counsel's ability to use court reporters, 
translators or interpreters, photocopy services, and other 
similar ancillary contractors.

                             Effective Date

    The provision takes effect on the date of enactment (July 
1, 2019) and shall not fail to apply to a contract in effect 
under section 6103(n) merely because such contract was in 
effect before the date of enactment.

                Subtitle D--Organizational Modernization


1. Office of the National Taxpayer Advocate (sec. 1301 of the Act and 
        sec. 7803(c) of the Code)

                              Present Law


In general

    The Office of the Taxpayer Advocate is expected to 
represent taxpayer interests independently in disputes with the 
IRS. The National Taxpayer Advocate (``NTA'') supervises the 
Office of the Taxpayer Advocate. The NTA reports directly to 
the Commissioner and is entitled to compensation at the same 
rate as the highest rate of basic pay established for the 
Senior Executive Service under section 5382 of Title 5 of the 
United States Code, or if the Secretary so determines, at a 
rate fixed under section 9503 of such title.
    The Office of the Taxpayer Advocate has four principal 
functions:
          1. to assist taxpayers in resolving problems with the 
        IRS;
          2. to identify areas in which taxpayers have problems 
        in dealing with the IRS;
          3. to propose changes in the administrative practices 
        of the IRS to mitigate problems identified in (2); and
          4. to identify potential legislative changes that may 
        be appropriate to mitigate such problems.

Taxpayer Assistance Orders

    A taxpayer can request a Taxpayer Assistance Order 
(``TAO'') if the taxpayer is suffering or about to suffer a 
``significant hardship'' as a result of the manner in which the 
internal revenue laws are being administered by the IRS.\74\ A 
TAO may require the IRS within a specified time period, to 
release property of the taxpayer that has been levied upon, or 
to cease any action, take any action as permitted by law, or 
refrain from taking any action with respect to the taxpayer 
under specified provisions.\75\
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    \74\ Sec. 7811(a)(1)(A). Significant hardship is deemed to occur if 
one of four factors exists: (1) there is an immediate threat of adverse 
action; (2) there has been a delay of more than 30 days in resolving 
the taxpayer's problems; (3) the taxpayer will have to pay significant 
costs (including fees for professional services) if relief is not 
granted; or (4) the taxpayer will suffer irreparable injury, or a long 
term adverse impact if relief is not granted.Sec. 7811(a)(2). The NTA 
may also issue a TAO if the taxpayer meets requirements to be set forth 
in regulations. Sec. 7811(a)(1)(B).
    \75\ Sec. 7811(b). The provisions specified in 7811(b) are: (1) 
chapter 64 (relating to collection), (2) subchapter B of chapter 70 
(relating to bankruptcy and receiverships), chapter 78 (relating to 
discovery of liability and enforcement of title) or any other provision 
of law which is specifically described by the NTA in such order. A TAO 
or action taken by the NTA applies to persons performing services under 
a qualified tax collection contract to the same extent and to the same 
manner as such order applies to the IRS.
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    The Commissioner, or the Deputy Commissioner may rescind a 
TAO issued by the NTA, only if a written explanation of the 
reasons for the modification or rescission is provided to the 
NTA.\76\
---------------------------------------------------------------------------
    \76\ Sec. 7811(c). The NTA also may modify or rescind a TAO issued 
by the NTA.
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Taxpayer Assistance Directives

    While a TAO is specific to a particular taxpayer, a 
Taxpayer Assistance Directive (``TAD'') is systemic, intended 
to address groups of taxpayers. Delegation Order 13-3 
authorizes the NTA to issue TADs to mandate administrative or 
procedural changes to improve the operation of a functional 
process or to grant relief to groups of taxpayers (or all 
taxpayers) when implementation will protect the rights of 
taxpayers, prevent undue burden, ensure equitable treatment or 
provide an essential service to taxpayers.\77\ The authority to 
modify or rescind a TAD is delegated to Deputy Commissioner for 
Operations Support, Deputy Commissioner for Services and 
Enforcement, and to the NTA.
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    \77\ Delegation Order 13-3, Internal Revenue Manual 1.2.50.4 
(January 17, 2001).
---------------------------------------------------------------------------

Annual Reports

    The NTA is required to submit two reports annually to the 
House Committee on Ways and Means and to the Senate Finance 
Committee.\78\ One report, due June 30 of each year, covers the 
Office of the Taxpayer Advocate's objectives for the fiscal 
year beginning in that calendar year. Besides statistical 
information, the report must contain a full and substantive 
analysis of the objectives.
---------------------------------------------------------------------------
    \78\ Sec. 7803(c)(2)(B).
---------------------------------------------------------------------------
    The other report, due December 31 of each year, concerns 
the activities of the Office of the Taxpayer Advocate. The 
content of this report is set by statute.\79\ Generally, the 
report must cover initiatives taken to improve taxpayer 
services and problems encountered, as well as the actions taken 
to resolve them and the results. Specifically, the report must 
cover the 20 most serious problems experienced by taxpayers. 
The report also must identify the 10 most litigated issues for 
each category of taxpayer and the areas of the tax law that 
impose significant compliance burdens on taxpayers or the IRS. 
Recommendations received from individuals with the authority to 
issue TAOs, and any TAO not promptly honored by the IRS, must 
also be included in the report. The report must also set forth 
recommendations for administrative and legislative action to 
resolve problems encountered by taxpayers.
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    \79\ Sec.7803(c)(2)(B)(ii)(I) through (XI).
---------------------------------------------------------------------------
    The NTA, is required by statute to submit the reports 
directly to the Congressional committees without prior review 
of the Commissioner, the Secretary, or any officer or employee 
of the Treasury, the Oversight Board, or the Office of 
Management and Budget (``OMB'').\80\
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    \80\ Sec. 7803(c)(2)(B)(iii).
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                        Explanation of Provision


Taxpayer Advocate Directives

    In the case of any TAD issued by the NTA pursuant to a 
delegation of authority from the Commissioner, the Commissioner 
or Deputy Commissioner shall modify, rescind or ensure 
compliance with such directive not later than 90 days after 
issuance of such directive. If the TAD is modified or rescinded 
by a Deputy Commissioner, the NTA may (not later than 90 days 
after such modification or rescission) appeal to the 
Commissioner and the Commissioner must (not later than 90 days 
after such appeal is made) either (1) ensure compliance with 
such directive as issued by the NTA, or (2) provide the NTA 
with the reasons for any modification or rescission made or 
upheld by the Commissioner pursuant to such appeal.
    The NTA's annual report is to identify any TAD that is not 
honored by the IRS in a timely manner.

Annual Reports to Congress

    The provision modifies requirements of the annual report on 
NTA activities to require a summary of the 10 most serious 
problems encountered by taxpayers. Before beginning any 
research or study, the NTA is required to coordinate with the 
TIGTA to ensure that the NTA does not duplicate any action that 
TIGTA has already undertaken or has a detailed plan to 
undertake. The provision requires the IRS provide the NTA, upon 
request and to the extent practicable, with statistical support 
in connection with the preparation of the annual report on NTA 
activities. Such support is to include statistical studies, 
compilations and the review of information provided by the NTA 
for statistical validity and sound statistical methodology. 
With respect to any statistical information included in such 
report, the report is to include a statement of whether such 
statistical information was reviewed or provided by the IRS, 
and if so whether the IRS determined such information to be 
statistically valid and based on sound statistical methodology. 
The IRS's review and provision of statistical support does not 
violate the requirement that the report be submitted directly 
without prior review or comment from any officer or employee of 
the Department of the Treasury or specified other persons.

Salary of the National Taxpayer Advocate

    The provision eliminates the provision relating to the 
determination of the NTA's salary under section 9503 of Title 5 
of the United States Code. As under present law, the NTA is 
entitled to compensation at the same rate as the highest rate 
of basic pay established for the Senior Executive Service under 
section 5382 of Title 5 of the United States Code.

                             Effective Date

    The provision is generally effective on the date of 
enactment (July 1, 2019). The provision as it relates to the 
salary of the NTA applies to appointments to the position of 
the NTA made after March 31, 2019.

2. Modernization of Internal Revenue Service organizational structure 
        (sec. 1302 of the Act)

                              Present Law

    RRA98 directed the Commissioner to restructure the IRS by 
eliminating or substantially modifying the three-tier 
geographic structure (national, regional, and district) in 
place at the time and replacing it with an organizational 
structure that features operating units serving particular 
groups of taxpayers with similar needs.\81\
---------------------------------------------------------------------------
    \81\ Pub. L. No. 105-206, sec. 1001(a).
---------------------------------------------------------------------------

                        Explanation of Provision

    The Secretary (or the Secretary's delegate) is required to 
submit to Congress by September 30, 2020, a comprehensive 
written plan to redesign the organization of the IRS. The 
comprehensive plan will: (1) ensure the successful 
implementation of the priorities specified by Congress in this 
bill; (2) prioritize taxpayer services to ensure that all 
taxpayers easily and readily receive the assistance they need; 
(3) streamline the structure of the agency including minimizing 
the duplication of services and responsibilities; (4) best 
position the IRS to combat cybersecurity and other threats to 
the IRS; and (5) address whether the Criminal Division of the 
IRS should report directly to the Commissioner.
    Beginning one year after the date on which a comprehensive 
plan to modify the organization of the IRS is submitted to 
Congress, the provision removes the RRA98 requirement of an 
organizational structure that features operating units serving 
particular groups of taxpayers with similar needs.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

                      Subtitle E--Other Provisions


1. Return preparation programs for applicable taxpayers (sec. 1401 of 
        the Act and new sec. 7526A of the Code)

                              Present Law

    The Code provides that the Secretary may allocate up to $6 
million per year for matching grants to certain qualified low-
income taxpayer clinics.\82\ Eligible clinics are those that 
charge no more than a nominal fee to either represent low-
income taxpayers in controversies with the IRS or provide tax 
information to individuals for whom English is a second 
language. No clinic can receive more than $100,000 per year.
---------------------------------------------------------------------------
    \82\ Sec. 7526.
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    A qualified low-income taxpayer clinic includes (1) a 
clinical program at an accredited law, business, or accounting 
school in which students represent low-income taxpayers, or (2) 
an organization exempt from tax under Code section 501(c) that 
either represents low-income taxpayers or provides referral to 
qualified representatives. A clinic is treated as representing 
low-income taxpayers if (i) at least 90 percent of the 
taxpayers represented by the clinic have income that does not 
exceed 250 percent of the poverty level, as determined in 
accordance with criteria established by the Director of the 
OMB,\83\ and (ii) the amount in controversy for any taxable 
year is $50,000 or less.\84\
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    \83\ For a family of four, the 2019 income limit in the 48 
contiguous states, Puerto Rico, and the District of Columbia is 
$64,375. The 2020 income limit is $65,500, available at https://
www.irs.gov/advocate/low-income-taxpayer-clinics/low-income-taxpayer-
clinic-income-eligibility-guidelines (last visited October 23, 2020).
    \84\ Sec. 7463.
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    While the Code does not provide funding for matching 
grants, funding for such grants was provided by the 
Consolidated Appropriations Act, 2019.\85\ Congress 
appropriated approximately $2.492 billion to the IRS for 
taxpayer services, of which not less than $18 million is to be 
made available for a Community Volunteer Income Tax Assistance 
(``VITA'') matching grants program for tax return preparation 
assistance. VITA is a program that was created by the IRS in 
1969 that utilizes volunteers to provide tax return preparation 
and filing service assistance to certain low-income taxpayers 
and members of underserved populations.
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    \85\ Pub. L. No. 116-6, Div. D, Title I (February 15, 2019). In the 
Consolidated Appropriations Act, 2020, Congress later appropriated 
approximately $2.511 billion to the IRS for taxpayer services, of which 
not less than $25 million was to be made available for a VITA matching 
grants program for tax return preparation assistance. Pub. L. No. 116-
93, Div. C, Title I (December 20, 2019). In the Continuing 
Appropriations Act, 2021 and Other Extensions Act, Congress extended 
spending at these levels. Pub. L. No. 116-159 (October 1, 2020).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision codifies the VITA program and provides that 
the Secretary, unless otherwise provided by specific 
appropriation, may allocate from otherwise appropriated funds 
up to $30 million per year in matching grants to qualified 
entities for the development, expansion, or continuation of 
qualified tax return preparation programs assisting applicable 
taxpayers and members of underserved populations. The Secretary 
is authorized to award a multi-year grant not to exceed three 
years.
    The grant funds may be used for ordinary and necessary 
operation costs (including for wages or salaries of persons 
coordinating the activities of the program; to develop training 
materials, conduct training, and perform quality reviews of the 
returns for which assistance has been provided under the 
program; for equipment purchases; and for vehicle-related 
expenses associated with remote or rural tax preparation 
services), outreach and educational activities relating to the 
eligibility and availability of income supports available 
through the Code, and services related to financial education 
and capability, asset development, and the establishment of 
savings accounts in connection with tax return preparation.
    Matching funds are required to be provided on a dollar-for-
dollar basis for all grants provided. Matching funds may 
include: (1) the salary (including fringe benefits) of 
individuals performing services for the program; (2) the cost 
of equipment used in the program; and (3) other ordinary and 
necessary costs that may be associated with the program. 
Indirect expenses, including general overhead of any entity 
administering the program, are not counted as matching funds.
    In awarding grants, priority is given to applications that 
(1) demonstrate assistance to certain applicable taxpayers with 
an emphasis on outreach, (2) demonstrate taxpayer outreach and 
education around available income supports available through 
the Code, and (3) demonstrate specific outreach and focus on 
one or more underserved populations.
    The provision requires the Secretary to establish 
procedures for periodic site visits not less than once every 
five calendar years (i) to ensure the program is carrying out 
the stated purpose and (ii) to determine whether the VITA grant 
program meets certain program adherence standards as the 
Secretary will require. If any qualified return preparation 
program is awarded a grant and is subsequently determined not 
to meet the adherence standards or not to be carrying out the 
stated purposes, such program will not be eligible for 
additional grants unless the program provides sufficient 
documentation of corrective measures established to address any 
deficiencies determined.
    Qualified return preparation program means any program (1) 
that provides assistance to individuals, at least 90 percent of 
whom are applicable taxpayers, in preparing and filing Federal 
income tax returns, (2) that is administered by a qualified 
entity, (3) in which all volunteers who assist in the 
preparation of Federal income tax returns meet the training 
requirements prescribed by the Secretary, and (4) that uses a 
quality review process which reviews 100 percent of all 
returns. Qualified entity means any entity that (1) is an 
eligible organization (as defined), (2) is in compliance with 
Federal tax filing and payment requirements, (3) is not 
debarred or suspended from Federal contracts, grants, or 
cooperative agreements, and (4) agrees to provide documentation 
to substantiate any matching funds provided under the VITA 
grant program. Eligible organization means (1) an institution 
of higher education described in section 102 (other than 
subsection (a)(1)(C) thereof) of the Higher Education Act of 
1965, as in effect on the date of enactment, and that has not 
been disqualified from participating in a program under Title 
IV of such Act, (2) an exempt organization described in Code 
section 501(c), (3) a local government agency, including a 
county or municipal government agency, and an Indian tribe, as 
defined in section 4(13) of the Native American Housing 
Assistance and Self-Determination Act of 1996 (``Act''), 
including any tribally designated housing entity (as defined in 
such Act), tribal subsidiary, subdivision, or other wholly 
owned tribal entity, or (4) a local, State, regional, or 
national coalition (with one lead organization that meets the 
eligibility requirements described above acting as the 
applicant organization). If no eligible organization is 
available to assist the targeted population or community, the 
eligible organization includes a State government agency and a 
Cooperative Extension Service office.
    Applicable taxpayer means a taxpayer who has income for the 
taxable year that does not exceed an amount equal to the 
completed phaseout amount under section 32(b) for a married 
couple filing a joint return with three or more qualifying 
children, as determined in a revenue procedure or other 
published guidance.\86\ Underserved population includes 
populations of persons with disabilities, persons with limited 
English proficiency, Native Americans, individuals living in 
rural areas, members of the Armed Forces and their spouses, and 
the elderly.
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    \86\ For 2019, the amount is $55,952. Rev. Proc. 2018-57, 2018-49 
I.R.B. 827, 832, December 3, 2018. For 2020, the amount is $56,844. 
Rev. Proc. 2019-44, 2019-47 I.R.B. 1093, 1097, November 18, 2019.
---------------------------------------------------------------------------
    The provision allows the IRS to use mass communications and 
other means to promote the benefits and encourage the use of 
the program. The Secretary can provide taxpayers information 
regarding qualified return preparation programs receiving 
grants and those programs are encouraged to advise taxpayers of 
the availability of, and eligibility requirements for 
receiving, advice and assistance from local or regional low-
income taxpayer clinics. The programs are also encouraged to 
provide taxpayers information regarding the location and 
contact information for the low-income taxpayer clinics.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

2. Provision of information regarding low-income taxpayer clinics (sec. 
        1402 of the Act and sec. 7526 of the Code)

                              Present Law

    The Code provides that the Secretary is authorized to 
provide up to $6 million per year in matching grants to certain 
qualified low-income taxpayer clinics.\87\ Eligible clinics are 
those that charge no more than a nominal fee to either 
represent low-income taxpayers in controversies with the IRS or 
provide tax information to individuals for whom English is a 
second language. No clinic can receive more than $100,000 per 
year.
---------------------------------------------------------------------------
    \87\ Sec. 7526.
---------------------------------------------------------------------------
    A qualified low-income taxpayer clinic includes (1) a 
clinical program at an accredited law, business, or accounting 
school, in which students represent low-income taxpayers, or 
(2) an organization exempt from tax under Code section 501(c) 
that either represents low-income taxpayers or provides 
referral to qualified representatives. A low-income taxpayer is 
an individual whose income does not exceed 250 percent of the 
poverty level, as determined in accordance with criteria 
established by the Director of the OMB.
    The Department of the Treasury prohibits its officers and 
employees from referring taxpayers to qualified low-income 
taxpayer clinics for advice and assistance.\88\
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    \88\ 5 C.F.R. sec. 3101.106(a).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision allows officers and employees of the 
Department of the Treasury to advise taxpayers of the 
availability of, and eligibility requirements for receiving, 
advice and assistance from qualified low-income taxpayer 
clinics that receive funding under the Code, and to provide 
location and contact information for such clinics.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

3. Notice from IRS regarding closure of Taxpayer Assistance Centers 
        (sec. 1403 of the Act)

                              Present Law

    The IRS operates Taxpayer Assistance Centers around the 
country to provide face-to-face assistance with preparing tax 
returns and understanding tax laws.
    The IRS is not currently required to publish information to 
the public or give notice to Congress before closing a Taxpayer 
Assistance Center.

                        Explanation of Provision

    The provision requires the IRS to publish (including by 
non-electronic means such as local press and other media), 90 
days in advance, a notice containing information identifying 
the Taxpayer Assistance Center proposed for closure, the date 
of the proposed closure, and the relevant alternative sources 
of assistance that may be utilized by affected taxpayers. The 
provision also requires the IRS to provide, 90 days in advance, 
a report to Congress containing the information in the notice, 
the reasons for a proposed closure of the Taxpayer Assistance 
Center, and other information as the Secretary may find 
appropriate.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

4. Rules for seizure and sale of perishable goods restricted to only 
        perishable goods (sec. 1404 of the Act and sec. 6336 of the 
        Code)

                              Present Law

    Under the Code, if it is determined that any tangible 
property seized to satisfy unpaid taxes (1) is liable to 
perish, (2) is liable to become greatly reduced in price or 
value by keeping, or (3) cannot be kept without great expense, 
the property may be sold after it has been appraised and the 
owner has been given an opportunity to pay the appraised value 
or furnish bond for payment.\89\ The general procedures 
governing the sale of seized property that are set forth in the 
Code (e.g., requiring 10-day notice before sale and the 
determination of a minimum bid) are not applicable to sales of 
perishables.\90\ Instead, the streamlined procedures referred 
to above apply to the sale of perishable goods.\91\
---------------------------------------------------------------------------
    \89\ Sec. 6336.
    \90\ Sec. 6335.
    \91\ Sec. 6336; Treas. Reg. sec. 301.6336-1.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision limits the property that may be sold pursuant 
to the streamlined procedures to property that is liable to 
perish.

                             Effective Date

    The provision applies to property seized after the date of 
enactment (July 1, 2019).

5. Whistleblower reforms (sec. 1405 of the Act and secs. 6103 and 7623 
        of the Code)

                              Present Law


In general

    Under section 7623, individuals who submit information 
leading to detection of underpayment of tax or to detection, 
trial, and punishment of persons guilty of violating internal 
revenue laws, may file a claim for an award of 15 to 30 percent 
of recovered funds resulting from such action.

Disclosure rules for whistleblowers

    Section 6103 provides a general rule of confidentiality for 
returns and return information: ``returns and return 
information shall be confidential and except as authorized by 
this Title . . . [none of the specified recipients] shall 
disclose any return or return information obtained by him.'' 
\92\ One of the exceptions to the general rule of 
confidentiality permits the IRS to make investigative 
disclosures of return information to third parties. The 
disclosures, subject to the conditions provided in regulations, 
are to be made to the extent necessary to obtain information, 
which is not otherwise reasonably available, with respect to 
the correct determination of tax, liability for tax, the amount 
to be collected, or with respect to the enforcement of any 
provision of Title 26.\93\ The third party recipient of the 
return information furnished during an investigative disclosure 
is not subject to the general rule of confidentiality provided 
by section 6103.
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    \92\ Sec. 6103(a).
    \93\ Treas. Reg. sec. 301.6103(k)(6)-1.
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    There is no provision of section 6103 to provide 
whistleblowers with status updates regarding what the IRS has 
done with the information provided by the whistleblower. Such 
status information would be the return information of the 
taxpayer being audited/investigated for additional tax 
liability.
    A taxpayer can file or sue for civil damages for the 
unauthorized disclosure and/or inspection of returns and return 
information.\94\ In addition, criminal penalties apply for the 
willful unauthorized disclosure or inspection of returns and 
return information.\95\
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    \94\ Sec. 7431.
    \95\ Secs. 7213 and 7213A.
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Protection against retaliation

    Though other statutes such as the False Claims Act \96\ 
currently protect some individuals from employer retaliation, 
those who file claims under the Code are not explicitly 
afforded these same protections.
---------------------------------------------------------------------------
    \96\ 31 U.S.C. sec. 3730(h)(2).
---------------------------------------------------------------------------

                        Explanation of Provision

    This provision amends section 6103 to: (1) allow the IRS to 
exchange information with whistleblowers to the extent 
disclosure is necessary in obtaining information, which is not 
otherwise reasonably available, with respect to the correct 
determination of tax liability or the amount to be collected 
with respect to the enforcement of any other provision of the 
Code; and (2) require the Secretary to notify the whistleblower 
as to the status of their case not later than 60 days after: 
(i) the case has been referred for an audit or examination; and 
(ii) the taxpayer makes a payment of tax with respect to the 
tax liability to which the information provided by the 
whistleblower relates. Subject to such requirements and 
conditions prescribed by the Secretary, upon written request by 
the whistleblower and so long as the disclosure would not 
seriously impair Federal tax administration, the Secretary is 
to provide information on the status and stage of any 
investigation, and in the case of a determination of the amount 
of any award, the reasons for such determination. To ensure 
taxpayer information is protected, whistleblowers receiving 
information under this provision are subject to the general 
rule of confidentiality and criminal penalties for unauthorized 
disclosure of taxpayer information.
    The provision adds to section 7623, anti-retaliation 
whistleblower protections for employees. A person who alleges 
discharge or other reprisal by any person in violation of these 
protections may file a complaint with the Secretary of Labor 
(within 180 days after the date on which the violation occurs), 
and if the Secretary of Labor has not issued a final decision 
on such complaint within 180 days (and the delay is not due to 
the bad faith of the claimant), an action may be brought in the 
appropriate district court. The remedies provided are 
consistent with those currently available under the False 
Claims Act, including compensatory damages of reinstatement, 
200 percent of back pay and all lost benefits, with interest, 
and compensation for other special damages including litigation 
costs, expert witness fees, and reasonable attorney fees.

                             Effective Date

    The modifications made to the disclosure rules apply to 
disclosures made after the date of enactment (July 1, 2019). 
The protections from retaliation take effect on the date of 
enactment.

6. Customer service information (sec. 1406 of the Act)

                              Present Law

    The Code provides that the Commissioner has such duties and 
powers as prescribed by the Secretary.\97\ Unless otherwise 
specified by the Secretary, such duties and powers include the 
power to administer, manage, conduct, direct, and supervise the 
execution and application of the internal revenue laws or 
related statutes. In executing these duties, the Commissioner 
depends upon strategic plans that prioritize goals and manage 
IRS's resources. In the current strategic plan, empowering and 
enabling all taxpayers to meet their tax obligations is 
identified as one of the IRS's six strategic goals.\98\
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    \97\ Sec. 7803(a).
    \98\ See Internal Revenue Service Strategic Plan FY2018--2022, 
Publication 3744, available at https://www.irs.gov/pub/irs-pdf/
p3744.pdf.
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                        Explanation of Provision

    The provision requires the IRS to provide the following 
information over the telephone, while taxpayers are on hold 
with the IRS's call center: information about common tax scams, 
direction to the taxpayer on where and how to report such 
activity, and tips on how to protect against identity theft and 
tax scams.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

7. Misdirected tax refund deposits (sec. 1407 of the Act and sec. 6402 
        of the Code)

                              Present Law

    The Internal Revenue Manual (``IRM'') defines an erroneous 
refund as the receipt of any money from the IRS to which the 
recipient is not entitled. The IRM provides procedures for IRS 
employees to identify and recover such erroneous refunds.\99\ 
In addition, the IRS website provides information to taxpayers 
who wish to return an erroneous refund that was issued to them, 
either by paper check or direct deposit.\100\
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    \99\ Internal Revenue Service, Internal Revenue Manual, Erroneous 
Refunds, Ch. 21.4, sec. 21.4.5.2 (October 9, 2015).
    \100\ Internal Revenue Service, Topic Number 161--Returning an 
Erroneous Refund--Paper Check or Direct Deposit, last updated January 
28, 2019, available at https://www.irs.gov/taxtopics/tc161.
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    The Code provides that any tax refunds which are 
erroneously made may be recovered by civil action brought in 
the name of the United States.\101\ Recovery of an erroneous 
refund by civil action is allowed if the action is begun within 
two years after the refund is made, or five years if it appears 
that any part of the refund was induced by fraud or 
misrepresentation.\102\
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    \101\ Sec. 7405.
    \102\ Sec. 6532(b).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision requires the Secretary to prescribe 
regulations within six months of the date of enactment of this 
Act to establish procedures to allow taxpayers to report 
instances in which a refund made by the Secretary by electronic 
funds transfer was not transferred to the account of the 
taxpayer, to coordinate with financial institutions to identify 
and recover these payments, and to deliver refunds to the 
correct accounts of taxpayers.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

                       TITLE II--21ST CENTURY IRS

           Subtitle A--Cybersecurity and Identity Protection

1. Public-private partnership to address identity theft tax refund 
        fraud (sec. 2001 of the Act)

                              Present Law

    The Security Summit, formed in 2015, is a partnership of 
the IRS, State tax agencies, and the private-sector tax 
industry to address tax refund fraud caused by identity theft. 
In 2016, the Security Summit group members identified and 
agreed to share more than 20 data components relating to 
Federal and State returns to improve fraud detection and 
prevention. For example, group members are sharing computer 
device identification data tied to the return's origin, as well 
as the improper or repetitive use of the numbers that identify 
the internet address from where the return originates.\103\ Tax 
software providers agreed to enhance identity requirements and 
strengthen validation procedures for new and returning 
customers to protect their accounts from theft. Along with the 
IRS, 40 State departments of revenue, and 21 tax industry 
members have signed onto a Memorandum of Understanding 
regarding roles, responsibilities and information sharing 
pathways among the IRS, States and industry.\104\ In 2017, the 
IRS reported there was a 40 percent decline in the number of 
taxpayers reporting to the IRS that they are victims of 
identity theft, attributing the decline to the initiatives of 
the Security Summit.\105\
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    \103\ Internal Revenue Service, 2016 Security Summit: Protecting 
Taxpayers from Identity Theft Tax Refund Fraud (June 2016) p. 3, 
available at https://www.irs.gov/pub/newsroom/
6_2016_security_summit_report.pdf.
    \104\ Ibid.
    \105\ Internal Revenue Service, IR-2018-21, Key IRS Identity Theft 
Indicators Continue Dramatic Decline in 2017; Security Summit Marks 
2017 Progress Against Identity Theft (February 8, 2018).
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                        Explanation of Provision

    The provision requires the Secretary (or the Secretary's 
delegate) to work collaboratively with the public and private 
sectors to protect taxpayers from identity theft tax refund 
fraud.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).
2. Recommendations of Electronic Tax Administration Advisory Committee 
        regarding identity theft refund fraud (sec. 2002 of the Act)

                              Present Law

    RRA98 authorized the Electronic Tax Administration Advisory 
Committee (``ETAAC''). ETAAC was intended to provide input to 
the IRS on electronic tax administration. ETAAC's 
responsibilities involve researching, analyzing, and making 
recommendations on a variety of electronic tax administration 
issues. Pursuant to RRA98, ETAAC reports to Congress annually 
concerning:
           IRS's progress on reaching its goal to 
        electronically receive 80 percent of tax and 
        information returns;
           Legislative changes assisting the IRS in 
        meeting the 80 percent goal;
           Status of the IRS's strategic plan for 
        electronic tax administration; and
           Effects of e-filing tax and information 
        returns on small businesses and the self-employed.
    ETAAC members come from State departments of revenue, large 
tax preparation companies, solo tax practitioners, tax software 
companies, financial services industry and low income and 
consumer advocacy groups.\106\
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    \106\ Electronic Tax Administration Advisory Committee, Publication 
3415, Annual Report to Congress (June 2018), Appendix B, available at 
https://www.irs.gov/pub/irs-pdf/p3415.pdf.
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                        Explanation of Provision

    In addition to the requirements under present law, the 
provision requires ETAAC to study (including through organized 
public forums) and make recommendations to the Secretary 
regarding methods to prevent identity theft and refund fraud.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).
3. Information sharing and analysis center (sec. 2003 of the Act and 
        sec. 6103 of the Code)

                              Present Law

Information Sharing and Analysis Center
    The Security Summit, formed in 2015, is a partnership of 
the IRS, State tax agencies, and the private-sector tax 
industry to address tax refund fraud caused by identity theft. 
In 2016, the Security Summit created an Identity Theft Tax 
Refund Fraud Information Sharing and Analysis Center 
(``ISAC'').\107\ The ISAC is a secure, web-based venue for 
States, industry and the IRS to share and exchange information. 
The ISAC enables the IRS and the States to work together with 
external third parties to serve as an early warning system for 
tax refund fraud, identity theft schemes, and cybersecurity 
issues. A third-party contractor hosts, maintains, and 
facilitates the web-based leads reporting and information 
sharing process for the ISAC.
---------------------------------------------------------------------------
    \107\ Internal Revenue Service, 2016 Security Summit: Protecting 
Taxpayers from Identity Theft Tax Refund Fraud (June 2016), available 
at https://www.irs.gov/pub/newsroom/
6_2016_security_summit_report.pdf.sec.
---------------------------------------------------------------------------

Confidentiality and disclosure of return information

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by the 
Code.\108\ The definition of return information is very broad 
and generally includes any information received or collected by 
the IRS with respect to liability under the Code of any person 
for any tax, penalty, interest or offense. The term ``return 
information'' includes, among other items:
---------------------------------------------------------------------------
    \108\ Sec. 6103(a).
---------------------------------------------------------------------------
        a taxpayer's identity, the nature, source, or amount of 
        his income, payments, receipts, deductions, exemptions, 
        credits, assets, liabilities, net worth, tax liability, 
        tax withheld, deficiencies, overassessments, or tax 
        payments, whether the taxpayer's return was, is being, 
        or will be examined or subject to other investigation 
        or processing, or any other data, received by, recorded 
        by, prepared by, furnished to, or collected by the 
        Secretary with respect to a return or with respect to 
        the determination of the existence, or possible 
        existence, of liability (or the amount thereof) of any 
        person under this title for any tax, penalty, interest, 
        fine, forfeiture, or other imposition, or offense. . . 
        .\109\
---------------------------------------------------------------------------
    \109\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
    There are several exceptions to the general rule of 
confidentiality. Such exceptions include provisions to permit 
disclosures to State tax administration officials, for IRS 
employees and officers to make investigative disclosures, and 
rules to allow one authorized party to disclose to another 
authorized party with the permission of the Commissioner.\110\
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    \110\ Sec. 6103(d) (disclosures to States), 6103(k)(6) 
(investigative disclosures) and the Treasury regulations under sec. 
6103(p)(2)(B).
---------------------------------------------------------------------------
    The IRS exchanges confidential information with State tax 
agencies under the authority of section 6103(d). The 
disclosures are made pursuant to written request from the head 
of the State tax agency, which designates the State tax 
officials who can receive the information. The information can 
only be used for State tax purposes, not for general State 
civil or criminal law enforcement. The State officials can 
redisclose the information to other officers and employees of 
the State tax agency, the agency's legal representative, or the 
agency's contractors (but only for State tax administration 
purposes). The IRS uses this authority to alert State tax 
administration officials to tax refund fraud schemes.
    IRS officers and employees may disclose return information 
to the extent that such disclosure is necessary in obtaining 
information, which is not otherwise reasonably available, with 
respect to the correct determination of tax, liability for tax, 
or the amount to be collected, or with respect to the 
enforcement of any other provision of Title 26. Such 
disclosures are to be made only in such situations and under 
such conditions as the Secretary may prescribe by 
regulation.\111\ This provision generally cannot be used to 
provide confidential return information on an industry-wide 
basis to alert return preparers to potential fraud schemes.
---------------------------------------------------------------------------
    \111\ Sec. 6103(k)(6); Treas. Reg. sec. 301.6103(k)(6)-1.
---------------------------------------------------------------------------
    Under the Treasury regulations, returns or return 
information that have been obtained by a Federal, State, or 
local agency, or its agents or contractors, in accordance with 
section 6103 (the first recipient) may be disclosed by the 
first recipient to another recipient authorized to receive such 
returns or return information under section 6103 (the second 
recipient).\112\ The disclosure must be approved by the 
Commissioner. The second recipient may receive only such 
returns or return information as authorized by the provision of 
section 6103 applicable to such recipient and only for a 
purpose authorized by and subject to any conditions imposed by 
section 6103, including applicable safeguards.
---------------------------------------------------------------------------
    \112\ Treas. Reg. sec. 301.6103(p)(2)(B)-1.
---------------------------------------------------------------------------

Preparer disclosure penalties

    The Code provides for a civil penalty for a tax return 
preparer who (i) discloses any information furnished to the 
preparer for, or in connection with, the preparation of such 
return or (ii) uses such information for any purpose other than 
to prepare or assist in preparing any such return.\113\ There 
is a corresponding criminal penalty under section 7216 of the 
Code for knowing or reckless conduct. The same exceptions from 
the imposition of the criminal penalty apply for purposes of 
the civil penalty. In general, the penalty does not apply for 
disclosures permitted by the Code or pursuant to an order of a 
court. Further, the penalty does not apply to the use of 
information in the preparation of, or in connection with the 
preparation of State and local tax returns and declarations of 
estimated tax of the person to whom the information relates. 
The Code also permits the Secretary to provide additional 
exceptions through regulations. The Secretary has prescribed by 
regulation the circumstances not involving tax preparation in 
which disclosure and use of a taxpayer's information by a tax 
return preparer is permitted.\114\
---------------------------------------------------------------------------
    \113\ Sec. 6713.
    \114\ Treas. Reg. secs. 301.7216-1, 301.7216-2 and 301.7216-3.
---------------------------------------------------------------------------

Penalties for the unauthorized disclosure or inspection of return 
        information

    The unauthorized disclosure of a return or return 
information is a felony punishable by fine of up to $5,000, 
five years imprisonment or both. Unauthorized inspection is a 
misdemeanor, punishable by a fine of up to $1,000, one year 
imprisonment, or both.

                        Explanation of Provision


ISAC participation and performance metrics

    The provision provides that the Secretary (or the 
Secretary's delegate) may participate in an information sharing 
and analysis center. The purpose of such participation is to 
centralize, standardize and enhance data compilation and 
analysis to facilitate sharing actionable data and information 
with respect to identity theft tax refund fraud. The provision 
requires the Secretary (or the Secretary's delegate) to develop 
metrics for measuring the success of such center in detecting 
and preventing identity theft tax refund fraud.

Disclosure of return information to certain ISAC participants

            In general
    The provision authorizes the disclosure of specified return 
information to ISAC participants who have entered into a 
written information sharing agreement with the Secretary. Under 
such procedures and subject to such conditions as the Secretary 
may prescribe, the Secretary may disclose specified return 
information to specified ISAC participants if such disclosure 
is in furtherance of effective Federal tax administration 
relating to the following: (1) the detection or prevention of 
identity theft tax refund fraud; (2) validation of taxpayer 
identity; (3) authentication of taxpayer returns; or (4) the 
detection or prevention of cybersecurity threats to the IRS.
            Terminology
              Specified ISAC participant
    The term ``specified ISAC participant'' means any person 
designated by the Secretary as having primary responsibility 
for a function performed by the ISAC and any return preparer 
(or other person) subject to section 7216 and who is a 
participant in the ISAC. A person is only a specified ISAC 
participant if such person has entered into a written 
information sharing agreement with the Secretary. The 
information sharing agreement must set forth the terms and 
conditions for the disclosure of information to such person, 
including the requirements imposed on such person for the 
protection and safeguarding of such information. The 
information sharing agreement must require that recipients of 
return information under the provision are required to 
affirmatively report to TIGTA any unauthorized access or 
disclosure of information and any breaches of any system 
holding the information.
              Specified return information
    For purposes of the provision, the term ``specified return 
information'' means, in the case of a return filed 
electronically, which is in connection with a case of potential 
identity theft tax refund fraud, return information related to 
the electronic filing characteristics of such return. Such 
characteristics include: internet protocol address, device 
identification, email domain name, speed of completion, method 
of authentication, refund method, and such other return 
information relating to the electronic filing characteristics 
of such return as the Secretary may identify. In addition, with 
respect to a return prepared by a tax return preparer in 
connection with a case of potential identity theft refund 
fraud, ``specified return information'' also includes 
identifying information with respect to such tax return 
preparer, including the preparer taxpayer identification number 
(``PTIN'') and electronic filer identification number 
(``EFIN'') of such preparer.
    With respect to a return for which identity theft refund 
fraud has been confirmed by the Secretary (pursuant to such 
procedures as the Secretary may provide), ``specified return 
information'' also includes the name and taxpayer 
identification number of the taxpayer as it appears on the 
return, and any bank account and routing information provided 
for making a refund in connection with such return.
    Finally, in the case of any cybersecurity threat to the 
IRS, information similar to that associated with cases of 
potential identity theft refund fraud (e.g., electronic 
characteristics and preparer identifying information) are 
considered specified return information with respect to such 
threat.
              Restriction on use of disclosed information
    Any return information received by a specified ISAC 
participant under the provision is to be used only for the 
purposes of and to the extent necessary in (1) performing the 
function the person is designated to perform with respect to 
the ISAC, (2) facilitating authorized disclosures to return 
preparers who are specified ISAC participants, and (3) 
facilitating disclosures authorized under section 6103(d) to 
State tax authorities who are participants in the ISAC. Return 
information received by specified ISAC participants who are 
return preparers is treated for purposes of section 7216 as 
information furnished to such person for, or in connection 
with, the preparation of a return of tax.
              Data protection, safeguards, penalties
    As noted above, to be a specified ISAC participant, the 
person must enter into an information sharing agreement that 
includes, among other responsibilities, requirements for the 
protection and safeguarding of information received under the 
provision. The return information disclosed under the provision 
is subject to such protections and safeguards as the Secretary 
may require by regulations, other guidance, or written 
information sharing agreement. Recipients of return information 
under the provision are subject to civil and criminal penalties 
for the unauthorized disclosure or inspection of returns or 
return information.

                             Effective Date

    The provision is generally effective on the date of 
enactment (July 1, 2019). The disclosure provisions are 
effective for disclosures made on or after the date of 
enactment.

4. Compliance by contractors with confidentiality safeguards (sec. 2004 
        of the Act and sec. 6103 of the Code) 

                              Present Law

    Section 6103 permits the disclosure of returns and return 
information to State agencies, as well as to other Federal 
agencies for specified purposes. Section 6103(p)(4) requires, 
as a condition of receiving returns and return information, 
that State agencies (and others) provide safeguards as 
prescribed by the Secretary of the Treasury by regulation that 
are necessary or appropriate to protect the confidentiality of 
returns or return information.\115\ It also requires that a 
report be furnished to the Secretary at such time and 
containing such information as prescribed by the Secretary 
regarding the procedures established and utilized for ensuring 
the confidentiality of returns and return information.\116\ 
After an administrative review, the Secretary may take such 
actions as are necessary to ensure these requirements are met, 
including the refusal to disclose returns and return 
information.\117\
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    \115\ Sec. 6103(p)(4)(D).
    \116\ Sec. 6103(p)(4)(E).
    \117\ Sec. 6103(p)(4) (flush language) and (7); Treas. Reg. sec. 
301.6103(p)(7)-1.
---------------------------------------------------------------------------
    Under present law, employees of a State tax agency may 
disclose returns and return information to contractors for tax 
administration purposes.\118\ These disclosures can be made 
only to the extent necessary to procure contractually 
equipment, other property, or services, related to tax 
administration.\119\ The contractors can make redisclosures of 
returns and return information to their employees as necessary 
to accomplish the tax administration purposes of the contract, 
but only to contractor personnel whose duties require 
disclosure.\120\ Treasury regulations prohibit redisclosure to 
anyone other than contractor personnel without the written 
approval of the IRS.\121\
---------------------------------------------------------------------------
    \118\ Sec. 6103(n) and Treas. Reg. sec. 301.6103(n)-1(a). ``Tax 
administration'' includes ``the administration, management, conduct, 
direction, and supervision of the execution and application of internal 
revenue laws or related statutes (or equivalent laws and statutes of a 
State).'' Sec. 6103(b)(4).
    \119\ Treas. Reg. sec. 301.6013(n)-1(a). Such services include the 
processing, storage, transmission or reproduction of such returns or 
return information, the programming, maintenance, repair, or testing of 
equipment or other property, or the providing of other services for 
purposes of tax administration.
    \120\ Treas. Reg. sec. 301.6103(n)-1(a) and (b). A disclosure is 
necessary if such procurement or the performance of such services 
cannot otherwise be reasonably, properly, or economically accomplished 
without such disclosure. Treas. Reg. sec. 301.6103(n)-1(b). The 
regulations limit the quantity of information to that needed to perform 
the contract.
    \121\ Treas. Reg. sec. 301.6103(n)-1(a).
---------------------------------------------------------------------------
    By regulation, all contracts must provide that the 
contractor will comply with all applicable restrictions and 
conditions for protecting confidentiality prescribed by 
regulation, published rules or procedures, or written 
communication to the contractor.\122\ Failure to comply with 
such restrictions or conditions may cause the IRS to terminate 
or suspend the duties under the contract or the disclosures of 
returns and return information to the contractor.\123\  In 
addition, the IRS can suspend disclosures to the State tax 
agency until the IRS determines that the conditions are or will 
be satisfied.\124\ The IRS may take such other actions as are 
deemed necessary to ensure that such conditions or requirements 
are or will be satisfied.\ 125\
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    \122\ Treas. Reg. sec. 301.6103(n)-1(e)(3).
    \123\ Treas. Reg. sec. 301.6103(n)-1(e)(4).
    \124\ Ibid.
    \125\ Ibid.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision requires that a State, local, or Federal 
agency conduct on-site reviews every three years of all its 
contractors or other agents receiving Federal returns and 
return information. If the duration of the contract or 
agreement is less than three years, a review is required at the 
mid-point of the contract. The purpose of the review is to 
assess the contractor's efforts to safeguard Federal returns 
and return information. This review is intended to cover secure 
storage, restricting access, computer security, and other 
safeguards deemed appropriate by the Secretary. Under the 
provision, the State, local, or Federal agency is required to 
submit a report of its findings to the IRS and certify annually 
that such contractors and other agents are in compliance with 
the requirements to safeguard the confidentiality of Federal 
returns and return information. The certification is required 
to include the name and address of each contractor or other 
agent with the agency, the duration of the contract, and a 
description of the contract or agreement with the State, local, 
or Federal agency.
    The provision does not apply to contracts for purposes of 
Federal tax administration. The provision does not alter or 
affect in any way the right of the IRS to conduct safeguard 
reviews of State, local, or Federal agency contractors or other 
agents. It also does not affect the right of the IRS to 
initially approve the safeguard language in the contract or 
agreement and the safeguards in place prior to any disclosures 
made in connection with such contracts or agreements.

                             Effective Date

    The provision is effective for disclosures made after 
December 31, 2022.

5. Identity protection personal identification numbers (sec. 2005 of 
        the Act)

                              Present Law

    In 2011, the IRS launched a pilot program to test the 
Identity Protection Personal Identification Number (``IP 
PIN''). The IP PIN is a unique six-digit identifier that 
authenticates a return filer as the legitimate taxpayer at the 
time the return is filed. The IP PIN allows taxpayers affected 
by identity theft to avoid delays in filing returns and 
receiving refunds. The IRS verifies the presence of the IP PIN 
at the time of filing, and rejects returns associated with a 
taxpayer's account where an IP PIN has been assigned but is 
missing. For the 2018 filing season, the IRS issued IP PINs to 
almost 3.5 million taxpayers who had identity theft markers on 
their tax accounts.\126\
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    \126\ Inspector General for Tax Administration, Department of the 
Treasury, Results of the 2018 Filing Season (TIGTA 2019-40-013), 
December 19, 2018, available at https://www.treasury.gov/tigta/
auditreports/2019reports/201940013fr.pdf (last visited October 23, 
2020).
---------------------------------------------------------------------------
    In January 2014, the IRS also started a limited pilot 
program under which taxpayers who obtained an electronic filing 
PIN through an IRS authentication website and live in the 
District of Columbia, Florida, or Georgia were provided an 
opportunity to obtain an IP PIN.\127\ These locations were 
selected because they had the highest per capita rate of tax-
related identity theft when the initiative was piloted. 
Residents in these places do not need to be identity theft 
victims to participate. Recently, the IRS expanded the program 
to allow taxpayer who filed their federal tax return last year 
as a resident of Michigan, California, Maryland, Nevada, 
Delaware, Illinois, or Rhode Island to be eligible for an IP 
PIN.\128\
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    \127\  Internal Revenue Service, FAQs about the Identity Protection 
Personal Identification Number (IP PIN), available at https://
www.irs.gov/identity-theft-fraud-scams/frequently-asked-questions-
about-the-identity-protection-personal-identification-number-ip-pin#q2 
(last visited October 23, 2020).
    \128\ In 2020, the IRS further expanded the IP PIN program to 10 
additional States (Arizona, Colorado, Connecticut, New Jersey, New 
Mexico, New York, North Carolina, Pennsylvania, Texas, and Washington). 
In 2020, 49,296 individual taxpayers obtained an IP PIN through the 
opt-in program which enables taxpayers who are concerned about becoming 
a victim of identity theft to proactively request an IP PIN. Inspector 
General for Tax Administration, Department of the Treasury, Taxpayer 
First Act: Implementation of Identity Theft Victim Assistance 
Provisions (TIGTA 2020-45-070), September 10, 2020, available at 
https://www.oversight.gov/sites/default/files/oig-reports/
202045070fr.pdf (last visited October 23, 2020).
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                        Explanation of Provision

    Within five years of the date of enactment, the Secretary 
or the Secretary's delegate is required to establish a program 
to issue an IP PIN to any individual residing in the United 
States who requests one to assist the Secretary in verifying 
the individual's true identity. For each calendar year 
beginning after the date of enactment, the Secretary is 
required to expand the issuance of IP PINs to individuals 
residing in such States as the Secretary deems appropriate, 
provided that the total number of States served by the program 
continues to increase.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

6. Single point of contact for tax-related identity theft victims (sec. 
        2006 of the Act)

                              Present Law

    Tax-related identity theft generally takes one of two 
forms: refund fraud or employment fraud. In refund fraud, a 
perpetrator may obtain a taxpayer's identifying information, 
submit an individual income tax return using a falsified Form 
W-2, Wage and Tax Statement, and fraudulently claim a refund. 
In employment fraud, the stolen identifying information is used 
in order to obtain employment. The returns then filed using the 
stolen identity may be based on the actual wages and 
withholding of the identity thief. Victims of the employment 
fraud include the individuals whose identifying information was 
stolen as well as the businesses whose systems may have been 
breached to obtain that personal information.
    The IRS describes its procedures for addressing both types 
of fraud in the Internal Revenue Manual.\129\ The IRS initially 
established the Identity Protection Specialized Unit (``IPSU'') 
to assist victims of identity theft, but taxpayers were also 
referred to other operating units of the IRS to deal with 
various aspects of their cases.\130\ Subsequently reorganized 
and renamed the Identity Theft Victim Assistance (``IDTVA'') 
organization, the unit is staffed with specially trained 
employees who are able to assess each case, identify issues, 
and assist the taxpayer in getting the correct return filed, 
refunds issued, etc.\131\ The IDTVA organization's work is 
coordinated by the IRS's Identity Protection Program through 
the auspices of an oversight office within the Wage and 
Investment Operating Division.\132\
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    \129\ Internal Revenue Service, Internal Revenue Manual, Identity 
Protection and Victim Assistance, Ch. 23, sec. 25.23.1 et seq. (October 
2018).
    \130\ Inspector General for Tax Administration, Department of the 
Treasury, Most Taxpayers Whose Identities Have Been Stolen to Commit 
Refund Fraud Do Not Receive Quality Customer Service (TIGTA 2012-40-
050), May 2012.
    \131\ A description of the services provided by the IDTVA 
organization is available at https://www.irs.gov/uac/Newsroom/IRS-
Identity-Theft-Victim-Assistance-How-It-Works (last visited October 23, 
2020).
    \132\ Internal Revenue Service, Internal Revenue Manual, Identity 
Protection and Victim Assistance, Ch. 23, sec. 25.23.1 et seq. (October 
2018).
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    If a victim thinks he or she is not being properly served 
by the IRS or the IDTVA organization, the victim may be 
eligible for assistance from the TAS. In such instances, the 
TAS will assign a case advocate to the taxpayer's account.

                        Explanation of Provision

    The provision requires the Secretary to establish 
procedures to implement a single point of contact for taxpayers 
adversely affected by identity theft. The single point of 
contact consists of a team of specially trained employees who 
can work across functions within the IRS to resolve problems 
for the victim and who are accountable for handling the case to 
completion. The makeup of the team may change as required to 
meet IRS's needs, but the procedures must ensure continuity of 
records and case history and may require notice to the taxpayer 
in appropriate instances.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

7. Notification of suspected identity theft (sec. 2007 of Act and new 
        sec. 7529 of the Code)

                              Present Law

    Section 6103 provides that returns and return information 
are confidential and may not be disclosed by the IRS, other 
Federal employees, State employees, and certain others having 
access to the information except as provided in the Code.\133\ 
The definition of ``return information'' is very broad and 
includes any information gathered by the IRS with respect to a 
person's liability or possible liability under the Code for any 
tax, penalty, interest, fine, forfeiture, or other imposition 
or offense.\134\ Thus, information gathered by the IRS in 
connection with an investigation of a person for a Title 26 
offense, such as fraud, is the return information of the person 
being investigated and is subject to the confidentiality 
restrictions of section 6103.
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    \133\ Sec. 6103(a).
    \134\ Sec. 6103(b)(2).
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    As an exception to section 6103's general rule of 
confidentiality, the Code permits a taxpayer to receive his or 
her own tax return, and also can receive his or her return 
information if the Secretary determines that such disclosure 
would not seriously impair Federal tax administration.\135\ 
With respect to fraudulent tax returns, if the victim's name 
and Social Security number (``SSN'') are listed as either the 
primary or secondary taxpayer on a fraudulent return, a victim 
of identity theft, or a person authorized to obtain the 
identity theft victim's tax information, may request a redacted 
copy (one with some information blacked-out) of a fraudulent 
return that was filed and accepted by the IRS using the 
identity theft victim's name and SSN.\136\
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    \135\ Sec. 6103(e)(1) and (7). The Code also permits the disclosure 
of returns and return information to such persons or persons the 
taxpayer may designate, if the request meets the requirements of the 
Treasury regulations and if it is determined that such disclosure would 
not seriously impair Federal tax administration. Sec. 6103(c).
    \136\ See Internal Revenue Service, Instructions for Requesting 
Copy of Fraudulent Returns (March 18, 2019), available at https://
www.irs.gov/individuals/instructions-for-requesting-copy- of-
fraudulent-returns.
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    In cases not involving violations of Title 26, under a 
Privacy Act Notice, TIGTA is allowed to disclose information to 
complainants, victims, or their representatives (defined to be 
a complainant's or victim's legal counsel or a Senator or 
Representative whose assistance the complainant or victim has 
solicited) concerning the status and/or results of an 
investigation or case arising from the matters of which they 
complained and/or of which they were a victim, including, once 
the investigative subject has exhausted all reasonable appeals, 
any action taken. Information concerning the status of the 
investigation or case is limited strictly to whether the 
investigation or case is open or closed. Information concerning 
the results of the investigation or case is limited strictly to 
whether the allegations made in the complaint were 
substantiated or were not substantiated and, if the subject has 
exhausted all reasonable appeals, any action taken.\137\
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    \137\ See 75 Fed. Reg. 20715 (April 20, 2010) (relating to TIGTA 
Office of Investigation files).
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                        Explanation of Provision

    If the Secretary determines that there has been or may have 
been an unauthorized use of the identity of any individual, the 
provision requires the Secretary to, without jeopardizing an 
investigation relating to tax administration, as soon as 
practicable, notify the individual of such determination, and: 
(1) provide instructions to the individual about filing a 
report with law enforcement; (2) identify any steps to be taken 
by the individual to allow investigating law enforcement 
officials to access the taxpayer's personal information; (3) 
provide information regarding actions the individual may take 
to protect themselves from harm relating to the unauthorized 
use; and (4) offer identity protection measures to the 
individual, such as the use of an identity protection personal 
identification number.
    At the time this information is provided (or, if not 
available at such time, as soon as practicable thereafter), the 
Secretary shall issue additional notifications to such 
individual (or such individual's designee) regarding: (1) 
whether an investigation has been initiated in regards to such 
unauthorized use; (2) whether the investigation substantiated 
an unauthorized use of the taxpayer's identity; and (3) whether 
any action has been taken with respect to the individual who 
committed the substantiated violation, including whether any 
referral has been made for criminal prosecution of such 
individual, and, to the extent such information is available, 
whether such person has been criminally charged by indictment 
or information.
    For purposes of this provision, the unauthorized use of the 
identity of an individual includes the unauthorized use of the 
identity of the individual to obtain employment (herein 
``employment-related identity theft''). In making a 
determination as to whether there may have been an unauthorized 
use of the identity of an individual to obtain employment, the 
Secretary shall review certain information returns, as well as 
information provided to the IRS by the SSA, which indicates 
that the SSN used does not correspond with either the name on 
the information return or the name on the tax return reporting 
the income. This provision requires the Secretary to examine 
the statements, information returns, and tax returns described 
in the provision for any evidence of employment-related 
identity theft, regardless of whether such statements or 
returns are submitted electronically or on paper. The provision 
amends the Social Security Act to require the Commissioner of 
Social Security to request information described in the 
provision not less than annually. The provision also requires 
that the IRS establish procedures to ensure that income 
reported in connection with the unauthorized use of a 
taxpayer's identity is not taken into account in determining 
any penalty for underreporting of income by the victim of 
identity theft.

                             Effective Date

    The provision applies to determinations made after the date 
that is six months after the date of enactment (July 1, 2019) 
of this Act.

8. Guidelines for stolen identity theft refund fraud cases (sec. 2008 
        of the Act)

                              Present Law

    Disparate elements in the tax laws and administration are 
implicated in identity theft. The tax aspects of identity theft 
can generally occur in one of two ways. In refund fraud, a 
perpetrator obtains someone else's identifying information and 
submits an individual income tax return using the name and 
Social Security number of the victim, with a falsified Form W-
2, Wage and Tax Statement, and fraudulently claims a refund. In 
other cases, the stolen identifying information is used in 
order to obtain employment; the returns then filed by the 
persons employed using the stolen identity may be based on the 
actual wages and withholding. Victims of the fraud include the 
individuals whose identifying information was stolen as well as 
the businesses whose systems may have been breached to obtain 
that personal information.
    The IRS describes its procedures for addressing both types 
of fraud in its manual. Its work is coordinated by the IRS's 
Identity Protection Program through the auspices of an 
oversight office.\138\
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    \138\ Internal Revenue Service, Internal Revenue Manual, Identity 
Protection and Victim Assistance, Ch. 23, sec. 25.23.1 et seq. (October 
2018).
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    In the 2014 Annual Report to Congress, the NTA included a 
review of fraudulent refund claims that included the theft of a 
taxpayer's identity.\139\ The review found that such cases 
involved multiple issues requiring coordination among several 
business units of the IRS and took approximately six months to 
resolve. Identity theft victims were required to deal with 
multiple persons within the IRS to resolve the issues, either 
because a case involved multiple business units or was 
transferred among multiple employees within a business unit.
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    \139\ National Taxpayer Advocate, ``Identity Theft Case Review 
Report: A Statistical Analysis of Identity Theft Cases Closed in June 
2014,'' 2014 Annual Report to Congress, available at http://
www.taxpayeradvocate.irs.gov/reports-to-congress/2014-annual-report-to-
congress/research-studies.
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                        Explanation of Provision

    The provision requires the Secretary (or the Secretary's 
delegate), in consultation with the NTA, to develop and 
implemet publicly available casework guidelines for the 
handling of refund fraud cases that would have the effect of 
reducing the administrative burdens on victims of identity 
theft. The guidelines may address both procedures and metrics 
for determining whether the procedures are successfully 
implemented. Among the issues to be considered are the 
standards for opening, assigning, reassigning or closing a 
case; the average length of time in which a case with an 
identity theft issue should be resolved; the average length of 
time a victim entitled to a tax refund may have to wait to 
receive such refund; and the number of IRS offices and 
employees with whom a victim should interact to resolve a case.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019), with guidelines to be implemented within one year of 
the date of enactment.

9. Increased penalty for improper disclosure or use of information by 
        preparers of returns (sec. 2009 of the Act and sec. 6713 of the 
        Code)

                              Present Law

    The Code provides both civil and criminal penalties for a 
tax return preparer who discloses any information furnished to 
the preparer for, or in connection with, the preparation of 
such return or uses such information for any purpose other than 
to prepare or assist in preparing, any such return. The civil 
penalty is $250 for each unauthorized disclosure or use up to 
$10,000 per calendar year.\140\ The corresponding criminal 
penalty under section 7216 provides that knowing or reckless 
conduct is a misdemeanor, subject to a fine up to $1,000, one 
year of imprisonment, or both, together with the costs of 
prosecution.
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    \140\ Sec. 6713.
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    Section 6103(b)(6) defines ``taxpayer identity'' as the 
name of the person with respect to whom a return is filed, his 
mailing address, his taxpayer identifying number or a 
combination thereof.

                        Explanation of Provision

    The provision increases the civil penalty on the 
unauthorized disclosure or use of information by tax return 
preparers from $250 to $1,000 for cases in which the disclosure 
or use is made in connection with a crime relating to the 
misappropriation of another person's taxpayer identity 
(``taxpayer identity theft''). The provision also increases the 
calendar year limitation from $10,000 to $50,000. The calendar 
year limitation is applied separately with respect to 
disclosures or uses made in connection with taxpayer identity 
theft.
    The provision also increases the criminal penalty for 
knowing or reckless conduct to $100,000 in the case of 
disclosures or uses in connection with taxpayer identity theft.

                             Effective Date

    The provision applies to disclosures or uses on or after 
the date of enactment (July 1, 2019).

           Subtitle B--Development of Information Technology


1. Management of IRS information technology (sec. 2101 of the Act and 
        sec. 7803 of the Code)

                              Present Law

    The Code describes duties and responsibilities for the 
Commissioner, the Chief Counsel, and the OTA of the IRS.\141\ 
It does not presently enumerate duties and responsibilities of 
an IRS Chief Information Officer (``IRS CIO'').
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    \141\ Sec. 7803.
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    Also, the Code does not explicitly provide for development 
and implementation of a multiyear strategic plan for the 
information technology needs of the IRS, and does not require 
verification and validation of major acquisitions of 
information technology by the IRS, including the Customer 
Account Data Engine 2 (``CADE 2'') and the Enterprise Case 
Management System (``ECM'').

                        Explanation of Provision

    Under the provision, the Commissioner is required to 
appoint an IRS CIO. The Commissioner and the Secretary will act 
through the IRS CIO with respect to the development, 
implementation, and maintenance of information technology for 
the IRS. The IRS CIO will be responsible for the development, 
implementation, and maintenance of information technology for 
the IRS, for ensuring that the information technology of the 
IRS is secure and integrated, for maintaining operational 
control of all information technology for the IRS, for acting 
as the principal advocate for the information technology needs 
of the IRS, and for consulting with the Chief Procurement 
Officer of the IRS to ensure that the information technology 
acquired for the IRS is consistent with the strategic plan, 
described below.
    The IRS CIO will also be responsible for developing and 
implementing a multiyear strategic plan for the information 
technology needs of the IRS. This plan should include 
performance measures of such technology and its implementation, 
and a plan for an integrated enterprise architecture of the 
information technology of the IRS. It should take into account 
the resources needed to accomplish such a plan, as well as 
planned major acquisitions of information technology by the 
IRS. The plan should also align with the needs and strategic 
plan of the IRS. The IRS CIO will review and update this plan 
at least once a year, taking into account the development of 
new information technology and the needs of the IRS.
    Under the provision, the Commissioner will develop plans 
for each phase of CADE 2, except phase one, and enter into a 
contract with an independent reviewer to verify and validate 
implementation plans developed for each phase, except phase 
one, and for the ECM. Furthermore, the Chief Procurement 
Officer of the IRS is directed to regularly consult with the 
IRS CIO and to identify all significant IRS information 
technology acquisitions in excess of $1,000,000, providing 
written notification to the IRS CIO of each such acquisition in 
advance of acquisition.
    The verification and validation of phase two of CADE 2 and 
the ECM are to be completed within one year after the date of 
enactment. The development of plans for all subsequent phases 
of CADE 2 should be completed within one year after the date of 
enactment and the verification and validation of each phase 
should be completed within one year after the date on which the 
plan for such phase is completed.

                             Effective Date

    The provision is generally effective on the date of 
enactment (July 1, 2019).

2. Internet platform for Form 1099 filings (sec. 2102 of the Act)

                              Present Law

    The Code does not presently require the IRS to make 
available an internet platform for the preparation or filing of 
information returns, such as the Form 1099 series.

                        Explanation of Provision

    The provision requires the Secretary of the Treasury (or 
his or her delegate) to make available, by January 1, 2023, an 
internet website or other electronic medium (the ``website''), 
with a user interface and functionality similar to the Business 
Services Online Suite of Services provided by the Social 
Security Administration.\142\ The website will allow persons, 
with access to resources and guidance provided by the IRS, to 
prepare, file, and distribute Forms 1099, and maintain a record 
of completed, filed, and distributed Forms 1099. The Secretary 
is required to ensure that the services provided on the website 
are not a replacement for services currently provided by the 
IRS and that the website comply with applicable security 
standards.
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    \142\ Available at http://www.ssa.gov/bso/bsowelcome.htm (last 
visited October 23, 2020).
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                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

3. Streamlined critical pay authority for information technology 
        positions (sec. 2103 of the Act and new sec. 7812 of the Code)

                              Present Law

    The IRS is currently subject to the personnel rules and 
procedures set forth in Title 5 of the United States Code. 
Under these rules, IRS employees generally are classified under 
the General Schedule or the Senior Executive Service.
    The RRA98 provided the IRS with certain personnel 
flexibilities, one of which was the streamlined critical pay 
authority.\143\ This authority was originally provided for 10 
years; it was extended on two occasions and ultimately expired 
on September 30, 2013.\144\
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    \143\ Pub. L. No. 105-206, 112 Stat. 712 (1998).
    \144\ In December 2007, the Consolidated Appropriations Act, 2008, 
Pub. L. No. 110-161, 121 Stat. 1844, (2008), extended the original 
deadline to July 23, 2013. Subsequently, the Consolidated and Further 
Continuing Appropriations Act 2013, Pub. L. No. 113-6, 127 Stat. 198 
(2013), extended the deadline to September 30, 2013.
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    Under RRA98, the Secretary of the Treasury, or his 
delegate, was authorized to fix the compensation of, and 
appoint up to 40 individuals to, designated critical technical 
and professional positions, provided that: (1) the positions 
require expertise of an extremely high level in a technical or 
professional field and are critical to the IRS; (2) exercise of 
the authority is necessary to recruit or retain an individual 
exceptionally well qualified for the position; (3) designation 
of such positions is approved by the Secretary; (4) the terms 
of such appointments are limited to no more than four years; 
(5) appointees to such positions are not IRS employees 
immediately prior to such appointment; and (6) the total annual 
compensation for any position (including performance bonuses) 
does not exceed the rate of pay of the Vice President of the 
United States.
    These appointments would not be subject to the otherwise 
applicable requirements under Title 5. All such appointments 
would be excluded from the collective bargaining unit and the 
appointments would not be subject to approval of the OMB or the 
Office of Personnel Management.
    Also, OMB was authorized to approve increases in the pay 
level for certain critical pay positions requested by the 
Secretary. These critical pay positions would be critical, 
technical and professional positions other than those 
designated under the streamlined authority described above. OMB 
was authorized to approve requests for critical position pay up 
to the highest total compensation that does not exceed the rate 
of pay of the Vice President of the United States.
    According to TIGTA, during the years in which it had 
streamlined critical pay authority, the IRS exercised that 
authority to fill 168 positions, the majority of which were in 
the Information Technology function of the IRS.\145\
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    \145\ TIGTA, The Internal Revenue Service's Use of its Streamlined 
Critical Pay Authority,'' Ref. No. 2015-IE-R001 (December 5, 2014), 
available at https://www.treasury.gov/tigta/iereports/2015reports/
2015ier001fr.pdf.
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                        Explanation of Provision

    The provision reinstates streamlined critical pay authority 
at IRS for positions in its information technology operations 
that are necessary to ensure the functionality of such 
operations. Such authority is reinstated during the period 
beginning on the date of the enactment of section 7812 of the 
Code, and ending on September 30, 2025, for appointees to such 
positions who were not IRS employees prior to the date of 
enactment of this Act.
    The provision reinstates the ability to provide payment for 
recruitment, retention, relocation incentives, and relocation 
expenses for positions in information technology operations at 
the IRS. Such authority is reinstated during the period 
beginning on the date of the enactment of section 7812 of the 
Code and ending on September 30, 2025.
    The provision also reinstates the ability to pay 
performance bonuses for senior executives who have program 
management responsibility over the information technology 
operations at the IRS. Such authority is reinstated during the 
period beginning on the date of the enactment of section 7812 
of the Code and ending on September 30, 2025.

                             Effective Date

    The provision is effective for payments made on or after 
the date of enactment (July 1, 2019).

 Subtitle C--Modernization of Consent-Based Income Verification System


1. Disclosure of taxpayer information for third-party income 
        verification (sec. 2201 of the Act and sec. 6103 of the Code)

                              Present Law


Disclosure of return information with consent of the taxpayer

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by Title 
26.\146\ Under section 6103(c), the IRS may disclose the return 
or return information of a taxpayer to a third party designated 
by the taxpayer in a request for or consent to such disclosure. 
Treasury regulations set forth the requirements for such 
consent.\147\ A request for consent to disclosure in written 
form must be a separate written document pertaining solely to 
the authorized disclosure. At the time the consent is signed 
and dated by the taxpayer, the written document must indicate: 
(1) the taxpayer's taxpayer identity information; (2) the 
identity of the person(s) to whom disclosure is to be made; (3) 
the type of return (or specified portion of the return) or 
return information (and the particular data) that is to be 
disclosed; and (4) the taxable year(s) covered by the return or 
return information. The regulations also require that the 
consent be submitted within 120 days of the date signed and 
dated by the taxpayer.
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    \146\ Sec. 6103(a).
    \147\ Treas. Reg. sec. 301.6103(c)-1. The regulations also specify 
the requirements for a nonwritten request for information or consent to 
disclosure to allow a third party to provide information or assistance 
relating to the taxpayer's return or to a transaction or other contact 
between the taxpayer and the IRS.
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Income Verification Express Service (IVES)

    Mortgage lenders and others in the financial community use 
the IRS's Income Verification Express Service (``IVES'') to 
confirm the income of a borrower during the processing of a 
loan application.\148\ Customers of IVES fax to a specified IRS 
office a signed Form 4506-T (``Request for Transcript of Tax 
Return'') or Form 4506T-EZ (``Short Form Request for Individual 
Tax Return Transcript''). The IRS provides three types of 
transcript information as part of the IVES program: (1) a 
return transcript; (2) Form W-2 (``Wage and Tax Statement'') 
transcript information; and (3) Form 1099 \149\ transcript 
information.
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    \148\ Internal Revenue Service, Income Verification Express 
Service, https://www.irs.gov/individuals/international-taxpayers/
income-verification-express-service (January 31, 2019).
    \149\ There are various Forms 1099: Form 1099-B, Proceeds From 
Broker or Barter Exchange Transactions; Form 1099-DIV, Dividends and 
Distributions; 1099-INT, Interest Income; 1099-MISC, Miscellaneous 
Income; 1099-OID, Original Issue Discount; or 1099-R, Distributions 
From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, 
Insurance Contracts, etc.
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    The IRS imposes a $2.00 fee for each transcript requested. 
The requested transcript information is delivered to a secure 
mailbox on the IRS's e-Services electronic platform, generally 
within two to three business days.
    To participate in the IVES program, companies must register 
and identify employees to act as agents to receive transcripts 
on the company's behalf.\150\ According to the Form 13803 
(``Application to Participate in the Income Verification 
Express Services (IVES) Program''), the IRS conducts a 
suitability check on the applicant and all the principals 
listed on the application to determine the applicant's 
suitability to be an IVES participant. After an applicant 
passes the suitability check and the IRS completes processing 
the application, the IRS notifies the applicant of acceptance 
to participate in the program.
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    \150\ Applicants also must choose one or more of the reasons listed 
on the form as the basis for using the IVES program: mortgage services, 
background check, credit check, banking service, licensing requirement, 
or other (must be specified).
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                        Explanation of Provision

    As noted above, the current IVES program requires that 
transcript information requests be submitted to the IRS by fax 
and then the transcripts are furnished electronically to a 
secure mailbox. After a specified time period, the provision 
requires the Secretary (or his delegate) to implement a 
qualified disclosure program that is fully automated, 
accomplished through the Internet, and through which 
disclosures are accomplished in as close to real-time as is 
practicable. The program is to comply with applicable security 
standards and guidelines. The term ``qualified disclosure'' 
means a disclosure made pursuant to section 6103(c) to a person 
seeking to verify the income of a taxpayer who is a borrower in 
the process of a loan application. ``Qualified disclosure'' is 
intended as a reference to the types of disclosures made under 
the current IVES program. The provision is not intended to 
exclude current uses of the IVES program.
    To cover the costs of implementing such a program, for a 
two-year period beginning six months after the date of 
enactment, the Secretary is authorized to assess and collect a 
fee for qualified disclosures at such rates as the Secretary 
determines are sufficient to cover the costs related to 
implementing the program, including the costs of any necessary 
infrastructure or technology. Such fees are in addition to any 
other fee assessed and collected for such disclosures. The 
amounts received from the fees assessed and collected are to be 
deposited in and credited to an account solely for the purpose 
of carrying out the activities associated with implementing the 
qualified disclosure program. Not later than one year after the 
close of the two-year period, the Secretary is required to 
implement the program.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

2. Limit redisclosures and uses of consent-based disclosures of tax 
        return information (sec. 2202 of the Act and sec. 6103 of the 
        Code)

                              Present Law


In general

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by Title 
26.\151\ Under section 6103(c), a taxpayer may designate in a 
request or consent to the disclosure by the IRS of his or her 
return or return information to a third party. Treasury 
regulations set forth the requirements for such consent.\152\ 
The request or consent may be in written or non-written form. 
The Treasury regulations require that the taxpayer sign and 
date a written consent. At the time the consent is signed and 
dated by the taxpayer, the written document must indicate (1) 
the taxpayer's identity information; (2) the identity of the 
person to whom disclosure is to be made; (3) the type of return 
(or specified portion of the return) or return information (and 
the particular data) that is to be disclosed; and (4) the 
taxable year covered by the return or return information. The 
regulations also require that the consent be submitted within 
120 days of the date signed and dated by the taxpayer. Present 
law does not require that a recipient receiving returns or 
return information by consent maintain the confidentiality of 
the information received. Under present law, the recipient is 
also free to use the information for purposes other than for 
which the information was solicited from the taxpayer.
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    \151\ Sec. 6103(a).
    \152\ Treas. Reg. sec. 301.6103(c)-1.
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Criminal penalties

    Under section 7206, it is a felony to willfully make and 
subscribe any document that contains or is verified by a 
written declaration that it is made under penalties of perjury 
and which such person does not believe to be true and correct 
as to every material matter.\153\ Upon conviction, such person 
may be fined up to $100,000 ($500,000 in the case of a 
corporation) or imprisoned up to three years, or both, together 
with the costs of prosecution.
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    \153\ Sec. 7206(1).
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    Under section 7213, criminal penalties apply to: (1) 
willful unauthorized disclosures of returns and return 
information by Federal and State employees and other persons; 
(2) the offering of any item of material value in exchange for 
a return or return information and the receipt of such 
information pursuant to such an offer; and (3) the unauthorized 
disclosure of return information received by certain 
shareholders under the material interest provision of section 
6103. Under section 7213, a court can impose a fine up to 
$5,000, up to five years imprisonment, or both, together with 
the costs of prosecution. If the offense is committed by a 
Federal employee or officer, the employee or officer will be 
discharged from office upon conviction.
    Under section 7213A, the willful and unauthorized 
inspection of returns and return information can subject 
Federal and State employees and others to a maximum fine of 
$1,000, up to a year in prison, or both, in addition to the 
costs of prosecution. If the offense is committed by a Federal 
employee or officer, the employee or officer will be discharged 
from office upon conviction.

Civil damage remedies for unauthorized disclosure or inspection

    If a Federal employee makes an unauthorized disclosure or 
inspection, a taxpayer can bring suit against the United States 
in Federal district court. If a person other than a Federal 
employee makes an unauthorized disclosure or inspection, suit 
may be brought directly against such person. No liability 
results from a disclosure based on a good faith, but erroneous, 
interpretation of section 6103. A disclosure or inspection made 
at the request of the taxpayer will also relieve liability.
    Upon a finding of liability, a taxpayer can recover the 
greater of $1,000 per act of unauthorized disclosure (or 
inspection), or the sum of actual damages plus, in the case of 
an inspection or disclosure that was willful or the result of 
gross negligence, punitive damages. The taxpayer may also 
recover the costs of the action and, if found to be a 
prevailing party, reasonable attorney fees.
    The taxpayer has two years from the date of the discovery 
of the unauthorized inspection or disclosure to bring suit. The 
IRS is required to notify a taxpayer of an unauthorized 
inspection or disclosure as soon as practicable after any 
person is criminally charged by indictment or information for 
unlawful inspection or disclosure.

                        Explanation of Provision

    Under the provision, persons designated by the taxpayer to 
receive return information shall not use the information for 
any purpose other than the express purpose for which consent 
was granted and shall not disclose return information to any 
other person without the express permission of, or request by, 
the taxpayer.

                             Effective Date

    The provision is effective for disclosures made six months 
after the date of enactment (July 1, 2019).

             Subtitle D--Expanded Use of Electronic Systems


1. Electronic filing of returns (sec. 2301 of the Act and sec. 6011 of 
        the Code)

                              Present Law

    RRA98 states a Congressional policy to promote the 
paperless filing of Federal tax returns. Section 2001(a) of 
RRA98 set a goal for the IRS to have at least 80 percent of all 
Federal tax and information returns filed electronically by 
2007.\154\ Section 2001(b) of RRA98 requires the IRS to 
establish a 10-year strategic plan to eliminate barriers to 
electronic filing.
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    \154\ The Electronic Tax Administration Advisory Committee, the 
body charged with oversight of IRS progress in reaching that goal, 
projected an overall e-filing rate of 80.1 percent in the 2017 filing 
season based on all Federal returns. See Electronic Tax Administration 
Advisory Committee, Annual Report to Congress, June 2017, IRS Pub. 
3415, page 5.
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    Present law requires the Secretary to issue regulations 
regarding electronic filing and specifies certain limitations 
on the rules that may be included in such regulations.\155\ The 
statute requires that Federal income tax returns prepared by 
specified tax return preparers be filed electronically,\156\ 
and further requires that all partnerships with more than 100 
partners be required to file electronically. For taxpayers 
other than partnerships, the statute prohibits any requirement 
that persons who file fewer than 250 returns during a calendar 
year file electronically. With respect to individuals, estates, 
and trusts, the Secretary may permit, but generally cannot 
require, electronic filing of income tax returns. In crafting 
any of these required regulations, the Secretary must take into 
account the ability of taxpayers to comply at a reasonable 
cost.
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    \155\ Sec. 6011(e). Sec. 6011(e) uses the term ``magnetic media'' 
and Treasury regulation section 301.6011-2 defines this term to include 
electronic filing.
    \156\ Section 6011(e)(3)(B) defines a ``specified tax return 
preparer'' as any return preparer who reasonably expects to file more 
than 10 individual income tax returns during a calendar year.
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    The regulations require corporations that have assets of 
$10 million or more and file at least 250 returns during a 
calendar year to file electronically their Form 1120/1120S 
income tax returns (U.S. Corporation Income Tax Return/U.S. 
Income Tax Return for an S Corporation) and Form 990 
information returns (Return of Organization Exempt from Income 
Tax) for tax years ending on or after December 31, 2006.\157\ 
In determining whether the 250 returns threshold is met, income 
tax, excise tax, employment tax and information returns filed 
within one calendar year are counted.
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    \157\ Treas. Reg. secs. 301.6011-5 and 301.6033-4.
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    The Code provides that failure to comply with information 
reporting requirements is subject to a failure to file correct 
information return penalty but provides a de minimis exception 
for failures that are attributable solely to noncompliance with 
the electronic filing requirements. Under the de minimis 
exception, failure to satisfy the electronic filing 
requirements results in imposition of a failure to file 
penalty\ 158\ if a failure arises with respect to: (1) more 
than 250 information returns; (2) more than 100 information 
returns in the case of a partnership having more than 100 
partners; or (3) a return described in Section 6011(e)(4).\159\ 
Accordingly, there is a penalty waiver on the electronic filing 
requirements on the first 250 information returns or in the 
case of the first 100 information returns in partnerships with 
more than 100 partners.
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    \158\ Sec. 6721.
    \159\ Sec. 6724.
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                        Explanation of Provision

    The provision relaxes the current restrictions on the 
authority of the Secretary to mandate electronic filing based 
on the number of returns required to be filed by a taxpayer in 
a given taxable period. First, it phases in a reduction in the 
threshold requirement that taxpayers have an obligation to file 
a specified number of returns and statements during a calendar 
year in order to be subject to a regulatory mandate. That 
threshold is reduced from 250 to 100 in the case of calendar 
year 2021, and from 100 to 10 in the case of calendar years 
after 2021. Notwithstanding these thresholds, in the case of a 
partnership the applicable number is 200 in the case of 
calendar year 2018, 150 in the case of calendar year 2019, 100 
in the case of calendar year 2020, and 50 in the case of 
calendar year 2021.\160\
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    \160\ There is no change to the requirement that partnerships 
having more than 100 partners must file electronic returns 
notwithstanding these thresholds.
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    The provision authorizes the Secretary to waive the 
requirement that a Federal income tax return prepared by a 
specified tax return preparer be filed electronically if a tax 
return preparer applies for a waiver and demonstrates that the 
inability to file electronically is due to lack of internet 
availability (other than dial-up or satellite service) in the 
geographic location in which the return preparation business is 
operated.
    The provision modifies the special rule for failure to meet 
magnetic media requirements to conform to the changes made 
above.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

2. Uniform standards for the use of electronic signatures for 
        disclosure authorizations to, and other authorizations of, 
        practitioners (sec. 2302 of the Act and sec. 6061 of the Code)

                              Present Law


Disclosure of return information by consent of the taxpayer

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by the 
Code.\161\ Under section 6103(c), the IRS may disclose the 
return or return information of a taxpayer to a third party 
designated by the taxpayer in a request for or consent to such 
disclosure. Treasury regulations set forth the requirements for 
such consent.\162\ A request for consent to disclosure in 
written form must be a separate written document pertaining 
solely to the authorized disclosure. At the time the consent is 
signed and dated by the taxpayer, the written document must 
indicate (1) the taxpayer's taxpayer identity information; (2) 
the identity of the person(s) to whom disclosure is to be made; 
and (3) sufficient facts underlying the request for information 
or assistance to enable the IRS to determine the nature and 
extent of the information or assistance requested and the 
return or return information to be disclosed in order to comply 
with the taxpayer's request. The regulations also require that 
the consent be submitted within 120 days of the date signed and 
dated by the taxpayer.
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    \161\ Sec. 6103(a).
    \162\ Treas. Reg. sec. 301.6103(c)-1.
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Electronic signatures

    The Secretary is required to develop procedures for the 
acceptance of signatures in digital and other electronic 
form.\163\ Until such time as such procedures are in place, the 
Secretary may waive the requirement of a signature for, or 
provide for alternative methods of signing or subscribing, a 
particular type or class of return, declaration, statement or 
other document required or permitted to be made or written 
under the internal revenue laws and regulations. The Secretary 
is required to publish guidance as appropriate to define and 
implement any waiver of the signature requirements or 
alternative method of signing or subscribing. The IRS currently 
accepts electronic signatures for some applications, such as 
the Income Verification Express Services (``IVES'') 
program.\164\
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    \163\ Sec. 6061.
    \164\ Internal Revenue Service, Income Verification Express 
Services (IVES) Electronic Signature Requirements (August 2, 2018), 
available at https://www.irs.gov/individuals/international-taxpayers/
income-verification-express-services-ives-electronic-signature-
requirements.
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    Section 12.101 of the Federal Acquisition Regulations 
require all Federal agencies to consider commercially available 
items in the acquisition process.\165\
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    \ 165\ Specifically, section 12.101 of the Federal Acquisition 
Regulations provides that agencies: (1) conduct market research to 
determine whether commercial items or nondevelopmental items are 
available that could meet the agency's requirements; (2) acquire 
commercial items or nondevelopmental items when they are available to 
meet the needs of the agency; and (3) require prime contractors and 
subcontractors at all tiers to incorporate, to the maximum extent 
practicable, commercial items or nondevelopmental items as components 
of items supplied to the agency.
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IRS Forms

    Form 2848 (Power of Attorney and Declaration of 
Representative) is used to authorize an individual to represent 
the taxpayer before the IRS. The individual must be eligible to 
practice before the IRS.
    Form 8821 (Tax Information Authorization) authorizes an 
individual or organization to request and inspect a taxpayer's 
confidential tax return information. Form 4506-T (Request for 
Transcript of Tax Return) authorizes an individual or 
organization to request and inspect transcripts of a taxpayer's 
confidential return information. These forms do not authorize 
an individual to represent the taxpayer before the IRS.

                        Explanation of Provision

    For a request under section 6103(c) for disclosure of a 
taxpayer's return or return information to a practitioner, or 
for any power of attorney granted by a taxpayer to a 
practitioner, the provision requires the Secretary to publish 
guidance to establish uniform standards and procedures for the 
acceptance of taxpayers' signatures appearing in electronic 
form with respect to such requests or power of attorney. Such 
guidance must be published within six months of the date of 
enactment. For purposes of the provision, a ``practitioner'' 
means an individual in good standing who is regulated under 31 
U.S.C. sec. 330 (relating to practice before the Department of 
the Treasury).

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

3. Payment of taxes by debit and credit cards (sec. 2303 of the Act and 
        sec. 6311 of the Code)

                              Present Law

    The Code generally permits the payment of taxes by 
commercially acceptable means such as credit cards.\166\ The 
Secretary may not pay any fee or provide any other 
consideration in connection with the use of credit, debit, or 
charge cards for the payment of income taxes.\167\
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    \166\ Sec. 6311.
    \167\ Sec. 6311(d)(2).
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                        Explanation of Provision

    The provision removes the prohibition on paying any fees or 
providing any other consideration in connection with the use of 
credit, debit, or charge cards for the payment of income taxes 
to the extent taxpayers paying in this manner are fully 
responsible for any fees or consideration incurred. The 
provision requires the Secretary to seek to minimize the amount 
of any fee or other consideration that the Secretary pays under 
any contract.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

4. Authentication of users of electronic services accounts (sec. 2304 
        of the Act)

                              Present Law

    The IRS has developed a suite of web-based products, called 
e-Services Online Tools for Tax Professionals, which provides 
multiple electronic products and services to tax professionals.

                        Explanation of Provision

    The provision requires the IRS to verify the identity of 
any individual opening an e-Services account before such 
individual is able to use such services.

                             Effective Date

    The provision is effective not later than 180 days after 
the date of enactment (July 1, 2019).

                      Subtitle E--Other Provisions


1. Repeal of provision regarding certain tax compliance procedures and 
        reports (sec. 2401 of the Act)

                              Present Law

    Under present law, taxpayers generally are required to 
calculate their own tax liabilities and submit returns showing 
their calculations.\168\ Section 2004 of RRA98 requires the 
Secretary of the Treasury or his delegate (``Secretary'') to 
study the feasibility of, and develop procedures for, the 
implementation of a return-free tax system for appropriate 
individuals for taxable years beginning after 2007.\169\ The 
Secretary is required annually to report to the tax-writing 
committees on the progress of the development of such system. 
The Secretary was required to make the first report on the 
development of the return-free filing system to the tax-writing 
committees by June 30, 2000.
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    \168\ Sec. 6012.
    \169\ Pub. L. No. 105-206, sec. 2004.
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                        Explanation of Provision

    The provision repeals section 2004 of RRA98.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

2. Comprehensive training strategy (sec. 2402 of the Act)

                              Present Law

    The Code provides that the Commissioner has such duties and 
powers as prescribed by the Secretary.\170\ Unless otherwise 
specified by the Secretary, such duties and powers include the 
power to administer, manage, conduct, direct, and supervise the 
execution and application of the internal revenue laws or 
related statutes. In executing these duties, the Commissioner 
depends upon strategic plans that prioritize goals and manage 
its resources. In the current strategic plan, cultivating a 
well-equipped, diverse, flexible and engaged workforce is 
identified as one of the IRS's six strategic goals.\171\
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    \170\ Sec. 7803(a).
    \171\ See Internal Revenue Service Strategic Plan FY2018-2022, 
Publication 3744, available at https://www.irs.gov/pub/irs-pdf/
p3744.pdf.
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    Within the IRS, the OTA is expected to represent taxpayer 
interests independently in disputes with the IRS. The OTA has 
four principal functions: (1) to assist taxpayers in resolving 
problems with the IRS; (2) to identify areas in which taxpayers 
have problems in dealing with the IRS; (3) to propose changes 
in the administrative practices of the IRS to mitigate problems 
in areas in which taxpayers have issues in dealing with the 
IRS; and (4) to identify potential legislative changes which 
may be appropriate to mitigate such problems.\172\ The NTA 
supervises the OTA. The NTA reports directly to the 
Commissioner.
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    \172\ Sec. 7803(c).
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                        Explanation of Provision

    The provision requires that the Commissioner submit to 
Congress a written report providing a comprehensive training 
strategy for employees of the IRS. The report is to be 
submitted not later than one year after the date of enactment 
of this Act, and is to include: a plan to streamline current 
training processes, including an assessment of the utility of 
further consolidating internal training programs, technology, 
and funding; a plan to develop annual training regarding 
taxpayer rights, including the role of the OTA, for employees 
that interface with taxpayers and the direct managers of such 
employees; a plan to improve technology-based training; 
proposals to focus employee training on early, fair, and 
efficient resolution of taxpayer disputes for employees that 
interface with taxpayers and the direct managers of such 
employees, as well as ensure consistency of skill development 
and employee evaluation throughout the IRS; and a thorough 
assessment of the funding necessary to implement such a 
strategy.

                             Effective Date

    The provision is effective on the date of enactment (July 
1, 2019).

                  TITLE III--MISCELLANEOUS PROVISIONS


Subtitle A--Reform of Laws Governing Internal Revenue Service Employees


1. Prohibition on rehiring any employee of the Internal Revenue Service 
        who was involuntarily separated from service for misconduct 
        (sec. 3001 of the Act and sec. 7804 of the Code)

                              Present Law

    Employees of the IRS are subject to rules governing Federal 
employment generally, as well as rules of conduct specific to 
Department of the Treasury and the IRS.\173\ Standards of 
Ethical Conduct for Employees of the Executive Branch are 
supplemented by additional rules applicable to employees of the 
Department of the Treasury.\174\
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    \173\ Part III of Title 5 of the United States Code prescribes 
rules for Federal employment, including employment, retention, and 
management and employee issues.
    \174\ Standards of Ethical Conduct for Employees of the Executive 
Branch, 5 CFR Part 2635; Supplemental Standards of Ethical Conduct for 
Employees of the Department of the Treasury, 5 CFR Part 3101; 
Department of the Treasury Employee Rules of Conduct, 31 CFR Part 0.
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    The Code provides that the Commissioner has such duties and 
powers as prescribed by the Secretary.\175\ Unless otherwise 
specified by the Secretary, such duties and powers include the 
power to administer, manage, conduct, direct, and supervise the 
execution and application of the internal revenue laws or 
related statutes and tax conventions to which the United States 
is a party, and to recommend to the President a candidate for 
Chief Counsel (and recommend any removal of the Chief Counsel). 
Unless otherwise specified by the Secretary, the Commissioner 
is authorized to employ such persons as the Commissioner deems 
proper for the administration and enforcement of the internal 
revenue laws and is required to issue all necessary directions, 
instructions, orders, and rules applicable to such 
persons,\176\ including determination and designation of posts 
of duty.
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    \175\ Sec. 7803(a).
    \176\ Sec. 7804.
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    RRA98 requires the IRS to terminate an employee for certain 
proven violations committed by the employee in connection with 
the performance of official duties.\177\ The violations 
include: (1) willful failure to obtain the required approval 
signatures on documents authorizing the seizure of a taxpayer's 
home, personal belongings, or business assets; (2) providing a 
false statement under oath material to a matter involving a 
taxpayer; (3) with respect to a taxpayer, taxpayer 
representative, or other IRS employee, the violation of any 
right under the U.S. Constitution, or any civil right 
established under Titles VI or VII of the Civil Rights Act of 
1964, Title IX of the Educational Amendments of 1972, the Age 
Discrimination in Employment Act of 1967, the Age 
Discrimination Act of 1975, sections 501 or 504 of the 
Rehabilitation Act of 1973 and Title I of the Americans with 
Disabilities Act of 1990; (4) falsifying or destroying 
documents to conceal mistakes made by any employee with respect 
to a matter involving a taxpayer or a taxpayer representative; 
(5) assault or battery on a taxpayer or other IRS employee, but 
only if there is a criminal conviction or a final judgment by a 
court in a civil case, with respect to the assault or battery; 
(6) violations of the Code, Treasury Regulations, or policies 
of the IRS (including the Internal Revenue Manual) for the 
purpose of retaliating or harassing a taxpayer or other IRS 
employee; (7) willful misuse of section 6103 for the purpose of 
concealing data from a Congressional inquiry; (8) willful 
failure to file any tax return required under the Code on or 
before the due date (including extensions) unless failure is 
due to reasonable cause; (9) willful understatement of Federal 
tax liability, unless such understatement is due to reasonable 
cause; and (10) threatening to audit a taxpayer for the purpose 
of extracting personal gain or benefit.
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    \177\ Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
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    RRA98 provides non-delegable authority to the Commissioner 
to determine that mitigating factors exist, that, in the 
Commissioner's sole discretion, mitigate against terminating 
the employee. The Act also provides that the Commissioner, in 
his sole discretion, may establish a procedure to determine 
whether an individual should be referred for such a 
determination by the Commissioner. TIGTA is required to track 
employee terminations and terminations that would have occurred 
had the Commissioner not determined that there were mitigation 
factors and include such information in TIGTA's annual report 
to Congress.

                        Explanation of Provision

    Under the provision, a former employee of the IRS who was 
involuntarily separated due to misconduct under subchapter A of 
Chapter 80 of the Code, under chapters 43 or 75 of Title 5 of 
the United States Code, or whose employment was terminated 
under section 1203 of RRA98, cannot be reemployed by the IRS.

                             Effective Date

    The provision is effective with respect to the hiring of 
employees after the date of enactment (July 1, 2019).

2. Notification of unauthorized inspection or disclosure of returns and 
        return information (sec. 3002 of the Act and sec. 7431 of the 
        Code)

                              Present Law

    Section 7431 provides for civil damages resulting from an 
unauthorized disclosure of inspection of return information. If 
a Federal employee makes an unauthorized disclosure or 
inspection, a taxpayer can bring suit against the United States 
in Federal district court. If a person other than a Federal 
employee makes an unauthorized disclosure or inspection, suit 
may be brought directly against such person. No liability 
results from a disclosure based on a good faith, but erroneous, 
interpretation of section 6103. A disclosure or inspection made 
at the request of the taxpayer will also relieve liability.
    Upon a finding of liability, a taxpayer can recover the 
greater of $1,000 per act of unauthorized disclosure (or 
inspection), or the sum of actual damages plus, in the case of 
an inspection or disclosure that was willful or the result of 
gross negligence, punitive damages. The taxpayer may also 
recover the costs of the action and, if found to be a 
prevailing party, reasonable attorney fees.
    The taxpayer has two years from the date of the discovery 
of the unauthorized inspection or disclosure to bring suit. The 
IRS is required to notify a taxpayer of an unauthorized 
inspection or disclosure as soon as practicable after any 
person is criminally charged by indictment or information for 
unlawful inspection or disclosure.

                        Explanation of Provision

    The provision requires the Secretary to notify a taxpayer 
if the IRS or a Federal or State agency (upon notice to the 
Secretary by such Federal or State agency) proposes an 
administrative determination as to disciplinary or adverse 
action against an employee arising from the employee's 
unauthorized inspection or disclosure of the taxpayer's return 
or return information. The provision requires the notice to 
include the date of the unauthorized inspection or disclosure 
and the rights of the taxpayer as a result of such 
administrative determination.

                             Effective Date

    The provision is effective for determinations proposed 
after 180 days after the date of enactment (180 days after July 
1, 2019).

        Subtitle B--Provisions Relating to Exempt Organizations


1. Mandatory e-filing by exempt organizations (sec. 3101 of the Act and 
        secs. 6033 and 6104 of the Code)

                              Present Law


In general

    RRA98 states a Congressional policy to promote the 
paperless filing of Federal tax returns. Section 2001(a) of 
RRA98 set a goal for the IRS to have at least 80 percent of all 
Federal tax and information returns filed electronically by 
2007.\178\ Section 2001(b) of RRA98 requires the IRS to 
establish a 10-year strategic plan to eliminate barriers to 
electronic filing.
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    \178\ The Electronic Tax Administration Advisory Committee, the 
body charged with oversight of IRS progress in reaching that goal 
projected an overall e-filing rate of 80.1 percent in the 2017 filing 
season based on all Federal returns. See Electronic Tax Administration 
Advisory Committee, Annual Report to Congress, June 2017, IRS Pub. 
3415, page 5.
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    Present law requires the Secretary to issue regulations 
regarding electronic filing and specifies certain limitations 
on the rules that may be included in such regulations.\179\ The 
statute requires that Federal income tax returns prepared by 
specified tax return preparers be filed electronically,\180\ 
and that all partnerships with more than 100 partners file 
electronically. For taxpayers other than partnerships, the 
statute prohibits any requirement that persons who file fewer 
than 250 returns during a calendar year file electronically. 
With respect to individuals, estates, and trusts, the Secretary 
may permit, but generally cannot require, electronic filing of 
income tax returns. In crafting any of these required 
regulations, the Secretary must take into account the ability 
of taxpayers to comply at reasonable cost.
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    \179\ Sec. 6011(e). Section 6011(e) uses the term ``magnetic 
media,'' which the Treasury regulation section 301.6011-2 defines to 
include electronic filing.
    \180\ Section 6011(e)(3)(B) defines a ``specified tax return 
preparer'' as any return preparer who reasonably expects to file more 
than 10 individual income tax returns during a calendar year.
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    The regulations require corporations that have assets of 
$10 million or more and file at least 250 returns during a 
calendar year to file electronically their Form 1120/1120S 
income tax returns and Form 990 information returns for tax 
years ending on or after December 31, 2006.\181\ In determining 
whether the 250 return threshold is met, income tax, 
information, excise tax, and employment tax returns filed 
within one calendar year are counted.
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    \181\ Treas. Reg. secs. 301.6011-5 and 301.6033-4.
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Tax-exempt organizations

    Most tax-exempt organizations are required to file an 
annual information return or notice in the Form 990 series. 
Since 2007, the smallest organizations--generally, those with 
gross receipts of less than $50,000--may provide an abbreviated 
notice on Form 990-N, sometimes referred to as an ``e-
postcard.'' Which form to file depends on the annual receipts, 
value of assets, and types of activities of the exempt 
organization. The public can view electronic images of Forms 
990, 990-EZ, and 990-PF online, or purchase hard or soft copies 
from the IRS.\182\
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    \182\ See https://www.irs.gov/charities-non-profits/copies-of-eo-
returns-available, last updated September 23, 2020.
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    In general, only the largest and smallest tax-exempt 
organizations are required to electronically file their annual 
information returns. First, as indicated above, tax-exempt 
corporations that have assets of $10 million or more and that 
file at least 250 returns during a calendar year must 
electronically file their Form 990 information returns. Private 
foundations and charitable trusts, regardless of asset size, 
that file at least 250 returns during a calendar year are 
required to file electronically their Form 990-PF information 
returns.\183\ Finally, organizations that file Form 990-N (the 
e-postcard) also must electronically file.\184\
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    \183\ Taxpayers can request waivers of the electronic filing 
requirement if they cannot meet that requirement due to technological 
constraints, or if compliance with the requirement would result in 
undue financial burden on the taxpayer. Treas. Sec. 301.60330-4.
    \184\ See Form 990-N, ``Electronic Notice for Tax-exempt 
Organizations Not Required to File a Form 990 or 990-EZ.''
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                        Explanation of Provision

    The provision extends the requirement to e-file to all tax-
exempt organizations required to file statements or returns in 
the Form 990 series (including Form 990-T (``Exempt 
Organization Business Income Tax Return'')) or Form 8872 
(``Political Organization Report of Contributions and 
Expenditures''). The provision also requires that the IRS make 
the information provided on the forms available to the public 
(consistent with the disclosure rules of section 6104 of the 
Code) in a machine-readable format as soon as practicable.

                             Effective Date

    The provision generally is effective for taxable years 
beginning after the date of enactment (July 1, 2019). 
Transition relief is provided for certain organizations. First, 
for certain small organizations or other organizations for 
which the Secretary determines that application of the e-filing 
requirement would constitute an undue hardship in the absence 
of additional transitional time, the requirement to file 
electronically must be implemented not later than taxable years 
beginning two years following the date of enactment. For this 
purpose, small organization means any organization: (1) the 
gross receipts of which for the taxable year are less than 
$200,000; and (2) the aggregate gross assets of which at the 
end of the taxable year are less than $500,000. In addition, 
the provision grants IRS the discretion to delay the effective 
date not later than taxable years beginning two years after the 
date of enactment for the filing of Form 990-T (for reports of 
unrelated business taxable income or the payment of proxy tax 
under section 6033(e)).

2. Notice required before revocation of tax-exempt status for failure 
        to file return (sec. 3102 of the Act and sec. 6033(j) of the 
        Code)

                              Present Law


Applications for tax exemption

            Section 501(c)(3) organizations
    Section 501(c)(3) organizations (with certain exceptions) 
are required to seek formal recognition of tax-exempt status by 
filing an application with the IRS (Form 1023 (Application for 
Recognition of Exemption under Section 501(c)(3) of the 
Internal Revenue Code) or Form 1023-EZ (Streamlined Application 
for Recognition of Exemption under Section 501(c)(3) of the 
Internal Revenue Code)).\185\ In response to the application, 
the IRS issues a determination letter or ruling either 
recognizing the applicant as tax-exempt or not. Certain 
organizations are not required to apply for recognition of tax-
exempt status in order to qualify as tax-exempt under section 
501(c)(3) but may do so. These organizations include churches, 
certain church-related organizations, organizations (other than 
private foundations) the gross receipts of which in each 
taxable year are normally not more than $5,000, and 
organizations (other than private foundations) subordinate to 
another tax-exempt organization that are covered by a group 
exemption letter.
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    \185\ See sec. 508(a).
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    A favorable determination by the IRS on an application for 
recognition of tax-exempt status generally will be retroactive 
to the date that the section 501(c)(3) organization was created 
if it files a completed Form 1023 within 15 months of the end 
of the month in which it was formed.\186\ If the organization 
does not file Form 1023 or files a late application, it will 
not be treated as tax-exempt under section 501(c)(3) for any 
period prior to the filing of an application for recognition of 
tax exemption.\187\ Contributions to section 501(c)(3) 
organizations that are subject to the requirement that the 
organization apply for recognition of tax-exempt status 
generally are not deductible from income, gift, or estate tax 
until the organization receives a determination letter from the 
IRS.\188\
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    \186\ Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), 
organizations are allowed an automatic 12-month extension as long as 
the application for recognition of tax exemption is filed within the 
extended, i.e., 27-month, period. The IRS also may grant an extension 
beyond the 27-month period if the organization is able to establish 
that it acted reasonably and in good faith and that granting relief 
will not prejudice the interests of the government. Treas. Reg. secs. 
301.9100-1 and 301.9100-3.
    \187\ Treas. Reg. sec. 1.508-1(a)(1).
    \188\ Sec. 508(d)(2)(B). Contributions made prior to receipt of a 
favorable determination letter may be deductible prior to the 
organizations receipt of such favorable determination letter if the 
organization has timely filed its application to be recognized as tax-
exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
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            Other section 501(c) organizations
    Most other types of section 501(c) organizations--including 
organizations described within sections 501(c)(4) (social 
welfare organizations, etc.), 501(c)(5) (labor organizations, 
etc.), or 501(c)(6) (business leagues, etc.)--are not required 
to apply for recognition of tax-exempt status. Rather, 
organizations are exempt under these subsections if they 
satisfy the requirements applicable to such organizations. 
However, an organization that intends to operate as a section 
501(c)(4) organization must notify the Secretary no later than 
60 days after its formation that it is operating as such by 
filing form 8976 (Notice of Intent to Operate Under Section 
501(c)(4)). In addition, in order to obtain certain benefits 
such as public recognition of tax-exempt status, exemption from 
certain State taxes, and nonprofit mailing privileges, such 
organizations voluntarily may request a formal recognition of 
exempt status by filing a Form 1024 (Application for 
Recognition of Exemption under Section 501(a)) or Form 1024-A 
(Application for Recognition of Exemption under Section 
501(c)(4) of the Internal Revenue Code).

Annual information returns

    Exempt organizations are required to file an annual 
information return, Form 990 (Return of Organization Exempt 
From Income Tax), stating specifically the items of gross 
income, receipts, disbursements, and such other information as 
the Secretary may prescribe.\189\ Exempt from the requirement 
are churches, their integrated auxiliaries, and conventions or 
associations of churches; the exclusively religious activities 
of any religious order; certain institutions whose income is 
excluded from gross income under section 115; an interchurch 
organization of local units of a church; certain mission 
societies; certain church-affiliated elementary and high 
schools; and certain other organizations, including some that 
the IRS has relieved from the filing requirement pursuant to 
its statutory discretionary authority.\190\
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    \189\ Sec. 6033(a). An organization that has not received a 
determination of its tax-exempt status, but that claims tax-exempt 
status under section 501(a), is subject to the same annual reporting 
requirements and exceptions as organizations that have received a tax-
exemption determination.
    \190\ Sec. 6033(a)(3); Treas. Reg. secs. 1.6033-2(a)(2)(i) and 
(g)(1).
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    An organization that is required to file an information 
return, but that has gross receipts of less than $200,000 
during its taxable year, and total assets of less than $500,000 
at the end of its taxable year, may file Form 990-EZ. If an 
organization normally has gross receipts of $50,000 or less, it 
must file Form 990-N (``e-postcard''), if it chooses not to 
file Form 990 or Form 990-EZ. Private foundations are required 
to file Form 990-PF rather than Form 990.

Revocation of exempt status

            In general
    An organization that has received a favorable tax-exemption 
determination from the IRS generally may continue to rely on 
the determination as long as ``there are no substantial changes 
in the organization's character, purposes, or methods of 
operation.'' \191\ A ruling or determination letter concluding 
that an organization is exempt from tax may, however, be 
revoked or modified: (1) by notice from the IRS to the 
organization to which the ruling or determination letter was 
originally issued; (2) by enactment of legislation or 
ratification of a tax treaty; (3) by a decision of the United 
States Supreme Court; (4) by issuance of temporary or final 
Regulations by the Treasury Department; (5) by issuance of a 
revenue ruling, a revenue procedure, or other statement in the 
Internal Revenue Bulletin; or (6) automatically, in the event 
the organization fails to file a required annual return or 
notice for three consecutive years (discussed in greater detail 
below).\192\ A revocation or modification of a determination 
letter or ruling may be retroactive if, for example, there has 
been a change in the applicable law, the organization omitted 
or misstated a material fact, or the organization has operated 
in a manner materially different from that originally 
represented.\193\ Upon revocation of tax-exemption or change in 
the classification of an organization (e.g., from public 
charity to private foundation status), the IRS publishes an 
announcement of such revocation or change in the Internal 
Revenue Bulletin.
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    \191\ Treas. Reg. sec. 1.501(a)-1(a)(2).
    \192\ Rev. Proc. 2019-5, sec. 12, 2019-1 I.R.B. 230, at p. 257 
(January 2, 2019).
    \193\ Ibid. at p. 258.
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            Automatic revocation for failure to file information 
                    returns
    If an organization fails to file a required Form 990-series 
return or notice for three consecutive years, the 
organization's tax-exempt status is automatically revoked.\194\ 
A revocation for failure to file is effective from the date 
that the Secretary determines was the last day the organization 
could have timely filed the third required information return 
or notice. To again be recognized as tax-exempt, the 
organization must apply to the Secretary for recognition of 
tax-exemption, irrespective of whether the organization was 
required to make an application for recognition of tax-
exemption in order to gain tax exemption originally.\195\
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    \194\ Sec. 6033(j)(1).
    \195\ Sec. 6033(j)(2).
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    If, upon application for tax-exempt status after an 
automatic revocation for failure to file an information return 
or notice, the organization shows to the satisfaction of the 
Secretary reasonable cause for failing to file the required 
returns or notices, the organization's tax-exempt status may, 
at the discretion of the Secretary, be reinstated retroactive 
to the date of revocation.\196\ An organization may not 
challenge under the Code's declaratory judgment procedures 
(section 7428) a revocation of tax exemption made for failure 
to file annual information returns.
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    \196\ Sec. 6033(j)(3); Rev. Proc. 2014-11, 2014-3 I.R.B. 411 
(January 13, 2014).
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    The Secretary is authorized to publish a list of 
organizations whose exempt status is automatically revoked.

                        Explanation of Provision

    The provision requires that the IRS provide notice to an 
organization that fails to file a Form 990-series return or 
notice for two consecutive years. The notice must state that 
the IRS has no record of having received such a return or 
notice from the organization for two consecutive years and 
inform the organization about the revocation of the 
organization's tax-exempt status that will occur if the 
organization fails to file such a return or notice by the due 
date for the next such return or notice. The notice must also 
contain information about how to comply with the annual 
information return and notice requirements under sections 
6033(a)(1) and 6033(i).

                             Effective Date

    The provision applies to failures to file returns or 
notices for two consecutive years if the return or notice for 
the second year is required to be filed after December 31, 
2019.

                     Subtitle C--Revenue Provision


1. Increase in penalty for failure to file (sec. 3201 of the Act and 
        sec. 6651(a) of the Code)

                              Present Law

    The Federal tax system is one of ``self-assessment,'' i.e., 
taxpayers are required to declare their income, expenses, and 
ultimate tax due, while the IRS has the ability to propose 
subsequent changes. This voluntary system requires that 
taxpayers comply with deadlines and adhere to the filing 
requirements. While taxpayers may obtain extensions of time in 
which to file their returns, the Federal tax system consists of 
specific due dates of returns. In order to foster compliance in 
meeting these deadlines, Congress has enacted a penalty for the 
failure to timely file tax returns.\197\
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    \197\  See United States v. Boyle, 469 U.S. 241, 245 (1985).
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    A taxpayer who fails to file a tax return on or before its 
due date is subject to a penalty equal to five percent of the 
net amount of tax due for each month that the return is not 
filed, up to a maximum of 25 percent of the net amount.\198\ If 
the failure to file a return is fraudulent, the taxpayer is 
subject to a penalty equal to 15 percent of the net amount of 
tax due for each month the return is not filed, up to a maximum 
of 75 percent of the net amount.\199\ The net amount of tax due 
is the amount of tax required to be shown on the return reduced 
by the amount of any part of the tax that is paid on or before 
the date prescribed for payment of the tax and by the amount of 
any credits against tax that may be claimed on the return.\200\ 
The penalty will not apply if it is shown that the failure to 
file was due to reasonable cause and not willful neglect.\201\
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    \198\  Sec. 6651(a)(1).
    \199\  Sec. 6651(f).
    \200\  Sec. 6651(b)(1).
    \201\  Sec. 6651(a)(1).
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    If a return is filed more than 60 days after its due date, 
and unless it is shown that such failure is due to reasonable 
cause, then the failure to file penalty may not be less than 
the lesser of $205 \202\ or 100 percent of the amount required 
to be shown as tax on the return.\203\ If a penalty for failure 
to file and a penalty for failure to pay tax shown on a return 
both apply for the same month, the amount of the penalty for 
failure to file for such month is reduced by the amount of the 
penalty for failure to pay tax shown on a return.\204\ If a 
return is filed more than 60 days after its due date, then the 
penalty for failure to pay tax shown on a return may not reduce 
the penalty for failure to file below the lesser of $205 or 100 
percent of the amount required to be shown on the return.\205\
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    \202\  The $205 amount is adjusted for inflation.
    \203\  Sec. 6651(a)(1) (flush language). For this minimum penalty 
to apply, the Tax Court has held, and the IRS has acquiesced, that 
there must be an underpayment of tax. See Patronik-Holder v. 
Commissioner, 100 T.C. 374 (1993) (citing the Conference Report to the 
Tax Equity and Fiscal Responsibility Act of 1982), AOD 1994-03, 1993-2 
C.B. 1.
    \204\  Sec. 6651(c)(1).
    \205\  Ibid.
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    The failure to file penalty applies to all returns required 
to be filed under subchapter A of Chapter 61 (relating to 
income tax returns of an individual, fiduciary of an estate or 
trust, or corporation; self-employment tax returns; and estate 
and gift tax returns), subchapter A of chapter 51 (relating to 
distilled spirits, wines, and beer), subchapter A of chapter 52 
(relating to tobacco, cigars, cigarettes, and cigarette papers 
and tubes), and subchapter A of chapter 53 (relating to machine 
guns and certain other firearms).\206\ The failure to file 
penalty is adjusted annually to account for inflation. The 
failure to file penalty does not apply to any failure to pay 
estimated tax required to be paid by sections 6654 or 
6655.\207\
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    \206\  Sec. 6651(a)(1)
    \207\  Sec. 6651(e).
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                        Explanation of Provision

    Under the provision, if a return is filed more than 60 days 
after its due date, then the failure to file penalty may not be 
less than the lesser of $330 (adjusted for inflation) or 100 
percent of the amount required to be shown as tax on the 
return.

                             Effective Date

    The provision applies to returns with filing due dates 
(including extensions) after December 31, 2019.

                PART TWO: FOSTERING UNDERGRADUATE TALENT

 BY UNLOCKING RESOURCES FOR EDUCATION (``FUTURE'') ACT (PUBLIC LAW 116-
                               91) \208\
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    \208\  H.R. 5363. The bill was introduced in the House of 
Representatives on December 9, 2019, and was passed by the House on 
December 10, 2019. The Senate passed the bill without amendment by 
voice vote the same day. The President signed the bill on December 19, 
2019.
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1. Secure disclosure of tax-return information to carry out the Higher 
        Education Act of 1965 (sec. 3 of the Act and section 
        6103(l)(13) of the Code)

                              Present Law

Disclosures of return information to carry out income contingent 
        repayment of student loans
    Present law prohibits the disclosure of returns and return 
information, except to the extent specifically authorized by 
the Code.\209\ Under prior law section 6103(l)(13), an 
exception was provided for disclosure to the Department of 
Education (but not to contractors thereof) of a taxpayer's 
filing status, adjusted gross income and identity information 
(i.e., name, mailing address, taxpayer identifying number) to 
establish an appropriate repayment amount for an applicable 
student loan. This disclosure authority for officers and 
employees of the Department of Education expired after December 
31, 2007.
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    \209\  Sec. 6103(a).
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    The Department of Education uses contractors to carry out 
its income contingent loan program. As noted above, prior law 
did not permit disclosure of return information to the 
Department's contractors. The IRS subsequently developed the 
IRS Data Retrieval Tool, which is currently used by taxpayers 
to access their own tax information for purposes of completing 
the Department of Education's income-driven repayment (``IDR'') 
plan applications and the Free Application for Federal Student 
Aid (``FAFSA'').\210\
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    \210\  IRS Offers Help to Students, Families to Get Tax Information 
for Student Financial Aid Applications https://www.irs.gov/individuals/
irs-offers-help-to-students-families-to-get-tax-information-for-
student-financial-aid-applications (September 23, 2020). Section 
6103(e) authorizes the IRS to allow taxpayers to access their own 
returns and return information and there are no restrictions on the 
information once received under this authority. Thus, by using the IRS 
Data Retrieval Tool, the disclosure is first to the taxpayer rather 
than directly to the contractors of the Department of Education.
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Accountings and Safeguards
            Accountings
    Unless specifically listed in the statute as excluded from 
the accounting requirement, section 6103(p)(3) requires the IRS 
to maintain a permanent system of standardized records or 
accountings of all requests for inspection or disclosure of 
returns and return information (including the reasons for and 
dates of such requests) and of returns and return information 
inspected or disclosed under section 6103 (and section 
6104(c)).
            Safeguards
    Section 6103(p)(4) requires, as a condition of receiving 
returns and return information, that Federal and State agencies 
and specified other recipients provide safeguards to the 
satisfaction of the Secretary of the Treasury as necessary or 
appropriate to protect the confidentiality of returns or return 
information. It also requires that a report be furnished to the 
Secretary at such time and containing such information as 
prescribed by the Secretary, regarding the procedures 
established and utilized for ensuring the confidentiality of 
returns and return information. The Secretary, after an 
administrative review, may take such actions as are necessary 
to ensure these requirements are met, including the refusal to 
disclose returns and return information.

                        Explanation of Provision

    The Fostering Undergraduate Talent by Unlocking Resources 
for Education (``FUTURE'') Act \211\ amended and rewrote 
section 6103(l)(13) to authorize the disclosure of certain 
return information for purposes of administering student 
financial aid and loan programs.
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    \211\  Pub. L. No. 116-91, December 19, 2019.
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    The provision requires the IRS to disclose certain return 
information to the Department of Education and others for the 
purpose of administering financial aid and loan programs. Upon 
receiving a written request from the Secretary of 
Education,\212\ the IRS must disclose specified return 
information to authorized persons for the purposes of (1) 
determining eligibility for, and repayment obligations under, 
income-contingent or income-based repayment plans; (2) 
monitoring and reinstating loans that were discharged based on 
a total and permanent disability; and (3) determining the 
eligibility for, and the amount of, awards of Federal student 
financial aid.
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    \212\  The Secretary of Education can make a request for disclosure 
under section 6103(l)(13) with respect to an individual only if the 
Secretary of Education has obtained approval from the individual for 
such disclosure.
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    Authorized persons may only use the disclosed information 
for the purposes above and for three additional purposes 
related to the programs. These additional purposes are (1) 
reducing the net cost of improper payments under such plans, 
relating to such awards, or relating to such discharges; (2) 
oversight activities by the Office of Inspector General of the 
Department of Education as authorized by the Inspector General 
Act of 1978; and (3) conducting analyses and forecasts for 
estimating costs related to such plans, discharges, or awards. 
The additional purposes do not include conducting criminal 
investigations or prosecutions.
    An ``authorized person'' is any person who is an officer, 
employee, or contractor of the Department of Education, and is 
specifically authorized and designated by the Secretary of 
Education for purposes of the specific disclosure authority 
programs (income-contingent or income-based repayment plans, 
loans discharged based on a total and permanent disability, 
awards of Federal student financial aid (the designation is 
applied separately with respect to each program)). The 
provision requires the Secretary of Education to designate the 
Inspector General of the Department of Education as an 
authorized person.
    With the consent of the taxpayer, authorized persons may 
redisclose the return information received from the IRS to 
certain institutions of higher education, State higher 
education agencies, and scholarship organizations solely for 
use in financial aid programs.
    The IRS is required to account for all disclosures made 
under section 6103(l)(13), including those made to the 
Department of Education and its contractors, as well as 
redisclosures made by authorized persons to institutions of 
higher education, State higher education agencies, and 
scholarship organizations. The Secretary of Education is 
required to annually submit a written report to the Secretary 
of the Treasury regarding: (1) redisclosures of return 
information to institutions of higher education, State higher 
education agencies, and scholarship organizations, including 
the number of such redisclosures; and (2) any unauthorized use, 
access, or disclosure of the return information under section 
6103(l)(13).
    All agencies and other persons described in section 
6103(l)(13) as authorized to receive confidential return 
information (i.e., the Department of Education, its 
contractors, certain institutions of higher education, State 
higher education agencies, and scholarship organizations) are 
required to safeguard such information to the satisfaction of 
the Secretary.
    Annually, the Secretary of the Treasury (or his designee) 
is to report to Congress a written report regarding disclosures 
using the authority of section 6103(l)(13), to include the 
information above that is reported by the Secretary of 
Education to the Secretary of the Treasury.

                             Effective Date

    The provision is effective for disclosures after December 
19, 2019.

 PART THREE: FURTHER CONSOLIDATED APPROPRIATIONS ACT, 2020 (PUBLIC LAW 
                             116-94) \213\
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    \213\ H.R. 1865. The bill was introduced in the House of 
Representatives on March 25, 2019 and was passed by the House on 
October 28, 2019. The Senate passed the bill with an amendment by 
unanimous consent on November 12, 2019. The House agreed to the Senate 
amendment with an amendment on December 17, 2019, and the Senate agreed 
to the House amendment on December 19, 2019. The President signed the 
bill the next day.
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           DIVISION M--BIPARTISAN AMERICAN MINERS ACT OF 2019

1. Transfers to 1974 UMWA pension plan and inclusion in multiemployer 
        health benefit plan (secs. 102 and 103 of the Act and sec. 402 
        of the Surface Mining Control and Reclamation Act of 1977)

                              Present Law

United Mineworkers of America (``UMWA'') retiree health benefits
            In general
    Three multiemployer plans provide retiree health benefits 
for employees in the coal industry (and their beneficiaries): 
the UMWA Combined Benefit Fund (``Combined Fund''), the UMWA 
1992 Benefit Plan (``1992 Benefit Plan''), and the UMWA 1993 
Benefit Plan (``1993 Benefit Plan''). In addition, retiree 
health benefits are provided to some retirees through plans 
maintained by their particular employers (``individual employer 
plans''). Moreover, pension benefits are provided by the UMWA 
1974 Pension Plan (the ``Pension Plan'').\214\
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    \214\ Another plan, the UMWA 1950 Pension Plan, generally covering 
employees who retired before 1976, was merged into the Pension Plan on 
June 30, 2007. Section 9701(a)(3) refers to the Pension Plan as the 
``1974 UMWA Pension Plan'' and describes participation in the Pension 
Plan as being substantially limited to individuals who retired in 1976 
and thereafter.
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    The Combined Fund and the 1992 Benefit Plan were 
established under the Coal Industry Retiree Health Benefit Act 
of 1992 (the ``Coal Act'').\215\ The Combined Fund provides 
health benefits with respect to retirees (and related 
beneficiaries) who, on July 20, 1992, were receiving health 
benefits under previous UMWA plans.\216\ The 1992 Benefit Plan 
provides benefits with respect to participants (and related 
beneficiaries) who were eligible for health benefits under 
previous UMWA plans based on age and service earned as of 
February 1, 1993, or to whom coverage was required to be 
provided by an individual employer plan but who does not 
receive coverage,\217\ provided that the participant retired 
from the coal industry by September 30, 1994.
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    \215\ Pub. L. No. 102-486, October 24, 1992, which enacted Chapter 
99 of the Code (secs. 9701-9722). Section 9702 provides for the 
establishment of the Combined Fund, and section 9712 provides for the 
establishment of the 1992 Plan. Chapter 99 also contains provisions 
relating to benefits under the plans and funding of the plans.
    \216\ The previous plans were the UMWA 1950 Benefit Plan and the 
UMWA 1974 Benefit Plan.
    \217\ Section 9711 requires coverage under individual employer 
plans to be provided to participants (and related beneficiaries) 
receiving benefits as of February 1, 1993, or with respect to whom the 
age and service requirements for eligibility were met as of that date 
and who retired by September 30, 1994.
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    The 1993 Benefit Plan was established under the National 
Bituminous Coal Wage Agreement of 1993. Generally, the 1993 
Benefit Plan provides health benefits to certain retired and 
disabled mine workers who are not eligible for benefits under 
the Combined Fund or the 1992 Benefit Plan and would have been 
eligible for benefits under the previous UMWA plans, but for 
enactment of the Coal Act. The UMWA 1993 Benefit Plan also 
provides benefits to certain retirees under the Pension Plan 
whose last employer contributed to the 1993 Benefit Plan and 
whose retiree health benefits would end because, inter alia, 
the employer is no longer engaged in mining operations, is 
financially unable to provide the benefits, and has no related 
entity that is financially able to provide the benefits.
            Retiree health plan funding
    The Combined Fund and the 1992 Benefit Plan are funded in 
part by premiums required under the Code to be paid by coal 
mining operators.\218\ The 1993 Benefit Plan is funded in part 
by contributions by employers that are bargaining agreement 
signatories. The three plans (collectively, the ``UMWA Health 
Plans'') are funded also in part by transfers under the Surface 
Mining Control and Reclamation Act of 1977 (``SMCRA'').\219\
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    \218\ Secs. 9704 and 9712(d). Failure to pay the required premiums 
under section 9704 may result in the imposition of a penalty under 
section 9707. In addition, under section 9721, a civil action may be 
brought by a plan fiduciary, employer, or plan participant or 
beneficiary with respect to an obligation to pay the required premiums, 
in the same manner as a claim arising from an employer's obligation to 
pay withdrawal liability under section 4301 of the Employee Retirement 
Income Security Act of 1974 (``ERISA'').
    \219\ Sec. 402 of Pub. L. No. 95-87; 30 U.S.C. sec. 1232.
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    Under SMCRA, coal mining operators are required to pay 
certain fees to the Secretary of the Interior, which are 
deposited in the Abandoned Mine Reclamation Fund (commonly 
referred to as the ``Abandoned Mine Land Fund'' or the ``AML 
Fund''). In addition to transfers to States and Indian tribes 
relating to mining reclamation, the Secretary of the Treasury 
(``Secretary'') is authorized to transfer interest earned on 
the AML Fund to the UMWA Health Plans for financial assistance. 
To the extent interest transferred from the AML Fund is not 
sufficient to provide benefits under the UMWA Health Plans, the 
Secretary is authorized under SMCRA to make supplemental 
payments on an annual basis from the General Fund of the U.S. 
Treasury. The supplemental payments to the UMWA Health Plans, 
together with payments from the General Fund for certain States 
and Indian Tribes, are subject to a combined annual limit of 
$490 million.\220\
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    \220\ Sec. 402(i)(3) of SMCRA; 30 U.S.C. sec. 1232(i)(3). Amounts 
to be transferred to the recipients are adjusted as needed to come 
within this limit.
---------------------------------------------------------------------------
    In the case of transfers of interest from the AML Fund to 
the 1993 Benefit Plan,\221\ the benefits due under the plan are 
determined by taking into account those retirees (and related 
beneficiaries) who were actually enrolled in the plan as of 
December 31, 2006, and who are eligible for benefits on the 
first day of the calendar year for which the transfer is made, 
even though those benefits were provided to the individual 
pursuant to a settlement agreement approved by order of a 
bankruptcy court entered on or before September 30, 2004; in 
other words, those individuals are considered to be actually 
enrolled in the Plan and receive benefits under the Plan 
beginning on December 31, 2006.
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    \221\ Under SMCRA, the 1993 Benefit Plan is referred to as the 
``Multiemployer Health Benefit Plan.''
---------------------------------------------------------------------------
    In 2016 \222\, SMCRA was amended to authorize the transfer 
of federal funds to the 1993 Benefit Plan through April 30, 
2017, for an expanded group, including (1) retirees (and 
related beneficiaries) actually enrolled in the 1993 Benefit 
Plan as of the date of enactment of the Continued Health 
Benefits for Miners Act (the ``2016 Act''), and who are 
eligible for benefits on the first day of the calendar year for 
which the transfer is made,\223\ and (2) retirees (and related 
beneficiaries) whose health benefits would be denied or reduced 
as a result of a bankruptcy proceeding commenced in 2012 or 
2015.\224\ In 2017 \225\, SMCRA was further amended to 
permanently authorize the annual transfer of funds to the 1993 
Plan for those retirees.
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    \222\ See Further Continuing and Security Assistance Appropriations 
Act, 2017, Pub. L. No. 114-254, December 10, 2016.
    \223\ However, this group does not include individuals (and related 
beneficiaries) enrolled in the 1993 Benefit Plan under the terms of a 
participation agreement with the current or former employer of the 
individuals.
    \224\ The Act further provides that individuals described in (2) 
are to be treated as eligible to receive health benefits under the 1993 
Benefit Plan for the plan year that includes April 1, 2017.
    \225\ See Health Benefits for Miners Act of 2017, Pub. L. No. 115-
31, May 5, 2017.
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    The 2016 Act also contains additional rules with respect to 
a voluntary employees' beneficiary association (``VEBA'') \226\ 
established as a result of a bankruptcy proceeding described in 
(2). The administrator of the VEBA is directed to transfer to 
the 1993 Benefit Plan any amounts received as a result of the 
bankruptcy proceeding, reduced by the amount of the VEBA's 
administrative costs. Further, the amount that would otherwise 
be transferred by the Secretary to the 1993 Benefit Plan under 
SMCRA, as amended by the 2016 Act, is reduced by any amount 
transferred to the 1993 Benefit Plan by the VEBA
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    \226\ A VEBA is an organization exempt from tax under section 
501(c)(9).
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UMWA 1974 Pension Plan
    The Pension Plan is a multiemployer defined benefit plan 
established by the National Bituminous Coal Wage Agreement of 
1974 between the United Mine Workers of America (``UMWA'') and 
the Bituminous Coal Operators Association (``BCOA''), effective 
December 6, 1974.\227\ The Pension Plan provides retirement, 
disability, and survivors' benefits to employees in the coal 
industry and their beneficiaries in accordance with plan terms. 
SMCRA does not provide for funds to be transferred to the 
Pension Plan.
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    \227\ In a multiemployer defined benefit pension, participants 
typically receive a monthly payment in retirement that is based on a 
formula that uses the participant's length of service and a benefit 
rate.
---------------------------------------------------------------------------
    Like other pension plans, the Pension Plan is subject to 
various annual reporting and notice requirements under the Code 
and ERISA.\228\ Some of these reporting requirements are met by 
the filing of Form 5500, Annual Return/Report of Employee 
Benefit Plan. Additional requirements apply in the case of an 
underfunded multiemployer defined benefit plan in endangered or 
critical status, including with respect to a funding 
improvement or rehabilitation plan.\229\
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    \228\ See, for example, secs. 6057-6059 and ERISA secs. 101(f), 103 
and 104.
    \229\ For a discussion of the rules relating to plans in endangered 
or critical status, see Part I.D.3 of Joint Committee on Taxation, 
Present Law, Data, and Selected Proposals Relating to Multiemployer 
Defined Benefit Plans (JCX-9-16), February 26, 2016, available at 
www.jct.gov.
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                       Explanation of Provisions

Multiemployer health plan benefits and increase in cap
            Expanded coverage of bankruptcies
    Under the provision, transfers from the General Fund to the 
1993 Benefit Plan are expanded to cover beneficiaries who are 
enrolled in the plan as of the date of enactment of the Act 
(December 20, 2019),\230\ as well as beneficiaries whose health 
benefits, which are payable following death or retirement or 
upon a finding of disability directly by an employer in the 
bituminous coal industry under a coal wage agreement,\231\ or a 
related coal wage agreement, would otherwise be denied or 
reduced as a result of a coal industry bankruptcy in 2018 or 
2019.
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    \230\ These beneficiaries must also be eligible to receive health 
benefits under the 1993 Benefit Plan on the first day of the calendar 
year for which the transfer is made, other than those beneficiaries 
enrolled in the plan under the terms of a participation agreement with 
the current or former employer of such beneficiaries.
    \231\ Defined in sec. 9701(b)(1).
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            Determination of the amount of the excess.
    In determining the amount of the excess that may be 
transferred to the multiemployer health benefit plan, the costs 
of administering the dispute resolution process (as of December 
31, 2019) by the Trustees of the plan are to be taken into 
account. In addition, a related coal wage agreement taken into 
account in determining such excess is defined as an agreement 
between the UMWA and an employer in the bituminous coal 
industry that (1) is a signatory operator, or (2) is, or was, a 
debtor in a bankruptcy proceeding that was consolidated, 
administratively or otherwise, with the bankruptcy proceeding 
of a signatory operator or a related person to a signatory 
operator.
            Increase in cap
    The combined annual limit on supplemental payments to the 
UMWA Health Plans, together with payments from the General Fund 
for certain States and Indian Tribes is increased from $490 
million to $750 million under the provision.
Transfers to the UMWA 1974 Pension Plan
    If amounts available for transfer under the revised $750 
million annual limit exceed the amounts required to be 
transferred for other purposes (including to the UMWA Health 
Plans), the provision directs the Secretary to transfer the 
excess to the Pension Plan to pay plan benefits.\232\ Transfers 
are to end as of the first fiscal year beginning after the 
first plan year for which the Pension Plan's funded percentage 
(as defined under the Code's funding rules) \233\ is at least 
100 percent. Until that time, the Pension Plan will be treated 
as if it is in critical status \234\ and will maintain and 
comply with its rehabilitation plan (including any 
updates).\235\
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    \232\ The provision describes the Pension Plan as the 1974 UMWA 
Pension Plan under section 9701(a)(3), but without regard to the 
limitation on participation to individuals who retired in 1976 and 
thereafter, thereby reflecting the merger of the UMWA 1950 Pension Plan 
into the Pension Plan.
    \233\ See sec. 432(j)(2).
    \234\ For purposes of secs. 412(b)(3), 432(e)(3) and 4971(g) and 
secs. 302(b)(3) and 305(e)(3) of ERISA.
    \235\ However, the provisions of section 432(c) and (d) and section 
305(c) and (d) of ERISA will not apply.
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    During any fiscal year in which the Pension Plan receives a 
transfer, no plan amendment may be adopted that increases plan 
liabilities by reason of a benefit increase, a change in the 
accrual of benefits, or a change in the rate at which benefits 
vest under the plan unless the amendment is required as a 
condition for qualified retirement plan status under the Code. 
In addition, a transfer is not to be made for a fiscal year 
unless the persons obligated to contribute to the Pension Plan 
on the date of the transfer are obligated to make contributions 
at rates that are not less than those in effect on the date 30 
days before the date of enactment of the provision (December 
20, 2019). Any amounts transferred to the Pension Plan are 
disregarded in determining the unfunded vested benefits of the 
Pension Plan and the allocation of unfunded vested benefits to 
an employer for withdrawal liability purposes.
    The provision applies additional reporting requirements to 
the Pension Plan. Not later than the 90th day of each plan year 
beginning after the date of enactment, the Pension Plan 
trustees must file with the Secretary \236\ and the Pension 
Benefit Guaranty Corporation (``PBGC'') a report (including 
appropriate documentation and actuarial certifications from the 
plan actuary, as required by the Secretary) that provides--
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    \236\ References in this description to ``Secretary'' include the 
Secretary's delegate, for this purpose, the Internal Revenue Service.
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           Whether the Pension Plan is in endangered or 
        critical status;
           The Pension Plan's funded percentage as of 
        the first day of the plan year and the underlying 
        actuarial value of assets and liabilities taken into 
        account in determining the funded percentage;
           The market value of plan assets as of the 
        last day of the preceding plan year;
           The total of all plan contributions made 
        during the preceding plan year;
           The total benefits paid during the preceding 
        plan year;
           Cash flow projections for the plan year and 
        either the six or 10 succeeding plan years, at the 
        election of the trustees, and the assumptions relied on 
        in making the projections;
           Funding standard account projections for the 
        plan year and the nine succeeding plan years, and the 
        assumptions relied on in making the projections;
           The total investment gains or losses during 
        the preceding plan year;
           Any significant reduction in the number of 
        active participants during the preceding plan year and 
        the reason for the reduction;
           A list of employers that withdrew from the 
        Pension Plan in the preceding plan year and the 
        resulting reduction in contributions;
           A list of employers that paid withdrawal 
        liability to the Pension Plan during the preceding plan 
        year and, for each employer, a total assessment of the 
        withdrawal liability paid, the annual payment amount, 
        and the number of years remaining in the payment 
        schedule with respect to the withdrawal liability;
           Any material changes to benefits, accrual 
        rates, or contribution rates during the preceding plan 
        year;
           Any scheduled benefit increase or decrease 
        in the preceding plan year having a material effect on 
        plan liabilities;
           Details of any funding improvement plan or 
        rehabilitation plan and updates;
           The number of participants and beneficiaries 
        during the preceding plan year who are active 
        participants, the number of participants and 
        beneficiaries in pay status, and the number of 
        terminated vested participants and beneficiaries;
           The information contained in the Pension 
        Plan's most recent annual funding notice;
           The information contained in the Pension 
        Plan's most recent Form 5500; and
           Copies of the plan document and amendments, 
        other retirement benefit or ancillary benefit plans 
        relating to the Pension Plan and contribution 
        obligations under those plans, a breakdown of the 
        Pension Plan's administrative expenses, participant 
        census data and distribution of benefits, the most 
        recent actuarial valuation report as of the plan year, 
        copies of collective bargaining agreements, and 
        financial reports, and such other information as the 
        Secretary may require, in consultation with the 
        Secretary of Labor and the Director of the PBGC.
    This report must be submitted electronically, and the 
Secretary is directed to share the information in the report 
with the Secretary of Labor. A failure to file the report on or 
before the date required results in a tax reporting penalty of 
$100 per day while the failure continues unless the Secretary 
determines that reasonable diligence was exercised by the plan 
sponsor in attempting to timely file the report.

                             Effective Date

    The provision generally applies to fiscal years beginning 
after September 30, 2016. The reporting requirements relating 
to the Pension Plan apply to plan years beginning after the 
date of enactment.
    The provisions relating to the expanded coverage of 
bankruptcies and the changes to the determination of the excess 
that may be transferred to the multiemployer health benefit 
plan are effective upon the date of enactment.
2. Reduction in minimum age for allowable in-service distributions 
        (sec. 104 of the Act and secs. 401 and 457 of the Code)

                              Present Law

Overview
    There are three basic types of funded tax-favored employer-
sponsored defined contribution retirement plans: qualified 
employer plans, section 403(b) plans, and governmental section 
457(b) plans. Under these plans, most contributions, earnings 
on contributions, and benefits are not included in gross income 
until amounts are distributed, even if the arrangement is 
funded and benefits are vested. Additionally, many 
distributions can be rolled over to another plan for further 
deferral of income inclusion. Defined contribution plans may 
provide for nonelective contributions and matching 
contributions by employers and elective deferrals or after-tax 
contributions by employees. Elective deferrals are 
contributions made pursuant to an election by an employee 
between cash compensation and a contribution to the plan.
    Elective deferrals under a qualified plan may only be made 
under a section 401(k) plan. A section 401(k) plan is a profit-
sharing or stock bonus plan that contains a qualified cash or 
deferred arrangement.\237\ Thus, such arrangements are subject 
to the rules generally applicable to qualified defined 
contribution plans. In addition, special rules apply to such 
arrangements. One requirement is that no distributions prior to 
severance from employment generally may be made for amounts 
attributable to elective deferrals unless the employee has 
attained age 59\1/2\.
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    \237\ Certain pre-ERISA money purchase plans and rural cooperative 
plans may also include a qualified cash or deferred arrangement. Except 
for certain grandfathered plans, a State or local governmental employer 
may not maintain a section 401(k) plan.
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    Section 403(b) plans are another form of tax-favored 
employer-sponsored plan that provide tax benefits similar to 
qualified retirement plans. Section 403(b) plans may be 
maintained only by (1) charitable organizations that are tax-
exempt under section 501(c)(3), and (2) educational 
institutions of State or local governments (i.e., public 
schools, including colleges and universities). Elective 
deferrals are also permitted under section 403(b) plans and are 
subject to the same requirement that, generally, no 
distributions are permitted prior to severance from employment 
unless the employee has attained age 59\1/2\.
Governmental section 457(b) plans
    In the case of a State or local government employer, a 
section 457(b) plan is generally limited to elective deferrals 
and provides tax benefits similar to a section 401(k) or 403(b) 
plan in that deferrals are contributed to a trust or custodial 
account for the exclusive benefit of participants, but are not 
included in income until distributed (and may be rolled over to 
another tax-favored plan).\238\ However distributions from a 
governmental section 457(b) plan prior to severance from 
employment are generally not permitted until the employee 
attains age 70\1/2\.
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    \238\ In the case of a tax-exempt employer, section 457(b) and 
457(f) limit the amount of unfunded nonqualified deferred compensation 
that can be provided on a tax-deferred basis.
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Distributions from a pension plan prior to a severance in employment
    For purposes of the qualification requirements applicable 
to pension plans, stock bonus plans, and profit-sharing plans 
under the Code, a pension plan is a plan established and 
maintained primarily to provide systematically for the payment 
of definitely determinable benefits to employees over a period 
of years, usually for life, after retirement.\239\ However, a 
pension plan does not fail to be a qualified retirement plan 
solely because the plan provides that a distribution may be 
made to an employee who has attained age 62 and who is not 
separated from employment at the time of the distribution.\240\
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    \239\ Treas. Reg. sec. 1.401-1(b)(1)(i).
    \240\ Sec. 401(a)(36).
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                        Explanation of Provision

    In the case of a section 457(b) plan maintained by a State 
or local government, the provision changes the age at which 
distributions are permitted prior to severance from employment 
to age 59\1/2\ to be consistent with the rules for section 
401(k) plans and section 403(b) plans.
    The provision also modifies the age at which a distribution 
may be made from a pension plan to an employee who has not 
separated from employment at the time of the distribution by 
reducing it from age 62 to age 59\1/2\.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2019.

            DIVISION N--HEALTH AND HUMAN SERVICES EXTENDERS

              TITLE I--HEALTH AND HUMAN SERVICES EXTENDERS

                    Subtitle A--Medicare Provisions

1. Extension of appropriations to the Patient-Centered Outcomes 
        Research Trust Fund; extension of certain health insurance fees 
        (sec. 104 of Div. N of the Act and secs. 4375, 4376, and 9511 
        of the Code)

                              Present Law

Patient-Centered Outcomes Research Trust Fund
    The Patient Centered Outcomes Research Trust Fund 
(``PCORTF'') is a trust fund established by statute in the U.S. 
Treasury \241\ to carry out the provisions of the Patient 
Protection and Affordable Care Act \242\ relating to 
comparative effectiveness research. The PCORTF is funded in 
part from fees imposed on health plans.\243\
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    \241\ Sec. 9511.
    \242\ Pub. L. No 111-148, March 23, 2010.
    \243\ Secs. 4375-4377.
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Fee on insured and self-insured health plans
            Insured plans
    A fee is imposed on each specified health insurance policy 
equal to $2.00 ($1.00 in the case of policy years ending during 
fiscal year 2013) multiplied by the average number of lives 
covered under the policy.\244\ For any policy year beginning 
after September 30, 2014, the dollar amount is increased based 
on increases in health care spending. Specifically, the 
adjusted applicable dollar amount is equal to the sum of: (1) 
the dollar amount for policy years ending in the preceding 
fiscal year, plus (2) an amount equal to the product of (A) the 
dollar amount for policy years ending in the preceding fiscal 
year, multiplied by (B) the percentage increase in the 
projected per capita amount of National Health Expenditures, as 
most recently published by the Secretary before the beginning 
of the fiscal year.\245\ The issuer of the policy is liable for 
payment of the fee. A specified health insurance policy 
includes any accident or health insurance policy \246\ issued 
with respect to individuals residing in the United States.\247\ 
An arrangement under which fixed payments of premiums are 
received as consideration for a person's agreement to provide, 
or to arrange for the provision of, accident or health coverage 
to residents of the United States, regardless of how such 
coverage is provided or arranged to be provided, is treated as 
a specified health insurance policy. The person agreeing to 
provide or arrange for the provision of coverage is treated as 
the issuer.
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    \244\ Sec. 4375.
    \245\ The dollar amount for policy years that end on or after 
October 1, 2019, and before October 1, 2020, is $2.54. Notice 2020-44, 
2020-26 I.R.B. 1989, June 22, 2020. For policy years that end on or 
after October 1, 2020, and before October 1, 2021, the dollar amount is 
$2.66. Notice 2020-84, 2020-51 I.R.B. 1645, December 14, 2020.
    \246\ A specified health insurance policy does not include 
insurance if substantially all of the coverage provided under such 
policy consists of excepted benefits described in section 9832(c). 
Examples of excepted benefits described in section 9832(c) are coverage 
for only accident, or disability insurance, or any combination thereof; 
liability insurance, including general liability insurance and 
automobile liability insurance; workers' compensation or similar 
insurance; automobile medical payment insurance; coverage for on-site 
medical clinics; limited scope dental or vision benefits; benefits for 
long term care, nursing home care, community based care, or any 
combination thereof; coverage only for a specified disease or illness; 
hospital indemnity or other fixed indemnity insurance; and Medicare 
supplemental coverage.
    \247\ Under the provision, the United States includes any 
possession of the United States.
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            Self-insured plans
    In the case of an applicable self-insured health plan, a 
fee is imposed equal to $2.00 ($1.00 in the case of policy 
years ending during fiscal year 2013) multiplied by the average 
number of lives covered under the plan.\248\ For any policy 
year beginning after September 30, 2014, the dollar amount is 
increased based on increases in health care spending. 
Specifically, the adjusted applicable dollar amount is equal to 
the sum of: (1) the dollar amount for policy years ending in 
the preceding fiscal year, plus (2) an amount equal to the 
product of (A) the dollar amount for policy years ending in the 
preceding fiscal year, multiplied by (B) the percentage 
increase in the projected per capita amount of National Health 
Expenditures, as most recently published by the Secretary 
before the beginning of the fiscal year.\249\ The plan sponsor 
is liable for payment of the fee. For purposes of the 
provision, the plan sponsor is the employer in the case of a 
plan established or maintained by a single employer or the 
employee organization in the case of a plan established or 
maintained by an employee organization. In the case of: (1) a 
plan established or maintained by two or more employers or 
jointly by one or more employers and one or more employee 
organizations, (2) a multiple employer welfare arrangement, or 
(3) a voluntary employees' beneficiary association 
(``VEBA''),\250\ the plan sponsor is the association, 
committee, joint board of trustees, or other similar group of 
representatives of the parties who establish or maintain the 
plan. In the case of a rural electric cooperative or a rural 
telephone cooperative, the plan sponsor is the cooperative or 
association.
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    \248\ Sec. 4376.
    \249\ The dollar amount for plan years that end on or after October 
1, 2019, and before October 1, 2020, is $2.54. Notice 2020-44, 2020-26 
I.R.B. 1989, June 22, 2020. For plan years that end on or after October 
1, 2020, and before October 1, 2021, the dollar amount is $2.66. Notice 
2020-84, 2020-51 I.R.B. 1645, December 14, 2020.
    \250\ VEBAs are described in sec. 501(c)(9).
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    Under the provision, an applicable self-insured health plan 
is any plan providing accident or health coverage if any 
portion of such coverage is provided other than through an 
insurance policy and such plan is established or maintained: 
(1) by one or more employers for the benefit of their employees 
or former employees, (2) by one or more employee organizations 
for the benefit of their members or former members, (3) jointly 
by one or more employers and one or more employee organizations 
for the benefit of employees or former employees, (4) by a 
VEBA, (5) by any organization described in section 501(c)(6) of 
the Code, or (6) in the case of a plan not previously 
described, by a multiple employer welfare arrangement,\251\ a 
rural electric cooperative,\252\ or a rural telephone 
cooperative association.\253\
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    \251\ Defined in sec. 3(40) of ERISA.
    \252\ Defined in sec. 3(40)(B)(iv) of ERISA.
    \253\ Defined in sec. 3(40)(B)(v) of ERISA.
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            Other special rules
    Governmental entities are generally not exempt from the 
fees imposed under the provision. There is an exception for 
exempt governmental programs, including Medicare, Medicaid, 
SCHIP, and any program established by Federal law for providing 
medical care (other than through insurance policies) to members 
of the Armed Forces, veterans, or members of Indian tribes.
    No amount collected from the fee on health insurance and 
self-insured plans is covered over to any possession of the 
United States. For purposes of the Code's procedure and 
administration rules, the fee imposed under the provision is 
treated as a tax.
            Termination
    The fees do not apply to plan years ending after September 
31, 2019.

                        Explanation of Provision

    The provision extends the time period during which fees are 
imposed on specified health insurance policies and self-insured 
health plans by 10 years by providing that the fees do not 
apply to policy and plan years ending after September 30, 2029. 
The fee applies to policy and plan years ending on or before 
September 30, 2029, including policy and plan years ending 
after September 30, 2019 but before the date of enactment of 
this provision (December 20, 2019).\254\
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    \254\ The IRS provided guidance on the extension of the fees in 
Notice 2020-44, 2020-26 I.R.B. 1989, June 22, 2020.
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    The provision makes corresponding changes to the rules 
under which PCORTF was established and is funded.\255\
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    \255\ See sec. 104(a) of Division N of Pub. L. No. 116-94.
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                             Effective Date

    The fee on specified health insurance policies and self-
insured health plans applies to policy and plan years ending 
after September 30, 2019.

                     Subtitle E--Revenue Provisions


1. Repeal of medical device excise tax (sec. 501 of Div. N of the Act 
        and sec. 4191 of the Code)

                              Present Law


Medical device excise tax

    An excise 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.\256\ As 
enacted in 2010, the excise tax applied to sales after December 
31, 2012.\257\ A taxable medical device is any device, as 
defined in section 201(h) of the Federal Food, Drug, and 
Cosmetic Act,\258\ 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.\259\
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    \256\ Sec. 4191.
    \257\ Pub. L. No. 111-152, sec. 1405 (2010). See below for a 
description of subsequently enacted moratoriums on the excise tax.
    \258\ 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.''
    \259\ 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 sales of 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.\260\ Additionally, the regulations provide 
certain safe harbors for devices eligible for the retail 
exemption.\261\
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    \260\ Treas. Reg. sec. 48.4191-2(b)(2).
    \261\ 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).\262\ 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.\263\ In general, the exemption does not apply 
unless the manufacturer, the first purchaser, and the second 
purchaser are registered with the Secretary. Foreign purchasers 
of articles sold or resold for export are exempt from the 
registration requirement.
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    \262\ 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.
    \263\ Sec. 4221(b).
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    The lease of a medical device is generally considered to be 
a sale of such device.\264\ 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.\265\
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    \264\ Sec. 4217(a).
    \265\ 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.\266\ 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.
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    \266\ Sec. 4216.
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Temporary suspension

    In 2015, the medical device excise tax was suspended for a 
period of two years, for sales on or after January 1, 2016 and 
before January 1, 2018.\267\ This moratorium was extended for 
an additional period of two years, to include sales after 
December 31, 2017, and before January 1, 2020.\268\
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    \267\ Pub. L. 114-113, Div. Q, sec. 174 (2015).
    \268\ Pub. L. 115-120, Div. D, sec. 4001 (2018).
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                        Explanation of Provision

    The provision repeals the medical device excise tax for 
sales after December 31, 2019.

                             Effective Date

    The provision applies to medical device sales after 
December 31, 2019.

2. Repeal of annual fee on health insurance providers (sec. 502 of Div. 
        N of the Act)

                              Present Law

    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'').\269\ The aggregate 
annual fee for all covered entities is the applicable amount. 
The applicable amount is $8 billion for calendar year 2014, 
$11.3 billion for calendar years 2015 and 2016, $13.9 billion 
for calendar year 2017, and $14.3 billion for calendar year 
2018. For calendar years after 2018, the applicable amount is 
indexed to the rate of premium growth. However, a one-year 
moratorium applies to the annual fee on health insurance 
providers for calendar years 2017 and 2019.
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    \269\ 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 repeals the annual fee on health insurance 
providers for calendar years beginning after December 31, 2020.

                             Effective Date

    The provision is effective for calendar years beginning 
after December 31, 2020.

3. Repeal of excise tax on high cost employer-sponsored health coverage 
        (sec. 503 of Div. N 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 was 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 was 40 
percent of the amount by which the aggregate cost exceeds the 
threshold amount (the ``excess benefit'').
    The annual threshold amount for 2018 was $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.\270\ This threshold was then adjusted annually by 
an age and gender adjusted excess premium amount. The age and 
gender adjusted excess premium amount was 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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    \270\ 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.
---------------------------------------------------------------------------
    The excise tax was 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.\271\ 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.
---------------------------------------------------------------------------
    \271\ Section 106 provides an exclusion for employer-provided 
coverage.
---------------------------------------------------------------------------
    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'').\272\ 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.\273\
---------------------------------------------------------------------------
    \272\ 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.
    \ 273\ 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,\274\ 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'').
---------------------------------------------------------------------------
    \274\ Sec. 4980B(f)(4).
---------------------------------------------------------------------------

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.\275\
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    \275\ 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.
---------------------------------------------------------------------------
    The excise tax was imposed on the coverage provider.\276\ 
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 administered the 
plan benefits (``plan administrator'') was generally liable for 
the excise tax. However, in the case of employer contributions 
to an HSA or an Archer MSA, the employer was liable for the 
excise tax.
---------------------------------------------------------------------------
    \276\ 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 was 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 was responsible for the 
calculation and notification.\277\
---------------------------------------------------------------------------
    \277\ 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.
---------------------------------------------------------------------------
    The provision implementing the excise tax on high cost 
employer-sponsored health coverage was delayed until taxable 
years beginning after December 31, 2021.

                        Explanation of Provision

    Under the provision, implementation of the excise tax on 
high cost employer-sponsored health coverage is repealed.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2019.

 DIVISION O--SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT ACT 
                                OF 2019


          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS


1. Multiple employer plans; pooled employer plans (sec. 101 of the Act, 
        secs. 3, 103, and 104 of ERISA, and sec. 413 of the Code)

                              Present Law


Retirement savings under the Code and ERISA

            Tax-favored arrangements
    The Internal Revenue Code (``Code'') provides two general 
vehicles for tax-favored retirement savings: employer-sponsored 
plans and individual retirement arrangements (``IRAs''). Code 
provisions are generally within the jurisdiction of the 
Secretary of the Treasury (``Secretary''), through his or her 
delegate, the Internal Revenue Service (``IRS'').
    The most common type of tax-favored employer-sponsored 
retirement plan is a qualified retirement plan,\278\ which may 
be a defined contribution plan or a defined benefit plan. Under 
a defined contribution plan, separate individual accounts are 
maintained for participants, to which accumulated 
contributions, earnings, and losses are allocated, and 
participants' benefits are based on the value of their 
accounts.\279\ Defined contribution plans commonly allow 
participants to direct the investment of their accounts, 
usually by choosing among investment options offered under the 
plan. Under a defined benefit plan, benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts.\280\ Besides qualified retirement 
plans, certain tax-exempt employers and public schools may 
maintain tax-deferred annuity plans.\281\
---------------------------------------------------------------------------
    \278\ Sec. 401(a). A qualified annuity plan under section 403(a) is 
similar to and subject to requirements similar to those applicable to 
qualified retirement plans. Unless otherwise stated, all section 
references are to the Internal Revenue Code of 1986, as amended (the 
``Code'').
    \279\ Sec. 414(i). Defined contribution plans generally provide for 
contributions by employers and may include a qualified cash or deferred 
arrangement under a section 401(k) plan, under which employees may 
elect to contribute to the plan.
    \280\ Sec. 414(j).
    \281\ Sec. 403(b). Private and governmental employers that are 
exempt from tax under section 501(c)(3), including tax-exempt private 
schools, may maintain tax-deferred annuity plans. State and local 
governmental employers may maintain another type of tax-favored 
retirement plan, an eligible deferred compensation plan under section 
457(b).
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    An IRA is generally established by the individual for whom 
the IRA is maintained.\282\ However, in some cases, an employer 
may establish IRAs on behalf of employees and provide 
retirement contributions to the IRAs.\283\ In addition, IRA 
treatment may apply to accounts maintained for employees under 
a trust created by an employer (or an employee association) for 
the exclusive benefit of employees or their beneficiaries, 
provided that the trust complies with the relevant IRA 
requirements and separate accounting is maintained for the 
interest of each employee or beneficiary (referred to herein as 
an ``IRA trust'').\284\ In that case, the assets of the trust 
may be held in a common fund for the account of all individuals 
who have an interest in the trust.
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    \282\ Sections 219, 408, and 408A provide rules for IRAs. Under 
section 408(a)(2) and (n), only certain entities are permitted to be 
the trustee of an IRA. The trustee of an IRA generally must be a bank, 
an insured credit union, or a corporation subject to supervision and 
examination by the Commissioner of Banking or other officer in charge 
of the administration of the banking laws of the State in which it is 
incorporated. Alternatively, an IRA trustee may be another person who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the person will administer the IRA will be consistent with the 
IRA requirements.
    \283\ Simplified employee pension (``SEP'') plans under section 
408(k) and SIMPLE IRA plans under section 408(p) are employer-sponsored 
retirement plans funded using IRAs for employees.
    \284\ Sec. 408(c).
---------------------------------------------------------------------------
            ERISA
    Retirement plans of private employers, including qualified 
retirement plans and tax-deferred annuity plans, are generally 
subject to requirements under the Employee Retirement Income 
Security Act of 1974 (``ERISA'').\285\ A plan covering only 
business owners (or business owners and their spouses)--that 
is, it covers no other employees--is exempt from ERISA.\286\ 
Thus, a plan covering only self-employed individuals is exempt 
from ERISA. Tax-deferred annuity plans that provide solely for 
salary reduction contributions by employees may be exempt from 
ERISA.\287\ IRAs are generally exempt from ERISA.
---------------------------------------------------------------------------
    \285\ ERISA applies to employee welfare benefit plans, such as 
health plans, of private employers, as well as to employer-sponsored 
retirement (or pension) plans. Employer-sponsored welfare and pension 
plans are both referred to under ERISA as employee benefit plans. Under 
ERISA section 4(b)(1) and (2), governmental plans and church plans are 
generally exempt from ERISA.
    \286\ 29 C.F.R. 2510.3-3(b)-(c).
    \287\ 29 C.F.R %10.3-2(f).
---------------------------------------------------------------------------
    The provisions of Title I of ERISA are under the 
jurisdiction of the Secretary of Labor.\288\ Many of the 
requirements under Title I of ERISA parallel Code requirements 
for qualified retirement plans. Under ERISA, in carrying out 
provisions relating to the same subject matter, the Secretary 
(of the Treasury) and the Secretary of Labor are required to 
consult with each other and develop rules, regulations, 
practices, and forms that, to the extent appropriate for 
efficient administration, are designed to reduce duplication of 
effort, duplication of reporting, conflicting or overlapping 
requirements, and the burden of compliance by plan 
administrators, employers, and participants and 
beneficiaries.\289\ In addition, interpretive jurisdiction over 
parallel Code and ERISA provisions relating to retirement plans 
is divided between the two Secretaries by Executive Order, 
referred to as the Reorganization Plan No. 4 of 1978.\290\
---------------------------------------------------------------------------
    \288\ The provisions of Titleof ERISA are codified at 29 U.S.C. 
1001-734. Under Title of ERISA, defined benefit plans of private 
employers are generally covered by the Pension Benefit Guaranty 
Corporation's pension insurance program.
    \289\ ERISA sec. 3004.
    \290\ 43 Fed. Reg. 47713 (October 17, 1978), codified at 92 Stat. 
3790, 5 U.S.C. app.
---------------------------------------------------------------------------

Multiple employer plans under the Code

            In general
    Qualified retirement plans, either defined contribution or 
defined benefit plans, are categorized as single employer plans 
or multiple employer plans. A single employer plan is a plan 
maintained by one employer. For this purpose, businesses and 
organizations that are members of a controlled group of 
corporations, a group under common control, or an affiliated 
service group are treated as one employer (referred to as 
``aggregation'').\291\
---------------------------------------------------------------------------
    \291\ Secs. 414(b), (c), (m) and (o).
---------------------------------------------------------------------------
    A multiple employer plan generally is a single plan 
maintained by two or more unrelated employers (that is, 
employers that are not treated as a single employer under the 
aggregation rules).\292\ Multiple employer plans (``MEPs'') are 
commonly maintained by employers in the same industry and are 
used also by professional employer organizations (``PEOs'') to 
provide qualified retirement plan benefits to employees working 
for PEO clients.\293\
---------------------------------------------------------------------------
    \292\ Sec. 413(c). Multiple employer plan status does not apply if 
the plan is a multiemployer plan. Multiemployer plans are different 
from single employer plans and multiple employer plans. A multiemployer 
plan is defined under section 414(f) as a plan maintained pursuant to 
one or more collective bargaining agreements with two or more unrelated 
employers and to which the employers are required to contribute under 
the collective bargaining agreement(s). Multiemployer plans are also 
known as Taft-Hartley plans.
    \293\ Rev. Proc. 03-86, 2003-2 C.B. 1211, and Rev. Proc. 2002-21, 
2002-1 C.B. 911, address the application of the multiple employer plan 
rules to qualified defined contribution plans maintained by PEOs.
---------------------------------------------------------------------------
            Application of Code requirements to multiple employer plans 
                    and EPCRS
    Some requirements are applied to a multiple employer plan 
on a plan-wide basis.\294\ For example, all employees covered 
by the plan are treated as employees of all employers 
participating in the plan for purposes of the exclusive benefit 
rule. Similarly, an employee's service with all participating 
employers is taken into account in applying the minimum 
participation and vesting requirements. In applying the limits 
on contributions and benefits, compensation, contributions, and 
benefits attributable to all employers are taken into 
account.\295\ Other requirements are applied separately, 
including the minimum coverage requirements, nondiscrimination 
requirements (both the general requirements and the special 
tests for section 401(k) plans), and the top-heavy rules.\296\ 
However, the qualified status of the plan as a whole is 
determined with respect to all employers maintaining the plan, 
and the failure by one employer (or by the plan itself) to 
satisfy an applicable qualification requirement may result in 
disqualification of the plan with respect to all employers 
(sometimes referred to as the ``one bad apple'' rule).\297\
---------------------------------------------------------------------------
    \294\ Sec. 413(c).
    \295\ Treas. Reg. sec. 1.415(a)-1(e).
    \296\ Treas. Reg. secs. 1.413-2(a)(3)(ii)-(iii) and 1.416-1, G-2.
    \297\ Treas. Reg. secs. 1.413-2(a)(3)(iv) and 1.416-1, G-2.
---------------------------------------------------------------------------
    Because of the complexity of the requirements for qualified 
retirement plans, errors in plan documents, as well as plan 
operation and administration, commonly occur. Under a strict 
application of these requirements, such an error would cause a 
plan to lose its tax-favored status, which would fall most 
heavily on plan participants because of the resulting current 
income inclusion of vested amounts under the plan. As a 
practical matter, therefore, the IRS rarely disqualifies a 
plan. Instead, the IRS has established the Employee Plans 
Compliance Resolution System (``EPCRS''), a formal program 
under which employers and other plan sponsors can correct 
compliance failures and continue to provide their employees 
with retirement benefits on a tax-favored basis.\298\
---------------------------------------------------------------------------
    \298\ Rev.oc. 2019-19, 2019-19 I.R.B. 1086, May 6, 2019.
---------------------------------------------------------------------------
    EPCRS has three components, providing for self-correction, 
voluntary correction with IRS approval, and correction on 
audit. The Self-Correction Program (``SCP'') generally permits 
a plan sponsor that has established compliance practices and 
procedures to correct certain insignificant failures at any 
time (including during an audit), and certain significant 
failures generally within a two-year period, without payment of 
any fee or sanction. The Voluntary Correction Program (``VCP'') 
permits an employer, at any time before an audit, to pay a 
limited fee and receive IRS approval of a correction. For a 
failure that is discovered on audit and corrected, the Audit 
Closing Agreement Program (``Audit CAP'') provides for a 
sanction that bears a reasonable relationship to the nature, 
extent, and severity of the failure and that takes into account 
the extent to which correction occurred before audit.
    Multiple employer plans are eligible for EPCRS, and certain 
special procedures apply.\299\ A VCP request with respect to a 
MEP must be submitted to the IRS by the plan administrator, 
rather than an employer maintaining the plan, and must be made 
with respect to the entire plan, rather than a portion of the 
plan affecting any particular employer. In addition, if a 
failure applies to fewer than all of the employers under the 
plan, the plan administrator may choose to have a VCP 
compliance fee or audit CAP sanction calculated separately for 
each employer based on the participants attributable to that 
employer, rather than having the compliance fee calculated 
based on the participants of the entire plan. For example, the 
plan administrator may choose this option when the failure is 
attributable to the failure of an employer to provide the plan 
administrator with full and complete information.
---------------------------------------------------------------------------
    \299\ Sec. 10.11 of Rev.oc. 2019-19.
---------------------------------------------------------------------------
    Executive Order 13847\300\ (issued on August 31, 2018) 
directed the Secretary to consider proposing amendments to 
regulations or other guidance regarding the circumstances under 
which a MEP may satisfy the tax qualification requirements, 
including the consequences if one or more employers that 
sponsored or adopted the plan fails to take one or more actions 
necessary to meet those requirements.
---------------------------------------------------------------------------
    \300\ 83 FR 45321, September 6, 2018.
---------------------------------------------------------------------------
    IRS issued proposed regulations\301\ that would provide an 
exception to the ``one bad apple'' rule where the following 
conditions are satisfied: (1) the MEP satisfies certain 
eligibility requirements (including having established 
practices and procedures (formal or informal) reasonably 
designed to promote compliance and a requirement to adopt 
relevant plan language); (2) the section 413(c) plan 
administrator provides (up to three separate) notice(s) and an 
opportunity for the unresponsive participating employer to take 
remedial action with respect to the failure of the 
participating employer; (3) if the unresponsive participating 
employer fails to take appropriate remedial action or initiate 
a spinoff with respect to the failure, the section 413(c) plan 
administrator implements a spinoff of the plan assets and 
account balances held on behalf of employees of the 
unresponsive participating employer that are attributable to 
their employment with that employer to a separate plan, 
followed by a termination of that plan; and (4) the section 
413(c) plan administrator complies with any information request 
that the IRS or a representative of the spun-off plan makes in 
connection with an IRS examination of the spun-off plan, 
including any information request related to the participation 
of the unresponsive participating employer in the MEP for years 
prior to the spinoff. If the MEP is under examination at the 
time the first notice is provided to an unresponsive 
participating employer, the MEP is not eligible for the 
exception. These proposed regulations have not been finalized.
---------------------------------------------------------------------------
    \301\ 84 FR 31777, July 3, 2019.
---------------------------------------------------------------------------

ERISA

            Fiduciary and bonding requirements
    Among other requirements, ERISA requires a plan to be 
established and maintained pursuant to a written instrument 
(that is, a plan document) that contains certain terms.\302\ 
The terms of the plan must provide for one or more named 
fiduciaries that jointly or severally have authority to control 
and manage the operation and administration of the plan.\303\ 
Among other required plan terms are a procedure for the 
allocation of responsibilities for the operation and 
administration of the plan and a procedure for amending the 
plan and for identifying the persons who have authority to 
amend the plan. Among other permitted terms, a plan may provide 
that any person or group of persons may serve in more than one 
fiduciary capacity with respect to the plan (including service 
both as trustee and administrator) and that a person who is a 
named fiduciary with respect to the control or management of 
plan assets may appoint an investment manager or managers to 
manage plan assets.
---------------------------------------------------------------------------
    \302\ ERISA sec. 402.
    \303\ Fiduciary is defined in ERISA section 3(21), and named 
fiduciary is defined in ERISA section 402(a)(2).
---------------------------------------------------------------------------
    In general, a plan fiduciary is responsible for the 
investment of plan assets. However, ERISA section 404(c) 
provides a special rule in the case of a defined contribution 
plan that permits participants to direct the investment of 
their individual accounts.\304\ Under the special rule, if 
various requirements are met, a participant is not deemed to be 
a fiduciary by reason of directing the investment of the 
participant's account and no person who is otherwise a 
fiduciary is liable for any loss, or by reason of any breach, 
that results from the participant's investments. Defined 
contribution plans that provide for participant-directed 
investments commonly offer a set of investment options among 
which participants may choose. The selection of investment 
options to be offered under a plan is subject to ERISA 
fiduciary requirements.
---------------------------------------------------------------------------
    \304\ ERISA sec. 404(c). Under ERISA, a defined contribution plan 
is also referred to as an individual account plan.
---------------------------------------------------------------------------
    Under ERISA, any plan fiduciary or person that handles plan 
assets is required to be bonded, generally for an amount not to 
exceed $500,000.\305\ In some cases, the maximum bond amount is 
$1 million, rather than $500,000.
---------------------------------------------------------------------------
    \305\ ERISA sec. 412.
---------------------------------------------------------------------------
            Multiple employer plan status under ERISA
    Like the Code, ERISA contains rules for multiple employer 
retirement plans.\306\ However, a different concept of multiple 
employer plan applies under ERISA.
---------------------------------------------------------------------------
    \306\ ERISA sec. 201(a).
---------------------------------------------------------------------------
    Under ERISA, an employee benefit plan (whether a pension 
plan or a welfare plan) must be sponsored by an employer, by an 
employee organization, or by both.\307\ The definition of 
employer is any person acting directly as an employer, or 
indirectly in the interest of an employer, in relation to an 
employee benefit plan, and includes a group or association of 
employers acting for an employer in such capacity.\308\
---------------------------------------------------------------------------
    \307\ ERISA secs. 3(1) and (2).
    \308\ ERISA sec. 3(5).
---------------------------------------------------------------------------
    Historically, these definitional provisions of ERISA have 
been interpreted as only permitting a multiple employer plan to 
be established or maintained by a cognizable, bona fide group 
or association of employers, acting in the interests of its 
employer members to provide benefits to their employees.\309\ 
This approach is based on the premise that the person or group 
that maintains the plan is tied to the employers and employees 
that participate in the plan by some common economic or 
representational interest or genuine organizational 
relationship unrelated to the provision of benefits. Based on 
the facts and circumstances, the employers that participate in 
the benefit program must, either directly or indirectly, 
exercise control over that program, both in form and in 
substance, in order to act as a bona fide employer group or 
association with respect to the program, or the plan is 
sponsored by one or more employers as defined in section 3(5) 
of ERISA.\310\ However, an employer association does not exist 
where several unrelated employers merely execute participation 
agreements or similar documents as a means to fund benefits, in 
the absence of any genuine organizational relationship between 
the employers. In that case, each participating employer 
establishes and maintains a separate employee benefit plan for 
the benefit of its own employees, rather than a multiple 
employer plan.
---------------------------------------------------------------------------
    \309\ See, e.g., Department of Labor Advisory Opinions 2012-04A, 
2003-17A, 2001-04A, and 1994-07A, and other authorities cited therein.
    \310\ See, e.g., Department of Labor Advisory Opinion 2017-02AC.
---------------------------------------------------------------------------
    On July 31, 2019, the Department of Labor (``DOL'') issued 
final regulations\311\ pursuant to Executive Order 13847\312\ 
which had directed the DOL to consider within 180 days whether 
to issue a notice of proposed rulemaking, other guidance, or 
both, that would clarify when a group or association of 
employers or other appropriate business or organization could 
be an ``employer'' within the meaning of ERISA section 3(5). 
The final regulation focuses its scope on MEPs sponsored by 
either a group or association of employers or by a PEO and is 
limited to defined contribution plans as defined in section 
3(34) of ERISA. The final regulation does not deal with pooled 
employer plans.
---------------------------------------------------------------------------
    \311\ 84 FR 37504, July 31, 2019. The DOL noted in the preamble to 
the final regulations that these final regulations differ significantly 
from the legislative proposals introduced in Congress, including H.R. 
1994, ``Setting Every Community Up for Retirement Enhancement Act of 
2019 (``SECURE Act'')'' which was passed unanimously by the House of 
Representatives on May 23, 2019 (and which subsequently was enacted 
into law as part of Pub. L. No. 116-94, Further Consolidated 
Appropriations Act, 2020 on December 20, 2019) which ``makes 
comprehensive changes to ERISA and the Code to facilitate open MEPs.'' 
DOL indicates that the final rule is significantly more limited in 
scope because it relies solely on the Department's authority to 
promulgate regulations administering title I of ERISA, and unlike 
Congress, DOL does not have the authority to make statutory changes to 
ERISA and other areas of law that govern retirement savings such as the 
Code.
    \312\ See footnote 23, supra. The Executive Order was issued on 
August 31, 2018.
---------------------------------------------------------------------------
    The final regulation recognizes that a bona fide group or 
association of employers may establish a MEP if such group or 
association meets the following requirements: (1) the primary 
purpose of the group or association may be to provide MEP 
coverage to its employer members and their employees, but there 
must also be at least one substantial business purpose 
unrelated to offering and providing MEP coverage or other 
employee benefits to the employer members and their employees; 
(2) each employer member of the group or association is a 
person acting directly as an employer of at least one employee 
who is a participant covered under the plan; (3) the group or 
association has a formal organizational structure with a 
governing body and has by-laws or other similar indications of 
formality; (4) the functions and activities of the group or 
association are controlled by its employer members, and the 
group's or association's employer members that participate in 
the plan control (in form and in substance) the plan; (5) the 
employer members have a commonality of interest; (6) plan 
participation is only permitted to employees and former 
employees of employer members, and their beneficiaries; and (7) 
the group or association is not a bank or trust company, 
insurance issuer, broker-dealer or other similar financial 
services firm. Under the final regulation, a bona fide PEO may 
establish a MEP. Certain ``working owners'' may also establish 
a MEP.

Form 5500 reporting

    Under the Code, an employer maintaining a qualified 
retirement plan generally is required to file an annual return 
containing information required under regulations with respect 
to the qualification, financial condition, and operation of the 
plan.\313\ ERISA requires the plan administrator of certain 
pension and welfare benefit plans to file annual reports 
disclosing certain information to the DOL.\314\ These filing 
requirements are met by filing a completed Form 5500, Annual 
Return/Report of Employee Benefit Plan. Forms 5500 are filed 
with DOL, and information from Forms 5500 is shared with the 
IRS.\315\ In the case of a multiple employer plan, the annual 
report must include a list of participating employers and a 
good faith estimate of the percentage of total contributions 
made by the participating employers during the plan year. 
Certain small plans, that is, plans covering fewer than 100 
participants, are eligible for simplified reporting 
requirements, which are met by filing Form 5500-SF, Short Form 
Annual Return/Report of Small Employee Benefit Plan.\316\
---------------------------------------------------------------------------
    \313\ Sec. 6058. In addition, under section 6059, the plan 
administrator of a defined benefit plan subject to the minimum funding 
requirements is required to file an annual actuarial report. Under 
section 414(g) and ERISA section 3(16), plan administrator generally 
means the person specifically so designated by the terms of the plan 
document. In the absence of a designation, the plan administrator 
generally is (1) in the case of a plan maintained by a single employer, 
the employer, (2) in the case of a plan maintained by an employee 
organization, the employee organization, or (3) in the case of a plan 
maintained by two or more employers or jointly by one or more employers 
and one or more employee organizations, the association, committee, 
joint board of trustees, or other similar group of representatives of 
the parties that maintain the plan. Under ERISA, the party described in 
(1), (2), or (3) is referred to as the ``plan sponsor.''
    \314\ ERISA secs. 103 and 104. Under ERISA section 4065, the plan 
administrator of certain defined benefit plans must provide information 
to the PBGC.
    \315\ Information is shared also with the PBGC, as applicable. Form 
5500 filings are also publicly released in accordance with section 
6104(b) and Treas. Reg. sec. 301.6104(b)-1 and ERISA sections 104(a)(1) 
and 106(a).
    \316\ ERISA sec. 104(b).
---------------------------------------------------------------------------

                        Explanation of Provision


In general

    The provision amends the Code rules relating to multiple 
employer plans to provide relief from the ``one-bad-apple'' 
rule for certain plans (referred to herein as ``covered 
multiple employer plans''). A covered multiple employer plan is 
a multiple employer qualified defined contribution plan \317\ 
or a plan that consists of IRAs (referred to herein as an ``IRA 
plan''), including under an IRA trust,\318\ that either (1) is 
maintained by employers which have a common interest other than 
having adopted the plan, or (2) in the case of a plan not 
described in (1), has a pooled plan provider (referred to 
herein as a ``pooled provider plan''), and which meets certain 
other requirements as described below.
---------------------------------------------------------------------------
    \317\ To which section 413(c) applies.
    \318\ Under the provision, in applying the exclusive benefit 
requirement under section 408(c) to an IRA plan with an IRA trust 
covering employees of unrelated employers, all employees covered by the 
plan are treated as employees of all employers participating in the 
plan.
---------------------------------------------------------------------------
    The provision outlines various requirements that apply to a 
pooled provider plan under the Code. It also outlines various 
requirements that apply under ERISA to a qualified defined 
contribution plan that is established or maintained for the 
purpose of providing benefits to the employees of two or more 
employers and that meets certain requirements to be a ``pooled 
employer plan,'' and provides that a pooled employer plan is 
treated for purposes of ERISA as a single plan that is a 
multiple employer plan.\319\
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    \319\ With respect to plans described under section 413(e)(1)(A), 
other than providing relief from the ``one-bad-apple'' rule if certain 
requirements are met and adding certain reporting requirements, the 
provision generally does not change present law and related guidance 
applicable to such multiple employer plans under the Code or ERISA.
---------------------------------------------------------------------------

Tax-favored status under the Code

            In general
    The provision provides relief from disqualification (or 
other loss of tax-favored status) of the entire plan merely 
because one or more participating employers fail to take 
actions required with respect to the plan (that is, relief from 
the ``one-bad-apple'' rule).
    Such relief under the provision does not apply to a plan 
unless the terms of the plan provide that, in the case of any 
employer in the plan failing to take required actions (referred 
to herein as a ``noncompliant employer''):
           Plan assets attributable to employees of the 
        noncompliant employer (or beneficiaries of such 
        employees) will be transferred to a plan maintained 
        only by that employer (or its successor), to a tax-
        favored retirement plan for each individual whose 
        account is transferred,\320\ or to any other 
        arrangement that the Secretary determines is 
        appropriate, unless the Secretary determines it is in 
        the best interests of the employees of the noncompliant 
        employer (and beneficiaries of such employees) to 
        retain the assets in the plan, and
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    \320\ For this purpose, a tax-favored retirement plan means an 
eligible retirement plan as defined in section 402(c)(8)(B), that is, 
an IRA, a qualified retirement plan, a tax-deferred annuity plan under 
section 403(b), or an eligible deferred compensation plan of a State or 
local governmental employer under section 457(b).
---------------------------------------------------------------------------
           The noncompliant employer (and not the plan 
        with respect to which the failure occurred or any other 
        employer in the plan) is, except to the extent provided 
        by the Secretary, liable for any plan liabilities 
        attributable to employees of the noncompliant employer 
        (or beneficiaries of such employees).
    In addition, in the case of a pooled provider plan, if the 
pooled plan provider does not perform substantially all the 
administrative duties required of the provider (as described 
below) for any plan year, the Secretary may provide that the 
determination as to whether the plan meets the Code 
requirements for tax-favored treatment will be made in the same 
manner as would be made without regard to the relief under the 
provision.
            Pooled plan provider
    Under the provision, ``pooled plan provider'' with respect 
to a plan means a person who:
           Is designated by the terms of the plan as a 
        named fiduciary under ERISA,\321\ as the plan 
        administrator, and as the person responsible to perform 
        all administrative duties (including conducting proper 
        testing with respect to the plan and the employees of 
        each employer in the plan) that are reasonably 
        necessary to ensure that the plan meets the Code 
        requirements for tax-favored treatment and the 
        requirements of ERISA and to ensure that each employer 
        in the plan takes actions as the Secretary or the 
        pooled plan provider determines necessary for the plan 
        to meet Code and ERISA requirements, including 
        providing to the pooled plan provider any disclosures 
        or other information that the Secretary may require or 
        that the pooled plan provider otherwise determines are 
        necessary to administer the plan or to allow the plan 
        to meet Code and ERISA requirements,
---------------------------------------------------------------------------
    \321\ Within the meaning of ERISA section 402(a)(2).
---------------------------------------------------------------------------
           Registers with the Secretary as a pooled 
        plan provider and provides any other information that 
        the Secretary may require, before beginning operations 
        as a pooled plan provider,
           Acknowledges in writing its status as a 
        named fiduciary under ERISA and as the plan 
        administrator, and
           Is responsible for ensuring that all persons 
        who handle plan assets or are plan fiduciaries are 
        bonded in accordance with ERISA requirements.
    The provision specifies that the Secretary may perform 
audits, examinations, and investigations of pooled plan 
providers as may be necessary to enforce and carry out the 
purposes of the provision.
    In addition, the provision provides that in determining 
whether a person meets the requirements to be a pooled plan 
provider with respect to any plan, all persons who perform 
services for the plan and who are treated as a single employer 
\322\ are treated as one person.
---------------------------------------------------------------------------
    \322\ Under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------
            Plan sponsor
    The provision also provides that, except with respect to 
the administrative duties (as a named fiduciary, as the plan 
administrator, and as the person responsible for the 
performance of all administrative duties) for which the pooled 
plan provider is responsible as described above, each employer 
in a plan which has a pooled plan provider will be treated as 
the plan sponsor with respect to the portion of the plan 
attributable to that employer's employees (or beneficiaries of 
such employees).
            Guidance
    The provision directs the Secretary to issue guidance that 
the Secretary determines appropriate to carry out the 
provision, including guidance (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, (2) that describes the 
procedures to be taken to terminate a plan that fails to meet 
the requirements to be a covered multiple employer plan, 
including the proper treatment of, and actions needed to be 
taken by, any employer in the plan and plan assets and 
liabilities attributable to employees of that employer (or 
beneficiaries of such employees), and (3) to identify 
appropriate cases in which corrective action will apply with 
respect to noncompliant employers. For purposes of (3), the 
Secretary is to take into account whether the failure of an 
employer or pooled plan provider to provide any disclosures or 
other information, or to take any other action, necessary to 
administer a plan or to allow a plan to meet the Code 
requirements for tax-favored treatment, has continued over a 
period of time that demonstrates a lack of commitment to 
compliance. An employer or pooled plan provider is not treated 
as failing to meet a requirement of guidance issued by the 
Secretary if, before the issuance of such guidance, the 
employer or pooled plan provider complies in good faith with a 
reasonable interpretation of the provisions to which the 
guidance relates.
    The provision also directs the Secretary to publish model 
plan language that meets the Code and ERISA requirements under 
the provision and that may be adopted in order to be treated as 
a pooled employer plan under ERISA.

Pooled employer plans under ERISA

            In general
    As described above, under the provision, a pooled employer 
plan is treated for purposes of ERISA as a single plan that is 
a multiple employer plan. A ``pooled employer plan'' is defined 
as a plan (1) that is an individual account plan established or 
maintained for the purpose of providing benefits to the 
employees of two or more employers, (2) that is a qualified 
retirement plan or an IRA plan, and (3) the terms of which meet 
the requirements described below. A pooled employer plan does 
not include a plan maintained by employers that have a common 
interest other than having adopted the plan.
    In order for a plan to be a pooled employer plan, the plan 
terms must:
           Designate a pooled plan provider and provide 
        that the pooled plan provider is a named fiduciary of 
        the plan,
           Designate one or more trustees (other than 
        an employer in the plan) \323\ to be responsible for 
        collecting contributions to, and holding the assets of, 
        the plan, and require the trustees to implement written 
        contribution collection procedures that are reasonable, 
        diligent, and systematic,
---------------------------------------------------------------------------
    \323\ Any trustee must meet the requirements under the Code to be 
an IRA trustee.
---------------------------------------------------------------------------
           Provide that each employer in the plan 
        retains fiduciary responsibility for the selection and 
        monitoring, in accordance with ERISA fiduciary 
        requirements, of the person designated as the pooled 
        plan provider and any other person who is also 
        designated as a named fiduciary of the plan, and, to 
        the extent not otherwise delegated to another fiduciary 
        by the pooled plan provider (and subject to the ERISA 
        rules relating to self-directed investments), the 
        investment and management of the portion of the plan's 
        assets attributable to the employees of that employer 
        (or beneficiaries of such employees) in the plan,
           Provide that employers in the plan, and 
        participants and beneficiaries, are not subject to 
        unreasonable restrictions, fees, or penalties with 
        regard to ceasing participation, receipt of 
        distributions, or otherwise transferring assets of the 
        plan in accordance with applicable rules for plan 
        mergers and transfers,
           Require the pooled plan provider to provide 
        to employers in the plan any disclosures or other 
        information that the Secretary of Labor may require, 
        including any disclosures or other information to 
        facilitate the selection or any monitoring of the 
        pooled plan provider by employers in the plan, and 
        require each employer in the plan to take any actions 
        that the Secretary of Labor or pooled plan provider 
        determines are necessary to administer the plan or to 
        allow for the plan to meet the ERISA and Code 
        requirements applicable to the plan, including 
        providing any disclosures or other information that the 
        Secretary of Labor may require or that the pooled plan 
        provider otherwise determines are necessary to 
        administer the plan or to allow the plan to meet such 
        ERISA and Code requirements, and
           Provide that any disclosure or other 
        information required to be provided as described above 
        may be provided in electronic form \324\ and will be 
        designed to ensure only reasonable costs are imposed on 
        pooled plan providers and employers in the plan.
---------------------------------------------------------------------------
    \324\ The provision does not change existing law and guidance with 
respect to furnishing documents through electronic media to 
participants and beneficiaries.
---------------------------------------------------------------------------
    In the case of a fiduciary of a pooled employer plan or a 
person handling assets of a pooled employer plan, the maximum 
bond amount under ERISA is $1 million.
    The term ``pooled employer plan'' does not include a 
multiemployer plan. Such term also does not include a plan 
established before the date of enactment of the SECURE Act 
unless the plan administrator elects to have the plan treated 
as a pooled employer plan and the plan meets the ERISA 
requirements applicable to a pooled employer plan established 
on or after such date.
            Pooled plan provider
    The definition of pooled plan provider for ERISA purposes 
is generally similar to the definition under the Code portion 
of the provision, described above.\325\ The ERISA definition 
requires a person to register as a pooled plan provider with 
the Secretary of Labor and provide any other information that 
the Secretary of Labor may require before beginning operations 
as a pooled plan provider.
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    \325\ In determining whether a person meets the requirements to be 
a pooled plan provider with respect to a plan, all persons who perform 
services for the plan and who are treated as a single employer under 
subsection (b), (c), (m), or (o) of section 414 are treated as one 
person.
---------------------------------------------------------------------------
    The provision specifies that the Secretary of Labor may 
perform audits, examinations, and investigations of pooled plan 
providers as may be necessary to enforce and carry out the 
purposes of the provision.
            Plan sponsor
    The provision also provides that except with respect to the 
administrative duties (as a named fiduciary, as the plan 
administrator, and as the person responsible for the 
performance of all administrative duties) for which the pooled 
plan provider is responsible as described above, each employer 
in a pooled employer plan will be treated as the plan sponsor 
with respect to the portion of the plan attributable to that 
employer's employees (or beneficiaries of such employees).
            Guidance
    The provision directs the Secretary of Labor to issue 
guidance that such Secretary determines appropriate to carry 
out the provision, including guidance (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, and (2) that requires, in 
appropriate cases of a noncompliant employer, plan assets 
attributable to employees of the noncompliant employer (or 
beneficiaries of such employees) to be transferred to a plan 
maintained only by that employer (or its successor), to a tax-
favored retirement plan for each individual whose account is 
transferred, or to any other arrangement that the Secretary of 
Labor determines in the guidance is appropriate,\326\ and the 
noncompliant employer (and not the plan with respect to which 
the failure occurred or any other employer in the plan) to be 
liable for any plan liabilities attributable to employees of 
the noncompliant employer (or beneficiaries of such employees), 
except to the extent provided in the guidance. For purposes of 
(2), the Secretary of Labor is to take into account whether the 
failure of an employer or pooled plan provider to provide any 
disclosures or other information, or to take any other action, 
necessary to administer a plan or to allow a plan to meet the 
requirements of ERISA and the Code requirements for tax-favored 
treatment, has continued over a period of time that 
demonstrates a lack of commitment to compliance. An employer or 
pooled plan provider is not treated as failing to meet a 
requirement of guidance issued by the Secretary if, before the 
issuance of such guidance, the employer or pooled plan provider 
complies in good faith with a reasonable interpretation of the 
provisions to which the guidance relates.
---------------------------------------------------------------------------
    \326\ The Secretary of Labor may waive the requirement to transfer 
assets to another plan or arrangement in appropriate circumstances if 
the Secretary of Labor determines it is in the best interests of the 
employees of the noncompliant employer (and the beneficiaries of such 
employees) to retain the assets in the pooled employer plan.
---------------------------------------------------------------------------

Form 5500 reporting

    Under the provision, the Form 5500 filing for a multiple 
employer plan (including a pooled employer plan) must include a 
list of the employers in the plan, a good faith estimate of the 
percentage of total contributions made by such employers during 
the plan year, and the aggregate account balances attributable 
to each employer in the plan (determined as the sum of the 
account balances of the employees of each employer (and the 
beneficiaries of such employees)); and with respect to a pooled 
employer plan, the identifying information for the person 
designated under the terms of the plan as the pooled plan 
provider. In addition, the provision adds to the list of 
pension plans to which simplified reporting may be prescribed 
by the Secretary of Labor, a multiple employer plan that covers 
fewer than 1,000 participants, but only if no single employer 
in the plan has 100 or more participants covered by the plan.

                             Effective Date

    The provision applies to plan years beginning after 
December 31, 2020, including reporting for purposes of Forms 
5500 for plan years beginning after December 31, 2020.
    Nothing in the Code amendments made by the provision is to 
be construed as limiting the authority of the Secretary (or the 
Secretary's delegate) to provide for the proper treatment of a 
failure to meet any Code requirement with respect to any 
employer (and its employees) in a multiple employer plan.

2. Increase in 10 percent cap for automatic enrollment safe harbor 
        after first plan year (sec. 102 of the Act and sec. 401(k) of 
        the Code)

                              Present Law


Section 401(k) plans

    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'').\327\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $19,000 (for 
2019) \328\ or, if less, the employee's compensation.\329\ For 
an employee who attains age 50 by the end of the year, the 
dollar limit on elective deferrals is increased by $6,000 (for 
2019) \330\ (called catch-up contributions).\331\ An employee's 
elective deferrals must be fully vested. A section 401(k) plan 
may also provide for employer matching and nonelective 
contributions.
---------------------------------------------------------------------------
    \327\ Elective deferrals generally are made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \328\ For 2020 and 2021, this amount is $19,500.
    \329\ Sec. 402(g).
    \330\ For 2020 and 2021, this amount is $6,500.
    \331\ Sec. 414(v).
---------------------------------------------------------------------------

Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\332\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \332\ Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate (referred to as a 
``default rate'') when an employee becomes eligible to 
participate unless the employee elects otherwise (that is, 
affirmatively elects not to make contributions or to make 
contributions at a different rate). This plan design is 
referred to as automatic enrollment.

Nondiscrimination test and automatic enrollment safe harbor

    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\333\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for 
nonhighly compensated employees and requires that the average 
deferral rate for highly compensated employees not exceed the 
average rate for nonhighly compensated employees by more than 
specified amounts. If a plan fails to satisfy the ADP test for 
a plan year based on the deferral elections of highly 
compensated employees, the plan is permitted to distribute 
deferrals to highly compensated employees (``excess 
deferrals'') in a sufficient amount to correct the failure. The 
distribution of the excess deferrals must be made by the close 
of the following plan year.\334\
---------------------------------------------------------------------------
    \333\ Sec. 401(k)(3).
    \334\ Sec. 401(k)(8).
---------------------------------------------------------------------------
    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (a ``401(k) safe 
harbor plan''), as well as certain required rights and features 
and satisfies a notice requirement.\335\ One type of 401(k) 
safe harbor includes automatic enrollment.
---------------------------------------------------------------------------
    \335\ Sec. 401(k)(12) and (13). If certain additional requirements 
are met, matching contributions under a section 401(k) safe harbor plan 
may also satisfy a nondiscrimination test applicable under section 
401(m).
---------------------------------------------------------------------------
    An automatic enrollment safe harbor plan must provide that, 
unless an employee elects otherwise, the employee is treated as 
electing to make elective deferrals at a default rate equal to 
a percentage of compensation as stated in the plan and at least 
(1) three percent of compensation through the end of the first 
plan year that begins after the first deemed election applies 
to the participant, (2) four percent during the second plan 
year, (3) five percent during the third plan year, and (4) six 
percent during the fourth plan year and thereafter. Although an 
automatic enrollment safe harbor plan generally may provide for 
default rates higher than these minimum rates, the default rate 
cannot exceed 10 percent for any year.

                        Explanation of Provision

    Under the provision, the 10-percent limitation on the 
default rates under an automatic enrollment safe harbor plan is 
increased to 15 percent after the first plan year that begins 
after an employee's deemed election applies.

                             Effective Date

    The provision applies to plan years beginning after 
December 31, 2019.

3. Rules relating to election of safe harbor 401(k) status (sec. 103 of 
        the Act and sec. 401(k) of the Code)

                              Present Law


Section 401(k) plans

    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'').\336\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $19,000 (for 
2019) \337\ or, if less, the employee's compensation.\338\ For 
an employee who attains age 50 by the end of the year, the 
dollar limit on elective deferrals is increased by $6,000 (for 
2019) \339\ (called catch-up contributions).\340\ An employee's 
elective deferrals must be fully vested. A section 401(k) plan 
may also provide for employer matching and nonelective 
contributions.
---------------------------------------------------------------------------
    \336\ Elective deferrals generally are made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \337\ For 2020 and 2021, this amount is $19,500.
    \338\ Sec. 402(g).
    \339\ For 2020 and 2021, this amount is $6,500.
    \340\ Sec. 414(v).
---------------------------------------------------------------------------

Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\341\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \341\ Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate when an employee becomes 
eligible to participate unless the employee elects otherwise 
(that is, affirmatively elects not to make contributions or to 
make contributions at a different rate). This plan design is 
referred to as automatic enrollment.

Nondiscrimination test

            General rule and design-based safe harbors
    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\342\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for 
nonhighly compensated employees and requires that the average 
deferral rate for highly compensated employees not exceed the 
average rate for nonhighly compensated employees by more than 
certain specified amounts. If a plan fails to satisfy the ADP 
test for a plan year based on the deferral elections of highly 
compensated employees, the plan is permitted to distribute 
deferrals to highly compensated employees (``excess 
deferrals'') in a sufficient amount to correct the failure. The 
distribution of the excess deferrals must be made by the close 
of the following plan year.\343\
---------------------------------------------------------------------------
    \342\ Sec. 401(k)(3).
    \343\ Sec. 401(k)(8).
---------------------------------------------------------------------------
    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (``401(k) safe 
harbor plan''), described below, as well as certain required 
rights and features and satisfies a notice requirement.\344\
---------------------------------------------------------------------------
    \344\ Sec. 401(k)(12) and (13). If certain additional requirements 
are met, matching contributions under 401(k) safe harbor plan may also 
satisfy a nondiscrimination test applicable under section 401(m).
---------------------------------------------------------------------------
            Safe harbor contributions
    Under one type of 401(k) safe harbor plan (``basic 401(k) 
safe harbor plan''), the plan either (1) satisfies a matching 
contribution requirement (``matching contribution basic 401(k) 
safe harbor plan'') or (2) provides for a nonelective 
contribution to a defined contribution plan of at least three 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the plan (``nonelective basic 401(k) safe harbor plan''). 
The matching contribution requirement under the matching 
contribution basic 401(k) safe harbor requires a matching 
contribution equal to at least 100 percent of elective 
contributions of the employee for contributions not in excess 
of three percent of compensation, and 50 percent of elective 
contributions for contributions that exceed three percent of 
compensation but do not exceed five percent, for a total 
matching contribution of up to four percent of compensation. 
The required matching contributions and the three percent 
nonelective contribution under the basic 401(k) safe harbor 
must be immediately nonforfeitable (that is, 100 percent 
vested) when made.
    Another safe harbor applies for a section 401(k) plan that 
includes automatic enrollment (``automatic enrollment 401(k) 
safe harbor''). Under an automatic enrollment 401(k) safe 
harbor, unless an employee elects otherwise, the employee is 
treated as electing to make elective deferrals equal to a 
percentage of compensation as stated in the plan, not in excess 
of 10 percent and at least (1) three percent of compensation 
for the first year the deemed election applies to the 
participant, (2) four percent during the second year, (3) five 
percent during the third year, and (4) six percent during the 
fourth year and thereafter.\345\ Under the automatic enrollment 
401(k) safe harbor, the matching contribution requirement is 
100 percent of elective contributions of the employee for 
contributions not in excess of one percent of compensation, and 
50 percent of elective contributions for contributions that 
exceed one percent of compensation but do not exceed six 
percent, for a total matching contribution of up to 3.5 percent 
of compensation (``matching contribution automatic enrollment 
401(k) safe harbor''). The rate of nonelective contribution 
under the automatic enrollment 401(k) safe harbor plan is three 
percent, as under the basic 401(k) safe harbor (``nonelective 
contribution automatic enrollment 401(k) safe harbor''). 
However, under the automatic enrollment 401(k) safe harbors, 
the matching and nonelective contributions are allowed to 
become 100 percent vested only after two years of service 
(rather than being required to be immediately vested when 
made).
---------------------------------------------------------------------------
    \345\ These automatic increases in default contribution rates are 
required for plans using the safe harbor. Rev. Rul. 2009-30, 2009-39 
I.R.B. 391, provides guidance for including automatic increases in 
other plans using automatic enrollment, including under a plan that 
includes an eligible automatic contribution arrangement.
---------------------------------------------------------------------------
            Safe harbor notice
    The notice requirement for a 401(k) safe harbor plan is 
satisfied if each employee eligible to participate is given, 
within a reasonable period before any year, written notice of 
the employee's rights and obligations under the arrangement and 
the notice meets certain content and timing requirements 
(``safe harbor notice''). To meet the content requirements, a 
safe harbor notice must be sufficiently accurate and 
comprehensive to inform an employee of the employee's rights 
and obligations under the plan, and be written in a manner 
calculated to be understood by the average employee eligible to 
participate in the plan. A safe harbor notice must provide 
certain information, including the plan's safe harbor 
contributions, any other plan contributions, the type and 
amount of compensation that may be deferred under the plan, how 
to make cash or deferred elections, the plan's withdrawal and 
vesting provisions, and specified contact information. In 
addition, a safe harbor notice for an automatic enrollment 
401(k) safe harbor must describe certain additional 
information, including the deemed deferral elections under the 
plan if the employee does not make an affirmative election and 
how contributions will be invested.

Delay in adopting nonelective 401(k) safe harbor

    Generally, the plan provisions for the requirements that 
must be satisfied to be a 401(k) safe harbor plan must be 
adopted before the first day of the plan year and remain in 
effect for an entire 12-month plan year. However, in the case 
of a nonelective 401(k) safe harbor plan (but not the matching 
contribution 401(k) safe harbor), a plan may be amended after 
the first day of the plan year but no later than 30 days before 
the end of the plan year to adopt the safe harbor plan 
provisions including providing the 3 percent of compensation 
nonelective contribution. The plan must also provide a 
contingent and follow-up notice. The contingent notice must be 
provided before the beginning of the plan year and must specify 
that the plan may be amended to include the safe harbor 
nonelective contribution and that, if it is so amended, a 
follow-up notice will be provided. If the plan is amended, the 
follow-up notice must be provided no later than 30 days before 
the end of the plan year stating that the safe harbor 
nonelective contribution will be provided.

                        Explanation of Provision


In general

    The provision makes a number of changes to the rules for 
the nonelective contribution 401(k) safe harbor.

Elimination of notice requirement

    The provision eliminates the safe harbor notice requirement 
with respect to nonelective 401(k) safe harbor plans. However, 
the general rule under present law requiring a section 401(k) 
plan to provide each eligible employee with an effective 
opportunity to make or change an election to make elective 
deferrals at least once each plan year still applies. As 
described above, relevant factors used in determining if this 
requirement is satisfied include the adequacy of notice of the 
availability of the election and the period of time during 
which an election may be made.

Delay in adopting provisions for nonelective 401(k) safe harbor

    Under the provision, a plan can be amended to become a 
nonelective 401(k) safe harbor plan for a plan year (that is, 
amended to provide the required nonelective contributions and 
thereby satisfy the safe harbor requirements) at any time 
before the 30th day before the close of the plan year.
    Further, the provision allows a plan to be amended after 
the 30th day before the close of the plan year to become a 
nonelective contribution 401(k) safe harbor plan for the plan 
year if (1) the plan is amended to provide for a nonelective 
contribution of at least four percent of compensation (rather 
than at least three percent) for all eligible employees for 
that plan year and (2) the plan is amended no later than the 
last day for distributing excess contributions for the plan 
year (generally, by the close of following plan year).

                             Effective Date

    The provision applies to plan years beginning after 
December 31, 2019.

4. Increase in credit limitation for small employer pension plan 
        startup costs (sec. 104 of the Act and sec. 45E of the Code)

                              Present Law

    A nonrefundable income tax credit is available for 
qualified startup costs of an eligible small employer that 
adopts a new qualified retirement plan, SIMPLE IRA plan, or SEP 
(referred to as an ``eligible employer plan''), provided that 
the plan covers at least one nonhighly compensated 
employee.\346\ Qualified startup costs are expenses connected 
with the establishment or administration of the plan or 
retirement-related education for employees with respect to the 
plan. The credit is the lesser of (1) a flat dollar amount of 
$500 per year or (2) 50 percent of the qualified startup costs. 
The credit applies for up to three years beginning with the 
year the plan is first effective, or, at the election of the 
employer, with the year preceding the first plan year.
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    \346\ A nonhighly compensated employee is an employee who is not a 
highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
    An eligible employer is an employer that, for the preceding 
year, had no more than 100 employees, each with compensation of 
$5,000 or more. In addition, the employer must not have had a 
plan covering substantially the same employees as the new plan 
during the three years preceding the first year for which the 
credit would apply. Members of controlled groups and affiliated 
service groups are treated as a single employer for purposes of 
these requirements.\347\ All eligible employer plans of an 
employer are treated as a single plan.
---------------------------------------------------------------------------
    \347\ Secs. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of qualified 
startup costs paid or incurred for the taxable year equal to 
the amount of the credit.

                        Explanation of Provision

    The provision changes the calculation of the flat dollar 
amount limit on the credit. The flat dollar amount for a 
taxable year is the greater of (1) $500 or (2) the lesser of 
(a) $250 multiplied by the number of nonhighly compensated 
employees of the eligible employer who are eligible to 
participate in the plan or (b) $5,000. As under present law, 
the credit applies for up to three years.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2019.

5. Small employer automatic enrollment credit (sec. 105 of the Act and 
        new sec. 45T of the Code)

                              Present Law


Small employer startup credit

    A nonrefundable income tax credit is available for 
qualified startup costs of an eligible small employer that 
adopts a new qualified retirement plan, SIMPLE IRA plan or SEP 
(referred to as an eligible employer plan), provided that the 
plan covers at least one nonhighly compensated employee.\348\ 
Qualified startup costs are expenses connected with the 
establishment or administration of the plan or retirement-
related education for employees with respect to the plan. The 
credit is the lesser of (1) a flat dollar amount of $500 per 
year or (2) 50 percent of the qualified startup costs. The 
credit applies for up to three years beginning with the year 
the plan is first effective, or, at the election of the 
employer, with the year preceding the first plan year.
---------------------------------------------------------------------------
    \348\ Sec. 45E. A nonhighly compensated employee is an employee who 
is not a highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
    An eligible employer is an employer that, for the preceding 
year, had no more than 100 employees with compensation of 
$5,000 or more. In addition, the employer must not have had a 
plan covering substantially the same employees as the new plan 
during the three years preceding the first year for which the 
credit would apply. Members of controlled groups and affiliated 
service groups are treated as a single employer for purposes of 
these requirements.\349\ All eligible employer plans of an 
employer are treated as a single plan.
---------------------------------------------------------------------------
    \349\ Secs. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of qualified 
startup costs paid or incurred for the taxable year equal to 
the amount of the credit.

Automatic enrollment

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement under which employees 
may elect to have plan contributions (``elective deferrals'') 
made rather than receive cash compensation (commonly called a 
``section 401(k) plan''). A SIMPLE IRA plan is an employer-
sponsored retirement plan funded with individual retirement 
arrangements (``IRAs'') that also allows employees to make 
elective deferrals.\350\ Section 401(k) plans and SIMPLE IRA 
plans may be designed so that the employee will receive cash 
compensation unless the employee affirmatively elects to make 
elective deferrals to the plan. Alternatively, a plan may 
provide that elective deferrals are made at a specified rate 
(when the employee becomes eligible to participate) unless the 
employee elects otherwise (i.e., affirmatively elects not to 
make contributions or to make contributions at a different 
rate). This alternative plan design is referred to as automatic 
enrollment.
---------------------------------------------------------------------------
    \350\ Sec. 408(p).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, an eligible employer is allowed a 
credit of $500 per year for up to three years for startup costs 
for new section 401(k) plans and SIMPLE IRA plans that include 
automatic enrollment, in addition to the plan startup credit 
allowed under present law. An eligible employer is also allowed 
a credit of $500 per year for up to three years if it converts 
an existing plan to an automatic enrollment design.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2019.

6. Certain taxable non-tuition fellowship and stipend payments treated 
        as compensation for IRA purposes (sec. 106 of the Act and sec. 
        219 of the Code)

                              Present Law

    There are two general types of individual retirement 
arrangements (``IRAs''): traditional IRAs and Roth IRAs.\351\ 
The total amount that an individual may contribute to one or 
more IRAs for a year is generally limited to the lesser of: (1) 
a dollar amount ($6,000 for 2019) \352\; and (2) the amount of 
the individual's compensation that is includible in gross 
income for the year.\353\ In the case of an individual who has 
attained age 50 by the end of the year, the dollar amount is 
increased by $1,000. In the case of a married couple, 
contributions can be made up to the dollar limit for each 
spouse if the combined compensation of the spouses that is 
includible in gross income is at least equal to the contributed 
amount. An individual may make contributions to a traditional 
IRA (up to the contribution limit) without regard to his or her 
adjusted gross income.
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    \351\ Secs. 408 and 408A.
    \352\ The limit in 2020 and 2021 is also $6,000.
    \353\ Sec. 219(b)(2) and (5), as referenced in secs. 408(a)(1) and 
(b)(2)(B) and 408A(c)(2). Under section 4973, IRA contributions in 
excess of the applicable limit are generally subject to an excise tax 
of six percent per year until withdrawn.
---------------------------------------------------------------------------
    An individual may deduct his or her contributions to a 
traditional IRA if neither the individual nor the individual's 
spouse is an active participant in an employer-sponsored 
retirement plan. If an individual or the individual's spouse is 
an active participant in an employer-sponsored retirement plan, 
the deduction is phased out for taxpayers with adjusted gross 
income over certain levels.\354\
---------------------------------------------------------------------------
    \354\ Sec. 219(g).
---------------------------------------------------------------------------
    Individuals with adjusted gross income below certain levels 
may make contributions to a Roth IRA (up to the contribution 
limit).\355\ Contributions to a Roth IRA are not deductible.
---------------------------------------------------------------------------
    \355\ Sec. 408A(c)(3).
---------------------------------------------------------------------------
    As described above, an individual's IRA contributions 
generally cannot exceed the amount of his or her compensation 
that is includible in gross income. Subject to the rule for 
spouses, described above, an individual who has no includible 
compensation income generally is not eligible to make IRA 
contributions, even if the individual has other income that is 
includible in gross income.\356\
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    \356\ Under a special rule in section 219(f)(1), alimony that is 
includible in gross income under section 71 is treated as compensation 
for IRA contribution purposes.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, an amount includible in an 
individual's income and paid to the individual to aid the 
individual in the pursuit of graduate or postdoctoral study or 
research (such as a fellowship, stipend, or similar amount) is 
treated as compensation for purposes of IRA contributions.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2019.

7. Repeal of maximum age for traditional IRA contributions (sec. 107 of 
        the Act and sec. 219 of the Code)

                              Present Law


IRA rules

    An individual may make deductible contributions to a 
traditional IRA up to the IRA contribution limit if neither the 
individual nor the individual's spouse is an active participant 
in an employer-sponsored retirement plan.\357\ If an individual 
(or the individual's spouse) is an active participant in an 
employer-sponsored retirement plan, the deduction is phased out 
for taxpayers with adjusted gross income (``AGI'') for the 
taxable year over certain indexed levels.\358\ To the extent an 
individual cannot or does not make deductible contributions to 
a traditional IRA, the individual may make nondeductible 
contributions to a traditional IRA (without regard to AGI 
limits). Alternatively, subject to AGI limits, an individual 
may make nondeductible contributions to a Roth IRA.\359\
---------------------------------------------------------------------------
    \357\ Sec. 219.
    \358\ Sec. 219(g).
    \359\ Sec. 408(o). The annual contribution limit for IRAs is 
coordinated so that the maximum amount that can be contributed to all 
of an individual's IRAs (both traditional and Roth) for a taxable year 
is the lesser of a certain dollar amount ($6,000 for 2019, 2020, and 
2021) or the individual's compensation.
---------------------------------------------------------------------------
    An individual who has attained age 70\1/2\ by the close of 
a year is not permitted to make contributions to a traditional 
IRA.\360\ This restriction does not apply to contributions to a 
Roth IRA.\361\ In addition, employees over age 70\1/2\ are not 
precluded from contributing to employer-sponsored plans.
---------------------------------------------------------------------------
    \360\ Sec. 219(d)(1).
    \361\ Sec. 408A(c)(4).
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Qualified charitable distributions

    Otherwise taxable IRA distributions from a traditional or 
Roth IRA are excluded from gross income to the extent they are 
qualified charitable distributions.\362\ The exclusion may not 
exceed $100,000 per taxpayer per taxable year. Special rules 
apply in determining the amount of an IRA distribution that is 
otherwise taxable. The otherwise applicable rules regarding 
taxation of IRA distributions and the deduction of charitable 
contributions continue to apply to distributions from an IRA 
that are not qualified charitable distributions.
---------------------------------------------------------------------------
    \362\ Sec. 408(d)(8). The exclusion does not apply to distributions 
from employer-sponsored retirement plans, including SIMPLE IRAs and 
simplified employee pensions (``SEPs'').
---------------------------------------------------------------------------
    A qualified charitable distribution is any distribution 
from an IRA directly by the IRA trustee to an organization 
described in section 170(b)(1)(A) (generally, public charities) 
other than a supporting organization \363\ or a donor advised 
fund.\364\ Distributions are eligible for the exclusion only if 
made on or after the date the owner attains age 70\1/2\ and 
only to the extent the distribution would be includible in 
gross income (without regard to this provision).
---------------------------------------------------------------------------
    \363\ Supporting organizations are described in sec. 509(a)(3).
    \364\ Defined in section 4966(d)(2).
---------------------------------------------------------------------------
    The exclusion applies only if a charitable contribution 
deduction for the entire distribution otherwise would be 
allowable (under present law), determined without regard to the 
generally applicable percentage limitations. Distributions that 
are excluded from gross income by reason of the qualified 
charitable distribution provision are not taken into account in 
determining the deduction for charitable contributions under 
section 170.

                        Explanation of Provision

    The provision repeals the prohibition on contributions to a 
traditional IRA by an individual who has attained age 70\1/2\.
    The provision also amends the rules relating to qualified 
charitable distributions to coordinate with this repeal so that 
an individual who receives a deduction for a contribution to a 
traditional IRA for years ending on or after age 70\1/2\ is not 
eligible to exclude such amount from income as a qualified 
charitable distribution. Thus, under the provision, the amount 
of qualified charitable distributions otherwise excludable from 
an individual's gross income for a taxable year is reduced (but 
not below zero) by the excess of (i) the aggregate amount of 
deductions allowed to the taxpayer for contributions to a 
traditional IRA for taxable years ending on or after the 
individual attains age 70\1/2\, over (ii) the aggregate amount 
of reductions for all taxable years preceding the current year.

                             Effective Date

    The repeal of the prohibition on contributions to a 
traditional IRA by an individual who has attained age 70\1/2\ 
applies to contributions made for taxable years beginning after 
December 31, 2019. The coordinating provision related to 
qualified charitable distributions is effective for 
distributions made for taxable years beginning after December 
31, 2019.

8. Qualified employer plans prohibited from making loans through credit 
        cards and other similar arrangements (sec. 108 of the Act and 
        sec. 72(p) of the Code)

                              Present Law

    Employer-sponsored retirement plans may provide loans to 
participants. Unless a retirement plan loan satisfies certain 
requirements in both form and operation, the amount of the loan 
is a deemed distribution from the retirement plan. There are 
certain requirements that the loan must satisfy for a 
retirement plan to be able to make a loan to a participant. 
First, the loan amount must not exceed the lesser of 50 percent 
of the participant's account balance or $50,000 (generally 
taking into account outstanding balances of previous 
loans).\365\ Second, the loan's terms must provide for a 
repayment period of not more than five years (except for a loan 
specifically designated to purchase a home). Third, level 
amortization of loan payments must be made not less frequently 
than quarterly.\366\ 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 a 10-percent early distribution 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 precludes any additional loan that would cause the limit 
to be exceeded, the rules relating to loans do not limit the 
number of loans an employee may obtain from a plan. Some 
arrangements have developed under which an employee can access 
plan loans through the use of a credit card or similar 
mechanism.
---------------------------------------------------------------------------
    \365\ There are certain exceptions to this rule for loans, for 
example, individuals eligible to receive a coronavirus-related 
distribution under section 2202 of the CARES Act (Pub. L. No. 116-136) 
may take a loan during a specified period of time equal to the lesser 
of the present value of the nonforfeitable accrued benefit of the 
employee under the plan or $100,000 (and certain other rules apply to 
such loans). Special rules for loans also apply for certain individuals 
impacted by specified disasters. See, e.g., section 302 of the Taxpayer 
Certainty and Disaster Tax Relief Act of 2020 (Division EE of Pub. L. 
No. 116-260).
    \366\ Sec. 72(p).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, a plan loan that is made through the 
use of a credit card or similar arrangement does not meet the 
requirements for loan treatment applicable to qualified 
retirement plans and is therefore a deemed distribution.

                             Effective Date

    The provision applies to loans made after the date of 
enactment.

9. Portability of lifetime income options (sec. 109 of the Act and 
        secs. 401(a), 401(k), 403(b), and 457(d) of the Code)

                              Present Law


Distribution restrictions for accounts under employer-sponsored plans

            Types of plans and contributions
    Tax-favored employer-sponsored retirement plans under which 
individual accounts are maintained for employees include 
qualified defined contribution plans, tax-deferred annuity 
plans (referred to as ``section 403(b)'' plans), and eligible 
deferred compensation plans of State and local government 
employers (referred to as ``governmental section 457(b)'' 
plans).\367\
---------------------------------------------------------------------------
    \367\ Secs. 401(a), 403(a) and (b), and 457(b) and (e)(1)(A).
---------------------------------------------------------------------------
    Contributions to a qualified defined contribution plan or 
section 403(b) plan may include some or all of the following 
types of contributions:
           Pretax elective deferrals (that is, pretax 
        contributions made at the election of an employee in 
        lieu of receiving cash compensation),
           After-tax designated Roth contributions 
        (that is, elective deferrals made on an after-tax basis 
        to a Roth account under the plan),
           After-tax employee contributions (other than 
        designated Roth contributions),
           Pretax employer matching contributions (that 
        is, employer contributions made as a result of an 
        employee's elective deferrals, designated Roth 
        contributions, or after-tax contributions), and
           Pretax employer nonelective contributions 
        (that is, employer contributions made without regard to 
        whether an employee makes elective deferrals, 
        designated Roth contributions, or after-tax 
        contributions).
    Contributions to a governmental section 457(b) plan 
generally consist of pretax elective deferrals and, if provided 
for under the plan, designated Roth contributions.
            Restrictions on in-service distributions
    The terms of an employer-sponsored retirement plan 
generally determine when distributions are permitted. However, 
in some cases, statutory restrictions on distributions may 
apply.
    Elective deferrals under a qualified defined contribution 
plan are subject to statutory restrictions on distribution 
before severance from employment, referred to as ``in-service'' 
distributions.\368\ In-service distributions of elective 
deferrals (and related earnings) generally are permitted only 
after attainment of age 59\1/2\ or termination of the plan. In-
service distributions of elective deferrals (but not related 
earnings) are also permitted in the case of hardship.\369\
---------------------------------------------------------------------------
    \368\ Sec. 401(k)(2)(B). Similar restrictions apply to certain 
other contributions, such as employer matching or nonelective 
contributions required under the nondiscrimination safe harbors under 
section 401(k).
    \369\ The Bipartisan Budget Act of 2018, Pub. L. No. 115-123 
(``BBA''), amends certain hardship distribution rules applicable to 
401(k) plans, effective for plan years beginning after December 31, 
2018. One such amendment under BBA section 41114 permits earnings on 
elective deferrals under a section 401(k) plan, as well as qualified 
nonelective contributions and qualified matching contributions (and 
attributable earnings), to be distributed on account of hardship.
---------------------------------------------------------------------------
    Other distribution restrictions may apply to contributions 
under certain types of qualified defined contribution plans. A 
profit-sharing plan generally may allow an in-service 
distribution of an amount contributed to the plan only after a 
fixed number of years (not less than two).\370\ A money 
purchase pension plan generally may not allow an in-service 
distribution before attainment of age 59\1/2\ (or attainment of 
normal retirement age under the plan if earlier) or termination 
of the plan.\371\
---------------------------------------------------------------------------
    \370\ Rev. Rul. 71-295, 1971-2 C.B. 184, and Treas. Reg. sec. 
1.401-1(b)(1)(ii). Similar rules apply to a stock bonus plan. Treas. 
Reg. sec. 1.401-1(b)(1)(iii).
    \371\ Sec. 401(a)(36) as modified by sec. 104(b) of the Bipartisan 
American Miners Act of 2019 (Division M of Pub. L. No. 116-94).
---------------------------------------------------------------------------
    Elective deferrals under a section 403(b) plan are subject 
to in-service distribution restrictions similar to those 
applicable to elective deferrals under a qualified defined 
contribution plan, and, in some cases, other contributions to a 
section 403(b) plan are subject to similar restrictions.\372\ 
Deferrals under a section 457(b) plan are subject to in-service 
distribution restrictions similar to those applicable to 
elective deferrals under a qualified defined contribution plan. 
In-service distribution restrictions apply under a section 
457(b) plan until age 70\1/2\, except that, in the case of a 
governmental section 457(b) plan, in-service distribution 
restrictions apply until attainment of age 59\1/2\).\373\
---------------------------------------------------------------------------
    \372\ Sec. 403(b)(7)(A)(ii) and (11).
    \373\ Sec. 457(d)(1)(A) as modified by sec. 104(a) of Division M, 
``Bipartisan American Miners,'' of Pub. L. No. 116-94, Further 
Consolidated Appropriations Act, 2020, December 20, 2019.
---------------------------------------------------------------------------

Distributions and rollovers

    A distribution from an employer-sponsored retirement plan 
is generally includible in income except for any portion 
attributable to after-tax contributions, which result in 
basis.\374\ Unless an exception applies, in the case of a 
distribution before age 59\1/2\ from a qualified retirement 
plan or a section 403(b) plan, any amount included in income is 
subject to an additional 10-percent tax, referred to as the 
``early withdrawal'' tax.\375\
---------------------------------------------------------------------------
    \374\ Secs. 402(a), 403(b)(1), and 457(a)(1). Under section 
402A(d), a qualified distribution from a designated Roth account under 
an employer-sponsored plan is not includible in income.
    \375\ Sec. 72(t).
---------------------------------------------------------------------------
    A distribution from an employer-sponsored retirement plan 
generally may be rolled over on a nontaxable basis to another 
such plan or to an individual retirement arrangement (``IRA''), 
either by a direct transfer to the recipient plan or IRA or by 
contributing the distribution to the recipient plan or IRA 
within 60 days of receiving the distribution.\376\ If the 
distribution from an employer-sponsored retirement plan 
consists of property, the rollover is accomplished by a 
transfer or contribution of the property to the recipient plan 
or IRA.
---------------------------------------------------------------------------
    \376\ Secs. 402(c), 402A(c)(3), 403(b)(8), and 457(e)(16).
---------------------------------------------------------------------------

Investment of accounts under employer-sponsored plans

    Qualified defined contribution plans, section 403(b) plans, 
and governmental section 457(b) plans commonly allow employees 
to direct the manner in which their accounts are invested. 
Employees may be given a choice among specified investments, 
such as a choice of specified mutual funds, and, in some cases, 
may be able to direct the investment of their accounts in any 
product, instrument, or investment offered in the market.
    The investment options under a particular employer-
sponsored retirement plan may change at times.\377\ Similarly, 
a plan that allows employees to direct the investment of their 
accounts in any product, instrument, or investment offered in 
the market may be amended to limit the investments that can be 
held in the plan. In these cases, employees may be required to 
change the investments held within their accounts.
---------------------------------------------------------------------------
    \377\ In the case of a plan subject to ERISA, a participant's 
exercise of control over the investment of the assets in his or her 
account by choosing among the investment options offered under the plan 
does not relieve a plan fiduciary from the duty to prudently select and 
monitor the investment options offered to participants. 29 C.F.R. sec. 
2550.404c-1(d)(2)(iv); Tibble v. Edison International, No. 13-550, 135 
S. Ct. 1823 (2015). The exercise of the duty to monitor investment 
options may result in a change in the options offered.
---------------------------------------------------------------------------
    The terms of some investments impose a charge or fee when 
the investment is liquidated, particularly if the investment is 
liquidated within a particular period after acquisition. For 
example, a lifetime income product, such as an annuity 
contract, may impose a surrender charge if the investment is 
discontinued.
    If an employee must liquidate an investment held in an 
employer-sponsored retirement plan because of a change in 
investment options or a limit on investments held in the plan, 
the employee may be subject to a charge or fee as described 
above. In addition, restrictions on in-service distributions 
may prevent the employee from preserving the investment through 
a rollover.

                        Explanation of Provision

    Under the provision, if a lifetime income investment is no 
longer authorized to be held as an investment option under a 
qualified defined contribution plan (including a section 401(k) 
plan), a section 403(b) plan, or a governmental section 457(b) 
plan, except as otherwise provided in guidance, the plan does 
not fail to satisfy the Code requirements applicable to the 
plan solely by reason of allowing (1) qualified distributions 
of a lifetime income investment, or (2) distributions of a 
lifetime income investment in the form of a qualified plan 
distribution annuity contract. Such a distribution must be made 
within the 90-day period ending on the date when the lifetime 
income investment is no longer authorized to be held as an 
investment option under the plan.
    For purposes of the provision, a qualified distribution is 
a direct trustee-to-trustee transfer to another employer-
sponsored retirement plan or IRA.\378\ A lifetime income 
investment is an investment option designed to provide an 
employee with election rights (1) that are not uniformly 
available with respect to other investment options under the 
plan, and (2) that are rights to a lifetime income feature 
available through a contract or other arrangement offered under 
the plan (or under another employer-sponsored retirement plan 
or IRA through a direct trustee-to-trustee transfer). A 
lifetime income feature is (1) a feature that guarantees a 
minimum level of income annually (or more frequently) for at 
least the remainder of the life of the employee or the joint 
lives of the employee and the employee's designated 
beneficiary, or (2) an annuity payable on behalf of the 
employee under which payments are made in substantially equal 
periodic payments (not less frequently than annually) over the 
life of the employee or the joint lives of the employee and the 
employee's designated beneficiary. Finally, a qualified plan 
distribution annuity contract is an annuity contract purchased 
for a participant and distributed to the participant by an 
employer-sponsored retirement plan or an employer-sponsored 
retirement plan contract.\379\
---------------------------------------------------------------------------
    \378\ For this purpose, an employer-sponsored retirement plan or 
IRA means such a plan or IRA that is an eligible retirement plan under 
section 402(c)(8)(B).
    \379\ For this purpose, an employer-sponsored retirement plan 
contract is an annuity contract distributed from an eligible retirement 
plan described in section 402(c)(8)(B) other than an IRA or individual 
retirement annuity.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to plan years beginning after 
December 31, 2019.

10. Treatment of custodial accounts on termination of section 403(b) 
        plans (sec. 110 of the Act and sec. 403(b) of the Code)

                              Present Law


Tax-sheltered annuities (section 403(b) plans)

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities). Many of the 
rules that apply to section 403(b) plans are similar to the 
rules applicable to qualified retirement plans, including 
section 401(k) plans. Employers may make nonelective or 
matching contributions to such plans on behalf of their 
employees, and the plans may provide for employees to make 
pretax elective deferrals, designated Roth contributions (held 
in designated Roth accounts),\380\ or other after-tax 
contributions. Generally, section 403(b) plans provide for 
contributions toward the purchase of annuity contracts or 
provide for contributions to be held in custodial accounts for 
each employee. In the case of contributions to custodial 
accounts under a section 403(b) plan, the amounts must be 
invested only in regulated investment company stock.\381\ 
Contributions to a custodial account are not permitted to be 
distributed before the employee dies, attains age 59\1/2\, has 
a severance from employment, or, in the case of elective 
deferrals, encounters financial hardship.
---------------------------------------------------------------------------
    \380\ Sec. 402A.
    \381\ Sec. 403(b)(7).
---------------------------------------------------------------------------
    A section 403(b) plan is permitted to contain provisions 
that provide for plan termination and that allow accumulated 
benefits to be distributed on termination.\382\ In order for a 
plan termination to be effectuated, however, all plan assets 
must be distributed to participants.
---------------------------------------------------------------------------
    \382\ Treas. Reg. sec. 1.403(b)-10(a).
---------------------------------------------------------------------------

Rollovers

    A distribution from a section 403(b) plan that is an 
eligible rollover distribution may be rolled over to an 
eligible retirement plan (which include another 403(b) plan, a 
qualified retirement plan, and an IRA).\383\ The rollover 
generally can be achieved by direct rollover (direct payment 
from the distributing plan to the recipient plan) or by 
contributing the distribution to the eligible retirement plan 
within 60 days of receiving the distribution (``60-day 
rollover'').\384\
---------------------------------------------------------------------------
    \383\ Sec. 403(b)(8). Similar rules apply to distributions from 
qualified retirement plans and governmental section 457(b) plans.
    \384\ Under section 402(c)(11), any distribution to a beneficiary 
other than the participant's surviving spouse is only permitted to be 
rolled over to an IRA using a direct rollover; 60-day rollovers are not 
available to nonspouse beneficiaries.
---------------------------------------------------------------------------
    Amounts that are rolled over are usually not included in 
gross income. Generally, a distribution of any portion of the 
balance to the credit of a participant is an eligible rollover 
distribution with exceptions, for example, certain periodic 
payments, required minimum distributions, and hardship 
distributions are not eligible rollover distributions.\385\
---------------------------------------------------------------------------
    \385\ Sec. 402(c)(4). Treas. Reg. sec. 1.402(c)-1 identifies 
certain other payments that are not eligible for rollover, including, 
for example, certain corrective distributions, loans that are treated 
as deemed distributions under section 72(p), and dividends on employer 
securities as described in section 404(k).
---------------------------------------------------------------------------

Roth conversions

    Distributions from section 403(b) plans may be rolled over 
into a Roth IRA.\386\ Distributions from these plans that are 
rolled over into a Roth IRA and that are not distributions from 
a designated Roth account must be included in gross income. 
Further, a section 403(b) plan that allows employees to make 
designated Roth contributions may allow employees to elect to 
transfer amounts held in accounts that are not designated Roth 
accounts into designated Roth accounts, but the amount 
transferred must be included in income as though it were 
distributed.\387\
---------------------------------------------------------------------------
    \386\ Sec. 408A(d)(3). Similar rules apply to qualified retirement 
plans and governmental section 457(b) plans.
    \387\ Sec. 402A(d)(4). Similar rules apply to qualified retirement 
plans and governmental section 457(b) plans.
---------------------------------------------------------------------------

Approved nonbank trustees required for IRAs

    An IRA can be a trust, a custodial account, or an annuity 
contract. The Code requires that the trustee or custodian of an 
IRA be a bank (which is generally subject to Federal or State 
supervision) or an IRS-approved nonbank trustee, that an 
annuity contract be issued by an insurance company (which is 
subject to State supervision), and that an IRA trust or 
custodial account be created and organized in the United 
States.
    In order for a trustee or custodian that is not a bank to 
be an IRA trustee or custodian, the entity must apply to the 
IRS for approval. Treasury Regulations list a number of factors 
that are taken into account in approving an applicant to be a 
nonbank trustee.\388\ The applicant must demonstrate fiduciary 
ability (ability to act within accepted rules of fiduciary 
conduct including continuity and diversity of ownership), 
capacity to account (experience and competence with respect to 
accounting for the interests of a large number of individuals), 
fitness to handle funds (experience and competence with respect 
to other activities normally associated with handling of 
retirement funds), and ability to satisfy other rules of 
fiduciary conduct, which includes a net worth requirement. 
Because it is an objective requirement that may be difficult 
for some applicants to satisfy, the net worth requirement may 
be the most significant of the requirements for nonbank 
trustees.
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    \388\ Treas. Reg. sec. 1.408-2(e).
---------------------------------------------------------------------------
    To be approved, the entity must have a net worth of at 
least $250,000 at the time of the application. There is a 
maintenance rule that varies depending on whether the trustee 
is an active trustee or a passive trustee and that includes 
minimum dollar amounts and minimum amounts as a percentage of 
assets held in fiduciary accounts. A special rule is provided 
for nonbank trustees that are members of the Security Investor 
Protection Corporation (``SIPC'').

                        Explanation of Provision

    Under the provision, the Secretary of the Treasury is 
directed to issue guidance within six months after the date of 
enactment to provide that, if an employer terminates a section 
403(b) plan under which amounts are contributed to custodial 
accounts, the plan administrator or custodian may distribute an 
individual custodial account in kind to a participant or 
beneficiary of the plan, and the distributed custodial account 
must be maintained by the custodian on a tax-deferred basis as 
a section 403(b)(7) custodial account, similar to the treatment 
of fully-paid individual annuity contracts under Revenue Ruling 
2011-7,\389\ until amounts are actually paid to the participant 
or beneficiary. In addition, such guidance must provide that 
(1) the section 403(b)(7) status of the distributed custodial 
account is generally maintained if such account thereafter 
adheres to the requirements of section 403(b) in effect at the 
time of the account's distribution, and (2) a custodial account 
is not considered distributed to the participant or beneficiary 
if the employer has any material retained rights under the 
account (the employer, however, is not treated as retaining 
material rights simply because the custodial account was 
originally opened under a group contract).
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    \389\ 2011-10 I.R.B. 534, March 7, 2011.
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    The provision directs such guidance to apply retroactively 
for taxable years beginning after December 31, 2008.

                             Effective Date

    The provision is effective upon date of enactment.

11. Clarification of retirement income account rules relating to 
        church-controlled organizations (sec. 111 of the Act and sec. 
        403(b)(9) of the Code)

                              Present Law

    A plan sponsor or administrator generally must invest 
assets of a tax-sheltered annuity plan (a ``section 403(b)'' 
plan) in annuity contracts or mutual funds.\390\ However, the 
restrictions on investments do not apply to a retirement income 
account, which is a defined contribution program established or 
maintained by a church, or a convention or association of 
churches, to provide benefits under the plan to employees of a 
religious, charitable or similar tax-exempt organization.\391\
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    \390\ Sec. 403(b)(1)(A) and (7).
    \391\ Sec. 403(b)(9)(B), referring to organizations exempt from tax 
under section 501(c)(3). For this purpose, a church or a convention or 
association of churches includes an organization described in section 
414(e)(3)(A), that is, an organization, the principal purpose or 
function of which is the administration or funding of a plan or program 
for the provision of retirement benefits or welfare benefits; or both, 
for the employees of a church or a convention or association of 
churches, provided that the organization is controlled by or associated 
with a church or a convention or association of churches.
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    Certain rules prohibiting discrimination in favor of highly 
compensated employees, which apply to section 403(b) plans 
generally, do not apply to a plan maintained by a church or 
qualified church-controlled organization.\392\ For this 
purpose, the term ``church'' includes a church, a convention or 
association of churches, or an elementary or secondary school 
that is controlled, operated, or principally supported by a 
church or by a convention or association of churches, and 
includes a qualified church-controlled organization (``QCCO''). 
A QCCO is any church-controlled tax-exempt organization other 
than an organization that: (1) offers goods, services, or 
facilities for sale, other than on an incidental basis, to the 
general public, other than goods, services, or facilities that 
are sold at a nominal charge substantially less than the cost 
of providing the goods, services, or facilities; and (2) 
normally receives more than 25 percent of its support from 
either governmental sources, or receipts from admissions, sales 
of merchandise, performance of services, or furnishing of 
facilities, in activities that are not unrelated trades or 
businesses, or from both. Church-controlled organizations that 
are not QCCOs are generally referred to as ``non-QCCOs.''
---------------------------------------------------------------------------
    \392\ Sec. 403(b)(1)(D) and (12).
---------------------------------------------------------------------------
    In recent years, a question has arisen as to whether 
employees of non-QCCOs may be covered under a section 403(b) 
plan that consists of a retirement income account.

                        Explanation of Provision

    The provision clarifies that a retirement income account 
may cover (1) a duly ordained, commissioned, or licensed 
minister of a church in the exercise of his or her ministry, 
regardless of the source of his or her compensation; (2) an 
employee of an organization, whether a civil law corporation or 
otherwise, that is exempt from tax under section 501 and is 
controlled by or associated with a church or a convention or 
association of churches; and (3) an employee who is included in 
a church plan under certain circumstances after separation from 
the service of a church, a convention or association of 
churches, or an organization described above.\393\
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    \393\ These individuals are described in section 414(e)(3)(B) and 
(E).
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                             Effective Date

    The provision applies to years beginning before, on, or 
after the date of enactment.

12. Qualified cash or deferred arrangements must allow long-term 
        employees working more than 500 but less than 1,000 hours per 
        year to participate (sec. 112 of the Act and secs. 401(k) and 
        410 of the Code)

                              Present Law


Qualified retirement plans

    Qualified retirement plans are of two general types: 
defined benefit plans, under which benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts; and defined contribution plans which 
include section 401(k) plans, under which benefits are based on 
a separate account for each participant, to which are allocated 
contributions, earnings, and losses.
    A section 401(k) plan is a profit-sharing or stock bonus 
plan \394\ that contains a qualified cash or deferred 
arrangement under which employees may make elective 
deferrals.\395\ Section 401(k) plans may be designed so that 
elective deferrals are made only if the employee affirmatively 
elects them. Alternatively, a section 401(k) plan may provide 
for ``automatic enrollment,'' under which elective deferrals 
are made at a specified rate (referred to as a ``default 
rate'') when an employee becomes eligible to participate unless 
the employee affirmatively elects not to make contributions or 
to make contributions at a different rate. Other special rules 
apply to such arrangements. The maximum annual amount of 
elective deferrals that can be made by an employee to a section 
401(k) plan for a year is $19,000 (for 2019) \396\ plus $6,000 
\397\ for employees age 50 or older (catch-up contribution 
amount) or, if less, the employee's compensation.\398\ Section 
401(k) plans may provide for matching contributions, which are 
made on account of elective deferrals,\399\ and may provide for 
employer nonelective contributions.
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    \394\ Defined contribution plans include money purchase pension 
plans, profit-sharing plans, and stock bonus plans. Certain pre-ERISA 
money purchase plans and rural cooperative plans may also include a 
qualified cash or deferred arrangement. Except for certain 
grandfathered plans, a State or local governmental employer may not 
maintain a section 401(k) plan.
    \395\ Elective deferrals are generally made on a pretax basis, 
excludable from the participant's gross income when contributed but 
includable with attributable earnings when distributed. However, under 
section 402A, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as designated Roth contributions. Designated 
Roth contributions are not excludable from the participant's gross 
income when contributed, but qualified distributions of designated Roth 
contributions and attributable earnings are excluded from gross income 
(even though the earnings are not previously taxed). A qualified 
distribution is a distribution made after the end of a specified period 
(generally five years after the participant's first designated Roth 
contribution) and that is (1) made on or after the date on which the 
participant attains age 59\1/2\, (2) made to a beneficiary (or to the 
estate of the participant) on or after the death of the participant, or 
(3) attributable to the participant's being disabled.
    \396\ For 2020 and 2021, this amount is $19,500.
    \397\ For 2020 and 2021, this amount is $6,500.
    \398\ Secs. 402(g) and 414(v).
    \399\ Sec. 401(m). Matching contributions can also be made on 
account of after-tax employee contributions.
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Participation requirement

    A qualified retirement plan generally can delay 
participation in the plan based on attainment of age or 
completion of years of service but not beyond the later of 
completion of one year of service (that is, a 12-month period 
with at least 1,000 hours of service) or attainment of age 
21.\400\ A plan also cannot exclude an employee from 
participation (on the basis of age) when that employee has 
attained a specified age.\401\ Employees can be excluded from 
plan participation on other bases, such as job classification, 
as long as the other basis is not an indirect age or service 
requirement. A plan can provide that an employee is not 
entitled to an allocation of employer nonelective or matching 
contributions for a plan year unless the employee completes 
either 1,000 hours of service during the plan year or is 
employed on the last day of the year even if the employee 
previously completed 1,000 hours of service in a prior year. 
However, once an employee has completed 1,000 hours of service 
during a plan year, an employee cannot be precluded from making 
elective deferrals based on a service requirement.\402\
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    \400\ Secs. 401(a)(3) and 410(a)(1). Parallel requirements 
generally apply to plans of private employers under section 202 of the 
Employee Retirement Income Security Act of 1974 (``ERISA''). 
Governmental plans under section 414(d) and church plans under section 
414(e) are generally exempt from these Code requirements and from 
ERISA.
    \401\ Sec. 410(a)(2).
    \402\ Sec. 401(k)(2)(D).
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Vesting

    Qualified retirement plans are subject to requirements as 
to the period of service after which a participant's right to 
his or her accrued benefit must be nonforfeitable (that is, 
``vested'').\403\ Generally, a year of vesting service is only 
required to be credited if an employee completes 1,000 hours of 
service during the year.
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    \403\ Secs. 401(a)(7) and 411. Governmental plans and church plans 
are generally exempt from these Code requirements. Parallel 
requirements generally apply to plans of private employers under 
sections 203-204 of ERISA.
---------------------------------------------------------------------------
    In the case of a defined contribution plan, a participant's 
accrued benefit is the balance of his or her account under the 
plan. The portion of an employee's account balance attributable 
to employee after-tax contributions and elective deferrals must 
be nonforfeitable at all times.\404\ Generally, the portion of 
an employee's account balance attributable to nonelective or 
matching contributions must become nonforfeitable after the 
completion of a specified number of years of service in 
accordance with one of two minimum vesting schedules.\405\ 
Under the first vesting schedule, the participant's accrued 
benefit derived from employer contributions must become 100 
percent vested upon completion of no more than three years of 
service (often referred to as ``three year cliff vesting''). 
Under the second vesting schedule (referred to as ``graduated 
vesting''), the participant's accrued benefit derived from 
employer contributions must become vested ratably at least over 
the period from two to six years of service.
---------------------------------------------------------------------------
    \404\ Secs. 411(a)(1) and 401(k)(2)(C). Certain nonelective 
contributions under a section 401(k) plan and employer matching 
contributions with respect to elective deferrals must also be 
nonforfeitable at all times.
    \405\ Sec. 411(a)(2)(B). Section 411(a)(3) provides certain 
permitted forfeitures for accrued benefits that are otherwise 100 
percent vested, including, for example, forfeiture upon the 
participant's death or withdrawal of mandatory employee contributions 
and suspension of benefits upon reemployment.
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Minimum coverage and nondiscrimination requirements

            In general
    A qualified retirement plan is prohibited from 
discriminating in favor of highly compensated employees, 
referred to as the nondiscrimination requirements. These 
requirements are intended to ensure that a qualified retirement 
plan provides meaningful benefits to an employer's rank-and-
file employees, so that qualified retirement plans achieve the 
goal of retirement security for both lower-paid and higher-paid 
employees. The nondiscrimination requirements consist of a 
minimum coverage requirement and general nondiscrimination 
requirements.\406\ For purposes of these requirements, an 
employee generally is treated as highly compensated if the 
employee (1) was a five-percent owner of the employer at any 
time during the year or the preceding year, or (2) had 
compensation for the preceding year in excess of $125,000 (for 
2019).\407\
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    \406\ Sections 401(a)(3) and 410(b) deal with the minimum coverage 
requirement; section 401(a)(4) deals with the general nondiscrimination 
requirements, with related rules in section 401(a)(5). Detailed 
regulations implement the statutory requirements. Governmental plans 
are generally exempt from these requirements.
    \407\ Sec. 414(q). For 2020 and 2021, this amount is $130,000. At 
the election of the employer, employees who are highly compensated 
based on compensation may be limited to the top 20 percent highest paid 
employees. A nonhighly compensated employee is an employee other than a 
highly compensated employee.
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    The minimum coverage and general nondiscrimination 
requirements apply annually on the basis of the plan year. In 
applying these requirements, employees of all members of a 
controlled group or affiliated service group are treated as 
employed by a single employer. Employees who have not satisfied 
minimum age and service conditions under the plan, certain 
nonresident aliens, and employees covered by a collective 
bargaining agreement are generally disregarded.\408\ However, a 
plan that covers employees with less than a year of service or 
who are under age 21 must generally include those employees in 
any nondiscrimination test for the year but can test the plan 
for nondiscrimination in two parts: (1) by separately testing 
the portion of the plan covering employees who have not 
completed a year of service or are under age 21 and treating 
all of the employer's employees with less than a year of 
service or under age 21 as the only employees of the employer; 
and (2) then testing the rest of the plan taking into account 
the rest of the employees of the employer and excluding those 
employees. If a plan does not satisfy the nondiscrimination 
requirements on its own, it may in some circumstances be 
aggregated with another plan, and the two plans tested together 
as a single plan.
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    \408\ A plan or portion of a plan covering collectively bargained 
employees is generally deemed to satisfy the nondiscrimination 
requirements.
---------------------------------------------------------------------------
            Minimum coverage requirement
    Under the minimum coverage requirement, the plan's coverage 
of employees must be nondiscriminatory. This is determined by 
calculating the plan's ratio percentage, that is, the ratio of 
the percentage of nonhighly compensated employees (of all 
nonhighly compensated employees in the workforce) covered under 
the plan to the percentage of highly compensated employees 
covered. In the case of a section 401(k) plan, the right to 
make elective deferrals, the right to receive matching 
contributions, and the allocation of nonelective contributions 
are each tested separately for nondiscriminatory coverage as 
though provided under separate plans.
    If the plan's ratio percentage is 70 percent or greater, 
the plan satisfies the minimum coverage requirement. If the 
plan's ratio percentage is less than 70 percent, a multi-part 
test applies. First, the plan must cover a group (or 
``classification'') of employees that is reasonable and 
established under objective business criteria, such as hourly 
or salaried employees (referred to as a reasonable 
classification), and the plan's ratio percentage must be at or 
above a specific level specified in the regulations. In 
addition, the average benefit percentage test must be 
satisfied. Under the average benefit percentage test, the 
average rate of contributions or benefit accruals for all 
nonhighly compensated employees in the workforce (taking into 
account all plans of the employer) must be at least 70 percent 
of the average contribution or accrual rate of all highly 
compensated employees.
            General nondiscrimination requirements
              Nondiscrimination in the amount of contributions or 
                    benefits
    There are two general approaches to testing the amount of 
contributions or benefits under a qualified retirement plan: 
\409\ (1) design-based safe harbors under which the benefit 
formula under a defined benefit plan, or the formula for 
allocating employer nonelective contributions under a defined 
contribution plan to participants' accounts, satisfies certain 
uniformity standards; and (2) a mechanical general test under 
which the distribution of the rates of benefit among highly 
compensated and nonhighly compensated employees within a plan 
is tested for nondiscrimination by applying a modified version 
of the minimum coverage requirement.\410\ The safe harbors and 
general test may include cross-testing of equivalent accruals 
or allocations.\411\ A plan is not discriminatory merely 
because benefit accruals or allocations for highly compensated 
and nonhighly compensated employees are provided as a 
percentage of compensation (up to $280,000 for 2019).\412\ 
Thus, the various testing approaches are generally applied to 
the amount of contributions or benefits provided as a 
percentage of compensation (expressed as allocation or accrual 
rates).
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    \409\ Treas. Reg. sec. 1.401(a)(4)-1. With respect to the amount of 
contributions, employee elective deferrals under a section 401(k) plan 
and employer matching contributions and after-tax employee 
contributions to a defined contribution plan are subject to special 
testing rules, rather than being included in applying the general 
nondiscrimination requirements. In addition, the amount of employer 
contributions to an ESOP is tested separately from other employer 
contributions. Rules applicable to benefits, rights and features and 
the timing of plan amendments are provided in Treas. Reg. secs. 1. 
401(a)(4)-4 and -5 respectively.
    \410\ These approaches are explained in Treas. Reg. secs. 
1.401(a)(4)-2, -3, and -8. Sections 401(a)(5)(C)-(D) and 401(l) and 
Treas. Reg. secs. 1.401(a)(4)-7 and 1.401(l)-1 through -6 provide rules 
under which nondiscrimination testing may take into account the 
employer-paid portion of social security taxes or benefits, referred to 
as permitted disparity.
    \411\ Treas. Reg. sec. 1.401(a)(4)-8.
    \412\ Sec. 401(a)(5)(B); sec. 401(a)(17). The limit on compensation 
that may be taken into account is $285,000 for 2020, and $290,000 for 
2021.
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              Special nondiscrimination tests for section 401(k) plans
    A special annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to test the 
amount of elective deferrals under a section 401(k) plan.\413\ 
The ADP test generally compares the average rate of deferral 
for highly compensated employees to the average rate of 
deferral for nonhighly compensated employees. The ADP test 
allows the average deferral rate for highly compensated 
employees to exceed that for nonhighly compensated employees 
within limits: (1) the average deferral rate for highly 
compensated employees can be up to 125 percent of the average 
deferral rate for nonhighly compensated employees; or (2) the 
average deferral rate for highly compensated employees can be 
two percentage points greater than the average deferral rate 
for nonhighly compensated employees or, if less, twice the 
average deferral rate for nonhighly compensated employees. 
Employer matching contributions and after-tax employee 
contributions are subject to a similar special 
nondiscrimination test (the actual contribution percentage test 
or ``ACP test'') which compares the average rate of matching 
and after-tax contributions to the plan of the two groups.\414\
---------------------------------------------------------------------------
    \413\ Sec. 401(k)(3).
    \414\ Sec. 401(m)(2).
---------------------------------------------------------------------------
    If the ADP test is not satisfied, end-of-year correction 
mechanisms are available for the employer to make immediately 
vested additional contributions for nonhighly compensated 
employees (and certain other corrections) or to distribute 
deferrals of highly compensated employees to such employees, so 
that the ADP test is satisfied. Similar correction mechanisms 
are available for purposes of satisfying the ACP test.
    There are also designed-based safe harbor methods of 
satisfying the ADP and ACP tests. These safe harbors are based 
on the premise that, for a 401(k) plan with certain design 
features with respect to contributions (elective, matching, and 
nonelective) and enrollment (with or without automatic 
enrollment), satisfaction of the minimum coverage requirement 
is a sufficient test of whether the elective deferrals and 
matching contributions are nondiscriminatory.\415\
---------------------------------------------------------------------------
    \415\ The safe harbors that only require certain matching 
contributions potentially allow satisfaction of the nondiscrimination 
requirement with respect to elective and matching contributions under a 
401(k) plan for a year even though no contributions are ultimately 
provided to nonhighly compensated employees under the plan for the year 
due to a lack of voluntary participation.
---------------------------------------------------------------------------

Top heavy rules

    Top-heavy rules apply to limit the extent to which 
accumulated benefits or account balances under a qualified 
retirement plan can be concentrated with key employees.\416\ 
Whereas the general nondiscrimination requirements are designed 
to test annual contributions or benefits for highly compensated 
employees, compared to those of nonhighly compensated 
employees, the top-heavy rules test the portion of the total 
plan contributions or benefits that have accumulated for the 
benefit of key employees as a group. If a plan is determined to 
be top-heavy, minimum contributions or benefits are required 
for participants who are non-key employees, and, in some cases, 
faster vesting is required. Non-key employees who have become 
participants in a defined contribution plan, but who 
subsequently fail to complete 1,000 hours of service (or the 
equivalent) for an accrual computation period must receive the 
top-heavy defined contribution minimum.
---------------------------------------------------------------------------
    \416\ Secs. 401(a)(10)(B) and 416. The nature of the top-heavy test 
is such that a plan of a large business with many employees is unlikely 
to be top-heavy. The top-heavy requirements are therefore viewed as 
primarily affecting plans of smaller employers in which the owners 
participate.
---------------------------------------------------------------------------
    For this purpose, a key employee is an officer with annual 
compensation greater than $180,000 (for 2019),\417\ a five-
percent owner, or a one-percent owner with compensation in 
excess of $150,000. A defined benefit plan generally is top-
heavy if the present value of cumulative accrued benefits for 
key employees exceeds 60 percent of the cumulative accrued 
benefits for all employees. A defined contribution plan is top-
heavy if the aggregate of accounts for key employees exceeds 60 
percent of the aggregate accounts for all employees.
---------------------------------------------------------------------------
    \417\ For 2020 and 2021, this amount is $185,000.
---------------------------------------------------------------------------

Section 403(b) and governmental 457(b) plans

    Tax-deferred annuity plans (referred to as section 403(b) 
plans) are generally similar to qualified defined contribution 
plans, but may be maintained only by (1) tax-exempt charitable 
organizations,\418\ and (2) educational institutions of State 
or local governments (that is, public schools, including 
colleges and universities).\419\ Section 403(b) plans may 
provide for employees to make elective deferrals (in pretax or 
designated Roth form), including catch-up contributions, or 
other after-tax employee contributions, and employers may make 
nonelective or matching contributions on behalf of employees. 
Contributions to a section 403(b) plan are generally subject to 
the same contribution limits applicable to qualified defined 
contribution plans, including the limits on elective deferrals.
---------------------------------------------------------------------------
    \418\ These are organizations exempt from tax under section 
501(c)(3). Section 403(b) plans of private, tax-exempt employers may be 
subject to ERISA as well as the requirements of section 403(b).
    \419\ Sec. 403(b).
---------------------------------------------------------------------------
    Contributions to a section 403(b) plan must be fully 
vested. The minimum coverage and general nondiscrimination 
requirements applicable to a qualified retirement plan 
generally apply to a section 403(b) plan and to employer 
matching and nonelective contributions and after-tax employee 
contributions to the plan.\420\ If a section 403(b) plan 
provides for elective deferrals, the plan is subject to a 
``universal availability'' requirement under which all 
employees must be given the opportunity to make deferrals of 
more than $200. In applying this requirement, nonresident 
aliens, students, and employees who normally work less than 20 
hours per week may be excluded.\421\
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    \420\ These requirements do not apply to a governmental section 
403(b) plan or a section 403(b) plan maintained by a church or a 
qualified church-controlled organization as defined in section 3121(w).
    \421\ For this purpose, nonresident has the meaning in section 
410(b)(3)(C), and student has the meaning in section 3121(b)(10). The 
universal availability requirement does not apply to a section 403(b) 
plan maintained by a church or a qualified church-controlled 
organization.
---------------------------------------------------------------------------
    An eligible deferred compensation plan of a governmental 
employer (referred to as a governmental section 457(b) plan) is 
generally similar to a qualified cash or deferred arrangement 
under a section 401(k) plan in that it consists of elective 
deferrals, that is, contributions (in pretax or designated Roth 
form) made at the election of an employee, including catch-up 
contributions. Deferrals under a governmental section 457(b) 
plan are generally subject to the same limits as elective 
deferrals under a section 401(k) plan or a section 403(b) plan.

                        Explanation of Provision

    The provision requires a section 401(k) plan to permit an 
employee to make elective deferrals if the employee has worked 
at least 500 hours per year with the employer for at least 
three consecutive years and has met the age requirement (age 
21) by the end of the three consecutive year period (for this 
provision, an employee is referred to as a ``long-term part-
time employee'' after having completed this period of service). 
Thus, a long-term part-time employee could not be excluded from 
the plan because the employee has not completed a year of 
service as defined under the participation requirements 
described above (a 12-month period with at least 1,000 hours of 
service). Once a long-term part-time employee meets the age and 
service requirements, such employee must be able to commence 
participation no later than the earlier of (1) the first day of 
the first plan year beginning after the date on which the 
employee satisfied the age and service requirements or (2) the 
date 6 months after the date on which the individual satisfied 
those requirements. Employers may, but are not required to, 
allow long-term part-time employees to participate in the 
design based safe harbors (including the automatic enrollment 
safe harbor). If an employer does permit a long-term part-time 
employee to participate in such an automatic enrollment 401(k) 
plan, that employee would have elective deferrals automatically 
made at the default rate unless the employee affirmatively 
elects not to make contributions or to make contributions at a 
different rate.
    The provision does not require a long-term part-time 
employee to be otherwise eligible to participate in the plan. 
Thus, the plan can continue to treat a long-term part-time 
employee as ineligible under the plan for employer nonelective 
and matching contributions based on not having completed a year 
of service. However, for a plan that does provide employer 
contributions for long-term part-time employees, the provision 
requires a plan to credit, for each year in which such an 
employee worked at least 500 hours, a year of service for 
purposes of vesting in any employer contributions. If a long-
term part-time employee under such a plan becomes a full-time 
employee (meaning that the employee completes a 12-month period 
with at least 1,000 hours of service), the plan must continue 
to determine the employee's years of service using the special 
rule for long-term part-time employees.
    With respect to long-term part-time employees, employers 
would receive nondiscrimination testing relief (similar to the 
present-law rules for plans covering otherwise excludable 
employees), including permission to exclude these employees 
from top-heavy vesting and top-heavy benefit requirements. 
However, the relief from the nondiscrimination rules ceases to 
apply to any employee who becomes a full-time employee (as of 
the first plan year beginning after the plan year in which the 
employee becomes a full-time employee).
    This provision does not apply to collectively bargained 
employees.

                             Effective Date

    The provision applies to plan years beginning after 
December 31, 2020, except that for determining whether the 
three consecutive year period has been met, 12-month periods 
beginning before January 1, 2021 are not taken into account.

13. Penalty-free withdrawals from retirement plans for individuals in 
        case of birth of child or adoption (sec. 113 of the Act and 
        secs. 72(t), 401-403, 408, 457, and 3405 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 IRA 
generally is included in income for the year distributed.\422\ 
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.\423\
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    \422\ 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.
    \423\ Sec. 72(t). Under present law, the 10-percent early 
withdrawal tax does not apply to distributions from a governmental 
section 457(b) plan.
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    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 IRS 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 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.

                        Explanation of Provision


In general

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of a qualified birth or 
adoption distribution from an applicable eligible retirement 
plan (as defined). In addition, qualified birth or adoption 
distributions may be recontributed to an individual's 
applicable eligible retirement plans, subject to certain 
requirements.

Distributions from applicable eligible retirement plans

    A qualified birth or adoption distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, encompasses eligible retirement plans other 
than defined benefit plans, including qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs.\424\
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    \424\ A qualified birth or adoption distribution is subject to 
income tax withholding unless the recipient elects otherwise. Mandatory 
20-percent withholding does not apply.
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    A qualified birth or adoption distribution is a 
distribution from an applicable eligible retirement plan to an 
individual if made during the one-year period beginning on the 
date on which a child of the individual is born or on which the 
legal adoption by the individual of an eligible adoptee is 
finalized. An eligible adoptee means any individual (other than 
a child of the taxpayer's spouse) who has not attained age 18 
or is physically or mentally incapable of self-support. The 
provision requires the name, age, and taxpayer identification 
number of the child or eligible adoptee to which any qualified 
birth or adoption distribution relates to be provided on the 
tax return of the individual taxpayer for the taxable year.
    The maximum aggregate amount which may be treated as 
qualified birth or adoption distributions by any individual 
with respect to a birth or adoption is $5,000. The maximum 
aggregate amount applies on an individual basis. Therefore, 
each spouse separately may receive a maximum aggregate amount 
of $5,000 of qualified birth or adoption distributions (with 
respect to a birth or adoption) from applicable eligible 
retirement plans in which each spouse participates or holds 
accounts.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution (that would 
otherwise be a qualified birth or adoption distribution) to an 
individual as a qualified birth or adoption distribution, 
provided that the aggregate amount of such distributions to 
that individual from plans maintained by the employer and 
members of the employer's controlled group \425\ does not 
exceed $5,000. Thus, under such circumstances an employer plan 
is not treated as violating any Code requirement merely because 
an individual might receive total distributions in excess of 
$5,000 as a result of distributions from plans of other 
employers or IRAs.
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    \425\ The term ``controlled group'' means any group treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------

Recontributions to applicable eligible retirement plans

    Generally, any portion of a qualified birth or adoption 
distribution may, at any time after the date on which the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. If an employer adds the ability for plan 
participants to receive qualified birth or adoption 
distributions from a plan, the plan must permit an employee who 
has received qualified birth or adoption distributions from 
that plan to recontribute only up to the amount that was 
distributed from that plan to that employee, provided the 
employee otherwise is eligible to make contributions (other 
than recontributions of qualified birth or adoption 
distributions) to that plan. Any portion of a qualified birth 
or adoption distribution from an individual's applicable 
eligible retirement plans (whether employer plans or IRAs) may 
be recontributed to an IRA held by such an individual which is 
an applicable eligible retirement plan to which a rollover can 
be made.

                             Effective Date

    The provision applies to distributions made after December 
31, 2019.

14. Increase in age for required beginning date for mandatory 
        distributions (sec. 114 of the Act and sec. 401(a)(9) of the 
        Code)

                              Present Law


Required minimum distributions

    Employer-provided qualified retirement plans, traditional 
IRAs, and individual retirement annuities are subject to 
required minimum distribution rules. A qualified retirement 
plan for this purpose means a tax-qualified plan described in 
section 401(a) (such as a defined benefit pension plan or a 
section 401(k) plan), an employee retirement annuity described 
in section 403(a), a tax-sheltered annuity described in section 
403(b), and a plan described in section 457(b) that is 
maintained by a governmental employer.\426\ An employer-
provided qualified retirement plan that is a defined 
contribution plan is a plan which provides (1) an individual 
account for each participant and (2) for benefits based on the 
amount contributed to the participant's account and any income, 
expenses, gains, losses, and forfeitures of accounts of other 
participants which may be allocated to such participant's 
account.\427\
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    \426\ The required minimum distribution rules also apply to section 
457(b) plans maintained by tax-exempt employers other than governmental 
employers.
    \427\ Sec. 414(i).
---------------------------------------------------------------------------
    Required minimum distributions generally must begin by 
April 1 of the calendar year following the calendar year in 
which the individual (employee or IRA owner) reaches age 70\1/
2\. However, in the case of an employer-provided qualified 
retirement plan, the required minimum distribution date for an 
individual who is not a five-percent owner of the employer 
maintaining the plan may be delayed to April 1 of the year 
following the year in which the individual retires if the plan 
provides for this later distribution date. For all subsequent 
years, including the year in which the individual was paid the 
first required minimum distribution by April 1, the individual 
must take the required minimum distribution by December 31 of 
the year.
    For IRAs and defined contributions plans, the required 
minimum distribution for each year generally is determined by 
dividing the account balance as of the end of the prior year by 
the number of years in the distribution period.\428\ The 
distribution period is generally derived from the Uniform 
Lifetime Table.\429\ This table is based on the joint life 
expectancies of the individual and a hypothetical beneficiary 
10 years younger than the individual. For an individual with a 
spouse as designated beneficiary who is more than 10 years 
younger, the joint life expectancy of the couple is used 
(because the couple's remaining joint life expectancy is longer 
than the length provided in the Uniform Lifetime Table). There 
are special rules in the case of annuity payments from an 
insurance contract.
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    \428\ Treas. Reg. sec. 1.401(a)(9)-5.
    \429\ Treas. Reg. sec. 1.401(a)(9)-9.
---------------------------------------------------------------------------
    If an individual dies on or after the individual's required 
beginning date, the required minimum distribution is also 
determined by dividing the account balance as of the end of the 
prior year by a distribution period. The distribution period is 
equal to the remaining years of the beneficiary's life 
expectancy or, if there is no designated beneficiary, a 
distribution period equal to the remaining years of the 
deceased individual's single life expectancy, using the age of 
the deceased individual in the year of death.\430\
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    \430\ Treas. Reg. sec. 1.401(a)(9)-5, A-5(a).
---------------------------------------------------------------------------
    In the case of an individual who dies before the 
individual's required beginning date, there are two methods for 
satisfying the after death required minimum distribution rules, 
the life-expectancy rule or the five-year rule. Under the life-
expectancy rule, annual required minimum distributions must 
begin no later than December 31 of the calendar year 
immediately following the calendar year in which the individual 
died. This rule is only available if the designated beneficiary 
is an individual (e.g., not the individual's estate or a 
charity). If the designated beneficiary is the individual's 
spouse, commencement of distributions can be delayed until 
December 31 of the calendar year in which the deceased 
individual would have attained age 70\1/2\. The required 
minimum distribution for each year is also determined by 
dividing the account balance as of the end of the prior year by 
a distribution period, which is determined by reference to the 
beneficiary's life expectancy.\431\ Under the five-year rule, 
the individual's entire account must be distributed no later 
than December 31 of the calendar year containing the fifth 
anniversary of the individual's death.\432\
---------------------------------------------------------------------------
    \431\ Treas. Reg. sec. 1.401(a)(9)-5, A-5(b).
    \432\ Treas. Reg. sec. 1.401(a)(9)-3, Q&As 1, 2.
---------------------------------------------------------------------------
    A special after-death rule applies for an IRA if the 
beneficiary of the IRA is the surviving spouse. The surviving 
spouse is permitted to choose to calculate required minimum 
distributions both while the surviving spouse is alive and 
after death as though the surviving spouse is the IRA owner, 
rather than a beneficiary.\433\
---------------------------------------------------------------------------
    \433\ Treas. Reg. sec. 1.408-8, Q&A 5.
---------------------------------------------------------------------------
    Roth IRAs are not subject to the minimum distribution rules 
during the IRA owner's lifetime. However, Roth IRAs are subject 
to the post-death minimum distribution rules that apply to 
traditional IRAs. For Roth IRAs, the IRA owner is treated as 
having died before the individual's required beginning date. 
Thus, only the life-expectancy rule and the five-year rule 
apply.
    Failure to make a required minimum distribution triggers a 
50-percent excise tax, payable by the individual or the 
individual's beneficiary. The tax is imposed during the taxable 
year that begins with or within the calendar year during which 
the distribution was required.\434\ The tax may be waived if 
the distribution did not occur because of reasonable error and 
reasonable steps are taken to remedy the violation.\435\
---------------------------------------------------------------------------
    \434\ Sec. 4974(a).
    \435\ Sec. 4974(d).
---------------------------------------------------------------------------

Eligible rollover distributions

    With certain exceptions, distributions from an employer-
provided qualified retirement plan are eligible to be rolled 
over tax free into another employer-provided qualified 
retirement plan or an IRA. This can be achieved by contributing 
the amount of the distribution to the other plan or IRA within 
60 days of the distribution, or by a direct payment by the plan 
to the other plan or IRA (referred to as a ``direct 
rollover''). Distributions that are not eligible for rollover 
include (i) any distribution that is one of a series of 
periodic payments generally for a period of 10 years or more 
(or a shorter period for distributions made for certain life 
expectancies) and (ii) any distribution to the extent that the 
distribution is a required minimum distribution.\436\
---------------------------------------------------------------------------
    \436\  Sec. 402(c)(4). Distributions that are not eligible rollover 
distributions also include distributions made upon hardship of the 
employee.
---------------------------------------------------------------------------
    For any distribution that is eligible for rollover, an 
employer-provided qualified retirement plan must offer the 
distributee the right to have the distribution made in a direct 
rollover.\437\ Before making the distribution, the plan 
administrator must provide the distributee with a written 
explanation of the direct rollover right and related tax 
consequences.\438\ Unless a distributee elects to have the 
distribution made in a direct rollover, the distribution is 
generally subject to mandatory 20-percent income tax 
withholding.\439\
---------------------------------------------------------------------------
    \437\ Sec. 401(a)(31).
    \438\ Sec. 402(f).
    \439\ Sec. 3405(c). This mandatory withholding does not apply to a 
distributee that is a beneficiary other than a surviving spouse of an 
employee.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision changes the age on which the required 
beginning date for required minimum distributions is based. The 
required beginning date is changed from April 1 following the 
calendar year in which the employee or IRA owner attains 70\1/
2\ years to April 1 following the calendar year in which the 
employee or IRA owner attains 72 years.\440\ Under the 
provision, present law continues to apply to employees and IRA 
owners who attain age 70\1/2\ prior to January 1, 2020.
---------------------------------------------------------------------------
    \440\ For an employee who is not a 5-percent owner of the employer 
maintaining a plan, the required beginning date is no earlier than 
April 1 of the calendar year following the calendar year in which the 
employee retires.
---------------------------------------------------------------------------
    In addition, the present law requirement to actuarially 
adjust an employee's accrued benefit for an employee who 
retires in a calendar year after the year the employee attains 
age 70\1/2\, to take into account the period after age 70\1/2\ 
in which the employee was not receiving any benefits under the 
plan, is not changed.

                             Effective Date

    The provision is effective for distributions required to be 
made after December 31, 2019, for employees and IRA owners who 
attain age 70 1 2 after December 31, 2019.

15. Special rules for minimum funding standards for community newspaper 
        plans (sec. 115 of the Act, sec. 303 of ERISA, and sec. 430 of 
        the Code)

                              Present Law

    The Code and the Employee Retirement Income Security Act of 
1974 (``ERISA'') apply minimum funding requirements \441\ to 
defined benefit retirement plans maintained by private-sector 
employers for their employees (referred to as ``single 
employer'' plans), for purposes of which employers that are 
members of a controlled group are considered a single employer.
---------------------------------------------------------------------------
    \441\ Secs. 412 and 430-433 and ERISA secs. 301-306. Unless a 
funding waiver is obtained, an employer may be subject to a two-tier 
excise tax under section 4971 if the funding requirements are not met.
    Special funding rules may apply to certain categories of single 
employer plans. For example, special rules apply to certain plans 
maintained by commercial passenger airlines, under section 402 of the 
Pension Protection Act of 2006 (``PPA''), Pub. L. No. 109-280. If an 
election is made by a commercial passenger airline described in section 
402(a)(1) of PPA, then in determining the plan's minimum required 
contribution under section 430, the airline may use an interest rate of 
8.85% to amortize the unfunded liability of the plan in equal 
installments over the remaining part of the 17-year amortization 
period. See Treas. Reg. sec. 1.430(a)-1(b)(4)(ii).
---------------------------------------------------------------------------
    Under these rules, a minimum contribution is required for a 
plan year if the value of the plan's assets is less than the 
plan's ``funding target,'' that is, the present value, 
determined actuarially, of all benefits earned as of the 
beginning of the year. If the value of plan assets is less than 
the plan's funding target, such that the plan has a funding 
shortfall, the shortfall is generally required to be funded by 
contributions, with interest, over seven years, taking into 
account the remaining installments attributable to shortfalls 
from preceding years. In addition,\442\ the required 
contribution must include the amount of the plan's ``target 
normal cost,'' that is, the present value, determined 
actuarially, of any benefits expected to be earned for the year 
plus the plan-related expenses expected to be paid from plan 
assets during the plan year.. In the case of a plan funded 
below a certain level, referred to as an ``at-risk'' plan, 
specified assumptions must be used in determining the plan's 
funding target and target normal cost.\443\
---------------------------------------------------------------------------
    \442\ In some cases, a plan may be ``frozen'' as to service and/or 
compensation. When a plan is frozen with respect to both service and 
compensation, participants are entitled to previously earned benefits 
but do not accrue or earn additional benefits.
    \443\ For an at-risk plan, the specified assumptions generally are 
as follows: All employees who are not otherwise assumed to retire as of 
the valuation date but who will be eligible to elect benefits during 
the plan year and the next 10 plan years must be assumed to retire at 
the earliest retirement date under the plan but not before the end of 
the plan year for which the ``at-risk funding target'' and ``at-risk 
normal cost'' are being determined. Also, all employees must be assumed 
to elect the retirement benefit available under the plan at the assumed 
retirement age (determined as above) that would result in the highest 
present value of benefits. The at-risk funding target is the present 
value of all benefits accrued or earned under the plan as of the 
beginning of the plan year using the actuarial assumptions set forth in 
the Code and regulations for single employer plans, with the addition 
of a loading factor which arises when the plan has been in at-risk 
status for at least two of the four preceding plan years. This loading 
factor is equal to the sum of (1) $700 multiplied by the number of 
participants in the plan and (2) four percent of the funding target 
(determined without regard to the definition of at-risk funding 
target). The at-risk normal cost for a plan year generally represents 
the excess of the sum of (1) the present value of all benefits which 
are expected to accrue or to be earned under the plan during the plan 
year using the at-risk assumptions described above plus (2) the amount 
of plan related expenses expected to be paid from plan assets during 
the plan year, over (3) the amount of mandatory employee contributions 
expected to be made during the plan year. In addition, where the plan 
has been in at-risk status for at least two of the four preceding plan 
years, a loading factor is added, which is equal to four percent of the 
target normal cost (the excess of the sum of (1) the present value of 
all benefits which are expected to accrue or to be earned under the 
plan during the plan year plus (2) the amount of plan-related expenses 
expected to be aid from plan assets during the plan year, over (3) the 
amount of mandatory employee contributions expected to be made during 
the plan year) with respect to the plan for the plan year.
---------------------------------------------------------------------------
    The minimum funding rules enacted in the Pension Protection 
Act of 2006 (``PPA'') \444\ specify the interest rates used to 
determine a plan's funding target and target normal cost for a 
year, consisting of three ``segment'' rates, each of which 
applies to benefit payments expected to be made from the plan 
during a certain period.\445\ The first segment rate applies to 
benefits reasonably determined to be payable during the five-
year period beginning on the first day of the year; the second 
segment rate applies to benefits reasonably determined to be 
payable during the 15-year period following the initial five-
year period; and the third segment rate applies to benefits 
reasonably determined to be payable at the end of the 15-year 
period. The first, second, and third segment rates are based on 
the corresponding portion of a corporate bond yield curve with 
certain adjustments.
---------------------------------------------------------------------------
    \444\ Pub. L. No. 109-280.
    \445\ Each segment rate is a single interest rate determined 
monthly by the Secretary of the Treasury, on the basis of a corporate 
bond yield curve, taking into account only the portion of the yield 
curve based on corporate bonds maturing during the particular segment 
rate period. The corporate bond yield curve used for this purpose 
reflects the average, for the 24-month period ending with the preceding 
month, of yields on investment grade corporate bonds with varying 
maturities and that are in the top three quality levels available. 
Solely for purposes of determining minimum required contributions, in 
lieu of the segment rates, an employer may elect to use interest rates 
on a yield curve based on the yields on investment grade corporate 
bonds for the month preceding the month in which the plan year begins 
(that is, without regard to the 24-month averaging described above) 
(``monthly yield curve''). If an election to use a monthly yield curve 
is made, it cannot be revoked without Internal Revenue Service 
approval.
---------------------------------------------------------------------------
    Under the Moving Ahead for Progress in the 21st Century 
Act,\446\ for plan years beginning after December 31, 2011, a 
segment rate determined under the PPA rules is adjusted if it 
falls outside a specified percentage range of the average 
segment rates for a preceding period. In particular, if a 
segment rate determined under the PPA rules is less than the 
applicable minimum percentage in the specified range, the 
segment rate is adjusted upward to match the minimum 
percentage. If a segment rate determined under the PPA rules is 
more than the applicable maximum percentage in the specified 
range, the segment rate is adjusted downward to match the 
maximum percentage.
---------------------------------------------------------------------------
    \446\ Pub. L. No. 112-141. The Highway Transportation and Funding 
Act of 2014, Pub. L. No. 113-159, made changes to the applicable 
minimum and maximum percentage ranges for determining whether a segment 
rate must be adjusted upward or downward, as well as the periods for 
determining such segment rates.
---------------------------------------------------------------------------
    The specified percentage range (that is, the range from the 
applicable minimum percentage to the applicable maximum 
percentage of average segment rates), as most recently modified 
in the Bipartisan Budget Act of 2015,\447\ for determining 
whether a segment rate must be adjusted upward or downward for 
a plan year is determined by reference to the calendar year in 
which the plan year begins as follows:
---------------------------------------------------------------------------
    \447\  Pub. L. No. 114-74.
---------------------------------------------------------------------------
           90 percent to 110 percent for 2012 through 
        2020,
           85 percent to 115 percent for 2021,
           80 percent to 120 percent for 2022,
           75 percent to 125 percent for 2023, and
           70 percent to 130 percent for 2024 or later.
    For March 2019, the first, second, and third segment rates 
after adjustment are 2.86 percent, 4.00 percent, and 4.42 
percent, respectively.\448\
---------------------------------------------------------------------------
    \448\ Notice 2019-29, 2019-19 I.R.B. These rates are determined and 
published monthly by the Internal Revenue Service by notice and on its 
website. See https://www.irs.gov/retirement-plans/minimum-present-
value-segment-rates.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, an employer maintaining a ``community 
newspaper plan'' (as defined below) under which no participant 
has had the participant's accrued benefit increased (whether 
because of service or compensation) after December 31, 2017, 
may elect to apply certain alternative funding rules to the 
plan and any other plan sponsored by any member of the 
controlled group (determined as of the date of enactment).\449\ 
An election under the provision to apply the alternative 
funding rules is to be made at such time and in such manner as 
prescribed by the Secretary of the Treasury, and once made with 
respect to a plan year, applies to all subsequent years unless 
revoked with the consent of the Secretary of the Treasury.
---------------------------------------------------------------------------
    \449\ For this purpose, the controlled group means all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 as of the date of enactment.
---------------------------------------------------------------------------
    Under the alternative funding rules, an interest rate of 
eight percent is used to determine a plan's funding target and 
target normal cost, rather than the first, second, and third 
segment rates. However, if new benefits are accrued or earned 
under a plan for a plan year in which the election is in 
effect, the present value of such benefits must be determined 
on the basis of the U.S. Treasury obligation yield curve for 
the day that is the valuation date of such plan for such plan 
year. In addition, if the value of plan assets is less than the 
plan's funding target, such that the plan has a funding 
shortfall, the shortfall is required to be funded by 
contributions, with interest, over 30 years, rather than over 
seven years. The shortfall amortization bases determined \450\ 
for all plan years preceding the first plan year to which the 
election applies (and all related shortfall amortization 
installments) are reduced to zero. Further, the assumptions 
applicable to an ``at-risk'' plan do not apply.
---------------------------------------------------------------------------
    \450\ Under section 430(c)(3).
---------------------------------------------------------------------------
    Under the provision, a ``community newspaper plan'' is a 
plan to which the new provision applies, which is maintained by 
an employer that, as of December 31, 2017:
           Publishes and distributes daily, either 
        electronically or in printed form, one or more 
        community newspapers (as defined below) in a single 
        State,
           Is not a company the stock of which is 
        publicly traded on a stock exchange or in an over-the-
        counter market, and is not controlled, directly or 
        indirectly, by such a company,
           Is controlled, directly or indirectly (a) by 
        one or more persons residing primarily in the State in 
        which the community newspaper is published; (b) for at 
        least 30 years by individuals who are members of the 
        same family; (c) by a trust created or organized in the 
        State in which the community newspaper is published, 
        the sole trustees of which are persons described in (a) 
        or (b); (d) by an entity described in section 501(c)(3) 
        and exempt from tax under section 501(a) that is 
        organized and operated in the State in which the 
        community newspaper is published, and the primary 
        purpose of which is to benefit communities in the 
        State; or (e) by a combination of persons described in 
        (a), (c), or (d), and
           Does not control, directly or indirectly, 
        any newspaper in any other State.
    A ``community newspaper'' means a newspaper that primarily 
serves a metropolitan statistical area, as determined by the 
Office of Management and Budget, with a population of not less 
than 100,000. For purposes of the provision, a person (the 
``first'' person) is treated as controlled by another person if 
the other person possesses, directly or indirectly, the power 
to direct or cause the direction and management of the first 
person (including the power to elect a majority of the members 
of the board of directors of the first person) through the 
ownership of voting securities.
    The provision makes the above-described amendments to both 
the Code and ERISA.\451\
---------------------------------------------------------------------------
    \451\ The provision adds a new subsection (m) to section 430, and a 
new subsection (m) to section 303 of ERISA. However, the term community 
newspaper plan for ERISA purposes includes one that publishes and 
distributes daily, either electronically or in printed form, either a 
community newspaper or one or more community newspapers in the same 
State. Additionally, in the case of a plan to which the election has 
been made, the provision does not change the basis for calculating 
underfunding for purposes of Pension Benefit Guaranty Corporation 
variable rate premiums.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies the amendments to plan years ending 
after December 31, 2017.

16. Treating excluded difficulty of care payments as compensation for 
        determining retirement contribution limitations (sec. 116 of 
        the Act and secs. 408 and 415 of the Code)

                              Present Law


Difficulty of care payments

    Gross income does not include amounts received by a foster 
care provider during the taxable year as qualified foster care 
payments.\452\ Qualified foster care payments include any 
payment made pursuant to a foster care program of a State or 
political subdivision which is paid by (1) a State or political 
subdivision thereof or (2) a qualified foster care placement 
agency, and which is either (1) paid to the foster care 
provider for caring for a qualified foster individual in the 
foster care provider's home, or (2) a ``difficulty of care'' 
payment.\453\ A ``qualified foster individual'' is any 
individual who is living in a foster family home in which the 
individual was placed by either an agency of a State (or a 
political subdivision thereof) or a qualified foster care 
placement agency.\454\ A qualified foster care placement agency 
is any placement agency which is licensed or certified by a 
State (or political subdivision thereof) or an entity 
designated by a State (or political subdivision thereof).\455\
---------------------------------------------------------------------------
    \452\ Sec. 131(a)
    \453\ Sec. 131(b)(1).
    \454\ Sec. 131(b)(2).
    \455\ Sec. 131(b)(3).
---------------------------------------------------------------------------
    A ``difficulty of care'' payment is compensation for 
providing the additional care needed for certain qualified 
foster individuals. Such payments are provided when a qualified 
foster individual has a physical, mental or emotional 
disability for which the State has determined that (1) there is 
a need for additional compensation to care for the individual, 
(2) the care is provided in the home of the foster care 
provider, and (3) the payments are designated by the payor as 
compensation for such purpose.\456\ An applicant must request 
an assessment of need from the State agency administering the 
program and submit a medical evaluation which is reassessed 
every year.
---------------------------------------------------------------------------
    \456\ Pursuant to section 131(c)(2), in the case of any foster 
home, difficulty of care payments for any period to which such payments 
relate are not excludable from gross income to the extent such payments 
are made for more than 10 qualified foster individuals who have not 
attained age 19 and five qualified foster individuals who have attained 
age 19.
---------------------------------------------------------------------------
    In the case of a tax-qualified defined contribution plan, 
such a plan will not satisfy the tax qualification requirements 
unless contributions made by a participant to the plan (as well 
as other additions such as employer contributions and 
forfeitures) do not exceed the lesser of (1) $40,000 or (2) 100 
percent of the participant's compensation.\457\ A participant's 
compensation is defined generally as the compensation of the 
participant from the employer for the year.\458\ A special rule 
applies for self-employed individuals providing that a 
participant's compensation is the participant's earned 
income.\459\ Similar rules apply for contributions made to an 
individual retirement account.\460\
---------------------------------------------------------------------------
    \457\ Sec. 415(c)(1).
    \458\ Sec. 415(c)(3)(A).
    \459\ Sec. 415(c)(3)(B).
    \460\ See secs. 219, 408, and 408A.
---------------------------------------------------------------------------
    Since ``difficulty of care'' payments are excluded from 
gross income, home healthcare workers receiving only such 
payments are unable to participate in tax-qualified retirement 
plans or individual retirement accounts because ``difficulty of 
care'' payments are not considered compensation or earnings 
upon which contributions to such plans or accounts may be made.

                        Explanation of Provision

    The provision amends sections 415(c)(3) and 408(o) to 
increase the contribution limit to qualified retirement plans 
and individual retirement accounts to include ``difficulty of 
care'' payments.

                            Effective Date 

    With respect to defined contribution plans, the provision 
applies to plan years beginning after December 31, 2015, and 
with respect to individual retirement accounts, the provision 
applies to contributions after the date of enactment.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS


1. Plan adopted by filing due date for year may be treated as in effect 
        as of close of year (sec. 201 of the Act and sec. 401(b) of the 
        Code)

                              Present Law 

    In order for a qualified retirement plan to be treated as 
maintained for a taxable year, the plan must be adopted by the 
last day of the taxable year.\461\ However, the trust under the 
plan will not fail to be treated as in existence due to lack of 
corpus merely because it holds no assets on the last day of the 
taxable year.\462\ Contributions made by the due date (plus 
extensions) of the tax return for the employer maintaining the 
plan for a taxable year are treated as contributed on account 
of that taxable year.\463\ Thus, a plan can be established on 
the last day of a taxable year even though the first 
contribution is not made until the due date of the employer's 
return of tax for the taxable year. Further, if the terms of a 
plan adopted during an employer's taxable year fail to satisfy 
the qualification requirements that apply to the plan for the 
year, the plan may also be amended retroactively by the due 
date (including extensions) of the employer's return, provided 
that the amendment is made retroactively effective.\464\ 
However, this provision does not allow a plan to be adopted 
after the end of a taxable year and made retroactively 
effective, for qualification purposes, for the taxable year 
prior to the taxable year in which the plan was adopted by the 
employer.\465\
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    \461\ Rev. Rul. 76-28, 1976-1 C.B. 106.
    \462\ Rev. Rul. 81-114, 1981-1 C.B. 207.
    \463\ Sec. 404(a)(6).
    \464\ Sec. 401(b).
    \465\ Treas. Reg. sec. 1.401(b)-1(a).
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                        Explanation of Provision

    Under the provision, if an employer adopts a qualified 
retirement plan after the close of a taxable year but before 
the time prescribed by law for filing the return of tax of the 
employer for the taxable year (including extensions thereof), 
the employer may elect to treat the plan as having been adopted 
as of the last day of the taxable year.
    The provision does not override rules requiring certain 
plan provisions to be in effect during a plan year, such as the 
provision for elective deferrals under a qualified cash or 
deferral arrangement (generally referred to as a ``401(k) 
plan'').\466\
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    \466\ Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
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                             Effective Date

    The provision applies to plans adopted for taxable years 
beginning after December 31, 2019.

2. Combined annual report for group of plans (sec. 202 of the Act, sec. 
        104 of ERISA, and sec. 6058 of the Code)

                              Present Law

    An employer maintaining a qualified retirement plan 
generally is required to file an annual return containing 
information required under regulations with respect to the 
qualification, financial condition, and operation of the 
plan.\467\ ERISA requires the plan administrator of certain 
pension and welfare benefit plans to file annual reports 
disclosing specified information to the Department of Labor 
(``DOL'').\468\ These filing requirements are met by filing a 
completed Form 5500, Annual Return/Report of Employee Benefit 
Plan.\469\ Forms 5500 are filed with DOL, and information from 
Forms 5500 is shared with the IRS.\470\ A separate Form 5500 is 
required for each plan.\471\
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    \467\ Sec. 6058. In addition, under section 6059, the plan 
administrator of a defined benefit plan subject to the minimum funding 
requirements is required to file an annual actuarial report. Under 
section 414(g) and ERISA section 3(16), ``plan administrator'' 
generally means the person specifically so designated by the terms of 
the plan document. In the absence of a designation, the plan 
administrator generally is (1) in the case of a plan maintained by a 
single employer, the employer; (2) in the case of a plan maintained by 
an employee organization, the employee organization; or (3) in the case 
of a plan maintained by two or more employers or jointly by one or more 
employers and one or more employee organizations, the association, 
committee, joint board of trustees, or other similar group of 
representatives of the parties that maintain the plan. Under ERISA, the 
party described in (1), (2) or (3) is referred to as the ``plan 
sponsor.''
    \468\ ERISA secs. 103 and 104. Under ERISA section 4065, the plan 
administrator of certain defined benefit plans must provide information 
to the Pension Benefit Guaranty Corporation (``PBGC'').
    \469\ Small plans meeting certain requirements (generally plans 
with less than 100 employees) must file a Form 5500 SF. The Form 5500-
EZ is generally used by ``one participant plans'' (plans in which the 
only participants are an individual and spouse who together own the 
business (whether or not incorporated) for which the plan is 
established) or certain foreign plans that are not subject to the 
requirements of section 104(a) of ERISA.
    \470\ Information is shared also with the PBGC, as applicable. Form 
5500 filings are also publicly released in accordance with section 
6104(b); Treas. Reg. sec. 301.6104(b)-1; and ERISA secs. 104(a)(1) and 
106(a).
    \471\ Under section 6011(a) and (e), the IRS is required to provide 
standards for electronically filed returns, but may not require a 
person to file a return electronically unless the person is required to 
file at least 250 returns during the calendar year (``250 return 
threshold for electronic filing''). Under Treas. Reg. sec. 301.6058-2, 
Form 5500 for a plan year must be filed electronically if the filer is 
required to file at least 250 tax returns (including information 
returns) during the calendar year that includes the first day of the 
plan year.
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                        Explanation of Provision

    The provision directs the IRS and DOL to work together to 
modify Form 5500 so that all members of a group of plans 
described below may file a single consolidated Form 5500. In 
developing the consolidated Form 5500, the IRS and DOL may 
require members to include sufficient information for each plan 
in the group as the IRS and DOL determine is necessary or 
appropriate for the enforcement and administration of the Code 
and ERISA.\472\
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    \472\ Under the provision, for purposes of applying the 250-return 
threshold for electronic filing to Forms 5500 for plan years beginning 
after December 31, 2019, information regarding each plan for which 
information is provided on the Form 5500 is treated as a separate 
return.
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    For purposes of the provision, a group of plans is eligible 
for a consolidated Form 5500 if all the plans in the group (1) 
are defined contribution plans; (2) have the same trustee, the 
same named fiduciary (or named fiduciaries) under ERISA, and 
the same administrator and plan administrator; (3) use the same 
plan year; and (4) provide the same investments or investment 
options to participants and beneficiaries. A plan not subject 
to ERISA may be included in the group if the same person that 
performs each of the previous functions, as applicable, for all 
the other plans in the group performs each of the functions for 
the plan not subject to ERISA.

                             Effective Date

    The consolidated Form 5500 is to be implemented not later 
than January 1, 2022 and shall be effective for returns and 
reports for plan years beginning after December 31, 2021.

3. Disclosure regarding lifetime income (sec. 203 of the Act and sec. 
        105 of ERISA)

                              Present Law

    ERISA requires the administrator of a defined contribution 
plan to provide benefit statements to participants.\473\ In the 
case of a participant who has the right to direct the 
investment of the assets in his or her account, a benefit 
statement must be provided at least quarterly. Benefit 
statements must be provided at least annually to other 
participants.
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    \473\ ERISA sec. 105. Benefit statements are required also with 
respect to defined benefit plans. A civil penalty may apply for a 
failure to provide a required benefit statement.
---------------------------------------------------------------------------
    Among other items, a benefit statement provided with 
respect to a defined contribution plan generally must include 
(1) the participant's total benefits accrued, that is, the 
participant's account balance; (2) the vested portion of the 
account balance or the earliest date on which the account 
balance will become vested; and (3) the value of each 
investment to which assets in the participant's account are 
allocated. A quarterly benefit statement provided to a 
participant who has the right to direct investments must 
provide additional information, including information relating 
to investment principles.
    In May 2013, the Department of Labor issued an advance 
notice of proposed rulemaking providing rules under which a 
benefit provided to a defined contribution plan participant 
would include an estimated lifetime income stream of payments 
based on the participant's account balance.\474\ However, 
information about lifetime income that might be provided by 
funds in a defined contribution plan is not currently required 
to be included in a benefit statement.
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    \474\ 78 Fed. Reg. 26727, May 8, 2013.
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                        Explanation of Provision

    The provision requires a benefit statement provided to a 
defined contribution plan participant to include a lifetime 
income disclosure as described in the provision. However, the 
lifetime income disclosure is required to be included in only 
one benefit statement during any 12-month period.
    A lifetime income disclosure is required to set forth the 
lifetime income stream equivalent of the participant's total 
account balance under the plan. The lifetime income stream 
equivalent to the account balance is the amount of monthly 
payments the participant or beneficiary would receive if the 
total account balance were used to provide lifetime income 
streams, based on assumptions specified in guidance prescribed 
by the Secretary of Labor (referred to as the ``Secretary'' in 
this explanation). The required lifetime income streams are (1) 
a qualified joint and survivor annuity for the participant and 
the participant's surviving spouse (or beneficiary and the 
beneficiary's surviving spouse), based on assumptions specified 
in guidance, including the assumption that the participant (or 
beneficiary) has a spouse of equal age; and (2) a single life 
annuity. The lifetime income streams may have a term certain or 
other features to the extent permitted under guidance.
    The Secretary is directed to issue, not later than a year 
after the provision is enacted, a model lifetime income 
disclosure, written in a manner to be understood by the average 
plan participant. The model must include provisions to (1) 
explain that the lifetime income stream equivalent is only 
provided as an illustration, (2) explain that the actual 
payments under the lifetime income stream that may be purchased 
with the account balance will depend on numerous factors and 
may vary substantially from the lifetime income stream 
equivalent in the disclosure, (3) explain the assumptions on 
which the lifetime income stream equivalent is determined, and 
(4) provide other similar explanations as the Secretary 
considers appropriate.
    In addition, the Secretary is directed, not later than a 
year after the provision is enacted, (1) to prescribe 
assumptions that defined contribution plan administrators may 
use in converting account balances into lifetime income stream 
equivalents, and (2) to issue interim final rules under the 
provision. In prescribing assumptions, the Secretary may 
prescribe a single set of specific assumptions (in which case 
the Secretary may issue tables or factors that facilitate 
conversions of account balances) or ranges of permissible 
assumptions. To the extent that an account balance is or may be 
invested in a lifetime income stream, the prescribed 
assumptions are to allow, to the extent appropriate, plan 
administrators to use the amounts payable under the lifetime 
income stream as a lifetime income stream equivalent.
    Under the provision, no plan fiduciary, plan sponsor, or 
other person has any liability under ERISA solely by reason of 
the provision of lifetime income stream equivalents that are 
derived in accordance with the assumptions and guidance under 
the provision and that include the explanations contained in 
model disclosure. This protection applies without regard to 
whether the lifetime income stream equivalent is required to be 
provided.

                             Effective Date

    The requirement to provide a lifetime income disclosure 
applies with respect to benefit statements furnished more than 
12 months after the latest of the issuance by the Secretary of 
(1) interim final rules, (2) the model disclosure, or (3) 
prescribed assumptions.

4. Fiduciary safe harbor for selection of lifetime income provider 
        (sec. 204 of the Act and sec. 404 of ERISA)

                              Present Law

    ERISA imposes certain standards of care with respect to the 
actions of a plan fiduciary. Specifically, a fiduciary is 
required to discharge its duties with respect to the plan 
solely in the interest of the participants and beneficiaries; 
for the exclusive purpose of providing benefits to participants 
and beneficiaries and defraying reasonable administration 
expenses of the plan, with the care, skill, prudence, and 
diligence under the circumstances then prevailing that a 
prudent man acting in a like capacity and familiar with 
relevant matters would use in the conduct of an enterprise of a 
like character and with like aims (the ``prudent man'' 
requirement); by diversifying plan investments so as to 
minimize the risk of large losses unless, under the 
circumstances, it is clearly prudent not to do so; and in 
accordance with plan documents and governing instruments 
insofar as the documents and instruments are consistent with 
ERISA.
    Department of Labor regulations provide a safe harbor for a 
fiduciary to satisfy the prudent man requirement in selecting 
an annuity provider and a contract for benefit distributions 
from a defined contribution plan.\475\
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    \475\ 29 C.F.R. sec. 2550.404a-4.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision specifies measures that a plan fiduciary may 
take with respect to the selection of an insurer for a 
guaranteed retirement income contract to assure that the 
fiduciary meets the prudent man requirement. The measures under 
the provision are an optional means by which a fiduciary will 
be considered to satisfy the prudent man requirement with 
respect to the selection of insurers for guaranteed retirement 
income contracts and do not establish minimum requirements or 
the exclusive means for satisfying the prudent man requirement. 
The provision applies to the selection of the insurance company 
for purposes of determining if the insurer is financially 
capable of satisfying its obligations under the guaranteed 
retirement income contract. The provision does not extend to 
the underlying insurance contract, and therefore the fiduciary 
must conduct a separate fiduciary analysis of the prudence and 
terms and conditions of the guaranteed retirement income 
contract based on present law and guidance.
    For purposes of the provision, an insurer is an insurance 
company, insurance service or insurance organization qualified 
to do business in a State and includes affiliates of those 
entities to the extent the affiliate is licensed to offer 
guaranteed retirement income contracts. A guaranteed retirement 
income contract is an annuity contract for a fixed term or a 
contract (or provision or feature thereof) designed to provide 
a participant guaranteed benefits annually (or more frequently) 
for at least the remainder of the life of the participant or 
joint lives of the participant and the participant's designated 
beneficiary as part of a defined contribution plan.
    With respect to the selection of an insurer for a 
guaranteed retirement income contract (as defined below), the 
prudent man requirement will be deemed met if a fiduciary:
           Engages in an objective, thorough, and 
        analytical search for the purpose of identifying 
        insurers from which to purchase guaranteed retirement 
        income contracts,
           With respect to each insurer identified 
        through the search, considers the financial capability 
        of the insurer to satisfy its obligations under the 
        guaranteed retirement income contract and considers the 
        cost (including fees and commissions) of the guaranteed 
        retirement income contract offered by the insurer in 
        relation to the benefits and product features of the 
        contract and administrative services to be provided 
        under the contract, and
           On the basis of the foregoing, concludes 
        that, at the time of the selection (as described 
        below), the insurer is financially capable of 
        satisfying its obligations under the guaranteed 
        retirement income contract and that the cost (including 
        fees and commissions) of the selected guaranteed 
        retirement income contract is reasonable in relation to 
        the benefits and product features of the contract and 
        the administrative services to be provided under the 
        contract.
    A fiduciary will be deemed to satisfy the requirements 
above with respect to the financial capability of the insurer 
if:
           The fiduciary obtains written 
        representations from the insurer that it is licensed to 
        offer guaranteed retirement income contracts; that the 
        insurer, at the time of selection and for each of the 
        immediately preceding seven years operates under a 
        certificate of authority from the Insurance 
        Commissioner of its domiciliary State that has not been 
        revoked or suspended, has filed audited financial 
        statements in accordance with the laws of its 
        domiciliary State under applicable statutory accounting 
        principles, maintains (and has maintained) reserves 
        that satisfy all the statutory requirements of all 
        States where the insurer does business, and is not 
        operating under an order of supervision, 
        rehabilitation, or liquidation; and that the insurer 
        undergoes, at least every five years, a financial 
        examination (within the meaning of the law of its 
        domiciliary State) by the Insurance Commissioner of the 
        domiciliary State (or representative, designee, or 
        other party approved thereby),
           In the case that, following the issuance of 
        the insurer representations described above, there is 
        any change in circumstances that would preclude the 
        insurer from making the same representations at the 
        time of issuance of the guaranteed retirement income 
        contract, the insurer is required to notify the 
        fiduciary, in advance of the issuance of any guaranteed 
        retirement income contract, that the fiduciary can no 
        longer rely on one or more of the representations, and
           The fiduciary has not received such a 
        notification and has no other facts that would cause it 
        to question the insurer representations.
    The provision specifies that nothing in these requirements 
is to be construed to require a fiduciary to select the lowest 
cost contract. Accordingly, a fiduciary may consider the value, 
including features and benefits of the contract and attributes 
of the insurer in conjunction with the contract's cost. For 
this purpose, attributes of the insurer that may be considered 
include, without limitation, the issuer's financial strength.
    For purposes of the provision, the time of selection may be 
either the time that the insurer for the contract is selected 
for distribution of benefits to a specific participant or 
beneficiary or the time that the insurer for the contract is 
selected to provide benefits at future dates to participants or 
beneficiaries, provided that the selecting fiduciary 
periodically reviews the continuing appropriateness of its 
conclusions with respect to the insurer's financial capability 
and cost, taking into account the considerations described 
above.\476\ A fiduciary will be deemed to have conducted a 
periodic review of the financial capability of the insurer if 
the fiduciary obtains the written representations described 
above on an annual basis unless, in the interim, the fiduciary 
has received notification from the insurer that representations 
cannot be relied on or the fiduciary otherwise becomes aware of 
facts that would cause it to question the representations.
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    \476\ However, a fiduciary is not required to review the 
appropriateness of its conclusions following the purchase of any 
contract or contracts for specific participants or beneficiaries.
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    A fiduciary that satisfies the requirements of the 
provision is not liable following the distribution of any 
benefit, or the investment by or on behalf of a participant or 
beneficiary pursuant to the selected guaranteed retirement 
income contract, for any losses that may result to the 
participant or beneficiary due to an insurer's inability to 
satisfy its financial obligations under the terms of the 
contract.

                             Effective Date

    The provision is effective on the date of enactment.

5. Modification of nondiscrimination rules to protect older, longer 
        service participants (sec. 205 of the Act and sec. 401 of the 
        Code)

                              Present Law


In general

    Qualified retirement plans are subject to nondiscrimination 
requirements, under which the group of employees covered by a 
plan (``plan coverage'') and the contributions or benefits 
provided to employees, including benefits, rights, and features 
under the plan, must not discriminate in favor of highly 
compensated employees.\477\ The timing of plan amendments must 
also not have the effect of discriminating significantly in 
favor of highly compensated employees. In addition, in the case 
of a defined benefit plan, the plan must benefit at least the 
lesser of (1) 50 employees of the employer, or (2) the greater 
of (a) 40 percent of all employees of the employer or (b) two 
employees (or one employee if there is only one employee), 
referred to as the ``minimum participation'' requirements.\478\ 
These requirements are designed to help ensure that qualified 
retirement plans achieve the goal of retirement security for 
both lower and higher paid employees.
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    \477\ Secs. 401(a)(3)-(5) and 410(b). Detailed rules are provided 
in Treas. Reg. secs. 1.401(a)(4)-1 through -13 and secs 1.410(b)-92 
through -10. In applying the nondiscrimination requirements, certain 
employees, such as those under age 21 or with less than a year of 
service, generally may be disregarded. In addition, employees of 
controlled groups and affiliated service groups under the aggregation 
rules of section 414(b), (c), (m) and (o) are treated as employed by a 
single employer.
    \478\ Sec. 401(a)(26).
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    For nondiscrimination purposes, an employee generally is 
treated as highly compensated if the employee (1) was a five-
percent owner of the employer at any time during the year or 
the preceding year, or (2) had compensation for the preceding 
year in excess of $125,000 (for 2019).\479\ Employees who are 
not highly compensated are referred to as nonhighly compensated 
employees.
---------------------------------------------------------------------------
    \479\ Sec.A4(q). At the election of the employer, employees who are 
highly compensated based on the amount of their compensation may be 
limited to employees who were among the top 20 percent of employees 
based on compensation.
---------------------------------------------------------------------------

Nondiscriminatory plan coverage

    Whether plan coverage of employees is nondiscriminatory is 
determined by calculating a plan's ratio percentage, that is, 
the ratio of the percentage of nonhighly compensated employees 
covered under the plan to the percentage of highly compensated 
employees covered. For this purpose, certain portions of a 
defined contribution plan are treated as separate plans to 
which the plan coverage requirements are applied separately, 
referred to as mandatory disaggregation. Specifically, the 
following, if provided under a plan, are treated as separate 
plans: the portion of a plan consisting of employee elective 
deferrals, the portion consisting of employer matching 
contributions, the portion consisting of employer nonelective 
contributions, and the portion consisting of an employee stock 
ownership plan (``ESOP'').\480\ Subject to mandatory 
disaggregation, different qualified retirement plans may 
otherwise be aggregated and tested together as a single plan, 
provided they use the same plan year. The plan determined under 
these rules for plan coverage purposes generally is also 
treated as the plan for purposes of applying the other 
nondiscrimination requirements.
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    \480\ Elective deferrals are contributions that an employee elects 
to have made to a defined contribution plan that includes a qualified 
cash or deferred arrangement (a section 401(k) plan) rather than 
receive the same amount as current compensation. Employer matching 
contributions are contributions made by an employer only if an employee 
makes elective deferrals or after-tax employee contributions. Employer 
nonelective contributions are contributions made by an employer 
regardless of whether an employee makes elective deferrals or after-tax 
employee contributions. Under section 4975(e)(7), an ESOP is a defined 
contribution plan, or portion of a defined contribution plan, that is 
designated as an ESOP and is designed to invest primarily in employer 
stock.
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    A plan's coverage is nondiscriminatory if the ratio 
percentage, as determined above, is 70 percent or greater. If a 
plan's ratio percentage is less than 70 percent, a multi-part 
test applies, referred to as the average benefit test. First, 
the plan must meet a ``nondiscriminatory classification 
requirement,'' that is, it must cover a group of employees that 
is reasonable and established under objective business criteria 
and the plan's ratio percentage must be at or above a level 
specified in the regulations, which varies depending on the 
percentage of nonhighly compensated employees in the employer's 
workforce. In addition, the average benefit percentage test 
must be satisfied.
    Under the average benefit percentage test, in general, the 
average rate of employer-provided contributions or benefit 
accruals for all nonhighly compensated employees under all 
plans of the employer must be at least 70 percent of the 
average contribution or accrual rate of all highly compensated 
employees.\481\ In applying the average benefit percentage 
test, elective deferrals made by employees, as well as employer 
matching and nonelective contributions, are taken into account. 
Generally, all plans maintained by the employer are taken into 
account, including ESOPs, regardless of whether plans use the 
same plan year.
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    \481\ Contribution and benefit rates are generally determined under 
the rules for nondiscriminatory contributions or benefit accruals, 
described below. These rules are generally based on benefit accruals 
under a defined benefit plan, other than accruals attributable to 
after-tax employee contributions, and contributions allocated to 
participants' accounts under a defined contribution plan, other than 
allocations attributable to after-tax employee contributions. (Under 
these rules, contributions allocated to participants' accounts are 
referred to as ``allocations,'' with the related rates referred to as 
``allocation rates,'' but "contribution rates" is used herein for 
convenience.) However, as discussed below, benefit accruals can be 
converted to actuarially equivalent contributions, and contributions 
can be converted to actuarially equivalent benefit accruals.
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    Under a transition rule applicable in the case of the 
acquisition or disposition of a business, or portion of a 
business, or a similar transaction, a plan that satisfied the 
plan coverage requirements before the transaction is deemed to 
continue to satisfy them for a period after the 
transaction,\482\ provided coverage under the plan is not 
significantly changed during that period.\483\
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    \482\ It is for the period beginning on date of the transaction and 
ending on the last day of the first plan year beginning after the date 
of the transaction.
    \483\ Sec. 410(b)(6)(C).
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Nondiscriminatory contributions or benefit accruals

            In general
    There are three general approaches to testing the amount of 
benefits under qualified retirement plans: (1) design-based 
safe harbors under which the plan's contribution or benefit 
accrual formula satisfies certain uniformity standards; (2) a 
general test, described below, and (3) cross-testing of 
equivalent contributions or benefit accruals. Employee elective 
deferrals and employer matching contributions under defined 
contribution plans are subject to special testing rules and 
generally are not permitted to be taken into account in 
determining whether other contributions or benefits are 
nondiscriminatory.\484\
---------------------------------------------------------------------------
    \484\ Secs. 401(k) and (m), the latter of which applies also to 
after-tax employee contributions under a defined contribution plan.
---------------------------------------------------------------------------
    The nondiscrimination rules allow contributions and benefit 
accruals to be provided to highly compensated and nonhighly 
compensated employees at the same percentage of 
compensation.\485\ Thus, the various testing approaches 
described below are generally applied to the amount of 
contributions or accruals provided as a percentage of 
compensation, referred to as a contribution rate or accrual 
rate. In addition, under the ``permitted disparity'' rules, in 
calculating an employee's contribution or accrual rate, credit 
may be given for the employer paid portion of Social Security 
taxes or benefits.\486\ The permitted disparity rules do not 
apply in testing whether elective deferrals, matching 
contributions, or ESOP contributions are nondiscriminatory.
---------------------------------------------------------------------------
    \485\ For this purpose, under section 401(a)(17), annual 
compensation generally is limited to $280,000 per year (for 2019).
    \486\ See sections 401(a)(5)(C) and (D) and 401(l) and Treas. Reg. 
sec. 1.401(a)(4)-7 and 1.401(l)-1 through -6 for rules for determining 
the amount of contributions or benefits that can be attributed to the 
employer-paid portion of Social Security taxes or benefits.
---------------------------------------------------------------------------
    The general test is generally satisfied by measuring the 
rate of contribution or benefit accrual for each highly 
compensated employee to determine if the group of employees 
with the same or higher rate (a ``rate'' group) is a 
nondiscriminatory group, using the nondiscriminatory plan 
coverage standards described above. For this purpose, if the 
ratio percentage of a rate group is less than 70 percent, a 
simplified standard applies, which includes disregarding the 
reasonable classification requirement, but requires 
satisfaction of the average benefit percentage test.
            Cross-testing
    Cross-testing involves the conversion of contributions 
under a defined contribution plan or benefit accruals under a 
defined benefit plan to actuarially equivalent accruals or 
contributions, with the resulting equivalencies tested under 
the general test. However, employee elective deferrals and 
employer matching contributions under defined contribution 
plans are not permitted to be taken into account for this 
purpose, and cross-testing of contributions under a defined 
contribution plan, or cross-testing of a defined contribution 
plan aggregated with a defined benefit plan, is permitted only 
if certain threshold requirements are satisfied.
    In order for a defined contribution plan to be tested on an 
equivalent benefit accrual basis, one of the following three 
threshold conditions must be met:
           The plan has broadly available allocation 
        rates, that is, each allocation rate under the plan is 
        available to a nondiscriminatory group of employees 
        (disregarding certain permitted additional 
        contributions provided to employees as a replacement 
        for benefits under a frozen defined benefit plan, as 
        discussed below);
           The plan provides allocations that meet 
        prescribed designs under which allocations gradually 
        increase with age or service or are expected to provide 
        a target level of annuity benefit; or
           The plan satisfies a minimum allocation 
        gateway, under which each nonhighly compensated 
        employee has an allocation rate of (a) at least one-
        third of the highest rate for any highly compensated 
        employee, or (b) if less, at least five percent.
    In order for an aggregated defined contribution and defined 
benefit plan to be tested on an aggregate equivalent benefit 
accrual basis, one of the following three threshold conditions 
must be met:
           The plan must be primarily defined benefit 
        in character, that is, for more than fifty percent of 
        the nonhighly compensated employees under the plan, 
        their accrual rate under the defined benefit plan 
        exceeds their equivalent accrual rate under the defined 
        contribution plan;
           The plan consists of broadly available 
        separate defined benefit and defined contribution 
        plans, that is, the defined benefit plan and the 
        defined contribution plan would separately satisfy 
        simplified versions of the minimum coverage and 
        nondiscriminatory amount requirements; or
           The plan satisfies a minimum aggregate 
        allocation gateway, under which each nonhighly 
        compensated employee has an aggregate allocation rate 
        (consisting of allocations under the defined 
        contribution plan and equivalent allocations under the 
        defined benefit plan) of (a) at least one-third of the 
        highest aggregate allocation rate for any nonhighly 
        compensated employee, or (b) if less, at least five 
        percent in the case of a highest nonhighly compensated 
        employee's rate up to 25 percent, increased by one 
        percentage point for each five-percentage-point 
        increment (or portion thereof) above 25 percent, 
        subject to a maximum of 7.5 percent.
            Benefits, rights, and features
    Each benefit, right, or feature offered under the plan 
generally must be available to a group of employees that has a 
ratio percentage that satisfies the minimum coverage 
requirements, including the reasonable classification 
requirement if applicable, except that the average benefit 
percentage test does not have to be met, even if the ratio 
percentage is less than 70 percent.

Multiple employer and section 403(b) plans

    A multiple employer plan generally is a single plan 
maintained by two or more unrelated employers, that is, 
employers that are not treated as a single employer under the 
aggregation rules for related entities.\487\ The plan coverage 
and other nondiscrimination requirements are applied separately 
to the portions of a multiple employer plan covering employees 
of different employers.\488\
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    \487\ Sec. 413(c). Multiple employer plan status does not apply if 
the plan is a multiemployer plan, defined under section 414(f) as a 
plan maintained pursuant to one or more collective bargaining 
agreements with two or more unrelated employers and to which the 
employers are required to contribute under the collective bargaining 
agreement(s). Multiemployer plans are also known as Taft-Hartley plans. 
Section 101 of Pub. L. No. 116-94, Multiple employer plans; pooled 
employer plans, describes the modifications to section 413 with respect 
to multiple employer plans.
    \488\ Treas. Reg. sec. 1.413-2(a)(3)(ii)-(iii).
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    Certain tax-exempt charitable organizations may offer their 
employees a tax-deferred annuity plan (``section 403(b) 
plan'').\489\  The nondiscrimination requirements, other than 
the requirements applicable to elective deferrals, generally 
apply to section 403(b) plans of private tax-exempt 
organizations. For purposes of applying the nondiscrimination 
requirements to a section 403(b) plan, subject to mandatory 
disaggregation, a qualified retirement plan may be combined 
with the section 403(b) plan and treated as a single plan.\490\ 
However, a section 403(b) plan and qualified retirement plan 
may not be treated as a single plan for purposes of applying 
the nondiscrimination requirements to the qualified retirement 
plan.
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    \489\ Sec. 403(b). These plans are available to employers that are 
tax exempt under section 501(c)(3), as well as to employers that are 
educational institutions of State or local governments.
    \490\ Treas. Reg. sec. 1.410(b)-7(f).
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Closed and frozen defined benefit plans

    A defined benefit plan may be amended to limit 
participation in the plan to individuals to participate in the 
plan. Such a plan is sometimes referred to as a ``closed'' 
defined benefit plan (that is, closed to new entrants). In such 
a case, it is common for the employer also to maintain a 
defined contribution plan and to provide employer matching or 
nonelective contributions only to employees not covered by the 
defined benefit plan or at a higher rate to such employees.
    Over time, the group of employees continuing to accrue 
benefits under the defined benefit plan may come to consist 
more heavily of highly compensated employees, for example, 
because of greater turnover among nonhighly compensated 
employees or because increasing compensation causes nonhighly 
compensated employees to become highly compensated. In that 
case, the defined benefit plan may have to be combined with the 
defined contribution plan and tested on a benefit accrual 
basis. However, under the regulations, if none of the threshold 
conditions is met, testing on a benefits basis may not be 
available. Notwithstanding the regulations, recent IRS guidance 
provides relief for a limited period, allowing certain closed 
defined benefit plans to be aggregated with a defined 
contribution plan and tested on an aggregate equivalent 
benefits basis without meeting any of the threshold 
conditions.\491\ When the group of employees continuing to 
accrue benefits under a closed defined benefit plan consists 
more heavily of highly compensated employees, the benefits, 
rights, and features provided under the plan may also fail the 
tests under the existing nondiscrimination rules.
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    \491\ Notice 2014-5, 2014-2 I.R.B. 276, December 13, 2013, extended 
by Notice 2015-28, 2015-14 I.R.B. 848, March 19, 2015; Notice 2016-57, 
2016-40 I.R.B. 432, September 19, 2016; Notice 2017-45, 2017-38 I.R.B. 
232, August 31, 2017; Notice 2017-45, 2017-38 I.R.B. 232, August 31, 
2017; Notice 2018-69, 2018-37 I.R.B. 426, September 10, 2018; and most 
recently by Notice 2019-49, 2019-37 I.R.B. 699, September 9, 2019. 
Proposed regulations revising the nondiscrimination requirements for 
closed plans were also issued in 2016, subject to various conditions. 
81 Fed. Reg. 4976, January 29, 2016.
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    In some cases, if a defined benefit plan is amended to 
cease future accruals for all participants, referred to as a 
``frozen'' defined benefit plan, additional contributions to a 
defined contribution plan may be provided for participants, in 
particular for older participants, in order to make up in part 
for the loss of the benefits they expected to earn under the 
defined benefit plan (``make-whole'' contributions). As a 
practical matter, testing on a benefit accrual basis may be 
required in that case, but may not be available because the 
defined contribution plan does not meet any of the threshold 
conditions.

                        Explanation of Provision


Closed or frozen defined benefit plans

            In general
    The provision provides nondiscrimination relief with 
respect to benefits, rights, and features for a closed class of 
participants (``closed class''),\492\ and with respect to 
benefit accruals for a closed class, under a defined benefit 
plan that meets the requirements described below (referred to 
herein as an ``applicable'' defined benefit plan). In addition, 
the provision treats a closed or frozen applicable defined 
benefit plan as meeting the minimum participation requirements 
if the plan met the requirements as of the effective date of 
the plan amendment by which the plan was closed or frozen.
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    \492\ References under the provision to a closed class of 
participants and similar references to a closed class include 
arrangements under which one or more classes of participants are 
closed, except that one or more classes of participants closed on 
different dates are not aggregated for purposes of determining the date 
any such class was closed.
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    If a portion of an applicable defined benefit plan eligible 
for relief under the provision is spun off to another employer, 
and if the spun-off plan continues to satisfy any ongoing 
requirements applicable for the relevant relief as described 
below, the relevant relief for the spun-off plan will continue 
with respect to the other employer.
            Benefits, rights, or features for a closed class
    Under the provision, an applicable defined benefit plan 
that provides benefits, rights, or features to a closed class 
does not fail the nondiscrimination requirements by reason of 
the composition of the closed class, or the benefits, rights, 
or features provided to the closed class, if (1) for the plan 
year as of which the class closes and the two succeeding plan 
years, the benefits, rights, and features satisfy the 
nondiscrimination requirements without regard to the relief 
under the provision, but taking into account the special 
testing rules described below; \493\ and (2) after the date as 
of which the class was closed, any plan amendment modifying the 
closed class or the benefits, rights, and features provided to 
the closed class does not discriminate significantly in favor 
of highly compensated employees.
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    \493\ Other testing options available under present law are also 
available for this purpose.
---------------------------------------------------------------------------
    For purposes of requirement (1) above, the following 
special testing rules apply:
           In applying the plan coverage transition 
        rule for business acquisitions, dispositions, and 
        similar transactions, the closing of the class of 
        participants is not treated as a significant change in 
        coverage;
           Two or more plans do not fail to be eligible 
        to be treated as a single plan solely by reason of 
        having different plan years; \494\ and
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    \494\ This rule applies also for purposes of applying the plan 
coverage and other nondiscrimination requirements to an applicable 
defined benefit plan and one or more defined contributions that, under 
the provision, may be treated as a single plan as described below.
---------------------------------------------------------------------------
           Changes in employee population are 
        disregarded to the extent attributable to individuals 
        who become employees or cease to be employees, after 
        the date the class is closed, by reason of a merger, 
        acquisition, divestiture, or similar event.
            Benefit accruals for a closed class
    Under the provision, an applicable defined benefit plan 
that provides benefits to a closed class may be aggregated, 
that is, treated as a single plan, and tested on a benefit 
accrual basis with one or more defined contribution plans 
(without having to satisfy the threshold conditions under 
present law) if (1) for the plan year as of which the class 
closes and the two succeeding plan years, the plan satisfies 
the plan coverage and nondiscrimination requirements without 
regard to the relief under the provision, but taking into 
account the special testing rules described above,\495\ and (2)
after the date as of which the class was closed, any plan 
amendment modifying the closed class or the benefits provided 
to the closed class does not discriminate significantly in 
favor of highly compensated employees.
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    \495\ Other testing options available under present law are also 
available for this purpose.
---------------------------------------------------------------------------
    Under the provision, defined contribution plans that may be 
aggregated with an applicable defined benefit plan and treated 
as a single plan include the portion of one or more defined 
contribution plans consisting of matching contributions, an 
ESOP, or matching or nonelective contributions under a section 
403(b) plan. If an applicable defined benefit plan is 
aggregated with the portion of a defined contribution plan 
consisting of matching contributions, any portion of the 
defined contribution plan consisting of elective deferrals must 
also be aggregated. In addition, the matching contributions are 
treated in the same manner as nonelective contributions, 
including for purposes of permitted disparity.
            Applicable defined benefit plan
    An applicable defined benefit plan to which relief under 
the provision applies is a defined benefit plan under which the 
class was closed (or the plan frozen) before April 5, 2017, or 
that meets the following alternative conditions: (1) taking 
into account any predecessor plan, the plan has been in effect 
for at least five years as of the date the class is closed (or 
the plan is frozen); and (2) under the plan, during the five-
year period preceding that date, (a) for purposes of the relief 
provided with respect to benefits, rights, and features for a 
closed class, there has not been a substantial increase in the 
coverage or value of the benefits, rights, or features, or (b) 
for purposes of the relief provided with respect to benefit 
accruals for a closed class or the minimum participation 
requirements, there has not been a substantial increase in the 
coverage or benefits under the plan.
    For purposes of (2)(a) above, a plan is treated as having a 
substantial increase in coverage or value of benefits, rights, 
or features only if, during the applicable five-year period, 
either the number of participants covered by the benefits, 
rights, or features on the date the period ends is more than 50 
percent greater than the number on the first day of the plan 
year in which the period began, or the benefits, rights, and 
features have been modified by one or more plan amendments in 
such a way that, as of the date the class is closed, the value 
of the benefits, rights, and features to the closed class as a 
whole is substantially greater than the value as of the first 
day of the five-year period, solely as a result of the 
amendments.
    For purposes of (2)(b) above, a plan is treated as having 
had a substantial increase in coverage or benefits only if, 
during the applicable five-year period, either the number of 
participants benefiting under the plan on the date the period 
ends is more than 50 percent greater than the number of 
participants on the first day of the plan year in which the 
period began, or the average benefit provided to participants 
on the date the period ends is more than 50 percent greater 
than the average benefit provided on the first day of the plan 
year in which the period began. In applying this requirement, 
the average benefit provided to participants under the plan is 
treated as having remained the same between the two relevant 
dates if the benefit formula applicable to the participants has 
not changed between the dates and, if the benefit formula has 
changed, the average benefit under the plan is considered to 
have increased by more than 50 percent only if the target 
normal cost for all participants benefiting under the plan for 
the plan year in which the five-year period ends exceeds the 
target normal cost for all such participants for that plan year 
if determined using the benefit formula in effect for the 
participants for the first plan year in the five-year period by 
more than 50 percent.\496\ In applying these rules, a multiple 
employer plan is treated as a single plan, rather than as 
separate plans separately covering the employees of each 
participating employer.
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    \496\ Under the funding requirements applicable to defined benefit 
plans, target normal cost for a plan year (defined in section 
430(b)(1)(A)) is generally the sum of the present value of the benefits 
expected to be earned under the plan during the plan year plus the 
amount of plan-related expenses to be paid from plan assets during the 
plan year. Under the provision, in applying this average benefit rule 
to certain defined benefit plans maintained by cooperative 
organizations and charities, referred to as CSEC plans (defined in 
section 414(y)), which are subject to different funding requirements, 
the CSEC plan's normal cost under section 433(j)(1)(B) is used instead 
of target normal cost.
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    In applying these standards, any increase in coverage or 
value, or in coverage or benefits, whichever is applicable, is 
generally disregarded if it is attributable to coverage and 
value, or coverage and benefits, provided to employees who (1) 
became participants as a result of a merger, acquisition, or 
similar event that occurred during the 7-year period preceding 
the date the class was closed; or (2) became participants by 
reason of a merger of the plan with another plan that had been 
in effect for at least five years as of the date of the merger 
and, in the case of benefits, rights, or features for a closed 
class, under the merger, the benefits, rights, or features 
under one plan were conformed to the benefits, rights, or 
features under the other plan prospectively.

Make-whole contributions under a defined contribution plan

    Under the provision, a defined contribution plan is 
permitted to be tested on an equivalent benefit accrual basis 
(without having to satisfy the threshold conditions under 
present law) if the following requirements are met:
           The plan provides make-whole contributions 
        to a closed class of participants whose accruals under 
        a defined benefit plan have been reduced or ended 
        (``make-whole class'');
           For the plan year of the defined 
        contribution plan as of which the make-whole class 
        closes and the two succeeding plan years, the make-
        whole class satisfies the nondiscriminatory 
        classification requirement under the plan coverage 
        rules, taking into account the special testing rules 
        described above;
           After the date as of which the class was 
        closed, any amendment to the defined contribution plan 
        modifying the make-whole class or the allocations, 
        benefits, rights, and features provided to the make-
        whole class does not discriminate significantly in 
        favor of highly compensated employees; and
           Either the class was closed before April 5, 
        2017, or the defined benefit plan is an applicable 
        defined benefit plan under the alternative conditions 
        applicable for purposes of the relief provided with 
        respect to benefit accruals for a closed class.
    With respect to one or more defined contribution plans 
meeting the requirements above, in applying the plan coverage 
and nondiscrimination requirements, the portion of the plan 
providing make-whole or other nonelective contributions may 
also be aggregated and tested on an equivalent benefit accrual 
basis with the portion of one or more other defined 
contribution plans consisting of matching contributions, an 
ESOP, or matching or nonelective contributions under a section 
403(b) plan. If the plan is aggregated with the portion of a 
defined contribution plan consisting of matching contributions, 
any portion of the defined contribution plan consisting of 
elective deferrals must also be aggregated. In addition, the 
matching contributions are treated in the same manner as 
nonelective contributions, including for purposes of permitted 
disparity.
    Under the provision, ``make-whole contributions'' generally 
means nonelective contributions for each employee in the make-
whole class that are reasonably calculated, in a consistent 
manner, to replace some or all of the retirement benefits that 
the employee would have received under the defined benefit plan 
and any other plan or qualified cash or deferred arrangement 
under a section 401(k) plan if no change had been made to the 
defined benefit plan and other plan or arrangement.\ 497\ 
However, under a special rule, in the case of a defined 
contribution plan that provides benefits, rights, or features 
to a closed class of participants whose accruals under a 
defined benefit plan have been reduced or eliminated, the plan 
will not fail to satisfy the nondiscrimination requirements 
solely by reason of the composition of the closed class, or the 
benefits, rights, or features provided to the closed class, if 
the defined contribution plan and defined benefit plan 
otherwise meet the requirements described above but for the 
fact
---------------------------------------------------------------------------
    \497\ For this purpose, consistency is not required with respect to 
employees who were subject to different benefit formulas under the 
defined benefit plan that the make-whole contributions under the 
defined contribution plan are made in whole or in part through matching 
contributions.
---------------------------------------------------------------------------
    If a portion of a defined contribution plan eligible for 
relief under the provision is spun off to another employer, and 
if the spun-off plan continues to satisfy any ongoing 
requirements applicable for the relevant relief as described 
above, the relevant relief for the spun-off plan will continue 
with respect to the other employer.

                             Effective Date

    The provision is generally effective on the date of 
enactment, without regard to whether any plan modifications 
referred to in the provision are adopted or effective before, 
on, or after the date of enactment.
    However, at the election of a plan sponsor, the provision 
will apply to plan years beginning after December 31, 2013. For 
purposes of the provision, a closed class of participants under 
a defined benefit plan is treated as being closed before April 
5, 2017 if the plan sponsor's intention to create the closed 
class is reflected in formal written documents and communicated 
to participants before that date. In addition, a plan does not 
fail to be eligible for the relief under the provision solely 
because (1) in the case of benefits, rights, or features for a 
closed class under a defined benefit plan, the plan was amended 
before the date of enactment to eliminate one or more benefits, 
rights, or features and is further amended after the date of 
enactment to provide the previously eliminated benefits, 
rights, or features to a closed class of participants; or (2) 
in the case of benefit accruals for a closed class under a 
defined benefit plan or application of the minimum benefit 
requirements to a closed or frozen defined benefit plan, the 
plan was amended before the date of the enactment to cease all 
benefit accruals and is further amended after the date of 
enactment to provide benefit accruals to a closed class of 
participants. In either case, the relevant relief applies only 
if the plan otherwise meets the requirements for the relief, 
and, in applying the relevant relief, the date the class of 
participants is closed is the effective date of the later 
amendment.

6. Modification of PBGC premiums for CSEC plans (sec. 206 of the Act 
        and sec. 4006 of ERISA)

                              Present Law

    Qualified retirement plans, including defined benefit 
plans, are categorized as single employer plans or multiple 
employer plans.\498\ A single employer plan is a plan 
maintained by one employer.\499\ A multiple employer plan 
generally is a single plan maintained by two or more unrelated 
employers (that is, employers that are not treated as a single 
employer under the aggregation rules).\500\
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    \498\ A third type of plan is a multiemployer plan, defined under 
section 414(f) as a plan maintained pursuant to one or more collective 
bargaining agreements with two or more unrelated employers and to which 
the employers are required to contribute under the collective 
bargaining agreement(s). Multiemployer plans are also known as Taft-
Hartley plans. Multiemployer plans are subject to different minimum 
funding requirements from those applicable to single employer plans and 
multiple employer plans, as well as to different PBGC premium and 
benefit guarantee structures.
    \499\ For this purpose, businesses and organizations that are 
members of a controlled group of corporations, a group under common 
control, or an affiliated service group are treated as one employer 
(referred to as ``aggregation''). Secs. 414(b), (c), (m) and (o).
    \500\ Sec. 413(c). Multiple employer plan status does not apply if 
the plan is a multiemployer plan.
---------------------------------------------------------------------------
    Defined benefit plans maintained by private employers are 
generally subject to minimum funding requirements.\501\ 
Historically, single employer and multiple employer defined 
benefit plans have been subject to the same minimum funding 
requirements. However, when the funding requirements for single 
employer plans were substantially revised by the Pension 
Protection Act of 2006,\502\ effective 2008, a delayed 
effective date was provided for certain multiple employer plans 
in order to allow time for further congressional consideration 
of appropriate rules for these plans. Such consideration 
resulted in the enactment in 2014 of the Cooperative and Small 
Employer Charity Pension Flexibility Act (``CSEC Act''),\503\ 
which provides specific funding rules for certain multiple 
employer plans, referred to as CSEC plans.\504\
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    \501\ Secs. 412 and 430-433 and ERISA secs. 301-306. Unless a 
funding waiver is obtained, an employer may be subject to a two-tier 
excise tax under section 4971 if the funding requirements are not met.
    \502\ Pub. L. No. 109-280.
    \503\ Pub. L. No. 113-197.
    \504\ As defined in section 414(y) and ERISA section 210(f), CSEC 
plans include defined benefit plans maintained by certain cooperative 
organizations, such as rural electric or telephone cooperatives, or by 
certain tax-exempt organizations. The definition of a CSEC plan was 
further amended by the Consolidated and Further Continuing 
Appropriations Act, 2015, Pub. L. No. 113-235, December 16, 2014, to 
include a plan that, as of June 25, 2010, was maintained by an employer 
(1) that is a tax-exempt charitable organization and a Federally 
chartered patriotic organization, (2) that has employees in at least 40 
States, and (3) the primary exempt purpose of which is to provide 
services with respect to children. For purposes of determining the 
employer maintaining the plan, the aggregation rules for controlled 
groups and groups under common control employers apply.
---------------------------------------------------------------------------
    Private defined benefit plans are also covered by the 
Pension Benefit Guaranty Corporation (``PBGC'') insurance 
program, under which the PBGC guarantees the payment of certain 
plan benefits, and plans are required to pay annual premiums to 
the PBGC.\505\ Plan sponsors of single employer plans and 
multiemployer plans must participate in the PBGC insurance 
program. Single employer plans and multiple employer plans, 
including CSEC plans, are subject to the same PBGC premium 
requirements, consisting of flat-rate, per participant premiums 
and variable rate premiums, based on the unfunded vested 
benefits under the plan.\506\ For 2019, flat-rate premiums are 
$80 per participant, and variable rate premiums are $43 for 
each $1,000 of unfunded vested benefits, subject to a limit of 
$541 multiplied by the number of plan participants.\507\ For 
this purpose, unfunded vested benefits under a plan for a plan 
year is the excess (if any) of (1) the plan's funding target 
for the plan year, determined by taking into account only 
vested benefits and using specified interest rates, \508\ over 
(2) the fair market value of plan assets.
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    \505\ Title IV of ERISA.
    \506\ The same PBGC benefit guarantee structure also applies to 
single employer plans and multiple employer plans.
    \507\ These premium rates have been increased several times by 
legislation since 2005 and are subject to automatic increases to 
reflect inflation (referred to as ``indexing'').
    \508\  Corporate bond rates are used for PBGC liability measurement 
purposes. For funding purposes, single employer plans are required to 
use the 24-month average segment rates (before adjustment) determined 
under Section 430(h)(2), as amended by the ``Moving Ahead for Progress 
in the 21st Century Act'' (MAP-21), Pub. L. No. 112-141, the ``Highway 
and Transportation Funding Act of 2014'' (HATFA), Pub. L. No.113-159, 
and the Bipartisan Budget Act of 2015 (BBA), Pub. L. No. 114-74. 
However, a plan sponsor is permitted to elect to use the monthly yield 
curve under section 430(h)(2)(D)(ii) in place of the segment rates. 
CSEC plans may use the third segment rate to determine current 
liability. Sec. 433(h)(3). CSEC plans were also able to elect (not 
later than the close of the first plan year of the plan beginning after 
December 31, 2013), not to be treated as a CSEC plan so that the same 
interest rates that apply to single employer plans would apply to CSEC 
plans.
---------------------------------------------------------------------------
    Under the funding rules applicable to single employer 
plans, a plan's funding target is the present value of all 
benefits accrued or earned under the plan as of the beginning 
of the plan year, determined using certain specified actuarial 
assumptions, including specified interest rates and mortality. 
A single employer plan's funding target is a factor taken into 
account in determining required contributions for the plan. 
Although a CSEC plan's funding target is used under present law 
to determine variable rate premiums, it does not apply in 
determining required contributions for a CSEC plan. Instead, a 
CSEC plan's funding liability applies, which is the present 
value of all benefits accrued or earned under the plan as of 
the beginning of the plan year, determined using reasonable 
actuarial assumptions chosen by the plan's actuary.

                        Explanation of Provision

    Under the provision, for CSEC plans, flat-rate premiums are 
$19 per participant, and variable rate premiums are $9 for each 
$1,000 of unfunded vested benefits.\509\ In addition, for 
purposes of determining a CSEC plan's variable rate premiums, 
unfunded vested benefits for a plan year is the excess (if any) 
of (1) the plan's funding liability, determined by taking into 
account only vested benefits, over (2) the fair market value of 
plan assets.
---------------------------------------------------------------------------
    \509\ These are the premium rates that applied to single employer 
plans and multiple employer plans in 2005 and are not subject to 
indexing.
---------------------------------------------------------------------------
    The provision applies to such plans with plan years 
beginning after December 31, 2018.

                             Effective Date

    The provision is effective on date of enactment.

                       TITLE III--OTHER BENEFITS


1. Benefits provided to volunteer firefighters and emergency medical 
        responders (sec. 301 of the Act and sec. 139B of the Code)

                              Present Law


Benefits for volunteer firefighters and emergency medical responders

    In general, a reduction in property tax by persons who 
volunteer their services as emergency responders under a State 
law program is includible in gross income.\510\ However, for 
taxable years beginning after December 31, 2007, and before 
January 1, 2011, an exclusion applied for any qualified State 
and local tax benefit and any qualified payment provided to 
members of qualified volunteer emergency response 
organizations.\511\
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    \510\ CCA 200302045 (December 2002).
    \511\ Sec. 139B. The exclusion applied also for purposes of taxes 
under the Federal Insurance Contributions Act (``FICA'') under section 
3121(a)(2), for Federal Unemployment Tax Act (``FUTA'') purposes under 
section 3306(b)(20), and for Federal income tax purposes under section 
3401(a)(23).
---------------------------------------------------------------------------
    A qualified volunteer emergency response organization is a 
volunteer organization that is organized and operated to 
provide firefighting or emergency medical services for persons 
in a State or a political subdivision and is required (by 
written agreement) by the State or political subdivision to 
furnish firefighting or emergency medical services in the State 
or political subdivision.
    A qualified State and local tax benefit is any reduction or 
rebate of certain taxes provided by a State or political 
division thereof on account of services performed by 
individuals as members of a qualified volunteer emergency 
response organization. These taxes are limited to State or 
local income taxes, State or local real property taxes, and 
State or local personal property taxes. A qualified payment is 
a payment (whether reimbursement or otherwise) provided by a 
State or political division thereof on account of the 
performance of services as a member of a qualified volunteer 
emergency response organization. The amount of excludable 
qualified payments is limited to $30 for each month during 
which a volunteer performs services.

Itemized deductions

    Subject to certain limitations, individuals are allowed 
itemized deductions for (1) State and local income taxes, real 
property taxes, and personal property taxes, and (2) 
contributions to charitable organizations, including 
unreimbursed expenses incurred in performing volunteer services 
for such an organization.\512\
---------------------------------------------------------------------------
    \512\ Secs. 164(a) and 170.
---------------------------------------------------------------------------
    The amount of State or local taxes taken into account in 
determining the deduction for taxes is reduced by the amount of 
any excludible qualified State and local tax benefit. 
Similarly, expenses paid or incurred by an individual in 
connection with the performance of services as a member of a 
qualified volunteer emergency response organization are taken 
into account for purposes of the charitable deduction only to 
the extent the expenses exceed the amount of any excludible 
qualified payment.

                        Explanation of Provision

    The provision reinstates for one year the exclusions for 
qualified State and local tax benefits and qualified payments 
provided to members of qualified volunteer emergency response 
organizations. The provision also increases the exclusion for 
qualified payments to $50 for each month during which a 
volunteer performs services. Under the provision, the 
exclusions for qualified State and local tax benefits and 
qualified payments do not apply for taxable years beginning 
after December 31, 2020.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2019. As described above, the exclusions do 
not apply for taxable years beginning after December 31, 2020. 
Thus, the exclusions apply only for taxable years beginning 
during 2020.

2. Expansion of section 529 plans (sec. 302 of the Act and sec. 529 of 
        the Code)

                              Present Law


In general

    A qualified tuition program (often referred to as a ``529 
plan'') is a program established and maintained by a State or 
agency or instrumentality thereof, or by one or more eligible 
educational institutions, which satisfies certain requirements 
and under which a person may purchase tuition credits or 
certificates on behalf of a designated beneficiary that entitle 
the beneficiary to the waiver or payment of qualified higher 
education expenses of the beneficiary (``prepaid tuition 
contract''). In the case of a program established and 
maintained by a State or agency or instrumentality thereof, a 
qualified tuition program also includes a program under which a 
person may make contributions to an account that is established 
for the purpose of satisfying the qualified higher education 
expenses of the designated beneficiary of the account, provided 
it satisfies certain specified requirements (``tuition savings 
account''). Section 529 provides specified income tax and 
transfer tax rules for the treatment of accounts and contracts 
established under qualified tuition programs.\513\ Under both 
types of qualified tuition programs, a contributor establishes 
an account for the benefit of a particular designated 
beneficiary to provide for that beneficiary's higher education 
expenses.
---------------------------------------------------------------------------
    \513\ For purposes of this description, the term ``account'' is 
used interchangeably to refer to a prepaid tuition benefit contract or 
a tuition savings account established pursuant to a qualified tuition 
program.
---------------------------------------------------------------------------
    In general, prepaid tuition contracts and tuition savings 
accounts established under a qualified tuition program involve 
prepayments or contributions made by one or more individuals 
for the benefit of a designated beneficiary. Decisions with 
respect to the contract or account may be made by an individual 
who is not the designated beneficiary. Qualified tuition 
accounts or contracts generally require the designation of a 
person (generally referred to as an ``account owner'') \514\ 
whom the program administrator (often a third-party 
administrator retained by the State or by the educational 
institution that established the program) may look to for 
decisions, recordkeeping, and reporting with respect to the 
account established for a designated beneficiary. The person or 
persons who make the contributions to the account also need not 
be the same person who is regarded as the account owner for 
purposes of administering the account or the designated 
beneficiary. Under many qualified tuition programs, the account 
owner generally has control over the account or contract, 
including the ability to change designated beneficiaries and to 
withdraw funds at any time and for any purpose. Thus, in 
practice, qualified tuition accounts or contracts generally 
involve a contributor, a designated beneficiary, an account 
owner (all three of whom may be the same person or different 
people), and an administrator of the account or contract.
---------------------------------------------------------------------------
    \514\ Section 529 refers to contributors and designated 
beneficiaries but does not define or otherwise refer to the term 
``account owner,'' which is a commonly used term among qualified 
tuition programs.
---------------------------------------------------------------------------

Qualified higher education expenses

    Distributions for the purpose of meeting the designated 
beneficiary's higher education expenses are generally not 
subject to tax. For purposes of receiving a distribution from a 
qualified tuition program that qualifies for this favorable tax 
treatment, the term qualified higher education expenses means 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of a designated beneficiary at an 
eligible educational institution, and expenses for special 
needs services in the case of a special needs beneficiary that 
are incurred in connection with such enrollment or attendance. 
Qualified higher education expenses generally also include room 
and board for students who are enrolled at least half-time. 
Qualified higher education expenses include the purchase of any 
computer technology or equipment, or Internet access or related 
services, if such technology or services are to be used 
primarily by the beneficiary during any of the years a 
beneficiary is enrolled at an eligible institution.
    For distributions made after December 31, 2017, a 
designated beneficiary may, on an annual basis, receive up to 
$10,000 in aggregate 529 distributions to be used in connection 
with expenses for tuition in connection with enrollment or 
attendance at an elementary or secondary public, private, or 
religious school. To the extent these distributions do not 
exceed $10,000, they are treated in the same manner as 
distributions for qualified higher education expenses.

Contributions to qualified tuition programs

    Contributions to a qualified tuition program must be made 
in cash. Section 529 does not impose a specific dollar limit on 
the amount of contributions, account balances, or prepaid 
tuition benefits relating to a qualified tuition account or 
contract; however, the program is required to have adequate 
safeguards to prevent contributions in excess of amounts 
necessary to provide for the beneficiary's qualified higher 
education expenses. Contributions generally are treated as a 
completed gift that is subject to the gift tax but is eligible 
for the gift tax annual exclusion.\515\ Contributions are not 
tax deductible for Federal income tax purposes, although they 
may be deductible for State income tax purposes. Amounts in the 
account accumulate on a tax-free basis (i.e., income on 
accounts in the plan is not subject to current Federal income 
tax).
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    \515\ A contributor may elect to have a contribution in excess of 
the gift tax annual exclusion be treated as if it was made ratably over 
five years beginning in the year the contribution is made. Sec. 
529(c)(2)(B).
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    A qualified tuition program may not permit any contributor 
to, or designated beneficiary under, the program to direct 
(directly or indirectly) the investment of any contributions 
(or earnings thereon) more than two times in any calendar year, 
and must provide separate accounting for each designated 
beneficiary. A qualified tuition program may not allow any 
interest in an account or contract (or any portion thereof) to 
be used as security for a loan.

Deduction for interest on education loans

    Certain individuals who have paid interest on qualified 
education loans may claim an above-the-line deduction for the 
interest expense, subject to a maximum annual deduction limit 
of $2,500.\516\ For 2020, the deduction is phased out ratably 
for taxpayers with modified AGI between $70,000 and $85,000 
($140,000 and $170,000 for married taxpayers filing a joint 
return). The income phaseout ranges are indexed for inflation.
---------------------------------------------------------------------------
    \516\ Sec. 221.
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    A qualified education loan generally is defined as any 
indebtedness incurred solely to pay for the costs of attendance 
(including room and board) of the taxpayer, the taxpayer's 
spouse, or any dependent of the taxpayer as of the time the 
indebtedness was incurred in attending on at least a half-time 
basis (1) an eligible educational institution, or (2) an 
institution conducting internship or residency programs leading 
to a degree or certificate from an institution of higher 
education, a hospital, or a health care facility conducting 
postgraduate training. The cost of attendance is reduced by any 
amount excluded from gross income under the exclusions for 
qualified scholarships and tuition reductions, employer-
provided educational assistance, interest earned on education 
savings bonds, qualified tuition programs, and Coverdell 
education savings accounts, as well as the amount of certain 
other scholarships and similar payments.

                        Explanation of Provision

    The provision makes two modifications to section 529 plans.
    First, the provision allows the tax-free treatment of 
distributions for higher education expenses to apply to 
expenses for fees, books, supplies, and equipment required for 
the participation of a designated beneficiary in an 
apprenticeship program. The apprenticeship program must be 
registered and certified with the Secretary of Labor under 
section 1 of the National Apprenticeship Act.\517\
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    \517\ 29 U.S.C. 50.
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    Second, the provision allows tax-free treatment to apply to 
distributions of certain amounts used to make payments on 
principal or interest of a qualified education loan. No 
individual may receive more than $10,000 of such distributions, 
in aggregate, over the course of the individual's 
lifetime.\518\ To the extent that an individual receives in 
excess of $10,000 of such distributions, the portion of the 
excess representing earnings is included in income and is 
subject to a 10-percent penalty (following the general 529 
rules for non-qualified distributions). The provision contains 
a special rule allowing such amounts to be distributed to a 
sibling of a designated beneficiary (i.e., a brother, sister, 
stepbrother, or stepsister). This rule allows a 529 account 
holder to make a student loan distribution to a sibling of the 
designated beneficiary without changing the designated 
beneficiary of the account. For purposes of the $10,000 
lifetime limit on student loan distributions, a distribution to 
a sibling of a designated beneficiary is applied towards the 
sibling's lifetime limit, and not the designated beneficiary's 
lifetime limit. The deduction available for interest paid by 
the taxpayer during the taxable year on any qualified education 
loan is disallowed to the extent such interest was paid from a 
tax-free distribution from a 529 plan.
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    \518\ This limitation applies to such distributions from all 529 
accounts. Thus, an individual may not avoid the limitation by receiving 
separate $10,000 distributions from multiple 529 accounts.
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                             Effective Date

    The provision applies to distributions made after December 
31, 2018.

                      TITLE IV--REVENUE PROVISIONS


1. Modification of required minimum distribution rules for designated 
        beneficiaries (sec. 401 of the Act and sec. 401(a)(9) of the 
        Code)

                              Present Law


In general

    Minimum distribution rules apply to tax-favored employer-
sponsored retirement plans and IRAs.\519\ Employer-sponsored 
retirement plans are of two general types: defined benefit 
plans, under which benefits are determined under a plan formula 
and paid from general plan assets, rather than individual 
accounts; and defined contribution plans, under which benefits 
are based on a separate account for each participant, to which 
are allocated contributions, earnings and losses.
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    \519\ Secs. 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), and 
457(d)(2). Tax-favored employer-sponsored retirement plans include 
qualified retirement plans and annuities under sections 401(a) and 
403(a), tax-deferred annuity plans under section 403(b), and 
governmental eligible deferred compensation plans under section 457(b). 
Minimum distribution requirements also apply to eligible deferred 
compensation plans under section 457(b) of tax-exempt employers.
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    In general, under the minimum distribution rules, 
distribution of minimum benefits must begin to an employee (or 
IRA owner) no later than a required beginning date and a 
minimum amount must be distributed each year (sometimes 
referred to as ``lifetime'' minimum distribution requirements). 
These lifetime requirements do not apply to a Roth IRA.\520\ 
Minimum distribution rules also apply to benefits payable with 
respect to an employee (or IRA owner) who has died (sometimes 
referred to as ``after-death'' minimum distribution 
requirements). The regulations provide a methodology for 
calculating the required minimum distribution from an 
individual account under a defined contribution plan or from an 
IRA.\521\ In the case of annuity payments under a defined 
benefit plan or an annuity contract, the regulations provide 
requirements that the stream of annuity payments must satisfy.
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    \520\ Sec. 408A(c)(4).
    \521\ Reflecting the directive in section 823 of the Pension 
Protection Act of 2006 (Pub. L. No. 109-280), pursuant to Treas. Reg. 
sec. 1.401(a)(9)-1, A-2(d), a governmental plan within the meaning of 
section 414(d) or a governmental eligible deferred compensation plan is 
treated as having complied with the statutory minimum distribution 
rules if the plan complies with a reasonable and good faith 
interpretation of those rules.
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    Failure to comply with the minimum distribution 
requirements results in an excise tax imposed on the individual 
who was required to take the distributions equal to 50 percent 
of the amount by which the required minimum distribution 
exceeds the actual amount distributed during the taxable 
year.\522\ The excise tax may be waived in certain cases for 
reasonable cause. For employer-sponsored retirement plans, 
satisfying the minimum distribution requirement under the plan 
terms and in operation is also a requirement for tax-favored 
treatment.
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    \522\ Sec. 4974.
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Required beginning date

    For traditional IRAs, the required beginning date is April 
1 following the calendar year in which the employee (or IRA 
owner) attains age 70\1/2\. For employer-sponsored retirement 
plans, for an employee other than an employee who is a five-
percent owner in the year the employee attains age 70\1/2\, the 
required beginning date is April 1 after the later of the 
calendar year in which the employee attains age 70\1/2\ or 
retires. For an employee who is a five-percent owner under an 
employer-sponsored tax-favored retirement plan in the year the 
employee attains age 70\1/2\, the required beginning date is 
the same as for IRAs even if the employee continues to work 
past age 70\1/2\.

Lifetime rules

    While an employee (or IRA owner) is alive, distributions of 
the individual's interest are required to be made (in 
accordance with regulations) over the life of the employee (or 
IRA owner) or over the joint lives of the employee (or IRA 
owner) and a designated beneficiary (or over a period not 
extending beyond the life expectancy of such employee (or IRA 
owner) or the life expectancy of such employee (or IRA owner) 
and a designated beneficiary).\523\ For defined contribution 
plans and IRAs, the required minimum distribution for each year 
is determined by dividing the account balance as of the end of 
the prior year by a distribution period which, while the 
employee (or IRA owner) is alive, is the factor for the 
employee's (or IRA owner's) age from the Uniform Lifetime Table 
included in the Treasury regulations.\524\ The distribution 
period for annuity payments under a defined benefit plan or 
annuity contract (to the extent not limited to the life of the 
employee (or IRA owner) or the joint lives of the employee (or 
IRA owner) and a designated beneficiary) is generally subject 
to the same limitations as apply to individual accounts.\525\
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    \523\ Sec. 401(a)(9)(A).
    \524\ Treas. Reg. sec. 1.401(a)(9)-5. This table is based on the 
joint life and last survivor expectancy of the individual and a 
hypothetical beneficiary 10 years younger. For an individual with a 
spouse as designated beneficiary who is more than 10 years younger (and 
thus the number of years in the couple's joint life and last survivor 
expectancy is greater than the Uniform Lifetime Table), the joint life 
expectancy and last survivor expectancy of the couple (calculated using 
the table in the regulations) is used. For this purpose and other 
special rules that apply to the surviving spouse as beneficiary, a 
former spouse to whom all or a portion of an employee's benefit is 
payable pursuant to a qualified domestic relations order (within the 
meaning of section 414(p)) is treated as the spouse (including a 
surviving spouse) of the employee for purposes of section 401(a)(9).
    \ 525\ Treas. Reg. sec. 1.401(a)(9)-6.
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After-death rules

            Payments over a distribution period
    The after-death minimum distributions rules vary depending 
on (i) whether an employee (or IRA owner) dies on or after the 
required beginning date or before the required beginning date, 
and (ii) whether there is a designated beneficiary for the 
benefit.\526\ Under the regulations, a designated beneficiary 
is an individual designated as a beneficiary under the plan or 
IRA.\527\ Similar to the lifetime rules, for defined 
contribution plans and IRAs (``individual accounts''), the 
required minimum distribution for each year after the death of 
the employee (or IRA owner) is generally determined by dividing 
the account balance as of the end of the prior year by a 
distribution period.
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    \526\ In the case of amounts for which the employee or IRA owner's 
surviving spouse is the beneficiary, the surviving spouse generally is 
permitted to do a tax-free rollover of such amounts to an IRA (or 
account of a tax-favored employer-sponsored plan of the spouse's 
employer) established in the surviving spouse's name as IRA owner or 
employee. The rules applicable to the rollover account, including the 
minimum distribution rules, are the same rules that apply to an IRA 
owner or employee. In the case of an IRA for which the spouse is sole 
beneficiary, this can be accomplished by simply renaming the IRA as an 
IRA held by the spouse as IRA owner rather than as a beneficiary.
    \527\  Treas. Reg. sec. 1.401(a)(9)-4, Q&A-1. The individual need 
not be named as long as the individual is identifiable under the terms 
of the plan (or IRA). However, the fact that an interest under a plan 
or IRA passes to a certain individual under a will or otherwise under 
State law does not make that individual a designated beneficiary unless 
the individual is designated as a beneficiary under the plan or IRA.
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    If an employee (or IRA owner) dies on or after the required 
beginning date, the basic statutory rule is that the remaining 
interest must be distributed at least as rapidly as under the 
method of distribution being used before death.\528\ If there 
is no designated beneficiary, the distribution period is 
measured by the employee's (or IRA owner's) life expectancy 
using age as of the year of death.\529\ If there is a 
designated beneficiary, the distribution period is (if longer) 
the beneficiary's life expectancy calculated using the life 
expectancy table in the regulations, determined in the year 
after the year of death.\530\
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    \528\ Sec. 401(a)(9)(B)(i).
    \529\ Treas. Reg. sec. 1.401(a)(9)-5, Q&A-5(a)(2).
    \530\ Treas. Reg. sec. 1.401(a)(9)-5, Q&A-5(a)(1).
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    If an employee (or IRA owner) dies before the required 
beginning date and any portion of the benefit is payable to a 
designated beneficiary, the statutory rule is that 
distributions are generally required to begin within one year 
of the employee's (or IRA owner's) death (or such later date as 
may be prescribed in regulations) and are permitted to be paid 
(in accordance with regulations) over the life of the 
designated beneficiary or over a period not extending beyond 
the life expectancy of such beneficiary. If the beneficiary of 
the employee (or IRA owner) is the individual's surviving 
spouse, distributions are not required to commence until the 
year in which the employee (or IRA owner) would have attained 
age 70\1/2\. If the surviving spouse dies before the employee 
(or IRA owner) would have attained age 70\1/2\, the after-death 
rules apply after the death of the spouse as though the spouse 
were the employee (or IRA owner). Under the regulations, for 
individual accounts, the required minimum distribution for each 
year is determined using a distribution period and the period 
is measured by the designated beneficiary's life expectancy, 
calculated in the same manner as if the individual died on or 
after the required beginning date.\531\
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    \531\ Treas. Reg. sec. 1.401(a)(9)-5, A-5(b).
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    In cases where distribution after death is based on life 
expectancy (either the remaining life expectancy of the 
employee (or IRA owner) or a designated beneficiary), the 
distribution period generally is fixed at the employee's (or 
IRA owner's) death and then reduced by one for each year that 
elapses after the year in which it is calculated. If the 
designated beneficiary dies during the distribution period, 
distributions continue to subsequent beneficiaries over the 
remaining years in the distribution period.\532\
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    \532\  If the distribution period is based on the surviving 
spouse's life expectancy (whether the employee or IRA owner's death is 
before or after the required beginning date), the spouse's life 
expectancy generally is recalculated each year while the spouse is 
alive and then fixed the year after the spouse's death.
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    The distribution period for annuity payments under a 
defined benefit plan or annuity contract (to the extent not 
limited to the life of a designated beneficiary) is generally 
subject to the same limitations as apply to individual 
accounts.
            Five-year rule
    If an employee (or IRA owner) dies before the required 
beginning date and there is no designated beneficiary, then the 
entire remaining interest of the employee (or IRA owner) must 
generally be distributed by the end of the fifth calendar year 
following the individual's death.\533\
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    \533\ Section 401(a)(9)(B)(ii) provides that the entire interest 
must be distributed within five years of the employee's death. Treas. 
Reg. sec. 1.401(a)(9)-3, A-2, provides that this requirement is 
satisfied if the entire interest is distributed by the end of the fifth 
calendar year following the employee's death. There are provisions in 
the regulations allowing a designated beneficiary to take advantage of 
the five-year rule. See Treas. Reg. secs. 1.401(a)(9)-3, A-4, and 
1.4974-2, A-7(b).
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Multiple beneficiaries and trusts

    Treasury regulations include special rules for determining 
an employee's (or IRA owner's) designated beneficiary for 
purposes of calculating the distribution period in the case of 
multiple designated beneficiaries or in the case of a 
beneficiary that is a trust.
    Generally, if an employee (or IRA owner) has more than one 
designated beneficiary, the designated beneficiary with the 
shortest life expectancy is the designated beneficiary for 
purposes of determining the distribution period.\534\
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    \534\  Treas. Reg. sec. 1.401(a)(9)-5, A-7. Exceptions apply in the 
case of certain successor beneficiaries.
---------------------------------------------------------------------------
    If a trust is named as an employee's (or IRA owner's) 
beneficiary, the beneficiaries of the trust (and not the trust 
itself) are treated as designated beneficiaries of the employee 
or IRA owner if the following requirements are met: (1) the 
trust is a valid trust under state law, or would be but for the 
fact that there is no corpus, (2) the trust is irrevocable or 
will, by its terms, become irrevocable upon the employee's (or 
IRA owner's) death, (3) the trust beneficiaries who are 
beneficiaries with respect to the trust's interest in the 
employee's (or IRA owner's) benefit are identifiable from the 
trust instrument,\535\ and (4) certain documentation 
requirements \536\ are met.\537\
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    \535\ The beneficiary must be identifiable within the meaning of 
Treas. Reg. sec. 1.401(a)(9)-4, A-1.
    \536\ The documentation described in Treas. Reg. sec. 1.401(a)(9)-
4, A-6 must be provided to the plan administrator.
    \537\ Treas. Reg. sec. 1.401(a)(9)-4, A-5.
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Defined benefit plans and annuity distributions

    The regulations provide rules for the amount of annuity 
distributions from a defined benefit plan, or from an annuity 
purchased by the plan from an insurance company, that are paid 
over life (or a period not extending beyond life expectancy). 
Annuity distributions are generally required to be 
nonincreasing over time with certain exceptions, which include, 
for example, (i) increases to the extent of certain specified 
cost-of-living indices, (ii) a constant percentage increase 
(for a qualified defined benefit plan, the constant percentage 
cannot exceed five percent per year), (iii) certain 
accelerations of payments, and (iv) increases to reflect when 
an annuity is converted to a single life annuity after the 
death of the beneficiary under a joint and survivor annuity or 
after termination of the survivor annuity under a qualified 
domestic relations order.\538\ If distributions are in the form 
of a joint and survivor annuity and the survivor annuitant both 
is an individual other than the surviving spouse and is younger 
than the employee (or IRA owner), the survivor annuity benefit 
must be limited to a percentage of the life annuity benefit for 
the employee (or IRA owner). The survivor benefit as a 
percentage of the benefit of the primary annuitant is required 
to be smaller (but not required to be less than 52 percent) as 
the difference in the ages of the primary annuitant and the 
survivor annuitant becomes greater.
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    \538\ Treas. Reg. sec. 1.401(a)(9)-6, A-14.
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                        Explanation of Provision


Change in after-death rules for defined contribution plans

    The provision changes the after-death required minimum 
distribution rules applicable to defined contribution plans, as 
defined, with respect to required minimum distributions to 
designated beneficiaries. A defined contribution plan for this 
purpose means an eligible retirement plan (qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs) other than a defined benefit plan.\539\
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    \539\ Under the provision, a defined contribution plan is an 
eligible retirement plan, as defined in sec. 402(c)(8)(B), other than a 
defined benefit plan described in clause (iv) or (v) thereof or a 
qualified trust that is part of a defined benefit plan.
---------------------------------------------------------------------------

Ten-year after-death rule for defined contributions plans

            In general
    Under the provision, the five-year rule is expanded to 
become a 10-year period instead of five years (``10-year 
rule''), such that the 10-year rule is the general rule for 
distributions to designated beneficiaries after death 
(regardless of whether the employee (or IRA owner) dies before, 
on, or after the required beginning date) unless the designated 
beneficiary is an eligible designated beneficiary as defined in 
the provision. Thus, in the case of an ineligible designated 
beneficiary, distribution of the employee (or IRA owner's) 
entire benefit is required to be distributed by the end of the 
tenth calendar year following the year of the employee or IRA 
owner's death.
            Eligible designated beneficiaries
    For eligible designated beneficiaries, an exception to the 
10-year rule (for death before the required beginning date) 
applies whether or not the employee (or IRA owner) dies before, 
on, or after the required beginning date. The exception 
(similar to present law) generally allows distributions over 
life or a period not extending beyond the life expectancy of an 
eligible designated beneficiary beginning in the year following 
the year of death. Eligible designated beneficiaries include 
any designated beneficiary who, as of the date of death, is the 
surviving spouse of the employee (or IRA owner),\540\ is 
disabled, is a chronically ill individual, is an individual who 
is not more than 10 years younger than the employee (or IRA 
owner), or is a child of the employee (or IRA owner) who has 
not reached the age of majority. In the case of a child who has 
not reached the age of majority, calculation of the minimum 
required distribution under this exception is only allowed 
through the year that the child reaches the age of majority.
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    \540\ As in the case of the present law special rule in section 
401(a)(9)(B)(iv) for surviving spouses, spouse is not defined in the 
provision. Under Treas. Reg. sec. 1.401(a)(9)-8, Q&A-5, a spouse is the 
employee's spouse under applicable State law. In the case of a special 
rule for a surviving spouse, that determination is generally made based 
on the employee's marital status on the date of death. An exception is 
provided in Treas. Reg. sec. 1.401(a)(9)-6, Q&A-6, under which a former 
spouse to whom all or a portion of the employee's benefits is payable 
pursuant to a qualified domestics relations order as defined in section 
414(p) is treated as the employee's spouse (including a surviving 
spouse). In the case of a qualified joint and survivor annuity under 
sections 401(a)(11) and 417, the spouse is generally determined as of 
the annuity starting date.
---------------------------------------------------------------------------
    Further, under the provision, the 10-year rule also applies 
after the death of an eligible designated beneficiary or after 
a child reaches the age of majority. Thus, for example, if a 
disabled child of an employee (or IRA owner) is an eligible 
designated beneficiary of a parent who dies when the child is 
age 20 and the child dies at age 30, even though 52.1 years 
remain in the measurement period,\541\ the disabled child's 
remaining beneficiary interest must be distributed by the end 
of the tenth year following the death of the disabled child. If 
a child is an eligible designated beneficiary based on having 
not reached the age of majority before the employee's (or IRA 
owner's) death, the 10-year rule applies beginning with the 
earlier of the date of the child's death or the date that the 
child reaches the age of majority. The child's entire interest 
must be distributed by the end of the tenth year following that 
date.
---------------------------------------------------------------------------
    \541\ The measurement period is the life expectancy of the child 
calculated for the child's age in the year after the employee's (or IRA 
owner's) death (age 21 (20 plus 1)).
---------------------------------------------------------------------------
    As under present law, if the surviving spouse is the 
designated beneficiary, a special rule allows the commencement 
of distribution to be delayed until the end of the year that 
the employee (or IRA owner) would have attained age 70\1/2\. If 
the spouse dies before distributions were required to begin to 
the spouse, the surviving spouse is treated as the employee (or 
IRA owner) in determining the required distributions to 
beneficiaries of the surviving spouse.
            Definitions of disabled and chronically ill individual
    Under the provision, disabled means unable to engage in any 
substantial gainful activity by reason of any medically 
determinable physical or mental impairment which can be 
expected to end in death or to be for a long-continued and 
indefinite duration.\542\ Further, under the definition, an 
individual is not considered to be disabled unless proof of the 
disability is furnished in such form and manner as the 
Secretary may require. Substantial gainful activity for this 
purpose is the activity, or a comparable activity, in which the 
individual customarily engaged prior to the arising of the 
disability (or prior to retirement if the individual was 
retired at the time the disability arose).\543\
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    \542\ The definition of disabled in section 72(m)(7) is 
incorporated by reference.
    \543\ Treas. Reg. sec. 1.72-17(f). Under the regulations, in 
determining whether an individual is disabled, primary consideration is 
given to the nature and severity of the individual's impairment. 
However, consideration is also given to other factors such as the 
individual's education, training, and work experience. Whether an 
impairment in a particular case constitutes a disability is determined 
with reference to all the facts in the case.
---------------------------------------------------------------------------
    Under the provision, the definition of a chronically ill 
individual for purposes of qualified long-term care insurance \ 
544\ is incorporated by reference with a modification. Under 
this definition, a chronically ill individual is any individual 
who (1) is unable to perform (without substantial assistance 
from another individual) at least two activities of daily 
living for an indefinite period (expected to be lengthy in 
nature) \545\ due to a loss of functional capacity, (2) has a 
level of disability similar (as determined under regulations 
prescribed by the Secretary in consultation with the Secretary 
of Health and Human Services) to the level of disability 
described above requiring assistance with daily living based on 
loss of functional capacity, or (3) requires substantial 
supervision to protect the individual from threats to health 
and safety due to severe cognitive impairment. The activities 
of daily living for which assistance is needed for purposes of 
determining loss of functional capacity are eating, toileting, 
transferring, bathing, dressing, and continence.
---------------------------------------------------------------------------
    \544\ Sec. 7702B(c)(2).
    \545\ Section 7702B(c) only requires this period to be at least 90 
days.
---------------------------------------------------------------------------
            Special rules for trusts
    Special rules apply in the case of an applicable multi-
beneficiary trust. An applicable multi-beneficiary trust is a 
trust (1) that has more than one beneficiary, (2) all of the 
beneficiaries of which are treated as designated beneficiaries 
for purposes of determining the required minimum distribution 
period, and (3) at least one of the beneficiaries of which is 
an eligible designated beneficiary who is disabled or 
chronically ill.
    In the case of an applicable multi-beneficiary trust that 
under its terms is to be divided immediately upon the death of 
the employee (or IRA owner) into separate trusts for each 
beneficiary, the exception to the 10-year rule for eligible 
designated beneficiaries applies separately to any portion of 
the employee's (or IRA owner's) interest that is payable to a 
disabled or chronically ill eligible designated beneficiary. 
Thus, for example, if an applicable multi-beneficiary trust is 
to be divided immediately upon the death of the IRA owner into 
separate trusts for three beneficiaries, one of whom is a 
chronically ill eligible designated beneficiary, the exception 
to the 10-year rule will apply to the portion of the IRA 
owner's interest that is payable to the chronically ill 
eligible designated beneficiary's trust. The portion of the IRA 
owner's interest that is payable to the trusts for the other 
two beneficiaries must then be distributed in accordance with 
the 10-year rule.
    In the case of an applicable multi-beneficiary trust under 
the terms of which no individual other than a disabled or 
chronically ill eligible designated beneficiary has any right 
to the employee's (or IRA owner's) interest in the plan until 
the death of all such eligible designated beneficiaries with 
respect to the trust, the exception to the 10-year rule applies 
to the distribution of the employee's (or IRA owner's) interest 
and any beneficiary who is not a disabled or chronically ill 
eligible designated beneficiary is treated as a beneficiary of 
the eligible designated beneficiary upon the death of such 
eligible designated beneficiary. Thus, the 10-year rule applies 
to any portion of the employee's (or IRA owner's) interest 
remaining after the death of the disabled or chronically ill 
eligible designated beneficiary (or beneficiaries).
            Annuity payments under commercial annuities
    The provision applies to after-death required minimum 
distributions under defined contribution plans and IRAs, 
including annuity contracts purchased from insurance companies 
under defined contribution plans or IRAs.

                             Effective Date


General effective date

    In determining required minimum distributions after the 
death of an employee (or IRA owner), the provision is generally 
effective for required minimum distributions with respect to 
employees (or IRA owners) with a date of death after December 
31, 2019.

Delayed effective date for governmental and collectively bargained 
        plans

    In the case of a governmental plan (as defined in section 
414(d)), in determining required minimum distributions after 
the death of an employee, the provision applies to 
distributions with respect to employees who die after December 
31, 2021.
    In the case of a collectively bargained plan,\546\  in 
determining required minimum distributions after the death of 
an employee, the provision applies to distributions with 
respect to employees who die in calendar years beginning after 
the earlier of two dates. The first date is the later of (1) 
the date on which the last collective bargaining agreement 
ratified before date of enactment of the provision 
terminates,\547\ or (2) December 31, 2019. The second date is 
December 31, 2021.
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    \546\ A collectively bargained plan is a plan maintained pursuant 
to one or more collective bargaining agreements between employee 
representatives and one or more employers.
    \547\  The date that the last agreement terminates is determined 
without regard to any extension thereof agreed to on or after the date 
of enactment of the provision. Further, any plan amendment made 
pursuant to a collective bargaining agreement relating to the plan that 
amends the plan solely to conform to any requirement added by the 
provision shall not be treated as a termination of the collective 
bargaining agreement.
---------------------------------------------------------------------------

10-year rule after the death of a beneficiary

    In the case of an employee (or IRA owner) who dies before 
the effective date (as described below) for the plan (or IRA), 
if the designated beneficiary of the employee (or IRA owner) 
dies on or after the effective date, the provision applies to 
any beneficiary of the designated beneficiary as though the 
designated beneficiary were an eligible designated beneficiary. 
Thus, the entire interest must be distributed by the end of the 
tenth calendar year after the death of the designated 
beneficiary. For this purpose, the effective date is the first 
day of the first calendar year to which this provision applies 
to a plan with respect to employees dying on or after such date 
(for example, January 1, 2020 under the general effective 
date).

Certain annuities grandfathered

    The modification to the after-death minimum distribution 
rules does not apply to a qualified annuity that is a binding 
annuity contract in effect on the date of enactment of the 
provision and at all times thereafter. A qualified annuity with 
respect to an individual is a commercial annuity,\548 \under 
which the annuity payments are made over the lives of the 
individual and a designated beneficiary (or over a period not 
extending beyond the life expectancy of the individual or the 
life expectancy of the individual and a designated beneficiary) 
in accordance with the required minimum distribution 
regulations for annuity payments as in effect before enactment 
of this provision. In addition to these requirements, annuity 
payments to the individual must begin before the date of 
enactment, and the individual must have made an irrevocable 
election before that date as to the method and amount of the 
annuity payments to the individual or any designated 
beneficiaries. Alternatively, if an annuity is not a qualified 
annuity solely based on annuity payments not having begun 
irrevocably before the date of enactment, an annuity can be a 
qualified annuity if the individual has made an irrevocable 
election before the date of enactment as to the method and 
amount of the annuity payments to the individual or any 
designated beneficiaries.
---------------------------------------------------------------------------
    \548\ For this purpose, commercial annuity is defined in section 
3405(e)(6).
---------------------------------------------------------------------------

2. Increase in penalty for failure to file (sec. 402 of the Act and 
        sec. 6651 of the Code)

                              Present Law

    The Federal tax system is one of ``self-assessment,'' i.e., 
taxpayers are required to declare their income, expenses, and 
ultimate tax due, while the IRS may propose subsequent changes. 
This voluntary system requires that taxpayers comply with 
deadlines and adhere to the filing requirements. While 
taxpayers may obtain extensions of time in which to file their 
returns, the Federal tax system consists of specific due dates 
of returns. In order to foster compliance in meeting these 
deadlines, Congress enacted a penalty for the failure to timely 
file tax returns.\549\
---------------------------------------------------------------------------
    \549\ See United States v. Boyle, 469 U.S. 241, 245 (1985).
---------------------------------------------------------------------------
    A taxpayer who fails to file a tax return on or before its 
due date is subject to a penalty equal to five percent of the 
net amount of tax due for each month that the return is not 
filed, up to a maximum of 25 percent of the net amount.\550\ If 
the failure to file a return is fraudulent, the taxpayer is 
subject to a penalty equal to 15 percent of the net amount of 
tax due for each month the return is not filed, up to a maximum 
of 75 percent of the net amount.\551\ The net amount of tax due 
is the amount of tax required to be shown on the return reduced 
by the amount of any part of the tax which is paid on or before 
the date prescribed for payment of the tax and by the amount of 
any credits against tax which may be claimed on the return.\ 
552\ The penalty will not apply if it is shown that the failure 
to file was due to reasonable cause and not willful 
neglect.\553\
---------------------------------------------------------------------------
    \550\ Sec. 6651(a)(1).
    \551\ Sec. 6651(f).
    \552\ Sec. 6651(b)(1).
    \553\ Sec. 6651(a)(1).
---------------------------------------------------------------------------
    If a return is filed more than 60 days after its due date, 
and unless it is shown that such failure is due to reasonable 
cause, then the failure to file penalty may not be less than 
the lesser of $205 \554\ or 100 percent of the amount required 
to be shown as tax on the return.\555\ If a penalty for failure 
to file and a penalty for failure to pay tax shown on a return 
both apply for the same month, the amount of the penalty for 
failure to file for such month is reduced by the amount of the 
penalty for failure to pay tax shown on a return.\556\ If a 
return is filed more than 60 days after its due date, then the 
penalty for failure to pay tax shown on a return may not reduce 
the penalty for failure to file below the lesser of $205 or 100 
percent of the amount required to be shown on the return.\557\
---------------------------------------------------------------------------
    \554\ The $205 amount is adjusted for inflation.
    \555\ Sec. 6651(a)(1) (flush language). For this minimum penalty to 
apply, the Tax Court has held, and the IRS has acquiesced, that there 
must be an underpayment of tax. See Patronik-Holder v. Commissioner, 
100 T.C. 374 (1993) (citing the Conference Report to the Tax Equity and 
Fiscal Responsibility Act of 1982), AOD 1994-03, 1993-2 C.B. 1.
    \556\ Sec. 6651(c)(1).
    \557\ Ibid.
---------------------------------------------------------------------------
    The failure to file penalty applies to all returns required 
to be filed under subchapter A of Chapter 61 (relating to 
income tax returns of an individual, fiduciary of an estate or 
trust, or corporation; self-employment tax returns, and estate 
and gift tax returns), subchapter A of chapter 51 (relating to 
distilled spirits, wines, and beer), subchapter A of chapter 52 
(relating to tobacco, cigars, cigarettes, and cigarette papers 
and tubes), and subchapter A of chapter 53 (relating to machine 
guns and certain other firearms).\558\ The failure to file 
penalty is adjusted annually to account for inflation. The 
failure to file penalty does not apply to any failure to pay 
estimated tax required to be paid by sections 6654 or 
6655.\559\ The failure to file penalty generally applies to 
employment and excise tax returns, but they are not subject to 
the minimum penalty described above for filing late.
---------------------------------------------------------------------------
    \558\ Sec. 6651(a)(1).
    \559\ Sec. 6651(e).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, if a return is filed more than 60 days 
after its due date (including extensions), absent a showing 
that the failure is due to reasonable cause and not willful 
neglect, then the failure to file penalty may not be less than 
the lesser of $435 (adjusted for inflation) or 100 percent of 
the amount required to be shown as tax on the return.

                             Effective Date

    The provision applies to returns with filing due dates 
(including extensions) after December 31, 2019.

3. Increased penalties for failure to file retirement plan returns 
        (sec. 403 of the Act and sec. 6652 of the Code)

                              Present Law


Annual reporting for certain plans

    An employer that maintains a pension, annuity, stock bonus, 
profit-sharing or other funded deferred compensation plan (or 
the plan administrator of the plan) is required to file an 
annual return containing information with respect to the 
qualification, financial condition, and operation of the 
plan.\560\ The plan administrator of a defined benefit plan 
subject to minimum funding requirements \561\ is required to 
file an annual actuarial report.\562\ These filing requirements 
are met by filing an Annual Return/Report of Employee Benefit 
Plan, Form 5500 series, and providing the information as 
required on the form and related instructions.\563\ A failure 
to file Form 5500 generally results in a civil penalty of $25 
for each day during which the failure continues, subject to a 
maximum penalty of $15,000.\564\ This penalty may be waived if 
it is shown that the failure is due to reasonable cause.
---------------------------------------------------------------------------
    \560\ Sec. 6058.
    \561\ Sec. 412. Most governmental plans (defined in section 414(d)) 
and church plans (defined in section 414(e)) are exempt from the 
minimum funding requirements.
    \562\ Sec. 6059.
    \563\  Treas. Reg. secs. 301.6058-1(a) and 301.6059-1.
    \564\ Sec. 6652(e). The failure to file penalties in section 6652 
generally apply to certain information returns, including retirement 
plan returns. The failure to file penalties in section 6651(a)(1), 
discussed above in section 502 of the bill, generally apply to income, 
estate, gift, employment and self-employment, and certain excise tax 
returns.
---------------------------------------------------------------------------

Annual registration statement and notification of changes

    For a plan subject to the vesting requirements under the 
Employee Retirement Income Security Act of 1974 (``ERISA''), 
the plan administrator is required to file a registration 
statement with the IRS with respect to any plan participant who 
(1) separated from service during the year and (2) had a vested 
benefit under the plan, but who was not paid the benefit during 
the year (a ``deferred vested'' benefit).\565\ The registration 
statement generally must include the name of the plan, the name 
and address of the plan administrator, the name and taxpayer 
identification number of the separated participant, and the 
nature, amount, and form of the participant's deferred vested 
benefit. A failure to file a registration statement as required 
generally results in a civil penalty of $1 for each participant 
with respect to whom the failure applies, multiplied by the 
number of days during which the failure continues, subject to a 
maximum penalty of $5,000 for a failure with respect to any 
plan year.\566\ This penalty may be waived if it is shown that 
the failure is due to reasonable cause.
---------------------------------------------------------------------------
    \565\ Code sec. 6057(a). Under Code section 6057(e) and ERISA 
section 105(c), similar information must be provided to the separated 
participant.
    \566\ Sec. 6652(d)(1).
---------------------------------------------------------------------------
    A plan administrator is also required to notify the IRS if 
certain information in a registration changes; specifically, 
such notification is required for any change in the name of the 
plan or in the name or address of the plan administrator, the 
termination of the plan, or the merger or consolidation of the 
plan with any other plan or its division into two or more 
plans. A failure to file a required notification of change 
generally results in a penalty of $1 for each day during which 
the failure continues, subject to a maximum penalty of $1,000 
for any failure.\567\ This penalty may be waived if it is shown 
that the failure is due to reasonable cause.
---------------------------------------------------------------------------
    \567\ Sec. 6652(d)(2).
---------------------------------------------------------------------------

Withholding notices

    Withholding requirements apply to distributions from tax-
favored employer-sponsored retirement plans and IRAs, but, 
except in the case of certain distributions, payees may 
generally elect not to have withholding apply.\568\ A plan 
administrator or IRA custodian is required to provide payees 
with notices of the right to elect no withholding. A failure to 
provide a required notice generally results in a civil penalty 
of $10 for each failure, subject to a maximum penalty of $5,000 
for all failures during any calendar year.\569\ This penalty 
may be waived if it is shown that the failure is due to 
reasonable cause and not to willful neglect.
---------------------------------------------------------------------------
    \568 \ Sec. 3405.
    \569\ Sec. 6652(h).
---------------------------------------------------------------------------

                        Explanation of Provision


Increase to penalty for failure to file Form 5500

    Under the provision, a failure to file Form 5500 generally 
results in a penalty of $250 for each day during which the 
failure continues, but the total amount imposed under this 
subsection on any person for failure to file any return shall 
not exceed $150,000.

Increase in penalties for annual registration statement and 
        notification of changes

    Under the provision, a failure to file a registration 
statement as required generally results in a penalty of $10 for 
each participant with respect to whom the failure applies, 
multiplied by the number of days during which the failure 
continues, subject to a maximum penalty of $50,000 for a 
failure with respect to any plan year. A failure to file a 
required notification of change generally results in a penalty 
of $10 for each day during which the failure continues, subject 
to a maximum penalty of $10,000 for any failure.

Increase in penalties for withholding notices

    Under the provision, a failure to provide a required 
withholding notice generally results in a penalty of $100 for 
each failure, subject to a maximum penalty of $50,000 for all 
failures during any calendar year.

                             Effective Date

    The provision is effective for returns, statements, and 
notifications required to be filed, and withholding notices 
required to be provided, after December 31, 2019.

4. Increase information sharing to administer excise taxes (sec. 404 of 
        the Act and sec. 6103(o) of the Code)

                              Present Law

    Generally, tax returns and return information (``tax 
information'') are confidential and may not be disclosed unless 
authorized in the Code.\570\ Return information includes data 
received, collected, or prepared by the Secretary with respect 
to the determination of the existence or possible existence of 
liability of any person under the Code for any tax, penalty, 
interest, fine, forfeiture, or other imposition or offense. 
Criminal penalties apply for the unauthorized inspection or 
disclosure of tax information. Willful unauthorized disclosure 
is a felony under section 7213 and the willful unauthorized 
inspection of tax information is a misdemeanor under section 
7213A. Taxpayers may also pursue a civil cause of action for 
disclosures and inspections not authorized by section 
6103.\571\
---------------------------------------------------------------------------
    \570\ Sec. 6103(a)
    \571\ Sec. 7431.
---------------------------------------------------------------------------
    Section 6103 provides exceptions to the general rule of 
confidentiality, detailing permissible disclosures. Under 
section 6103(h)(1), tax information is open to inspection by or 
disclosure to Treasury officers and employees whose official 
duties require the inspection or disclosure for tax 
administration purposes.
    The heavy vehicle use tax, an annual highway use tax, is 
imposed on the use of any highway motor vehicle that has a 
gross weight of 55,000 pounds or more.\572\ Proof of payment of 
the heavy vehicle use tax must be presented to customs 
officials upon entry into the United States of any highway 
motor vehicle subject to the tax and that has a base in a 
contiguous foreign country.\573\ If the operator of the vehicle 
is unable to present proof of payment of the tax with respect 
to the vehicle, entry into the United States may be 
denied.\574\
---------------------------------------------------------------------------
    \572 \ Sec. 4481(a).
    \573\ Treas. Reg. 41.6001-3(a).
    \574\ Treas. Reg. 41.6001-3(b).
---------------------------------------------------------------------------
    Prior to 2003, customs officials who had responsibility for 
enforcing and/or collecting excise taxes were employees of the 
U.S. Department of the Treasury (``Treasury''). Thus, prior to 
2003, section 6103(h)(1) allowed disclosure of tax information 
by the IRS to these customs officials in the performance of 
their duties. In 2003, U.S. Customs and Border Protection 
became an official agency of the U.S. Department of Homeland 
Security.\575\ At that time, customs officials were transferred 
from Treasury to the Department of Homeland Security.
---------------------------------------------------------------------------
    \575\ The Homeland Security Act of 2002, Pub. L. No. 107-296 
(``Homeland Security Act''), enacted November 25, 2002 established the 
U.S. Department of Homeland Security. Several agencies were combined 
under this new department.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision allows the IRS to share returns and return 
information with employees of U.S. Customs and Border 
Protection whose official duties require such inspection or 
disclosure for purposes of administering and collecting the 
heavy vehicle use tax.

                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

                TITLE V--TAX RELIEF FOR CERTAIN CHILDREN

1. Modification of rules relating to the taxation of unearned income of 
     certain children (sec. 501 of the Act and sec. 1 of the Code)

                              Present Law

Income tax rates
    To determine regular income tax liability, an individual 
taxpayer generally must apply the tax rate schedules (or the 
tax tables) to his or her 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.\576\ Estates and trusts are generally taxed in a 
manner similar to individuals, to the extent that the income is 
not distributed or required to be distributed under governing 
law or under the terms of the governing instrument. They are 
subject to a separate income tax rate schedule.\577\ For 2019, 
the regular individual and estate and trust income tax rate 
schedules are as follows:
---------------------------------------------------------------------------
    \576\ Rev. Proc. 2018-57, 2018-49 I.R.B. 817, Sec.3.01.
    \577\ Ibid.

         TABLE 1.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2019
------------------------------------------------------------------------
         If taxable income is:               Then income tax equals:
------------------------------------------------------------------------
                           Single Individuals
 
Not over $9,700........................  10% of the taxable income
Over $9,700 but not over $39,475.......  $970 plus 12% of the excess
                                          over $9,700
Over $39,475 but not over $84,200......  $4,543 plus 22% of the excess
                                          over $39,475
Over $84,200 but not over $160,725.....  $14,382.50 plus 24% of the
                                          excess over $84,200
Over $160,725 but not over $204,100....  $32,748.50 plus 32% of the
                                          excess over $160,725
Over $204,100 but not over $510,300....  $46,628.50 plus 35% of the
                                          excess over $204,100
Over $510,300..........................  $153,798.50 plus 37% of the
                                          excess over $510,300
 
                           Heads of Households
 
Not over $13,850.......................  10% of the taxable income
Over $13,850 but not over $52,850......  $1,385 plus 12% of the excess
                                          over $13,850
Over $52,850 but not over $84,200......  $6,065 plus 22% of the excess
                                          over $52,850
Over $84,200 but not over $160,700.....  $12,962 plus 24% of the excess
                                          over $84,200
Over $160,700 but not over $204,100....  $31,322 plus 32% of the excess
                                          over $160,700
Over $204,100 but not over $510,300....  $45,210 plus 35% of the excess
                                          over $204,100
Over $510,300..........................  $152,380 plus 37% of the excess
                                          over $510,300
 
     Married Individuals Filing Joint Returns and Surviving Spouses
 
Not over $19,400.......................  10% of the taxable income
Over $19,400 but not over $78,950......  $1,940 plus 12% of the excess
                                          over $19,400
Over $78,950 but not over $168,400.....  $9,086 plus 22% of the excess
                                          over $78,950
Over $168,400 but not over $321,450....  $28,765 plus 24% of the excess
                                          over $168,400
Over $321,450 but not over $408,200....  $65,497 plus 32% of the excess
                                          over $321,450
Over $408,200 but not over $612,350....  $93,257 plus 35% of the excess
                                          over $408,200
Over $612,350..........................  $164,709.50 plus 37% of the
                                          excess over $612,350
 
               Married Individuals Filing Separate Returns
 
Not over $9,700........................  10% of the taxable income
Over $9,700 but not over $39,475.......  $970 plus 12% of the excess
                                          over $9,700
Over $39,475 but not over $84,200......  $4,543 plus 22% of the excess
                                          over $39,475
Over $84,200 but not over $160,725.....  $14,382.50 plus 24% of the
                                          excess over $84,200
Over $160,725 but not over $204,100....  $32,748.50 plus 32% of the
                                          excess over $160,725
Over $204,100 but not over $306,175....  $46,628.50 plus 35% of the
                                          excess over $204,100
Over $306,175..........................  $82,354.75 plus 37% of the
                                          excess over $306,175
 
                           Estates and Trusts
 
Not over $2,600........................  10% of the taxable income
Over $2,600 but not over $9,300........  $260 plus 24% of the excess
                                          over $2,600
Over $9,300 but not over $12,750.......  $1,868 plus 35% of the excess
                                          over $9,300
Over $12,750...........................  $3,075.50 plus 37% of the
                                          excess over $12,750
------------------------------------------------------------------------

Unearned income of children

    Special rules (generally referred to as the ``kiddie tax'') 
apply to the net unearned income of certain children.\578\ 
Generally, the kiddie tax applies to a child if: (1) the child 
has not reached the age of 19 by the close of the taxable year, 
or the child is a full-time student under the age of 24, and 
either of the child's parents is alive at that time; (2) the 
child's unearned income exceeds $2,200 (for 2019); and (3) the 
child does not file a joint return. The kiddie tax applies 
regardless of whether the child may be claimed as a dependent 
by either or both parents. If a child is above age 17, the 
kiddie tax applies to the net unearned income of that child 
only if the child's earned income does not exceed one-half of 
the amount of his or her support. For these purposes, unearned 
income is income other than wages, salaries, professional fees, 
other amounts received as compensation for personal services 
actually rendered, and distributions from qualified disability 
trusts.\579\ In general, a child is eligible to use the 
preferential tax rates for qualified dividends and capital 
gains.\580\
---------------------------------------------------------------------------
    \578\ Sec. 1(g).
    \579\ Secs. 1(g)(4) and 911(d)(2).
    \580\ Sec. 1(h).
---------------------------------------------------------------------------
    Public Law 115-97 temporarily modifies the kiddie tax by 
separating the child's tax from the tax situation of the 
child's parent or of any sibling. It is intended that the net 
unearned income (both ordinary income and net capital gain) of 
a child to whom the kiddie tax applies is taxed according to 
the tax table applicable to a trust, while earned taxable 
income \581\ of a child is taxed according to the tax table 
applicable to the child (normally the table applicable to 
unmarried individuals).\582\
---------------------------------------------------------------------------
    \581\ For this purpose, earned taxable income means taxable income 
reduced (but not below zero) by net unearned income. Section 
1(j)(4)(D).
    \582\ A technical correction may be necessary for the kiddie tax to 
fully reflect this intent. As enacted, a child to whom the kiddie tax 
applies uses modified unmarried and estates and trusts brackets to 
calculate tax on income. The brackets are modified so that the total 
amount taxed at a given rate does not exceed the amount that would be 
taxed at that rate in the case of an individual to whom the kiddie tax 
does not apply. For a detailed explanation see Joint Committee on 
Taxation, General Explanation of Public Law 115-97 (JCS-1-18), December 
20, 2018, pp. 7-8.
---------------------------------------------------------------------------
    The modification of the kiddie tax does not apply to 
taxable years beginning after December 31, 2025.

Alternative minimum tax

    An alternative minimum tax (``AMT'') is imposed on an 
individual, estate, or trust in an amount by which the 
tentative minimum tax exceeds the regular income tax for the 
taxable year.\583\ For 2019, the tentative minimum tax is the 
sum of (1) 26 percent of so much of the taxable excess as does 
not exceed $194,800 ($97,400 in the case of married filing 
separately) \584\ and (2) 28 percent of the remaining taxable 
excess.\585\ The taxable excess is so much of the alternative 
minimum taxable income (``AMTI'') as exceeds the exemption 
amount. AMTI is the taxpayer's taxable income increased by the 
taxpayer's tax preferences and adjusted by determining the tax 
treatment of certain items in a manner that negates the 
deferral of income resulting from the regular tax treatment of 
those items.
---------------------------------------------------------------------------
    \583\ Sec. 55.
    \584\ Sec. 3.12 of Rev. Proc. 2018-57, supra. The breakpoint 
between the 26-percent and 28-percent brackets is indexed for 
inflation.
    \585\ The maximum tax rates on net capital gain and dividends used 
in computing the regular tax are used in computing the tentative 
minimum tax.
---------------------------------------------------------------------------
    For taxable years beginning in 2019, the exemption amount 
is $111,700 for married individuals filing jointly and 
surviving spouses, $71,700 for other unmarried individuals, 
$55,850 for married individuals filing separately, and $25,000 
for estates or trusts. In the case of a child to whom the 
kiddie tax applies, the exemption amount may not exceed the 
child's earned income \586\ plus $7,750. The exemption amount 
is phased out by an amount equal to 25 percent of the amount by 
which the individual's AMTI exceeds $1,020,600 for married 
individuals filing jointly and surviving spouses, $510,300 for 
other individuals, and $83,500 for estates or trusts. These 
dollar amounts are indexed annually for inflation.\587\
---------------------------------------------------------------------------
    \586\ As defined in Sec. 55.
    \587\ Secs. 3.12 and 3.13 of Rev. Proc. 2018-57, supra.
---------------------------------------------------------------------------
    Among the tax preferences and adjustments included in AMTI 
are accelerated depreciation on certain property used in a 
trade or business, circulation expenditures, research and 
experimental expenditures, certain expenses and allowances 
related to oil and gas, certain expenses and allowances related 
to mining exploration and development, certain tax-exempt 
interest income, and a portion of the gain excluded with 
respect to the sale or disposition of certain small business 
stock. The standard deduction, and certain itemized deductions, 
such as the deduction for State and local taxes, are not 
allowed to reduce AMTI.

                        Explanation of Provision


Unearned income of children

    The provision reverses the temporary change enacted by 
Public Law 115-97 to the calculation of the kiddie tax for 
taxable years beginning after December 31, 2019. In addition, 
the provision provides that taxpayers may elect to reverse the 
temporary change to the calculation of the kiddie tax for 
taxable years of the taxpayer which begin in 2018, 2019, or 
both.
    Under the provision, the net unearned income of a child 
(for 2019, unearned income over $2,200) \588\ is taxed at the 
parents' tax rates if the parents' tax rates are higher than 
the tax rates of the child.\589\ The remainder of a child's 
taxable income (i.e., earned income, plus unearned income up to 
$2,200 (for 2019), less the child's standard deduction) is 
taxed at the child's rates, regardless of whether the kiddie 
tax applies to the child.
---------------------------------------------------------------------------
    \588\ Section 1(g)(4)(A) provides for a reduction in the amount of 
net unearned income by twice the basic standard deduction, which for 
2019 is $1,100, if the child does not itemize deductions.
    \589\ Special rules apply for determining which parent's rate 
applies where a joint return is not filed.
---------------------------------------------------------------------------
    The kiddie tax is calculated by computing the ``allocable 
parental tax.'' This involves adding the net unearned income of 
the child to the parent's income and then applying the parent's 
tax rate. A child's ``net unearned income'' is the child's 
unearned income less the sum of (1) the minimum standard 
deduction allowed to dependents ($1,100 for 2019),\590\ and (2) 
the greater of (a) such minimum standard deduction amount or 
(b) the amount of allowable itemized deductions that are 
directly connected with the production of the unearned 
income.\591\
---------------------------------------------------------------------------
    \590\ Sec. 3.02 of Rev. Proc. 2018-57, supra.
    \591\ Sec. 1(g)(4).
---------------------------------------------------------------------------
    The allocable parental tax equals the hypothetical increase 
in tax to the parent that results from adding the child's net 
unearned income to the parent's taxable income.\592\ If the 
child has net capital gains or qualified dividends, these items 
are allocated to the parent's hypothetical taxable income 
according to the ratio of net unearned income to the child's 
total unearned income. If a parent has more than one child 
subject to the kiddie tax, the net unearned income of all 
children is combined, and a single kiddie tax is calculated. 
Each child is then allocated a proportionate share of the 
hypothetical increase, based upon the child's net unearned 
income relative to the aggregate net unearned income of all of 
the parent's children subject to the tax.
---------------------------------------------------------------------------
    \592\ Sec. 1(g)(3).
---------------------------------------------------------------------------
    Generally, a child with a filing obligation must file a 
separate return to report his or her income.\593\ The parents' 
tax is not affected by the child's income, and the total tax 
due from the child is the greater of:
---------------------------------------------------------------------------
    \593\ Sec. 1(g)(6). See Form 8615, Tax for Certain Children Who 
Have Unearned Income.
---------------------------------------------------------------------------
    1. The sum of (a) the tax payable by the child on the 
child's earned income and unearned income up to $2,200 (for 
2019), plus (b) the allocable parental tax on the child's 
unearned income, or
    2. The tax on the child's income without regard to the 
kiddie tax provisions.\594\
---------------------------------------------------------------------------
    \594\ Sec. 1(g)(1).
---------------------------------------------------------------------------
    If a child's gross income is only from interest and 
dividends and the amount of the gross income (in 2019) is 
greater than $1,100, and less than $11,000,\595\ the parents 
may elect to report the child's gross income on the parents' 
return and the child is treated as having no gross income. A 
tax at the rate of 10 percent is imposed on up to $1,100 of the 
child's gross income included on the parents' return.
---------------------------------------------------------------------------
    \595\ Sec. 3.02 of Rev. Proc. 2018-57, supra.
---------------------------------------------------------------------------

Alternative minimum tax

    The provision also temporarily suspends the limitation on 
the AMT exemption amount for taxpayers subject to the kiddie 
tax for taxable years beginning after December 31, 2017. This 
modification to the alternative minimum tax does not apply to 
taxable years beginning after December 31, 2025.

                             Effective Date

    The provision to modify the calculation of the kiddie tax 
applies to taxable years beginning after December 31, 2019, or 
at the taxpayer's election, may apply to taxable years 
beginning in 2018, 2019, or both.
    The provision to modify the alternative minimum tax applies 
to taxable years beginning after December 31, 2017.

                  TITLE VI--ADMINISTRATIVE PROVISIONS

1. Provisions relating to plan amendments (sec. 601 of the Act and sec. 
        401 of the Code)

                              Present Law

    Present law provides a remedial amendment period during 
which, under certain circumstances, a retirement plan may be 
amended retroactively in order to comply with the tax 
qualification requirements.\596\ In general, plan amendments to 
reflect changes in the law generally must be made by the time 
prescribed by law for filing the income tax return of the 
employer for the employer's taxable year in which the change in 
law occurs (including extensions). The Secretary of the 
Treasury may extend the time by which plan amendments need to 
be made.
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    \596\ Sec. 401(b).
---------------------------------------------------------------------------
    The Code and ERISA provide that, in general, accrued 
benefits cannot be reduced by a plan amendment.\597\ This 
prohibition on the reduction of accrued benefits is commonly 
referred to as the ``anti-cut-back rule.''
---------------------------------------------------------------------------
    \597\ Code sec. 411(d)(6); ERISA sec. 204(g).
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                        Explanation of Provision

    The provision permits certain plan amendments made pursuant 
to the changes in the Act, or regulations issued thereunder, to 
be retroactively effective. If a plan amendment meets the 
requirements of the provision, then the plan will be treated as 
being operated in accordance with its terms and the amendment 
will not violate the anti-cut-back rule. In order for this 
treatment to apply, the plan must be operated as if the plan 
amendment were in effect, and the amendment is required to be 
made on or before the last day of the first plan year beginning 
on or after January 1, 2022, or such later date as the 
Secretary of the Treasury may prescribe. However, if the plan 
is a governmental plan or, in the case of section 401 (and the 
amendments made thereby), an applicable collectively bargained 
plan, the amendment is required to be made on or before the 
last day of the first plan year beginning on or after January 
1, 2024 (or such later date as the Secretary of the Treasury 
may prescribe). For this purpose, an applicable collectively 
bargained plan is a plan maintained pursuant to one or more 
collective bargaining agreements between employee 
representatives and one or more employers ratified before the 
date of enactment of this Act.
    If the amendment is required to be made to retain a plan's 
qualified status as a result of the changes in the law (or 
regulations), the amendment is required to be made 
retroactively effective as of the date on which the change 
became effective with respect to the plan and the plan is 
required to be operated in compliance until the amendment is 
made. Amendments that are not required to retain a plan's 
qualified status but that are made pursuant to the changes made 
by the Act (or applicable regulations) may be made 
retroactively effective as of the first day the amendment is 
effective.
    A plan amendment will not be considered to be pursuant to 
the Act (or applicable regulations) if it has an effective date 
before the effective date of the provision under the Act (or 
regulations) to which it relates. Similarly, the provision does 
not provide relief from the anti-cut-back rule for periods 
prior to the effective date of the relevant provision (or 
regulations) or the plan amendment. The Secretary of the 
Treasury (or the Secretary's delegate) is authorized to provide 
exceptions to the relief from the prohibition on reductions in 
accrued benefits. It is intended that the Secretary will not 
permit inappropriate reductions in contributions or benefits 
that are not directly related to the provisions under the Act.

                             Effective Date

    The provision is effective on date of enactment (December 
20, 2019).

   DIVISION Q--TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF 2019

           TITLE I--EXTENSION OF CERTAIN EXPIRING PROVISIONS

    Subtitle A--Tax Relief and Support for Families and Individuals

1. Exclusion from gross income of discharge of qualified principal 
        residence indebtedness (sec. 101 of the Act and sec. 
        108(a)(1)(E) of the Code)

                              Present Law

In general
    Gross income includes income that is realized by a debtor 
from the discharge of indebtedness,\598\ 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.\599\ 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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    \598\ A debt cancellation that constitutes a gift or bequest is not 
treated as income to the donee debtor. Sec. 102.
    \599\ 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.\600\
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    \600\ Sec. 1017.
---------------------------------------------------------------------------
    For all taxpayers, the amount of discharge of indebtedness 
generally is equal to the difference between the adjusted issue 
price of the debt being cancelled and the amount used to 
satisfy the debt. These rules generally apply to the exchange 
of an old obligation for a new obligation, including a 
modification of indebtedness that is treated as an exchange (a 
debt-for-debt exchange).
Qualified principal residence indebtedness
    An exclusion from gross income is provided for any 
discharge of indebtedness income by reason of a discharge (in 
whole or in part) of qualified principal residence 
indebtedness. Qualified principal residence indebtedness means 
acquisition indebtedness (within the meaning of section 
163(h)(3)(B), except that the dollar limitation is $2 million) 
with respect to the taxpayer's principal residence.\601\ 
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.
---------------------------------------------------------------------------
    \601\ The limitation is $1 million in the case of a married 
individual filing a separate return. Sec. 108(h)(2).
---------------------------------------------------------------------------
    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, 2018. The exclusion for qualified principal 
residence indebtedness is also effective for discharges of 
indebtedness on or after January 1, 2018 if the discharge is 
subject to a written arrangement entered into prior to January 
1, 2018.

                        Explanation of Provision

    The provision extends for three additional years the 
exclusion from gross income for discharges of qualified 
principal residence indebtedness. Thus, the exclusion for 
qualified principal residence indebtedness is effective for 
discharges of indebtedness before January 1, 2021 and for 
discharges of indebtedness on or after January 1, 2021 if the 
discharge is subject to a written arrangement entered into 
prior to January 1, 2021.

                             Effective Date

    The provision generally applies to discharges of 
indebtedness after December 31, 2017.
2. Treatment of mortgage insurance premiums as qualified residence 
        interest (sec. 102 of the Act and sec. 163(h) of the Code)

                              Present Law

In general
    Qualified residence interest is deductible notwithstanding 
the general rule that personal interest is nondeductible.\602\
---------------------------------------------------------------------------
    \602\ Sec. 163(h).
---------------------------------------------------------------------------
Acquisition indebtedness
    Qualified residence interest is interest on acquisition 
indebtedness with respect to a principal and a second residence 
of the taxpayer. 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. Acquisition indebtedness also includes 
refinancing of such indebtedness to the extent the amount of 
the indebtedness resulting from refinancing does not exceed the 
amount of the refinanced indebtedness. The maximum amount of 
debt that may be treated as acquisition indebtedness is 
$750,000 ($375,000 in the case of married taxpayers filing 
separately).
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, 
2017, 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.\603\
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    \603\ Sec. 6050H(h) and Treas. Reg. sec. 1.6050H-3.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the deduction for qualified mortgage 
insurance premiums for three years (with respect to contracts 
entered into after December 31, 2006). Thus, the provision 
applies to amounts paid or accrued in 2018, 2019, and 2020 (and 
not properly allocable to any period after December 31, 2020).

                             Effective Date

    The provision applies to amounts paid or accrued after 
December 31, 2017.

3. Reduction in medical expense deduction floor (sec. 103 of the Act 
        and sec. 213 of the Code)

                              Present Law

    For taxable years ending before January 1, 2019, 
individuals may claim an itemized deduction for unreimbursed 
medical expenses paid during the taxable year, but only to the 
extent that the expenses exceed 7.5 percent of adjusted gross 
income (``AGI'') for purposes of regular tax and the 
alternative minimum tax (``AMT'').\604\ For taxable years 
ending after December 31, 2018, the 7.5-percent threshold is 
increased to 10 percent.
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    \604\ Sec. 213. The threshold was amended by the Patient Protection 
and Affordable Care Act (Pub. L. No. 111-148). For taxable years 
beginning after December 31, 2012, the threshold was 10 percent for 
regular tax purposes and AMT purposes. A temporary special rule applied 
in the case of a taxpayer who attained age 65 (or, in the case of a 
married taxpayer, if either the taxpayer or the taxpayer's spouse 
attained age 65) before the close of the taxable year, in which case 
the threshold was 7.5 percent for regular tax purposes. The 2017 Tax 
Act (Pub. L. No. 115-97) reduced the floor to 7.5 percent for all 
taxpayers for taxable years beginning after December 31, 2016, and 
ending before January 1, 2019.
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                        Explanation of Provision

    The provision extends for two years the threshold for 
deducting medical expenses of 7.5 percent of AGI. The 7.5-
percent threshold applies for purposes of regular tax as well 
as the AMT. The provision applies for taxable years beginning 
before January 1, 2021.

                             Effective Date

    The provision applies to taxable years ending after 
December 31, 2018.

4. Deduction of qualified tuition and related expenses (sec. 104 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.\605\ 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, 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,\606\ at an 
eligible institution of higher education for courses of 
instruction of such individual at such institution.\607\ 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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    \605\ Sec. 222.
    \606\ 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).
    \607\ 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. 
Generally, no deduction is allowed unless the taxpayer receives 
a payee statement furnished by the eligible institution of 
higher education or other entity subject to reporting that 
reports qualified tuition and related expenses.\608\
---------------------------------------------------------------------------
    \608\ Secs. 222(d)(6) and 6050S.
---------------------------------------------------------------------------
    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,\609\ 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.\610\ 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.
---------------------------------------------------------------------------
    \609\ Secs. 222(d)(1) and 25A(g)(2).
    \610\ Sec. 222(c). These reductions are the same as those that 
apply to the American Opportunity and Lifetime Learning credits.
---------------------------------------------------------------------------
    The deduction is not available for taxable years beginning 
after December 31, 2017.

                        Explanation of Provision

    The provision extends the qualified tuition deduction for 
three years, through 2020.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2017.

5. Black Lung Disability Trust Fund excise tax (sec. 105 of the Act and 
        sec. 4121 of the Code)

                              Present Law

    Before January 1, 2019, coal extracted from mines was taxed 
at either $1.10 per ton if from an underground mine or $0.55 
per ton if from a surface mine.\611\ The total amount of tax 
was not to exceed 4.4 percent of the price at which such ton of 
coal was sold by the producer.
---------------------------------------------------------------------------
    \611\ Sec. 4121.
---------------------------------------------------------------------------
    After December 31, 2018, the ``temporary increase 
termination date,'' the tax rates declined to rates of $0.50 
for underground mines and $0.25 for surface mines. After the 
temporary increase termination date, the total amount of tax is 
not to exceed two percent of the price at which such ton of 
coal is sold by the producer.

                        Explanation of Provision

    The provision reinstates the increased rates on coal 
through December 31, 2020. Coal extracted will be taxed at 
$1.10 per ton if from an underground mine or $0.55 per ton if 
from a surface mine. The total amount of tax cannot exceed 4.4 
percent of the price at which such ton of coal is sold by the 
producer.

                             Effective Date

    The provision applies on and after the first day of the 
first calendar month beginning after the date of 
enactment.\612\
---------------------------------------------------------------------------
    \612\ The date of enactment of the Act was December 20, 2019; thus, 
the provision reinstates the higher rates as of January 1, 2020, 
through December 31, 2020.
---------------------------------------------------------------------------

 Subtitle B--Incentives for Employment, Economic Growth, and Community 
                              Development


1. Indian employment credit (sec. 111 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.\613\ The 
credit is equal to 20 percent of the excess of eligible 
employee qualified wages and health insurance costs during the 
current taxable year over the amount of such wages and costs 
incurred by the employer during calendar year 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.\614\
---------------------------------------------------------------------------
    \613\ Sec. 45A.
    \614\ Sec. 280C(a).
---------------------------------------------------------------------------
    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 \615\ or section 4(10) of the Indian Child Welfare 
Act of 1978.\616\ The definition in section 3(d) of the Indian 
Financing Act includes, in addition to current Indian 
reservations and certain other lands, ``former Indian 
reservations in Oklahoma.'' For purposes of the credit, 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).
---------------------------------------------------------------------------
    \615\ Pub. L. No. 93-262.
    \616\ 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 2017).\617\ 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.\618\ 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.
---------------------------------------------------------------------------
    \617\ See Instructions for Form 8845, Indian Employment Credit 
(2017).
    \618\ Sec. 51(i)(1).
---------------------------------------------------------------------------
    The wage credit is available for wages paid or incurred in 
taxable years beginning on or before December 31, 2017.

                        Explanation of Provision

    The provision extends the Indian employment credit for 
three years (through taxable years beginning on or before 
December 31, 2020).

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2017.

2. Railroad track maintenance credit (sec. 112 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, 2018 (the ``railroad track maintenance 
credit'' or ``credit'').\619\ 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.\620\ The credit may reduce 
a taxpayer's tax liability below its tentative minimum 
tax.\621\
---------------------------------------------------------------------------
    \619\ 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).
    \620\ 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.
    \621\ Sec. 38(c)(4).
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Limitation

    The railroad track maintenance credit is limited to the 
product of $3,500 times the number of miles of railroad track 
\622\ (1) owned or leased by an eligible taxpayer as of the 
close of its taxable year,\623\ 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.\624\ 
Amounts that exceed the limitation are not carried over to 
another taxable year.\625\
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    \622\ 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).
    \623\ 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).
    \624\ Sec. 45G(b)(1).
    \625\ Treas. Reg. sec. 1.45G-1(c)(2)(iii).
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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.\626\ 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.\627\ Such 
assignment is taken into account for the taxable year of the 
assignee that includes the date that such assignment is treated 
as effective. However, assignments, including related 
expenditures paid or incurred, for taxable years ending after 
January 1, 2017, and before January 1, 2018, are treated as 
effective as of the close of such taxable year if made pursuant 
to a written agreement entered into no later than May 10, 
2018.\628\
---------------------------------------------------------------------------
    \626\ Sec. 45G(b)(2). See also Treas. Reg. sec. 1.45G-1(d).
    \627\ 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).
    \628\ Bipartisan Budget Act of 2018, Pub. L. No. 115-123, Division 
D, Title I, Subtitle B, sec. 40302(b)(2), February 9, 2018.
---------------------------------------------------------------------------

Eligible taxpayer

    An eligible taxpayer means any Class II or Class III 
railroad, and any person (including a Class I railroad \629\) 
who transports property using the rail facilities \630\ of a 
Class II or Class III railroad or who furnishes railroad-
related property \631\ or services \632\ 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.\633\
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    \629\ The Surface Transportation Board currently classifies a Class 
I railroad as a carrier with annual operating revenue of $504,803,294 
or more ($489,935,956 or more for 2018). See the Surface Transportation 
Board Railroad Revenue Deflator Factors, available at https://
prod.stb.gov/reports-data/economic-data/railroad-revenue-deflator-
factors/. The seven Class I railroads are BNSF Railway Company, 
Canadian National Railway (Grand Trunk Corporation), Canadian Pacific 
(Soo Line Corporation), CSX Transportation, Kansas City Southern 
Railway Company, Norfolk Southern Combined Railroad Subsidiaries, and 
Union Pacific Railroad Company. See the U.S. Department of 
Transportation Federal Railroad Administration Freight Rail Overview, 
available at https://railroads.dot.gov/rail-network-development/
freight-rail-overview.
    \630\ 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).
    \631\ 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.
    \632\ 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.
    \633\ 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).\634\
---------------------------------------------------------------------------
    \634\ 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 $40,384,263 or more, but 
less than $504,803,294 ($39,194,876 or more, but less than 
$489,935,956, for 2018), and a Class III railroad as a carrier with 
annual operating revenue of less than $40,384,263 (less than 
$39,194,876 for 2018). See the Surface Transportation Board Railroad 
Revenue Deflator Factors, available at https://prod.stb.gov/reports-
data/economic-data/railroad-revenue-deflator-factors/.
---------------------------------------------------------------------------

Qualified railroad track maintenance expenditures

    Qualified railroad track maintenance expenditures are 
defined as gross expenditures (whether or not otherwise 
chargeable to capital account \635\) 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 which made the assignment of such 
track.\636\ 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.\637\ 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.\638\
---------------------------------------------------------------------------
    \635\ 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.
    \636\ Sec. 45G(d); Treas. Reg. sec. 1.45G-1(b)(5).
    \637\ Treas. Reg. sec. 1.45G-1(c)(3)(ii).
    \638\ Treas. Reg. sec. 1.45G-1(c)(3).
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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.\639\ 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.\640\ 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.\641\
---------------------------------------------------------------------------
    \639\ Sec. 45G(e)(3). See also sec. 1016(a)(29) and Treas. Reg. 
sec. 1.45G-1(e).
    \640\ Treas. Reg. sec. 1.45G-1(e)(2).
    \641\ Ibid.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the present law credit for five 
years, for qualified railroad track maintenance expenditures 
paid or incurred during taxable years beginning before January 
1, 2023.

                             Effective Date

    The provision generally applies to expenditures paid or 
incurred during taxable years beginning after December 31, 
2017.
    The provision also provides a safe harbor that treats any 
assignment, including related expenditures paid or incurred, 
for a taxable year beginning on or after January 1, 2018, and 
ending before January 1, 2020, as effective as of the close of 
such taxable year if made pursuant to a written agreement 
entered into no later than March 19, 2020.

3. Mine rescue team training credit (sec. 113 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 (the ``mine rescue 
team training credit'').\642\
---------------------------------------------------------------------------
    \642\ 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.\643\
---------------------------------------------------------------------------
    \643\ Sec. 45N(b).
---------------------------------------------------------------------------
    An eligible employer is any taxpayer which employs 
individuals as miners in underground mines in the United 
States.\644\ The term ``wages'' has the meaning given to such 
term by section 3306(b) \645\ (determined without regard to any 
dollar limitation contained in that section).\646\
---------------------------------------------------------------------------
    \644\ Sec. 45N(c).
    \645\ Section 3306(b) defines wages for purposes of Federal 
Unemployment Tax.
    \646\ Sec. 45N(d).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of the expenses 
otherwise allowable as a deduction for the taxable year that is 
equal to the amount of the mine rescue team training credit 
determined for the taxable year.\647\ The credit does not apply 
to taxable years beginning after December 31, 2017.\648\ 
Additionally, the credit is not allowable for purposes of 
computing the alternative minimum tax.\649\
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    \647\ Sec. 280C(e).
    \648\ Sec. 45N(e).
    \649\ Sec. 38(c). Note that the corporate alternative minimum tax 
was repealed for taxable years beginning after December 31, 2017. See 
Pub. L. No. 115-97, sec. 12001, December 22, 2017.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for three years through 
taxable years beginning before January 1, 2021.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2017.

4. Classification of certain race horses as three-year property (sec. 
        114 of the Act and sec. 168(e)(3)(A) 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.\650\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\651\ 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 
placed in service convention.\652\ For some assets, the 
recovery period for the asset is provided in section 168.\653\ 
In other cases, the recovery period of an asset is generally 
set forth in Revenue Procedure 87-56.\654\
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    \650\ 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.
    \651\ 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).
    \652\ Sec. 168.
    \653\ See sec. 168(e) and (g).
    \654\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785). Exercising authority granted by Congress, the 
Secretary issued Rev. Proc. 87-56, 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,\655\ 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.
---------------------------------------------------------------------------
    \655\ 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, 
2018, and (2) placed in service after December 31, 2017, and 
more than two years old at such time it is placed in service by 
the purchaser.\656\ A seven-year recovery period applies to any 
race horse that is placed in service after December 31, 2017, 
and that is two years old or younger at the time it is placed 
in service.\657\
---------------------------------------------------------------------------
    \656\ 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-hare-
the-same-birth-date-of-new-years-day.
    \657\ 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 three years to apply to any race horse 
(regardless of age when placed in service) which is placed in 
service before January 1, 2021. 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, 2020.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2017.

 5. Seven-year recovery period for motorsports entertainment complexes 
         (sec. 115 of the Act and sec. 168(i)(15) 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.\658\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\659\ 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 
placed in service convention.\660\ For some assets, the 
recovery period for the asset is provided in section 168.\661\ 
In other cases, the recovery period of an asset is generally 
set forth in Revenue Procedure 87-56.\662\
---------------------------------------------------------------------------
    \658\ 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.
    \659\ 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).
    \660\ Sec. 168.
    \661\ See sec. 168(e) and (g).
    \662\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785). Exercising authority granted by Congress, the 
Secretary issued Rev. Proc. 87-56, 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,\663\ 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.
---------------------------------------------------------------------------
    \663\ 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.\664\ The straight line depreciation method is 
required for the aforementioned real property.\665\ 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.\666\ 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.\667\
---------------------------------------------------------------------------
    \664\ Sec. 168(c).
    \665\ Sec. 168(b)(3).
    \666\ Sec. 168(d)(2) and (d)(4)(B).
    \667\ 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.\668\ 
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.\669\ Racetrack 
facilities are excluded from the definition of theme and 
amusement park facilities classified under asset class 
80.0.\670\
---------------------------------------------------------------------------
    \668\ 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).
    \669\ 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, landscaping, etc.) 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.
    \670\ 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, 2018.\671\ For this purpose, a motorsports 
entertainment complex means a racing track facility which (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 which are open to the public for the price of 
admission.\672\
---------------------------------------------------------------------------
    \671\ Sec. 168(e)(3)(C)(ii) and (i)(15)(D).
    \672\ 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).\673\ 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.
---------------------------------------------------------------------------
    \673\ Sec. 168(i)(15)(B).
---------------------------------------------------------------------------
    A motorsports entertainment complex does not include any 
transportation equipment, administrative services assets, 
warehouses, administrative buildings, hotels, or motels.\674\
---------------------------------------------------------------------------
    \674\ Sec. 168(i)(15)(C).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the seven-year recovery period for 
motorsports entertainment complexes for three years to apply to 
property placed in service before January 1, 2021.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2017.

6. Accelerated depreciation for business property on Indian 
        reservations (sec. 116 of the Act and sec. 168(j) of the Code)

                              Present Law

    With respect to certain property used in connection with 
the conduct of a trade or business within an Indian 
reservation, depreciation deductions under section 168(j) are 
determined using the following recovery periods:
      3-year property  2 years
      5-year property  3 years
      7-year property  4 years
      10-year property  6 years
      15-year property  9 years
      20-year property  12 years
      Nonresidential real property  22 years \675\
---------------------------------------------------------------------------
    \675\ Section 168(j)(2) does not provide shorter recovery periods 
for water utility property, residential rental property, or railroad 
grading and tunnel bores.
---------------------------------------------------------------------------
    ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property described in the 
table above which is: (1) used by the taxpayer predominantly in 
the active conduct of a trade or business within an Indian 
reservation; (2) not used or located outside the reservation on 
a regular basis; (3) not acquired (directly or indirectly) by 
the taxpayer from a person who is related to the taxpayer; 
\676\ and (4) is not property placed in service for purposes of 
conducting or housing certain gaming activities.\677\
---------------------------------------------------------------------------
    \676\ For these purposes, the term ``related persons'' is defined 
in section 465(b)(3)(C).
    \677\ 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).\678\
---------------------------------------------------------------------------
    \678\ 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)) \679\ or section 4(10) of the Indian Child Welfare Act 
of 1978 (25 U.S.C. 1903(10)).\680\ The definition in section 
3(d) of the Indian Financing Act of 1974 includes, in addition 
to current Indian reservations and certain other lands, 
``former Indian reservations in Oklahoma.'' For purposes of 
section 168(j), 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).\681\
---------------------------------------------------------------------------
    \679\ Pub. L. No. 93-262.
    \680\  Pub. L. No. 95-608.
    \681\ Sec. 168(j)(6). See also IRS Notice 98-45, 1998-2 C.B. 257 
(defining ``former Indian reservations in Oklahoma'' for purposes of 
section 168(j)(6)); and the IRS ``Geographic Boundaries Determined for 
Tax Incentives Associated with `Former Indian Reservations in 
Oklahoma','' available at https://www.irs.gov/newsroom/geographic-
boundaries-determined-for-tax-incentives-associated-with-former-indian-
reservations-in-oklahoma#main-content.
---------------------------------------------------------------------------
    The depreciation deduction allowed for regular tax purposes 
is also allowed for purposes of the alternative minimum 
tax.\682\
---------------------------------------------------------------------------
    \682\ Sec. 168(j)(3). Note that the corporate alternative minimum 
tax was repealed for taxable years beginning after December 31, 2017. 
See Pub. L. No. 115-97, sec. 12001, December 22, 2017.
---------------------------------------------------------------------------
    The accelerated depreciation for qualified Indian 
reservation property is available with respect to property 
placed in service before January 1, 2018.\683\ A taxpayer may 
annually make an irrevocable election out of section 168(j) on 
a class-by-class basis.\684\
---------------------------------------------------------------------------
    \683\ Sec. 168(j)(9).
    \684\ Sec. 168(j)(8).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for three years the accelerated 
depreciation for qualified Indian reservation property to apply 
to property placed in service before January 1, 2021.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2017.

7. Expensing rules for certain productions (sec. 117 of the Act and 
        sec. 181 of the Code)

                              Present Law

    Under section 181, a taxpayer may elect \685\ 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, 2018,\686\ 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.\687\ 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.\688\
---------------------------------------------------------------------------
    \685\ See Treas. Reg. sec. 1.181-2 for rules on making (and 
revoking) an election under section 181.
    \686\ 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.
    \687\ 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, e.g., 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.
    \688\ Sec. 181(a)(2)(B).
---------------------------------------------------------------------------
    A section 181 election may only be made by an owner of the 
production.\689\ 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.\690\ 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.\691\ 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.\692\
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    \689\ Treas. Reg. sec. 1.181-1(a).
    \690\ Treas. Reg. sec. 1.181-1(a)(2)(i).
    \691\ 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).
    \692\ 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).
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    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.\693\ Solely for purposes of this rule, the term 
``compensation'' does not include participations and residuals 
(as defined in section 167(g)(7)(B)).\694\
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    \693\ Sec. 181(d)(3)(A).
    \694\ 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).
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    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.\695\ Qualified 
productions do not include sexually explicit productions as 
referenced by section 2257 of title 18 of the U.S. Code.\696\
---------------------------------------------------------------------------
    \695\ Sec. 181(d)(2)(B).
    \696\ Sec. 181(d)(2)(C).
---------------------------------------------------------------------------
    A qualified live theatrical production is defined as a live 
staged production of a play (with or without music) which 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.\697\ 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 which has an audience capacity of not 
more than 6,500.\698\ 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 productions that include or consist of any 
performance of conduct described in section 2257(h)(1) of title 
18 of the U.S. Code.\699\
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    \697\ Sec. 181(e)(2)(A).
    \698\ Sec. 181(e)(2)(D).
    \699\ Sec. 181(e)(2)(E).
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    For purposes of recapture under section 1245, any deduction 
allowed under section 181 is treated as if it were a deduction 
allowable for amortization.\700\ 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.\701\
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    \700\ Sec. 1245(a)(2)(C). For a discussion of the recapture rules 
applicable to depreciation and amortization deductions, see Joint 
Committee on Taxation, Tax Incentives for Domestic Manufacturing (JCX-
15-21), March 12, 2021, pp. 14-17. This document can be found on the 
Joint Committee on Taxation website at www.jct.gov.
    \701\ 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 three years to qualified productions commencing prior 
to January 1, 2021.

                             Effective Date

    The provision applies to productions commencing after 
December 31, 2017.

8. Empowerment zone tax incentives (sec. 118 of the Act and secs. 1391, 
               1394, 1396, 1397A, and 1397B of the Code)


                              Present Law

    The Omnibus Budget Reconciliation Act of 1993 (``OBRA 93'') 
\702\ authorized the designation of nine empowerment zones 
(``Round I empowerment zones'') to provide tax incentives for 
businesses to locate within certain targeted areas \703\ 
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,\704\ which were located in smaller rural areas and 
cities.\705\
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    \702\ Pub. L. No. 103-66.
    \703\ 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.
    \704\ Sec. 1391(b)(1).
    \705\ 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).
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    The Taxpayer Relief Act of 1997 \706\ 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'') \707\ 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.\708\ In addition, the 2000 Community 
Renewal Act conformed the tax incentives that are available to 
businesses in the Round I, Round II, and Round III empowerment 
zones and extended the empowerment zone incentives through 
December 31, 2009. Subsequent legislation, most recently the 
Bipartisan Budget Act of 2018, extended the empowerment zone 
incentives through December 31, 2017.\709\
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    \706\ Pub. L. No. 105-34.
    \707\ 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.
    \708\ 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, MO/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.
    \709\ 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.
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    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, and deferral of capital gains tax on the 
sale of qualified assets sold and replaced.
    The following is a description of the empowerment zone tax 
incentives as in effect through 2017.

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.\710\
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    \710\ 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.
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    The wage credit rate applies to qualifying wages paid 
before January 1, 2018. 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.\711\
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    \711\ 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.
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    An employer's deduction otherwise allowed for wages paid is 
reduced by the amount of wage credit claimed for that taxable 
year.\712\ Wages are not to be taken into account for purposes 
of the wage credit if taken into account in determining the 
employer's work opportunity tax credit under section 51.\713\ 
In addition, the $15,000 cap is reduced by any wages taken into 
account in computing the work opportunity tax credit.\714\ The 
wage credit may be used to offset up to 25 percent of the 
employer's alternative minimum tax liability.\715\
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    \712\ Sec. 280C(a).
    \713\ Sec. 1396(c)(3)(A).
    \714\ Sec. 1396(c)(3)(B).
    \715\ Sec. 38(c)(2). The corporate alternative minimum tax is 
repealed for taxable years beginning after December 31, 2017. However, 
the full amount of the minimum tax credit will be allowed in taxable 
years beginning before 2022. See sec. 53(e), prior to amendment by Pub. 
L. No. 116-136.
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            Increased section 179 expensing limitation
    An enterprise zone business \716\ is allowed up to an 
additional $35,000 of section 179 expensing for qualified zone 
property placed in service before January 1, 2018.\717\ For 
taxable years beginning in 2017, the total amount that may be 
expensed is $545,000.\718\ 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.\719\ 
However, only 50 percent of the cost of qualified zone property 
placed in service during the year by the taxpayer is taken into 
account in determining whether the cost of qualifying property 
placed in service during the taxable year exceeds the specified 
dollar amount.\720\
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    \716\ 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).
    \717\ Sec. 1397A. Note that section 168(k) provides 100-percent 
bonus depreciation for qualified property acquired and placed in 
service after September 27, 2017, and before January 1, 2023. The 100-
percent allowance is phased down by 20 percent per calendar year for 
qualified property placed in service after December 31, 2022. Qualified 
property includes MACRS property with an applicable recovery period of 
20 years or less, and therefore generally includes qualified zone 
property other than buildings.
    \718\ $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. 
For taxable years beginning after 2017, the relevant dollar amount 
under section 179(b)(1) is $1,000,000 (indexed for inflation for 
taxable years beginning after 2018). See also Section 3.25 of Rev. 
Proc. 2018-18, 2018-10 I.R.B. 392; Section 3.26 of Rev. Proc. 2018-57; 
and Section 3.26 of Rev. Proc. 2019-44.
    \719\ For taxable years beginning in 2017, the relevant dollar 
amount is $2,030,000. Sec. 179(b)(2) and Section 3.25 of Rev. Proc. 
2016-55, 2016-45 I.R.B. 707. For taxable years beginning after 2017, 
the relevant dollar amount under section 179(b)(2) is $2,500,000 
(indexed for inflation for taxable years beginning after 2018). See 
also Section 3.25 of Rev. Proc. 2018-18, 2018-10 I.R.B. 392; Section 
3.26 of Rev. Proc. 2018-57; and Section 3.26 of Rev. Proc. 2019-44.
    \720\ Sec. 1397A(a)(2). For example, assume that during 2017 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 $510,000 section 179(b)(1) dollar amount for 2017 is 
increased to $545,000 (by the lesser of $35,000 or $4,500,000). That 
amount is reduced by the excess section 179 property cost amount of 
$220,000 ((50 percent  $4,500,000)-$2,030,000). The taxpayer's 
expensing limitation is $325,000 ($545,000-$220,000). 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.\721\ Special rules are provided in the case of property 
that is substantially renovated by the taxpayer.\722\
---------------------------------------------------------------------------
    \721\ 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(e)).
    \722\ Sec. 1397D(a)(2).
---------------------------------------------------------------------------
    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.\723\
---------------------------------------------------------------------------
    \723\ Sec. 1397C(b).
---------------------------------------------------------------------------
    A qualified proprietorship is any qualified business 
carried on by an individual as a proprietorship if for such 
year: (1) at least 50 percent of the total gross income of such 
individual from such business is derived from the active 
conduct of such business in an empowerment zone; (2) a 
substantial portion of the use of the tangible property of such 
individual in such business (whether owned or leased) is within 
an empowerment zone; (3) a substantial portion of the 
intangible property of such business is used in the active 
conduct of such business; (4) a substantial portion of the 
services performed for such individual in such business by 
employees of such business are performed in an empowerment 
zone; (5) at least 35 percent of such employees are residents 
of an empowerment zone; (6) less than five percent of the 
average of the aggregate unadjusted bases of the property of 
such individual which is used in such business is attributable 
to collectibles other than collectibles that are held primarily 
for sale to customers in the ordinary course of such business; 
and (7) less than five percent of the average of the aggregate 
unadjusted bases of the property of such individual which is 
used in such business is attributable to nonqualified financial 
property.\724\
---------------------------------------------------------------------------
    \724\ Sec. 1397C(c). For these purposes, the term ``employee'' 
includes the proprietor.
---------------------------------------------------------------------------
    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.\725\ 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. 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.
---------------------------------------------------------------------------
    \725\ 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).
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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.\726\ These bonds can be 
used in areas designated enterprise communities as well as 
areas designated empowerment zones. To qualify, 95 percent (or 
more) of the net proceeds from the bond issue must be used to 
finance: (1) qualified zone property whose principal user is an 
enterprise zone business; and (2) certain land functionally 
related and subordinate to such property.
---------------------------------------------------------------------------
    \726\ Sec. 1394.
---------------------------------------------------------------------------
    The term enterprise zone business is the same as that used 
for purposes of the increased section 179 deduction limitation 
(discussed above) with certain modifications for start-up 
businesses. First, 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.\727\ 
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 which 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.
---------------------------------------------------------------------------
    \727\ Pub. L. No. 114-113, Div. Q, sec. 171 (2015) (effective for 
bonds issued after 2015).
---------------------------------------------------------------------------
    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).\728\
---------------------------------------------------------------------------
    \728\ Sec. 1394(b)(3).
---------------------------------------------------------------------------
    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 so 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.\729\ 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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    \729\ Sec. 1397B.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for three years, through December 31, 
2020, the period for which the designation of an empowerment 
zone is in effect, thus extending for three years the 
empowerment zone tax incentives, including the wage credit, 
increased section 179 expensing for qualifying property, 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, 2017, termination shall not apply with respect to 
such designation if the entity which made such nomination 
amends the nomination to provide for a new termination date in 
such manner as the Secretary may provide.\730\
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    \730\ Rev. Proc. 2020-16, 2020-27 I.R.B. 10, June 29, 2020.
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                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2017.

9. American Samoa economic development credit (sec. 119 of the Act)

                              Present Law

    Beginning in 2006, certain domestic corporations have been 
entitled to an economic development credit with respect to 
operations in American Samoa.\731\ The credit is not part of 
the Code but is computed based on the rules of former sections 
30A, 199, and 936.
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    \731\ This credit was again extended during the 116th Congress by 
section 139 of the Taxpayer Certainty and Disaster Relief Act of 2020 
(Division EE of Pub. L. No. 116-260), described in Part Seven of this 
document.
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    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 \732\ in an election in effect for its 
taxable year that included October 13, 1995, or that acquired 
all of the assets of a trade or business that met the foregoing 
conditions. 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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    \732\ 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 corporate 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.
---------------------------------------------------------------------------
    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 rule denying a credit or deduction for any possessions 
tax or foreign tax paid with respect to taxable income that is 
taken into account in computing the credit under section 936 
\733\ does not apply with respect to the credit allowed by this 
provision.
---------------------------------------------------------------------------
    \733\ See sec. 936(c).
---------------------------------------------------------------------------
    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 12 
taxable years of the corporation which begin after December 31, 
2005, and before January 1, 2018. For any other corporation, 
the credit applies to the first six taxable years of that 
corporation which begin after December 31, 2011, and before 
January 1, 2018.

                        Explanation of Provision

    The provision extends the credit for three years 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 15 taxable years of the 
corporation which begin after December 31, 2005, and before 
January 1, 2021, and (b) in the case of any other corporation, 
to the first nine taxable years of the corporation which begin 
after December 31, 2011 and before January 1, 2021.
    For purposes of this credit, the Code is applied without 
regard to the repeal of sections 30A and 936 in 2018,\734\ or 
the repeal of section 199 in 2017.\735\
---------------------------------------------------------------------------
    \734\ See The Consolidated Appropriations Act 2018, Pub. L. No. 
115-141, Division U, Title IV, at sec. 401(d)(1)(C) (the repeal of 
section 936) and sec. 401(d)(1)(D)(viii)(I) (definition of intangible 
property added to section 367(d)) (March 23, 2018).
    \735\ Pub. L. 115-97, section 13305(a).
---------------------------------------------------------------------------

                             Effective Date

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

  Subtitle C--Incentives for Energy Production, Efficiency, and Green 
                              Economy Jobs


1. Biodiesel and renewable diesel (sec. 121 of the Act and secs. 40A, 
        6426(c), and 6427(e) of the Code)

                              Present Law


Biodiesel

    Present law provides an income tax credit for biodiesel 
fuels (the ``biodiesel fuels credit''). 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, 2017.
    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 which during the taxable year is (1) 
used by the taxpayer as a fuel in a trade or business or (2) 
sold by the taxpayer at retail to a person and placed in the 
fuel tank of such person's vehicle.

Small agri-biodiesel producer credit

    The Code provides a small agri-biodiesel producer income 
tax credit, in addition to the biodiesel and biodiesel mixture 
credits. The credit is 10 cents per gallon for up to 15 million 
gallons of agri-biodiesel produced by small producers, defined 
generally as persons whose agri-biodiesel production capacity 
does not exceed 60 million gallons per year. The agri-biodiesel 
must (1) be sold by such producer to another person (a) for use 
by such other person in the production of a qualified biodiesel 
mixture in such person's trade or business (other than casual 
off-farm production), (b) for use by such other person as a 
fuel in a trade or business, or, (c) who sells such agri-
biodiesel at retail to another person and places such agri-
biodiesel in the fuel tank of such other person; or (2) used by 
the producer for any purpose described in (a), (b), or (c).

Biodiesel mixture excise tax credit

    The Code also provides an excise tax credit for biodiesel 
mixtures. 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, 2017. 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, 2017.

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, 
2017.

                        Explanation of Provision

    The provision extends the present-law income tax credit, 
excise tax credit, and payment provisions for biodiesel and 
renewable diesel through December 31, 2022. The provision 
creates a special rule to address claims regarding excise tax 
credits and claims for payment for fuel sold or used during the 
period beginning on January 1, 2018, through the close of the 
last calendar quarter beginning before the date of enactment 
(December 20, 2019). 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 those periods.\736\ 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.
---------------------------------------------------------------------------
    \736\ IRS Notice 2020-8 provides rules claimants must follow to 
make a one-time claim for payment of the credits and payments allowable 
under sections 6426(c), 6426(d), and 6427(e) for biodiesel (including 
renewable diesel) mixtures and alternative fuels sold or used during 
calendar years 2018 and 2019.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to fuel sold or used after December 
31, 2017.

2. Second generation biofuel producer credit (sec. 122 of the Act and 
        sec. 40 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, 2017.
    ``Qualified second generation biofuel production'' is any 
second generation biofuel which is produced by the taxpayer and 
which, during the taxable year, is: (1) sold by the taxpayer to 
another person (a) for use by such other person in the 
production of a qualified second generation biofuel mixture in 
such person's trade or business (other than casual off-farm 
production), (b) for use by such other person as a fuel in a 
trade or business, or (c) who sells such second generation 
biofuel at retail to another person and places such cellulosic 
biofuel in the fuel tank of such other person; or (2) used by 
the producer for any purpose described in (1)(a), (b), or 
(c).\737\
---------------------------------------------------------------------------
    \737\ In addition, for fuels derived from algae, cyanobacteria, 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. Special rules apply 
for fuel derived from algae. 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 IRS as a 
producer of second generation biofuel. Second generation 
biofuel eligible for the section 40 credit is precluded from 
qualifying as biodiesel, renewable diesel, or alternative fuel 
for purposes of the applicable income tax credit, excise tax 
credit, or payment provisions relating to those fuels.
    Because it is a credit under section 40(a), the second 
generation biofuel producer credit is part of the general 
business credits in section 38. However, the credit can only be 
carried forward three taxable years after the termination of 
the credit. The credit is also allowable against the 
alternative minimum tax. Under section 87, the credit is 
included in gross income.

                        Explanation of Provision

    The provision extends the credit for three years, through 
December 31, 2020.

                             Effective Date

    The provision applies to qualified second generation 
biofuel production after December 31, 2017.

3. Nonbusiness energy property (sec. 123 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.\738\ 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.
---------------------------------------------------------------------------
    \738\ Sec. 25C.
---------------------------------------------------------------------------
    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) the version 6.0 Energy Star program requirements, in the 
case of an exterior window, a skylight, 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 which 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 of 
such dwelling unit.
    Additionally, credits are available for the amount of the 
residential energy property expenditures paid or incurred by 
the taxpayer during the taxable year. Residential energy 
property expenditures are expenditures made by the taxpayer for 
qualified energy property (1) that is installed on or in 
connection with a dwelling unit located in the United States 
and owned and used by the taxpayer as the taxpayer's principal 
residence; and (2) the original use of which commences with the 
taxpayer. Unlike qualified energy efficiency improvements, 
residential energy efficiency improvements include both 
qualified energy property and expenditures for labor costs 
properly allocable to the onsite preparation, assembly, or 
original installation of the qualified energy property. The 
allowable credit for the purchase of certain qualified energy 
property is (1) $50 for each advanced main air circulating fan, 
(2) $150 for each qualified natural gas, propane, or oil 
furnace or hot water boiler, and (3) $300 for each item of 
energy efficient building property.
    An advanced main air circulating fan is a fan used in a 
natural gas, propane, or oil furnace and which has an annual 
electricity use of no more than two percent of the total annual 
energy use of the furnace (as determined in the standard 
Department of Energy test procedures).
    A qualified natural gas, propane, or oil furnace or hot 
water boiler is a natural gas, propane, or oil furnace or hot 
water boiler with an annual fuel utilization efficiency rate of 
at least 95.
    Energy efficient building property is: (1) an electric heat 
pump water heater which yields an energy factor of at least 2.0 
in the standard Department of Energy test procedure, (2) an 
electric heat pump which achieves the highest efficiency tier 
established by the Consortium for Energy Efficiency, as in 
effect on January 1, 2009,\739\ (3) a central air conditioner 
which achieves the highest efficiency tier established by the 
Consortium for Energy Efficiency, as in effect on January 1, 
2009,\740\ (4) a natural gas, propane, or oil water heater 
which has an energy factor of at least 0.82 or thermal 
efficiency of at least 90 percent, and (5) a stove which 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 unity, and which 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.
---------------------------------------------------------------------------
    \739\ 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.
    \740\ 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.
---------------------------------------------------------------------------
    Generally, the credit is available for property placed in 
service prior to January 1, 2018. 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 the portion of expenditures that is used for nonbusiness 
purposes is taken into account.
    For purposes of determining the amount of expenditures made 
by any individual with respect to any dwelling unit, 
expenditures which are made from subsidized energy financing 
are not taken into account. The term ``subsidized energy 
financing'' means financing provided under a Federal, State, or 
local program a principal purpose of which is to provide 
subsidized financing for projects designed to conserve or 
produce energy.

                        Explanation of Provision

    The provision extends the nonbusiness energy property 
credit for three years, through December 31, 2020. The 
provision also updates the credit's requirements to reflect the 
fact that the Department of Energy has replaced the energy 
factor previously used to measure efficiency with a new 
standard called the uniform energy factor.

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2017.

4. Qualified fuel cell motor vehicles (sec. 124 of the Act and sec. 30B 
        of the Code)

                              Present Law

    A credit is available through 2017 for vehicles propelled 
by chemically combining oxygen with hydrogen and creating 
electricity (``fuel cell vehicles'').\741\ 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.
---------------------------------------------------------------------------
    \741\ Sec. 30B.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for fuel cell vehicles for 
three years, through December 31, 2020.

                             Effective Date

    The provision applies to property purchased after December 
31, 2017.

5. Alternative fuel refueling property credit (sec. 125 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.\742\ 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.
---------------------------------------------------------------------------
    \742\ Sec. 30C.
---------------------------------------------------------------------------
    Qualified refueling property is property (not including a 
building or its structural components) for the storage or 
dispensing of a clean-burning fuel or electricity into the fuel 
tank or battery of a motor vehicle propelled by such fuel or 
electricity, but only if the storage or dispensing of the fuel 
or electricity is at the point of delivery into the fuel tank 
or battery of the motor vehicle. The original use of such 
property must begin with the taxpayer.
    Clean-burning fuels are any fuel at least 85 percent of the 
volume of which consists of ethanol, natural gas, compressed 
natural gas, liquefied natural gas, liquefied petroleum gas, or 
hydrogen. In addition, any mixture of biodiesel and diesel 
fuel, determined without regard to any use of kerosene and 
containing at least 20 percent biodiesel, qualifies as a clean 
fuel.
    Credits for qualified refueling property used in a trade or 
business are part of the general business credit and may be 
carried back for one year and forward for 20 years. Credits for 
residential qualified refueling property cannot exceed for any 
taxable year the difference between the taxpayer's regular tax 
(reduced by certain other credits) and the taxpayer's tentative 
minimum tax. Generally, in the case of qualified refueling 
property sold to a tax-exempt entity, the taxpayer selling the 
property may claim the credit.
    A taxpayer's basis in qualified refueling property is 
reduced by the amount of the credit. In addition, no credit is 
available for property used outside the United States or for 
which an election to expense has been made under section 179.
    The credit is available for property placed in service 
before January 1, 2018.

                        Explanation of Provision

    The provision extends for three years the 30-percent credit 
for alternative fuel refueling property, through December 31, 
2020.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2017.

6. Two-wheeled plug-in electric vehicle credit (sec. 126 of the Act and 
        sec. 30D of the Code)

                              Present Law

    In general, for vehicles acquired before 2018, a 10-percent 
credit is available for qualified two-wheeled plug-in electric 
vehicles (``qualified electric motorcycles'').\743\ Qualified 
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 qualified electric motorcycle is $2,500.
---------------------------------------------------------------------------
    \743\ Sec. 30D(g). The credit lapsed and was not available for 
vehicles placed in service in calendar year 2014. Before 2014, the 
credit was also available for qualified vehicles having three wheels.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the qualified electric motorcycles 
credit for three years, through December 31, 2020.

                             Effective Date

    The provision applies to vehicles acquired after December 
31, 2017.

7. Credit for electricity produced from certain renewable resources 
        (sec. 127 of the Act and sec. 45 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'').\744\ 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.
---------------------------------------------------------------------------
    \744\ 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 (sec.    Credit amount for 2019 \1\
                      45)                         (cents per kilowatt-hour)              Expiration \2\
----------------------------------------------------------------------------------------------------------------
Wind..........................................                           2.5   December 31, 2019
Closed-loop biomass...........................                           2.5   December 31, 2017
Open-loop biomass (including agricultural                                1.2   December 31, 2017
 livestock waste nutrient facilities).
Geothermal....................................                           2.5   December 31, 2017
Municipal solid waste (including landfill gas                            1.2   December 31, 2017
 facilities and trash combustion facilities).
Qualified hydropower..........................                           1.2   December 31, 2017
Marine and hydrokinetic.......................                           1.2   December 31, 2017
----------------------------------------------------------------------------------------------------------------
\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 which is part of a qualified renewable electricity 
production facility be treated as energy property eligible for 
a 30 percent investment credit under section 48. For 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 renewable power facilities, the provision extends for 
three years (one year in the case of wind facilities), through 
December 31, 2020, the beginning of construction deadline for 
the renewable electricity production credit and the election to 
claim the energy credit in lieu of the electricity production 
credit. For wind facilities the construction of which begins in 
calendar year 2020, the credit is reduced by 40 percent.

                             Effective Date

    The provision takes effect on January 1, 2018.

8. Production credit for Indian coal facilities (sec. 128 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 Indian coal facility during the 
12-year period beginning January 1, 2006, and ending December 
31, 2017.\745\ 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, $2.525 per 
ton for 2019). 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.
---------------------------------------------------------------------------
    \745\ Sec. 45(e)(10).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for the production of 
Indian coal for three years, through December 31, 2020.

                             Effective Date

    The extension of the credit applies to Indian coal produced 
after December 31, 2017.

9. Energy-efficient homes credit (sec. 129 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 all 
other applicable criteria are met.
    The credit applies to homes that are purchased prior to 
January 1, 2018.

                        Explanation of Provision

    The provision extends the credit for three years, to homes 
that are acquired prior to January 1, 2021.

                             Effective Date

    The provision applies to homes acquired after December 31, 
2017.

10. Special allowance for second generation biofuel plant property 
        (sec. 130 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.\746\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\747\ 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,\748\ 
and convention.\749\
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    \746\ 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.
    \747\ 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).
    \748\ 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.
    \749\ Sec. 168.
---------------------------------------------------------------------------

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.\750\ In order to qualify, 
the property generally must be placed in service before January 
1, 2018.\751\
---------------------------------------------------------------------------
    \750\ Sec. 168(l).
    \751\ Sec. 168(l)(2)(D).
---------------------------------------------------------------------------
    The additional first-year depreciation deduction is allowed 
for both regular tax and alternative minimum tax purposes,\752\ 
but is not allowed in computing earnings and profits.\753\ 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.\754\
---------------------------------------------------------------------------
    \752\ Sec. 168(l)(5). Note that the corporate minimum tax was 
repealed for taxable years beginning after December 31, 2017. See Pub. 
L. No. 115-97, sec. 2001, December 22, 2017.
    \753\ Sec. 312(k)(3).
    \754\ Sec. 168(l)(1)(B).
---------------------------------------------------------------------------

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.\755\ Qualified feedstock means any lignocellulosic or 
hemicellulosic matter that is available on a renewable or 
recurring basis,\756\ and any cultivated algae, cyanobacteria, 
or lemna.\757\ Second generation biofuel does not include any 
alcohol with a proof of less than 150 or certain unprocessed 
fuel.\758\ 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.\759\
---------------------------------------------------------------------------
    \755\ Secs. 168(l)(2)(A) and 40(b)(6)(E).
    \756\ 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.
    \757\ Sec. 40(b)(6)(F).
    \758\ Sec. 40(b)(6)(E)(ii) and (iii).
    \759\ Sec. 40(b)(6)(E)(iii).
---------------------------------------------------------------------------
    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, 
2018.\760\ 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, 2018 (and all 
other requirements are met).\761\ 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.
---------------------------------------------------------------------------
    \760\ Sec. 168(l)(2). Requirements relating to actions taken before 
2007 are not described herein since they have little (if any) remaining 
effect.
    \761\ Sec. 168(l)(4) and (k)(2)(E).
---------------------------------------------------------------------------

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,\762\ (ii) any property 
required to be depreciated under the alternative depreciation 
system of section 168(g),\763\ (iii) any property any portion 
of which is financed with the proceeds of a tax-exempt 
obligation under section 103,\764\ 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).\765\
---------------------------------------------------------------------------
    \762\ Sec. 168(l)(3)(A).
    \763\ Sec. 168(l)(3)(B).
    \764\ Sec. 168(l)(3)(C).
    \765\ Sec. 168(l)(7).
---------------------------------------------------------------------------
    A taxpayer may elect out of the additional first-year 
depreciation for any class of property for any taxable 
year.\766\
---------------------------------------------------------------------------
    \766\ Sec. 168(l)(3)(D).
---------------------------------------------------------------------------
    In addition, recapture rules apply if the property ceases 
to be qualified second generation biofuel plant property.\767\
---------------------------------------------------------------------------
    \767\ Sec. 168(l)(6).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the special depreciation allowance 
for three years, to qualified second generation biofuel plant 
property placed in service prior to January 1, 2021.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2017.

11. Energy efficient commercial buildings deduction (sec. 131 of the 
        Act and sec. 179D of the Code)

                              Present Law


In general

    Section 179D permits a taxpayer an immediate deduction 
equal to energy-efficient commercial building property 
expenditures made by the taxpayer. Energy-efficient commercial 
building property is defined as property (1) which is installed 
on or in any building located in the United States that is 
within the scope of Standard 90.1-2007 of the American Society 
of Heating, Refrigerating, and Air Conditioning Engineers and 
the Illuminating Engineering Society of North America 
(``ASHRAE/IESNA''), (2) which is installed as part of (i) the 
interior lighting systems, (ii) the heating, cooling, 
ventilation, and hot water systems, or (iii) the building 
envelope, and (3) which is certified as being installed as part 
of a plan designed to reduce the total annual energy and power 
costs with respect to the interior lighting systems, heating, 
cooling, ventilation, and hot water systems of the building by 
50 percent or more in comparison to a reference building which 
meets the minimum requirements of Standard 90.1-2007 (as in 
effect before the date of the adoption of ASHRAE/IESNA Standard 
90.1-2010). For each building, 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.\768\ Individuals qualified to determine 
compliance shall only be those recognized by one or more 
organizations certified by the Secretary for such 
purposes.\769\
---------------------------------------------------------------------------
    \768\ 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.
    \769\ The IRS has specified that only a ``qualified individual'' 
(as defined in section 5.05 of IRS Notice 2008-52) can certify that 
energy efficient building property has met the requirements of the 
section 179D deduction. A qualified individual is an individual who (1) 
is not related (within the meaning of section 45(e)(4)) to the taxpayer 
claiming the deduction under section 179D; (2) is an engineer or 
contractor that is properly licensed as a professional engineer or 
contractor in the jurisdiction in which the building is located; and 
(3) has represented in writing to the taxpayer that the qualified 
individual has the requisite qualifications to provide the 
certification required or to perform the inspection and testing 
required by IRS Notice 2008-40.
---------------------------------------------------------------------------
    For energy-efficient commercial building property 
expenditures made by a Federal, state, or local government or a 
political subdivision thereof, such as a public school, the 
deduction may be allocated to the person primarily responsible 
for designing the energy efficient commercial building property 
in lieu of the government or political subdivision thereof.
    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, 2018.

Partial allowance of deduction

            System-specific deductions
    In the case of a building that does not meet the overall 
building requirement of 50-percent energy savings, a partial 
deduction is allowed with respect to each separate building 
system that comprises energy efficient property and which is 
certified by a qualified individual \770\ 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.
---------------------------------------------------------------------------
    \770\ Ibid.
---------------------------------------------------------------------------
            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.\771\ 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.
---------------------------------------------------------------------------
    \771\ IRS Notice 2008-40, supra, set a target of a 10-percent 
reduction in total energy and power costs with respect to the building 
envelope, and 20 percent each with respect to the interior lighting 
system and the heating, cooling, ventilation and hot water systems. IRS 
Notice 2012-26 (2012-17 I.R.B. 847, April 23, 2012) established new 
targets of 10-percent reduction in total energy and power costs with 
respect to the building envelope, 25 percent with respect to the 
interior lighting system and 15 percent with respect to the heating, 
cooling, ventilation and hot water 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 three years, 
through December 31, 2020.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2017.

12. Special rule for sales or dispositions to implement FERC or State 
        electric restructuring policy for qualified electric utilities 
        (sec. 132 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.\772\ The realized 
gain is subject to current income tax \773\ unless the 
recognition of the gain is deferred or excluded from income 
under a special tax provision.\774\
---------------------------------------------------------------------------
    \772\ See sec. 1001.
    \773\ See secs. 61 and 451.
    \774\ 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 
\775\ (the ``reinvestment property'').\776\ 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.
---------------------------------------------------------------------------
    \775\ 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.
    \776\ 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, 2018.\777\ 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 \778\) with respect to the transmission 
facilities to which the election applies, and (2) an electric 
utility (as defined in the Federal Power Act \779\).\780\
---------------------------------------------------------------------------
    \777\ Sec. 451(k)(3).
    \778\ 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.
    \779\ 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.
    \780\ Sec. 451(k)(6).
---------------------------------------------------------------------------
    In general, an independent transmission company is defined 
as: (1) an independent transmission provider \781\ approved by 
the Federal Energy Regulatory Commission (``FERC''); (2) a 
person (i) who the FERC determines under section 203 of the 
Federal Power Act \782\ (or by declaratory order) is not a 
``market participant'' and (ii) whose transmission facilities 
are placed under the operational control of a FERC-approved 
independent transmission provider no later than four years 
after the close of the taxable year in which the transaction 
occurs; or (3) in the case of facilities subject to the 
jurisdiction of the Public Utility Commission of Texas, (i) a 
person which is approved by that Commission as consistent with 
Texas State law regarding an independent transmission 
organization, or (ii) a political subdivision, or affiliate 
thereof, whose transmission facilities are under the 
operational control of an organization described in (i).\783\
---------------------------------------------------------------------------
    \781\ For example, a regional transmission organization, an 
independent system operator, or an independent transmission company.
    \782\ 16 U.S.C. sec. 824b.
    \783\ 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).\784\ 
Exempt utility property does not include any property that is 
located outside of the United States.\785\
---------------------------------------------------------------------------
    \784\ Sec. 451(k)(5).
    \785\ 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).\786\
---------------------------------------------------------------------------
    \786\ Sec. 451(k)(7).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for three years, through December 31, 
2020, the deferral provision for qualifying electric 
transmission transactions.

                             Effective Date

    The provision applies to dispositions after December 31, 
2017.

   13. Extension and clarification of excise tax credits relating to 
 alternative fuels (sec. 133 of the Act and secs. 6426 and 6427 of the 
                                 Code)


                              Present Law

    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. 
``Alternative fuel'' also does not include fuel (including 
lignin, wood residues, or spent pulping liquors) derived from 
the production of paper or pulp.
    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 \787\ 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.
---------------------------------------------------------------------------
    \787\ ``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.\788\ 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, 
2017.
---------------------------------------------------------------------------
    \788\ It has been argued that, for purposes of the alternative fuel 
mixture credit, butane is liquefied petroleum gas. The term ``liquefied 
petroleum gas'' is not defined for purposes of section 6426. Butane is 
a gasoline blendstock under section 48.4081-1(c)(3)(i) of the Treasury 
regulations and, therefore, is gasoline for purposes of section 4083. 
In Revenue Ruling 2018-2, the Internal Revenue Service determined that 
butane is not an alternative fuel but is a gasoline blendstock as 
defined in the regulations. As a result, a mixture of butane and 
gasoline is a mixture of two taxable fuels. The IRS held that it is not 
an alternative fuel mixture and does not qualify for the alternative 
fuel mixture credit.
---------------------------------------------------------------------------
    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. 
The payment provision for alternative fuel expired after 
December 31, 2017.

                        Explanation of Provision

    The provision extends the alternative fuel credit and 
related payment provisions, and the alternative fuel mixture 
credit through December 31, 2020.
    The provision creates a special rule to address claims 
regarding excise tax credits and claims for payment for 
alternative fuel sold or used during the period beginning on 
January 1, 2018, through the close of the last calendar quarter 
beginning before the date of enactment. 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 those periods. 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.
    The provision also makes it clear that for purposes of the 
alternative fuel mixtures credit, an alternative fuel mixture 
is not a mixture that includes liquefied petroleum gas, 
compressed or liquefied natural gas, or compressed or liquefied 
gas derived from biomass.

                             Effective Date

    The provision generally applies to fuel sold or used after 
December 31, 2017. The clarification applies to fuel sold or 
used on or after the date of enactment, and to fuel sold or 
used before such date of enactment, but only to the extent that 
credits and claims of credit under section 6426(e) (relating to 
the alternative fuel mixture credit) with respect to such sale 
or use have not been paid or allowed as of such date and were 
made on or after January 8, 2018.
    Nothing contained in, or amendments made by, the provision 
is to be construed to create any inference as to a change in 
law or guidance in effect prior to enactment of the 
provision.\789\
---------------------------------------------------------------------------
    \789\ See Senators Grassley (Iowa) and Wyden (Oregon), 
``Alternative Fuel Mixture Credit,'' Cong. Rec. 165:206, December 19, 
2019, p. S7185. ``Mr. GRASSLEY: I do agree. The IRS got the law correct 
when it issued Revenue Ruling 2018-2, and our clarification makes clear 
that it is our intent for the IRS interpretation of the law to be 
controlling for all claims. This is the basis of the ``no inference'' 
language in the bill that states: `Nothing contained in this subsection 
or the amendments made by this subsection shall be construed to create 
any inference as to a change in law or guidance in effect prior to 
enactment of this subsection.' ''
---------------------------------------------------------------------------

14. Oil Spill Liability Trust Fund rate (sec. 134 of the Act and sec. 
        4611 of the Code)

                              Present Law

    The Oil Spill Liability Trust Fund financing rate (``oil 
spill tax'') was nine cents per barrel. It 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.\790\ The oil spill tax also applies to certain 
uses and the exportation of domestic crude oil.\791\ 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.
---------------------------------------------------------------------------
    \790\ The term ``crude oil'' includes crude oil condensates and 
natural gasoline. The term ``petroleum product'' includes crude oil.
    \791\ 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, 
2018.

                        Explanation of Provision

    The provision extends the oil spill tax through December 
31, 2020.

                             Effective Date

    The provision applies beginning on the first day of the 
first calendar month beginning after the date of enactment 
(December 20, 2019).\792\
---------------------------------------------------------------------------
    \792\ The tax is reinstated for the period beginning on January 1, 
2020, and ending on December 31, 2020.
---------------------------------------------------------------------------

       Subtitle D--Certain Provisions Expiring at the End of 2019


1. New markets tax credit (sec. 141 of the Act and sec. 45D of the 
        Code)

                              Present Law


In general

    The New Markets Tax Credit (``NMTC'') is a geography-based 
tax credit program. Under section 45D(a), an investor may claim 
tax credits for a qualified equity investment in a qualified 
community development entity (``CDE''). The qualified CDE 
designates equity investments as qualified equity investments, 
rendering the investor eligible to receive tax credits. The 
qualified CDE can only designate up to an amount allocated to 
it by the Department of the Treasury's Community Development 
Financial Institutions Fund (``CDFI Fund''). The CDFI Fund 
allocates amounts to qualified CDEs through a competitive 
application process.
    The amount of the NMTC is determined on a credit allowance 
date as an amount equal to the applicable percentage of the 
investment in the qualified CDE on that date. The applicable 
percentage is five percent for the first three years of the 
investment and six percent for the remaining four years, for a 
total credit of 39 percent over seven years. The credit 
allowance date is the date of the investment and the next six 
anniversary dates of the investment.
    To continue to be eligible for tax credits, the taxpayer 
must continue to hold the qualified equity investment on the 
credit allowance date of each year. In other words, if the 
qualified equity investment ceases, or ceases to be qualified, 
the remaining tax credits are no longer allowed. The credits 
already claimed may also be subject to recapture if the CDE 
ceases to be qualified, if the proceeds of the investment cease 
to be used in a qualified manner, or if the taxpayer redeems 
its qualified equity investment.
    Regulated financial institutions provide most of the equity 
for NMTC transactions. In addition to receiving the NMTC, 
financial institutions often receive credit under the Community 
Reinvestment Act for investing in low-income census tracts.
    Substantially all the qualified equity investment must be 
used by the qualified CDE to provide investments in low-income 
communities through qualified active low-income community 
businesses.

Qualifying geography

    The NMTC provisions require CDEs to serve or provide 
investment capital for low-income communities or low-income 
persons. A low-income community is either (1) a population 
census tract that meets certain criteria or (2) a specific area 
designated by the Secretary. Specifically, a ``low-income 
community'' is a population census tract with either (1) a 
poverty rate of at least 20 percent or (2) median family income 
which does not exceed 80 percent of the greater of metropolitan 
area median family income or statewide median family income 
(for a 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. In 
addition, a population census tract with a population of less 
than 2,000 is treated as a low-income community for purposes of 
the NMTC if such tract is within an empowerment zone (the 
designation of which is in effect under section 1391) and is 
contiguous to one or more low-income communities.
    CDEs may also qualify for the NMTC if they serve targeted 
populations, as designated by the Secretary, regardless of the 
composition of the population census tract or tracts in which 
the targeted populations live. 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 80 percent of 
the area median family income or 80 percent of the statewide 
nonmetropolitan area median family income.

Project structures

    In a typical NMTC structure, an intermediary entity (the 
``investment fund LLC'') receives equity investments from 
investors (usually financial institutions) and debt from other 
sources. The investment fund LLC's proceeds are then invested 
as equity investment into a qualified CDE. The qualified CDE in 
turn makes a qualified low-income community investment in a 
qualified active low-income community business.
    A qualified CDE is any domestic corporation or partnership: 
(1) whose primary mission is serving or providing investment 
capital for low-income communities or low-income persons; (2) 
that maintains accountability to residents of low-income 
communities by their representation on any governing board of 
or any advisory board to the CDE; and (3) that is certified by 
the Secretary as being a qualified CDE. A qualified equity 
investment means stock (other than nonqualified preferred 
stock) in a corporation or a capital interest in a partnership 
that is acquired directly from a CDE for cash and includes an 
investment of a subsequent purchaser if such investment was a 
qualified equity investment in the hands of the prior holder. 
Substantially all the investment proceeds must be used by the 
CDE to make qualified low-income community investments. For 
this purpose, qualified low-income community investments 
include: (1) capital or equity investments in, or loans to, 
qualified low income community businesses; (2) certain 
financial counseling and other services to businesses and 
residents in low-income communities; (3) the purchase from 
another CDE of any loan made by such entity that is a qualified 
low-income community investment; or (4) an equity investment 
in, or loan to, another CDE.
    Although equity investments in qualified active low-income 
community businesses qualify under the NMTC rules, generally, 
such investments are in the form of loans. Equity investors 
that own a majority interest in a low-income community business 
can have their NMTC credits recaptured if the business violates 
the rules for qualification. However, Treasury regulations 
provide a ``reasonable expectation'' safe harbor for CDEs that 
lend to such a business; if the CDE ``reasonably expects'' that 
the rules are being satisfied, NMTC credits are not subject to 
recapture.\793\
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    \793\ Treas. Reg. sec. 1.45(D)-1(d)(6)(i).
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    A qualified active low-income community business is defined 
as a business that satisfies, with respect to a taxable year, 
the following requirements: (1) at least 50 percent of the 
total gross income of the business is derived from the active 
conduct of trade or business activities in any low-income 
community; (2) a substantial portion of the tangible property 
of such business is used in a low-income community; (3) a 
substantial portion of the services performed for such business 
by its employees is performed in a low-income community; and 
(4) less than five percent of the average of the aggregate 
unadjusted bases of the property of such business is 
attributable to certain financial property or to certain 
collectibles.

Allocation process

    The CDFI Fund annually allocates NMTCs to CDEs under a 
competitive application process. CDEs, in turn, allocate NMTCs 
to equity investors. The maximum annual amount of NMTCs that 
the CDFI Fund can allocate is $3.5 billion for calendar years 
2010 through 2019. No amount of unused allocation limitation 
may be carried to any calendar year after 2024.
    For the 2018 allocation application round, the CDFI Fund 
awarded 73 CDEs $3.5 billion in NMTCs from a total of 214 
applications requesting $14.8 billion.\794\ The successful CDE 
applicants focused on different types of investments and 
geographic areas, including financing projects ranging from 
large manufacturing plants to grocery and retail stores.\795\
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    \794\ Information is available at https://www.cdfifund.gov/news/346 
(last visited June 29, 2021).
    \795\ For the 2019 allocation application round, the CDFI Fund 
awarded 76 CDEs more than $3.5 billion in NMTCs from a total of 206 
applications requesting $14.7 billion. Information is available at 
https://www.cdfifund.gov/news/385 (last visited June 29, 2021).
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    Applications for NMTCs are reviewed in two phases.\796\ In 
Phase 1, applications are reviewed, scored, and ranked based on 
two criteria: business strategy and community outcomes. 
Applicants that meet the minimum scoring thresholds in Phase 1 
advance to Phase 2 review and will be provided with 
``preliminary'' awards, in descending order of final rank 
score, until the available allocation authority is fulfilled. 
Final rank scores are determined by evaluating management 
capacity, capitalization strategy, and information regarding 
previous awards.
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    \796\ The 2019 NMTC program allocation application provides 
information on reviewer criteria throughout and is available at https:/
/www.cdfifund.gov/sites/cdfi/files/documents/2019-nmtc-program-
allocation-evaluation-process_508-compliant.pdf (last visited June 29, 
2021).
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    In Phase 1, in evaluating and scoring the business strategy 
criteria, the CDFI Fund is looking for a CDE to articulate, 
with specificity, its strategy to use an allocation and to 
describe a long track record serving low-income communities, 
and of providing products and services like those that it 
intends to provide through its investments. The CDE can earn 
``priority points'' if it has a track record of five or more 
years of experience providing capital and/or technical 
assistance to disadvantaged businesses and communities. For the 
community outcomes criteria, the CDFI Fund considers the extent 
to which the CDE is working in particularly economically 
distressed or otherwise underserved communities, shows that its 
projected financing activities will generate demonstrable 
community outcomes, and demonstrates meaningful engagement with 
community stakeholders when vetting potential investments. In 
general, the highest ranked applications provide specifics 
concerning job creation, community development benefits, and a 
track record of providing capital and/or technical assistance 
to disadvantaged businesses and communities.
    In Phase 2, management capacity is evaluated based on 
management experience in low-income communities, asset and risk 
management, and fulfilling government compliance requirements. 
Capitalization is evaluated based on an applicant's track 
record of raising capital, investor commitments (or a strategy 
to secure such commitments), plan to pass along the benefits of 
the credit to the underlying businesses, and willingness to 
invest in amounts that exceed the minimum statutory 
requirements. Applicants with prior year allocations are 
evaluated on their effective use of prior-year allocations and 
whether they have substantiated a need for additional 
allocation authority.

                        Explanation of Provision

    This provision extends the new markets tax credit for one 
year, through 2020, permitting up to $5 billion in qualified 
equity investments for the 2020 calendar year. The provision 
also extends for one year, through 2025, the carryover period 
for unused new markets tax credits.

                             Effective Date

    The provision applies to calendar years beginning after 
December 31, 2019.

2. Employer credit for paid family and medical leave (sec. 142 of the 
        Act and sec. 45S of the Code)

                              Present Law


In general

    The Family and Medical Leave Act of 1993, as amended (the 
``FMLA''), generally requires employers to provide employees 
with up to 26 weeks of leave under certain circumstances.\797\ 
In general, FMLA does not require that the employer continue to 
pay employees during such leave, although employers may choose 
to pay for all or a portion of such leave. State and local 
governments may provide, or State and local laws may require 
employers to provide, employees with up to a certain amount of 
paid leave for types of leave that may or may not fall under 
the FMLA.
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    \797\ Pub. L. No. 103-3, Feb. 5, 1993.
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Employer credit for paid family and medical leave

    For wages paid in taxable years beginning after December 
31, 2017, and before January 1, 2020, ``eligible employers'' 
may claim a general business credit equal to 12.5 percent of 
the amount of eligible wages (based on the normal hourly wage 
rate) paid to ``qualifying employees'' during any period in 
which such employees are on ``family and medical leave'' if the 
rate of payment under the program is 50 percent of the wages 
normally paid to an employee for actual services performed for 
the employer.\798\ The credit is increased by 0.25 percentage 
points (but not above 25 percent) for each percentage point by 
which the rate of payment exceeds 50 percent. The maximum 
amount of family and medical leave that may be taken into 
account with respect to any qualifying employee for any taxable 
year is 12 weeks.
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    \798\ Wages for this purpose are Federal Unemployment Tax Act wages 
defined in section 3306(b), without regard to the dollar limitation, 
but do not include amounts taken into account for purposes of 
determining any other credit under subpart D of the Code.
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    An ``eligible employer'' is one which has in place a 
written policy that allows all qualifying full-time employees 
not less than two weeks of annual paid family and medical 
leave, and which allows all less-than-full-time qualifying 
employees a commensurate amount of leave (on a pro rata basis) 
compared to the leave provided to full-time employees. The 
policy must also provide that the rate of payment under the 
program is not less than 50 percent of the wages normally paid 
to any such employee for services performed for the employer.
    In addition, in order to be an eligible employer, the 
employer is prohibited from certain practices or acts which are 
also prohibited under the FMLA, regardless of whether the 
employer is subject to the FMLA. Specifically, the employer 
must provide paid family and medical leave in compliance with a 
written policy that ensures that the employer will not 
interfere with, restrain, or deny the exercise of or the 
attempt to exercise, any right provided under the policy and 
will not discharge or in any other manner discriminate against 
any individual for opposing any practice prohibited by the 
policy.
    A ``qualifying employee'' means any individual who is an 
employee under tax rules and principles and is defined in 
section 3(e) of the Fair Labor Standards Act of 1938,\799\ as 
amended, who has been employed by the employer for one year or 
more, and who for the preceding year, had compensation not in 
excess of 60 percent of the compensation threshold in such year 
for highly compensated employees.\800\ For 2020, this 60 
percent amount is $78,000.
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    \799\ Pub. L. No. 75-718, June 25, 1938.
    \800\ Sec. 414(q)(1)(B) ($130,000 for 2020).
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    ``Family and medical leave'' for purposes of new section 
45S is generally defined as leave described under sections 
102(a)(1)(A)-(E) or 102(a)(3) of the FMLA.\801\ If an employer 
provides paid leave as vacation leave, personal leave, or other 
medical or sick leave \802\ (unless the medical or sick leave 
is specifically for one or more of the ``family and medical 
leave'' purposes defined above), such paid leave would not be 
considered to be family and medical leave. In addition, leave 
paid for by a State or local government or required by State or 
local law (including such leave required to be paid by the 
employer) is not taken into account in determining the amount 
of paid family and medical leave provided by the employer that 
is eligible for the credit.
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    \801\ FMLA section 102(a)(1) provides leave for FMLA purposes due 
to (A) the birth of a son or daughter of the employee and in order to 
care for such son or daughter; (B) the placement of a son or daughter 
with the employee for adoption or foster care; (C) caring for the 
spouse, or a son, daughter, or parent, of the employee, if such spouse, 
son, daughter, or parent has a serious health condition; (D) a serious 
health condition that makes the employee unable to perform the 
functions of the employee's position; (E) any qualifying exigency (as 
the Secretary of Labor shall, by regulation, determine) arising out of 
the fact that the spouse, or a son, daughter, or parent of the employee 
is on covered active duty (or has been notified of an impending call or 
order to covered active duty) in the Armed Forces. In addition, FMLA 
section 102(a)(3) provides leave for FMLA purposes due to the need of 
an employee who is a spouse, son, daughter, parent, or next-of-kin of 
an eligible service member to care for such service member.
    \802\ These terms mean these types of leave within the meaning of 
FMLA section 102(d)(2).
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    The Secretary will make determinations as to whether an 
employer or an employee satisfies the applicable requirements 
for an eligible employer or qualifying employee, based on 
information provided by the employer that the Secretary 
determines to be necessary or appropriate.

                        Explanation of Provision

    The provision extends the paid family and medical leave 
credit for one year (for wages paid in taxable years beginning 
after December 31, 2019, and before January 1, 2021).

                             Effective Date

    The provision applies to wages paid in taxable years 
beginning after December 31, 2019.

3. Work opportunity credit (sec. 143 of the Act and sec. 51 of the 
        Code)

                              Present Law


In general

    The work opportunity tax credit is available on an elective 
basis for employers hiring individuals from one or more of ten 
targeted groups. The amount of the credit available to an 
employer is determined by the amount of qualified wages paid by 
the employer. Generally, qualified wages consist of wages 
attributable to service rendered by a member of a targeted 
group during the one-year period beginning with the day the 
individual begins work for the employer (two years in the case 
of an individual in the long-term family assistance recipient 
category).
            Targeted groups eligible for the credit
    Generally, an employer is eligible for the credit only with 
respect to qualified wages paid to members of a targeted group.
            (1) Families receiving TANF
    An eligible recipient is an individual certified by the 
designated local agency (e.g., a State employment security 
agency) as being a member of a family eligible to receive 
benefits under the Temporary Assistance for Needy Families 
Program (``TANF'') for a period of at least nine months, part 
of which is during the 18-month period ending on the hiring 
date. For these purposes, members of the family are defined to 
include only those individuals who are taken into account for 
purposes of determining eligibility for the TANF.
            (2) Qualified veteran
    A qualified veteran is a veteran who is certified by the 
designated local agency as belonging to one of five categories: 
(1) a member of a family eligible to receive assistance under a 
supplemental nutritional assistance program (for at least a 
three-month period during the year prior to the hiring date); 
(2) entitled to compensation for a service-connected disability 
and hired within one year of discharge; (3) entitled to 
compensation for a service-connected disability and unemployed 
for an aggregate of at least six months during the one-year 
period ending on the hiring date; (4) unemployed for at least 
four weeks but less than six months (whether or not 
consecutive) during the one-year period ending on the date of 
hiring; or (5) unemployed for at least six months (whether or 
not consecutive) during the one-year period ending on the date 
of hiring.
    A veteran is an individual who has served on active duty 
(other than for training) in the Armed Forces for more than 180 
days or who has been discharged or released from active duty in 
the Armed Forces for a service-connected disability. However, 
any individual who has served for a period of more than 90 days 
during which the individual was on active duty (other than for 
training) is not a qualified veteran if any of this active duty 
occurred during the 60-day period ending on the date the 
individual was hired by the employer. This latter rule is 
intended to prevent employers who hire current members of the 
armed services (or those departed from service within the last 
60 days) from receiving the credit.
            (3) Qualified ex-felon
    A qualified ex-felon is an individual certified by the 
designated local agency as (1) having been convicted of a 
felony under any State or Federal law; and (2) having a hiring 
date within one year of release from prison or the date of 
conviction.
            (4) Designated community resident
    A designated community resident is an individual certified 
by the designated local agency as being at least age 18 but not 
yet age 40 on the hiring date and as having a principal place 
of abode within an empowerment zone, enterprise community, 
renewal community, or a rural renewal county. For these 
purposes, a rural renewal county is a county outside a 
metropolitan statistical area (as defined by the Office of 
Management and Budget) that had a net population loss for each 
of the five-year periods 1990-1994 and 1995-1999. Qualified 
wages do not include wages paid or incurred for services 
performed while the individual's principal place of abode is 
outside an empowerment zone, enterprise community, renewal 
community or a rural renewal county.
            (5) Vocational rehabilitation referral
    A vocational rehabilitation referral is an individual who 
is certified by the designated local agency as an individual 
who has a physical or mental disability that constitutes a 
substantial handicap to employment and who has been referred to 
the employer while receiving, or after completing vocational 
rehabilitation services: (1) under an individualized, written 
plan for employment under a State plan approved under the 
Rehabilitation Act of 1973; (2) under a rehabilitation plan for 
veterans carried out under Chapter 31 of Title 38, U.S. Code; 
or (3) under an individual work plan developed and implemented 
by an employment network pursuant to subsection (g) of section 
1148 of the Social Security Act. Certification is provided by 
the designated local agency upon assurances from the vocational 
rehabilitation agency that the employee has met the above 
conditions.
            (6) Qualified summer youth employee
    A qualified summer youth employee is an individual: (1) who 
performs services during any 90-day period between May 1 and 
September 15; (2) who is certified by the designated local 
agency as being 16 or 17 years of age on the hiring date; (3) 
who has not been an employee of that employer before; and (4) 
who is certified by the designated local agency as having a 
principal place of abode within an empowerment zone, enterprise 
community, or renewal community. As with designated community 
residents, no credit is available for wages paid or incurred 
for service performed while the individual's principal place 
abode is outside an empowerment zone, enterprise community, or 
renewal community. If, after the end of the 90-day period, the 
employer continues to employ a youth who was certified during 
the 90-day period as a member of another targeted group, the 
limit on qualified first-year wages takes into account wages 
paid to the youth while a qualified summer youth employee.
            (7) Qualified supplemental nutrition assistance program 
                    benefits recipient
    A qualified supplemental nutrition assistance program 
benefits recipient is an individual at least age 18 but not yet 
age 40 certified by the designated local agency as being a 
member of a family receiving assistance under a food and 
nutrition program under the Food and Nutrition Act of 2008 for 
a period of at least six months ending on the hiring date. In 
the case of a family that ceases to be eligible for food and 
nutrition assistance under section 6(o) of the Food and 
Nutrition Act of 2008, the six-month requirement is replaced 
with a requirement that the family has been receiving food and 
nutrition assistance for at least three of the five months 
ending on the date of hire. For these purposes, members of the 
family are defined to include only those individuals taken into 
account for purposes of determining eligibility for a food and 
nutrition assistance program under the Food and Nutrition Act 
of 2008.
            (8) Qualified SSI recipient
    A qualified SSI recipient is an individual designated by 
the designated local agency as receiving supplemental security 
income (``SSI'') benefits under Title XVI of the Social 
Security Act for any month ending within the 60-day period 
ending on the hiring date.
            (9) Long-term family assistance recipient
    A qualified long-term family assistance recipient is an 
individual certified by the designated local agency as being: 
(1) a member of a family that has received family assistance 
for at least 18 consecutive months ending on the hiring date; 
(2) a member of a family that has received such family 
assistance for a total of at least 18 months (whether or not 
consecutive) after August 5, 1997 (the date of enactment of the 
welfare-to-work tax credit) if the individual is hired within 
two years after the date that the 18-month total is reached; or 
(3) a member of a family who is no longer eligible for family 
assistance because of either Federal or State time limits, if 
the individual is hired within two years after the Federal or 
State time limits made the family ineligible for family 
assistance.
            (10) Long-term unemployment recipient
    A qualified long-term unemployment recipient is an 
individual certified by the designated local agency as being in 
a period of unemployment which: (1) is 27 consecutive weeks or 
more; and (2) includes a period in which the individual was 
receiving unemployment compensation under State or Federal law.

Qualified wages

    Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. The employer's 
deduction for wages is reduced by the amount of the 
credit.\803\
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    \803\ Sec. 280C(a).
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    For purposes of the credit, generally, wages are defined by 
reference to the FUTA definition of wages contained in sec. 
3306(b) (without regard to the dollar limitation therein 
contained). Special rules apply in the case of certain 
agricultural labor and certain railroad labor.

Calculation of the credit

    The credit available to an employer for qualified wages 
paid to members of all targeted groups except for long-term 
family assistance recipients equals 40 percent (25 percent for 
employment of 400 hours or less) of qualified first-year wages. 
Generally, qualified first-year wages are qualified wages (not 
in excess of $6,000) attributable to service rendered by a 
member of a targeted group during the one-year period beginning 
with the day the individual began work for the employer. 
Therefore, the maximum per-employee credit is $2,400 (40 
percent of the first $6,000 of qualified first-year wages).
    The general $6,000 limitation on qualified first-year wages 
is different for certain targeted groups: (1) qualified summer 
youth employees; (2) qualified veterans who are entitled to 
compensation for a service-connected disability, and who are 
hired within one year of discharge; (3) qualified veterans who 
are entitled to compensation for a service-connected 
disability, and who have been unemployed for an aggregate of at 
least six months during the one-year period ending on the 
hiring date; (4) qualified veterans unemployed for at least six 
months (whether or not consecutive) during the one-year period 
ending on the date of hiring; and (5) long-term family 
assistance recipients. The maximum per-employee credit (and 
limitation on qualified wages) for a member of each of the 
first four of these groups is, respectively: (1) $1,200 (40 
percent of the first $3,000 of qualified first-year wages); (2) 
$4,800 (40 percent of the first $12,000 of qualified first-year 
wages); (3) $9,600 (40 percent of the first $24,000 of 
qualified first-year wages); and (4) $5,600 (40 percent of the 
first $14,000 of qualified first-year wages).
    In the case of long-term family assistance recipients, the 
credit equals 40 percent (25 percent for employment of 400 
hours or less) of $10,000 for qualified first-year wages and 50 
percent of the first $10,000 of qualified second-year wages. 
Generally, qualified second-year wages are qualified wages (not 
in excess of $10,000) attributable to service rendered by a 
member of the long-term family assistance category during the 
one-year period beginning on the day after the one-year period 
beginning with the day the individual began work for the 
employer. Therefore, the maximum credit per employee is $9,000 
(40 percent of the first $10,000 of qualified first-year wages 
plus 50 percent of the first $10,000 of qualified second-year 
wages). Except for long-term family assistance recipients, no 
credit is allowed for second-year wages.

Certification rules

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

Minimum employment period

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

Qualified tax-exempt organizations employing qualified veterans

    The credit is not available to qualified tax-exempt 
organizations other than those employing qualified veterans. If 
a qualified tax-exempt organization employs a qualified veteran 
(as described above) a tax credit against the FICA taxes of the 
organization is allowed for the wages of the qualified veteran 
which are paid for the veteran's services in furtherance of the 
activities related to the function or purpose constituting the 
basis of the organization's exemption under section 501.\804\
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    \804\ Sec. 3111(e).
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    The credit available to a tax-exempt employer for qualified 
wages paid to a qualified veteran equals 26 percent (16.25 
percent for employment of 400 hours or less) of qualified 
first-year wages. The amount of qualified first-year wages 
eligible for the credit is the same as those for non-tax-exempt 
employers (i.e., $6,000, $12,000, $14,000 or $24,000, depending 
on the category of qualified veteran).
    A qualified tax-exempt organization means an employer that 
is described in section 501(c) and exempt from tax under 
section 501(a).
    The Social Security Trust Funds are held harmless from the 
effects of this provision by a transfer from the Treasury 
General Fund.

Treatment of possessions

    The ``VOW to Hire Heroes Act of 2011'' (the ``VOW Act'') 
\805\ provides a reimbursement mechanism for the U.S. 
possessions (American Samoa, Guam, the Commonwealth of the 
Northern Mariana Islands, the Commonwealth of Puerto Rico, and 
the United States Virgin Islands). The Secretary pays to each 
mirror Code possession (Guam, the Commonwealth of the Northern 
Mariana Islands, and the United States Virgin Islands) an 
amount equal to the loss to that possession as a result of the 
VOW Act changes to the qualified veterans rules.\806\ 
Similarly, the Secretary pays to each non-mirror Code 
possession (American Samoa and the Commonwealth of Puerto Rico) 
the amount that the Secretary estimates as being equal to the 
loss to that possession that would have occurred as a result of 
the VOW Act changes if a mirror Code tax system had been in 
effect in that possession. The Secretary makes this payment to 
a non-mirror Code possession only if that possession 
establishes to the satisfaction of the Secretary that the 
possession has implemented (or, at the discretion of the 
Secretary, will implement) an income tax benefit that is 
substantially equivalent to the qualified veterans credit 
allowed under the VOW Act modifications.
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    \805\ Pub. L. No. 112-56.
    \806\ Prior to enactment of the VOW Act, there were two categories 
of qualified veterans to whom wages paid by an employer were eligible 
for the credit. Employers that hired veterans who were eligible to 
receive assistance under a supplemental nutritional assistance program 
were entitled to a maximum credit of 40 percent of $6,000 of qualified 
first-year wages paid to such individual. Employers that hired veterans 
who were entitled to compensation for a service-connected disability 
were entitled to a maximum wage credit of 40 percent of $12,000 of 
qualified first-year wages paid to such individual. The VOW Act 
expanded the work opportunity tax credit with respect to qualified 
veterans resulting in the present-law treatment of qualified veterans 
described above.
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    An employer that is allowed a credit against U.S. tax under 
the VOW Act with respect to a qualified veteran must reduce the 
amount of the credit claimed by the amount of any credit (or, 
in the case of a non-mirror Code possession, another tax 
benefit) that the employer claims against its possession income 
tax.

Other significant rules

    The work opportunity tax credit is not allowed for wages 
paid to a relative or dependent of the taxpayer. No credit is 
allowed for wages paid to an individual who is a more than 50-
percent owner of the entity. Similarly, wages paid to 
replacement workers during a strike or lockout are not eligible 
for the work opportunity tax credit. Wages paid to any employee 
during any period for which the employer received on-the-job 
training program payments with respect to that employee are not 
eligible for the work opportunity tax credit. The work 
opportunity tax credit generally is not allowed for wages paid 
to individuals who were previously employed by the employer.

Expiration

    The work opportunity tax credit is not available for 
individuals who begin work for an employer after December 31, 
2019.

                        Explanation of Provision

    The provision extends for one year the work opportunity tax 
credit making it available with respect to individuals who 
begin work for an employer before January 1, 2021.

                             Effective Date

    The provision generally applies to individuals who begin 
work for an employer after December 31, 2019.

  4. Certain provisions related to beer, wine, and distilled spirits 
(sec. 144 of the Act and secs. 263A, 5001, 5041, 5051, 5212, 5415, and 
                           5555 of the Code)


Exemption for aging process of beer, wine, and distilled spirits

                              Present Law

    The uniform capitalization (``UNICAP'') rules require 
certain direct and indirect costs allocable to real property or 
tangible personal property produced by the taxpayer to be 
included in either inventory or capitalized into the basis of 
such property, as applicable. For real or personal property 
acquired by the taxpayer for resale, section 263A generally 
requires certain direct and indirect costs allocable to such 
property to be included in inventory.\807\
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    \807\ Sec. 263A. Note that a taxpayer that meets the gross receipts 
test of section 448(c) is generally exempt from the application of 
section 263A. See sec. 263A(i). The gross receipts test looks to 
whether the average annual gross receipts for the three-taxable-year 
period ending with the prior taxable year is under a threshold amount 
($26 million for 2020). See sec. 448(c) and Rev. Proc. 2019-44, 2019-47 
I.R.B. 1093.
---------------------------------------------------------------------------
    In the case of interest expense, the UNICAP rules apply 
only to interest paid or incurred during the property's 
production period \808\ and that is allocable to property 
produced by the taxpayer or acquired for resale which (1) is 
either real property or property with a class life of at least 
20 years, (2) has an estimated production period exceeding two 
years, or (3) has an estimated production period exceeding one 
year and a cost exceeding $1,000,000.\809\ The production 
period with respect to any property is the period beginning on 
the date on which production of the property begins,\810\ and, 
except as described below, ending on the date on which the 
property is ready to be placed in service or held for 
sale.\811\
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    \808\ See Treas. Reg. sec. 1.263A-12.
    \809\ Sec. 263A(f).
    \810\ In the case of tangible personal property, the production 
period begins on the first date the taxpayer's accumulated production 
expenditures, including planning and design expenditures, are at least 
five percent of the taxpayer's total estimated accumulated production 
expenditures for the property unit. Treas. Reg. sec. 1.263A-12(c)(3). 
Thus, the production period may begin before physical production 
activity has commenced. See Treas. Reg. sec. 1.263A-12(c)(3). For 
example, in the case of the beer, wine, and distilled spirits 
industries, the production period may include time spent planning and 
designing ingredients, production space, or production personnel.
    \811\ Sec. 263A(f)(5)(B). The production period for a unit of 
property produced for sale ends on the date that the unit is ready to 
be held for sale and all production activities reasonably expected to 
be undertaken by, or for, the taxpayer or a related person are 
complete. Treas. Reg. sec. 1.263A-12(d)(1).
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    For interest costs paid or accrued after December 31, 2017, 
and before January 1, 2020, the aging period for beer,\812\ 
wine,\813\ or distilled spirits \814\ is excluded from the 
production period as determined for purposes of the UNICAP 
interest capitalization rules. Thus, producers of beer, wine, 
or distilled spirits (other than spirits unfit for beverage 
purposes) are able to deduct interest expenses (subject to any 
other applicable limitation) attributable to a shorter 
production period that does not include the aging period of 
beer, wine, or distilled spirits. In the case of interest costs 
paid or accrued after December 31, 2019, the production period 
as determined for purposes of the UNICAP interest 
capitalization rules will include the aging period for beer, 
wine, or distilled spirits.
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    \812\ As defined in section 5052(a).
    \813\ As defined in section 5041(a).
    \814\ As defined in section 5002(a)(8), except such spirits that 
are unfit for use for beverage purposes.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year (i.e., through December 
31, 2020) the exclusion of the aging period for beer, wine, or 
distilled spirits from the production period as determined for 
purposes of the UNICAP interest capitalization rules.

                             Effective Date

    The provision applies to interest costs paid or accrued 
after December 31, 2019.

Reduced rate of excise tax on beer and transfer of beer between bonded 
        facilities

                              Present Law


In general

    Federal excise taxes are imposed at different rates on 
distilled beer, wine, and distilled spirits and are imposed on 
these products when produced or imported. Generally, these 
excise taxes are administered and enforced by the Alcohol and 
Tobacco Tax and Trade Bureau (``TTB''), except the taxes on 
imported bottled beer, wine, and distilled spirits are 
collected by the Customs and Border Protection Bureau (the 
``CBP'') of the Department of Homeland Security (under 
delegation by the Secretary).\815\
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    \815\ Bulk (non-bottled) beer, wine, and distilled spirits may be 
imported and transferred in bond free of tax. See secs. 5232, 5364, and 
5418. TTB collects tax on such items when they are removed from bond.
---------------------------------------------------------------------------
    Liability for the excise tax on beer arises when the 
alcohol is produced or imported but is not payable until the 
beer is removed from the brewery or customs custody for 
consumption or sale. Generally, beer may be transferred between 
commonly owned breweries without payment of tax; however, tax 
liability follows these products. Imported bulk beer may be 
released from customs custody without payment of tax and 
transferred in bond to a brewery, which becomes liable for the 
tax on such beer. Beer may be exported without payment of tax 
and may be withdrawn from a brewery without payment of tax or 
free of tax for certain authorized uses, including industrial 
uses and non-beverage uses.\816\
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    \816\ Sec. 5053.
---------------------------------------------------------------------------
    Notwithstanding the current, temporary rates described 
below, the rate of tax on beer is $18 per barrel.\817\ Small 
brewers are eligible for a reduced tax rate of $7 per barrel on 
the first 60,000 barrels of beer domestically produced and 
removed each year.\818\ Small brewers are defined as brewers 
producing not more than two million barrels of beer during a 
calendar year. The lower rates for small producers reduce the 
effective per-gallon tax rate from approximately 58 cents per 
gallon to approximately 22.6 cents per gallon for this beer.
---------------------------------------------------------------------------
    \817\ Sec. 5051. One barrel of beer is equal to 31 gallons.
    \818\ Sec. 5051(a)(2).
---------------------------------------------------------------------------
    In the case of a controlled group, the two million barrel 
limitation for small brewers is applied to the controlled 
group, and the 60,000 barrels eligible for the reduced rate of 
tax, are apportioned among the brewers that are component 
members of such group. The term ``controlled group'' has the 
meaning assigned to it by section 1563(a), except that the 
phrase ``more than 50 percent'' is substituted for the phrase 
``at least 80 percent'' in each place it appears in section 
1563(a).
    Individuals may produce limited quantities of beer for 
personal or family use without payment of tax during each 
calendar year. The limit is 200 gallons per calendar year for 
households of two or more adults and 100 gallons per calendar 
year for single-adult households.
    For calendar years 2018 and 2019, the rate of tax on beer 
is temporarily lowered to $16 per barrel on the first six 
million barrels brewed by the brewer or imported by the 
importer. In general, in the case of a controlled group of 
brewers, the six million barrel limitation is applied and 
apportioned at the level of the controlled group. Beer brewed 
or imported in excess of the six million barrel limit continues 
to be taxed at $18 per barrel. In the case of small brewers, 
such brewers are taxed at a rate of $3.50 per barrel on the 
first 60,000 barrels domestically produced, and $16 per barrel 
on any further barrels produced.

Transfer rules and removals without tax

    Certain removals or transfers of beer are exempt from tax. 
Beer may be transferred without payment of the tax between 
bonded premises under certain conditions specified in the 
regulations.\819\ The tax liability accompanies the beer that 
is transferred in bond. However, beer may only be transferred 
without payment of tax between breweries if both breweries are 
owned by the same brewer.
---------------------------------------------------------------------------
    \819\ Sec. 5414.
---------------------------------------------------------------------------
    The shared ownership requirement of section 5414 is 
temporarily relaxed for calendar years 2018 and 2019. Thus, a 
brewer may transfer beer from one brewery to another without 
payment of tax, provided that: (i) the breweries are owned by 
the same person; (ii) one brewery owns a controlling interest 
in the other; (iii) the same person or persons have a 
controlling interest in both breweries; or (iv) the proprietors 
of the transferring and receiving premises are independent of 
each other, and the transferor has divested itself of all 
interest in the beer so transferred, and the transferee has 
accepted responsibility for payment of the tax.
    For purposes of transferring the tax liability pursuant to 
(iv) above, such relief from liability shall be effective from 
the time of removal from the transferor's bonded premises, or 
from the time of divestment, whichever is later.

                        Explanation of Provision

    The provision extends for one year the temporary rate 
schedule on beer.
    The provision extends for one year the temporary rules 
regarding shared ownership.

                             Effective Date

    The provision to extend the temporary rate schedule applies 
to beer removed after December 31, 2019.
    The provision to extend the temporary rules regarding 
shared ownership applies to calendar quarters beginning after 
December 31, 2019.

Reduced rate of excise tax on certain wine, adjustment of alcohol 
        content level for application of excise taxes, and definition 
        of mead and low alcohol by volume wine

                              Present Law


In general

    Excise taxes are imposed on wine, based on the wine's 
alcohol content and carbonation levels. Notwithstanding 
temporary changes to alcohol content allowances described 
below, the following table outlines the rates of tax on wine.

------------------------------------------------------------------------
          Tax (and code section)                      Tax rates
------------------------------------------------------------------------
Wines (sec. 5041)
    ``Still wines'' \820\ not more than 14  $1.07 per wine gallon \821\
     percent alcohol.
    ``Still wines'' more than 14 percent,   $1.57 per wine gallon
     but not more than 21 percent, alcohol.
    ``Still wines'' more than 21 percent,   $3.15 per wine gallon
     but not more than 24 percent, alcohol.
    ``Still wines'' more than 24 percent    $13.50 per proof gallon
     alcohol.                                (taxed as distilled
                                             spirits)
    Champagne and other sparkling wines...  $3.40 per wine gallon
    Artificially carbonated wines.........  $3.30 per wine gallon
------------------------------------------------------------------------

    Liability for the excise taxes on wine arises when the wine 
is produced or imported but is not payable until the wine is 
removed from the bonded wine cellar or winery, or from customs 
control, for consumption or sale. Generally, bulk and bottled 
wine may be transferred between bonded premises; however, the 
tax liability on such wine becomes the responsibility of the 
transferee. Bulk natural wine may be released from customs 
custody without payment of tax and transferred in bond to a 
winery. Wine may be exported without payment of tax and may be 
withdrawn from a wine cellar or winery without payment of tax 
or free of tax for certain authorized uses, including 
industrial uses and non-beverage uses.\822\
---------------------------------------------------------------------------
    \820\ A ``still wine'' is a non-effervescent or minimally 
effervescent wine containing no more than 0.392 grams of carbon dioxide 
per hundred milliliters of wine. Champagne wine typically contains more 
than twice that amount.
    \821\ A wine gallon is a U.S. liquid gallon.
    \822\ Sec. 5042.
---------------------------------------------------------------------------

Credits and exemptions for certain wine producers

    Notwithstanding the current, temporary credits described 
below, domestic wine producers having aggregate annual 
production not exceeding 250,000 wine gallons (``small domestic 
producers'') receive a credit against the wine excise tax equal 
to 90 cents per gallon (the amount of a wine tax increase 
enacted in 1990) on the first 100,000 wine gallons of wine 
domestically produced and removed during a calendar year.\823\ 
The credit is reduced (but not below zero) by one percent for 
each 1,000 gallons produced in excess of 150,000 wine gallons; 
the credit may not be applied to the tax liability on sparkling 
wines. In the case of a controlled group, the 250,000 wine 
gallon limitation for wineries is applied to the controlled 
group, and the 100,000 wine gallons eligible for the credit, 
are apportioned among the wineries that are component members 
of such group. The term ``controlled group'' has the meaning 
assigned to it by section 1563(a), except that the phrase 
``more than 50 percent'' is substituted for the phrase ``at 
least 80 percent'' in each place it appears in sec. 1563(a).
---------------------------------------------------------------------------
    \823\ Sec. 5041(c).
---------------------------------------------------------------------------
    The credit against the wine excise tax for small domestic 
producers is temporarily modified for calendar years 2018 and 
2019 in several ways. First, the 250,000 wine gallon domestic 
production limitation is removed (thus making the credit 
available for all wine producers and importers). Second, under 
the modifications, the credit may be applied to the tax 
liability on sparkling wine. Third, with respect to wine 
produced in, or imported into, the United States during a 
calendar year, the credit amount is modified to (1) $1.00 per 
wine gallon for the first 30,000 wine gallons of wine, plus; 
(2) 90 cents per wine gallon on the next 100,000 wine gallons 
of wine, plus; (3) 53.5 cents per wine gallon on the next 
620,000 wine gallons of wine.\824\ Finally, there is no 
phaseout of the credit with additional production.
---------------------------------------------------------------------------
    \824\ The credit rate for hard cider is tiered at the same level of 
production or importation, but is equal to 6.2 cents, 5.6 cents, and 
3.3 cents, respectively.
---------------------------------------------------------------------------

Other temporary changes

    Alcohol-by-volume levels of the first two tiers of the 
excise tax on wine are temporarily modified for calendar years 
2018 and 2019, by changing 14 percent to 16 percent. Thus, a 
wine producer or importer may temporarily produce or import 
``still wine'' that has an alcohol-by-volume level of up to 16 
percent and remain subject to the lowest rate of $1.07 per wine 
gallon.
    Mead and certain sparkling, low alcohol-by-volume wines are 
temporarily designated to be taxed at the lowest rate 
applicable to ``still wine,'' $1.07 per wine gallon of wine for 
calendar years 2018 and 2019. Mead is defined as a wine that 
contains not more than 0.64 grams of carbon dioxide per hundred 
milliliters of wine,\825\ which is derived solely from honey 
and water, contains no fruit product or fruit flavoring, and 
contains less than 8.5 percent alcohol-by-volume. The sparkling 
wines eligible to be taxed at the lowest rate are those wines 
that contain not more than 0.64 grams of carbon dioxide per 
hundred milliliters of wine,\826\ which are derived primarily 
from grapes or grape juice concentrate and water, which contain 
no fruit flavoring other than grape, and which contain less 
than 8.5 percent alcohol by volume.
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    \825\ The Secretary is authorized to prescribe tolerances to this 
limitation as may be reasonably necessary in good commercial practice.
    \826\ The Secretary is authorized to prescribe tolerances to this 
limitation as may be reasonably necessary in good commercial practice.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year the temporary 
modifications to the credit against the wine excise tax.
    The provision extends for one year the temporary 
modification to the alcohol-by-volume levels for purposes of 
the excise tax.
    The provision extends for one year the temporary rates on 
mead and certain sparkling, low alcohol-by-volume wines.

                             Effective Date

    The provisions apply to wine removed after December 31, 
2019.

Reduced rate of excise tax on certain distilled spirits and transfer of 
        bonded spirits

                              Present Law

    Notwithstanding the current, temporary rates described 
below, distilled spirits are taxed at a rate of $13.50 per 
proof gallon.\827\ Liability for the excise tax on distilled 
spirits arises when the alcohol is produced or imported 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. 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 be exported without payment of 
tax and may be withdrawn from a distillery without payment of 
tax or free of tax for certain authorized uses, including 
industrial uses and non-beverage uses.
---------------------------------------------------------------------------
    \827\ Secs. 5001, 5006, 5043, and 5054.
---------------------------------------------------------------------------
    For calendar years 2018 and 2019, there is a temporary tax 
rate schedule for distilled spirits based on annual quantity 
produced or imported. The rate of tax is lowered to $2.70 per 
proof gallon on the first 100,000 proof gallons of distilled 
spirits produced, $13.34 on the next 22,130,000 proof gallons, 
and $13.50 for amounts thereafter. Rules prevent members of the 
same controlled group from receiving the lower rate on more 
than 100,000 proof gallons of distilled spirits. Additionally, 
importers of distilled spirits are eligible for the temporary 
lower rates subject to documentation of the annual total 
production of the producer.
    Additionally, for calendar years 2018 and 2019, distillers 
may transfer spirits in bond in containers other than bulk 
containers without payment of tax.

                        Explanation of Provision

    The provision extends for one year the temporary rate 
schedule on distilled spirits and the eligibility of that rate 
schedule for importers.
    The provision extends for one year the allowance for 
distillers to transfer spirits in bond in containers other than 
bulk containers without payment of tax.

                             Effective Date

    The provision to extend the temporary rate schedule applies 
to distilled spirits removed after December 31, 2019.
    The provision to extend the allowance for distillers to 
transfer spirits in bond in containers other than bulk 
containers without payment of tax applies to distilled spirits 
transferred in bond after December 31, 2019.

Simplification of rules regarding records, statements, and returns

                              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.\828\ For calendar quarters 
beginning after February 9, 2018, and before January 1, 2020, 
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 which has been removed for consumption on 
the premises of the brewery.
---------------------------------------------------------------------------
    \828\ Sec. 5555(a).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for one year the requirement that the 
Secretary permits 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 which has been removed for consumption on the premises of 
the brewery.

                             Effective Date

    The provision applies to calendar quarters beginning after 
December 31, 2019.

5. Extension of look-through treatment of payments between related 
        controlled foreign corporations under foreign personal holding 
        company rules (sec. 145 of the Act and sec. 954(c)(6) of the 
        Code)

                              Present Law


In general

    The rules of subpart F \829\ require U.S. shareholders with 
a 10-percent or greater interest in a controlled foreign 
corporation (``CFC'') to include certain income of the CFC 
(referred to as ``subpart F income'') on a current basis for 
U.S. tax purposes.\830\
---------------------------------------------------------------------------
    \829\ Secs. 951-964.
    \830\ Sec. 951(a).
---------------------------------------------------------------------------
    Subpart F income includes foreign base company income.\831\ 
One category of foreign base company income is foreign personal 
holding company income, which includes passive income such as 
dividends, interest, rents, and royalties, among other types of 
income.\832\ There are several exceptions to these rules. For 
example, foreign personal holding company income does not 
include dividends and interest received by a CFC from a related 
corporation organized and operating in the same foreign country 
in which the CFC is organized, or rents and royalties received 
by a CFC from a related corporation for the use of property 
within the country in which the CFC is organized.\833\ 
Interest, rent, and royalty payments do not qualify for this 
exclusion to the extent that such payments reduce the subpart F 
income of the payor.
---------------------------------------------------------------------------
    \831\ Secs. 952(a)(2) and 954.
    \832\ Sec. 954(c)(1).
    \833\ Sec. 954(c)(3).
---------------------------------------------------------------------------
    In addition, subpart F income of a CFC does not include any 
item of income from sources within the United States that is 
effectively connected with the conduct by such CFC of a trade 
or business within the United States (``ECI'') unless such item 
is exempt from taxation (or is subject to a reduced rate of 
tax) pursuant to a tax treaty.\834\
---------------------------------------------------------------------------
    \834\ Sec. 952(b).
---------------------------------------------------------------------------

``CFC look-through''

    Section 954(c)(6), colloquially referred to as ``CFC look-
through,'' provides that dividends, interest (including 
factoring income that is treated as equivalent to interest 
under section 954(c)(1)(E)), rents, and royalties received or 
accrued by one CFC from a related CFC are not treated as 
foreign personal holding company income to the extent 
attributable or properly allocable to income of the payor that 
is neither subpart F income nor treated as ECI. For this 
purpose, a related CFC is a CFC that controls or is controlled 
by the other CFC, or a CFC that is controlled by the same 
person or persons that control the other CFC. Ownership of more 
than 50 percent of the CFC's stock (by vote or value) 
constitutes control for these purposes.
    The Secretary is authorized to prescribe regulations that 
are necessary or appropriate to carry out CFC look-through, 
including such regulations as may be necessary or appropriate 
to prevent the abuse of the purposes of such rule.
    CFC look-through applies to taxable years of foreign 
corporations beginning after December 31, 2005, and before 
January 1, 2020, and to taxable years of U.S. shareholders with 
or within which such taxable years of foreign corporations end.

                        Explanation of Provision

    The provision extends for one year the application of CFC 
look-through, to taxable years of foreign corporations 
beginning before January 1, 2021, and to taxable years of U.S. 
shareholders with or within which such taxable years of foreign 
corporations end.

                             Effective Date

    The provision applies to taxable years of foreign 
corporations beginning after December 31, 2019, and to taxable 
years of U.S. shareholders with or within which such taxable 
years of foreign corporations end.

6. Credit for health insurance costs of eligible individuals (sec. 146 
        of the Act and sec. 35 of the Code)

                              Present Law


Eligible coverage months

    An eligible individual is allowed a refundable tax credit 
for 72.5 percent of the individual's premiums for qualified 
health insurance of the individual and qualifying family 
members for each eligible coverage month beginning in the 
taxable year.\835\ The credit is commonly referred to as the 
health coverage tax credit (``HCTC''). The credit is available 
only with respect to amounts paid by the individual for 
qualified health insurance. Advance monthly payments paid by 
the Secretary directly to the health plan administrator are 
available.\836\
---------------------------------------------------------------------------
    \835\ Qualifying family members are the individual's spouse and any 
dependent for whom the individual is entitled to claim a dependency 
exemption. Any individual who has certain specified coverage is not a 
qualifying family member.
    \836\ Sec. 7527.
---------------------------------------------------------------------------
    Eligibility for the credit is determined on a monthly 
basis. In general, an eligible coverage month is any month if 
(1) the month begins before January 1, 2020, and (2) as of the 
first day of the month, (i) the individual is an eligible 
individual; (ii) is covered by qualified health insurance the 
premium for which is paid by the individual; (iii) does not 
have other specified coverage; and (iv) is not imprisoned under 
Federal, State, or local authority. In the case of a joint 
return, the eligibility requirements are met if at least one 
spouse satisfies the requirements.

Eligible individuals

    An eligible individual is an individual who is (1) an 
eligible Trade Adjustment Assistance (``TAA'') recipient, (2) 
an eligible alternative TAA recipient or an eligible 
reemployment TAA recipient, or (3) an eligible Pension Benefit 
Guaranty Corporation (``PBGC'') pension recipient. In general, 
an individual is an eligible TAA recipient for a month if the 
individual (1) receives for any day of the month a trade 
readjustment allowance under the Trade Act of 1974 or would be 
eligible to receive such an allowance but for the requirement 
that the individual exhaust unemployment benefits before being 
eligible to receive an allowance, and (2) with respect to such 
allowance, is covered under a required certification. An 
individual is an eligible alternative TAA recipient or an 
eligible reemployment TAA recipient for a month if the 
individual participates in certain programs under the Trade Act 
of 1974 providing wage supplements and receives a related 
benefit for the month. Generally, an individual is an eligible 
PBGC pension recipient for any month if the individual (1) is 
age 55 or over as of the first day of the month, and (2) 
receives a benefit for the month, any portion of which is paid 
by the PBGC. A person who may be claimed as a dependent on 
another person's tax return is not an eligible individual. In 
addition, an otherwise eligible individual is not eligible for 
the credit for a month if, as of the first day of the month, 
the individual has certain specified coverage, such as certain 
employer-provided coverage or coverage under certain 
governmental health programs.

Qualified health insurance

    Qualified health insurance in respect of which the credit 
is allowed is: (1) coverage under a COBRA continuation 
provision; \837\ (2) State-based continuation coverage provided 
by the State under a State law that requires such coverage; (3) 
coverage offered through a qualified State high risk pool; (4) 
coverage under a health insurance program offered to State 
employees or a comparable program; (5) coverage through an 
arrangement entered into by a State and a group health plan, an 
issuer of health insurance coverage, an administrator, or an 
employer; (6) coverage offered through a State arrangement with 
a private sector health care coverage purchasing pool; (7) 
coverage under a State-operated health plan that does not 
receive any Federal financial participation; (8) coverage under 
a group health plan that is available through the employment of 
the eligible individual's spouse; (9) coverage under individual 
health insurance \838\ (other than coverage purchased through 
an American Health Benefit Exchange); \839\ and (10) coverage 
under an employee benefit plan funded by a voluntary employee 
beneficiary association (``VEBA'') \840\ established pursuant 
to an order of a bankruptcy court (or by agreement with an 
authorized representative).\841\
---------------------------------------------------------------------------
    \837\ As defined in section 9832(d)(1).
    \838\ For this purpose, ``individual health insurance'' means any 
insurance that constitutes medical care offered to individuals other 
than in connection with a group health plan. Such term does not include 
Federal- or State-based health insurance coverage.
    \839\ The premium assistance credit is provided for eligible 
individuals and families who purchase health insurance through an 
American Health Benefit Exchange. See sec. 36B.
    \840\ As defined in section 501(c)(9).
    \841\ See 11 U.S.C. sec. 1114.
---------------------------------------------------------------------------
    Qualified health insurance does not include any State-based 
coverage (i.e., coverage described in (2)-(7) in the preceding 
paragraph) unless the State has elected to have such coverage 
treated as qualified health insurance and such coverage meets 
certain consumer-protection requirements.\842\ Such State 
coverage must provide that each qualifying individual is 
guaranteed enrollment if the individual pays the premium for 
enrollment or provides a qualified health insurance costs 
eligibility certificate and pays the remainder of the premium. 
In addition, the State-based coverage cannot impose any pre-
existing condition limitation with respect to qualifying 
individuals. State-based coverage cannot require a qualifying 
individual to pay a premium or contribution that is greater 
than the premium or contribution for a similarly situated 
individual who is not a qualified individual. Finally, benefits 
under the State-based coverage must be the same as (or 
substantially similar to) benefits provided to similarly 
situated individuals who are not qualifying individuals.
---------------------------------------------------------------------------
    \842\ For guidance on how a State elects a health program to be 
qualified health insurance for purposes of the credit, see Rev. Proc. 
2004-12, 2004-1 C.B. 528.
---------------------------------------------------------------------------
    A qualifying individual for this purpose is an eligible 
individual who seeks to enroll in the State-based coverage and 
who has aggregate periods of creditable coverage \843\ of three 
months or longer, does not have other specified coverage, and 
is not imprisoned.
---------------------------------------------------------------------------
    \843\ Creditable coverage is determined under section 9801(c).
---------------------------------------------------------------------------
    Qualified health insurance does not include coverage under 
a flexible spending or similar arrangement or any insurance if 
substantially all of the coverage is for excepted benefits.

                        Explanation of Provision

    The provision extends the availability of the health 
coverage tax credit for 12 months by amending the definition of 
eligible coverage month to include months beginning before 
January 1, 2021.

                             Effective Date

    The provision is effective for months beginning after 
December 31, 2019.

                     TITLE II--DISASTER TAX RELIEF

1. Definitions (sec. 201 of the Act and secs. 24, 32, 38, 72, 165, and 
        170 of the Code))
    The provisions below provide temporary tax relief to those 
areas affected by certain major disasters declared in 2018 and 
the majority of 2019.
    The provisions use the terms ``qualified disaster area,'' 
``qualified disaster zone,'' ``qualified disaster,'' and 
``incident period.'' As used in the bill, ``qualified disaster 
area'' refers to an area with respect to which a major disaster 
has been declared by the President during the period beginning 
on January 1, 2018, and ending on the date which is 60 days 
after the date of enactment of the Act (December 20, 2019), 
under section 401 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (the ``Stafford Act''), if the 
incident period of the disaster with respect to which such 
declaration is made begins on or before the date of the 
enactment of the Act. However, the ``California wildfire 
disaster area,'' as defined in the Bipartisan Budget Act of 
2018,\844\ is not a qualified disaster area.
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    \844\ Pub. L. No. 115-123, sec. 20102.
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    A ``qualified disaster zone'' refers to that portion of the 
applicable ``qualified disaster area,'' as described above, 
which has been determined by the President to warrant 
individual or individual and public assistance from the Federal 
government under the Stafford Act by reason of the applicable 
qualified disaster.
    A ``qualified disaster'' means, with respect to the 
applicable qualified disaster area, the disaster by reason of 
which a major disaster was declared with respect to such area.
    ``Incident period'' means, with respect to the applicable 
qualified disaster, the period specified by the Federal 
Emergency Management Agency as the period during which such 
disaster occurred, except that such period shall not be treated 
as beginning before January 1, 2018, or ending after the date 
which is 30 days after the date of enactment of the Act.
2. Special disaster-related rules for use of retirement funds (sec. 202 
        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.\845\ 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.\846\
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    \845\ 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.
    \846\ Sec. 72(t). Under present law, the 10-percent early 
withdrawal tax does not apply to distributions from a governmental 
section 457(b) plan.
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    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 IRS 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.\847\
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    \847\ Secs, 402(c)(3)(B) and 408(d)(3)(I). Rev. Proc. 2020-46, 
2020-45 I.R.B. 995, further provides for a self-certification procedure 
(subject to verification on audit) that may be used by a taxpayer 
claiming eligibility for a waiver of the 60-day requirement with 
respect to a rollover into a plan or IRA in certain specified 
circumstances.
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    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 account balance 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.\848\ 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 a 10-percent early distribution 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 precludes any additional loan that 
would cause the limit to be exceeded, the rules relating to 
loans do not limit the number of loans an employee may obtain 
from a plan.
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    \848\ 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 ``qualified disaster 
distributions'' from a qualified retirement plan, a section 
403(b) plan, or an IRA. In addition, as discussed further, 
income attributable to a qualified disaster distribution may be 
included in income ratably over three years, and the amount of 
a qualified disaster distribution may be recontributed to an 
eligible retirement plan within three years.
    A ``qualified disaster distribution'' is any distribution 
from a qualified retirement plan, section 403(b) plan, or 
governmental section 457(b) plan, made on or after the first 
day of the incident period of a qualified disaster and before 
the date which is 180 days after the date of enactment, to an 
individual whose principal place of abode at any time during 
the incident period is located in the qualified disaster area 
and who has sustained an economic loss by reason of such 
disaster, regardless of whether a distribution otherwise would 
be permissible.\849\
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    \849\ A qualified disaster distribution is subject to income tax 
withholding unless the recipient elects otherwise. Mandatory 20-percent 
withholding does not apply.
---------------------------------------------------------------------------
    A plan is not treated as violating any Code requirement 
merely because it treats a distribution as a qualified disaster 
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 for each qualified disaster. The total 
amount of distributions to an individual from all eligible 
retirement plans that may be treated as qualified disaster 
distributions with respect to each qualified disaster is 
$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, or because 
an individual may have been affected by more than one qualified 
disaster.
    Any amount required to be included in income as a result of 
a qualified disaster 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 disaster 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 disaster distribution in 2019, 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 2021, the amount of 
the qualified disaster 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 disaster 
distribution \850\ during the period beginning on the date 
which is 180 days before the first day of the incident period 
of the qualified disaster and ending on the date which is 30 
days after the last day of such incident period, which was to 
be used to purchase or construct a principal residence in a 
qualified disaster area, but which was not so purchased or 
constructed on account of the qualified disaster, may, during 
the ``applicable period,'' 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.\851\ The 
``applicable period'' is, in the case of a principal residence 
in a qualified disaster area with respect to any qualified 
disaster, the period beginning on the first day of the incident 
period of such qualified disaster and ending on the date which 
is 180 days after the date of enactment. 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.
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    \850\ 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).
    \851\ Under sections 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 \852\ made during the 180-
day period beginning on the date of enactment, in lieu of the 
permitted maximum loan amount as the lesser of 50 percent of 
the participant's account balance or $50,000, 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, and the loan is not treated as a 
distribution.\853\ For this purpose, a ``qualified individual'' 
is an individual whose principal place of abode, during any 
portion of the incident period of any qualified disaster, was 
located in the qualified disaster area and who sustained an 
economic loss by reason of the qualified disaster.
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    \852\ As defined under section 72(p)(4).
    \853\ See sec. 72(p)(2)(A).
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    In the case of such a qualified individual (with respect to 
a qualified disaster) with an outstanding loan (on or after the 
first day of the incident period of such qualified disaster), 
from a qualified employer plan, if the due date for any 
repayment with respect to such a loan \854\ occurs during the 
period beginning on the first day of the incident period of 
such qualified disaster and ending on the date which is 180 
days after the last day of such incident period, the due date 
is delayed for one year (or, if later, until the date which is 
180 days after the date of enactment) and any subsequent 
repayments will be appropriately adjusted to reflect the delay 
in any repayment date noted above and any interest accruing 
during such delay, but the repayment delay is disregarded in 
determining the 5-year period and the term of the loan.\855\
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    \854\ See sec. 72(p)(2).
    \855\ 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, 2020 (or in the case of a 
governmental plan, January 1, 2022), 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.
3. Employee retention credit for employers affected by qualified 
        disasters (sec. 203 of the Act and sec. 38 of the Code)

                              Present Law

    Congress has at times enacted employee retention credits 
against employer income tax in response to specific natural 
disasters.\856\ There is not a generally applicable employer 
income tax credit for wages paid in connection with natural 
disasters.
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    \856\ See, e.g., sec. 20103 of Pub. L. No. 115-123 (providing a 
credit in response to 2017 California wildfires); sec. 503 of Pub. L. 
No. 115-63, as amended by sec. 20201(b) of Pub. L. No. 115-123 
(providing a credit in response to Hurricanes Harvey, Irma, and Maria); 
and former sec. 1400R (providing a credit in response to Hurricanes 
Katrina, Rita, and Wilma).
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                        Explanation of Provision

    The provision provides an income tax 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 in a qualified disaster zone at any 
time during the incident period of the applicable qualified 
disaster and (2) with respect to which the trade or business 
described in (1), as a result of damage sustained by reason of 
the applicable qualified disaster, is inoperable on any day 
during the period beginning on the first day of the applicable 
incident period of the applicable qualified disaster and ending 
on the date of enactment of this bill.
    An eligible employee is, with respect to an eligible 
employer, an employee whose principal place of employment, 
determined immediately before the applicable qualified 
disaster, with such eligible employer was in the applicable 
qualified 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 \857\ paid or incurred by an 
eligible employer with respect to an eligible employee 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 applicable 
qualified disaster and (2) ending on the earlier of (i) the 
date on which the trade or business resumes significant 
operations at such principal place of employment or (ii) the 
date which is 150 days after the last day of the applicable 
incident period. Qualified wages include wages paid without 
regard to whether the employee performs services, performs 
services at a different place of employment than the principal 
place of employment, or performs services at the principal 
place of employment before significant operations resume.
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    \857\ For this purpose, ``wages'' is defined in section 51(c)(1), 
without regard to section 3306(b)(2)(B).
---------------------------------------------------------------------------
    The credit is treated as a current year business credit 
under section 38(b) and therefore is subject to the income tax 
liability limitations of section 38(c). Rules similar to 
sections 51(i)(1), 52, and 280C(a) apply.\858\
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    \858\ Section 51(i)(2) provides a rule that employers may not claim 
the work opportunity credit for wages paid to rehired employees. 
Section 52 provides, for purposes of the work opportunity credit, rules 
to treat a controlled group of corporations, or trades or businesses 
under common control, as a single employer, as well as special rules 
for tax-exempts, estates and trusts, and certain other entities. 
Section 280C denies a deduction for the portion of wages paid or 
incurred for the taxable year for which certain wage-based credits are 
earned.
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                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

4. Temporary suspension of limitation on charitable contributions (sec. 
        204(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.\859\
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    \859\ 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, 
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.\860\ 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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    \860\ Sec. 170(d).
---------------------------------------------------------------------------

                        Explanation of Provision

    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 section 170(b)(1)(G)(ii) 
(generally relating to cash contributions to public charities).
    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 under 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 January 1, 2018, and ending on the date 
which is 60 days after the date of enactment, 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 made 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 one or more 
qualified disaster areas. Taxpayers must obtain from the 
recipient organization a contemporaneous written acknowledgment 
substantiating that the contribution was used (or is to be 
used) for this purpose. A taxpayer must elect to have the 
contributions treated as qualified contributions.

                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

   5. Special rules for qualified disaster-related personal casualty 
        losses (sec. 204(b) of the Act and sec. 165 of the Code)


                              Present Law

    An individual taxpayer may claim an itemized deduction for 
a personal casualty loss only if the loss was attributable to a 
disaster declared by the President under section 401 of the 
Stafford Act.\861\ All other personal casualty losses are 
deductible only to the extent that those losses do not exceed 
the individual's personal casualty gains. Personal casualty 
losses are deductible only if they exceed $100 per casualty. In 
addition, aggregate net losses (i.e., the excess of personal 
casualty losses over personal casualty gains) are deductible 
only to the extent they exceed 10 percent of the individual 
taxpayer's adjusted gross income.
---------------------------------------------------------------------------
    \861\ 165(h)(5).
---------------------------------------------------------------------------
    Congress has at times enacted more generous casualty loss 
provisions in response to specific natural disasters.\862\
---------------------------------------------------------------------------
    \862\ See, e.g., sec. 20104(b) of Pub. L. No. 115-123 (certain 
California wildfires); Sec. 504(b) of Pub. L. No. 115-63 (Hurricanes 
Harvey, Irma, and Maria); and former sec. 1400S(b) (Hurricanes Katrina, 
Rita, and Wilma).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, if an individual has a personal 
casualty loss which arose in a qualified disaster area on or 
after the first day of the incident period of the applicable 
qualified disaster and which was attributable to that qualified 
disaster, the individual is allowed a deduction for the loss 
without regard to whether the individual's aggregate net losses 
exceed 10 percent of adjusted gross income. A casualty loss is 
deductible, however, only if it exceeds $500.\863\
---------------------------------------------------------------------------
    \863\ The $100 per casualty rule still applies with respect to 
other deductible personal casualty losses.
---------------------------------------------------------------------------
    For a personal casualty loss to which the provision 
applies, an individual is allowed a deduction in addition to 
the standard deduction. The deduction is also allowed in 
determining alternative minimum tax.

                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

6. Special rule for determining earned income (sec. 204(c) of the Act 
        and secs. 24 and 32 of the Code)

                              Present Law

    The Code provides eligible taxpayers with an earned income 
tax credit (``EITC'') and a child tax credit. In general, the 
EITC is a refundable income tax credit for low-income 
workers.\864\ 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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    \864\ Sec. 32
---------------------------------------------------------------------------
    Taxpayers with incomes below certain threshold amounts are 
eligible for a $2,000 child tax credit for each qualifying 
child.\865\ In some circumstances, all or a portion of the 
otherwise allowable credit is treated as a refundable income 
tax credit (the ``additional child tax credit''). Generally, 
the amount of the additional child tax credit equals 15 percent 
of the taxpayer's earned income in excess of $2,500. The 
maximum amount of the refundable credit for each qualifying 
child is $1,400 for taxable years beginning in 2019.\866\
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    \865\ Sec. 24.
    \866\ Rev. Proc. 2018-57. This amount is indexed for inflation.
---------------------------------------------------------------------------
    Congress has at times enacted provisions that allow 
individuals to use their earned income from the prior, rather 
than current, taxable year in determining the amount of the 
EITC or additional child tax credit.\867\
---------------------------------------------------------------------------
    \867\ See, e.g., sec. 20104(c) of Pub. L. No. 115-123 (certain 
California wildfires); Sec. 504(c) of Pub. L. No. 115-63 (Hurricanes 
Harvey, Irma, and Maria); and former sec. 1400S(d) (Hurricanes Katrina, 
Rita, and Wilma).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision permits a qualified individual to elect to 
calculate the EITC and additional child tax credit for an 
applicable taxable year using the individual's earned income 
from the prior taxable year. A qualified individual is 
permitted to make the election with respect to an applicable 
taxable year only if the individual's earned income for that 
taxable year is less than his or her earned income for the 
preceding taxable year.
    A qualified individual is an individual (1) whose principal 
place of abode at any time during the incident period of a 
qualified disaster was in the applicable qualified disaster 
zone or (2) who during any portion of the incident period was 
not in the applicable qualified disaster zone but whose 
principal place of abode was in the applicable qualified 
disaster area and was displaced from that abode by reason of 
the qualified disaster. An applicable taxable year is any 
taxable year which includes any portion of the incident period 
of a qualified disaster.
    For purposes of the provision, in the case of a joint 
return for a taxable year which includes an applicable taxable 
year, the provision applies if either spouse is a qualified 
individual. In such cases, earned income for the preceding 
taxable year is the sum of the earned income of each spouse for 
such preceding taxable year.
    An 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. Additionally, 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 
(December 20, 2019).

7. Automatic extension of filing deadlines in case of certain taxpayers 
        affected by Federally declared disasters (sec. 205 of the Act 
        and sec. 7508A of the Code)

                              Present Law

    In general, the Secretary may specify a period of up to one 
year that may be disregarded for performing various acts under 
the Internal Revenue Code, such as filing tax returns, paying 
taxes, or filing a claim for credit or refund of tax, for any 
taxpayer determined by the Secretary to be affected by a 
Federally declared disaster or a terroristic or military action 
with respect to any tax liability of the taxpayer.\868\ In 
addition, the period specified by the Secretary may be 
disregarded in determining the amount of any interest, penalty, 
additional amount, or addition to tax, and the amount of any 
credit or refund.
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    \868\ Sec. 7508A.
---------------------------------------------------------------------------
    There are special rules provided for pensions and other 
employee benefit plans. The Secretary may prescribe a period of 
up to one year which may be disregarded in determining the date 
by which any action by a pension or other employee benefit 
plan, or by any sponsor, administrator, participant, 
beneficiary, or other person with respect to such plan, 
affected by a Federally declared disaster or a terroristic or 
military action would be required or permitted to be completed. 
A plan is not treated as operating in a manner inconsistent 
with its terms or in violation of its terms merely due to 
disregarding any such periods.
    The suspension of time may apply to the following acts:
    1. Filing any return of income, estate, gift, employment, 
or excise tax;
    2. Payment of any income, estate, gift, employment, or 
excise tax or any installment thereof or of any other liability 
to the United States in respect thereof;
    3. Filing a petition with the Tax Court for redetermination 
of a deficiency, or for review of a decision rendered by the 
Tax Court;
    4. Allowance of a credit or refund of any tax;
    5. Filing a claim for credit or refund of any tax;
    6. Bringing suit upon any such claim for credit or refund;
    7. Assessment of any tax;
    8. Giving or making any notice or demand for the payment of 
any tax, or with respect to any liability to the United States 
in respect of any tax;
    9. Collection of the amount of any liability in respect of 
any tax;
    10. Bringing suit by the United States in respect of any 
liability in respect of any tax; and
    11. Any other act required or permitted under the internal 
revenue laws specified by the Secretary of the Treasury.\869\
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    \869\ Sec. 7508(a)(1). Under Treasury regulations, an additional 
act was added to this list with respect to affected pension plans and 
affected taxpayers with respect to such plans: Making contributions to 
a qualified retirement plan (within the meaning of section 4974(c)) 
under section 219(f)(3), 404(a)(6), 404(h)(1)(B), or 404(m)(2); making 
distributions under section 408(d)(4); recharacterizing contributions 
under section 408A(d)(6); or making a rollover under section 402(c), 
403(a)(4), 403(b)(8), or 408(d)(3). Treas. Reg. sec. 301.7508A-
1(c)(1)(iii). In addition, Revenue Procedure 2018-58 supplements the 
list of postponed acts in section 7508(a)(1) and Treasury Regulation 
section 301.7508A-1(c)(1) with an additional list of time-sensitive 
acts.
---------------------------------------------------------------------------
    For a tax-related deadline to be postponed under this 
authority, the IRS generally will publish, as soon as 
practicable after the declaration of the disaster or occurrence 
of a terroristic or military action, a revenue ruling, revenue 
procedure, notice, announcement, news release, or other 
guidance authorizing the postponement and describing the acts 
postponed, the postponement period, and the covered disaster 
area.\870\
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    \870\ Treas. Reg. sec. 301.7508A-1(e).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides to qualified taxpayers in the case 
of a Federally declared disaster a mandatory 60-day period that 
is disregarded in the same manner as the period specified under 
the Secretary's discretionary authority to provide disaster 
relief under section 7508A(a).\871\ The 60-day period begins on 
the earliest incident date specified in the declaration to 
which the relevant disaster area relates and ends on the date 
which is 60 days after the latest incident date so specified. A 
disaster area is the geographic area of a Federally declared 
disaster, which is any disaster subsequently determined by the 
President to warrant assistance by the Federal government under 
the Stafford Act.\872\
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    \871\ The Treasury Department published final regulations relating 
to the new mandatory 60-day postponement of certain time-sensitive tax-
related deadlines by reason of a federally declared disaster in T.D. 
9950, 86 Fed. Reg. 31146-51, June 11, 2021. See also Treas. Reg. sec. 
301.7508A-1(g).
    \872\ Sec. 165(i)(5).
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    Qualified taxpayers are (1) any individual whose principal 
residence is located in a disaster area, (2) any taxpayer if 
the taxpayer's principal place of business (other than the 
business of performing services as an employee) is located in a 
disaster area, (3) any individual who is a relief worker 
affiliated with a recognized government or philanthropic 
organization and who is assisting in a disaster area, (4) any 
taxpayer whose records necessary to meet a deadline for the 
acts listed above are maintained in a disaster area, (5) any 
individual visiting a disaster area who was killed or injured 
as a result of the disaster, and (6) solely with respect to a 
joint return, any spouse of an individual who is a qualified 
taxpayer.
    In the case of a pension or other employee benefit plan, or 
any sponsor, administrator, participant, beneficiary or other 
person with respect to such a plan,\873\ the provision provides 
that a rule similar to the mandatory 60-day period rule 
described above applies with respect to any of the following 
actions:
---------------------------------------------------------------------------
    \873\ For this purpose, a definition similar to the definition of 
``qualified taxpayer'' is intended to generally apply.
---------------------------------------------------------------------------
    1. Making contributions to a section 401(a) qualified 
retirement plan, a section 403(a) annuity, a section 403(b) 
tax-sheltered annuity, or a section 408 individual retirement 
account or annuity (IRA);
    2. Making distributions of contributions to an IRA prior to 
the due date for filing the individual's tax return for the 
year in which the contribution was made;
    3. Recharacterizing IRA contributions by making a trustee-
to-trustee transfer from a traditional IRA to a Roth IRA, or 
vice versa, before the due date (including extensions) for the 
individual's income tax return for that year; \874\ or
---------------------------------------------------------------------------
    \874\ In the case of a recharacterization, the contribution will be 
treated as having been made to the transferee IRA (and not the 
original, transferor IRA) as of the date of the original contribution. 
Pursuant to section 13611 of Pub. L. No. 115-97, this rule does not 
apply to a conversion contribution to a Roth IRA effective for taxable 
years beginning after December 31, 2017.
---------------------------------------------------------------------------
    4. Making a rollover.\875\
---------------------------------------------------------------------------
    \875\ Such actions are those provided under Treas. Reg. sec. 
301.7508A-1(c)(1)(iii), described above.
---------------------------------------------------------------------------
    The mandatory 60-day period provided under the provision is 
in addition to, or concurrent with as the case may be, any 
period of suspension provided by the Secretary.

                             Effective Date

    The provision applies to Federally declared disasters 
declared after the date of enactment of the Act (December 20, 
2019).

8. Modification of the tax rate for the excise tax on investment income 
 of private foundations (sec. 206 of the Act and sec. 4940 of the Code)


                              Present Law

    Under section 4940(a), private foundations that are 
recognized as exempt from Federal income tax under section 
501(a) (other than exempt operating foundations \876\) are 
subject to a two-percent excise tax on their net investment 
income. Net investment income generally includes interest, 
dividends, rents, royalties (and income from similar sources), 
and capital gain net income, and is reduced by expenses 
incurred to earn this income. The two-percent rate of tax is 
reduced to one-percent in any year in which a foundation 
exceeds the average historical level of its charitable 
distributions. Specifically, the excise tax rate is reduced if 
the foundation's qualifying distributions (generally, amounts 
paid to accomplish exempt purposes) \877\ equal or exceed the 
sum of (1) the amount of the foundation's assets for the 
taxable year multiplied by the average percentage of the 
foundation's qualifying distributions over the five taxable 
years immediately preceding the taxable year in question, and 
(2) one percent of the net investment income of the foundation 
for the taxable year.\878\ In addition, the foundation cannot 
have been subject to tax in any of the five preceding years for 
failure to meet minimum qualifying distribution requirements in 
section 4942.
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    \876\ Sec. 4940(d)(1). Exempt operating foundations generally 
include organizations such as museums or libraries that devote their 
assets to operating charitable programs but have difficulty meeting the 
``public support'' tests necessary not to be classified as a private 
foundation. To be an exempt operating foundation, an organization must: 
(1) be an operating foundation (as defined in section 4942(j)(3)); (2) 
be publicly supported for at least 10 taxable years; (3) have a 
governing body no more than 25 percent of whom are disqualified persons 
and that is broadly representative of the general public; and (4) have 
no officers who are disqualified persons. Sec. 4940(d)(2).
    \877\ Sec. 4942(g).
    \878\ Sec. 4940(e).
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    Private foundations that are not exempt from tax under 
section 501(a), such as certain charitable trusts, are subject 
to an excise tax under section 4940(b). The tax is equal to the 
excess of the sum of the excise tax that would have been 
imposed under section 4940(a) if the foundation were tax exempt 
and the amount of the tax on unrelated business income that 
would have been imposed if the foundation were tax exempt, over 
the income tax imposed on the foundation under subtitle A of 
the Code.
    Private foundations are required to make a minimum amount 
of qualifying distributions each year to avoid tax under 
section 4942. The minimum amount of qualifying distributions a 
foundation has to make to avoid tax under section 4942 is 
reduced by the amount of section 4940 excise taxes paid.\879\
---------------------------------------------------------------------------
    \879\ Sec. 4942(d)(2).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision replaces the two rates of excise tax on tax-
exempt private foundations with a single rate of tax of 1.39 
percent. Thus, under the provision, a tax-exempt private 
foundation generally is subject to an excise tax of 1.39 
percent on its net investment income. A taxable private 
foundation is subject to an excise tax equal to the excess (if 
any) of the sum of the 1.39-percent net investment income 
excise tax and the amount of the tax on unrelated business 
income (both calculated as if the foundation were tax-exempt), 
over the income tax imposed on the foundation. The provision 
repeals the special reduced excise tax rate for private 
foundations that exceed their historical level of qualifying 
distributions.

                             Effective Date

    The provision is effective for taxable years beginning 
after the date of enactment (December 20, 2019).

 9. Additional low-income housing tax credit allocations for qualified 
 2017 and 2018 California disaster areas (sec. 207 of the Act and sec. 
                            42 of the Code)


                              Present Law

    A taxpayer may claim the low-income housing tax credit 
annually over a 10-year period for the costs of building or 
rehabilitating rental housing occupied by low-income tenants. 
The amount of credit that may be claimed each year is equal to 
the applicable percentage of the qualified basis of each 
qualified low-income building.

Credit calculations

    The applicable percentage for a low-income building is set 
for the earlier of: (1) the month the building is placed in 
service; or (2) at the election of the taxpayer, (a) the month 
the taxpayer and the State housing credit agency enter into a 
binding agreement with respect to such building for a credit 
allocation, or (b) in the case of a tax-exempt bond-financed 
project for which no credit allocation is required, the month 
in which the tax-exempt bonds are issued.
    These credit percentages are adjusted monthly by the IRS on 
a discounted after-tax basis (assuming a 28-percent tax rate) 
based on the average of the Applicable Federal Rates for mid-
term and long-term obligations for the month the building is 
placed in service. The discounting formula assumes that each 
credit is received on the last day of each year and that the 
present value is computed on the last day of the first year. In 
a project consisting of two or more buildings placed in service 
in different months, a separate credit percentage may apply to 
each building.
    The applicable percentage for non-Federally subsidized 
newly constructed housing and non-Federally subsidized 
substantial rehabilitation is calculated such that the present 
value of the credit amounts is at least 70 percent of a 
building's qualified basis, depending on the prevailing 
interest rate. For buildings placed in service after July 30, 
2008, the applicable percentage cannot be less than 9 
percent.\880\ These credits are sometimes referred to as 
``nine-percent credits''.\881\
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    \880\ See sec. 42(b) and (e). This credit is referred to as the 70-
percent credit. See Joint Committee on Taxation, General Explanation of 
the Tax Reform Act of 1986 (JCS-10-87), May 4, 1987. This document can 
be found on the Joint Committee on Taxation website at www.jct.gov. 
However, under the Housing and Economic Recovery Act of 2008, the 
minimum applicable percentage for such credits was temporarily set at 
nine percent (the ``nine-percent floor''). The Consolidated 
Appropriations Act, 2016 made the nine-percent floor permanent. The 
enactment of the nine-percent floor on the credit implies that, under 
the statutory formula, the present value is always 70 percent or 
greater.
    \881\ See sec. 42(b)(1)(B) and (e).
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    The applicable percentage for Federally subsidized newly 
constructed housing, Federally subsidized substantial 
rehabilitation, and certain housing acquisition costs is 
calculated such that the present value of the credit amounts 
equals 30 percent of a building's qualified basis.\882\ These 
credits are sometimes referred to as ``four-percent credits.''
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    \882\ This credit is referred to as the 30-percent credit. See 
Joint Committee on Taxation, General Explanation of the Tax Reform Act 
of 1986 (JCS-10-87), May 4, 1987. This document can be found on the 
Joint Committee on Taxation website at www.jct.gov.
---------------------------------------------------------------------------
            Credit allocations and placed-in-service requirements
    Generally, the low-income housing tax credit is allowable 
only if either 50 percent or more of the aggregate basis of the 
building and land is financed by tax-exempt bonds subject to 
the volume cap \883\ or the owner of a low-income building 
receives a credit allocation from the State. Unless an 
exception applies, the building must be placed in service by 
the end of the calendar year in which the allocation is made.
---------------------------------------------------------------------------
    \883\ Sec. 42(h)(4).
---------------------------------------------------------------------------
    However, the taxpayer may receive an extension to have the 
building placed in service by the end of the second calendar 
year following the calendar year in which the allocation is 
made (a ``carryover allocation''). To be eligible for a 
carryover allocation, more than 10 percent of the taxpayer's 
reasonably expected basis in the building (as of the close of 
the second calendar year following the calendar year in which 
the allocation is made) must be incurred by the date that is 
one year after the allocation date.

State housing credit ceiling

            In general
    The total amount of housing credits available for 
allocation by a State is limited by the State housing credit 
ceiling for the calendar year. However, the amount of housing 
credit allocated by a State to a low-income building reduces 
the State housing credit ceiling only once, in the year the 
housing credit is allocated.
    The State housing credit ceiling is an amount equal to the 
sum of four components: (1) the unused State housing credit 
ceiling (if any) for the preceding calendar year (the ``unused 
carryforward component''), (2) the population component, (3) 
the amount of State housing credit ceiling returned in the 
calendar year (the ``returned credit component''), plus (4) the 
amount (if any) that the Secretary allocates to the State from 
the national pool of unused housing credits (the ``national 
pool component'').\884\
---------------------------------------------------------------------------
    \884\ Sec. 42(h)(3)(C); Treas. Reg. sec. 1.42-14(a)(1).
---------------------------------------------------------------------------
    The unused carryforward component is the excess, if any, of 
(1) the sum of the population, returned credit, and national 
pool components for the preceding calendar year, over (2) the 
aggregate amount of housing tax credits actually allocated by 
the State for such year, reduced by the amount of credits 
allocated from such year's unused State housing credit 
ceiling.\885\ Any credits in the unused carryforward component 
that are not allocated in the current calendar year are 
forfeited to the national pool.
---------------------------------------------------------------------------
    \885\ Sec. 42(h)(3)(C); Treas. Reg. sec. 1.42-14(b).
---------------------------------------------------------------------------
    For 2020, the population component is equal to the greater 
of (1) $2.8125 multiplied by the State population or (2) 
$3,217,500.\886\
---------------------------------------------------------------------------
    \886\ Rev. Proc. 2019-44. These amounts include a temporary 
increase enacted in the Consolidated Appropriations Act of 2018, Pub. 
L. No. 115-141. These limits do not apply in the case of projects that 
also receive financing with proceeds of tax-exempt bonds issued subject 
to the private activity bond volume limit.
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            Stacking order rule
    A stacking order rule governs the order in which credits 
are treated as allocated from the four components of the State 
housing credit ceiling.\887\ Credits are first treated as 
allocated from the unused carryforward component. After all of 
the credits in the unused carryforward component have been 
allocated, any credits then allocated are treated as allocated 
from the sum of the population, returned credit, and national 
pool components.
---------------------------------------------------------------------------
    \887\ Treas. Reg. sec. 1.42-14(g).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, the State housing credit ceiling of 
California for calendar year 2020 is increased by the aggregate 
housing credit dollar amount allocated by the State housing 
credit agency of California for 2020 to buildings located in 
qualified 2017 and 2018 California disaster areas,\888\ up to 
the average amount of the State housing credit ceilings of 
California for 2017 and 2018.\889\
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    \888\ Qualified 2017 and 2018 California disaster areas are those 
areas in California which are determined by the President (before 
January 1, 2019) to warrant individual or individual and public 
assistance from the Federal government under the Stafford Act by reason 
of a major disaster the incident period of which begins or ends in 
calendar year 2017 or 2018, as specified by the Federal Emergency 
Management Agency.
    \889\ The average amount is equal to 50 percent of the sum of the 
State housing credit ceilings of California for calendar years 2017 and 
2018.
---------------------------------------------------------------------------
    The provision also provides that credit allocations are 
treated as made first from these additional amounts for 
purposes of determining the unused State housing credit ceiling 
to be carried forward in a calendar year.

                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

10. Treatment of certain possessions (sec. 208 of the Act)

                              Present Law

    Citizens of the United States are generally subject to 
Federal income tax on their U.S. and foreign income regardless 
of whether they live in a U.S. State, the District of Columbia, 
a foreign country, or a U.S. territory. Residents of the U.S. 
territories 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 source of income specific to the territory.
    The application of the Federal tax rules to the territories 
varies from one territory to another. Three territories, Guam, 
the Commonwealth of the Northern Mariana Islands, and the U.S. 
Virgin Islands, are referred to as mirror Code territories 
because the Code serves as the internal tax law of those 
territories (substituting the particular territory for the 
United States wherever the Code refers to the United States). A 
resident of one of those territories generally files a single 
tax return only with the territory of which the individual is a 
resident, and not with the United States.\890\ Income tax paid 
by a bona fide resident of a mirror Code territory generally is 
allocated between the U.S. government and the territory 
government under special rules administered by the U.S. 
Treasury Department and the revenue authority of the territory 
government.
---------------------------------------------------------------------------
    \890\  Sec. 932 and former sec. 935.
---------------------------------------------------------------------------
    American Samoa and Puerto Rico, by contrast, are non-mirror 
Code territories. These two territories have their own internal 
tax laws, and a resident of either American Samoa \891\ or 
Puerto Rico may be required to file income tax returns with 
both the territory of residence and the United States. In 
general, U.S.-source income and other income from outside the 
territory of residence is included on a U.S. income tax return, 
and income from sources within the territory of residence is 
reported on the territory income tax return.
---------------------------------------------------------------------------
    \891\ Tax laws of American Samoa follow, with certain modification, 
the Internal Revenue Code as in effect December 31, 2000. See Am. Sam. 
Code Ann. sec. 11.0404.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision requires the Secretary to make a payment to 
each mirror Code territory in an amount equal to the loss in 
revenue by reason of the temporary disaster-related tax relief 
allowable by reason of Title II of the Act to residents of such 
territory against its income tax. The Secretary must determine 
the amount of each payment based on information provided by the 
government of the respective territory.
    The provision requires the Secretary to make a payment to 
each non-mirror Code territory in an amount estimated by the 
Secretary as the aggregate benefits (if any) of the temporary 
disaster-related tax relief that would have been provided to 
residents of that territory if a mirror code tax system had 
been in effect in the territory. Accordingly, the amount of 
each payment to a non-mirror Code territory is an estimate of 
the aggregate benefits that would be allowed to the territory's 
residents if the temporary tax relief provided by Title II of 
the Act to U.S. residents were provided by the territory to its 
residents. The Secretary is not permitted to make a payment to 
a territory unless the territory has a plan that has been 
approved by the Secretary under which the territory will 
promptly distribute the payment to its residents.

                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

                      TITLE III--OTHER PROVISIONS


1. Modification of income for purposes of determining tax-exempt status 
of certain mutual or cooperative telephone or electric companies (sec. 
            301 of the Act and sec. 501(c)(12) of the Code)


                              Present Law

    Under Code section 501(c)(12), certain mutual or 
cooperative organizations, including telephone and electric 
companies, are exempt from Federal income tax under Code 
section 501(a), provided that certain requirements are 
satisfied. To qualify for exemption under Code section 
501(c)(12), at least 85 percent of the organization's income 
must consist of amounts collected from members for the sole 
purpose of meeting losses and expenses.\892\ Present law 
includes special rules regarding the treatment of specific 
types of income under the 85-percent test for mutual or 
cooperative electric and telephone companies.\893\
---------------------------------------------------------------------------
    \892\  See sec. 501(c)(12)(A). The IRS has interpreted the term 
``income,'' for purposes of the 85-percent test, as meaning gross 
income. Rev. Rul. 74-362, 1974-2 C.B. 170; IRS Audit Technique Guide--
Local Benevolent Life Insurance Association, Mutual Irrigation 
Companies and Like Organizations--IRC Section 501(c)(12).
    \893\ See sec. 501(c)(12)(B)-(H).
---------------------------------------------------------------------------
    Under Code section 118, the gross income of a corporation 
does not include any contribution to its capital. Public Law 
115-97 amended Code section 118 to provide that contributions 
to capital do not include contributions by any governmental 
entity or civic group (other than a contribution made by a 
shareholder as such).\894\ Thus, under present law, mutual or 
cooperative telephone or electric companies described in Code 
section 501(c)(12) generally must include such contributions in 
non-member income for purposes of the 85-percent test.
---------------------------------------------------------------------------
    \894\ Sec. 118(b)(2).
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, in the case of a mutual or cooperative 
telephone or electric company described in Code section 
501(c)(12), the 85-percent test shall be applied without taking 
into account: (i) any grant, contribution, or assistance 
provided pursuant to the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act or any similar grant, contribution, or 
assistance by any local, State, or regional governmental entity 
for the purposes of relief, recovery, or restoration from, or 
preparation for, a disaster or emergency; or (ii) any grant or 
contribution by any governmental entity (other than a 
contribution in aid of construction or any other contribution 
as a customer or potential customer) the purpose of which is 
substantially related to providing, constructing, restoring, or 
relocating electric, communication, broadband, internet, or 
other utility facilities or services.

                             Effective Date

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

2. Repeal of increase in unrelated business taxable income for certain 
fringe benefit expenses (sec. 302 of the Act and sec. 512(a)(7) of the 
                                 Code)


                              Present Law


Tax exemption for certain organizations

    Section 501(a) exempts certain organizations from Federal 
income tax. Such organizations include: (1) tax-exempt 
organizations described in section 501(c) (including among 
others section 501(c)(3) charitable organizations and section 
501(c)(4) social welfare organizations); (2) religious and 
apostolic organizations described in section 501(d); and (3) 
trusts forming part of a pension, profit-sharing, or stock 
bonus plan of an employer described in section 401(a).

Unrelated business income tax

    The unrelated business income tax (``UBIT'') generally 
applies to income derived from a trade or business regularly 
carried on by the organization that is not substantially 
related to the performance of the organization's tax-exempt 
functions.\895\ An organization that is subject to UBIT and 
that has $1,000 or more of gross unrelated business taxable 
income must report that income on Form 990-T (Exempt 
Organization Business Income Tax Return).
---------------------------------------------------------------------------
    \895\ Secs. 511-514.
---------------------------------------------------------------------------
    Most exempt organizations may operate an unrelated trade or 
business so long as the organization remains primarily engaged 
in activities that further its exempt purposes. Therefore, an 
organization may generally engage in a substantial amount of 
unrelated business activity without jeopardizing exempt status. 
A section 501(c)(3) (charitable) organization, however, may not 
operate an unrelated trade or business as a substantial part of 
its activities.\896\ Therefore, the unrelated trade or business 
activity of a section 501(c)(3) organization must be 
insubstantial.
---------------------------------------------------------------------------
    \896\ Treas. Reg. sec. 1.501(c)(3)-1(e).
---------------------------------------------------------------------------
    An organization determines its unrelated business taxable 
income by subtracting from its gross unrelated business income 
the deductions directly connected with the unrelated trade or 
business.\897\
---------------------------------------------------------------------------
    \897\ Sec. 512(a).
---------------------------------------------------------------------------

Organizations subject to tax on unrelated business income

    Most exempt organizations are subject to UBIT. 
Specifically, organizations subject to UBIT generally include: 
(1) organizations exempt from tax under section 501(a), 
including organizations described in section 501(c) (except for 
U.S. instrumentalities and certain charitable trusts);\898\ (2) 
qualified pension, profit-sharing, and stock bonus plans 
described in section 401(a);\899\ and (3) certain State 
colleges and universities.\900\
---------------------------------------------------------------------------
    \898\ Sec. 511(a)(2)(A).
    \899\ Sec. 511(a)(2)(A).
    \900\ Sec. 511(a)(2)(B).
---------------------------------------------------------------------------

Exclusions from unrelated business taxable income

    Certain types of income are specifically excluded from 
unrelated business taxable income, such as dividends, interest, 
royalties, and certain rents,\901\ unless derived from debt-
financed property or from certain 50-percent controlled 
subsidiaries.\902\ Certain types of activities are not 
considered unrelated trade or business activities, such as 
activities in which substantially all the work is performed by 
volunteers, which involve the sale of donated goods, or which 
are carried on for the convenience of members, students, 
patients, officers, or employees of a charitable 
organization.\903\ Additional activities exempt from UBIT 
include certain activities of trade shows and State fairs,\904\ 
conducting bingo games,\905\ and the distribution of low-cost 
items incidental to the solicitation of charitable 
contributions.\906\
---------------------------------------------------------------------------
    \901\ Sec. 512(b).
    \902\ Sec. 512(b)(13).
    \903\ Sec. 513(a).
    \904\ Sec. 513(d).
    \905\ Sec. 513(f).
    \906\ Sec. 513(h).
---------------------------------------------------------------------------

Specific deduction against unrelated business taxable income

    In computing unrelated business taxable income, an exempt 
organization may take a specific deduction of $1,000. This 
specific deduction may not be used to create a net operating 
loss that will be carried back or forward to another year.\907\
---------------------------------------------------------------------------
    \907\ Sec. 512(b)(12).
---------------------------------------------------------------------------
    In the case of a diocese, province of a religious order, or 
a convention or association of churches, there is also allowed 
a specific deduction with respect to each parish, individual 
church, district, or other local unit. The specific deduction 
is equal to the lower of $1,000 or the gross income derived 
from any unrelated trade or business regularly carried on by 
the local unit.\908\
---------------------------------------------------------------------------
    \908\ Ibid.
---------------------------------------------------------------------------

Increase in unrelated business taxable income for certain fringe 
        benefit expenses

    Under section 512(a)(7), unrelated business taxable income 
of a tax-exempt organization is increased to the extent that a 
deduction is not allowable by reason of section 274 for any 
item with respect to qualified transportation fringe benefits 
\909\ or any parking facility used in connection with qualified 
parking.\910\  The determination of unrelated business taxable 
income associated with providing qualified transportation 
fringes, including parking facilities used in connection with 
qualified parking, is consistent with the determination of the 
deduction disallowance under section 274.\911\
---------------------------------------------------------------------------
    \909\ See sec. 132(f).
    \910\ See sec. 132(f)(5)(C).
    \911\ See sec. 274(a)(4).
---------------------------------------------------------------------------
    Section 512(a)(7) does not apply to any item directly 
connected with an unrelated trade or business that is regularly 
carried on by the organization. The Secretary is granted 
specific authority to issue regulations or other guidance 
necessary or appropriate to carry out the provision, including 
regulations or guidance providing for the appropriate 
allocation of depreciation and other costs with respect to 
facilities used for parking.\912\ The $1,000 specific deduction 
available to organizations under section 512(b)(12) remains in 
effect and may be used to offset unrelated business taxable 
income resulting from the application of section 512(a)(7).
---------------------------------------------------------------------------
    \912\ See IRS Notice 2018-99; Prop. Treas. Reg. sec. 1.274-12, 85 
Fed. Reg. 37599, June 2020.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision repeals section 512(a)(7) (the increase in 
unrelated business taxable income for certain fringe benefit 
expenses).

                             Effective Date

    The provision is effective as if included in the amendments 
made by section 13703 of Public Law 115-97 (i.e., for amounts 
paid or incurred after December 31, 2017).

     PART FOUR: VIRGINIA BEACH STRONG ACT (PUBLIC LAW 116-98) \913\
---------------------------------------------------------------------------

    \913\ H.R. 4566. The bill was introduced in the House of 
Representatives on September 27, 2019, and was passed by the House by 
voice vote on December 9, 2019. The Senate passed the bill without 
amendment by voice vote the next day. The President signed the bill on 
December 20, 2019.
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1. Special rules for contributions for relief of the families of the 
        mass shooting in Virginia Beach (sec. 2 of the Act)

                              Present Law

Tax exemption for charitable organizations
    Organizations described in section 501(c)(3) (generally, 
charitable organizations) are exempt from Federal income 
taxation under section 501(a). A section 501(c)(3) organization 
must be organized and operated exclusively for exempt purposes, 
and no part of the net earnings of such an organization may 
inure to the benefit of any private shareholder or individual. 
An organization is not organized or operated exclusively for 
one or more exempt purposes unless the organization serves a 
public rather than a private interest. Thus, an organization 
described in section 501(c)(3) generally must serve a 
charitable class of persons that is indefinite or of sufficient 
size.
Deduction for charitable contributions
    In general, under present law, taxpayers may claim an 
income tax deduction for charitable contributions. A charitable 
contribution generally is a contribution or gift to or for the 
use of an organization described in section 170(c) (describing 
certain charitable, governmental, and other organizations). 
Contributions to individuals generally are not deductible as 
charitable contributions.
    A donor who claims a charitable deduction for a 
contribution of money, regardless of amount, must maintain as a 
record of the contribution a bank record or a written 
communication from the donee showing the name of the donee 
organization, the date of the contribution, and the amount of 
the contribution.\914\ In addition to the foregoing 
recordkeeping requirements, substantiation requirements apply 
in the case of charitable contributions with a value of $250 or 
more.\915\ No charitable deduction is allowed for any 
contribution of $250 or more unless the taxpayer substantiates 
the contribution by a contemporaneous written acknowledgment of 
the contribution by the donee organization.
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    \914\ Sec. 170(f)(17).
    \915\ Sec. 170(f)(8).
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                        Explanation of Provision

    The provision clarifies that a cash contribution made on or 
after May 31, 2019, for the exclusive benefit of the families 
of the dead or wounded victims of the mass shooting in Virginia 
Beach, Virginia, that occurred on May 31, 2019, will not fail 
to qualify for a charitable deduction merely because the 
contribution is for the exclusive benefit of such families.
    Under the provision, certain payments by an organization 
are treated as: (1) related to the purpose or function 
constituting the basis for the organization's exempt status; 
and (2) are not treated as inuring to the benefit of any 
private individual, if the payments are made in good faith 
using a reasonable and objective formula that is consistently 
applied. Such payments are payments made: (1) on or after May 
31, 2019, and on or before June 1, 2021 (2) to the spouse or 
any dependent (as defined in section 152 of the Code) of the 
dead or wounded victims of the mass shooting in Virginia Beach, 
Virginia, that occurred on May 31, 2019 (3) by an organization 
that is exempt from tax under section 501(a) (determined 
without regard to such payments).

                             Effective Date

    The provision is effective on the date of enactment 
(December 20, 2019).

PART FIVE: FAMILIES FIRST CORONAVIRUS RESPONSE ACT (PUBLIC LAW 116-127) 
                                 \916\
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    \916\ H.R. 6201. The bill was introduced in the House of 
Representatives on March 11, 2020, and was passed by the House on March 
14, 2020. The Senate passed the bill without amendment on March 18, 
2020. The President signed the bill the same day.
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DIVISION G--TAX CREDITS FOR PAID SICK AND PAID FAMILY AND MEDICAL LEAVE

                              Present Law

Federal employment taxes
    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include taxes imposed 
under the Federal Insurance Contributions Act (``FICA''), the 
Federal Unemployment Tax Act (``FUTA''), and Federal income 
tax.\917\ In addition, Tier 1 of the Railroad Retirement Tax 
Act (``RRTA'') imposes a tax on compensation paid to railroad 
employees and representatives.\918\
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    \917\ Secs. 3101, 3111, 3301, and 3401.
    \918\ Sec. 3221.
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    FICA taxes are comprised of two components: the Old-Age, 
Survivors, and Disability Insurance (``OASDI'') and Hospital 
Insurance (``Medicare'').\919\ With respect to OASDI taxes, the 
applicable rate is 12.4 percent with half of such rate (6.2 
percent) imposed on the employee and the remainder (6.2 
percent) imposed on the employer.\920\ The tax is assessed on 
covered wages up to the OASDI wage base ($137,700 in 
2020).\921\ Generally, the OASDI wage base rises based on 
increases in the national average wage index.\922\
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    \919\ The Hospital Insurance tax includes two components: Medicare 
tax and Additional Medicare tax. Additional Medicare taxes are imposed 
on wages in excess of certain thresholds and are only imposed on the 
employee. Sec. 3101(b). There is no employer match for Additional 
Medicare tax. For purposes of this explanation, when referencing 
Medicare taxes, the term does not include Additional Medicare tax.
    \920\ Sec. 3101.
    \921\ Indexed for inflation, the OASDI wage base is $142,800 in 
2021.
    \922\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
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    The employee portion of OASDI taxes must be withheld and 
remitted to the Federal government by the employer during the 
quarter, as required by the applicable deposit rules.\923\ The 
employer is liable for the employee portion of OASDI taxes, in 
addition to its own share, whether or not the employer 
withholds the amount from the employee's wages.\924\ OASDI and 
Medicare taxes are generally allocated by statute among 
separate trust funds: the OASDI Trust Funds, Medicare's 
Hospital Insurance Trust Fund, and Supplementary Medical 
Insurance Trust Fund.\925\
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    \923\ Sec. 3102(a) and Treas. Reg. sec. 31.3121(a)-2. Sec. 6302.
    \924\ Sec. 3102(b).
    \925\ Secs. 201 and 1817 of the Social Security Act, Pub. L. No. 
74-271 as amended (42 U.S.C. secs. 401 and 1395i). Section 201, 42 
U.S.C. sec. 402. This section appropriates to the OASI and DI trust 
funds 100 percent ``the taxes imposed . . . by chapter 21 (other than 
sections 3101(b) and 3111(b) [i.e., current sections 3101(a) and 
3111(a)]) of the Internal Revenue Code of 1954 with respect to wages 
(as defined in section 3121 of such Code)'' ``determined by the 
Secretary of the Treasury by applying the applicable rates of tax under 
such subchapter or chapter 21 (other than sections 3101(b) and 3111(b)) 
to such wages.'' Accordingly, the amount appropriated is based on the 
tax rate in effect on wages as defined in the statute. Similarly, 
section 1817 of the Social Security Act, 42 U.S.C. sec. 1395i, 
appropriates to the HI trust fund 100 percent of ``the taxes imposed by 
sections 3101(b) and 3111(b) of the Internal Revenue Code of 1986 with 
respect to wages reported to the Secretary of the Treasury or his 
delegate pursuant to subtitle F of such Code after December 31, 1965, 
as determined by the Secretary of the Treasury by applying the 
applicable rates of tax under such sections to such wages.''
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    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\926\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes salaries, vacation allowances, bonuses, deferred 
compensation, commissions, and fringe benefits. The term 
``employment'' is generally defined for FICA tax purposes as 
any service, of whatever nature, performed by an employee for 
the person employing him or her, with certain specific 
exceptions.
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    \926\ Sec. 3121(a).
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            OASDI Trust Funds
    The taxes related to the OASDI program collected from FICA 
and under the Self-Employment Contributions Act (``SECA'') are 
deposited into two separate OASDI Trust Funds: (1) the Old-Age 
and Survivors Insurance (``OASI'') Trust Fund which pays 
retirement and survivor benefits, and (2) the Disability 
Insurance (``DI'') Trust Fund which pays disability 
benefits.\927\ The major source of income to the OASDI Trust 
Funds is employment taxes, specifically FICA and SECA. The 
OASDI Trust Funds are financial accounts in the U.S. Treasury. 
The only purposes for which these trust funds can be used are 
to pay benefits and program administrative costs. A fixed 
proportion (dependent on the allocation of tax rates by trust 
fund) of the taxes received under FICA and SECA is deposited in 
the OASI Trust Fund to the extent that such taxes are not 
needed immediately to pay expenses. Taxes are deposited in the 
fund on every business day and the Railroad Retirement Board 
(``RRB''). The SSA collects taxes to fund the program, while 
the RRB is tasked with distributing benefits to eligible 
railroad industry employees and their family members to provide 
income assurance during retirement. These two governing bodies 
cooperate in determining an individual's benefits.
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    \927\ 42 U.S.C. sec. 401.
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Railroad retirement program
    Railroad workers do not participate in the OASDI system. 
Compensation subject to RRTA tax is exempt from FICA 
taxes.\928\ Instead, the railroad retirement system, while 
separate from and parallel to the Social Security 
Administration (``SSA''), is overseen by the SSA
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    \928\ Sec. 3121(b)(9).
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            RRTA tax rates
    The RRTA imposes a tax on compensation paid by covered 
employers to employees in recognition for the performance of 
services.\929\ Employees whose compensation is subject to RRTA 
are ultimately eligible for railroad retirement benefits that 
fall under a two-tier structure. Rail employees and employers 
pay tier 1 taxes at the same rate as other employment 
taxes.\930\ In addition, rail employees and employers both pay 
tier 2 taxes which are used to finance railroad retirement 
benefits over and above social security benefit levels.\931\ 
Tier 2 benefits are similar to a private defined benefit 
pension. Those taxes are funneled to the railroad retirement 
system and used to fund basic retirement benefits for railroad 
workers and an investment trust that generates returns for the 
pension fund.
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    \929\ Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the Social Security and Medicare taxes under FICA. Under 
the RRTA, employers and employees are also subject to an additional 
tax, referred to as the ``tier 2'' tax, on compensation up to a certain 
amount.
    \930\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $137,700 in 2020, and 1.45 percent for Medicare hospital 
insurance on all earnings. An additional 0.9 percent in Medicare taxes 
are withheld from employees on earnings above $200,000.
    \931\ In 2020, the tier 2 tax rate on earnings up to $102,300 is 
4.9 percent for employees and 13.1 percent for employers.
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            Coordination between OASDI Trust Funds and RRB's Social 
                    Security Equivalent Benefit Fund 
    The railroad retirement system and the OASDI programs have 
been coordinated financially since 1951. The purpose of the 
financial interchange is to place the OASDI Trust Funds in the 
same position they would have been in if railroad employment 
had been covered under OASDI since its inception. Generally, 
under the interchange, for a given fiscal year there is 
computed the revenue that would have been collected by the 
OASDI Trust Funds if railroad employment had been covered 
directly by the SSA. This amount is netted against the amount 
of benefits SSA would have paid to railroad beneficiaries based 
on railroad and nonrailroad earnings during that period. Where 
OASDI benefits that would have been paid exceed revenue to the 
trust funds that would have been due, the excess, plus an 
allowance for interest and administrative expenses, is 
transferred from the OASDI Trust Funds to the RRB's Social 
Security Equivalent Benefit Account. If revenue exceeds 
benefits, the RRB would transfer an amount equal to the 
difference from the RRB's Social Security Equivalent Benefit 
Account to the OASDI Trust Funds.
OASDI and Medicare benefits
    The OASDI program under the Social Security Act provides 
for the payment of benefits to individuals based on wages 
earned as an employee and credited to the employee's earnings 
record.\932\ Eligibility for Medicare coverage under the Social 
Security Act generally is based on eligibility for OASDI 
benefits and, thus, on wages credited to an employee's earnings 
record.\933\ The definitions of ``wages'' and ``employment'' 
for purposes of OASDI and Medicare eligibility are similar to 
those definitions for FICA tax purposes described above.\934\
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    \932\ OASDI benefits are provided by Title II of the Social 
Security Act (42 U.S.C. secs. 401 et seq.).
    \933\  Sec. 226 of the Social Security Act (42 U.S.C. sec. 426).
    \934\ Secs. 209 and 210 of the Social Security Act (42 U.S.C. secs. 
409 and 410).
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Self-employment taxes
    SECA imposes tax on the self-employment income of an 
individual. SECA taxes consist of OASDI tax and Medicare 
tax.\935\ Under the OASDI component, the rate of tax is 12.4 
percent on self-employment income up to the OASDI wage base 
($137,700 for 2020).\936\ Under the basic Medicare tax 
component, the second rate of tax is 2.9 percent of all self-
employment income (without regard to the OASDI wage base).\937\ 
As is the case with employees, an additional Medicare tax 
applies to the Medicare portion of SECA tax on self-employment 
income in excess of a threshold amount.\938\
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    \935\ Secs. 1401(a), 1401(b).
    \936\ Sec. 1401(a). In calculating the SECA tax for OASDI, the 
OASDI wage base taken into account is reduced by FICA wages paid to the 
individual during the taxable year.
    \937\ Sec. 1401(b)(1).
    \938\ Sec. 1401(b)(2).
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    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment is the gross income derived by an 
individual from any trade or business less allowed deductions 
which are attributable to the trade or business and permitted 
under the SECA rules. Certain passive income and related 
deductions are not taken into account in determining net 
earnings from self-employment, including rentals from real 
estate unless received in the course of a trade or business as 
a real estate dealer,\939\ dividends and interest unless such 
dividends and interest are received in the course of a trade or 
business as a dealer in stocks or securities,\940\ and sales or 
exchanges of capital assets and certain other property unless 
the property is stock in trade which would properly be included 
in inventory or held primarily for sale to customers in the 
ordinary course of the trade or business.\941\
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    \939\ Sec. 1402(a)(1).
    \940\ Sec. 1402(a)(2).
    \941\ Sec. 1402(a)(3).
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    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI and Medicare, i.e., 7.65 percent 
of net earnings.\942\ This deduction is determined without 
regard to the 0.9 percent Additional Medicare tax that may 
apply to an individual. This deduction reflects the fact that 
the FICA rates apply to an employee's wages, which do not 
include FICA taxes paid by the employer, whereas the self-
employed individual's net earnings are economically equivalent 
to an employee's wages plus the employer share of FICA 
taxes.\943\ This is generally referred to as the ``regular 
method'' of determining net earnings from self-employment, and 
in Internal Revenue Service forms and publications is expressed 
as multiplying total net earnings from self-employment by 92.35 
percent.
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    \942\ Sec. 1402(a)(12).
    \943\  The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid. As presently written, the deduction for 
SECA taxes is not the exact economic equivalent to the deduction for 
FICA taxes. See Joint Committee on Taxation, Options to Improve Tax 
Compliance and Reform Tax Expenditures, (JCS-2-05), January 27, 2005, 
for a detailed description of this issue.
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Employment tax and income tax in the U.S. territories
            FICA tax
    Employers and employees in the U.S. territories are 
generally subject to FICA payroll tax obligations.\944\ In 
contrast, employers and employees in the territories are 
generally not subject to withholding at the source for Federal 
income tax, although they are subject to withholding of local 
taxes.\945\ These payroll obligations of the employers are 
generally applicable to Federal agencies with personnel in the 
territory. Employers in the territories file quarterly tax 
returns with the Federal government to report and pay FICA 
taxes for employees in the respective territories.
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    \944\ The U.S. territories referred to in this document are 
American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, 
Puerto Rico, and the U.S. Virgin Islands.
    \945\ Under section 3401(a)(8), most wages paid to U.S. persons for 
services performed in one of the territories are excluded if the 
payments are subject to withholding by the territory, or, in the case 
of Puerto Rico, the payee is a bona fide resident of the territory for 
the full year.
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            Income tax
    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. 
territories 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 source of income specific to the territory.
    The application of the Federal income tax rules to the 
territories varies from one territory to another. Three 
territories, Guam, the Commonwealth of the Northern Mariana 
Islands, and the U.S. Virgin Islands, are referred to as mirror 
Code territories because the Code serves as the internal tax 
law of those territories (substituting the particular territory 
for the United States wherever the Code refers to the United 
States). A resident of one of those territories generally files 
a single tax return only with the territory of which the 
individual is a resident, and not with the United States.\946\ 
Income tax paid by a bona fide resident of a mirror Code 
territory generally is allocated between the U.S. government 
and the territory government under special rules administered 
by the U.S. Treasury Department and the revenue authority of 
the territory government.
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    \946\ Sec. 932 and former sec. 935.
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    American Samoa and Puerto Rico, by contrast, are referred 
to as non-mirror Code territories that have their own internal 
tax laws. A resident of either American Samoa or Puerto Rico 
may be required to file income tax returns with both the 
territory of residence and the United States. In general, U.S.-
source income and other income from outside the territory of 
residence is included on a U.S. income tax return, and income 
from sources within the territory of residence is reported on 
the territory income tax return.
1. Payroll credit for required paid sick leave (sec. 7001 of the Act)

                        Explanation of Provision

In general
    Under the provision, an employer is allowed a credit 
against the Old-Age, Survivors, and Disability Insurance Act 
(``OASDI'') tax or Railroad Retirement Tax Act (``RRTA'') tax 
imposed on the employer for each calendar quarter in an amount 
equal to 100 percent of the qualified sick leave wages paid by 
the employer with respect to that calendar quarter, subject to 
the limits described below. The provision defines qualified 
sick leave wages as wages (as defined in section 3121(a)) and 
compensation (as defined in section 3231(e)) paid by an 
employer which are required to be paid by reason of Division E 
of the bill, the Emergency Paid Sick Leave Act (``EPSLA''). As 
described below, the credit may be increased by certain health 
plan expenses of the employer.
    The EPSLA requires certain employers to provide an employee 
with paid sick time to the extent that the employee is unable 
to work or telework due to a need for leave because: (1) the 
employee is subject to a Federal, State, or local quarantine or 
isolation order related to COVID-19; (2) the employee has been 
advised by a health care provider to self-quarantine due to 
concerns related to COVID-19; (3) the employee is experiencing 
symptoms of COVID-19 and seeking a medical diagnosis; (4) the 
employee is caring for an individual who is subject to an order 
described in clause (1) or has been advised as described in 
clause (2); (5) the employee is caring for the employee's son 
or daughter if the school or place of care of the son or 
daughter has been closed, or the child care provider of such 
son or daughter is unavailable due to COVID-19 precautions; or 
(6) the employee is experiencing any other substantially 
similar condition specified by the Secretary of Health and 
Human Services in consultation with the Secretary of the 
Treasury and the Secretary of Labor.\947\
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    \947\ Division E of the bill, sec. 5102(a).
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Credit against OASDI and RRTA tax
    The provision limits the amount of qualified sick leave 
wages taken into account with respect to an individual for 
purposes of the credit. The provision provides different 
limitations for different circumstances under which qualified 
sick leave wages are paid. In the case of paid sick time 
qualifying under clauses (1), (2), or (3) above, the amount of 
qualified sick leave wages taken into account for purposes of 
the credit may not exceed $511 for any day (or any portion 
thereof) for which the individual is paid such sick time. In 
the case of paid sick time qualifying under clauses (4), (5), 
or (6) above, the amount of qualified sick leave wages taken 
into account may not exceed $200 for any day (or portion 
thereof) for which the individual is paid such sick time. In 
addition, the provision provides that the aggregate number of 
days taken into account for the calendar quarter with respect 
to an individual under all clauses may not exceed the excess 
(if any) of 10 over the aggregate number of days so taken into 
account for all preceding calendar quarters.
    The credit allowed is increased under the provision by so 
much of the employer's qualified health plan expenses as are 
properly allocable to the qualified sick leave wages for which 
the credit is allowed. Qualified health plan expenses are 
amounts paid or incurred by the employer to provide and 
maintain a group health plan,\948\ but only to the extent such 
amounts are excluded from the employees' income as coverage 
under an accident or health plan.\ 949\ Qualified health plan 
expenses are allocated to qualified sick leave wages in such 
manner as the Secretary of the Treasury (or the Secretary's 
delegate) may prescribe. Except as otherwise provided by the 
Secretary, such allocations is treated as properly made under 
the provision if made on the basis of being pro rata among 
covered employees and pro rata on the basis of periods of 
coverage (relative to the time periods of leave to which such 
wages relate).
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    \948\ Group health plan for this purpose is defined in section 
5000(b)(1).
    \949\ For the exclusion, see section 106(a).
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    The provision provides that the credit allowed may not 
exceed the OASDI tax or RRTA tax imposed on the employer, 
reduced by any credits allowed for the employment of qualified 
veterans \ 950\ and research expenditures of qualified small 
businesses \951\ for that calendar quarter on the wages paid 
with respect to all the employer's employees. However, if for 
any calendar quarter the amount of the credit exceeds the OASDI 
tax or RRTA tax imposed on the employer, reduced as described 
in the prior sentence, such excess is treated as a refundable 
overpayment.\952\
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    \950\ This credit is described in section 3111(e).
    \951\ This credit is described in section 3111(f).
    \952\ The excess is treated as an overpayment and refunded under 
sections 6402(a) and 6413(b). In addition, any amount that is due to an 
employer is treated in the same manner as a refund due from a credit 
provision. 31 U.S.C. sec. 1324. Thus, amounts are appropriated to the 
Secretary of the Treasury for refunding such excess amounts.
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    If an employer claims a credit under this provision, the 
amount so claimed is included in gross income. Thus, the credit 
is not taken into account for purposes of determining any 
amount allowable as a payroll tax deduction, deduction for 
qualified sick leave wages, or deduction for health plan 
expenses (or any amount capitalizable to basis). For example, 
assume an employer claims a credit of $5,510 for $5,110 of 
qualified sick leave wages and $400 of health plan expenses 
paid during the quarter. Under the provision, the employer has 
an offsetting income inclusion amount of $5,510, and the 
employer may deduct $5,110 of qualified sick leave wages and 
$400 of health plan expenses (assuming such costs are not 
subject to capitalization). In addition, the employer's income 
tax deduction for any tax imposed by section 3111(a) or 
3221(a), the employer's share of OASDI or RRTA tax, for such 
quarter will not be reduced.\953\
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    \953\ Note that the qualified sick leave wages paid are not subject 
to the tax imposed by section 3111(a) or 3221(a). Employers also 
receive an increase in the otherwise available credit in the amount of 
the tax imposed by section 3111(b) on qualified sick leave wages.
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    Any qualified sick leave wages taken into account under the 
provision are not taken into account for purposes of 
determining a section 45S credit.\954\ Thus, the employer may 
not claim a credit under section 45S with respect to the 
qualified sick leave wages paid, but may be able to take a 
credit under section 45S with respect to any additional wages 
paid, provided the requirements of section 45S are met with 
respect to the additional wages.
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    \954\ Section 45S provides an employer credit for certain paid 
family and medical leave.
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    Under the provision, an employer may elect, at such time 
and in such manner as provided by the Secretary of the Treasury 
(or the Secretary's delegate), to have the provision not apply 
to such employer for a calendar quarter. Further, the credit 
allowed under this provision does not apply to the Government 
of the United States, the government of any State or political 
subdivision thereof, or any agency or instrumentality of any of 
those entities. Under the provision, employers in the U.S. 
territories may claim the credit by filing their quarterly 
Federal employment tax returns.
    The provision provides that the Secretary of the Treasury 
(or the Secretary's delegate) shall prescribe such regulations 
or other guidance as may be necessary to carry out the purposes 
of this provision, including regulations or other guidance: (1) 
to prevent the avoidance of the purposes of the limitations 
under this provision; (2) to minimize compliance and record-
keeping burdens under this provision; (3) providing for waiver 
of penalties for failure to deposit amounts in anticipation of 
the allowance of the credit under this provision; (4) for 
recapturing the benefit of credits determined under this 
provision in cases where there is a subsequent adjustment to 
the credit; and (5) to ensure that the wages taken into account 
under this provision conform with the paid sick time required 
to be provided under the EPSLA.\955\ With respect to clause 
(5), it is intended that the Secretary of the Treasury (or the 
Secretary's delegate) be provided broad authority to ensure 
qualified sick leave wages under this provision includes paid 
sick time required to be paid under the EPSLA.
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    \955\ Division E of the bill.
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    Under the provision, amounts are appropriated to the OASDI 
Trust Funds and the Social Security Equivalent Benefit Account 
established under the Railroad Retirement Act of 1974 \ 956\ 
equal to the reduction in revenues to the Treasury by reason of 
the provision. Such amounts are transferred from the general 
fund at such times and in such manner as to replicate to the 
extent possible the transfers that would have occurred to the 
OASDI Trust Funds or Social Security Equivalent Benefit Account 
had this provision not been enacted.\957\
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    \956\ Sec. 15A(a) (45 U.S.C. sec. 231n-1(a)).
    \957\ The amounts appropriated are determined according to the tax 
rate in effect on wages, as described above, according to the Social 
Security Act.
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    The IRS has subsequently implemented this provision.\958\
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    \958\ Notice 2020-54, 2020-31 I.R.B. 226, July 27, 2020.
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                             Effective Date

    The provision is effective on the date of enactment (March 
18, 2020). The provision applies for the period that begins on 
a date within 15 days of the date of enactment, prescribed by 
the Secretary of the Treasury (or the Secretary's delegate), 
and that ends on December 31, 2020.
2. Credit for sick leave for certain self-employed individuals (sec. 
        7002 of the Act)

                        Explanation of Provision

In general
    Under the provision, an eligible self-employed individual 
is allowed an income tax credit for any taxable year for a 
qualified sick leave equivalent amount, as described below. An 
eligible self-employed individual is defined as an individual 
who regularly carries on any trade or business \ 959\ and would 
be entitled to receive paid leave during the taxable year under 
Division E of the bill, the Emergency Paid Sick Leave Act 
(``EPSLA''), if the individual were an employee of an employer 
(other than himself or herself) that is subject to the 
requirements of the Act.
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    \959\ Within the meaning of sec. 1402.
---------------------------------------------------------------------------
    The EPSLA requires certain employers to provide an employee 
with paid sick time to the extent that the employee is unable 
to work or telework due to a need for leave because: (1) the 
employee is subject to a Federal, State, or local quarantine or 
isolation order related to COVID-19; (2) the employee has been 
advised by a health care provider to self-quarantine due to 
concerns related to COVID-19; (3) the employee is experiencing 
symptoms of COVID-19 and seeking a medical diagnosis; (4) the 
employee is caring for an individual who is subject to an order 
described in clause (1) or has been advised as described in 
clause (2); (5) the employee is caring for the employee's son 
or daughter if the school or place of care of the son or 
daughter has been closed, or the child care provider of such 
son or daughter is unavailable due to COVID-19 precautions; or 
(6) the employee is experiencing any other substantially 
similar condition specified by the Secretary of Health and 
Human Services in consultation with the Secretary of the 
Treasury and the Secretary of Labor.\960\
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    \960\ Division E of the bill, sec. 5102(a).
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Qualified sick leave equivalent amount
    The qualified sick leave equivalent amount with respect to 
an eligible self-employed individual is an amount equal to the 
number of days during the taxable year that the self-employed 
individual cannot perform services for which that individual 
would have been entitled to sick leave pursuant to the EPSLA 
\961\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (a) $511 in the case 
of paid sick time described in clauses (1), (2), or (3) above 
($200 in the case of paid sick time described in clauses (4), 
(5), or (6) above); or (b) 100 percent of the average daily 
self-employment income of the individual for the taxable year 
in the case of any day of paid sick time described in clauses 
(1), (2), or (3) above (67 percent in the case of paid sick 
time described in clauses (4), (5), or (6) above).
---------------------------------------------------------------------------
    \961\  Division E of the bill.
---------------------------------------------------------------------------
    The number of days taken into account in determining the 
qualified sick leave equivalent amount may not exceed, with 
respect to any taxable year, 10 days, taking into account any 
days taken in all preceding taxable years. The individual's 
average daily self-employment income under the provision is an 
amount equal to the net earnings from self-employment for the 
taxable year divided by 260.
Additional rules
    The provision provides that the credit allowed is 
refundable.\962\ No credit is allowed to an individual unless 
the individual maintains such documentation as the Secretary of 
Treasury (or the Secretary's delegate) may prescribe to 
establish that the individual is an eligible self-employed 
individual.
---------------------------------------------------------------------------
    \962\ Any refund due to an individual is treated in the same manner 
as a refund due from a credit provision. 31 U.S.C. sec. 1324. Thus, 
amounts are appropriated to the Secretary of the Treasury for refunding 
such amounts.
---------------------------------------------------------------------------
    If an eligible self-employed individual receives qualified 
sick leave wages,\963\ the individual's qualified sick leave 
equivalent amount determined under the provision is reduced 
(but not below zero) to the extent that the sum of the 
qualified sick leave equivalent amount and the qualified sick 
leave wages received exceeds $2,000 ($5,110 in the case of any 
day any portion of which is paid sick time described in clause 
(1), (2), or (3) above, with respect to section 5102(a) of the 
EPSLA). For example, assume that an eligible self-employed 
individual's qualified sick leave equivalent amount is $1,500, 
but the individual also works for a covered employer under the 
EPSLA and received qualified sick leave wages under clause (5) 
above (with respect to section 5102(a) of such Act) of $1,000 
to care for the individual's son or daughter while school was 
closed due to COVID-19. The individual's qualified sick leave 
equivalent amount would be reduced by $500,\964\ resulting in a 
credit under the provision of $1,000.\965\
---------------------------------------------------------------------------
    \963\ As defined by sec. 7001(c) of the Act, described above.
    \964\ ($1,500 + $1,000)-$2,000 = $500.
    \965\ $1,500-$500 = $1,000.
---------------------------------------------------------------------------
Application of credit in certain territories
    Under the provision, the Secretary of the Treasury (or the 
Secretary's delegate) is directed to make payments to each 
territory with a mirror Code tax system that relate to the cost 
(if any) of each territory's credits for sick leave for certain 
self-employed individuals. The Secretary is further directed to 
make similar payments to each non-mirror Code territory.
    With respect to mirror Code territories, the Secretary 
makes payments equal to the loss in revenue by reason of the 
application of the credit for sick leave for certain self-
employed individuals to the territory's mirror Code. This 
amount is determined by the Secretary based on information 
provided by the governments of the respective territories.
    With respect to Puerto Rico and American Samoa (non-mirror 
Code territories), the Secretary is directed to make payments 
in an amount estimated by the Secretary as being equal to the 
aggregate benefits that would have been provided to the 
residents of each territory from the credit for sick leave for 
certain self-employed individuals if a mirror Code tax system 
had been in effect in such territory. These payments will not 
be made unless the territory has a plan approved by the 
Secretary to promptly distribute the payments to its residents.
Regulatory authority
    The Secretary of the Treasury (or the Secretary's delegate) 
is directed to prescribe such regulations or other guidance as 
may be necessary to carry out the purposes of the bill, 
including (1) to effectuate the purposes of this provision, and 
(2) to minimize compliance and record-keeping burdens under the 
provision. The IRS has subsequently implemented this 
provision.\966\
---------------------------------------------------------------------------
    \966\ Notice 2020-54, 2020-31 I.R.B. 226, July 27, 2020.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment (March 
18, 2020). The only days that may be taken into account in 
determining the qualified sick leave equivalent amount are days 
occurring during the period beginning on a date selected by the 
Secretary of the Treasury (or the Secretary's delegate) which 
is during the 15-day period beginning on the date of enactment 
and ending on December 31, 2020.
3. Payroll credit for required paid family leave (sec. 7003 of the Act)

                        Explanation of Provision

In general
    Under the provision, an employer is allowed a credit 
against the Old-Age, Survivors, and Disability Insurance 
(``OASDI'') tax or Railroad Retirement Tax Act (``RRTA'') tax 
imposed on the employer for each calendar quarter in an amount 
equal to 100 percent of the qualified family leave wages paid 
by the employer with respect to that calendar quarter, subject 
to the limits described below. The provision defines qualified 
family leave wages as wages (within the meaning of section 
3121(a)) and compensation (within the meaning of section 
3231(e)) paid by an employer by reason of Division C of the 
bill, the Emergency Family and Medical Leave Expansion Act 
(``EFMLEA''). As described below, the credit may be increased 
by certain health plan expenses of the employer.
    The EFMLEA requires certain employers to provide public 
health emergency leave to employees under the Family and 
Medical Leave Act of 1993 (``FMLA'').\967\ This requirement 
generally applies when an employee is unable to work or 
telework due to a need for leave to care for a son or daughter 
under age 18 because the school or place of care has been 
closed, or the child care provider is unavailable, due to a 
public health emergency. The bill defines a public health 
emergency as an emergency with respect to COVID-19 declared by 
a Federal, State, or local authority. An employer that is 
required to provide this additional family and medical leave is 
allowed a tax credit in respect of the leave.
---------------------------------------------------------------------------
    \967\ Division C of the bill, section 3102.
---------------------------------------------------------------------------
    The first 10 days of public health emergency leave required 
under the EFMLEA may consist of unpaid leave, after which paid 
leave is required. The paid leave is for the duration of the 
period provided in the EFMLEA, which is a maximum of 10 weeks. 
The amount of required paid leave under the provision is based 
on an amount not less than two-thirds of an employee's regular 
rate of pay, and the number of hours the employee would 
otherwise be normally scheduled to work. Additional guidance is 
provided for employees with varying schedules. The paid leave 
mandated by the EFMLEA may not exceed $200 per day and $10,000 
in the aggregate.
Credit against OASDI and RRTA tax
    Under the provision, employers are allowed a credit against 
OASDI or RRTA taxes in an amount equal to 100 percent of 
qualified family leave wages paid by the employer during the 
quarter. Qualified family leave wages for purposes of the 
credit means wages \968\ and compensation \969\ paid by an 
employer which were required to be paid pursuant to the EFMLEA. 
The maximum amount of qualified family leave wages eligible for 
the credit is $200 for any day (or portion thereof) for which 
the employee is paid qualified family leave wages, and in the 
aggregate with respect to all calendar quarters, $10,000. The 
credit is not allowed in respect of unpaid leave.
---------------------------------------------------------------------------
    \968\ Sec. 3121(a) (defining wages for FICA tax purposes).
    \969\ Sec. 3221(a) (defining compensation for RRTA tax purposes).
---------------------------------------------------------------------------
    The credit allowed is increased under the provision by so 
much of the employer's qualified health plan expenses as are 
properly allocable to the qualified family leave wages for 
which the credit is allowed. The provision defines qualified 
health plan expenses as amounts paid or incurred by the 
employer to provide and maintain a group health plan,\970\ but 
only to the extent such amounts are excluded from the 
employees' income as coverage under an accident or health 
plan.\971\ Qualified health plan expenses are allocated to 
qualified family leave wages in such manner as the Secretary of 
the Treasury (or the Secretary's delegate) may prescribe. 
Except as otherwise provided by the Secretary, such allocations 
are treated as properly made under the provision if made on the 
basis of being pro rata among covered employees and pro rata on 
the basis of periods of coverage (relative to the time periods 
of leave to which such wages relate).
---------------------------------------------------------------------------
    \970\ Group health plan for this purpose is defined in section 
5000(b)(1).
    \971\ For the exclusion, see section 106(a).
---------------------------------------------------------------------------
    The provision provides that the credit allowed may not 
exceed the OASDI tax or RRTA tax imposed on the employer, 
reduced by any credits allowed for the employment of qualified 
veterans \972\ and research expenditures of qualified small 
businesses \973\ for that calendar quarter on the wages paid 
with respect to all of the employer's employees. However, if 
for any calendar quarter the amount of the credit exceeds the 
OASDI tax or RRTA tax imposed on the employer, reduced as 
described under the prior sentence, such excess is treated as a 
refundable overpayment.\974\
---------------------------------------------------------------------------
    \972\ This credit is described in section 3111(e).
    \973\ This credit is described in section 3111(f).
    \974\ The excess is treated as an overpayment and refunded under 
sections 6402(a) and 6413(b). In addition, any amount that is due to an 
employer is treated in the same manner as a refund due from a credit 
provision. 31 U.S.C. sec. 1324. Thus, amounts are appropriated to the 
Secretary of the Treasury for refunding such excess amounts.
---------------------------------------------------------------------------
    If an employer claims a credit under this provision, the 
amount so claimed is included in gross income. Thus, the credit 
is not taken into account for purposes of determining any 
amount allowable as a payroll tax deduction, deduction for 
qualified family leave wages, or deduction for health plan 
expenses (or any amount capitalizable to basis). For example, 
assume an employer claims a credit of $2,700 for $2,500 of 
qualified family leave wages and $200 of health plan expenses 
paid during the quarter. Under the provision, the employer will 
have an offsetting income inclusion amount of $2,700, and the 
employer may deduct $2,500 of qualified family leave wages and 
$200 of health plan expenses (assuming such costs are not 
subject to capitalization). In addition, the employer's income 
tax deduction for any tax imposed by section 3111(a) or 
3221(a), the employer's share of OASDI or RRTA tax, for such 
quarter will not be reduced.\975\
---------------------------------------------------------------------------
    \975\ Note that the qualified family leave wages paid are not 
subject to the tax imposed by section 3111(a) or 3221(a). Employers 
also receive an increase in the otherwise available credit in the 
amount of the tax imposed by section 3111(b) on qualified family leave 
wages. See subsequent explanation of sec. 7005 of the bill.
---------------------------------------------------------------------------
    Any wages taken into account in determining the credit 
under this provision are not taken into account for purposes of 
determining the section 45S credit. Thus, the employer may not 
claim a credit under section 45S with respect to the qualified 
family leave wages paid, but may be able to take a credit under 
section 45S with respect to any additional wages paid, provided 
the requirements of section 45S are met with respect to the 
additional wages.
    Under the provision an employer may elect, at such time and 
in such manner as provided by the Secretary of the Treasury (or 
the Secretary's delegate), to have the provision not apply to 
the employer for a calendar quarter. The credit allowed under 
this provision does not apply to the Government of the United 
States, the government of any State or political subdivision 
thereof, or any agency or instrumentality of any of these 
entities. Under the provision, employers in the territories may 
claim the credit by filing their quarterly Federal employment 
tax returns.
    The provision provides that the Secretary of the Treasury 
(or the Secretary's delegate) shall prescribe such regulations 
or other guidance as may be necessary to carry out the purposes 
of the provision, including regulations or other guidance: (1) 
to prevent the avoidance of the purposes of the limitations 
under the provision; (2) to minimize compliance and record-
keeping burdens under the provision; (3) providing for waiver 
of penalties for failure to deposit amounts in anticipation of 
the allowance of the credit under the provision; (4) for 
recapturing the benefit of credits determined under the 
provision in cases where there is a subsequent adjustment to 
the credit; and (5) to ensure that the wages taken into account 
under the provision conform with the paid family leave required 
to be provided under the EFMLEA.\976\ With respect to clause 
(5), it is intended that the Secretary of the Treasury (or the 
Secretary's delegate) be provided broad authority to ensure 
qualified family leave wages under this provision includes paid 
sick time required to be paid under the EFMLEA.\977\
---------------------------------------------------------------------------
    \976\ Division C of the bill, sec. 3102.
    \977\ Ibid.
---------------------------------------------------------------------------
    Under the provision, amounts are appropriated to the OASDI 
Trust Funds and the Social Security Equivalent Benefit Account 
established under the Railroad Retirement Act of 1974 \978\ 
equal to the reduction in revenues to the Treasury by reason of 
the provision. Such amounts are transferred from the general 
fund at such times and in such manner as to replicate to the 
extent possible the transfers that would have occurred to the 
Trust Funds or Account had the provision not been enacted.
---------------------------------------------------------------------------
    \978\ Sec. 15A(a) (45 U.S.C. sec. 231n-1(a)).
---------------------------------------------------------------------------
    The IRS has subsequently implemented this provision.\979\
---------------------------------------------------------------------------
    \979\ Notice 2020-54, 2020-31 I.R.B. 226, July 27, 2020.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment (March 
18, 2020). The provision applies for the period that begins on 
a date, within 15 days of the date of enactment, prescribed by 
the Secretary of the Treasury (or the Secretary's delegate) and 
that ends on December 31, 2020.
4. Credit for family leave for certain self-employed individuals (sec. 
        7004 of the Act)

                        Explanation of Provision

In general
    Under the provision, an eligible self-employed individual 
is allowed an income tax credit for any taxable year for a 
qualified family leave equivalent amount, as described below. 
An eligible self-employed individual is defined as an 
individual who regularly carries on any trade or business \980\ 
and would be entitled to receive paid leave during the taxable 
year under Division C of the bill, the Emergency Family and 
Medical Leave Expansion Act (``EFMLEA''), if the individual 
were an employee of an employer (other than himself or herself) 
that is subject to the requirements of the Act.
---------------------------------------------------------------------------
    \980\ Within the meaning of sec. 1402.
---------------------------------------------------------------------------
    The EFMLEA requires certain employers to provide public 
health emergency leave to employees under the Family and 
Medical Leave Act of 1993 (``FMLA'').\981\ This requirement 
generally applies when an employee is unable to work or 
telework due to a need for leave to care for a son or daughter 
under age 18 because the school or place of care has been 
closed, or the child care provider is unavailable, due to a 
public health emergency. The bill defines a public health 
emergency as an emergency with respect to COVID-19 declared by 
a Federal, State, or local authority.
---------------------------------------------------------------------------
    \981\ Division C of the bill.
---------------------------------------------------------------------------
    An employer that is required to provide this additional 
family and medical leave is allowed a tax credit in respect of 
the leave. In general, under the provision, a self-employed 
individual is allowed a similar tax credit in situations in 
which a credit would be allowed if the individual were an 
employee of an employer subject to the leave requirements.
    The first 10 days of public health emergency leave required 
under the EFMLEA may consist of unpaid leave, after which paid 
leave is required. The paid leave is for the duration of the 
period provided in the EFMLEA, which is a maximum of 10 weeks. 
The amount of required paid leave under the provision is based 
on an amount not less than two-thirds of an employee's regular 
rate of pay, and the number of hours the employee would 
otherwise be normally scheduled to work. Additional guidance is 
provided for employees with varying schedules. The paid leave 
mandated by the EFMLEA may not exceed $200 per day and $10,000 
in the aggregate.
Qualified family leave equivalent amount
    The qualified family leave equivalent amount with respect 
to an eligible self-employed individual is an amount equal to 
the number of days (up to 50) during the taxable year that the 
self-employed individual cannot perform services for which that 
individual would be entitled to paid leave pursuant to the 
EFMLEA \982\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (1) 67 percent of the 
average daily self-employment income of the individual for the 
taxable year, or (2) $200. The individual's average daily self-
employment income under the provision is an amount equal to the 
individual's net earnings from self-employment for the year 
divided by 260.
---------------------------------------------------------------------------
    \982\ Division C of the bill.
---------------------------------------------------------------------------
Additional rules
    The provision provides that the credit allowed is 
refundable.\983\ No credit is allowed to an individual unless 
the individual maintains such documentation as the Secretary of 
the Treasury (or the Secretary's delegate) may prescribe to 
establish that the individual is an eligible self-employed 
individual.
---------------------------------------------------------------------------
    \983\ Any refund due to an individual is treated in the same manner 
as a refund due from a credit provision. 31 U.S.C. sec. 1324. Thus, 
amounts are appropriated to the Secretary of the Treasury for refunding 
such amounts.
---------------------------------------------------------------------------
    If an eligible self-employed individual receives qualified 
family leave wages,\984\ the individual's qualified family 
leave equivalent amount determined under the provision is 
reduced (but not below zero) to the extent that the sum of the 
qualified family leave equivalent amount and the qualified 
family leave wages received exceeds $10,000. For example, 
assume that an eligible self-employed individual's qualified 
family leave equivalent amount is $5,000, but the individual 
also works for an employer that is a covered employer under the 
EFMLEA and received qualified family leave wages of $9,000 to 
care for the individual's son or daughter while school was 
closed due to COVID-19. The individual's qualified family leave 
equivalent amount would be reduced by $4,000,\985\ resulting in 
a credit under the provision of $1,000.\986\
---------------------------------------------------------------------------
    \984\ As defined by sec. 7003(c) of the bill, described above.
    \985\ ($5,000 + $9,000) - $10,000 = $4,000.
    \986\ $5,000 - $4,000 = $1,000.
---------------------------------------------------------------------------
Application of credit in certain territories
    Under the provision, the Secretary of the Treasury (or the 
Secretary's delegate) makes payments to each territory with a 
mirror Code tax system that relate to the cost of each 
territory's credits for family leave for certain self-employed 
individuals. The Secretary of the Treasury (or the Secretary's 
delegate) makes similar payments to each non-mirror Code 
territory.
    With respect to mirror Code territories, the Secretary of 
the Treasury (or the Secretary's delegate) makes payments equal 
to the loss in revenue by reason of the application of the 
credit for family leave for certain self-employed individuals 
to the territory's mirror Code. This amount is determined by 
the Secretary of the Treasury (or the Secretary's delegate) 
based on information provided by the governments of the 
respective territories.
    With respect to Puerto Rico and American Samoa (non-mirror 
Code territories), the Secretary makes payments in an amount 
estimated by the Secretary of the Treasury (or the Secretary's 
delegate) as being equal to the aggregate benefits that would 
have been provided to the residents of each territory from the 
credit for family leave for certain self-employed individuals 
if a mirror Code tax system had been in effect in such 
territory. These payments will not be made unless the territory 
has a plan approved by the Secretary of the Treasury (or the 
Secretary's delegate) to promptly distribute the payments to 
its residents.
Regulatory authority
    The Secretary of the Treasury (or the Secretary's delegate) 
is directed to prescribe such regulations as are necessary to 
carry out the purposes of the provision, including (1) to 
prevent the avoidance of the purposes of the bill, and (2) to 
minimize compliance and record-keeping burdens under the 
provision.
    The IRS has subsequently implemented this provision.\987\
---------------------------------------------------------------------------
    \987\ Notice 2020-54, 2020-31 I.R.B. 226, July 27, 2020.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment (March 
18, 2020). The only days that may be taken into account in 
determining the qualified family leave equivalent amount are 
days occurring during the period beginning on a date selected 
by the Secretary of the Treasury (or the Secretary's delegate) 
which is during the 15-day period beginning on the date of 
enactment and ending on December 31, 2020.
5. Special rule related to tax on employers (sec. 7005 of the Act)

                        Explanation of Provision

    Under the provision, any wages or compensation required to 
be paid to employees by reason of the Emergency Family and 
Medical Leave Expansion Act (``EFMLEA'') or the Emergency Paid 
Sick Leave Act (``EPSLA'') are not considered wages for 
purposes of Old-Age, Survivors, and Disability Insurance 
(``OASDI'') tax or compensation for purposes of Railroad 
Retirement Tax Act (``RRTA'') tax. As a result, no OASDI or 
RRTA taxes will be collected on such amounts from employers to 
be contributed to the OASDI or railroad retirement programs.
    The amount of the credit allowed by sections 7001 and 7003 
of the bill is increased by the amount of tax imposed by 
section 3111(b) \988\ on qualified sick leave wages or 
qualified family leave wages, for which a credit is allowed 
under such section 7001 or 7003, respectively. The no-double-
benefit rule described above for sections 7001 and 7003 applies 
for purposes of this credit increase.
---------------------------------------------------------------------------
    \988\ Section 3111(b) imposes on the employer a Medicare hospital 
insurance excise tax of 1.45 percent on all wages paid by the employer.
---------------------------------------------------------------------------
    The provision provides that amounts will be transferred to 
the Federal Old-Age and Survivors Insurance Trust Fund, the 
Federal Disability Insurance Trust Fund, and the Social 
Security Equivalent Benefit Account from Treasury's general 
fund in an amount equal to the reduction in revenues to the 
Treasury resulting from not treating such paid emergency sick 
leave and emergency family and medical leave as wages or 
compensation for employment tax purposes. Such amounts are to 
be transferred from the general fund at such times and in such 
manner as to replicate, to the extent possible, the transfers 
which would have occurred to such Trust Fund or Account had the 
provision not been enacted.\989\
---------------------------------------------------------------------------
    \989\ Secs. 201 and 1817 of the Social Security Act, Pub. L. No. 
74-271 as amended (42 U.S.C. secs. 401 and 1395i). Section 201, 42 
U.S.C. sec. 402. This section appropriates to the OASI and DI trust 
funds 100 percent ``the taxes imposed . . . by chapter 21 (other than 
sections 3101(b) and 3111(b) [i.e., current sections 3101(a) and 
3111(a)]) of the Internal Revenue Code of 1954 with respect to wages 
(as defined in section 3121 of such Code)'' ``determined by the 
Secretary of the Treasury by applying the applicable rates of tax under 
such subchapter or chapter 21 (other than sections 3101(b) and 3111(b)) 
to such wages.'' Accordingly, the amount appropriated is based on the 
tax rate in effect on wages as defined in the statute. Similarly, 
section 1817 of the Social Security Act, 42 U.S.C. sec. 1395i, 
appropriates to the HI trust fund 100 percent of ``the taxes imposed by 
sections 3101(b) and 3111(b) of the Internal Revenue Code of 1986 with 
respect to wages reported to the Secretary of the Treasury or his 
delegate pursuant to subtitle F of such Code after December 31, 1965, 
as determined by the Secretary of the Treasury by applying the 
applicable rates of tax under such sections to such wages.''
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment (March 
18, 2020).

 PART SIX: CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY (``CARES'') 
                     ACT (PUBLIC LAW 116-136) \990\
---------------------------------------------------------------------------

    \990\ H.R. 748. On March 25, 2020, the Senate passed an amendment 
in the nature of a substitute to a House bill introduced in January 
2019. R The House passed the Senate amendment without amendment by 
voice vote on March 27, 2020. The President signed the bill the same 
day.
---------------------------------------------------------------------------

  TITLE II--ASSISTANCE FOR AMERICAN WORKERS, FAMILIES, AND BUSINESSES

          Subtitle B--Rebates and Other Individual Provisions

1. 2020 recovery rebates for individuals (sec. 2201 of the Act and sec. 
        6428 of the Code)

                              Present Law

In general
    A United States citizen or resident alien generally is 
subject to the U.S. individual income tax on his or her 
worldwide taxable income. Taxable income equals the taxpayer's 
total gross income less certain exclusions, exemptions, and 
deductions. In determining taxable income, an individual may 
claim either a standard deduction or itemized deductions.
    An individual's income tax liability is determined by 
computing his or her regular income tax liability (and any 
additional tax liabilities such as self-employment taxes or 
household employment taxes) and, if applicable, alternative 
minimum tax liability. After computing income tax liability, 
all withholding and estimated tax payments as well as other 
available credits are applied to determine whether there is a 
balance due (i.e., tax owed for that year) or an overpayment 
that may be refunded for that taxable year.
    There is no permanent provision under present law that 
authorizes rebates to individuals during a taxable year. As 
part of the Economic Stimulus Act of 2008, Congress enacted a 
temporary stimulus provision under former section 6428. An 
overview of the computation of individual income tax liability, 
credits, and former section 6428 is described below.
Income tax liability
    Regular income tax liability is determined by applying the 
regular income tax rate schedules (or tax tables) to the 
individual's taxable income. The regular income tax rate 
schedules are divided into several ranges of income, known as 
income brackets, and the statutory tax rate on an additional 
dollar of income (referred to as the ``marginal tax rate'') 
increases as the individual's income increases from one bracket 
to the next. The income bracket amounts are adjusted annually 
for inflation. Separate rate schedules apply based on filing 
status: single individuals (other than heads of households and 
surviving spouses), heads of households, married individuals 
filing joint returns (including surviving spouses), married 
individuals filing separate returns, and estates and trusts.
    Lower rates may apply to capital gains and certain 
dividends (``qualified dividends'') than the rates generally 
applicable to wages and other so-called ``ordinary income.'' 
Additional taxes not based on the income brackets may also be 
owed by the individual for the taxable year, such as self-
employment tax or household employment taxes.
Refunds and refundable tax credits
            In general
    An individual may reduce his or her income tax liability by 
available income tax credits. In some instances, a credit is 
wholly or partially refundable. That is, if the amount of a 
taxpayer's refundable income tax credits exceeds the taxpayer's 
income tax liability (net of other nonrefundable credits), such 
credits create an overpayment, which may generate a refund or 
be credited against any other internal revenue tax 
liability.\991\ A refund or credit is authorized for a taxable 
year only if an overpayment exists, that is, if the amounts 
paid or deemed paid exceed the tax liability for that 
year.\992\ The refundable tax credits that may generate a 
refund include (i) actual remittances or withheld taxes and 
(ii) credits that deem payments to have been made.\993\ Two 
major refundable credits are the child tax credit and the 
earned income tax credit.
---------------------------------------------------------------------------
    \991\ See secs. 37, 6401, 6402.
    \992\ See sec. 6402(a).
    \993\ Secs. 31-37.
---------------------------------------------------------------------------
    All other credits are nonrefundable in that they may reduce 
or eliminate income tax liability but may not cause this 
liability to decrease below zero. Even if an overpayment exists 
for a year, a refund may be withheld to offset against tax 
liabilities from other taxable periods \994\ or against certain 
nontax debts.\995\
---------------------------------------------------------------------------
    \994\ Sec. 6402(a) allows such offset at the discretion of the 
Secretary.
    \995\ Sec. 6402(c), (d), (e), and (f).
---------------------------------------------------------------------------
            Child tax credit
    An individual may claim a tax credit of $2,000 for each 
qualifying child under the age of 17.\996\ Generally, under 
section 152, a qualifying child must have the same principal 
place of abode as the taxpayer for more than half of the 
taxable year, must not provide over half of his or her own 
support for the taxable year, must not file a joint return for 
the taxable year, and must satisfy a relationship test.\997\ To 
satisfy the relationship test, the child must be the taxpayer's 
son, daughter, stepson, stepdaughter, brother, sister, 
stepbrother, stepsister, adopted child, foster child, or a 
descendant of any such individual. The credit is phased out and 
reduced to zero at higher-income levels. A child who is not a 
citizen, national, or resident of the United States may not be 
a qualifying child.
---------------------------------------------------------------------------
    \996\ Sec. 24.
    \997\ Sec. 152(c).
---------------------------------------------------------------------------
    No credit is allowed unless the individual includes the 
name and Social Security Number (``SSN'') of each qualifying 
child on the individual's income tax return.\998\ For this 
purpose, the SSN must be issued by the Social Security 
Administration before the due date of the return (including 
extensions) and must be issued to a citizen of the United 
States or pursuant to a provision of the Social Security Act 
relating to the lawful admission for employment in the United 
States.\999\
---------------------------------------------------------------------------
    \998\ Sec. 24(e) and (h)(7).
    \999\ Sec. 24(h)(7).
---------------------------------------------------------------------------
    To the extent the child tax credit exceeds the taxpayer's 
tax liability, the taxpayer is eligible for a refundable credit 
(the additional child tax credit) equal to 15 percent of earned 
income in excess of $2,500,\1000\ not to exceed $1,400 per 
child in 2020. The maximum amount of the refundable portion of 
the credit is indexed for inflation.
---------------------------------------------------------------------------
    \1000\ Families with three or more children may determine the 
additional child tax credit by taking the greater of (1) the earned 
income formula, or (2) the alternative formula (i.e., the amount by 
which the taxpayer's Social Security taxes exceed the taxpayer's earned 
income tax credit).
---------------------------------------------------------------------------
Tax treatment of the U.S. territories
    Citizens of the United States are generally subject to 
Federal income tax on their U.S. and foreign income regardless 
of whether they live in a U.S. State, the District of Columbia, 
a foreign country, or a U.S. territory. Residents of the U.S. 
territories 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 source of income specific to the territory.
    The application of the Federal tax rules to the territories 
varies from one territory to another. Three territories, Guam, 
the Commonwealth of the Northern Mariana Islands, and the U.S. 
Virgin Islands, are referred to as mirror Code territories 
because the Code serves as the internal tax law of those 
territories (substituting the particular territory for the 
United States wherever the Code refers to the United States). A 
resident of one of those territories generally files a single 
tax return only with the territory of which the individual is a 
resident, and not with the United States.\1001\ Income tax paid 
by a bona fide resident of a mirror Code territory generally is 
allocated between the U.S. government and the territory 
government under special rules administered by the U.S. 
Treasury Department and the revenue authority of the territory 
government.
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    \1001\ Sec. 932 and former sec. 935.
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    American Samoa and Puerto Rico, by contrast, are non-mirror 
Code territories. These two territories have their own internal 
tax laws,\1002\ and a resident of either American Samoa or 
Puerto Rico may be required to file income tax returns with 
both the territory of residence and the United States. In 
general, U.S.-source income and other income from outside the 
territory of residence is included on a U.S. income tax return, 
and income from sources within the territory of residence is 
reported on the territory income tax return.
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    \1002\ The tax laws of American Samoa follow, with certain 
modifications, the Internal Revenue Code as in effect December 31, 
2000. See Am. Sam. Code Ann. Sec. 11.0404.
---------------------------------------------------------------------------
    Residents of the territories may be eligible for refundable 
income tax credits. Under which law (the Code, a mirror Code, 
or the internal tax law of a non-mirror Code territory) and by 
which method (filing with the Internal Revenue Service or with 
the territory revenue authority) a territory resident claims a 
refundable credit varies from one credit to another. The U.S. 
Treasury reimburses territory governments for the costs of some 
refundable credits.
2008 recovery rebates for individuals
    As part of the Economic Stimulus Act of 2008,\1003\ 
Congress enacted a one-time recovery rebate income tax credit 
for 2008. The credit was refundable, and most taxpayers 
received advance refunds before filing their 2008 Federal 
income tax returns.
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    \1003\ Pub. L. No. 110-185, sec. 101 (Feb. 13, 2008). The 2008 
recovery rebate, codified as section 6428, was later repealed as 
deadwood in Pub. L. No. 113-295, sec. 221(a)(112)(A), December 19, 
2014.
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            Eligibility for and computation of rebate credit
    The credit was the sum of two components, a basic component 
and a qualifying child component. Eligible individuals \1004\ 
were allowed a basic component equal to the greater of:
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    \1004\ An eligible individual was any individual other than: (1) a 
nonresident alien; (2) an estate or trust; or (3) a dependent.
---------------------------------------------------------------------------
           Net income tax liability,\1005\ not to 
        exceed $600 ($1,200 in the case of a joint return), or
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    \1005\ Net income tax liability was defined as the excess of the 
sum of the individual's regular tax liability and alternative minimum 
tax over the sum of all nonrefundable credits (other than the child tax 
credit).
---------------------------------------------------------------------------
           $300 ($600 in the case of a joint return) if 
        the eligible individual had (1) qualifying income 
        \1006\ of at least $3,000 or (2) a net income tax 
        liability of at least $1 and gross income greater than 
        the sum of the applicable basic standard deduction 
        amount and one personal exemption (two personal 
        exemptions for a joint return).
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    \1006\ Qualifying income was defined as the sum of the eligible 
individual's: (a) earned income; (b) Social Security benefits; and (c) 
veteran's payments. The definition of earned income had the same 
meaning as the definition for purposes of the earned income tax credit 
at that time, except that it did not include net earnings from self-
employment that are not taken into account in computing taxable income.
---------------------------------------------------------------------------
    An eligible individual was any individual other than: (1) a 
nonresident alien; (2) an estate or trust; or (3) a dependent.
    If an individual was eligible for any amount of the basic 
component, the individual also may have been eligible for the 
qualifying child component of $300 for each qualifying child of 
such individual. For these purposes, the child tax credit 
definition of a qualifying child applied.
    The amount of the credit was phased out at a rate of five 
percent of adjusted gross income (``AGI'') above certain income 
levels. The beginning point of this phaseout range was $75,000 
of AGI ($150,000 in the case of joint returns).
    To be eligible for the credit, taxpayers--including both 
married spouses filing a joint return--had to provide an SSN. 
There was a limited exception to the SSN requirement where one 
spouse was a member of the Armed Forces of the United States at 
any time during the taxable year. In addition, any qualifying 
child had to have an SSN to qualify for purposes of the 
qualifying child credit component. Any credit amount allowed 
for a qualifying child in the case of a taxpayer claiming an 
individual as a qualifying child but providing an SSN for the 
individual associated with an individual too old to be a 
qualifying child was treated as a mathematical or clerical 
error.\1007\
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    \1007\ In the event of a mathematical or clerical error, the IRS 
may assess additional tax without issuance of a notice of deficiency as 
otherwise required. Sec. 6213(b).
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            Advance payments of recovery rebate
    Most taxpayers were allowed the recovery rebate credit in 
the form of an advance refund amount during 2008, issued either 
as a direct deposit or as a check from Treasury.\1008\ The 
amount of the advance refund was computed in the same manner as 
the credit, except that it was done on the basis of tax returns 
filed for 2007 (instead of 2008). Accordingly, the advance 
refund amount was based on a taxpayer's filing status, number 
of qualifying children, AGI, net income tax liability, and 
qualifying income as reported for 2007. Taxpayers that did not 
file a 2007 income tax return did not receive the advance 
refund amount but could claim the recovery rebate amount on 
their 2008 income tax returns.\1009\
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    \1008\ The IRS issued more than $96 billion in advance payments to 
more than 119 million individuals during 2008. In addition, it issued 
more than $8.5 billion in recovery rebate credits (claimed on 
taxpayers' 2008 tax returns) to almost 21 million taxpayers as of April 
17, 2009. Treasury Inspector General for Tax Administration, 
``Evaluation of the Planning, Computation, and Issuance of the Recovery 
Rebate Credit'' (Sept. 9, 2009), available at https://www.treasury.gov/
tigta/auditreports/2009reports/200940129fr.pdf.
    \1009\ IRS Notice 2008-28 created a mechanism for certain 
individuals not otherwise required to file an income tax return to 
receive an advance refund amount. 2008-10 I.R.B. 546. Such taxpayers 
were instructed to file a Form 1040A with specific information entered 
to allow the IRS to compute the advance refund amount. Revenue 
Procedure 2008-21 provided additional guidance regarding how to 
electronically file the form. 2008-12 I.R.B. 657.
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    On their 2008 income tax returns, taxpayers could reconcile 
the recovery rebate amount (using 2008 information) with any 
advance refund amount received during 2008 (using 2007 
information). If the recovery rebate amount less the advance 
refund amount was a positive number (because, for example, the 
taxpayer paid no tax in 2007 but paid tax in 2008), the 
taxpayer was allowed that amount as a refundable credit against 
2008 tax liability. If, however, the result was negative 
(because, for example, the taxpayer paid tax in 2007 but owed 
no tax for 2008), that negative amount did not increase the 
taxpayer's tax liability in 2008. Failure to reduce the 
recovery rebate amount by any advance refund amount was treated 
as a mathematical or clerical error.
            Additional provisions
    The Economic Stimulus Act of 2008 required Treasury to make 
payments to the U.S. territories to compensate them for the 
cost of the recovery rebate credit. To each mirror Code 
territory (Guam, the Commonwealth of the Northern Mariana 
Islands, and the U.S. Virgin Islands), Treasury was to make a 
payment in an amount equal to the aggregate amount of the 
credits allowable by reason of the provision to that 
territory's residents against its income tax, based on 
information provided by the government of the respective 
territory. To each non-mirror Code territory (American Samoa 
and Puerto Rico), Treasury was to make a payment in an amount 
estimated by Treasury as being equal to the aggregate credits 
that would have been allowed to residents of that territory if 
a mirror Code tax system had been in effect in that territory. 
The payment was not made to any territory without a mirror Code 
unless that territory had a plan that had been approved by the 
Secretary under which the territory would promptly distribute 
the payment to its residents. A taxpayer who was allowed a 
credit, or received a payment under a credit-related plan, from 
the taxpayer's territory government was not allowed the 
recovery rebate credit under the Code.
    The Economic Stimulus Act of 2008 did not alter any of the 
offset authority under the law in effect at the time. As such, 
any overpayment resulting from the recovery rebate credit was 
subject to the refund offset provisions for tax debts and for 
certain non-tax debts.\1010\
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    \1010\ The Economic Stimulus Act of 2008 included a provision that 
any recovery rebate credit or refund allowed or made to an individual 
(including to any resident of a U.S. territory) was not taken into 
account as income and was not taken into account as resources for the 
month of receipt and the following two months for purposes of 
determining eligibility of such individual or any other individual for 
benefits or assistance, or the amount or extent of benefits or 
assistance, under any Federal program or under any State or local 
program financed in whole or in part with Federal funds. A similar 
provision applicable to all tax refunds, including advance payments of 
refundable credits, was subsequently codified as section 6409. See 
infra footnote 35.
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                        Explanation of Provision

    In response to the economic and health crises in 2020, 
Congress enacted a refundable income tax credit for individuals 
that is advanceable to eligible individuals, as described 
below.

In general

    The provision provides a one-year refundable income tax 
credit for 2020, referred to as the 2020 recovery rebate. The 
credit is referred to as a rebate because it includes rules, 
described below, under which the Secretary of the Treasury 
(herein ``Secretary'') makes an advance payment to a taxpayer 
for the amount of the credit (determined based on prior year 
filing characteristics or other information) before the 
taxpayer files a 2020 Federal income tax return.\1011\ The IRS 
refers to such advance payments as economic impact payments.
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    \1011\ Within two weeks of the enactment of the CARES Act on March 
27, 2020, Treasury disbursed more than 81 million payments totaling 
more than $147 billion. As of May 31, 2020, Treasury had disbursed 
160.4 million payments totaling $269.3 billion. In total, Treasury 
disbursed 161.9 million advance payments worth $271.4 billion. U.S. 
Government Accountability Office, ``COVID-19, Opportunities to Improve 
Federal Response and Recovery Efforts,'' GAO-20-625, June 2020, at 25; 
IRS, ``SOI Tax Stats--Coronavirus Aid, Relief, and Economic Security 
(CARES Act) Statistics, available at https://www.irs.gov/statistics/
soi-tax-stats-coronavirus-aid-relief-and-economic-security-act-cares-
act-statistics (last visited January 28, 2021).
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    An eligible individual is allowed a refundable income tax 
credit for the first taxable year beginning in 2020 equal to 
the sum of:
           $1,200 ($2,400 in the case of a joint 
        return), and
           $500 for each qualifying child of such 
        individual.\1012\
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    \1012\ Sec. 6428(a).
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    An eligible individual is any individual other than (1) a 
nonresident alien, (2) an estate or trust, or (3) a 
dependent.\1013\ For these purposes, the child tax credit 
definition of a qualifying child applies (generally, a 
qualifying child as defined in section 152 who is under the age 
of 17).
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    \1013\ Sec. 6428(d).
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    Unlike the 2008 recovery rebate credit, there are no 
eligibility requirements related to minimum levels of 
qualifying income, gross income, or net tax liability.
    The amount of the credit is phased out at a rate of five 
percent of AGI above certain threshold amounts.\1014\ The 
threshold amount at which the credit begins to phase out is 
$150,000 of AGI for joint filers, $112,500 of AGI for head of 
household filers, and $75,000 of AGI for all other 
filers.\1015\ Thus, the credit is fully phased out (i.e., 
reduced to zero) for joint filers with no children at $198,000 
of AGI and for a single filer at $99,000 of AGI.
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    \1014\ Sec. 6428(c).
    \1015\ For example, a married couple that files jointly with two 
qualifying children and has an AGI below the phaseout range would be 
entitled to a recovery rebate credit of $3,400 ($2,400 + $500 + $500). 
If that couple's AGI was $175,000, the credit would be $2,150 ($3,400 - 
.05 * ($175,000 - $150,000)). The credit would be fully phased out for 
this couple at $218,000 of AGI.
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Identification number requirement

    No credit is allowed to an individual who does not include 
a valid identification number on the individual's income tax 
return.\1016\ In the case of a joint return that does not 
include valid identification numbers for both spouses, no 
credit is allowed. In addition, a qualifying child shall not be 
taken into account in determining the amount of the credit if a 
valid identification number for the child is not included on 
the return.
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    \1016\ Sec. 6428(g).
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    For purposes of this requirement, a valid identification 
number is an SSN as defined for purposes of the child tax 
credit,\1017\ which means it must be issued by the Social 
Security Administration before the due date of the return 
(including extensions) to a citizen of the United States or 
pursuant to a provision of the Social Security Act relating to 
the lawful admission for employment in the United States.\1018\ 
Two exceptions to this requirement are provided. First, an 
adoption identification number is considered a valid 
identification number in the case of a qualifying child who is 
adopted or placed for adoption. Second, when a married couple 
files a joint return and at least one spouse was a member of 
the Armed Forces of the United States during the taxable year 
for which the return is filed, only one spouse is required to 
provide a valid identification number.
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    \1017\ Sec. 24(h)(7).
    \1018\ This SSN rule is based on the child tax credit SSN rule in 
section 24(h)(7). See also sec. 205(c)(2)(B)(i)(I) (or that portion of 
subclause (III) that relates to subclause (I)) of the Social Security 
Act.
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    The failure to provide a correct valid identification 
number is treated as a mathematical or clerical error. If a 
taxpayer claims an individual as a qualifying child, but based 
on the SSN provided the individual is too old to be a 
qualifying child, the provision of the SSN is treated as a 
mathematical or clerical error.

Advance payments of the recovery rebate credit

    A taxpayer may receive the recovery rebate credit as an 
advance refund in the form of a direct deposit to their bank 
account or as a check or prepaid debit card issued by the 
Secretary during calendar year 2020.\1019\ The amount of the 
advance refund is computed in the same manner as the recovery 
rebate credit, except that the calculation is made on the basis 
of the income tax return filed for 2019 (instead of 2020), if 
available, or otherwise on the basis of the income tax return 
filed for 2018.\1020\ Accordingly, the advance refund amount 
generally is based on a taxpayer's filing status, number of 
qualifying children, and AGI as reported for 2019 or 2018. The 
Secretary is directed to issue advance refunds as rapidly as 
possible.
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    \1019\ To the extent it has bank information from payment of a 
prior refund or for receipt of Federal benefits, Treasury generally 
uses an individuals' most recent direct deposit information to expedite 
delivery of these amounts rather than mailing the rebate checks. IRS, 
``Economic Impact Payment Information Center--Topic D: Receiving My 
Payment, Q D3, D9, https://www.irs.gov/newsroom/economic-impact-
payment-information-center-topic-d-receiving-my-payment (updated May 
15, 2020). Treasury has created an online portal for individuals to 
provide direct deposit information to the IRS for this purpose where 
the IRS may not have such information. IRS, ``Treasury, IRS unveil 
online application to help with Economic Impact Payments; Get My 
Payment allows people to provide direct deposit information and gives 
payment date,'' IR-2020-72 (April 15, 2020), available at https://
www.irs.gov/newsroom/treasury-irs-unveil-online-application-to-help-
with-economic-impact-payments.
    \1020\ Sec. 6428(f).
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    If a taxpayer has not filed an income tax return for 2019 
or 2018, in administering the advance refund the Secretary is 
authorized to use information with respect to that taxpayer 
that is provided on a 2019 Form SSA-1099, Social Security 
Benefit Statement, or a 2019 Form RRB-1099, Social Security 
Equivalent Benefit Statement.\1021\ Recipients of these forms 
include Social Security retirement, disability, and survivor 
benefit recipients and railroad retirees who are not otherwise 
required to file a Federal income tax return. An individual in 
one of these categories is allowed a $1,200 payment per person 
without the necessity of a return filing or other action.\1022\
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    \1021\ Sec. 6428(f)(5)(B).
    \1022\ IRS, ``Economic impact payments: what you need to know,'' 
IR-2020-61 (March 30, 2020), available at https://www.irs.gov/newsroom/
economic-impact-payments-what-you-need-to-know.
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    Supplemental Security Income recipients and recipients of 
compensation and benefit payments from the Department of 
Veterans Affairs similarly are allowed $1,200 per-person 
payments automatically without the requirement of filing a 
return or taking other action.\1023\ Other taxpayers who did 
not have a return-filing obligation could register to receive 
the advance refund by filing a simplified tax return using the 
``non-filer portal,'' a web tool developed by the IRS, or could 
use a simplified Federal income tax return filing procedure for 
taxable year 2019.\1024\
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    \1023\ IRS, ``Supplemental Security Income recipients will receive 
automatic Economic Impact Payments,'' IR-2020-73 (April 15, 2020), 
available at https://www.irs.gov/newsroom/supplemental-security-income-
recipients-will-receive-automatic-economic-impact-payments-step-
follows-work-between-treasury-irs-social-security-administration; IRS, 
``Veterans Affairs recipients will receive automatic Economic Impact 
Payments,'' IR-2020-75 (April 17, 2020), available at https://
www.irs.gov/newsroom/veterans-affairs-recipients-will-receive-
automatic-economic-impact-payments-step-follows-work-between-treasury-
irs-va.
    \1024\ Rev. Proc. 2020-28, 2020-19 I.R.B. 792; IRS, ``Treasury, IRS 
launch new tool to help non-filers register for Economic Impact 
Payments,'' IR-2020-69 (April 10, 2020), available at https://
www.irs.gov/newsroom/treasury-irs-launch-new-tool-to-help-non-filers-
register-for-economic-impact-payments. In September 2020, the IRS 
reported that more than 7 million people had used the non-filer tool to 
register for a payment. IRS, ``IRS releases state-by-state breakdowns 
of nearly 9 million non-filers who will be mailed letters about 
Economic impact Payments, IR-2020-214, September 17, 2020, available at 
https://www.irs.gov/newsroom/irs-releases-state-by-state-breakdown-of-
nearly-9-million-non-filers-who-will-be-mailed-letters-about-economic-
impact-payments.
    Federal benefit recipients also could use the web tool for non-
filers to enter information regarding any qualifying children to claim 
the additional $500 per child payment as an advance refund. IRS, ``IRS 
takes new steps to ensure people with children receive $500 economic 
impact payments,'' IR-2020-180 (August 14, 2020), available at https://
www.irs.gov/newsroom/irs-takes-new-steps-to-ensure-people-with-
children-receive-500-economic-impact-payments; IRS, ``Register by Nov. 
21 to get an Economic Impact Payment,'' IR-2020-260, November 19, 2020, 
available at https://www.irs.gov/newsroom/register-by-nov-21-to-get-an-
economic-impact-payment-same-deadline-for-federal-beneficiaries-to-get-
missed-500-per-child-payments.
    Under the provision, the Secretary (or the Secretary's delegate) is 
directed to conduct a public awareness campaign, in coordination with 
the Commissioner of Social Security and the heads of other relevant 
Federal agencies, to provide information regarding the availability of 
the recovery rebate credit, including information with respect to 
individuals who may not have filed a tax return for 2019 or 2018. Among 
other actions, the IRS mailed letters to approximately nine million 
individuals who typically are not required to file Federal income tax 
returns but may qualify for an advance refund. IRS, ``IRS to mail 
special letter to estimated 9 million non-filers, urging them to claim 
Economic Impact Payments by Oct. 15 at IRS.gov, IR-2020-203, September 
8, 2020, available at https://www.irs.gov/newsroom/irs-to-mail-special-
letter-to-estimated-9-million-non-filers-urging-them-to-claim-economic-
impact-payment-by-oct-15-at-irsgov.
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    The amount of the recovery rebate credit allowed on a 
taxpayer's 2020 income tax return (based on 2020 information) 
must be reduced (but not below zero) by any advance refund 
received during 2020 (based on 2019 or 2018 information).\1025\ 
If the recovery rebate amount less the advance refund is a 
positive number (because, for example, a qualifying child was 
born to the taxpayer during 2020), the taxpayer is allowed that 
difference as a refundable credit against 2020 income tax 
liability. If, however, the result is negative (because, for 
example, the taxpayer's AGI was higher in 2020 and was in the 
phaseout range), the taxpayer's 2020 tax liability is not 
increased by that negative amount. In addition, an eligible 
taxpayer who did not receive an advance refund may claim the 
recovery rebate amount on his or her 2020 income tax return. A 
taxpayer's failure to reduce the recovery rebate amount by an 
advance refund is treated as a mathematical or clerical error. 
The advance refund is not includible in gross income.\1026\
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    \1025\ Sec. 6428(e).
    \1026\ Under section 6409, the recovery rebate credit is 
disregarded in the administration of Federal programs and Federally 
assisted programs. Any refund due to the credit, including any advance 
payment of the credit, is not taken into account as income and is not 
taken into account as resources for a period of 12 months from receipt 
for purposes of determining eligibility for benefits or assistance 
under any Federal program or under any State or local program financed 
with Federal funds.
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    The Secretary may not issue an advance refund after 
December 31, 2020. Within 15 days of distribution of the 
advance refund, the Secretary is required to send a notice by 
mail to the taxpayer's last known address that indicates the 
method by which the payment was made, the amount of such 
payment, and a phone number at the IRS to report any failure to 
receive such payment.

Treatment of the U.S. territories

    The provision directs the Secretary to make payments to 
each mirror Code territory (Guam, the Commonwealth of the 
Northern Mariana Islands, and the U.S. Virgin Islands) that 
relate to the cost (if any) of each territory's recovery rebate 
credit. The Secretary is further directed to make similar 
payments to each non-mirror Code territory (American Samoa and 
Puerto Rico).
    The provision requires the Secretary to pay to each mirror 
Code territory amounts equal to the aggregate amount of the 
credits allowable by reason of the provision to that 
territory's residents against its income tax. Such amounts are 
determined by the Secretary based on information provided by 
the government of the respective territory.
    To each non-mirror Code territory, the provision requires 
the Secretary to pay amounts estimated by the Secretary as 
being equal to the aggregate credits that would have been 
allowed to residents of that territory if a mirror Code tax 
system had been in effect in that territory. Accordingly, the 
amount of each payment to a non-mirror Code territory is an 
estimate of the aggregate amount of the credits that would be 
allowed to the territory's residents if the credit provided by 
the provision to U.S. residents were provided by the territory 
to its residents. This payment will not be made to any U.S. 
territory unless it has a plan that has been approved by the 
Secretary under which the territory will promptly distribute 
the payment to its residents.
    No credit against U.S. income taxes is permitted under the 
provision for any person to whom a credit is allowed against 
territory income taxes as a result of the provision (i.e., 
under that territory's mirror income tax). Similarly, no credit 
against U.S. income taxes is permitted for any person who is 
eligible for a payment under a non-mirror Code territory's plan 
for distributing to its residents the payment described above 
from the U.S. Treasury.

Exception from reduction or offset

    Any overpayment resulting from the recovery rebate credit 
or from similar payments to residents of the U.S. territories 
is not subject to reduction or offset by other assessed Federal 
taxes that would otherwise be subject to levy or collection. In 
addition, the overpayments resulting from these credits are not 
subject to offset for other taxes or non-tax debts owed to the 
Federal government or State governments.
    As an exception to the above rule, an overpayment resulting 
from the recovery rebate credit is subject to the offset 
against overpayments of the amount of any past-due 
support.\1027\ The term past-due support means the amount of a 
delinquency, determined under a court order, or an order of an 
administrative process established under State law, for support 
and maintenance of a child (whether or not a minor), or of a 
child (whether or not a minor) and the parent with whom the 
child is living.\1028\ The State must have notified the 
Secretary of the taxpayer's delinquency in order for the offset 
to apply. If the offset applies, the Secretary remits the 
offset amount to the State collecting such support and notifies 
the taxpayer of the remittance. The offset of past-due child 
support applies before any other reductions allowed by law and 
before the crediting of the overpayment to the taxpayer's 
future tax liability.
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    \1027\ Sec. 6402(c). Following distribution of a significant share 
of the advance payments, the IRS announced that it would issue catch-up 
payments to individuals where such individual's portion of the payment 
had been diverted to pay a spouse's past-due child support. IRS, 
``50,000 spouses to get catch-up Economic Impact Payments,'' IR-2020-
192, August 25, 2020, available at, https://www.irs.gov/newsroom/irs-
50000-spouses-to-get-catch-up-economic-impact-payments; IRS, ``Economic 
Impact Payment Information Center--Topic D: Receiving My Payment,'' Q&A 
D2, available at, https://www.irs.gov/newsroom/economic-impact-payment-
information-center-topic-d-receiving-my-payment.
    \1028\ Sec. 464(c) of the Social Security Act, 42 U.S.C. sec. 
664(c).
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    An overpayment resulting from the recovery rebate credit 
may be subject to claims by the taxpayer's creditors under 
applicable State law or Federal bankruptcy law.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

2. Special rules for use of retirement funds (sec. 2202 of the Act and 
        sec. 72 of the Code)

                              Present Law


Distributions from tax-favored retirement plans

    A distribution from a tax-qualified plan described in 
section 401(a) (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.\1029\ These plans 
are referred to collectively as ``eligible retirement plans.'' 
\1030\ 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.\1031\
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    \1029\ 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.
    \1030\ Sec. 402(c)(8)(B). Eligible retirement plans also include 
annuity plans described in section 403(a).
    \1031\ Sec. 72(t). The 10-percent early withdrawal tax does not 
apply to distributions from a governmental section 457(b) plan.
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    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 IRS 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.\1032\
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    \1032\ Rev. Proc. 2020-46, 2020-45 I.R.B. 995, provides for a self-
certification procedure (subject to verification on audit) that may be 
used by a taxpayer claiming eligibility for a waiver of the 60-day 
requirement with respect to a rollover into a plan or IRA in certain 
specified circumstances.
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    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 under certain types of plans in 
the case of financial hardship or an unforeseeable emergency.

Loans from tax-favored retirement plans

    Employer-sponsored retirement plans are permitted, but not 
required, to 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 (1) the loan amount must not exceed the lesser 
of 50 percent of the participant's account balance or $50,000 
(generally taking into account outstanding balances of previous 
loans), and (2) 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.\1033\ 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 a 10-percent early withdrawal tax, if applicable. A deemed 
distribution is not eligible for rollover to another eligible 
retirement plan. The rules generally do not limit the number of 
loans an employee may obtain from a plan except to the extent 
that any additional loan would cause the aggregate loan balance 
to exceed limitations.
---------------------------------------------------------------------------
    \1033\ 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.

Disaster relief

    Congress has at times liberalized the plan distribution and 
loan provisions for individuals affected by certain natural 
disasters.\1034\
---------------------------------------------------------------------------
    \1034\ See, e.g., sec. 20102 of Pub. L. No. 115-123 (providing 
relief in response to 2017 California wildfires); sec. 502 of Pub. L. 
No. 115-63 (providing relief in response to Hurricanes Harvey, Irma, 
and Maria); and former sec. 1400Q (providing relief in response to 
Hurricanes Katrina, Rita, and Wilma). For a more detailed description 
of the most recently enacted provision, see Joint Committee on 
Taxation, General Explanation of Certain Tax Legislation Enacted in the 
115th Congress (JCS-2-19), October 2019, pp. 22-26.
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                        Explanation of Provision


Distributions and recontributions

    The provision allows an exception to the 10-percent early 
withdrawal tax for a ``coronavirus-related distribution'' from 
a qualified retirement plan, a section 403(b) plan, or an 
IRA.\1035\ The provision also allows a taxpayer to include 
income attributable to a coronavirus-related distribution 
ratably over three years and to recontribute the amount of the 
distribution to an eligible retirement plan within three years.
---------------------------------------------------------------------------
    \1035\ This exception also applies to an annuity plan described in 
section 403(a). The 10-percent early withdrawal tax generally does not 
apply to section 457 plans. Sec. 72(t)(1).
---------------------------------------------------------------------------
    A ``coronavirus-related distribution'' is any distribution 
from a qualified retirement plan, section 403(b) plan, 
governmental section 457(b) plan, or an IRA, made on or after 
January 1, 2020, and before December 31, 2020, to an individual 
(1) who was diagnosed with the virus SARS-CoV-2 or with 
coronavirus disease 2019 (``COVID-19'') by a test approved by 
the Centers for Disease Control and Prevention; (2) whose 
spouse or dependent \1036\ is diagnosed with such virus or 
disease by such a test; or (3) who experiences adverse 
financial consequences as a result of being quarantined; being 
furloughed or laid off, or having work hours reduced due to 
such virus or disease; being unable to work due to lack of 
child care due to such virus or disease; closing or reducing 
hours of a business owned or operated by the individual due to 
such virus or disease; or other factors as determined by the 
Secretary (or the Secretary's delegate).\1037\ The 
administrator of the plan may rely on the individual's 
certification that he or she satisfies the conditions described 
in clauses (1), (2), or (3) in determining whether any 
distribution is a coronavirus-related distribution.
---------------------------------------------------------------------------
    \1036\ Dependent is defined in section 152.
    \1037\ A coronavirus-related distribution is subject to income tax 
withholding unless the recipient elects otherwise. Mandatory 20-percent 
withholding does not apply.
---------------------------------------------------------------------------
    A plan is not treated as violating any Code requirement 
merely because it treats a distribution as a coronavirus-
related 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. A plan is not required to treat a 
distribution as a coronavirus-related distribution.
    Any amount required to be included in income as a result of 
a coronavirus-related 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 coronavirus-related distribution may, at 
any time during the three-year period beginning the day after 
the date on which the distribution was received, be 
recontributed in one or more contributions 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 coronavirus-
related distribution in 2020, that amount is included in 
income, generally ratably over the year of the distribution and 
the following two years and is not subject to the 10-percent 
early withdrawal tax. If, in 2022, the amount of the 
coronavirus-related distribution is recontributed to an 
eligible retirement plan, the individual may file amended 
returns to claim a refund of the tax attributable to the 
amounts previously included in income. In addition, if 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.

Loans

    The provision modifies the rules applicable to loans, 
providing that for a qualified individual, in order for the 
loan not to be treated as a distribution, the permitted maximum 
loan amount from a qualified employer plan \1038\ during the 
180-day period beginning on the date of enactment is the lesser 
of the present value of the nonforfeitable accrued benefit of 
the employee under the plan or $100,000.\1039\ For this 
purpose, qualified individual has the same meaning as persons 
eligible to receive coronavirus-related distributions.
---------------------------------------------------------------------------
    \1038\ For this purpose, qualified employer plan is defined in 
section 72(p)(4).
    \1039\ See sec. 72(p)(2)(A).
---------------------------------------------------------------------------
    In the case of a qualified individual with an outstanding 
loan from a qualified employer plan on or after the date of 
enactment, the provision delays by one year the due date for 
any repayment with respect to such loan, if the due date for 
the repayment otherwise would fall during the period beginning 
on the date of enactment and ending on December 31, 2020. Under 
the provision, any subsequent repayments are appropriately 
adjusted to reflect the delay in the earlier repayment due date 
and any interest accruing during that delay. The repayment 
delay is disregarded for purposes of the requirement that a 
loan be repaid within five years.

Plan amendments

    A plan amendment made under the provision (or a regulation 
interpreting the provision) 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 on or after January 1, 2022 (or in the case of a 
governmental plan, January 1, 2024), or a later date prescribed 
by the Secretary. The provision treats the plan as being 
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 to be made (or, if 
earlier, the date the amendment is adopted). For an amendment 
to be treated as 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 (March 
27, 2020).

3. Temporary waiver of required minimum distribution rules for certain 
 retirement plans and accounts (sec. 2203 of the Act and secs. 401 and 
                            402 of the Code)


                              Present Law


Required minimum distributions

    Employer-provided qualified retirement plans and IRAs are 
subject to required minimum distribution rules. A qualified 
retirement plan for this purpose means a tax-qualified plan 
described in section 401(a) (such as a defined benefit pension 
plan or a section 401(k) plan), an employee retirement annuity 
described in section 403(a), a tax-sheltered annuity described 
in section 403(b), and a plan described in section 457(b) that 
is maintained by a governmental employer.\1040\ An employer-
provided qualified retirement plan that is a defined 
contribution plan is a plan that provides (1) an individual 
account for each participant and (2) for benefits based on the 
amount contributed to the participant's account and any income, 
expenses, gains, losses, and forfeitures of accounts of other 
participants which may be allocated to such participant's 
account.\1041\
---------------------------------------------------------------------------
    \1040\ The required minimum distribution rules also apply to 
section 457(b) plans maintained by tax-exempt employers other than 
governmental employers.
    \1041\ Sec. 414(i).
---------------------------------------------------------------------------
    Required minimum distributions generally must begin by 
April 1 of the calendar year following the calendar year in 
which the individual (employee or IRA owner) reaches age 72. 
Prior to January 1, 2020, the age after which required minimum 
distributions were required to begin was 70\1/2\.\1042\ Thus, 
for individuals who attained age 70\1/2\ before January 1, 
2020, required minimum distributions generally must begin by 
April 1 of the calendar year following the calendar year in 
which the individual attained age 70\1/2\. In the case of an 
employer-provided qualified retirement plan, the required 
minimum distribution date for an individual who is not a five-
percent owner of the employer maintaining the plan may be 
delayed to April 1 of the year following the year in which the 
individual retires if the plan provides for this later 
distribution date. For all subsequent years, including the year 
in which the individual was paid the first required minimum 
distribution by April 1, the individual must take the required 
minimum distribution by December 31.
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    \1042\ The Setting Every Community Up for Retirement Enhancement 
Act of 2019 (``SECURE Act''), enacted as part of the Further 
Consolidated Appropriations Act, 2020, Pub. L. No. 116-94, Div. O, sec. 
114, increased the age after which required minimum distributions must 
begin from 70\1/2\ to 72, effective for distributions required to be 
made after December 31, 2019, with respect to individuals who attain 
age 70\1/2\ after that date.
---------------------------------------------------------------------------
    For IRAs and defined contribution plans, the required 
minimum distribution for each year generally is determined by 
dividing the account balance as of the end of the prior year by 
the number of years in the distribution period.\1043\ The 
distribution period is generally derived from the Uniform 
Lifetime Table.\1044\ This table is based on the joint life 
expectancies of the individual and a hypothetical beneficiary 
10 years younger than the individual. For an individual with a 
spouse as designated beneficiary who is more than 10 years 
younger, the joint life expectancy of the couple is used 
(because the couple's remaining joint life expectancy is longer 
than the length provided in the Uniform Lifetime Table). There 
are special rules in the case of annuity payments from an 
insurance contract.
---------------------------------------------------------------------------
    \1043\ Treas. Reg. sec. 1.401(a)(9)-5.
    \1044\ Treas. Reg. sec. 1.401(a)(9)-9.
---------------------------------------------------------------------------
    If an individual dies before the individual's entire 
interest is distributed, and the individual has a designated 
beneficiary, unless the designated beneficiary is an eligible 
designated beneficiary, the individual's entire account must be 
distributed within 10 years after the individual's death. This 
rule applies regardless of whether the individual dies before 
or after the individual's required beginning date.\1045\
---------------------------------------------------------------------------
    \1045\ The SECURE Act provided special rules for required minimum 
distributions for defined contribution plans (including, for this 
purpose, IRAs), generally effective with respect to individuals who die 
after December 31, 2019 (later effective dates apply to governmental 
plans and collectively bargained plans). For additional information, 
including rules applicable to defined contribution plans before the 
effective date of the SECURE Act, see the section describing section 
401 of the SECURE Act in Part Three of this document.
---------------------------------------------------------------------------
    In the case of an eligible designated beneficiary, the 
remaining required minimum distributions are distributed over 
the life of the beneficiary (or over a period not extending 
beyond the life expectancy of such beneficiary). Such 
distributions must begin no later than December 31 of the 
calendar year immediately following the calendar year in which 
the individual dies. An eligible designated beneficiary is a 
designated beneficiary who is (1) the surviving spouse of the 
individual; (2) a child of the individual who has not reached 
majority; (3) disabled; (4) chronically ill; or (5) not more 
than 10 years younger than the individual.\1046\ If the 
eligible designated beneficiary is the individual's spouse, 
commencement of distributions is permitted to be delayed until 
December 31 of the calendar year in which the deceased 
individual would have attained age 72. The required minimum 
distribution for each year is determined by dividing the 
account balance as of the end of the prior year by a 
distribution period, which is determined by reference to the 
beneficiary's life expectancy.\1047\ Special rules apply in the 
case of trusts for disabled or chronically ill 
beneficiaries.\1048\
---------------------------------------------------------------------------
    \1046\ Sec. 401(a)(9)(E)(ii).
    \1047\ Treas. Reg. sec. 1.401(a)(9)-5, A-5.
    \1048\ Sec. 401(a)(9)(H)(iv).
---------------------------------------------------------------------------
    In the case of an individual who does not have a designated 
beneficiary, if an individual dies on or after the individual's 
required beginning date, the distribution period for the 
remaining required minimum distributions is equal to the 
remaining years of the deceased individual's single life 
expectancy, using the age of the deceased individual in the 
year of death.\1049\ If an individual dies before the required 
beginning date, the individual's entire account must be 
distributed no later than December 31 of the calendar year that 
includes the fifth anniversary of the individual's death.\1050\
---------------------------------------------------------------------------
    \1049\ Treas. Reg. sec. 1.401(a)(9)-5, A-5(a).
    \1050\ Treas. Reg. sec. 1.401(a)(9)-3, Q&As 1, 2.
---------------------------------------------------------------------------
    A special after-death rule applies for an IRA if the 
beneficiary of the IRA is the surviving spouse. The surviving 
spouse is permitted to choose to calculate required minimum 
distributions both while the surviving spouse is alive and 
after death as though the surviving spouse is the IRA owner, 
rather than a beneficiary.\1051\
---------------------------------------------------------------------------
    \1051\ Treas. Reg. sec. 1.408-8, Q&A 5.
---------------------------------------------------------------------------
    Roth IRAs are not subject to the minimum distribution rules 
during the IRA owner's lifetime. However, Roth IRAs are subject 
to the post-death minimum distribution rules that apply to 
traditional IRAs. For Roth IRAs, the IRA owner is treated as 
having died before the individual's required beginning date.
    Failure to make a required minimum distribution triggers a 
50-percent excise tax, payable by the individual or the 
individual's beneficiary. The tax is imposed during the taxable 
year that begins with or within the calendar year during which 
the distribution was required.\1052\ The tax may be waived if 
the failure to distribute is reasonable error and reasonable 
steps are taken to remedy the violation.\1053\
---------------------------------------------------------------------------
    \1052\ Sec. 4974(a).
    \1053\ Sec. 4974(d).
---------------------------------------------------------------------------

Eligible rollover distributions

    With certain exceptions, distributions from an employer-
provided qualified retirement plan are eligible to be rolled 
over tax free into another employer-provided qualified 
retirement plan or an IRA. This can be achieved by contributing 
the amount of the distribution to the other plan or IRA within 
60 days of the distribution, or by a direct payment by the plan 
to the other plan or IRA (referred to as a ``direct 
rollover''). Distributions that are not eligible for rollover 
include (i) any distribution that is one of a series of 
periodic payments generally for a period of 10 years or more 
(or a shorter period for distributions made for certain life 
expectancies) and (ii) any distribution to the extent that the 
distribution is a required minimum distribution.\1054\
---------------------------------------------------------------------------
    \1054\ Sec. 402(c)(4). Distributions that are not eligible rollover 
distributions also include distributions made upon hardship of the 
employee.
---------------------------------------------------------------------------
    For any distribution that is eligible for rollover, an 
employer-provided qualified retirement plan must offer the 
distributee the right to have the distribution made in a direct 
rollover.\1055\ Before making the distribution, the plan 
administrator must provide the distributee with a written 
explanation of the direct rollover right and related tax 
consequences.\1056\ Unless a distributee elects to have the 
distribution made in a direct rollover, the distribution is 
generally subject to mandatory 20-percent income tax 
withholding.\1057\
---------------------------------------------------------------------------
    \1055\ Sec. 401(a)(31).
    \1056\ Sec. 402(f).
    \1057\ Sec. 3405(c). This mandatory withholding does not apply to a 
distributee that is a beneficiary other than a surviving spouse of an 
employee.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, no minimum distribution is required 
for calendar year 2020 from an IRA or from an employer-provided 
qualified retirement plan that is a defined contribution plan 
\1058\ that is a tax-qualified plan described in section 
401(a), an employee retirement annuity described in section 
403(a), a tax-sheltered annuity described in section 403(b), or 
a plan described in section 457(b) that is maintained by a 
governmental employer. The next required minimum distributions 
for these plans will be for calendar year 2021. The provision 
waives the 2020 minimum distribution requirement for lifetime 
distributions to employees and IRA owners and for after-death 
distributions to beneficiaries.
---------------------------------------------------------------------------
    \1058\ Defined contribution plan is defined in section 414(i).
---------------------------------------------------------------------------
    In the case of an individual whose required beginning date 
is April 1, 2020 (because, for example, the individual attained 
age 70\1/2\ in 2019), the provision waives the minimum 
distribution requirement with respect to a distribution that 
would have been required to be made in 2020 on account of the 
distribution not having been made in 2019.
    In the case of an individual whose required beginning date 
is April 1, 2021 (because, for example, the individual attains 
age 72 in 2020), the first year for which a minimum 
distribution would have been required is 2020. Under the 
provision, no distribution is required for 2020, and thus, no 
distribution will be required to be made by April 1, 2021. 
However, the provision does not change the individual's 
required beginning date for purposes of determining the 
required minimum distribution for calendar years after 2020. 
Thus, for an individual whose required beginning date is April 
1, 2021, the required minimum distribution for 2021 will be 
required to be made no later than December 31, 2021. If the 
individual dies on or after April 1, 2021, the required minimum 
distribution for the individual's beneficiary will be 
determined using the rule for death on or after the 
individual's required beginning date.
    In the case of an individual who dies and whose interest is 
required to be distributed within five years,\1059\ under the 
provision, the five-year period is determined without regard to 
calendar year 2020. For example, for an account with respect to 
an individual who died in 2018, the five-year period ends in 
2024 instead of 2023.
---------------------------------------------------------------------------
    \1059\ See sec. 401(a)(9)(B)(ii).
---------------------------------------------------------------------------
    If, as a result of the provision, all or a portion of a 
2020 distribution that would have been a required minimum 
distribution is instead an eligible rollover distribution, the 
distribution (or portion thereof) is not treated as an eligible 
rollover distribution for purposes of the direct rollover 
requirement, the requirement for notice and written explanation 
of the direct rollover requirement, or the mandatory 20-percent 
income tax withholding for eligible rollover distributions. 
Thus, for example, a plan may offer an individual a direct 
rollover of an eligible rollover distribution that would have 
been a required minimum distribution for 2020 (if not for this 
provision), but the plan is not required to offer a direct 
rollover. Similarly, the plan is not required to provide the 
employee notice and a written explanation of the direct 
rollover requirement and is not required to withhold 20 percent 
from the distribution. The employee may roll over the 
distribution by contributing it to an eligible retirement plan 
within 60 days of the distribution.

                             Effective Date

    The provision is effective for calendar years beginning 
after December 31, 2019.

    4. Allowance of partial above-the-line deduction for charitable 
      contributions (sec. 2204 of the Act and sec. 62 of the Code)


                              Present Law


Adjusted gross income and taxable income of an individual

            Adjusted gross income
    Under the Code, gross income means ``income from whatever 
source derived'' except for certain items specifically exempt 
or excluded by statute.\1060\ An individual's AGI is determined 
by subtracting certain ``above-the-line'' deductions from gross 
income. These deductions include trade or business expenses, 
losses from the sale or exchange of property, contributions to 
a qualified retirement plan by a self-employed individual, 
contributions to certain IRAs, certain moving expenses for 
members of the Armed Forces, and certain education-related 
expenses.\1061\
---------------------------------------------------------------------------
    \1060\ Sec. 61.
    \1061\ Sec. 62. In addition, alimony payments are generally 
deductible by the payor spouse for divorce and separation instruments 
executed before January 1, 2019.
---------------------------------------------------------------------------
            Taxable income
    To determine taxable income, an individual reduces AGI by 
the applicable standard deduction or his or her itemized 
deductions,\1062\ and by the deduction for qualified business 
income.\1063\
---------------------------------------------------------------------------
    \1062\ Sec. 63(a) and (b).
    \1063\ Secs. 63(b)(3), (d)(3), and 199A.
---------------------------------------------------------------------------
    A taxpayer may reduce AGI by the amount of the applicable 
standard deduction to arrive at taxable income. The basic 
standard deduction varies depending on a taxpayer's filing 
status. For 2020, the amount of the standard deduction is 
$12,400 for a single individual and for a married individual 
filing separately, $18,650 for a head of household, and $24,800 
for married taxpayers filing jointly and for a surviving 
spouse. An additional standard deduction is allowed with 
respect to any individual who is elderly (i.e., above age 64) 
and/or blind.\1064\ The amounts of the basic standard deduction 
and the additional standard deductions are indexed annually for 
inflation.
---------------------------------------------------------------------------
    \1064\ For 2020, the additional amount is $1,300 for married 
taxpayers (for each spouse meeting the applicable criterion) and 
surviving spouses. The additional amount for single individuals and 
heads of households is $1,650. If an individual is both elderly and 
blind, the individual is entitled to two additional standard 
deductions, for a total additional amount (for 2020) of $2,600 or 
$3,300, as applicable.
---------------------------------------------------------------------------
    In lieu of taking the applicable standard deduction, an 
individual may elect to itemize deductions. The deductions that 
may be itemized include personal State and local income, 
property, and sales taxes (up to $10,000 annually ($5,000 for 
married taxpayers filing separately)), home mortgage interest 
(on mortgages up to certain specified dollar amounts), 
charitable contributions, certain investment interest, medical 
expenses (in excess of 7.5 percent of AGI), and casualty and 
theft losses attributable to Federally declared disasters (in 
excess of 10 percent of AGI and in excess of $100 per loss).

Itemized deduction for charitable contributions

    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 
recipient organization.\1065\ For individuals, the deduction 
for charitable contributions is available only to a taxpayer 
who elects to itemize deductions.
---------------------------------------------------------------------------
    \1065\ 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.
    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 recipient 
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.\1066\
---------------------------------------------------------------------------
    \1066\ Sec. 170(b)(1)(H).
---------------------------------------------------------------------------
    Charitable contributions that exceed the applicable 
percentage limit generally may be carried forward for up to 
five years.\1067\ In general, contributions carried over from a 
prior year are taken into account after contributions for the 
current year that are subject to the same percentage limit.
---------------------------------------------------------------------------
    \1067\ Sec. 170(b)(1)(G)(ii) and (d).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision permits an eligible individual to claim an 
above-the-line deduction in an amount not to exceed $300 for 
qualified charitable contributions made during a taxable year 
that begins in 2020.\1068\ The above-the-line deduction is not 
available for contributions made during a taxable year that 
begins after 2020. An eligible individual is an individual who 
does not elect to itemize deductions.\1069\ Thus, a taxpayer 
taking the standard deduction, who absent the provision would 
not be able to deduct any charitable contributions, may claim 
an above-the-line deduction for qualified charitable 
contributions.
---------------------------------------------------------------------------
    \1068\ Sec. 62(a)(22).
    \1069\ Sec. 62(f)(1). The $300 limit applies to the tax-filing 
unit. Thus, for example, married taxpayers who file a joint return and 
do not elect to itemize deductions are allowed to deduct up to a total 
of $300 in qualified charitable contributions on the joint return.
---------------------------------------------------------------------------
    A qualified charitable contribution is a cash contribution 
for which a deduction is allowable under section 170 
(determined without regard to the percentage limitations under 
section 170(b)) that is paid 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)).\1070\ 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. A qualified charitable contribution 
does not include an amount that is treated as a contribution in 
the taxable year by reason of being carried forward from a 
prior contribution year under section 170(b)(1)(G) or (d)(1).
---------------------------------------------------------------------------
    \1070\ Sec. 62(f)(2).
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2019.

5. Modification of limitations on charitable contributions during 2020 
        (sec. 2205 of the Act and sec. 170 of the Code)

                              Present Law


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 
recipient organization.\1071\
---------------------------------------------------------------------------
    \1071\ 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 contribution base is defined 
as the taxpayer's AGI computed without regard to any net 
operating loss carryback. The applicable percentage of the 
contribution base varies depending on the type of recipient 
organization and property contributed.
    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, 
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 
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 with certain modifications.
    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.
            Carryforwards of excess contributions
    Charitable contributions that exceed the applicable 
percentage limitation may be carried forward for up to five 
years.\1072\ 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 rule.
---------------------------------------------------------------------------
    \1072\ Sec. 170(d).
---------------------------------------------------------------------------

Contributions of food inventory

    A taxpayer's deduction for charitable contributions of 
inventory generally is limited to the taxpayer's basis 
(typically, cost) in the inventory, or, if less, the fair 
market value of the inventory. For certain contributions of 
inventory, however, a C corporation may claim an enhanced 
deduction equal to the lesser of (1) basis plus one-half of the 
item's appreciation (i.e., basis plus one-half of fair market 
value in excess of basis) or (2) two times basis.\1073\
---------------------------------------------------------------------------
    \1073\ Sec. 170(e)(3).
---------------------------------------------------------------------------
    Any taxpayer engaged in a trade or business, whether or not 
a C corporation, is eligible to claim the enhanced deduction 
for donations of food inventory.\1074\ The enhanced deduction 
for food inventory is available only for food that qualifies as 
``apparently wholesome food.'' Apparently wholesome food is 
defined as food intended for human consumption that meets all 
quality and labeling standards imposed by Federal, State, and 
local laws and regulations even though the food may not be 
readily marketable due to appearance, age, freshness, grade, 
size, surplus, or other conditions.
---------------------------------------------------------------------------
    \1074\ Sec. 170(e)(3)(C).
---------------------------------------------------------------------------
    For taxpayers other than C corporations, the total 
deduction for donations of food inventory in a taxable year 
generally may not exceed 15 percent of the taxpayer's net 
income for such taxable year from all sole proprietorships, S 
corporations, or partnerships (or other non-C corporation 
trades or businesses) from which contributions of apparently 
wholesome food are made. For C corporations, these 
contributions are made subject to a limitation of 15 percent of 
taxable income (as modified). The general 10-percent limitation 
for a C corporation does not apply to these contributions, but 
the 10-percent limitation applicable to other contributions is 
reduced by the amount of these contributions. Qualifying food 
inventory contributions in excess of these 15-percent 
limitations may be carried forward and treated as qualifying 
food inventory contributions in each of the five succeeding 
taxable years in order of time.

Disaster relief

    Congress has at times liberalized the charitable 
contribution limitations for contributions made in response to 
certain natural disasters.\1075\
---------------------------------------------------------------------------
    \1075\ See, e.g., sec. 20104(a) of Pub. L. No. 115-123 (increasing 
limits in response to 2017 California wildfires); sec. 504(a) of Pub. 
L. No. 115-63 (increasing limits in response to Hurricanes Harvey, 
Irma, and Maria); and former sec. 1400S (increasing limits in response 
to Hurricanes Katrina, Rita, and Wilma). For a more detailed 
description of the most recently enacted provision (related to the 2017 
California wildfires), see Joint Committee on Taxation, General 
Explanation of Certain Tax Legislation Enacted in the 115th Congress 
(JCS-2-19), October 2019, pp. 27-29.
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                        Explanation of Provision

    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 (AGI computed 
without regard to any net operating loss carryback) exceeds the 
deduction for other charitable contributions. Contributions in 
excess of this amount are carried over to succeeding taxable 
years as contributions described in section 170(b)(1)(G), 
subject to the limitations of section 170(b)(1)(G)(ii).
    In the case of a corporation, the deduction for qualified 
contributions is allowed up to 25 percent of the corporation's 
taxable income. 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 
calendar year 2020 to a charitable organization described in 
section 170(b)(1)(A), other than contributions (i) to 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. A taxpayer 
must elect to have contributions treated as qualified 
contributions.
    For charitable contributions of food inventory that are 
made during 2020 and which qualify for the enhanced deduction, 
the 15-percent limitations described above are increased to 25 
percent.

                             Effective Date

    The provision is effective for taxable years ending after 
December 31, 2019.

6. Exclusion for certain employer payments of student loans (sec. 2206 
      of the Act and secs. 127, 3121, 3306, and 3401 of the Code)


                              Present Law


Employer-provided educational assistance programs

    Under section 127, an employee may exclude from gross 
income for income tax purposes \1076\ and the employer may 
exclude from wages for employment tax purposes \1077\ up to 
$5,250 annually of educational assistance provided by the 
employer to the employee. For the exclusion to apply, certain 
requirements must be satisfied: (1) the educational assistance 
must be provided pursuant to a separate written plan of the 
employer; (2) employers must provide reasonable notification of 
the terms and availability of the program to eligible 
employees; (3) the employer's educational assistance program 
must not discriminate in favor of highly compensated employees; 
and (4) no more than five percent of the amounts paid or 
incurred by the employer during the year for educational 
assistance under a qualified educational assistance program may 
be provided for the class of individuals consisting of (i) more 
than five-percent owners of the employer and (ii) the spouses 
or dependents of such owners.
---------------------------------------------------------------------------
    \1076\ See also sec. 3401(a)(18).
    \1077\ Secs. 3121(a)(18) and 3306(b)(13).
---------------------------------------------------------------------------
    For purposes of the exclusion, ``educational assistance'' 
means the payment by an employer of expenses incurred by or on 
behalf of the employee for education of the employee including, 
but not limited to, tuition, fees and similar payments, books, 
supplies, and equipment. Educational assistance also includes 
the provision by the employer of courses of instruction for the 
employee, including books, supplies, and equipment. Educational 
assistance does not include payment for or the provision of (1) 
tools or supplies that may be retained by the employee after 
completion of a course, (2) meals, lodging, or transportation, 
or (3) any education involving sports, games, or hobbies. The 
education need not be job-related or part of a degree 
program.\1078\ Educational assistance qualifies for the 
exclusion only if the employer does not give the employee a 
choice between educational assistance and other remuneration 
includible in the employee's income.
---------------------------------------------------------------------------
    \1078\ Treas. Reg. sec. 1.127-2(c)(4).
---------------------------------------------------------------------------
    The exclusion for employer-provided educational assistance 
applies only with respect to education provided to the 
employee. The exclusion does not apply, for example, to 
assistance provided directly or indirectly for the education of 
the spouse or a child of the employee.
    The employer's costs for providing such educational 
assistance are generally deductible as a trade or business 
expense.\1079\
---------------------------------------------------------------------------
    \1079\ See sec. 162.
---------------------------------------------------------------------------
    In the absence of the specific exclusion for employer-
provided educational assistance under section 127, employer-
provided educational assistance is excludable from gross income 
for income tax purposes \1080\ and wages for employment tax 
purposes \1081\ only if the education expenses qualify as a 
working condition fringe benefit under section 132(d) or as a 
qualified tuition reduction under section 117(d). In general, 
education qualifies as a working condition fringe benefit if 
the employee could have deducted the education expenses under 
section 162 if the employee paid for the education.\1082\ In 
general, education expenses are deductible by an individual 
under section 162 if the education (1) maintains or improves a 
skill required in a trade or business currently engaged in by 
the taxpayer, or (2) meets the express requirements of the 
taxpayer's employer, applicable law, or regulations imposed as 
a condition of continued employment.\1083\ However, education 
expenses are generally not deductible if they relate to certain 
minimum educational requirements or to education or training 
that enables a taxpayer to begin working in a new trade or 
business.\1084\
---------------------------------------------------------------------------
    \1080\ See also sec. 3401(a)(19).
    \1081\ Secs. 3121(a)(20) and 3306(b)(16).
    \1082\ Sec. 132(d).
    \1083\ Treas. Reg. sec. 1.162-5.
    \1084\ For taxable years beginning before January 1, 2026, trade or 
business expenses relating to the trade or business of the performance 
of services by the taxpayer as an employee are disallowed miscellaneous 
itemized deductions. Secs. 62(a)(1), 67(g), and 162(a).
---------------------------------------------------------------------------
    Section 117(d) provides an exclusion from gross income and 
wages for qualified tuition reductions for certain education 
provided to employees of certain educational organizations, and 
to the spouses and dependents of such employees.

Employer payment of employee student loans

    In general, gross income includes all income from whatever 
source derived, such as compensation for services, fringe 
benefits, and similar items, absent an exclusion.\1085\ The 
exclusion from income for educational assistance does not apply 
to payments of principal or interest made by an employer to or 
on behalf of its employee on an education loan incurred by an 
employee of the employer. Because the educational assistance 
exclusion does not apply to these payments of education loans, 
the amount of these payments is includible in the employee's 
taxable wages. These amounts are generally deductible by the 
employer as a trade or business expense.\1086\
---------------------------------------------------------------------------
    \1085\ Sec. 61.
    \1086\ See sec. 162.
---------------------------------------------------------------------------

Deduction for student loan interest

    Under section 221, certain individual taxpayers may claim 
an above-the-line deduction for interest paid on student 
loans.\1087\ Only interest paid on a ``qualified education 
loan'' is eligible for the deduction.
---------------------------------------------------------------------------
    \1087\ Sec. 62(a)(17), 221; see also sec. 163(h)(2)(F).
---------------------------------------------------------------------------
    A qualified education loan generally is defined as any 
indebtedness incurred to pay for the costs of the attendance at 
an eligible educational institution on at least a half-time 
basis.\1088\ The payments may be for attendance of the 
taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer as of the time the indebtedness was incurred. Eligible 
educational institutions are (1) post-secondary educational 
institutions and certain vocational schools defined by 
reference to section 481 of the Higher Education Act of 1965, 
and (2) institutions conducting internship or residency 
programs leading to a degree or certificate from an institution 
of higher education, a hospital, or a health care facility 
conducting postgraduate training.\ 1089\ Additionally, to 
qualify as an eligible educational institution, an institution 
must be eligible to participate in Department of Education 
student aid programs.
---------------------------------------------------------------------------
    \1088\ Secs. 221(d)(1)-(3); see also sec. 25A(b)(3).
    \1089\ Secs. 25A(f)(2) and 221(d)(2).
---------------------------------------------------------------------------
    The maximum allowable deduction per year is $2,500. The 
deduction is phased out and reduced to zero at higher-income 
levels.\1090\ Dependents are ineligible to claim the deduction.
---------------------------------------------------------------------------
    \1090\ For 2020, the phaseout range is for modified adjusted gross 
income between $140,000 to $170,000 for married taxpayers filing a 
joint return and between $70,000 and $85,000 for other taxpayers. Sec. 
221(b)(2)(B); Rev. Proc. 2019-44, 2019-47 I.R.B. 1093.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision expands the definition of the term 
``educational assistance'' excludible from income and from 
wages to include payments of principal or interest made by an 
employer on a qualified education loan incurred by an employee 
of the employer.\1091\ Thus, the employee may exclude these 
payments from gross income for income tax purposes and the 
employer may exclude these payments from wages for employment 
tax purposes. The term ``qualified education loan'' is defined 
in section 221(d)(1). The loan must be incurred for the 
education of the employee. The exclusion applies to payments 
made to the employee or a lender. The provision does not apply 
to payments made on or after January 1, 2021.
---------------------------------------------------------------------------
    \1091\ Sec. 127(c)(1)(B), as amended by the Act.
---------------------------------------------------------------------------
    Payments made under this provision are subject to the 
general requirements of section 127, including the $5,250 cap, 
the requirement that assistance be provided pursuant to a 
separate written plan of the employer, and the 
nondiscrimination requirement.
    The provision also provides that the employee may not claim 
a deduction under section 221 for interest paid on student 
loans on an amount for which an exclusion is allowable under 
the provision.\1092\
---------------------------------------------------------------------------
    \1092\ Sec. 221(e)(1), as amended by the Act.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for payments made after the date 
of enactment (March 27, 2020).

                    Subtitle C--Business Provisions


1. Employee retention credit for employers subject to closure due to 
        COVID-19 (sec. 2301 of the Act)

                              Present Law


In general

            Federal employment taxes and OASDI Trust Funds
    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include taxes levied 
under the Federal Insurance Contributions Act (``FICA''), the 
Federal Unemployment Tax Act (``FUTA''), and Federal income 
tax.\1093\ In addition, tier 1 of the Railroad Retirement Tax 
Act (``RRTA'') imposes a tax on compensation paid to railroad 
employees and representatives.\1094\
---------------------------------------------------------------------------
    \1093\ Secs. 3101, 3111, 3301, and 3401.
    \1094\ Sec. 3221.
---------------------------------------------------------------------------
    FICA taxes comprise two components: Old-Age, Survivors, and 
Disability Insurance (``OASDI'') taxes and Hospital Insurance 
(``Medicare'') taxes.\1095\ With respect to OASDI taxes, the 
applicable rate is 12.4 percent with half of such rate (6.2 
percent) imposed on the employee and the remainder (6.2 
percent) imposed on the employer.\1096\ The tax is assessed on 
covered wages up to the OASDI wage base ($137,700 in 2020). 
Generally, the OASDI wage base rises based on increases in the 
national average wage index.\1097\
---------------------------------------------------------------------------
    \1095\ The Hospital Insurance (``HI'') tax has two components: 
Medicare tax and Additional Medicare tax. Medicare tax is imposed on 
wages, as defined in section 3121(a), with respect to employment, as 
defined in section121(b), at a rate of 1.45 percent for the employer. 
Sec. 3101(b)(1). An equivalent 1.45 percent is withheld from employee 
wages. Sec. 3111(b)(1). For purposes of this description, Medicare tax 
does not include Additional Medicare tax. Additional Medicare taxes are 
withheld from employee wages in excess of $200,000 at a rate of 
0.9rcent. Sec. 3101(b)(2). There is no equivalent employer's share of 
Additional Medicare taxes.
    \1096\ Sec. 3101.
    \1097\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
---------------------------------------------------------------------------
    The employee portion of OASDI taxes must be withheld and 
remitted to the Federal government by the employer during the 
calendar quarter, as required by the applicable deposit 
rules.\1098\ The employer is liable for the employee portion of 
OASDI taxes, in addition to its own share, whether or not the 
employer withholds the amount from the employee's wages.\1099\ 
OASDI and Medicare taxes are generally allocated by statute 
among separate trust funds: the OASDI Trust Funds, Medicare's 
Hospital Insurance Trust Fund, and Supplementary Medical 
Insurance Trust Fund.\1100\
---------------------------------------------------------------------------
    \1098\ Sec. 3102(a) and Treas. Reg. sec. 31.3121(a)-2. See also 
sec. 6302.
    \1099\ Sec. 3102(b).
    \1100\ Secs. 201 and 1817 of the Social Security Act, Pub. L. No. 
74-271 as amended (42 U.S.C. secs. 401 and 1395i).
---------------------------------------------------------------------------
    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1101\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes salaries, vacation allowances, bonuses, deferred 
compensation, commissions, and fringe benefits. The term 
``employment'' is generally defined for FICA tax purposes as 
any service, of whatever nature, performed by an employee for 
the person employing him or her, with certain specific 
exceptions.
---------------------------------------------------------------------------
    \1101\  Sec. 3121(a).
---------------------------------------------------------------------------
    The taxes related to the OASDI program collected from FICA 
are deposited into two separate OASDI Trust Funds: (1) the Old-
Age and Survivors Insurance (``OASI'') Trust Fund, which pays 
retirement and survivor benefits, and (2) the Disability 
Insurance (``DI'') Trust Fund, which pays disability 
benefits.\1102\ The major sources of income to the OASDI Trust 
Funds are FICA taxes and taxes under the Self-Employment 
Contributions Act (``SECA''). The OASDI Trust Funds are 
financial accounts in the U.S. Treasury. The only purposes for 
which these trust funds can be used are to pay benefits and 
program administrative costs. A fixed proportion (dependent on 
the allocation of tax rates by trust fund) of the taxes 
received under FICA and SECA is deposited in the OASI Trust 
Fund to the extent that such taxes are not needed immediately 
to pay expenses.
---------------------------------------------------------------------------
    \1102\  42 U.S.C. sec. 401.
---------------------------------------------------------------------------
            Railroad retirement program
    Railroad workers do not participate in the OASDI system. 
Compensation subject to RRTA tax is exempt from FICA 
taxes.\1103\ The RRTA imposes a tax on compensation paid by 
covered employers to employees in recognition for the 
performance of services.\1104\ The term ``compensation'' means 
any form of money remuneration paid to an individual for 
services rendered as an employee to one or more employers, with 
certain exceptions.\1105\ Employees whose compensation is 
subject to RRTA tax are generally eligible for railroad 
retirement benefits under a two-tier structure. Rail employees 
and employers pay tier 1 taxes at the same rate as other 
employment taxes.\1106\ In addition, rail employees and 
employers both pay tier 2 taxes, which are used to finance 
railroad retirement benefits above Social Security benefit 
levels.\1107\ Tier 2 benefits are similar to a private defined 
benefit pension.
---------------------------------------------------------------------------
    \1103\  Sec. 3121(b)(9).
    \1104\  Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the Social Security and Medicare taxes under FICA. Under 
the RRTA, employers and employees are also subject to an additional 
tax, referred to as the ``tier 2'' tax, on compensation up to a certain 
amount.
    \1105\ Sec. 3231(e).
    \1106\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $137,700 in 2020, and 1.45rcent for Medicare hospital 
insurance on all earnings. An additional 0.9 percent in Medicare taxes 
are withheld from employees on earnings above $200,000.
    \1107\ In 2020, the tier 2 tax rate on earnings up to $102,300 is 
4.9 percent for employees and 13.1 percent for employers.
---------------------------------------------------------------------------
            Employment tax in the U.S. territories
    Employers and employees in the U.S. territories are 
generally subject to FICA payroll tax obligations.\1108\ In 
contrast, employers and employees in the territories are 
generally not subject to withholding at the source for Federal 
income tax, although they are subject to withholding of local 
taxes.\1109\ These payroll obligations of the employers are 
generally applicable to Federal agencies with personnel in the 
territory. Employers in the territories file quarterly tax 
returns with the Federal government to report and pay FICA 
taxes for employees in the respective territories.
---------------------------------------------------------------------------
    \1108\  See sec. 3121(b) and (e) and Covenant to Establish a 
Commonwealth of the Northern Mariana Islands in Political Union with 
the United States of America, Sec. 601(c). The U.S. territories 
referred to in this document are American Samoa, the Commonwealth of 
the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin 
Islands.
    \1109\ Under section 3401(a)(8), most wages paid to U.S. persons 
for services performed in one of the territories are exempt from 
Federal income tax withholding if the payments are subject to 
withholding by the territory, or, in the case of Puerto Rico, the payee 
is a bona fide resident of the territory for the full year.
---------------------------------------------------------------------------

Employee retention credits against income taxes

    Congress has at times enacted employee retention credits 
against employer income tax in response to natural 
disasters.\1110\ These enactments generally provide a credit of 
40 percent of the wages (up to a maximum of $6,000 in wages per 
employee) paid by certain employers harmed by the applicable 
disaster to employees employed in the applicable disaster zone 
during the period when the employer's business was inoperable 
due to the applicable disaster. The credits are treated as a 
current year business credit under section 38(b) and therefore 
subject to the Federal income tax liability limitations of 
section 38(c). Rules similar to those in sections 51(i)(1), 52, 
and 280C(a) apply to the credits.\1111\
---------------------------------------------------------------------------
    \1110\ See, e.g., sec. 203 of Pub. L. No. 116-94, Div. Q (providing 
a credit in response to certain major disasters declared in 2018 and 
2019); sec. 20103 of Pub. L. No. 115-123 (providing a credit in 
response to 2017 California wildfires); Sec. 503 of Pub. L. No. 115-63, 
as amended by sec. 20201(b) of Pub. L. No. 115-123 (providing a credit 
in response to Hurricanes Harvey, Irma, and Maria); and former sec. 
1400R (providing a credit in response to Hurricanes Katrina, Rita, and 
Wilma).
    \1111\ For a more detailed description of a recently enacted 
employee retention credit (related to certain major disasters declared 
in 2018 and 2019), see Joint Committee on Taxation, Description of H.R. 
3301, The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (JCX-
30-19), June 2019 pp. 80-81. See also the description of section03 of 
the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE 
of Pub. L. No. 116-260).
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Refundable payroll tax credits for paid sick and paid family and 
        medical leave

    On March 18, 2020, the President signed into law the 
Families First Coronavirus Response Act (``FFCRA''),\1112\ 
Divisions C and E of which require certain employers to provide 
certain types of paid leave to certain employees affected by 
the outbreak of COVID-19. Sections 7001 and 7003 of Division G 
of that Act provide refundable credits against a portion of 
payroll tax liability for certain sick and family leave wages 
required to be paid under Divisions C and E.\1113\ Those 
credits are described above in Part Five of this document.
---------------------------------------------------------------------------
    \1112\ Pub. L. No. 116-127.
    \1113\ For a full description of Division G, see Part Five of this 
document; see also Joint Committee on Taxation, Technical Explanation 
of Division G, ``Tax Credits for Paid Sick and Paid Family and Medical 
Leave,'' of H.R. 6201, the ``Families First Coronavirus Response Act'' 
(JCX-10-20), March 2020.
---------------------------------------------------------------------------

                        Explanation of Provision

    In general The provision allows an eligible employer to 
claim a credit against applicable employment taxes for each 
calendar quarter in an amount equal to 50 percent of the 
qualified wages with respect to each employee of such employer 
for such calendar quarter. Applicable employment taxes are 
OASDI tax imposed on the employer and so much of the RRTA tax 
imposed on the employer as is attributable to the rate in 
effect under section 3111(a). The amount of qualified wages 
with respect to any employee which may be taken into account in 
calculating the credit for all calendar quarters may not exceed 
$10,000. Therefore, under the provision, the maximum amount of 
credit per employee for all calendar quarters is $5,000. The 
provision applies only to wages paid after March 12, 2020, and 
before January 1, 2021.
    The credit allowed may not exceed the applicable employment 
taxes imposed on the eligible employer for that calendar 
quarter on the wages paid with respect to all of the employer's 
employees, reduced by any credits allowed for the employment of 
qualified veterans,\1114\ for research expenditures of a 
qualified small business,\1115\ or for paid sick or family 
leave under sections 7001 and 7003 of the Families First 
Coronavirus Response Act. However, if for any calendar quarter 
the amount of the credit exceeds the applicable employment 
taxes imposed on the employer, reduced as described in the 
prior sentence, such excess is treated as a refundable 
overpayment.\1116\
---------------------------------------------------------------------------
    \1114\ Sec. 3111(e).
    \1115\ Sec. 3111(f).
    \1116\ The excess is treated as an overpayment and refunded under 
sections 6402(a) and 6413(b). For purposes of section 1324 of Title 31, 
United States Code, any amount due to an employer under the provision 
is treated in the same manner as a refund due from the credits against 
applicable employment taxes described above. Thus, pursuant to that 
section, amounts are appropriated to the Secretary for refunding such 
excess amounts.
---------------------------------------------------------------------------
    For example, assume that, for a calendar quarter, an 
eligible employer had applicable employment taxes prior to any 
credits of $10,000 and (1) a credit for research expenditures 
of a qualified small business of $4,000, (2) a $3,000 credit 
for paid sick leave under section 7001 of FFCRA, and (3) a 
$5,000 employee retention credit. The eligible employer's 
applicable employment taxes are reduced to $0 and it has a 
$2,000 refundable overpayment.\1117\ If, instead, the eligible 
employer had applicable employment taxes prior to any credits 
of $2,000, its applicable employment taxes are reduced to $0 
and it has an $8,000 refundable overpayment.\1118\
---------------------------------------------------------------------------
    \1117\ The tax is reduced by the $4,000 research expenditures 
credit, the $3,000 paid sick leave credit, and $3,000 of the $5,000 
employee retention credit. The $2,000 excess employee retention credit 
is treated as refundable.
    \1118\ The tax is reduced by the $2,000 research expenditures 
credit, the other $2,000 of which is not refundable. See sec. 3111(f). 
The $3,000 paid sick leave credit is treated as refundable, section 
7001(b)(4) of the Families First Coronavirus Response Act, as is the 
$5,000 employee retention credit.
---------------------------------------------------------------------------
    Amounts are appropriated to the OASDI Trust Funds and the 
Social Security Equivalent Benefit Account established under 
the RRTA\1119\ equal to the reduction in revenues to the 
Treasury by reason of the credit. Such amounts are transferred 
from the general fund at such times and in such manner as to 
replicate to the extent possible the transfers that would have 
occurred to the Trust Funds or Account had the credit not been 
enacted.
---------------------------------------------------------------------------
    \1119\ See sec. 15A(a) of the RRTA (45 U.S.C. sec. 231n-1(a)).
---------------------------------------------------------------------------

Definition of eligible employer

    An eligible employer is any employer which was carrying on 
a trade or business during calendar year 2020 and which meets 
either of two tests.
    Under the first test (the ``governmental order test''), 
such employer is an eligible employer if it experiences a 
calendar quarter in which the operation of the trade or 
business is fully or partially suspended during the calendar 
quarter due to orders from an appropriate governmental 
authority limiting commerce, travel, or group meetings (for 
commercial, social, religious, or other purposes) due to COVID-
19.
    For example, a restaurant in a State under a Statewide 
order that restaurants offer only take-out service meets the 
governmental order test, as does a concert venue in a State 
under a Statewide order limiting gatherings to no more than 10 
people. Similarly, an accounting firm that is in a county where 
accounting firms are among businesses subject to a directive 
from public health authorities to cease all activities other 
than minimum basic operations and that closes its offices and 
does not require employees who cannot work from home (e.g., 
custodial employees, mail room employees) to work meets this 
test. However, a grocery store in a State that generally 
imposes limitations on food service, gathering size, and travel 
outside the home, but exempts grocery stores (and travel to and 
from grocery stores) from any COVID-19 related restrictions 
(e.g., because grocery stores are deemed an ``essential 
business'' that is excepted from restrictions) would not meet 
this test.
    Under the second test (the ``reduced gross receipts 
test''), such employer is an eligible employer if it 
experiences a significant decline in gross receipts. The 
employer is treated as experiencing a significant decline in 
gross receipts in the period (i) beginning with the first 
calendar quarter beginning after December 31, 2019, for which 
gross receipts (within the meaning of section 448(c)) for the 
calendar quarter are less than 50 percent of gross receipts for 
the same calendar quarter in the prior year, and (ii) ending 
with the quarter following the first calendar quarter beginning 
after a calendar quarter described in (i) in which gross 
receipts exceed 80 percent of gross receipts for the same 
calendar quarter for the prior year.
    For example, if an employer had gross receipts of $100 in 
each calendar quarter of 2019 and then had gross receipts in 
the first, second, third, and fourth quarters of 2020 of $100, 
$40, $90, and $100, respectively, the period in which such 
employer is treated as meeting the significant decline in gross 
receipts test is the second and third quarters of 2020.
    An organization described in section 501(c) may qualify as 
an eligible employer under either test. The requirement that an 
eligible employer be carrying on a trade or business during 
calendar year 2020 and the governmental order test are to be 
applied as if they referred to all operations of such 
organization, and not merely those which are treated as a trade 
or business.

Definition of qualified wages

    The definition of qualified wages depends on the average 
number of full-time and full-time-equivalent employees of the 
eligible employer during 2019.\1120\ All persons treated as a 
single employer under subsection (a) or (b) of section 52 or 
subsection (m) or (o) of section 414 are treated as one 
employer for purposes of the provision.
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    \1120\ The provision states that the metric is the ``average number 
of full-time employees (within the meaning of section 4980H of the 
Internal Revenue Code of 1986).'' This language includes full-time 
equivalents as referred to in section 4980H(c)(2)(E), which reads as 
follows:
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        (E) Full-time equivalents treated as full-time employees. 
      Solely for purposes of determining whether an employer is 
      an applicable large employer under this paragraph, an 
      employer shall, in addition to the number of full-time 
      employees for any month otherwise determined, include for 
      such month a number of full-time employees determined by 
      dividing the aggregate number of hours of service of 
      employees who are not full-time employees for the month by 
      120.
    For an eligible employer that had more than 100 such 
employees in 2019, qualified wages are wages paid by the 
eligible employer with respect to which an employee is not 
providing services due to circumstances that cause the eligible 
employer to meet either the governmental order test or the 
reduced gross receipts test.
    For example, if a restaurant that had an average of 150 
full-time employees during 2019 meets the governmental order 
test, and the restaurant continues to pay kitchen employees' 
wages as if they were working 40 hours per week but only 
requires them to work 15 hours per week, the wages paid to the 
kitchen employees for the 25 hours per week with respect to 
which the kitchen employees are not providing services are 
qualified wages. However, if the same restaurant reduces 
kitchen employees' working hours from 40 hours per week to 15 
hours per week and only pays wages for 15 hours per week, no 
wages paid to the kitchen employees are qualified wages.
    As another example, if an accounting firm that had an 
average of 500 full-time employees during 2019 meets the 
governmental order test, and during the period in which the 
governmental order is in place the accounting firm closes its 
office and does not require custodial and mail room employees 
to work but continues to pay them their full salaries, wages 
paid to those custodial and mail room employees for the time 
they do not work are qualified wages. Similarly, if the 
accounting firm continues to pay administrative assistants 
their full salaries but only requires them to work two days per 
week on a rotating schedule reflecting reduced demand for 
assistance resulting from the office closure, the portion of an 
administrative assistant's salary attributable to days not 
worked are qualified wages.
    Qualified wages paid to an employee by an eligible employer 
that had more than 100 full-time employees in 2019 cannot 
exceed the amount such employee would have been paid for 
working an equivalent duration during the 30 days immediately 
preceding the period in which the eligible employer met either 
the governmental order test or the reduced gross receipts test.
    For example, if an eligible employer subject to this rule 
paid an employee $15 per hour for all hours worked prior to 
meeting the governmental order test, but during the period when 
the eligible employer meets the governmental order test pays 
the same employee $10 per hour for hours when the employee is 
providing services and $20 per hour for hours when the employee 
is not providing services, only $15 per hour of wages paid when 
the employee is not providing services are qualified wages. As 
another example, if an eligible employer subject to this rule 
paid an employee $15 per hour for all hours worked prior to 
meeting the governmental order test, but during the period when 
the eligible employer meets the governmental order test pays 
the same employee $20 per hour (both for hours when the 
employee is providing services and for hours when the employee 
is not providing services), only $15 per hour of wages paid 
when the employee is not providing services are qualified 
wages.
    For an eligible employer that had an average of 100 or 
fewer full-time employees in 2019, qualified wages are wages 
paid to any employee either during the time period in which 
such eligible employer meets the governmental order test or 
during a quarter in which the eligible employer meets the 
reduced gross receipts test.
    For example, if a restaurant that had an average of 45 
full-time employees during 2019 meets the governmental order 
test, and the restaurant continues to pay kitchen employees' 
wages as if they were working 40 hours per week but only 
requires them to work 15 hours per week, all of such employees' 
wages paid during the period to which the governmental order 
applies are qualified wages. If the same restaurant responds to 
the governmental order by reducing the hours of kitchen 
employees who had previously worked 40 hours per week to 15 
hours per week and only pays wages for 15 hours per week, such 
wages paid during the period to which the governmental order 
applies are qualified wages.
    As another example, if a grocery store that had an average 
of 75 full-time employees during 2019 meets the reduced gross 
receipts test for the second and third calendar quarters of 
2020, all wages paid by the grocery store during those quarters 
are qualified wages.
    Qualified wages do not include any wages\1121\ or 
compensation\1122\ taken into account under sections 7001 or 
7003 of FFCRA. Qualified wages also include so much of the 
employer's qualified health plan expenses as are properly 
allocable to qualified wages under the provision. Qualified 
health plan expenses are defined as amounts paid or incurred by 
the employer to provide and maintain a group health plan,\1123\ 
but only to the extent such amounts are excluded from the 
employees' income as coverage under an accident or health 
plan.\1124\ Qualified health plan expenses are allocated to 
qualified wages in such manner as the Secretary (or the 
Secretary's delegate) may prescribe. Except as otherwise 
provided by the Secretary (or the Secretary's delegate), such 
allocations are treated as properly made if made pro rata among 
covered employees and pro rata on the basis of periods of 
coverage (relative to the time periods of leave to which such 
wages relate). This broad grant of authority permits the 
Secretary (or the Secretary's delegate) to treat qualified 
health plan expenses as qualified wages in a situation where no 
other qualified wages are paid by the eligible employer or to 
the particular employee to which such expenses are allocable.
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    \1121\ Sec. 3121(a).
    \1122\ Sec. 3231(e).
    \1123\ Group health plan for this purpose is defined in section 
5000(b)(1).
    \1124\ For the exclusion, see section 106(a).
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Other rules, definitions, and guidance

    No credit is available under the provision to any employer 
that receives a small business interruption loan (i.e., a 
covered loan under paragraph (36) of section 7(a) of the Small 
Business Act (15 U.S.C. 636(a)) as added by section 1102 of the 
Act).
    If a taxpayer claims a credit under this provision, rules 
similar to the rules of sections 51(i)(1) and 280C(a) apply. 
Thus, for example, an employee retention credit may not be 
generated by an individual employer hiring his or her children. 
In addition, the credit is taken into account for purposes of 
determining any amount allowable as an income tax deduction for 
qualified wages (or any amount capitalizable to basis) or for 
payroll taxes associated with such qualified wages. For 
example, assume a calendar year employer pays $2,500 of 
qualified wages for the second quarter of 2020. If the employer 
claimed no ERTC, the employer would be able to deduct $2,500 of 
wage expense (assuming such wages are not subject to 
capitalization) and $155 of OASDI tax liability, for a total 
income tax deduction of $2,655 for the quarter with respect to 
those wages. If the employer claims an ERTC of $1,250 for those 
wages, the ERTC would offset $155 of OASDI liability and $1,095 
of wage expense, leaving $1,405 of qualified wages as 
deductible for income tax purposes.
    Continuing the example above, assume that the employer 
delays the deposit of its $155 of OASDI tax liability until 
December 31, 2021, pursuant to section 2302 of the CARES 
Act,\1125\ and thus does not have a current income tax 
deduction for such OASDI tax.\1126\ If the employer claims an 
ERTC of $1,250, the ERTC would offset $1,250 of wage expense, 
leaving $1,250 of qualified wages as deductible for income tax 
purposes.
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    \1125\ See subsequent description of section 2302 of the CARES Act, 
``Delay of Payment of Employer Payroll Taxes.''
    \ 1126\ In general, an employer's payroll tax liability is 
deductible when paid by the employer to the governmental authority. See 
section 461 and Treas. Reg. secs. 1.461-1 and 1.461-4(g). However, an 
accrual method employer who has adopted the recurring item exception 
method of accounting for its payroll taxes may generally deduct such 
taxes for which it has a fixed and determinable liability by the end of 
its taxable year if it pays the taxes by the earlier of the date the it 
files a timely income tax return (including extensions) for such 
taxable year or the 15th day of the ninth calendar month following the 
close of such taxable year (e.g., by September 15, 2021, for the 2020 
calendar taxable year). See section 461(h), Treas. Reg. sec. 1.461-5, 
and Rev. Proc. 2008-25, 2008-1 C.B. 686. Thus, if the 2020 payroll 
taxes are not paid until December 31, 2021, they will not be deductible 
in 2020 by a calendar year employer, regardless of whether the employer 
uses the cash or accrual method of accounting.
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    An employer may elect, at such time and in such manner as 
provided by the Secretary (or the Secretary's delegate), to 
have the credit not apply for a calendar quarter. Further, the 
credit is not available to the Government of the United States, 
the government of any State or political subdivision thereof, 
or any agency or instrumentality of any of those entities. 
Employers in the U.S. territories may claim the credit by 
filing their quarterly Federal employment tax returns.
    The provision does not apply to wages paid to any employee 
for any period with respect to any employer if such employer is 
allowed a credit under section 51 (i.e., the work opportunity 
tax credit) with respect to such employee for such period. 
Furthermore, any wages taken into account in determining the 
credit allowed under the provision shall not be taken into 
account for purposes of determining the credit allowed under 
section 45S (i.e., the employer credit for paid family and 
medical leave).
    Any credit allowed under the provision is treated as a 
credit described in section 3511(d)(2) (relating to third party 
payors).
    The provision directs the Secretary (or the Secretary's 
delegate) to waive any penalty under section 6656 for failure 
to make a deposit of applicable employment taxes if the 
Secretary (or the Secretary's delegate) determines that such 
failure was due to the reasonable anticipation of the credit 
allowed under the provision.
    The Secretary (or the Secretary's delegate) is required to 
provide such regulations or other guidance as may be necessary 
to carry out the purposes of the credit, including regulations 
or other guidance: (1) to allow the advance payment of the 
credit based on such information as the Secretary (or the 
Secretary's delegate) may require;\1127\ (2) to provide for the 
reconciliation of such advance payment with the amount advanced 
at the time of filing the return of tax for the applicable 
calendar quarter or taxable year; (3) to provide for recapture 
of the credit if it is allowed to a taxpayer which receives a 
small business interruption loan; (4) with respect to the 
application of the credit to third party payors (including 
professional employer organizations, certified professional 
employer organizations, or agents under section 3504), 
including regulations or guidance allowing such payors to 
submit documentation necessary to substantiate the eligible 
employer status of employers that use such payors; and (5) for 
application of the reduced gross receipts test to any employer 
which was not carrying on a trade or business for all or part 
of the same calendar quarter in the prior year.
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    \ 1127\ For 2020, the IRS provided Form 7200, Advance Payment of 
Employer Credits Due to COVID-19, to allow taxpayers to request advance 
payment of the credit. The instructions to Form 7200 explain,

        Eligible employers who pay . . . qualified wages eligible 
      for the employee retention credit should retain an amount 
      of the employment taxes equal to the amount of . . . their 
      employee retention credit, rather than depositing these 
      amounts with the IRS. The employment taxes that are 
      available for the credit[] include withheld federal income 
      tax, the employee share of social security and Medicare 
      taxes, and the employer share of social security and 
      Medicare taxes with respect to all employees. If there 
      aren't sufficient employment taxes to cover the cost of . . 
      . the employee retention credit, employers can file Form 
      7200 to request an advance payment from the IRS. Don't 
      reduce your deposits and request advance credit payments 
      for the same expected credit. You will need to reconcile 
      your advance credit payments and reduced deposits on your 
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      employment tax return.

        See instructions to IRS Form 7200, revised March 2020, 
      available at https://www.irs.gov/instructions/i7200.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

2. Delay of payment of employer payroll taxes (sec. 2302 of the Act and 
        secs. 6302 and 6654 of the Code)

                              Present Law

    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include Federal income 
tax as well as taxes levied under the Federal Insurance 
Contributions Act (``FICA''), Federal Unemployment Tax Act 
(``FUTA'').\1128\ In addition, tier 1 of the Railroad 
Retirement Tax Act (``RRTA'') imposes a tax on compensation 
paid to railroad employees and representatives.\1129\
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    \1128\ Secs. 3401, 3101, 3111, and 3301.
    \1129\ Sec. 3221.
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    FICA taxes are comprised of two components: Old-Age, 
Survivors, and Disability Insurance (``OASDI'') and Medicare 
taxes.\1130\ With respect to OASDI taxes, the applicable rate 
is 12.4 percent with half of such rate (6.2 percent) imposed on 
the employee and the remainder (6.2 percent) imposed on the 
employer.\1131\ The tax is assessed on covered wages up to the 
OASDI wage base ($137,700 in 2020). Generally, the OASDI wage 
base rises based on increases in the national average wage 
index.\1132\
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    \1130\ The Hospital Insurance (``HI'') tax has two components: 
Medicare tax and Additional Medicare tax. Medicare tax is imposed on 
wages, as defined in Section 3121(a), with respect to employment, as 
defined in Section 3121(b), at a rate of 1.45 percent for the employer. 
Sec. 3101(b)(1). An equivalent 1.45 percent is withheld from employee 
wages. Sec. 3111(b)(1). For purposes of this description, Medicare tax 
does not include Additional Medicare tax. Additional Medicare taxes are 
withheld from employee wages in excess of $200,000 at a rate of 0.9 
percent. Sec. 3101(b)(2). There is no equivalent employer's share of 
Additional Medicare taxes.
    \1131\ Sec. 3101.
    \1132\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
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    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1133\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes salaries, vacation allowances, bonuses, deferred 
compensation, commissions, and fringe benefits. The term 
``employment'' is generally defined for FICA tax purposes as 
any service, of whatever nature, performed by an employee for 
the person employing him or her, with certain specific 
exceptions.
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    \1133\ Sec. 3121(a).
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Railroad retirement program

    Railroad workers do not participate in the OASDI system. 
Accordingly, compensation subject to RRTA tax is exempt from 
FICA taxes.\1134\ The RRTA imposes a tax on compensation paid 
by covered employers to employees in recognition for the 
performance of services.\1135\ Employees whose compensation is 
subject to RRTA are ultimately eligible for railroad retirement 
benefits that fall under a two-tier structure. Rail employees 
and employers pay tier 1 taxes at the same rate as FICA 
taxes.\1136\ In addition, rail employees and employers both pay 
tier 2 taxes that are used to finance railroad retirement 
benefits over and above Social Security benefit levels.\1137\ 
Tier 2 benefits are similar to benefits under a defined benefit 
plan. Those taxes are funneled to the railroad retirement 
system and used to fund basic retirement benefits for railroad 
workers and an investment trust that generates returns for the 
pension fund.
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    \1134\ Sec. 3121(b)(9).
    \1135\ Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the Social Security and Medicare taxes under FICA. Under 
the RRTA, employers and employees are also subject to an additional 
tax, referred to as the ``tier 2'' tax, on compensation up to a certain 
amount.
    \1136\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $137,700 in 2020, and 1.45 percent for Medicare hospital 
insurance on all earnings. An additional 0.9 percent in Medicare taxes 
are withheld from employees on earnings above $200,000.
    \1137\ In 2020, the tier 2 tax rate on earnings up to $102,300 is 
4.9 percent for employees and 13.1 percent for employers.
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Self-employment taxes

    The Self-Employed Contributions Act (``SECA'') imposes tax 
on the self-employment income of an individual. SECA taxes 
consist of OASDI tax and Medicare tax.\1138\ Under the OASDI 
component, the first rate of tax is 12.4 percent on self-
employment income up to the OASDI wage base ($137,700 for 
2020).\1139\ Under the basic Medicare tax component, the second 
rate of tax is 2.9 percent of all self-employment income 
(without regard to the OASDI wage base).\1140\ As is the case 
with employees, an Additional Medicare tax applies to the 
Medicare portion of SECA tax on self-employment income in 
excess of a threshold amount.\1141\
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    \1138\ Sec. 1401(a) and (b).
    \1139\ Sec. 1401(a).
    \1140\ Sec. 1401(b)(1).
    \1141\ Sec. 1401(b)(2).
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    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment are equal to the gross income 
derived by an individual from any trade or business less 
allowed deductions that are attributable to the trade or 
business and permitted under the SECA rules. Certain passive 
income and related deductions are not taken into account in 
determining net earnings from self-employment, including 
rentals from real estate (unless received in the course of a 
trade or business as a real estate dealer),\1142\ dividends and 
interest (unless such dividends and interest are received in 
the course of a trade or business as a dealer in stocks or 
securities),\1143\ and sales or exchanges of capital assets and 
certain other property (unless the property is stock in trade 
that would properly be included in inventory or held primarily 
for sale to customers in the ordinary course of the trade or 
business).\1144\
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    \1142\ Sec. 1402(a)(1).
    \1143\ Sec. 1402(a)(2).
    \1144\ Sec. 1402(a)(3).
---------------------------------------------------------------------------
    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI tax and Medicare tax (i.e., 7.65 
percent of net earnings).\1145\ This deduction is determined 
without regard to the additional 0.9 percent Additional 
Medicare tax that may apply to an individual. This deduction 
reflects the fact that the FICA rates apply to an employee's 
wages, which do not include FICA taxes paid by the employer, 
whereas the self-employed individual's net earnings are 
economically equivalent to an employee's wages plus the 
employer's share of FICA taxes.\1146\ This is generally 
referred to as the ``regular method'' of determining net 
earnings from self-employment, and in Internal Revenue Service 
forms and publications it is expressed as multiplying total net 
earnings from self-employment by 92.35 percent.
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    \1145\ Sec. 1402(a)(12).
    \1146\ The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid. presently written, the deduction 
for SECA taxes is not the exact economic equivalent to the deduction 
for FICA taxes. See Joint Committee on Taxation, Options to Improve Tax 
Compliance and Reform Tax Expenditures (JCS-2-05), January 2005, for a 
detailed description of this issue.
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Deposit requirements

    The employee portion of OASDI taxes must be withheld and 
remitted to the Federal government by the employer during the 
quarter, as required by the applicable deposit rules.\1147\ The 
employer is liable for the employee portion of OASDI taxes, in 
addition to its own share, whether or not the employer withheld 
the amount from the employee's wages.\1148\ Employers that make 
payments of wages and withhold Federal income and FICA taxes 
are required to make deposits of those taxes in a timely 
manner.
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    \1147\ Sec. 3102(a) and Treas. Reg. sec. 31.3121(a)-2. Sec. 6302.
    \1148\ Sec. 3102(b).
---------------------------------------------------------------------------
    The regulations under section 6302 provide that an employer 
generally must deposit employment taxes under a monthly or 
semi-weekly schedule, with certain exceptions.\1149\ The 
applicable deposit schedule is determined based on the total 
tax liability reported on an employer's quarterly employment 
tax return during a lookback period. In general, an employer is 
a monthly depositor if the total Federal income and FICA tax 
liability for the four quarters in the lookback period was 
$50,000 or less. A semiweekly depositor is an employer for 
which the total tax liability reported during the lookback 
period was more than $50,000. Employers that accumulate 
$100,000 or more of employment tax liability on any day are 
required to make deposits of those taxes by the close of the 
next banking day.\1150\
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    \1149\ Treas. Reg. sec. 31.6302-1. In certain circumstances, 
employers may make employment tax payments with the filing of a return 
instead of periodic deposits under a monthly or semiweekly schedule. 
For example, to the extent an employer's total employment tax liability 
for the current or prior quarter is less than $2,500, the employer may 
make a payment with a timely filed IRS Form 944, Employer's ANNUAL 
Federal Tax Return, or IRS Form 941, Employer's QUARTERLY Federal Tax 
Return.
    \1150\ Treas. Reg. sec. 31.6302-1(c).
---------------------------------------------------------------------------
    If the aggregate amount of tax reported on an employment 
tax return exceeds the total amount of deposits made by the 
employer for the same quarter, the balance due must be remitted 
in accordance with the applicable form and instructions.\1151\
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    \1151\ Treas. Reg. secs. 31.6302-1(h)(7) and 31.6302-1(i)(2).
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    A penalty may be imposed for the failure to deposit 
employment taxes by the prescribed date.\1152\ The amount of 
the penalty varies depending on when the deposit is made in 
relation to the applicable deadline. The penalty is two percent 
of the unpaid amount if the payment is made within five days of 
the deadline, five percent if the payment is made within six 
and 15 days of the due date, 10 percent if the payment is made 
more than 15 days after the due date, and 15 percent for taxes 
still unpaid after the 10th day following a notice and demand 
from the Internal Revenue Service. The failure to deposit 
penalty may be waived if the taxpayer demonstrates the failure 
was due to reasonable cause and not willful neglect.\1153\
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    \1152\ Sec. 6656.
    \1153\ Sec. 6656(a).
---------------------------------------------------------------------------
    A penalty may also apply in the event that a taxpayer fails 
to make a payment of tax due on a tax return with the return 
absent a showing that the failure to pay was due to reasonable 
cause and not due to willful neglect.\1154\ The amount of the 
penalty is equal to one-half percent of the net amount of tax 
due for each month that the return is not filed. This penalty 
is coordinated with the penalty for the failure to timely file 
a tax return, by reducing the failure to file penalty by the 
amount of the failure to pay penalty for that month.\1155\ The 
maximum amount of the failure to pay penalty is 25 percent of 
the tax due.
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    \1154\ Secs. 6151(a) and 6651(a)(2).
    \1155\ Sec. 6651(a)(1).
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    With respect to self-employed individuals, estimated tax 
payments at least equal to (1) 90 percent of the current year's 
tax liability or (2) 100 percent of prior year's tax liability, 
must be made by the applicable deadlines.\1156\ A penalty is 
imposed by applying the underpayment interest rate to the 
amount of the underpayment for the period of underpayment. The 
penalty does not apply if the tax shown on the return is less 
than $1,000. There is no general reasonable cause waiver for 
the failure to pay estimated tax, but a waiver is available to 
the extent the Secretary determines that a taxpayer suffered a 
casualty or other unusual circumstance if imposition of a 
penalty would be against equity and good conscience.\1157\
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    \1156\ Secs. 6654.
    \1157\ Sec. 6654(e)(3).
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Third-party arrangements

    Responsibility for employment tax obligations generally 
rests with the person who is the employer of an employee under 
a common-law test that has been incorporated into Treasury 
regulations.\1158\ An employer-employee relationship exists if 
the person for whom the services are performed has the right to 
direct and control the performance of services by an 
individual, not only to the result to be accomplished by the 
work but also the details and means by which that result is 
accomplished. In some cases, however, a person other than the 
common-law employer may be responsible for effectuating the 
employer's employment tax obligations.
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    \1158\ Treas. Reg. secs. 31.3401(c)-1, 31.3121(d)-1(c)(1), and 
31.3306(i)-1(a). A similar concept for RRTA purposes applies under 
Treas. Reg. sec. 31.3231(b)-1(a)(1)(i).
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    An employer may designate a third-party agent to be 
responsible for employment tax withholding, depositing, and 
reporting requirements on behalf of the employer.\1159\ The 
reporting functions undertaken by this third party, a ``section 
3504 agent,'' may include filing employment tax returns and 
furnishing Forms W-2, Wage and Tax Statement, to the employer's 
employees. An employer remains jointly and severally liable 
with the section 3504 agent for satisfaction of the employer's 
employment tax obligations.\1160\
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    \1159\ Sec. 3504. Treas. Reg. sec. 31-3504-1 provides the criteria 
for the designation by an employer of an agent by application to the 
IRS. IRS Form 2678 is used for this purpose. In addition, under Treas. 
Reg. sec. 31.3504-2, designation of an agent may result from the 
payment of wages or compensation by a payor to an individual performing 
services for a client of the payor pursuant to a services agreement 
meeting certain criteria. The rules for designating an agent is a 
departure from the general principle that a taxpayer has a nondelegable 
duty with respect to employment tax obligations. See U.S. v. Boyle, 469 
U.S. 241 (1985).
    \1160\ Treas. Reg. sec. 31.3405-1(a).
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    Another third-party entity is a ``professional employer 
organization,'' which provides employees to perform services in 
the business of the professional employer organization's 
customers, including small and medium-sized businesses.\1161\ 
In many cases, before the professional employer organization 
arrangement is finalized, the employees already work in the 
customer's business as employees of the customer. A ``certified 
professional employer organization'' (``CPEO'') is an entity 
that has applied to the Secretary to be treated as a CPEO and 
has been certified to meet certain requirements. A CPEO is 
treated as the employer of any work-site employee performing 
services for any customer of the CPEO but only with respect to 
remuneration remitted by the CPEO to a work-site 
employee.\1162\ A CPEO is subject to employment tax 
withholding, depositing, and reporting requirements and 
associated liability with respect to the work-site employees 
performing services for a customer of the CPEO, subject to the 
limitations and requirements of section 3511.
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    \1161\ ``Professional employer organization'' is not a legal term 
with a specific definition. The term ``employee leasing company'' is 
also occasionally used to describe the same or similar relationship 
between service provider and customer in this context, but both terms 
can be used to describe a variety of arrangements.
    \1162\ Sec. 3511.
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                        Explanation of Provision

    The provision allows eligible employers and self-employed 
individuals to delay the deposit of certain employment taxes. 
The deposit and payment of ``applicable employment taxes'' 
during the ``payroll tax deferral period'' is treated as made 
timely if made by an applicable date. For this purpose, the 
term ``applicable employment taxes'' includes the following: 
the employer's share of OASDI taxes,\1163\ the employer's share 
of the equivalent Social Security portion of RRTA taxes and 
employee representative RRTA taxes,\1164\ and, for self-
employed individuals, the equivalent of the employer's Social 
Security portion of SECA taxes.\1165\ The employer's share of 
OASDI taxes, and equivalent portions for RRTA and SECA taxes, 
is 6.2 percent of wages, compensation, or net earnings from 
self-employment, up to the 2020 wage base, $137,700.
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    \1163\ Sec. 3111(a).
    \1164\ Secs. 3221(a) and 3211(a).
    \1165\ Sec. 1401(a).
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    The period beginning on March 27, 2020 and ending before 
January 1, 2021 is the ``payroll tax deferral period.'' Half of 
the applicable employment taxes required to be deposited during 
the payroll tax deferral period must be deposited on or before 
December 31, 2021, and the remaining fifty percent of the 
applicable employment tax liability accrued during the payroll 
tax deferral period must be deposited on or before December 31, 
2022. To the extent an employer deposits applicable employment 
taxes otherwise due during the payroll tax deferral period by 
the foregoing applicable dates, notwithstanding the 
requirements under section 6302, such deposits will be treated 
as timely.\1166\ For SECA tax purposes, 50 percent of the tax 
liability incurred under section 1401(a) during the payroll tax 
deferral period shall not be treated as taxes requiring 
estimated tax payments until the applicable dates.\1167\
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    \1166\ Secs. 6656 and 6651(a)(2).
    \1167\ Sec. 6654.
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    In order to be eligible to defer the deposit of applicable 
employment taxes, the employer or self-employed person must not 
have had indebtedness forgiven under sections 1106 or 1109 of 
the Act.
    In the case of a section 3504 agent designated by an 
employer to perform the employer's employment tax obligations, 
the employer will be solely liable for the payment of the 
applicable employment taxes by the applicable date for any 
wages paid by the agent on behalf of the employer during the 
payroll tax deferral period. For sole liability to attach to 
the employer, the employer must direct the agent to defer 
payment of applicable employment taxes during the payroll tax 
deferral period. Likewise, a customer of a CPEO that directs 
the CPEO to defer payment of applicable employment taxes shall, 
notwithstanding subsections (a) and (c) of section 3511, be 
solely liable for the subsequent payment of the applicable 
employment taxes by the deadlines outlined in the provision. 
The customer's liability is only with respect to wages paid by 
the CPEO to any work-site employee performing services for such 
customer during the payroll tax deferral period.
    The provision directs the Secretary (or the Secretary's 
delegate) to promulgate regulations or other guidance as may be 
necessary to carry out the purposes of the provision, including 
the administration and enforcement of the liability of third-
party entities, section 3504 agents and CPEOs. The IRS 
subsequently has implemented this provision.\1168\
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    \1168\ Notice 2020-22, 2020-17 I.R.B. 664, April 20, 2020.
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                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

3. Modifications for net operating losses (sec. 2303 of the Act and 
        sec. 172 of the Code)

                              Present Law

    A net operating loss (``NOL'') generally means the amount 
by which a taxpayer's business deductions exceed its gross 
income.\1169\ A taxpayer generally may deduct in a taxable year 
an NOL carried to such year.\1170\ For NOLs arising in taxable 
years beginning after December 31, 2017, the NOL deduction 
generally is limited to 80 percent of taxable income determined 
without regard to the NOL deduction (the ``80-percent taxable 
income limitation'').\1171\ Excess losses generally may be 
carried forward indefinitely, but not back,\1172\ and 
carryovers of such NOLs to other taxable years are adjusted to 
take account of the 80-percent taxable income limitation. NOLs 
offset taxable income in the order of the taxable years to 
which the NOL may be carried.\1173\
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    \1169\ Sec. 172(c).
    \1170\ Sec. 172(a). Certain additional limitations apply to NOLs 
claimed by taxpayers other than a corporation. See sec. 172(d)(4).
    \1171\ Sec. 172(a). For this purpose, a real estate investment 
trust is subject to a limit based on 80 percent of its real estate 
investment trust taxable income (as defined in section 857(b)(2) but 
without regard to the deduction for dividends paid (as defined in 
section 561)). See sec. 172(d)(6)(C).
    \1172\ Sec. 172(b)(1)(A). An NOL arising in a taxable year 
beginning before January 1, 2018, generally is carried back two years 
or forward 20 years.
    \1173\ Sec. 172(b)(2). The amount of the NOL that may be carried to 
a taxable year is reduced by the taxable income for prior taxable years 
to which the NOL may be carried.
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    Special rules apply with respect to NOLs arising in certain 
circumstances. These include a special rule providing a two-
year carryback in the case of certain farming losses.\1174\ A 
separate special rule provides a two-year carryback and 20-year 
carryover for NOLs of a property and casualty insurance company 
(i.e., an insurance company as defined in section 816(a)) other 
than a life insurance company).\1175\ Further, the 80-percent 
taxable income limitation does not apply to the NOLs of such 
insurance companies.
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    \1174\ Sec. 172(b)(1)(B). For this purpose, the term ``farming 
loss'' means the lesser of (1) the amount that would be the NOL for the 
taxable year if only income and deductions attributable to farming 
businesses (as defined in section 263A(e)(4)) are taken into account, 
or (2) the amount of the NOL for such taxable year. For any loss year, 
a farming business may irrevocably elect out of the two-year carryback. 
The election must be made in the manner as prescribed by the Secretary 
by the due date (including extensions) of the taxpayer's return for the 
taxable year of the NOL.
    \1175\ Sec. 172(b)(1)(C).
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    NOLs arising in taxable years beginning before January 1, 
2018, are not subject to the 80-percent taxable income 
limitation. Further, such NOLs remain subject to the 20-year 
carryover limitation and the relevant carryback rules in effect 
for taxable years beginning before January 1, 2018.
    A taxpayer with NOL carryovers to a taxable year from both 
taxable years beginning before 2018 (``pre-2018 NOL 
carryovers'') and taxable years beginning after 2017 (``post-
2017 NOL carryovers'') computes its tax liability as follows. 
First, the taxpayer may deduct an NOL in the amount of its pre-
2018 NOL carryovers without limitation. Second, the taxpayer 
may deduct an additional NOL equal to the lesser of (1) its 
post-2017 NOL carryovers or (2) 80 percent of the excess (if 
any) of the taxpayer's taxable income (before any NOL deduction 
attributable to post-2017 NOL carryovers) over the NOL 
deduction attributable to pre-2018 NOL carryovers.

                        Explanation of Provision

    The provision makes several changes with respect to NOLs 
arising in taxable years beginning after December 31, 2017.

80-percent taxable income limitation

    The provision suspends the application of the 80-percent 
taxable income limitation for taxable years beginning after 
December 31, 2017, and before January 1, 2021.\1176\ The 80-
percent taxable income limitation continues to apply in the 
case of any taxable year beginning after December 31, 2020, and 
with respect to NOLs arising in taxable years beginning after 
December 31, 2017, carried to such a taxable year.\1177\
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    \1176\ Sec. 172(a).
    \1177\ Sec. 172(a)(2). Section 172(a)(2)(A) provides that NOLs 
arising in taxable years beginning before January 1, 2018, carried to a 
taxable year beginning after December 31, 2020, are not subject to the 
80-percent taxable income limitation.
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    The provision clarifies that the 80-percent taxable income 
limitation is calculated without regard to the deductions 
allowable under sections 172, 199A, and 250. The provision also 
clarifies the method for calculating NOL carrybacks and 
carryovers under section 172(b)(2)(C) to ensure proper 
coordination with the taxable income limitation of section 
172(a)(2). The provision makes conforming changes to the rules 
regarding the determination of taxable income of real estate 
investment trusts and holders of residual interests in real 
estate mortgage investment conduits.

Carryback of NOLs arising in 2018, 2019, and 2020

            In general
    The provision modifies the rules relating to NOLs arising 
in 2018, 2019, and 2020.\1178\ Specifically, the provision 
provides that any NOL arising in a taxable year beginning after 
December 31, 2017, and before January 1, 2021, may be carried 
to the five taxable years preceding the taxable year of such 
loss (the ``five-year carryback period'').\1179\ Special rules 
apply for real estate investment trusts \1180\ and life 
insurance companies.\1181\ The provision allows taxpayers to 
use NOLs to a greater extent to offset taxable income in prior 
or future years in order to provide taxpayers with liquidity in 
the form of tax refunds and reduced current and future tax 
liability.
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    \1178\ Sec. 172(b)(1)(D).
    \1179\ See sec. 172(b)(1)(D)(i). Pursuant to section 172(b)(2), any 
NOL carryback must be carried to the earliest taxable years to which 
such loss may be carried.
    NOLs eligible for the five-year carryback period include, for 
example, those arising with respect to farming losses, which would 
otherwise be subject to a two-year carryback period. See, e.g., sec. 
172(b)(1)(B).
    \1180\ See sec. 172(b)(1)(D)(ii). This rule provides that an NOL 
for any taxable year for which the provisions of part II of subchapter 
M (relating to real estate investment trusts) apply to the taxpayer may 
not be carried to any taxable year preceding the taxable year of such 
loss. Further, an NOL for a taxable year for which the provisions of 
part II of subchapter M (relating to real estate investment trusts) do 
not apply to the taxpayer may not be carried to any preceding taxable 
year in which such provisions do apply to the taxpayer.
    \1181\ See sec. 172(b)(1)(D)(iii). An NOL of a life insurance 
company carried to a life insurance company taxable year beginning 
before January 1, 2018, is treated in the same manner as an operations 
loss carryback (within the meaning of section 810 as in effect before 
its repeal) of such company to such taxable year.
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            Treatment of taxable years with section 965(a) inclusion
    The provision also provides special rules relating to NOL 
carrybacks to years to which section 965 applies. If an NOL of 
a taxpayer is carried to a taxable year in which the taxpayer 
included an amount in income by reason of section 965(a) (i.e., 
2017, 2018, or both), the taxpayer may elect to exclude section 
965(a) inclusion years from the five-year carryback 
period.\1182\ This election does not extend the five-year 
carryback period; instead, a taxpayer making this election is 
permitted to use the NOL in a subsequent year within the five-
year carryback period in which the taxpayer has taxable income. 
This election, as well as an election under section 172(b)(3) 
to waive the entire carryback period with respect to an NOL 
arising in a taxable year beginning in 2018 or 2019,\1183\ is 
required to be made by the due date (including extensions) for 
filing the taxpayer's return for the first taxable year ending 
after the date of enactment of the Act.\1184\ If a taxpayer 
does not elect to exclude its section 965(a) inclusion year(s) 
from the five-year carryback period and an NOL of the taxpayer 
arising in a taxable year beginning after December 31, 2017, 
and before January 1, 2021, is carried to such year(s), then 
the taxpayer is treated as having made an election under 
section 965(n) (i.e., an election not to apply any NOL 
deduction to such taxpayer's section 965(a) inclusion amount 
net of the section 965(c) deduction) with respect to such 
taxable year(s).\1185\
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    \1182\ Sec. 172(b)(1)(D)(v)(I) (providing that ``[i]f the 5-year 
carryback period under clause (i)(I) with respect to any net operating 
loss of a taxpayer includes 1 or more taxable years in which an amount 
is includible in gross income by reason of section 965(a), the taxpayer 
may, in lieu of the election otherwise available under paragraph (3), 
elect under such paragraph to exclude all such taxable years from such 
carryback period.'').
    \1183\ For guidance regarding elections to waive the carryback 
period with respect to NOLs arising in taxable years beginning in 2018 
or 2019, see sec. 4.01(1) of Rev. Proc. 2020-24.
    \1184\ Sec. 172(b)(1)(D)(v)(II). For guidance regarding this 
election, see sec. 4.01(2) of Rev. Proc. 2020-24.
    \1185\ Sec. 172(b)(1)(D)(iv). For guidance regarding this deemed 
election, see sec. 4.02 of Rev. Proc. 2020-24.
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    The following example illustrates the application of the 
special rules relating to NOL carrybacks to years to which 
section 965 applies:
    Suppose, in 2020, a calendar-year taxpayer has a $120 loss. 
Because the provision (pursuant to section 172(b)(1)(D)) allows 
a special five-year carryback period in the case of NOLs 
arising in a taxable year beginning after December 31, 2017, 
and before January 1, 2021, the taxpayer may carry the $120 NOL 
from 2020 to the five taxable years preceding the taxable year 
of such loss. For an NOL arising in 2020, the relevant taxable 
years within the relevant five-year carryback period are 2015, 
2016, 2017, 2018, and 2019. If the taxpayer had $20 of taxable 
income in 2015 and $30 of taxable income in 2016 (both without 
regard to any NOL deduction), then the taxpayer is entitled to 
a $20 NOL deduction in 2015 and a $30 NOL deduction in 2016. 
The remaining unused portion of the 2020 NOL (i.e., the 
remaining $70 of the $120 NOL carryback) may be applied to the 
taxpayer's 2017 taxable year and, to the extent allowed under 
section 172(b), to each subsequent year.
    If, in 2017, the taxpayer had a section 965(a) inclusion 
(net of the section 965(c) deduction), which the taxpayer 
elected under section 965(h) to pay in installments, and other 
taxable income (before any NOL deduction), the taxpayer has two 
options: (1) apply the provision's default rule, which deems 
the taxpayer to have made an election under section 965(n) not 
to apply the NOL to such taxpayer's section 965(a) inclusion 
amount net of the section 965(c) deduction; \1186\ or (2) elect 
to exclude 2017, the taxpayer's section 965(a) inclusion year, 
from the five-year carryback period (i.e., carry back the 2020 
NOL only to 2015, 2016, 2018, and 2019, before carrying 
forward).\1187\
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    \1186\ Sec. 172(b)(1)(D)(iv).
    \1187\ Sec. 172(b)(1)(D)(v)(I).
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    The special rules relating to NOL carrybacks to years to 
which section 965 applies allow taxpayers to use NOLs to a 
greater extent to offset taxable income in prior or future 
years in order to provide taxpayers with liquidity in the form 
of tax refunds and reduced current and future tax liability. 
For example, the election to exclude section 965(a) inclusion 
years from the five-year carryback period allows taxpayers with 
an outstanding section 965 tax liability to use NOLs in another 
year such that any resulting overpayment would result in an 
authorized refund rather than offset the outstanding section 
965 tax liability.

Other rules relating to NOLs

    The provision makes technical and conforming amendments. 
Generally, the provision clarifies the effective date of 
certain changes made by Public Law 115-97 to section 172. The 
provision clarifies that the 80-percent taxable income 
limitation with respect to an NOL applies with respect to 
taxable years to which NOLs arising in taxable years beginning 
after December 31, 2017, may be carried. The provision also 
clarifies that the amendments made by Public Law 115-97 
relating to NOL carryovers and carrybacks apply to NOLs arising 
in taxable years beginning after December 31, 2017. In 
addition, the provision clarifies the statutory language 
governing the operation of the rules relating to the taxable 
years to which NOLs may be carried back and carried forward.

Timeliness of application for refund

    The provision provides rules relating to the timeliness of 
refund applications with respect to NOL carryovers arising in 
fiscal taxable years beginning before January 1, 2018, and 
ending after December 31, 2017, and the timeliness with respect 
to an election to waive or change carrybacks under section 
172(b). Specifically, the provision allows taxpayers until 120 
days after the date of enactment of the Act to use the 
tentative carryback adjustment procedures of section 6411(a) 
for the carryback of an NOL arising in a taxable year beginning 
before January 1, 2018, and ending after December 31, 2017 
(without regard to the 12-month limitation in section 
6411).\1188\ The provision also provides an election to forgo 
the carryback of such an NOL, or to reduce any period to which 
such an NOL may be carried back, if made by the date that is 
120 days after the date of enactment of the Act 
(notwithstanding that section 172 requires such elections be 
made by the due date (including extensions) for filing the 
taxpayer's return for the taxable year of the loss). For 
example, under this election, a taxpayer may elect to reduce a 
five-year period to which such an NOL may be carried back to a 
two-year period to which such an NOL may be carried back. In 
addition, the provision provides that any election to forgo any 
carryback of such an NOL that may have already been made may be 
revoked within 120 days after the date of enactment of the Act 
(notwithstanding the irrevocability rule in section 172(b)).
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    \1188\ For guidance regarding applications under section 6411(a) 
with respect to an NOL arising in a taxable year that began before 
January 1, 2018, and ended after December 31, 2017, see sec. 4.04(1) of 
Rev. Proc. 2020-24. For guidance regarding applications under section 
6411(a) with respect to NOLs arising in taxable years beginning after 
December 31, 2017, sec. 4.04(2) of Rev. Proc. 2020-24 directs taxpayers 
to consult Notice 2020-26 for procedures on how to file applications 
under section 6411(a) for taxable years that may otherwise be outside 
the period for filing such applications. Notice 2020-26 grants a six-
month extension of time to file an application for a tentative 
carryback adjustment under section 6411 with respect to the carryback 
of an NOL that arose in a taxable year that began during calendar year 
2018 and that ended on or before June 30, 2019.
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                             Effective Date

    The provision suspending application of the 80-percent 
taxable income limitation applies to taxable years beginning 
after December 31, 2017, and to taxable years beginning on or 
before December 31, 2017, to which net operating losses arising 
in taxable years beginning after December 31, 2017, are 
carried.
    The provision modifying the rules relating to carrybacks 
applies to NOLs arising in taxable years beginning after 
December 31, 2017, and taxable years beginning before, on, or 
after such date to which such NOLs are carried.
    The technical amendments made by the provision are 
effective as if included in section 13302 of Public Law 115-97.

   4. Modification of limitation on losses for taxpayers other than 
  corporations (sec. 2304 of the Act and secs. 461(l) and (j) of the 
                                 Code)


                              Present Law


Limitation on excess business loss of a taxpayer other than a 
        corporation

    For taxable years beginning after December 31, 2017, and 
before January 1, 2026, an excess business loss of a taxpayer 
other than a corporation is not allowed for the taxable 
year.\1189\ The disallowed excess business loss is treated as 
an NOL for the taxable year for purposes of determining any NOL 
carryover to subsequent taxable years.\1190\
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    \1189\ Sec. 461(l). Section 461 was modified in 2017 by section 
11012 of Public Law 115-97.
    \1190\ See generally sec. 172. For a discussion of the changes made 
in 2017 to section 172, see the description of section 13302 of Public 
Law 115-97 (Modification of Net Operating Loss Deduction) in Joint 
Committee on Taxation, General Explanation of Public Law 115-97 (JCS-1-
18), December 2018. Under section 461(l), excess business losses that 
are not allowed are treated as an NOL arising in the taxable year. 
Thus, such excess business losses are carried over to a subsequent 
taxable year under the applicable NOL rules. For example, assume that 
for 2018, H and W file a joint return on which they report a $1,150,000 
loss from their farming business on Schedule F (Form 1040). H and W do 
not have any other income or loss for 2018. After application of the 
$500,000 threshold amount for joint filers (sec. 461(l)(3)(A)(ii)(II)), 
the remaining $650,000 business loss is an excess business loss and is 
not allowed for H and W's taxable year 2018 by reason of section 
461(l)(1)(B). Under the provision, H and W have a $500,000 NOL for 2018 
that is eligible for a two-year carryback under section 172(b)(1)(B), 
and a $650,000 NOL (increased by any portion of the $500,000 NOL for 
2018 remaining after application of the two-year carryback) eligible 
for carryover to 2019. Because the $500,000 NOL for 2018 arises in a 
taxable year beginning after December 31, 2017, it is subject to the 
80-percent limitation under section 172(a)(2). Accordingly, the amount 
of the taxpayer's $500,000 NOL carried back to 2016 and 2017 is limited 
to 80 percent of the taxable income (determined without regard to the 
NOL deduction) for the 2016 and 2017 taxable years, respectively.
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    An excess business loss for the taxable year is the excess 
of aggregate deductions of the taxpayer attributable to trades 
or businesses of the taxpayer (determined without regard to the 
limitation of the provision) \1191\ over the sum of aggregate 
gross income or gain attributable to trades or businesses of 
the taxpayer plus a threshold amount. The threshold amount for 
a taxable year beginning in 2018 is $250,000 (or, in the case 
of a joint return, twice the otherwise applicable threshold 
amount, i.e., $500,000). The threshold amount is indexed for 
inflation for taxable years beginning after 2018.
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    \1191\ Aggregate deductions (for purposes of section 461(l)) do not 
include the amount of any NOL carryback or carryover under section 172 
that is attributable to such trades or businesses from a different 
taxable year. For example, continuing the example in the preceding 
footnote, none of the $650,000 excess business loss in taxable year 
2018 is subject to section 461(l) in a subsequent taxable year. Thus, 
any deduction with respect to any portion of the $650,000 that is 
carried over to a subsequent taxable year under the rules of section 
172 is governed by the rules of section 172 (not section 461(l)). 
Similarly, any deduction with respect to any portion of the $500,000 
remaining after carrybacks to 2016 and 2017 that is carried over to a 
subsequent year is governed by the rules of section 172 (not section 
461(l)).
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    The aggregate deductions taken into account to determine 
the excess business loss of the taxpayer for the taxable year 
that are attributable to trades or businesses of the taxpayer 
are determined without regard to the deductions under section 
172 or 199A. For example, assume that a taxpayer has an NOL 
carryover from a prior taxable year to the current taxable 
year. Such NOL carryover is not part of the taxpayer's 
aggregate deductions attributable to the trade or business for 
the current taxable year under section 461(l).
    An excess business loss (the deduction for which is limited 
by section 461(l)) does not take into account gross income or 
gains or deductions attributable to the trade or business of 
the performance of services as an employee.\1192\ For this 
purpose, the trade or business of performance of services by 
the taxpayer as an employee has the same meaning as it does 
under section 62(a)(1). However, contrary to Congressional 
intent, IRS Form 461, Limitation on Business Losses, and the 
Instructions for Form 461 for 2018 and 2019, include wages and 
salaries (amounts from the trade or business of being an 
employee) in the determination of the taxpayer's excess 
business loss amount.\1193\
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    \1192\ This rule expresses Congressional intent.
    \1193\ See also the IRS explanation of ``Excess business losses'' 
available at https://www.irs.gov/newsroom/excess-business-losses.
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    In the case of a partnership or S corporation, the 
provision applies at the partner or shareholder level. Each 
partner's distributive share and each S corporation 
shareholder's pro rata share of items of income, gain, 
deduction, or loss of a partnership or S corporation are taken 
into account in applying the limitation under the provision for 
the taxable year of the partner or S corporation shareholder. 
Regulatory authority is provided to require any additional 
reporting as the Secretary determines is appropriate to carry 
out the purposes of the provision (including with respect to 
any other passthrough entity to the extent necessary to carry 
out the purposes of the provision).
    Section 461(l) applies after the application of certain 
other limitations on losses, namely, the passive activity loss 
limitation,\1194\ the at-risk limitation,\1195\ and in the case 
of a taxpayer who is a partner or S corporation shareholder, 
the rules limiting the taxpayer's distributive or pro rata 
share of loss for the taxable year to the taxpayer's adjusted 
basis in the partnership interest or in the S corporation stock 
and debt.\1196\ Thus, for example, the amount of any income, 
deduction, gain, or loss from a passive activity that is taken 
into account for purposes of the passive activity loss 
limitation is not taken into account in determining whether a 
taxpayer has an excess business loss.
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    \1194\ Sec. 469.
    \1195\ Sec. 465.
    \1196\ Sec. 704(d) (for partners) and sec. 1366(d) (for S 
corporation shareholders). See sec. 461(l)(6) (applying section 461(l) 
after section 469), and Treas. Reg. sec. 1.469-2T(d)(6) (applying 
section 469 after sections 704(d), 1366(d), and 465). Note that other 
rules could potentially limit a taxpayer's loss (e.g., section 267). A 
discussion of all potential loss limitation rules is beyond the scope 
of the description of this provision.
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Excess farm losses

    For taxable years beginning before January 1, 2018, and 
after December 31, 2025, a limitation on excess farm losses 
applies to taxpayers other than C corporations.\1197\ Thus, for 
taxable years beginning after December 31, 2017, and before 
January 1, 2026, the limitation relating to excess farm losses 
does not apply.
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    \1197\ Sec. 461(j).
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    Under the limitation relating to excess farm losses, if a 
taxpayer other than a C corporation receives an applicable 
subsidy \1198\ for the taxable year, the amount of the excess 
farm loss is not allowed for the taxable year and is carried 
forward and treated as a deduction attributable to farming 
businesses in the next taxable year. An excess farm loss for a 
taxable year means the excess of aggregate deductions that are 
attributable to farming businesses over the sum of aggregate 
gross income or gain attributable to farming businesses plus 
the threshold amount. The threshold amount is the greater of 
(1) $300,000 ($150,000 for married individuals filing 
separately), or (2) for the five-consecutive-year period 
preceding the taxable year, the excess of the aggregate gross 
income or gain attributable to the taxpayer's farming 
businesses over the aggregate deductions attributable to the 
taxpayer's farming businesses.
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    \1198\ For this purpose, an applicable subsidy means (A) any direct 
or counter-cyclical payment under title I of the Food, Conservation, 
and Energy Act of 2008, or any payment elected to be received in lieu 
of such payment, or (B) any Commodity Credit Corporation loan. Sec. 
461(j)(3). Note that the Agricultural Act of 2014 repealed direct and 
counter-cyclical payments under the Food, Conservation, and Energy Act 
of 2008. See secs. 1101 and 1102 of Pub. L. No. 113-79, February 7, 
2014. Thus, only Commodity Credit Corporation loans currently fall 
within the definition of an applicable subsidy for purposes of section 
461(j).
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Treatment of capital losses

    In the case of a taxpayer other than a corporation, section 
1211(b) limits the deduction for losses from sales or exchanges 
of capital assets to gains from such sales or exchanges plus up 
to $3,000. Section 172(d)(2)(A), relating to NOLs, provides a 
similar limitation but without regard to the $3,000 additional 
amount. Thus, for purposes of determining the amount of an NOL, 
the amount deductible on account of losses from sales or 
exchanges of capital assets cannot exceed the amount includible 
on account of gains from sales or exchanges of capital assets.

                        Explanation of Provision

    The provision provides that the limitation on excess 
business loss of a taxpayer other than a corporation (section 
461(l)) does not apply for taxable years beginning in 2018, 
2019, or 2020.\1199\ In addition, the limitation on excess farm 
losses (section 461(j)) does not apply for taxable years 
beginning after 2017 and before 2026. The provision does not 
change the applicability of other loss limitation rules that 
may affect a taxpayer for those taxable years, such as the 
passive activity loss limitation, the at-risk limitation, and 
in the case of a taxpayer who is a partner or S corporation 
shareholder, the rules limiting the taxpayer's distributive or 
pro rata share of loss for the taxable year to the taxpayer's 
adjusted basis in the partnership interest or in the S 
corporation stock and debt.
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    \1199\ An IRS explanation states that a taxpayer that filed a 2018 
or 2019 return applying the 461(l) limitation for 2018 or 2019 may file 
an amended return (the explanation was posted on line before the due 
date for 2020 returns). See https://www.irs.gov/forms-pubs/limitation-
on-business-losses-for-certain-taxpayers-repealed-for-2018-2019-and-
2020.
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    The provision also makes technical amendments. The 
provision clarifies the operation of the rule providing that, 
for any taxable year beginning after 2020 and before 2026, any 
excess business loss of a taxpayer other than a corporation is 
not allowed for the taxable year and excess business loss not 
allowed is carried forward and treated as part of the 
taxpayer's NOL carryover in subsequent taxable years as 
determined under the NOL rules.\1200\ The provision clarifies 
this rule using statutory language consistent with the NOL 
rules, providing that an excess business loss not allowed for a 
taxable year is treated as an NOL for the taxable year that is 
carried over to subsequent taxable years under the applicable 
NOL carryover rules.
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    \1200\ Changes made by section 2303 of the Act to rules governing 
NOLs (section 172) are described elsewhere in this document.
---------------------------------------------------------------------------
    The provision clarifies that the aggregate business 
deductions taken into account to determine the excess business 
loss of the taxpayer for the taxable year that are attributable 
to trades or businesses of the taxpayer are determined without 
regard to any deduction under section 172 (relating to NOLs) or 
199A (relating to the deduction for qualified business income). 
This change clarifies the ordering rule for the calculation.
    The provision clarifies the statutory language to provide 
specifically that an excess business loss under section 461(l) 
does not take into account any deductions, gross income, or 
gains attributable to any trade or business of performing 
services as an employee.\1201\ For this purpose, the trade or 
business of performing services as an employee has the same 
meaning as it does under section 62(a)(1). For example, assume 
married taxpayers filing jointly for the taxable year have a 
loss from a trade or business conducted by one spouse as a sole 
proprietorship, as well as wage income of the other spouse from 
employment. The wage income is not taken into account in 
determining the amount of the deduction limited under section 
461(l).
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    \1201\ Thus, the provision reverses the result that was previously 
provided with respect to this issue on IRS Form 461, Limitation on 
Business Losses, and the Instructions for Form 461 for 2018 and 2019, 
and in the IRS explanation of ``Excess business losses'' at https://
www.irs.gov/newsroom/excess-business-losses.
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    The provision clarifies that, because capital losses cannot 
offset ordinary income under the NOL rules, any capital loss 
deductions are not taken into account in computing the section 
461(l) limitation. The provision also clarifies that the amount 
of capital gain taken into account in calculating the section 
461(l) limitation cannot exceed the lesser of capital gain net 
income from a trade or business or capital gain net income.

                             Effective Date

    The provision suspending the application of section 461(l) 
and (j) is effective for taxable years beginning after December 
31, 2017. The technical amendments to section 461(l) made by 
the provision are effective as if included in section 11012 of 
Public Law 115-97.

   5. Modification of credit for prior year minimum tax liability of 
      corporations (sec. 2305 of the Act and sec. 53 of the Code)


                              Present Law


Minimum tax credit

    Section 12001 of Public Law 115-97 repealed the corporate 
alternative minimum tax (``AMT'') for taxable years beginning 
after December 31, 2017. If a corporation was subject to AMT in 
a taxable year beginning before January 1, 2018, the amount of 
AMT was allowed as a minimum tax credit in any subsequent 
taxable year to the extent the corporation's regular tax 
liability exceeded its tentative minimum tax in the subsequent 
year. For taxable years beginning after December 31, 2017, a 
minimum tax credit may offset a corporation's entire regular 
tax liability for a taxable year. In addition, the minimum tax 
credit is allowable and refundable for a taxable year beginning 
after 2017 and before 2022 in an amount equal to 50 percent 
(100 percent in the case of a taxable year beginning in 2021) 
of the excess (if any) of the minimum tax credit for the 
taxable year over the amount of the credit allowable for the 
year against regular tax liability. Thus, in the case of a 
corporation, the full amount of the minimum tax credit will be 
allowed in taxable years beginning before 2022.

Tentative carryback and refund adjustments

    Section 6411 provides a procedure under which taxpayers may 
apply for tentative carryback and refund adjustments with 
respect to net operating losses, net capital losses, and unused 
business credits (but not unused minimum tax credits).\1202\ 
Such application generally must be filed within 12 months after 
the end of the taxable year in which the net operating loss, 
net capital loss, or unused business credit arose.\1203\ The 
Secretary generally has 90 days to act on a claim for a 
tentative carryback refund once filed.\1204\
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    \1202\ Taxpayers other than corporations file an application for a 
tentative carryback adjustment on IRS Form 1045, Application for 
Tentative Refund, and corporations file on IRS Form 1139, Corporation 
Application for Tentative Refund. Treas. Reg. sec. 1.6411-1(b).
    \1203\ See sec. 6411(a) and Treas. Reg. sec. 1.6411-1(c).
    \1204\ See sec. 6411(b) and Treas. Reg. sec. 1.6411-3.
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                        Explanation of Provision

    The provision provides that a corporation's minimum tax 
credit is allowable and refundable for a taxable year beginning 
after 2017 and before 2020 in an amount equal to 50 percent 
(100 percent in the case of a taxable year beginning in 2019) 
of the excess (if any) of the minimum tax credit for the 
taxable year over the amount of the credit allowable for the 
year against regular tax liability. Thus, in the case of a 
corporation, the full amount of the minimum tax credit is 
allowed in taxable years beginning before 2020.
    A corporation may elect instead to treat its minimum tax 
credit as fully refundable for its first taxable year beginning 
in 2018. A corporation making this election is eligible to file 
an application for a tentative refund adjustment for its first 
taxable year beginning in 2018 in such manner and form as the 
Secretary (or the Secretary's delegate) may prescribe.\1205\ 
The application must be filed prior to December 31, 2020,\1206\ 
and set forth (i) the amount of refundable minimum tax credit 
for such taxable year, (ii) the amount of refundable minimum 
tax credit claimed for any previously filed return for such 
taxable year, and (iii) the amount of the refund claimed. As 
under present law with respect to tentative carryback and 
refund adjustments, the Secretary (or the Secretary's delegate) 
generally has 90 days to act on the refund claim once filed.
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    \1205\ The IRS temporarily accepted through December 31, 2020, 
claims for refunds of the credit for prior year minimum tax liability 
of corporations and net operating loss deductions made on Form 1139 
that were submitted via fax to a designated number (in lieu of 
mailing). See ``Temporary procedures to fax certain Forms 1139 and 1045 
due to COVID-19'', available at https://www.irs.gov/newsroom/temporary-
procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19 (last 
visited August 20, 2021).
    \1206\ Note that if a corporation would like to file one 
application for a tentative refund to claim both a net operating loss 
(``NOL'') carryback and its minimum tax credit at the same time, it 
must do so by the earlier of the due date for the NOL carryback claim 
or the due date for the minimum tax credit claim. For example, if a 
calendar year corporation wanted to file one Form 1139 to request a 
tentative refund based on the carryback of its 2018 NOL and its minimum 
tax credit for such year, it was required to do so by June 30, 2020. 
See IRS Notice 2020-26, 2020-18 I.R.B. 744, which extended the deadline 
for filing a tentative carryback claim under section 6411 with respect 
to the carryback of an NOL that arose in any taxable year that began 
during calendar year 2018 and ended on or before June 30, 2019. For a 
discussion of the changes made by the Act to the NOL rules, see the 
description above of section 2303 of the Act, ``Modifications for Net 
Operating Losses.''
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                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2017.

6. Modifications of limitation on business interest (sec. 2306 of the 
        Act and sec. 163(j) of the Code)

                              Present Law


Limitation on deduction of business interest expense

    Interest paid or accrued by a business generally is 
deductible in the computation of taxable income, subject to a 
number of limitations.\1207\ In particular, the deduction for 
business interest expense \1208\ is generally limited to the 
sum of (1) business interest income of the taxpayer for the 
taxable year,\1209\ (2) 30 percent of the adjusted taxable 
income \1210\ of the taxpayer for the taxable year (not less 
than zero), and (3) the floor plan financing interest of the 
taxpayer for the taxable year.\1211\ Thus, other than floor 
plan financing interest, business interest expense in excess of 
business interest income is generally deductible only to the 
extent of 30 percent of adjusted taxable income. The amount of 
any business interest expense not allowed as a deduction for 
any taxable year may be carried forward indefinitely.
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    \1207\ Sec. 163(a). In addition to the limitations discussed 
herein, other limitations include: denial of the deduction for the 
disqualified portion of the original issue discount on an applicable 
high yield discount obligation (sec. 163(e)(5)), denial of deduction 
for interest on certain obligations not in registered form (sec. 
163(f)), reduction of the deduction for interest on indebtedness with 
respect to which a mortgage credit certificate has been issued under 
section 25 (sec. 163(g)), disallowance of deduction for interest on 
debt with respect to certain life insurance contracts (sec. 264(a)), 
and disallowance of deduction for interest relating to tax-exempt 
income (sec. 265(a)(2)). Interest may also be subject to 
capitalization. See, e.g., secs 263A(f) and 461(g).
    \1208\ Business interest means any interest paid or accrued on 
indebtedness properly allocable to a trade or business and does not 
include investment interest (within the meaning of section 163(d)). 
Sec. 163(j)(5). Section 163(j) applies only to business interest that 
would otherwise be deductible in the current taxable year, absent the 
application of section 163(j). Treas. Reg. sec. 1.163(j)-3(b)(1). Thus, 
section 163(j) applies after the application of provisions that subject 
interest to deferral, capitalization, or other limitation (e.g., secs. 
163(e)(3), 163(e)(5)(A)(ii), 246A, 263A, 263(g), 267, 1277, and 1282), 
but before application of sections 461(l), 465, and 469. See Treas. 
Reg. secs. 1.163(j)-3(b)(2)-(6). Note that at the time the Act was 
being considered by Congress, the Treasury Department had issued 
proposed regulations under section 163(j) (as amended by P.L. 115-97) 
but had not issued final regulations. In the period between enactment 
of the Act and publication of this explanation, Treasury issued final 
section 163(j) regulations, along with additional proposed regulations 
under section 163(j). The citations in this explanation reflect the 
final regulations, which are substantially unchanged from the proposed 
regulations with regard to the points for which they are cited.
    \1209\ Business interest income means the amount of interest 
includible in the gross income of the taxpayer for the taxable year 
that is properly allocable to a trade or business and does not include 
investment income (within the meaning of section 163(d)). Sec. 
163(j)(6).
    \1210\ Adjusted taxable income means the taxable income of the 
taxpayer computed without regard to: (1) any item of income, gain, 
deduction, or loss that is not properly allocable to a trade or 
business; (2) any business interest or business interest income; (3) 
the amount of any net operating loss deduction; and (4) the amount of 
any deduction allowed under section 199A. Additionally, for taxable 
years beginning after December 31, 2017 and before January 1, 2022, 
adjusted taxable income is computed without regard to any deduction 
allowable for depreciation, amortization, or depletion. For taxable 
years beginning after December 31, 2021, adjusted taxable income is 
computed with regard to deductions allowable for depreciation, 
amortization, or depletion. Sec. 163(j)(8)(A). Treasury regulations 
provide other adjustments to the definition of adjusted taxable income. 
Treas. Reg. sec. 1.163(j)-1(b)(1).
    \1211\ Floor plan financing interest means interest paid or accrued 
on floor plan financing indebtedness. Floor plan financing indebtedness 
means indebtedness used to finance the acquisition of motor vehicles 
held for sale or lease to retail customers and secured by the inventory 
so acquired. A motor vehicle means a motor vehicle that is: (1) any 
self-propelled vehicle designed for transporting person or property on 
a public street, highway, or road; (2) a boat; or (3) farm machinery or 
equipment. Sec. 163(j)(9).
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    The limitation generally applies at the taxpayer level 
(although special carryforward rules apply in the case of 
partnerships, described below). In the case of a group of 
affiliated corporations that file a consolidated return, the 
limitation applies at the consolidated tax return filing 
level.\1212\
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    \1212\ See Treas. Reg. sec. 1.163(j)-4(d) (providing that a 
consolidated group has a single section 163(j) limitation and generally 
treating all members of the consolidated group as a single taxpayer for 
section 163(j) purposes).
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Carryforward of disallowed business interest

    The amount of any business interest expense not allowed as 
a deduction for any taxable year is generally treated as 
business interest expense paid or accrued by the taxpayer in 
the succeeding taxable year. Such business interest expense may 
be carried forward indefinitely.\1213\
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    \1213\ Sec. 163(j)(2). With respect to corporations, any 
carryforward of disallowed business interest of a corporation is an 
item taken into account in the case of certain corporate acquisitions 
described in section 381 and is subject to limitation under section 
382. Secs. 381(c)(20) and 382(d)(3).
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Application to passthrough entities

            In general
    In the case of a partnership, the section 163(j) interest 
limitation is generally applied at the partnership level.\1214\ 
A partner must generally perform its own section 163(j) 
calculation for business interest expense it incurs at the 
partner level. To prevent double counting, the business 
interest income and adjusted taxable income of each partner are 
generally determined without regard to such partner's 
distributive share of any items of income, gain, deduction, or 
loss of the partnership.\1215\ However, in cases where the 
partnership has an excess amount of business interest income, 
an excess amount of adjusted taxable income, or both, section 
163(j) may allow for partnership items to support additional 
business interest expense deductions by the partnership's 
partners. Specifically, a partner's business interest deduction 
limitation is increased by the sum of the partner's 
distributive share of the partnership's excess business 
interest income and 30 percent of the partner's distributive 
share of the partnership's excess taxable income.\1216\
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    \1214\ Sec. 163(j)(4)(A)(i).
    \1215\ Sec. 163(j)(4)(A)(ii)(I); Treas. Reg. sec. 1.163(j)-6(e)(1).
    \1216\ Sec. 163(j)(4)(A)(ii)(II); Treas. Reg. sec. 1.163(j)-
6(e)(1).
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    Similar rules apply with respect to any S corporation and 
its shareholders.\1217\
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    \1217\ Sec. 163(j)(4)(D).
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            Carryforward rules for partnerships
    Special rules for the carryforward of disallowed business 
interest expense apply only to partnerships and their 
partners.\1218\ In the case of a partnership, the general 
taxpayer-level carryforward rule does not apply. Instead, any 
business interest expense that is not allowed as a deduction to 
the partnership for the taxable year (referred to as ``excess 
business interest expense'') is allocated to the 
partners.\1219\ A partner may not deduct excess business 
interest expense in the year in which it is allocated to a 
partner. A partner may deduct its share of the partnership's 
excess business interest expense in any future year, but only 
in an amount that is based on the partner's distributive share 
of excess business interest income and excess taxable income of 
the partnership the activities of which gave rise to the 
disallowed business interest expense carryforward.\1220\ Any 
amount that is not allowed as a deduction generally continues 
to be carried forward.
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    \1218\ Sec. 163(j)(4)(B).
    \1219\ Sec. 163(j)(4)(B)(i)(II).
    \1220\ Sec. 163(j)(4)((B)(ii)(I); Treas. Reg. sec. 1.163(j)-
6(g)(2). See also Joint Committee on Taxation, General Explanation of 
Public Law 115-97 (JCS-1-18), December 2018, pp. 175-178 (describing 
section 163(j)(4) as it was intended to work).
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    When excess business interest expense is allocated to a 
partner, the partner's basis in its partnership interest is 
reduced (but not below zero) by the amount of such allocation, 
even though the excess business interest expense does not give 
rise to a deduction in the year of the basis reduction.\1221\ 
However, the partner's deduction in a subsequent year for 
excess business interest expense does not reduce the partner's 
basis in its partnership interest. In the event the partner 
disposes of a partnership interest the basis of which has been 
reduced by an allocation of excess business interest expense, 
the partner's basis in such interest is increased, immediately 
before such disposition, by the amount by which such basis 
reductions exceed any amount of excess business interest 
expense that has been treated as business interest expense paid 
or accrued by the partner as a result of an allocation of 
excess business interest income or excess taxable income by the 
same partnership.\1222\ Under final Treasury regulations issued 
after enactment of the Act, this rule applies to both total and 
(on a proportionate basis) partial dispositions of a 
partnership interest.\1223\
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    \1221\ Sec. 163(j)(4)(B)(iii)(I).
    \1222\ Sec. 163(j)(4)(B)(iii)(II); Treas. Reg. 1.163(j)-6(h)(3). 
The special rule for dispositions also applies to transfers of a 
partnership interest (including by reason of death) in transactions in 
which gain is not recognized in whole or in part. Id. No deduction is 
allowed to the transferor or transferee for any disallowed business 
interest resulting in a basis increase under this rule. Id.
    \1223\ Treas. Reg. sec. 1.163(j)-6(h)(3). Under the proposed 
regulations in effect at the time the Act was being considered by 
Congress, the basis adjustment rule only applied to dispositions of all 
or substantially all of a partnership interest. See Prop. Treas. Reg. 
sec. 1.163(j)-6(h)(3)(i).
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    These special carryforward rules do not apply to S 
corporations and their shareholders.\1224\
---------------------------------------------------------------------------
    \1224\ Sec. 163(j)(4)(D).
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Exceptions

    The section 163(j) limitation does not apply to any 
taxpayer (other than a tax shelter prohibited from using the 
cash method under section 448(a)(3)) that meets the $25 million 
gross receipts test of section 448(c).\1225\ Aggregation rules 
apply to determine the amount of a taxpayer's gross receipts 
under the gross receipts test of section 448(c).
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    \1225\ Sec. 163(j)(3). The $25 million amount is indexed for 
inflation for taxable years beginning after 2018. For taxable years 
beginning in 2020, the limitation is $26 million. See Rev. Proc. 2019-
44, 2019-47 I.R.B. 1093.
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    The trade or business of performing services as an employee 
is not treated as a trade or business for purposes of the 
limitation.\1226\ As a result, for example, the wages of an 
employee are not counted in the adjusted taxable income of the 
taxpayer for purposes of determining the limitation.
---------------------------------------------------------------------------
    \1226\ Sec. 163(j)(7)(A)(i).
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    At the taxpayer's election, any real property development, 
redevelopment, construction, reconstruction, acquisition, 
conversion, rental, operation, management, leasing, or 
brokerage trade or business (i.e., any electing real property 
trade or business) is not treated as a trade or business for 
purposes of the limitation, and therefore the limitation does 
not apply to such trades or businesses.\1227\ Similarly, at the 
taxpayer's election, any farming business or any business 
engaged in the trade or business of a specified agricultural or 
horticultural cooperative (collectively, any electing farming 
business) is not treated as a trade or business for purposes of 
the limitation, and therefore the limitation does not apply to 
any such trade or business.\1228\ A taxpayer's election to be 
an electing real property trade or business or an electing 
farming business, once made, shall be irrevocable.\1229\
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    \1227\ Sec. 163(j)(7)(A)(ii) and (B).
    \1228\ Sec. 163(j)(7)(A)(iii) and (C).
    \1229\ Secs. 163(j)(7)(B) and (C). In Rev. Proc. 2020-22, 2020-18 
I.R.B. 1, the IRS provided guidance for making an election to be an 
electing real property trade or business or an electing farming 
business. The revenue procedure allows certain taxpayers to make a late 
election, or to withdraw an election, to be an electing real property 
trade or business or electing farming on an amended Federal income tax 
return, an amended Form 1065, or an administrative adjustment request 
under section 6227. In Rev. Proc. 2020-23, 2020-18 I.R.B. 1, the IRS 
provided guidance allowing certain partnerships to file an amended Form 
1065, and to issue amended Schedules K-1, for taxable years beginning 
in 2018 and 2019. As a result, the IRS, for example, will allow certain 
partnerships to withdraw an election to be an electing real property 
trade or business made on a statement attached to a 2018 Form 1065 by 
filing an amended 2018 Form 1065.
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    The limitation does not apply to certain regulated public 
utilities. Specifically, the trade or business of the 
furnishing or sale of (1) electrical energy, water, or sewage 
disposal services, (2) gas or steam through a local 
distribution system, or (3) transportation of gas or steam by 
pipeline, if the rates for such furnishing or sale, as the case 
may be, have been established or approved by a State or 
political subdivision thereof, by any agency or instrumentality 
of the United States, by a public service or public utility 
commission or other similar body of any State or political 
subdivision thereof, or by the governing or ratemaking body of 
an electric cooperative is not treated as a trade or business 
for purposes of the limitation, and thus any interest paid or 
accrued on indebtedness properly allocable to such trades or 
businesses is not business interest.\1230\
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    \1230\ Sec. 163(j)(7)(A)(iv).
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                        Explanation of Provision

    The provision permits taxpayers to increase the limit on 
the deduction of business interest expense paid or accrued in 
taxable years beginning in 2019 or 2020 in two ways.

Increase to 50 percent of adjusted taxable income

    For taxable years beginning in 2019 or 2020, the provision 
generally increases the percentage of the taxpayer's adjusted 
taxable income that factors into the calculation of the 
limitation on deduction of business interest from 30 percent to 
50 percent. For example, a corporation with $100 of adjusted 
taxable income and $50 of business interest expense in its 2019 
taxable year may deduct all $50 \1231\ of its 2019 business 
interest expense on its 2019 return, including on an amended 
return. If the corporation has $100 of adjusted taxable income 
and $70 of business interest expense in its 2020 taxable year, 
it may deduct $50 \1232\ of its 2020 business interest expense 
on its 2020 return, and $20 \1233\ of its 2020 business 
interest expense will carry forward.
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    \1231\ $100 * 50 percent = $50.
    \1232\ $100 * 50 percent = $50.
    \1233\ $70 - $50 = $20.
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    For partnership taxable years beginning in 2019, this rule 
does not apply, and instead partners that were allocated excess 
business interest expense of a partnership for any taxable year 
of the partnership beginning in 2019 are permitted to deduct 50 
percent of such excess business interest expense in the 
partner's first taxable year beginning in 2020 (the other 50 
percent of such excess business interest expense is subject to 
the limitations of section 163(j)(4)(B)(ii) described 
above).\1234\
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    \1234\ See Prop. Treas. Reg. sec. 1.163(j)-6(g)(4) for additional 
guidance.
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    For example, assume a partnership has $100 of adjusted 
taxable income and $70 of business interest expense in a 
taxable year beginning in 2019. The partnership has $30 \1235\ 
of deductible business interest expense for its 2019 taxable 
year and allocates $40 \1236\ in excess business interest 
expense to its partners. A partner in the partnership that was 
allocated $20 of excess business interest expense may deduct 
$10 \1237\ of such excess business interest expense in the 
partner's first taxable year beginning in 2020. The other $10 
of such excess business interest expense remains subject to the 
limitations of section 163(j)(4)(B)(ii).\1238\
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    \1235\ $100 * 30 percent = $30.
    \1236\ $70 - $30 = $40.
    \1237\ $20 * 50 percent = $10.
    \1238\ This assumes that the partner does not sell its partnership 
interest in 2019 or 2020. If the partner sells its partnership interest 
in 2019 or 2020, the rules of section 163(j)(4)(B)(iii)(II), described 
above, apply.
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    Taxpayers are permitted to elect out of application of the 
increase in the adjusted taxable income percentage for any 
taxable year to which the increase potentially applies,\1239\ 
and partners are permitted to elect out of the special rule for 
2019 excess business interest.\1240\
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    \1239\ For partnership taxable years beginning in 2020, the 
election out of the increase in the adjusted taxable income percentage 
is made at the partnership level.
    \1240\ In Treas. Reg. sec. 1.163(j)-2(b)(4) and Rev. Proc. 2020-22, 
the IRS describes the time and manner in which certain taxpayers may 
elect out of the 50 percent adjusted taxable income limitation for 
taxable years beginning in 2019 and 2020. In Prop. Treas. Reg. sec. 
1.163(j)-2(g)(4) and Rev. Proc. 2020-22, the IRS describes the time and 
manner in which partners may elect out of deducting 50 percent of 
excess business interest expense for taxable years beginning in 2020.
---------------------------------------------------------------------------

Election to substitute last taxable year beginning in 2019

    The provision permits a taxpayer to elect to substitute the 
adjusted taxable income for its last taxable year beginning in 
2019 for its adjusted taxable income for any taxable year 
beginning in 2020.\1241\ In the case of a partnership, the 
election is made at the partnership level.\1242\ If the 
election to substitute adjusted taxable income from a 
taxpayer's last taxable year beginning in 2019 is made with 
respect to a taxable year beginning in 2020 that is a short 
taxable year, the 2019 adjusted taxable income amount that is 
substituted is scaled down by multiplying the taxpayer's 2019 
adjusted taxable income by the ratio of (1) the number of 
months in the short taxable year beginning in 2020, to (2) 12.
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    \1241\ In Treas. Reg. sec. 1.163(j)-2(b)(4), Prop. Treas. Reg. sec. 
1.163(j)-6(d)(5) and Rev. Proc. 2020-22, the IRS describes the time and 
manner in which taxpayers may elect to use the taxpayer's adjusted 
taxable income for its last taxable year beginning in 2019 for its 
adjusted taxable income for any taxable year beginning in 2020.
    \1242\ See Prop. Treas. Reg. sec. 1.163(j)-6(d)(5) for additional 
guidance.
---------------------------------------------------------------------------
    For example, assume a taxpayer has $200 of adjusted taxable 
income in its last taxable year beginning in 2019, $10 of 
adjusted taxable income in a short taxable year starting on 
January 1, 2020, and ending on March 31, 2020, and $50 of 
business interest expense in its short 2020 taxable year. If 
the taxpayer makes the election to substitute its last taxable 
year beginning in 2019 in determining adjusted taxable income 
under the provision, the taxpayer may deduct $25 \1243\ of such 
business interest expense.
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    \1243\ ($200 * 3/12) * 50 percent = $25.
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                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2018.

7. Technical amendments regarding qualified improvement property (sec. 
        2307 of the Act and sec. 168(e) 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.\1244\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\1245\ 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 
placed in service convention.\1246\ For some assets, the 
recovery period for the asset is provided in section 168.\1247\ 
In other cases, the recovery period of an asset is generally 
set forth in Revenue Procedure 87-56.\1248\
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    \1244\ 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.
    \1245\ 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).
    \1246\ Sec. 168.
    \1247\ See sec. 168(e) and (g).
    \1248\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785). Exercising authority granted by Congress, the 
Secretary issued Rev. Proc. 87-56, 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.
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    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,\1249\ 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. The recovery periods 
for most real property are 39 years for nonresidential real 
property and 27.5 years for residential rental property. The 
straight line depreciation method is required for the 
aforementioned real property.
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    \1249\ Under the declining balance method, the depreciation rate is 
determined by dividing the appropriate percentage (here, 150 or 200 
percent) 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.
---------------------------------------------------------------------------
    Depreciation of an asset begins when the asset is deemed to 
be placed in service under the applicable convention.\1250\ 
Under MACRS, nonresidential real property, residential rental 
property, and any railroad grading or tunnel bore generally are 
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.\1251\ 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 to reflect the assumption that 
assets are placed in service ratably throughout the year.\1252\ 
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,\1253\ designed to 
prevent the recognition of disproportionately large amounts of 
first-year depreciation as a result of the half-year 
convention.
---------------------------------------------------------------------------
    \1250\ Treas. Reg. sec. 1.167(a)-10(b).
    \1251\ Sec. 168(d)(2) and (d)(4)(B).
    \1252\ Sec. 168(d)(1) and (4)(A).
    \1253\ The mid-quarter convention 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).
---------------------------------------------------------------------------

Depreciation of additions or improvements to property

    The recovery period for any addition or improvement to real 
or personal property begins on the later of (1) the date on 
which the addition or improvement is placed in service, or (2) 
the date on which the property with respect to which such 
addition or improvement is made is placed in service.\1254\ Any 
MACRS deduction for an addition or improvement to any property 
is to be computed in the same manner as the deduction for the 
underlying property would be if such property were placed in 
service at the same time as such addition or improvement. Thus, 
for example, the cost of an improvement to a building that 
constitutes nonresidential real property is recovered over 39 
years using the straight line method and mid-month convention. 
However, an exception to the 39-year recovery period applies to 
qualified improvement property, as described below.
---------------------------------------------------------------------------
    \1254\ Sec. 168(i)(6).
---------------------------------------------------------------------------
            Qualified improvement property
    Qualified improvement property is any improvement made by 
the taxpayer \1255\ to an interior portion of a building that 
is nonresidential real property if such improvement is placed 
in service by the taxpayer after the date such building was 
first placed in service by any taxpayer.\1256\ Qualified 
improvement property does not include any improvement for which 
the expenditure is attributable to the enlargement of the 
building, any elevator or escalator, or the internal structural 
framework of the building.\1257\
---------------------------------------------------------------------------
    \1255\ This rule expresses Congressional intent.
    \1256\ Sec. 168(e)(6)(A).
    \1257\ Sec. 168(e)(6)(B).
---------------------------------------------------------------------------
    Qualified improvement property placed in service after 
December 31, 2017, is generally depreciable using the straight 
line method \1258\ and half-year convention, and Congressional 
intent was for a 15-year recovery period to apply.\1259\ 
However, when the definition of qualified improvement property 
was added to section 168(e) by section 13204 of Public Law 115-
97, language providing a 15-year recovery period for such 
property was inadvertently omitted from the statute. As a 
result, the IRS and Treasury have taken the position that such 
property is recoverable over 39 years, rather than the intended 
15 years.\1260\
---------------------------------------------------------------------------
    \1258\ Sec. 168(b)(3)(G).
    \1259\ Note that as 15-year property, qualified improvement 
property is generally eligible for the additional first-year 
depreciation deduction under section 168(k). Qualified improvement 
property is also eligible for section 179 expensing. See sec. 
179(e)(1). Note that the amount of the additional first-year 
depreciation deduction is determined after basis adjustments for any 
section 179 expensing. See Treas. Reg. sec. 1.168(k)-1(a)(2)(iii).
    \1260\ See T.D. 9874, 84 Fed. Reg. 50109-50110, September 24, 2019. 
Note that if treated as 39-year property, the property would not be 
eligible for the additional first-year depreciation deduction under 
section 168(k) as such property would not have a MACRS recovery period 
of 20 years or less. See sec. 168(k)(2)(A)(i)(I).
---------------------------------------------------------------------------

Alternative depreciation system

    The alternative depreciation system (``ADS'') is required 
to be used for tangible property used predominantly outside the 
United States, certain tax-exempt use property, tax-exempt bond 
financed property, and certain imported property covered by an 
Executive order.\1261\ In addition, ADS is required to be used 
for certain property held by an electing real property trade or 
business \1262\ and an electing farming business.\1263\ An 
election to use ADS is available to taxpayers for any class of 
property for any taxable year.\1264\ Under ADS, all property is 
depreciated using the straight line method over recovery 
periods that generally are equal to the class life of the 
property, with certain exceptions.\1265\ For example, 
nonresidential real property has a 40-year ADS recovery period, 
and residential rental property placed in service after 
December 31, 2017, has a 30-year ADS recovery period,\1266\ 
while qualified improvement property placed in service after 
December 31, 2017, is intended to have a 20-year ADS recovery 
period.\1267\
---------------------------------------------------------------------------
    \1261\ Sec. 168(g)(1)(A)-(D).
    \1262\ As defined in section 163(j)(7)(B). See sec. 168(g)(1)(F) 
and (8). For a discussion of changes made to section 163(j) by the Act, 
see the description of section 2306 of the Act (Modifications of 
Limitation on Business Interest) in this document.
    \1263\ As defined in section 163(j)(7)(C). See also sec. 
168(g)(1)(G). For a discussion of changes made to section 163(j) by the 
Act, see the description of section 2306 of the Act (Modifications of 
Limitation on Business Interest) in this document.
    \1264\ Sec. 168(g)(1)(E) and (7).
    \1265\ Sec. 168(g)(2) and (3).
    \1266\ See sec. 168(g)(3).
    \1267\ This rule expresses Congressional intent.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision clarifies that qualified improvement property 
is 15-year property under MACRS and 20-year property under 
ADS.\1268\
---------------------------------------------------------------------------
    \1268\ Thus, the provision reverses the result in T.D. 9874, supra, 
with the result that qualified improvement property may be eligible for 
the additional first-year depreciation deduction under section 168(k). 
See T.D. 9916, 85 Fed. Reg. 71734-71770, November 10, 2020, modifying 
and clarifying T.D. 9874 to reflect these changes made by the Act. Note 
that if qualified improvement property placed in service after 2017 was 
improperly depreciated as 39-year property (or 40-year property under 
ADS), the taxpayer may be eligible to file an amended return, 
administrative adjustment request under section 6227, or IRS Form 3115, 
Application for Change in Accounting Method, to change to properly 
treat such property as 15-year property (or 20-year property under 
ADS). Similarly, a taxpayer wishing to make, revoke, or withdraw an 
election for such property under section 168(g)(7) (regarding an 
election to use ADS), section 168(k)(7) (regarding an election out of 
the additional first-year depreciation deduction under section 168(k)), 
or section 168(k)(10) (regarding an election to use a 50-percent 
allowance under section 168(k) for certain property placed in service 
during certain periods) may be eligible to do so by filing an amended 
return, administrative adjustment request, or IRS Form 3115. See sec. 
446(e); Rev. Proc. 2020-50, 2020-48 I.R.B. 1122; Rev. Proc. 2020-25, 
2020-19 I.R.B. 785, as modified by Rev. Proc. 2020-50, 2020-48 I.R.B. 
1122; and sec. 6 of Rev. Proc. 2019-43, 2019-48 I.R.B. 1107, as 
modified by Rev. Proc. 2020-25, 2020-19 I.R.B. 785, and Rev. Proc. 
2020-50, 2020-48 I.R.B. 1122.
---------------------------------------------------------------------------
    The provision also clarifies that the 15-year MACRS (or 20-
year ADS) recovery period only applies if the qualified 
improvement property is made by the taxpayer. Thus, for 
example, if a taxpayer purchases a building in a taxable 
transaction, any qualified improvement property previously 
placed in service by the seller with respect to such building 
does not qualify as qualified improvement property with respect 
to the buyer.

                             Effective Date

    The provision is effective as if included in section 13204 
of Public Law 115-97 (i.e., for property placed in service 
after December 31, 2017).

8. Temporary exception from excise tax for alcohol used to produce hand 
       sanitizer (sec. 2308 of the Act and sec. 5214 of the Code)


                              Present Law

    Distilled spirits produced in or imported into the United 
States generally are subject to Federal excise tax upon 
withdrawal from the bonded premises of a distilled spirits 
plant.\1269\ Under certain circumstances, however, distilled 
spirits may be withdrawn from the bonded premises free of 
Federal excise tax, such as when such spirits are denatured or 
are withdrawn for use in hospitals, blood banks, sanitariums, 
or nonprofit clinics for non-beverage purposes and not for 
resale or use in the manufacture of any product for sale.\1270\
---------------------------------------------------------------------------
    \1269\ Secs. 5001 and 5006.
    \1270\ Sec. 5214(a).
---------------------------------------------------------------------------
    The Secretary, in the event of a disaster, has broad 
authority to temporarily exempt proprietors of distilled 
spirits plants from any provision of the Code related to 
distilled spirits, but such authority does not extend to those 
Code provisions requiring payment of the Federal excise tax on 
distilled spirits.\1271\
---------------------------------------------------------------------------
    \1271\ Sec. 5562.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision,\1272\ distilled spirits that are 
removed after December 31, 2019, and before January 1, 2021, 
are free of Federal excise tax if they are withdrawn for use or 
contained in hand sanitizer produced and distributed in a 
manner consistent with any guidance issued by the Food and Drug 
Administration (``FDA'') that is related to the outbreak of 
virus SARS-CoV-2 or coronavirus disease 2019 (``COVID-
19'').\1273\
---------------------------------------------------------------------------
    \1272\ The provision also exempts alcohol removed under the 
provision from certain labeling and bulk sales requirements under 
section 105 or 106 of the Federal Alcohol Administration Act (27 U.S.C. 
sec. 205; 27 U.S.C. sec. 206) and section 204 of the Alcoholic Beverage 
Labeling Act of 1988 (27 U.S.C. sec. 215).
    \1273\ The FDA has issued temporary guidance for the preparation of 
alcohol-based hand sanitizers with denatured ethanol by certain firms 
and pharmacies during the outbreak of COVID-19. See FDA, ``Guidance for 
Industry: Temporary Policy for Preparation of Certain Alcohol-Based 
Hand Sanitizer Products During the Public Health Emergency (COVID-19)'' 
(March 2020), available at https://www.fda.gov/regulatory-information/
search-fda-guidance-documents/guidance-industry-temporary-policy-
preparation-certain-alcohol-based-hand-sanitizer-products-during (last 
visited October 15, 2020); FDA, ``Policy for Temporary Compounding of 
Certain Alcohol-Based Hand Sanitizer Products During the Public Health 
Emergency'' (March 2020), available at https://www.fda.gov/regulatory-
information/search-fda-guidance-documents/policy-temporary-compounding-
certain-alcohol-based-hand-sanitizer-products-during-public-health 
(last visited October 15, 2020); FDA, ``Temporary Policy for 
Manufacture of Alcohol for Incorporation Into Alcohol-Based Hand 
Sanitizer Products During the Public Health Emergency (COVID-19) 
Guidance for Industry'' (March 2020), available at https://www.fda.gov/
regulatory-information/search-fda-guidance-documents/temporary-policy-
manufacture-alcohol-incorporation-alcohol-based-hand-sanitizer-
products-during (last visited October 15, 2020).
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to distilled spirits removed after 
December 31, 2019.

TITLE III--SUPPORTING AMERICA'S HEALTH CARE SYSTEM IN THE FIGHT AGAINST 
                            THE CORONAVIRUS


                    Subtitle B--Education Provisions


1. Technical and other amendments relating to the FUTURE Act (sec. 3516 
        of the Act and sec. 6103 of the Code)

                              Present Law


General rule of confidentiality and exception for certain disclosures 
        to administer certain student financial aid and loan programs

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by Title 
26 (the Code).\1274\ Among others, this general rule applies to 
officers and employees of the United States and any person who 
has or had access to returns or return information under 
section 6103(l)(13). The Fostering Undergraduate Talent by 
Unlocking Resources for Education (``FUTURE'') Act \1275\ 
amended and rewrote section 6103(l)(13) to authorize the 
disclosure of certain return information for purposes of 
administering student financial aid and loan programs.
---------------------------------------------------------------------------
    \1274\ Sec. 6103(a).
    \1275\ Pub. L. No. 116-91, December 19, 2019.
---------------------------------------------------------------------------
    The provision requires the IRS to disclose certain return 
information to the Department of Education and others for the 
purpose of administering financial aid and loan programs. Upon 
receiving a written request from the Secretary of 
Education,\1276\ the IRS must disclose specified return 
information to authorized persons for the purposes of (1) 
determining eligibility for, and repayment obligations under, 
income-contingent or income-based repayment plans; (2) 
monitoring and reinstating loans that were discharged based on 
a total and permanent disability; and (3) determining the 
eligibility for, and the amount of, awards of Federal student 
financial aid.
---------------------------------------------------------------------------
    \1276\ The Secretary of Education can make a request for disclosure 
under section 6103(l)(13) with respect to an individual only if the 
Secretary of Education has obtained approval from the individual for 
such disclosure.
---------------------------------------------------------------------------
    Authorized persons may only use the disclosed information 
for the purposes above and for three additional purposes 
related to the programs. These additional purposes are (1) 
reducing the net cost of improper payments under such plans, 
relating to such awards, or relating to such discharges; (2) 
oversight activities by the Office of Inspector General of the 
Department of Education as authorized by the Inspector General 
Act of 1978; and (3) conducting analyses and forecasts for 
estimating costs related to such plans, discharges, or awards. 
The additional purposes do not include conducting criminal 
investigations or prosecutions.
    An ``authorized person'' is any person who is an officer, 
employee, or contractor of the Department of Education, and is 
specifically authorized and designated by the Secretary of 
Education for purposes of the specific disclosure authority 
programs (income-contingent or income-based repayment plans, 
loans discharged based on a total and permanent disability, 
awards of Federal student financial aid (the designation is 
applied separately with respect to each program)).
    With the consent of the taxpayer, authorized persons may 
redisclose the return information received from the IRS to 
certain institutions of higher education, State higher 
education agencies, and scholarship organizations solely for 
use in financial aid programs.

Civil damage remedy for unauthorized disclosure or unauthorized 
        inspection of returns and return information

    A taxpayer whose return or return information is disclosed 
in violation of section 6103(a) may bring a lawsuit in a 
district court of the United States for actual or statutory 
damages, and in certain cases, punitive damages. If a Federal 
employee makes knowingly or by reason of negligence, a 
disclosure or inspection in violation of any provision of 
section 6103, a taxpayer may sue the United States. If a person 
other than a Federal employee knowingly or by reason of 
negligence inspects or discloses any return or return 
information with respect to a taxpayer in violation of any 
provision of section 6103, suit may be brought directly against 
such person.
    No liability results from a disclosure based on a good 
faith, but erroneous, interpretation of section 6103. A 
disclosure or inspection requested by the taxpayer will also 
relieve liability.
    Upon a finding of liability, a taxpayer can recover the 
greater of $1,000 per act of unauthorized disclosure (or 
inspection) or, the sum of actual damages plus, in the case of 
an inspection or disclosure that was willful or the result of 
gross negligence, punitive damages. The taxpayer may also 
recover the costs of the action and, if found to be a 
prevailing party, reasonable attorney fees.
    The taxpayer has two years from the date of the discovery 
of the unauthorized inspection or disclosure to bring suit. The 
IRS is required to notify a taxpayer of an unauthorized 
inspection or disclosure as soon as practicable after any 
person is criminally charged by indictment or information for 
unlawful inspection or disclosure. In addition, the taxpayer is 
to be notified if the IRS or a Federal or State agency (upon 
notice to the Secretary by such Federal or State agency) 
proposes an administrative determination as to disciplinary or 
adverse action against an employee arising from the employee's 
unauthorized inspection or disclosure of the taxpayer's return 
or return information.

Safeguards and accountings

    Unless specifically listed in the statute as excluded from 
the accounting requirement, section 6103(p)(3) requires the IRS 
to maintain a permanent system of standardized records or 
accountings of all requests for inspection or disclosure of 
returns and return information (including the reasons for and 
dates of such requests) and of returns and return information 
inspected or disclosed under section 6103 (and section 
6104(c)). The IRS is required to account for all disclosures 
made under section 6103(l)(13), including those made to the 
Department of Education and its contractors, as well as 
redisclosures made by authorized persons to institutions of 
higher education, State higher education agencies, and 
scholarship organizations. The Secretary of Education is 
required to annually submit a written report to the Secretary 
of the Treasury regarding: (1) redisclosures of return 
information to institutions of higher education, State higher 
education agencies, and scholarship organizations, including 
the number of such redisclosures; and (2) any unauthorized use, 
access, or disclosure of the return information under section 
6103(l)(13).
    Section 6103(p)(4) requires, as a condition of receiving 
returns and return information, that Federal and State agencies 
and specified other recipients provide safeguards to the 
satisfaction of the Secretary of the Treasury as necessary or 
appropriate to protect the confidentiality of returns or return 
information.\1277\ It also requires that a report be furnished 
to the Secretary at such time and containing such information 
as prescribed by the Secretary, regarding the procedures 
established and utilized for ensuring the confidentiality of 
returns and return information. The Secretary, after an 
administrative review, may take such actions as are necessary 
to ensure these requirements are met, including the refusal to 
disclose returns and return information.
---------------------------------------------------------------------------
    \1277\ The IRS has published guidelines for safeguarding the 
confidentiality of Federal tax information in IRS Publication 1075, Tax 
Information Security Guidelines for Federal, State and Local Agencies 
(2016).
---------------------------------------------------------------------------
    All agencies and other persons described in section 
6103(l)(13) as authorized to receive confidential return 
information (i.e., the Department of Education, its 
contractors, certain institutions of higher education, State 
higher education agencies, and scholarship organizations) are 
required to safeguard such information to the satisfaction of 
the Secretary.

                        Explanation of Provision


General rule of confidentiality and civil actions for damages

    Under the provision, a person who has or had access to 
return information under section 6103(l)(13)(D)(iii) (i.e., 
certain institutions of higher education, State higher 
education agencies, scholarship organizations, and the 
authorized persons designated to the make redisclosures to such 
entities) is no longer required to maintain the confidentiality 
of that return information as provided by section 6103(a). As a 
result, the general rule of confidentiality and nondisclosure 
under section 6103(a) does not apply to these entities with 
respect to the information redisclosed to them, and a civil 
action for damages due to inspections and disclosures by such 
entities in violation of section 6103(a) is no longer 
available.

Accountings

    Under the provision, the IRS is no longer required to 
maintain a permanent system of standardized records to account 
for disclosures the IRS makes to the Department of Education 
and its contractors. The IRS is still required to account for 
redisclosures made by authorized persons to institutions of 
higher education, State higher education agencies, and 
scholarship organizations.

Safeguards

    For institutions of higher education, State higher 
education agencies, scholarship organizations, and the 
authorized persons designated to make redisclosures to such 
entities, the provision eliminates the requirement that as a 
condition of receiving return information such entities 
establish safeguard requirements to the satisfaction of the 
Secretary of the Treasury.

Technical amendment

    The provision corrects an erroneous cross-reference 
defining taxable income from a farming business.

                             Effective Date

    The amendments made by the provision are effective as if 
included in the FUTURE Act (Pub. L. No. 116-91).

                      Subtitle C--Labor Provisions


1. Advance refunding of credits (sec. 3606 of the Act)

                              Present Law

    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include Federal income 
tax as well as taxes levied under the Federal Insurance 
Contributions Act (``FICA'') and Federal Unemployment Tax Act 
(``FUTA'').\1278\ In addition, tier 1 of the Railroad 
Retirement Tax Act (``RRTA'') imposes a tax on compensation 
paid to railroad employees and representatives.\1279\
---------------------------------------------------------------------------
    \1278\ Secs. 3401, 3101, 3111, and 3301.
    \1279\ Sec. 3221.
---------------------------------------------------------------------------
    FICA taxes are comprised of two components: Old-Age, 
Survivors, and Disability Insurance (``OASDI'') tax and 
Medicare taxes.\1280\ With respect to OASDI tax, the applicable 
rate is 12.4 percent with half of such rate (6.2 percent) 
imposed on the employee and the remainder (6.2 percent) imposed 
on the employer.\1281\ The tax is assessed on covered wages up 
to the OASDI wage base ($137,700 in 2020). Generally, the OASDI 
wage base rises based on increases in the national average wage 
index.\1282\
---------------------------------------------------------------------------
    \1280\ The Hospital Insurance (``HI'') tax has two components: 
Medicare tax and Additional Medicare tax. Medicare tax is imposed on 
wages, as defined in section 3121(a), with respect to employment, as 
defined in section 3121(b), at a rate of 1.45 percent for the employer. 
Sec. 3101(b)(1). An equivalent 1.45 percent is withheld from employee 
wages. Sec. 3111(b)(1). For purposes of this description, Medicare tax 
does not include Additional Medicare tax. Additional Medicare taxes are 
withheld from employee wages in excess of $200,000 at a rate of 0.9 
percent. Sec. 3101(b)(2). There is no equivalent employer's share of 
Additional Medicare taxes.
    \1281\ Sec. 3101.
    \1282\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
---------------------------------------------------------------------------
    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1283\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes salaries, vacation allowances, bonuses, deferred 
compensation, commissions, and fringe benefits. The term 
``employment'' is generally defined for FICA tax purposes as 
any service, of whatever nature, performed by an employee for 
the person employing him or her, with certain specific 
exceptions.
---------------------------------------------------------------------------
    \1283\ Sec. 3121(a).
---------------------------------------------------------------------------

Railroad retirement program

    Railroad workers do not participate in the OASDI system. 
Accordingly, compensation subject to RRTA tax is exempt from 
FICA taxes.\1284\ The RRTA imposes a tax on compensation paid 
by covered employers to employees in recognition for the 
performance of services.\1285\ Employees whose compensation is 
subject to RRTA are ultimately eligible for railroad retirement 
benefits that fall under a two-tier structure. Rail employees 
and employers pay tier 1 taxes at the same rate as FICA 
taxes.\1286\ In addition, rail employees and employers both pay 
tier 2 taxes that are used to finance railroad retirement 
benefits over and above Social Security benefit levels.\1287\ 
Tier 2 benefits are similar to a private defined benefit 
pension. Those taxes are funneled to the railroad retirement 
system and used to fund basic retirement benefits for railroad 
workers and an investment trust that generates returns for the 
pension fund.
---------------------------------------------------------------------------
    \1284\ Sec. 3121(b)(9).
    \1285\ Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the OASDI and Medicare taxes under FICA. Under the RRTA, 
employers and employees are also subject to an additional tax, referred 
to as the ``tier 2'' tax, on compensation up to a certain amount.
    \1286\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $137,700 in 2020, and 1.45 percent for Medicare tax on 
all earnings.
    \1287\ In 2020, the tier 2 tax rate on earnings up to $102,300 is 
4.9 percent for employees and 13.1 percent for employers.
---------------------------------------------------------------------------

Self-employment taxes

    The Self-Employment Contributions Act (``SECA'') imposes 
tax on the self-employment income of an individual. SECA taxes 
consist of OASDI tax and Medicare tax.\1288\ Under the OASDI 
component, the first rate of tax is 12.4 percent on self-
employment income up to the OASDI wage base ($137,700 for 
2020).\1289\ Under the basic Medicare tax component, the second 
rate of tax is 2.9 percent of all self-employment income 
(without regard to the OASDI wage base).\1290\ As is the case 
with employees, an Additional Medicare tax applies to the 
Medicare portion of SECA tax on self-employment income in 
excess of a threshold amount.\1291\
---------------------------------------------------------------------------
    \1288\ Sec. 1401(a) and (b).
    \1289\ Sec. 1401(a). In calculating the SECA tax for OASDI, the 
OASDI wage base taken into account is reduced by FICA wages paid to the 
individual during the taxable year.
    \1290\ Sec. 1401(b)(1).
    \1291\ Sec. 1401(b)(2).
---------------------------------------------------------------------------
    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment is the gross income derived by an 
individual from any trade or business less allowed deductions 
that are attributable to the trade or business and permitted 
under the SECA rules. Certain passive income and related 
deductions are not taken into account in determining net 
earnings from self-employment, including rentals from real 
estate (unless received in the course of a trade or business as 
a real estate dealer),\1292\ dividends and interest (unless 
such dividends and interest are received in the course of a 
trade or business as a dealer in stocks or securities),\1293\ 
and sales or exchanges of capital assets and certain other 
property (unless the property is stock in trade that would 
properly be included in inventory or held primarily for sale to 
customers in the ordinary course of the trade or 
business).\1294\
---------------------------------------------------------------------------
    \1292\ Sec. 1402(a)(1).
    \1293\ Sec. 1402(a)(2).
    \1294\ Sec. 1402(a)(3).
---------------------------------------------------------------------------
    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI and Medicare taxes (i.e., 7.65 
percent of net earnings).\1295\ This deduction is determined 
without regard to the additional 0.9 percent Additional 
Medicare tax that may apply to an individual. This deduction 
reflects the fact that the FICA rates apply to an employee's 
wages, which do not include FICA taxes paid by the employer, 
whereas the self-employed individual's net earnings are 
economically equivalent to an employee's wages plus the 
employer share of FICA taxes.\1296\ This is generally referred 
to as the ``regular method'' of determining net earnings from 
self-employment, and in IRS forms and publications is expressed 
as multiplying total net earnings from self-employment by 92.35 
percent.
---------------------------------------------------------------------------
    \1295\ Sec. 1402(a)(12).
    \1296\ The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid. As presently written, the deduction for 
SECA taxes is not the exact economic equivalent to the deduction for 
FICA taxes. See Joint Committee on Taxation, Options to Improve Tax 
Compliance and Reform Tax Expenditures (JCS-2-05), January 27, 2005, 
for a detailed description of this issue.
---------------------------------------------------------------------------

Division G of the Families First Coronavirus Response Act

    Division G of the Families First Coronavirus Response Act 
\1297\ (``FFCRA'') provided a tax credit for qualified sick 
leave wages and qualified family leave wages mandated under the 
FFCRA, as well as allocable qualified health plan 
expenses.\1298\ Section 7001 of the FFCRA requires certain 
employers to provide an employee with paid sick time to the 
extent that the employee is unable to work or telework due to 
enumerated conditions. Under the FFCRA, an employer is allowed 
a corresponding credit against the OASDI tax or RRTA tax 
imposed on the employer. The amount of the credit is equal to 
100 percent of the qualified sick leave wages paid by the 
employer with respect to that calendar quarter, subject to some 
limitations. The provision limits the amount of qualified sick 
leave wages taken into account for purposes of the credit.
---------------------------------------------------------------------------
    \1297\ Families First Coronavirus Response Act, Pub. L. No. 116-
127, secs. 7001-7005, March 18, 2020.
    \1298\ Joint Committee on Taxation, Technical Explanation of 
Division G, ``Tax Credits for Paid Sick and Paid Family and Medical 
Leave,'' of H.R. 6201, the ``Families First Coronavirus Response Act'' 
(JCX-10-20), March 2020.
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    Section 7003 of the FFCRA required certain employers to 
provide qualified family leave wages to employees. Qualified 
family leave wages include public health emergency leave 
provided to employees under Family and Medical Leave Act.\1299\ 
Under the FFCRA, employers are allowed a credit against OASDI 
or RRTA taxes in an amount equal to 100 percent of qualified 
family leave wages paid by the employer during the quarter, 
subject to the limitations prescribed in the FFCRA.
---------------------------------------------------------------------------
    \1299\ Pub. L. No. 103-3 (February 3, 1993).
---------------------------------------------------------------------------
    For both sections 7001 and 7003, the credit allowed is 
increased by so much of the employer's qualified health plan 
expenses as are properly allocable to the qualified sick leave 
wages or qualified family leave wages for which the credit is 
allowed. In addition, the amount of the credit is increased by 
the amount of tax imposed by section 3111(b) \1300\ on 
qualified sick leave wages or qualified family leave wages, for 
which a credit is allowed under such section 7001 or 7003, 
respectively.
---------------------------------------------------------------------------
    \1300\ Section 3111(b) imposes on the employer a Medicare hospital 
insurance excise tax of 1.45 percent on all earnings.
---------------------------------------------------------------------------
    With respect to sections 7001 and 7003 of the FFCRA, the 
credit allowed may not exceed the OASDI tax or RRTA tax imposed 
on the employer, reduced by any credits allowed for the 
employment of qualified veterans \1301\ and research 
expenditures of qualified small businesses \1302\ for that 
calendar quarter on the wages paid with respect to all the 
employer's employees. However, if for any calendar quarter the 
amount of the credit exceeds the OASDI tax or RRTA tax imposed 
on the employer, subject to the foregoing reductions, such 
excess is treated as a refundable overpayment.\1303\
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    \1301\ This credit is described in section 3111(e).
    \1302\ This credit is described in section 3111(f).
    \1303\ The excess is treated as an overpayment and refunded under 
sections 6402(a) and 6413(b). In addition, any amount that is due to an 
employer is treated in the same manner as a refund due from a credit 
provision. 31 U.S.C. sec. 1324. Thus, amounts are appropriated to the 
Secretary for refunding such excess amounts.
---------------------------------------------------------------------------

                        Explanation of Provision

    The refundable portion of the credits allowed under the 
FFCRA may be advanced during the calendar quarter in which the 
qualified sick leave wages or qualified family leave wages are 
paid. The provision allows employers to choose to receive an 
offset, through a tax credit, of expenditures made for paid 
sick leave and paid family and medical leave mandated under the 
FFCRA at an earlier juncture during a calendar quarter rather 
than at the end of a quarter upon the filing of a quarterly 
employment tax return. The amount of the credit that may be 
advanced, according to forms and instructions provided by the 
Secretary (or the Secretary's delegate), is limited to the 
amount of employer OASDI or RRTA taxes, reduced by any credits 
allowed for qualified veterans or research expenditures on 
qualified small businesses. The amount of the credit 
advancement is calculated through the end of the most recent 
payroll period in the quarter.
    Penalties for the failure to timely deposit the employer 
portion of OASDI tax or equivalent employer's share of RRTA tax 
shall be waived if the Secretary (or the Secretary's delegate) 
determines that the failure to make such deposits was due to 
the anticipation of the credit allowed.\1304\ The provision 
directed the Secretary (or the Secretary's delegate) to provide 
regulations or other guidance as may be necessary to carry out 
the purposes of the provision.\1305\
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    \1304\ Secs. 3111(a), 3221(a), and 6656.
    \1305\ Notice 2020-22, 2020-17 I.R.B. 664, April 20, 2020. For 
2020, the IRS provided Form 7200, Advance Payment of Employer Credits 
Due to COVID-19, to allow taxpayers to request advance payment of the 
credit. The instructions to Form 7200 for 2020 explain,
---------------------------------------------------------------------------
        Employers will be allowed the full amount of this [FFCRA] 
      refundable credit even if it exceeds their employment tax 
      liability. If quarterly employment tax deposits that are 
      otherwise required are less than the amount of credit for 
      which the employer is eligible, the employer may receive 
      the remaining credit in advance, using this form. FFCRA 
      also provides similar credits for certain self-employed 
      persons in similar circumstances. However, advance payments 
      aren't available for the credit for self-employed 
      individuals.

    See instructions to IRS Form 7200, revised March 2020, available at 
https://www.irs.gov/pub/irs-prior/i7200--2020.pdf.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

2. Expansion of DOL authority to postpone certain deadlines (sec. 3607 
   of the Act, sec. 518 of ERISA, and sec. 319 of the Public Health 
                              Service Act)


                              Present Law


Employee benefit plans

    Under the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA'') \1306\, the Secretary of Labor has the 
authority to postpone certain deadlines with respect to actions 
within its jurisdiction by reason of a Presidentially declared 
disaster \1307\ or a terroristic or military action.\1308\ The 
Secretary of Labor may, in the case of a pension or other 
employee benefit plan, or any sponsor, administrator, 
participant, beneficiary, or other person with respect to such 
plan, affected by such a Presidentially declared disaster or a 
terroristic or military action notwithstanding any other 
provision of law, prescribe, by notice or otherwise, a period 
of up to one year that may be disregarded in determining the 
date by which any action is required or permitted to be 
completed by such a plan or person under ERISA. A plan will not 
be treated as failing to be operated in accordance with its 
terms solely as the result of disregarding any such period.
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    \1306\ 29 U.S.C. 1001 et seq. In the past, questions had arisen 
concerning the scope of section 7508A with respect to employee benefit 
plans because a number of acts related to employee benefit plans may be 
required or provided for under ERISA, or the terms of the plan, rather 
than under the Code. For example, a plan sponsor or plan administrator 
may be required to provide a notice to plan or participant or to make a 
plan contribution.
    \1307\ As defined in section 1033(h)(3), which provides that the 
term ``Federally declared disaster'' has the same meaning as under 
section 165(i)(5).
    \1308\ Sec. 518 of ERISA. A terroristic or military action is 
defined in section 692(c)(2).
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    Under the Code, the Secretary has the authority to postpone 
certain tax deadlines affected by a Federally declared 
disaster,\1309\ or a terroristic or military action.\1310\ In 
the case of a pension or other employee benefit plan, or any 
sponsor, administrator, participant, beneficiary, or other 
person, the Secretary may prescribe a period of up to one year 
that may be disregarded in determining the date by which any 
action by a pension or other employee benefit plan, or by a 
plan sponsor, administrator, participant, beneficiary or other 
person would be required or permitted to be completed.\1311\
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    \1309\ A Federally declared disaster is defined in section 
165(i)(5)(A) as ``any disaster subsequently determined by the President 
of the United States to warrant assistance by the Federal Government 
under the Robert T. Stafford Disaster Relief and Emergency Assistance 
Act'' (the ``Stafford Act''). On March 13, 2020, President Trump 
declared the COVID-19 pandemic an ``emergency'' under section 501(b) of 
the Stafford Act. As part of that declaration, he instructed the 
Secretary to provide relief from tax deadlines pursuant to section 
7508(A)(a).
    \1310\ Sec. 7508A.
    \1311\ Sec. 7508A(b).
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Section 319 of the Public Health Service Act

    Under section 319 of the Public Health Service (``PHS'') 
Act,\1312\ the Secretary of the Department of Health and Human 
Services (``HHS'') can determine, after consulting with such 
public health officials as may be necessary, that (1) a disease 
or disorder presents a Public Health Emergency (``PHE'') or (2) 
a PHE, including significant outbreaks of infectious diseases 
or bioterrorist attacks, otherwise exists. A PHE declaration 
allows the Secretary of HHS to take certain actions in response 
to the PHE. In addition, the determination of a public health 
emergency authorizes the Secretary of HHS to take a variety of 
discretionary actions to respond to the PHE under the statutes 
the Secretary of HHS administers.\1313\
---------------------------------------------------------------------------
    \1312\ 42 U.S.C. 274(d).
    \1313\ On January 31, 2020, the Secretary of HHS declared COVID-19 
a public health emergency for the entire United States under section 
319 of the PHS Act.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, the Secretary of Labor's authority to 
postpone certain deadlines under ERISA is extended to include a 
public health emergency declared by the Secretary of HHS 
pursuant to section 319 of the PHS Act.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

3. Single-employer plan funding rules (sec. 3608 of the Act and secs. 
        430(j) and 436 of the Code)

                              Present Law


Minimum required contributions

    Single-employer defined benefit pension plans are generally 
subject to minimum funding requirements under the Employee 
Retirement Income Security Act of 1974, as amended (``ERISA'') 
\1314\ and the Code.
---------------------------------------------------------------------------
    \1314\ 29 U.S.C. 1001 et seq.
---------------------------------------------------------------------------
    For plan years beginning after December 31, 2007,\1315\ the 
amount of the minimum required contribution \1316\ to a single-
employer defined benefit pension plan for a plan year generally 
depends on a comparison of the value of the plan's assets with 
the plan's funding target and target normal cost.
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    \1315\ Sec. 430(a). The Pension Protection Act of 2006 (``PPA''), 
Pub. L. No. 109-280, August 17, 2006, repealed the funding rules that 
were applicable for plan years beginning before December 31, 2007 
(including the requirement that a funding standard account be 
maintained) and provided a new set of rules for determining minimum 
required contributions. A delayed effective date applies to certain 
plans such as certain CSEC plans. Governmental plans and church plans 
are exempt from the funding rules to the extent provided under law.
    \1316\ As determined under section 430(a) and section 303(a) of 
ERISA.
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    A plan's funding target is the present value of all 
benefits accrued or earned as of the beginning of the plan 
year.\1317\ A plan's target normal cost for a plan year is 
generally the present value of benefits expected to accrue or 
be earned during the plan year plus the plan-related expenses 
expected to be paid from plan assets during the plan 
year.\1318\ A shortfall amortization charge is generally the 
sum of the amounts required to amortize any shortfall 
amortization bases for the plan year and the six preceding plan 
years.\1319\ A shortfall amortization base is generally 
required to be established for a plan year if the plan has a 
funding shortfall for a plan year.\1320\ A shortfall 
amortization base may be positive or negative (i.e., an 
offsetting amortization base is established for gains). In 
general, a plan has a funding shortfall if the plan's funding 
target for the year exceeds the value of the plan's assets 
(reduced by any prefunding balance and funding standard 
carryover balance).\1321\ A waiver amortization charge is the 
amount required to amortize a waived funding deficiency.\1322\
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    \1317\ Special rules apply for determining the funding target for 
plans in ``at-risk'' status. See sec. 430(d) and (i)(1).
    \1318\ Sec. 430(b).
    \1319\ Sec. 430(c).
    \1320\ Sec. 430(c)(3). A shortfall amortization base does not have 
to be established if the value of a plan's assets (reduced by any 
prefunding balance, but only if the employer elects to use any portion 
of the prefunding balance to reduce required contributions for the 
year) is at least equal to the plan's funding target for the plan year.
    \1321\ Sec. 430(c)(4). Contributions in excess of the minimum 
contributions required under the provision for plan years beginning 
after 2007 generally are credited to a prefunding balance that may be 
used in certain circumstances to reduce otherwise required minimum 
contributions. Credit balances determined under pre-PPA law are carried 
over into a funding standard carryover balance and generally may also 
be used (in certain circumstances) to reduce otherwise required minimum 
contributions. For example, a credit balance would have resulted where 
contributions in excess of minimum required contributions were made or 
from large net experience gains.
    \1322\ Sec. 430(e).
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    The interest rates and mortality table that must be used in 
determining a plan's target normal cost and funding target, as 
well as certain other actuarial assumptions, are specified, 
including special assumptions (``at-risk'' assumptions) for a 
plan in at-risk status. A plan is generally in at-risk status 
for a year if the value of the plan's assets (reduced by any 
prefunding and funding standard carryover balances) for the 
preceding year was less than (1) 80 percent of the plan's 
funding target determined without regard to the at-risk 
assumptions and (2) 70 percent of the plan's funding target 
determined using the at-risk assumptions.\1323\
---------------------------------------------------------------------------
    \1323\ Sec. 430(i).
---------------------------------------------------------------------------

Timing rules for contributions

    The due date for the payment of a minimum required 
contribution for a plan year is generally 8 months after the 
end of the plan year.\1324\ Any payment made on a date other 
than the valuation date for the plan year must be adjusted for 
interest accruing at the plan's effective interest rate for the 
plan year for the period between the valuation date and the 
payment date. Quarterly contributions must be made during a 
plan year if the plan had a funding shortfall for the preceding 
plan year (i.e., if the value of the plan's assets, reduced by 
the funding standard carryover balance and prefunding balance, 
was less than the plan's funding target for the preceding plan 
year).\1325\ If a quarterly installment is not made, interest 
applies for the period of underpayment at the rate of interest 
otherwise applicable (i.e., the plan's effective interest rate) 
plus five percentage points.
---------------------------------------------------------------------------
    \1324\ Sec. 430(j).
    \1325\ The amount of any quarterly installment must be sufficient 
to cover any liquidity shortfall.
---------------------------------------------------------------------------

Excise tax on failure to make minimum required contributions

    An employer is generally subject to an excise tax if it 
fails to make minimum required contributions and fails to 
obtain a waiver from the IRS.\1326\ The excise tax is 10 
percent of the aggregate unpaid minimum required contributions 
for all plan years remaining unpaid as of the end of any plan 
year. In addition, a tax of 100 percent of such unpaid required 
minimum contributions may be imposed if any unpaid minimum 
required contributions remain unpaid after a certain period.
---------------------------------------------------------------------------
    \1326\ Sec. 4971. A lien in favor of the plan with respect to 
property of the employer (and members of the employer's controlled 
group) arises in certain circumstances in which the employer fails to 
make required contributions.
---------------------------------------------------------------------------

Benefit restrictions

    With respect to plan years beginning after December 31, 
2007, the Code imposes the following funding-based limits on 
benefits and benefit accruals under single-employer 
plans.\1327\
---------------------------------------------------------------------------
    \1327\ Sec. 436.
---------------------------------------------------------------------------
            Plan shutdown and other unpredictable contingent event 
                    benefits
    If a participant is entitled to an unpredictable contingent 
event benefit payable with respect to any event occurring 
during any plan year, the plan must provide that such benefits 
may not be provided if the plan's adjusted funding target 
attainment percentage for that plan year: (1) is less than 60 
percent or (2) would be less than 60 percent taking into 
account the occurrence of the event. For this purpose, the term 
unpredictable contingent event benefit means any benefit 
payable solely by reason of: (1) a plant shutdown (or similar 
event, as determined by the Secretary) or (2) any event other 
than attainment of any age, performance of any service, receipt 
or derivation of any compensation, or the occurrence of death 
or disability.\1328\
---------------------------------------------------------------------------
    \1328\ Sec. 436(b).
---------------------------------------------------------------------------
    The determination of whether the limitation applies is made 
in the year the unpredictable contingent event occurs. For 
example, suppose a plan provides for benefits upon the 
occurrence of a plant shutdown, and a plant shutdown occurs in 
2019. Taking into account the plant shutdown, the plan's 
adjusted funding target attainment percentage is less than 60 
percent. Thus, the limitation applies, and benefits payable 
solely by reason of the plant shutdown may not be paid (unless 
the employer makes contributions to the plan as described 
below), regardless of whether the benefits will be paid in the 
2019 plan year or a later plan year.\1329\
---------------------------------------------------------------------------
    \1329\ Benefits already being paid as a result of a plant shutdown 
or other event that occurred in a preceding year are not affected by 
the limitation.
---------------------------------------------------------------------------
    The limitation ceases to apply with respect to any plan 
year, effective as of the first day of the plan year, if the 
plan sponsor makes a contribution (in addition to any minimum 
required contribution for the plan year) equal to: (1) if the 
plan's adjusted funding target attainment percentage is less 
than 60 percent, the amount of the increase in the plan's 
funding target for the plan year attributable to the occurrence 
of the event; or (2) if the plan's adjusted funding target 
attainment percentage would be less than 60 percent taking into 
account the occurrence of the event, the amount sufficient to 
result in an adjusted funding target attainment percentage of 
60 percent.
    The limitation does not apply for the first five years a 
plan (or a predecessor plan) is in effect.
            Plan amendments increasing benefit liabilities
    Certain plan amendments may not take effect during a plan 
year if the plan's adjusted funding target attainment 
percentage for the plan year (1) is less than 80 percent or (2) 
would be less than 80 percent taking into account the 
amendment.\1330\ In such a case, no amendment may take effect 
if it has the effect of increasing the liabilities of the plan 
by reason of any increase in benefits, the establishment of new 
benefits, any change in the rate of benefit accrual, or any 
change in the rate at which benefits vest under the plan. The 
limitation does not apply to an amendment that provides for an 
increase in benefits under a formula that is not based on 
compensation, but only if the rate of increase does not exceed 
the contemporaneous rate of increase in average wages of the 
participants covered by the amendment.
---------------------------------------------------------------------------
    \1330\ Sec. 436(c). The pre-PPA rules limiting benefit increases 
while an employer is in bankruptcy continue to apply.
---------------------------------------------------------------------------
    The limitation ceases to apply with respect to any plan 
year, effective as of the first day of the plan year (or, if 
later, the effective date of the amendment), if the plan 
sponsor makes a contribution (in addition to any minimum 
required contribution for the plan year) equal to: (1) if the 
plan's adjusted funding target attainment percentage is less 
than 80 percent, the amount of the increase in the plan's 
funding target for the plan year attributable to the amendment; 
or (2) if the plan's adjusted funding target attainment 
percentage would be less than 80 percent taking into account 
the amendment, the amount sufficient to result in an adjusted 
funding target attainment percentage of 80 percent.
    The limitation does not apply for the first five years a 
plan (or a predecessor plan) is in effect.
            Prohibited payments
    A plan must provide that, if the plan's adjusted funding 
target attainment percentage for a plan year is less than 60 
percent, the plan will not make any prohibited payments after 
the valuation date for the plan year.\1331\
---------------------------------------------------------------------------
    \1331\ Sec. 436(d).
---------------------------------------------------------------------------
    A plan must also provide that, if the plan's adjusted 
funding target attainment percentage for a plan year is 60 
percent or greater, but less than 80 percent, the plan may not 
pay any prohibited payments exceeding the lesser of: (1) 50 
percent of the amount otherwise payable under the plan and (2) 
the present value of the maximum Pension Benefit Guaranty 
Corporation (``PBGC'') guarantee with respect to the 
participant (determined under guidance prescribed by the PBGC, 
using the interest rates and mortality table applicable in 
determining minimum lump-sum benefits). The plan must provide 
that only one payment under this exception may be made with 
respect to any participant during any period of consecutive 
plan years to which the limitation applies. For this purpose, a 
participant and any beneficiary of the participant (including 
an alternate payee) is treated as one participant. If the 
participant's accrued benefit is allocated to an alternate 
payee and one or more other persons, the amount that may be 
distributed is allocated in the same manner unless the 
applicable qualified domestic relations order provides 
otherwise.
    In addition, a plan must provide that, during any period in 
which the plan sponsor is in bankruptcy proceedings, the plan 
may not pay any prohibited payment. However, this limitation 
does not apply on or after the date the plan's enrolled actuary 
certifies that the adjusted funding target attainment 
percentage of the plan is not less than 100 percent.
    For purposes of these limitations, ``prohibited payment'' 
is defined as (1) any payment in excess of the monthly amount 
paid under a single life annuity (plus any Social Security 
supplement provided under the plan) to a participant or 
beneficiary whose annuity starting date occurs during the 
period, (2) any payment for the purchase of an irrevocable 
commitment from an insurer to pay benefits (e.g., an annuity 
contract), or (3) any other payment specified by the Secretary 
by regulations.\1332\
---------------------------------------------------------------------------
    \1332\ Sec. 436(d)(5).
---------------------------------------------------------------------------
    The prohibited payment limitation does not apply to a plan 
for any plan year if the terms of the plan (as in effect for 
the period beginning on September 1, 2005 and ending with the 
plan year) provide for no benefit accruals with respect to any 
participant during the period.
            Cessation of benefit accruals
    A plan must provide that, if the plan's adjusted funding 
target attainment percentage is less than 60 percent for a plan 
year, all future benefit accruals under the plan must cease as 
of the valuation date for the plan year.\1333\ The limitation 
applies only for purposes of the accrual of benefits; service 
during the freeze period is counted for other purposes. For 
example, if accruals are frozen under the plan, service earned 
during the freeze period still counts for vesting purposes. As 
another example, suppose a plan provides that payment of 
benefits begins when a participant terminates employment after 
age 55 and with 25 years of service. Under this example, if a 
participant who is age 55 and has 23 years of service when the 
freeze on accruals becomes applicable terminates employment two 
years later, the participant has 25 years of service for this 
purpose and thus can begin receiving benefits. However 
(assuming the freeze on accruals is still in effect), the 
amount of the benefit is based on the benefit accrued before 
the freeze (i.e., counting only 23 years of service).
---------------------------------------------------------------------------
    \1333\ Sec. 436(e).
---------------------------------------------------------------------------
    The limitation ceases to apply with respect to any plan 
year, effective as of the first day of the plan year, if the 
plan sponsor makes a contribution (in addition to any minimum 
required contribution for the plan year) equal to the amount 
sufficient to result in an adjusted funding target attainment 
percentage of 60 percent.
    The limitation does not apply for the first five years a 
plan (or a predecessor plan) is in effect.

Adjusted funding target attainment percentage

            In general
    The term ``funding target attainment percentage'' is 
defined as under the minimum funding rules, that is, the ratio, 
expressed as a percentage, that the value of the plan's assets 
(reduced by any funding standard carryover balance and 
prefunding balance) bears to the plan's funding target for the 
year (determined without regard to at-risk status). A plan's 
adjusted funding target attainment percentage is determined in 
the same way, except that the value of the plan's assets and 
the plan's funding target are both increased by the aggregate 
amount of purchases of annuities for employees, other than 
highly compensated employees, made by the plan during the two 
preceding plan years.\1334\
---------------------------------------------------------------------------
    \1334\ Sec. 436(j)(2).
---------------------------------------------------------------------------
            Special rule for fully funded plans
    Under a special rule, if a plan's funding target attainment 
percentage is at least 100 percent, determined without reducing 
the value of the plan's assets by any funding standard 
carryover balance or prefunding balance, the value of the 
plan's assets is not so reduced in determining the plan's 
funding target attainment percentage for purposes of whether 
the benefit limitations apply.
            Presumptions as to funded status
    Certain presumptions apply in determining whether 
limitations apply with respect to a plan, subject to 
certification of the plan's adjusted funding target attainment 
percentage by the plan's enrolled actuary.
    If a plan was subject to a limitation for the preceding 
year, the plan's adjusted funding target attainment percentage 
for the current year is presumed to be the same as for the 
preceding year until the plan actuary certifies the plan's 
actual adjusted funding target attainment percentage for the 
current year.
    If (1) a plan was not subject to a limitation for the 
preceding year, but its adjusted funding target attainment 
percentage for the preceding year was not more than 10 
percentage points greater than the threshold for a limitation, 
and (2) as of the first day of the fourth month of the current 
plan year, the plan actuary has not certified the plan's actual 
adjusted funding target attainment percentage for the current 
year, the plan's funding target attainment percentage is 
presumed to be reduced by 10 percentage points as of that day 
and that day is deemed to be the plan's valuation date for 
purposes of applying the benefit limitation. As a result, the 
limitation applies as of that date until the actuary certifies 
the plan's actual adjusted funding target attainment 
percentage.
    In any other case, if the plan actuary has not certified 
the plan's actual adjusted funding target attainment percentage 
by the first day of the tenth month of the current plan year, 
for purposes of the limitations, the plan's adjusted funding 
target attainment percentage is conclusively presumed to be 
less than 60 percent as of that day and that day is deemed to 
be the valuation date for purposes of applying the benefit 
limitations.

Reduction of funding standard carryover and prefunding balances

    The value of plan assets is generally reduced by any 
funding standard carryover or prefunding amounts in determining 
a plan's funding target attainment percentage. As provided for 
under the funding rules applicable to single-employer plans, a 
plan sponsor may elect to reduce a funding standard carryover 
balance or prefunding balance, so that the value of plan assets 
is not required to be reduced by that amount in determining the 
plan's funding target attainment percentage.

Contributions made to avoid a benefit limitation

    An employer may make contributions (in addition to any 
minimum required contribution) in an amount sufficient to 
increase the plan's adjusted funding target attainment 
percentage to a level to avoid a limitation on unpredictable 
contingent event benefits, a plan amendment increasing 
benefits, or additional accruals. An employer may not use a 
prefunding balance or funding standard carryover balance in 
lieu of such a contribution, and such a contribution does not 
result in an increase in any prefunding balance.
    Instead of making additional contributions to avoid a 
benefit limitation, an employer may provide security in the 
form of a surety bond, cash, certain U.S. government 
obligations, or such other form as is satisfactory to the 
Secretary and the parties involved. In such a case, the plan's 
adjusted funding target attainment percentage is determined by 
treating the security as a plan asset. Any such security may be 
perfected and enforced at any time after the earlier of (1) the 
date on which the plan terminates; (2) if the plan sponsor 
fails to make a required contribution for any subsequent plan 
year, the due date for the contribution; or (3) if the plan's 
adjusted funding target attainment percentage is less than 60 
percent for a consecutive period of seven years, the valuation 
date for the last year in the period. The security will be 
released (and any related amounts will be refunded with any 
accrued interest) at such time as the Secretary may prescribe 
in regulations (including partial releases by reason of 
increases in the plan's funding target attainment percentage).

Treatment of plan as of close of prohibited or cessation period

    If a limitation on prohibited payments or future benefit 
accruals ceases to apply to a plan, all such payments and 
benefit accruals resume, effective as of the day following the 
close of the period for which the limitation applies.\1335\ 
Nothing in this rule is to be construed as affecting a plan's 
treatment of benefits, which would have been paid or accrued 
but for the limitation.
---------------------------------------------------------------------------
    \1335\ This rule does not apply to limitations on unpredictable 
contingent event benefits and plan amendments increasing liabilities.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, in the case of any minimum required 
contribution which, but for this provision, would have been due 
\1336\ during calendar year 2020, such contribution is due on 
January 1, 2021, and the amount of each such contribution must 
be increased by interest accruing between the original due date 
for the contribution (determined without regard to this 
provision) and the payment date (as determined under this 
provision), at the effective rate of interest for the plan for 
the plan year that includes such payment date.
---------------------------------------------------------------------------
    \1336\ Under section 430(j) (including quarterly contributions 
under section 430(j)(3)) and section 303(j) of ERISA.
---------------------------------------------------------------------------
    Additionally, under the provision, for purposes of 
determining whether benefit restrictions \1337\ apply to a plan 
for a plan year that includes calendar year 2020, a plan 
sponsor may elect to treat the plan's adjusted funding target 
attainment percentage for the last plan year ending before 
January 1, 2020, as the adjusted funding target attainment 
percentage for plan years that include calendar year 2020.
---------------------------------------------------------------------------
    \1337\ Determined under section 436.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

 4. Application of cooperative and small employer charity pension plan 
 rules to certain charitable employers whose primary exempt purpose is 
 providing services with respect to mothers and children (sec. 3609 of 
      the Act, sec. 210(f) of ERISA, and sec. 414(y) of the Code)


                              Present Law

    Defined benefit plans maintained by private employers are 
generally subject to minimum funding requirements under the 
Code and ERISA.\1338\ Different minimum funding rules apply to 
(1) single employer plans and most multiple employer plans, (2) 
multiple-employer plans that are cooperative and small employer 
charity (``CSEC'') plans, and (3) multiemployer plans. For 
purposes of the minimum funding rules, businesses and 
organizations that are members of a controlled group, a group 
under common control, or an affiliated service group are 
treated as one employer (referred to as ``aggregation'').\1339\
---------------------------------------------------------------------------
    \1338\ Secs. 412 and 430-433 and secs. 301-306 of the Employee 
Retirement Income Security Act of 1974, as amended (``ERISA''). If the 
funding requirements are not met, an employer may be subject to a two-
tier excise tax under section 4971 unless a funding waiver is obtained. 
The minimum funding requirements do not apply to most governmental or 
church plans.
    \1339\ Sec. 414(b), (c), (m), and (o).
---------------------------------------------------------------------------
    A single-employer plan is a plan maintained by one 
employer. A single-employer plan may cover employees who are 
also covered by a collective bargaining agreement 
(``collectively bargained employees''), pursuant to which the 
plan is maintained (a ``collectively bargained plan'').\1340\ 
An employer may maintain separate single-employer plans for 
collectively and non-collectively bargained employees, or they 
may be covered by the same plan.
---------------------------------------------------------------------------
    \1340\ Treas. Reg. sec. 1.410(b)-6(d).
---------------------------------------------------------------------------
    A multiple-employer plan is a single plan maintained by two 
or more unrelated employers (i.e., employers that are not 
treated as a single employer under the aggregation rules) and 
that is not a multiemployer plan (as defined below).\1341\ 
Multiple-employer plans are commonly maintained by employers in 
the same industry. A multiple-employer plan may cover 
collectively bargained employees or non-collectively bargained 
employees.
---------------------------------------------------------------------------
    \1341\ Sec. 413(c) and ERISA sec. 210(a).
---------------------------------------------------------------------------
    Multiemployer plans (also known as ``Taft-Hartley'' plans 
and distinct from multiple-employer plans) are plans maintained 
pursuant to one or more collective bargaining agreements with 
two or more unrelated employers and to which the employers are 
required to contribute under the collective bargaining 
agreement(s).\1342\ Multiemployer plans commonly cover 
collectively bargained employees in a particular industry.
---------------------------------------------------------------------------
    \1342\ Sec. 414(f) and ERISA sec. 2(37).
---------------------------------------------------------------------------

Minimum funding requirements

    Before the Pension Protection Act of 2006 (``PPA''),\1343\ 
the basic funding rules applicable to single-employer plans, 
multiple-employer plans, and multiemployer plans were similar, 
with an additional contribution requirement, referred to as the 
``deficit reduction contribution'' (``DRC'') requirement, for 
single-employer and multiple-employer plans.\1344\ PPA replaced 
the funding rules for single-employer plans and multiple-
employer plans with new rules, effective for plan years 
beginning after December 31, 2007. However, PPA provided a 
delayed effective date (the ``PPA delayed effective date'') for 
certain multiple-employer plans, under which the PPA funding 
rules apply as of the earlier of (1) the first plan year for 
which the plan ceases to be an eligible cooperative plan 
(described below) or (2) January 1, 2017.\1345\ In the interim, 
as discussed below, these plans continue to be subject to the 
minimum funding rules in effect before PPA, with certain 
modifications.
---------------------------------------------------------------------------
    \1343\ Pub. L. No. 109-280, August 17, 2006.
    \1344\ Single-employer plans and multiple-employer plans have 
generally been subject to the same funding rules. Under section 
413(c)(4), in the case of a multiple-employer plan established by 
December 31, 1988, the minimum funding requirement is generally 
determined as if all plan participants are employed by a single 
employer, and, in the case of a multiple-employer plan established 
after December 31, 1988, each employer is treated as maintaining a 
separate plan for purposes of the funding requirements unless the plan 
uses a method for determining required contributions that provides for 
any employer to contribute not less than the amount that would be 
required if the employer maintained a separate plan. ERISA section 
210(a)(3) provides that the minimum funding requirement for a multiple-
employer plan is determined as if all plan participants are employed by 
a single employer.
    \1345\ Sec. 104 of PPA.
---------------------------------------------------------------------------
    The PPA delayed effective date applies to a plan that was 
in existence on July 26, 2005 and was an eligible cooperative 
plan for the plan year including that date. A plan is treated 
as an eligible cooperative plan for a plan year if it is 
maintained by more than one employer and at least 85 percent of 
the employers are (1) certain rural cooperatives or (2) certain 
cooperative organizations that are more than 50-percent owned 
by agricultural producers or by cooperatives owned by 
agricultural producers, or organizations that are more than 50-
percent owned, or controlled by, one or more of these 
cooperative organizations.\1346\ A plan is also treated as an 
eligible cooperative plan for any plan year for which it is 
maintained by more than one employer and is maintained by a 
rural telephone cooperative association.
---------------------------------------------------------------------------
    \1346\ The definition of a CSEC plan was further amended by the 
Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. 
No. 113-235, December 16, 2014, to include a plan that, as of June 25, 
2010, was maintained by an employer (1) that is a tax-exempt charitable 
organization and a Federally chartered patriotic organization, (2) that 
has employees in at least 40 States, and (3) the primary exempt purpose 
of which is to provide services with respect to children. For purposes 
of determining the employer maintaining the plan, the aggregation rules 
for controlled groups and groups under common control employers apply.
---------------------------------------------------------------------------

Funding rules for CSEC plans

    Funding rules for CSEC plans were enacted by the 
Cooperative and Small Employer Charity Pension Flexibility 
Act.\1347\ For this purpose, a CSEC plan is a defined benefit 
plan (other than a multiemployer plan) that (1) is an eligible 
cooperative plan to which the PPA delayed effective date for 
funding rules applies (without regard to the January 1, 2017 
end of the delayed effective date),\1348\ or (2) was maintained 
by more than one employer (taking into account the aggregation 
rules for controlled groups and groups under common control) 
and all the employers were tax-exempt charitable organizations 
as of June 25, 2010.\1349\
---------------------------------------------------------------------------
    \1347\ Pub. L. No. 113-97, April 7, 2014.
    \1348\ Sec. 104 of PPA.
    \1349\ June 25, 2010 is the date of enactment of the Preservation 
of Access to Care for Medicare Beneficiaries and Pension Relief Act of 
2010 (``PRA 2010''), Pub. L. No. 111-192, which expanded the 
applicability of the delayed effective date. A tax-exempt charitable 
organization is an organization exempt from tax under section 
501(c)(3).
---------------------------------------------------------------------------
    If a plan is treated as a CSEC plan, the PPA delayed 
effective date ceases to apply to the plan as of the first date 
the plan is treated as a CSEC plan.\1350\ However, a plan 
described in (1) or (2) in the preceding paragraph is not a 
CSEC plan if the plan sponsor elects, not later than the close 
of the first plan year beginning after December 31, 2013, not 
to be treated as a CSEC plan.\1351\ An election takes effect 
for the first plan year beginning after December 31, 2013, and, 
once made, may be revoked only with the consent of the 
Secretary.
---------------------------------------------------------------------------
    \1350\ A plan maintained by employers treated as a single employer 
under the aggregation rules is not a CSEC plan. Thus, not all eligible 
charity plans as defined for purposes of the PPA delayed effective date 
come within the definition of a CSEC plan. Those that do not may 
continue to be covered by the PPA delayed effective date.
    \1351\ If an election not to be treated as a CSEC plan is made with 
respect to a plan eligible for the PPA delayed effective date, the plan 
may continue to be covered by the PPA delayed effective date unless 
making the required election.
---------------------------------------------------------------------------
            In general
    CSEC plans are permanently exempted from the PPA funding 
rules generally applicable to single-employer plans and 
multiple-employer plans. New minimum funding rules for CSEC 
plans are established that are similar to the rules applicable 
to eligible cooperative and eligible charity plans under the 
PPA delayed effective date, with the following 
modifications:\1352\
---------------------------------------------------------------------------
    \1352\ A CSEC plan's amortization bases for plan years beginning 
before January 1, 2014, and related charges and credits continue to 
apply. In addition, the minimum funding requirement for a CSEC plan is 
determined as if all plan participants are employed by a single 
employer.
---------------------------------------------------------------------------
           The deficit reduction contribution rules are 
        repealed with respect to CSEC plans,
           New rules apply to a CSEC plan in ``funding 
        restoration status,'' as discussed below,
           Supplemental cost attributable to past 
        service liability and a reduction in unfunded past 
        service liability as a result of a plan amendment 
        decreasing plan benefits are amortized over 15 years 
        (rather than 30 years) (any funding method available to 
        a CSEC plan under the funding rules in effect before 
        PPA continues to be available under the CSEC 
        rules),\1353\
---------------------------------------------------------------------------
    \1353\ IRS approval is required for a change in funding method.
---------------------------------------------------------------------------
           All costs, liabilities, interest rates, and 
        other factors are required to be determined on the 
        basis of actuarial assumptions and methods (each of 
        which is reasonable taking into account the experience 
        of the plan and reasonable expectations),\1354\ and
---------------------------------------------------------------------------
    \1354\ The assumptions are also required to offer the actuary's 
best estimate of anticipated experience under the plan.
---------------------------------------------------------------------------
           The IRS may grant an amortization period 
        extension to a CSEC plan if it determines that (1) the 
        extension would carry out the purposes of ERISA and 
        would provide adequate protection for participants and 
        beneficiaries under the plan and (2) the failure to 
        permit the extension would result in a substantial risk 
        to the voluntary continuation of the plan or a 
        substantial curtailment of pension benefit levels or 
        employee compensation.
            Rules relating to funding restoration status
    If a CSEC plan is in funding restoration status for a plan 
year, as discussed below, a special minimum contribution 
requirement applies, the plan sponsor must adopt a funding 
restoration plan, and the plan generally may not be amended to 
increase benefits. Not later than the 90th day of a CSEC plan's 
plan year, the plan actuary of a CSEC plan must certify to the 
plan sponsor whether or not the plan is in funding restoration 
status for the plan year, based on the plan's funded percentage 
as of the beginning of the plan year.
    A CSEC plan is in funding restoration status for a plan 
year if the plan's funded percentage as of the beginning of the 
plan year is less than 80 percent. For this purpose, funded 
percentage means the ratio (expressed as a percentage) that the 
value of the plan's assets bears to the plan's funding 
liability. A plan's funding liability for a plan year is the 
present value of all benefits accrued or earned under the plan 
as of the beginning of the plan year, determined using the 
assumptions, including interest and mortality, used in other 
funding computations with respect to plan. In making the 
certification described above, the plan actuary may 
conclusively rely on an estimate of (1) the plan's funding 
liability, based on the funding liability of the plan for the 
preceding plan year and on reasonable actuarial estimates, 
assumptions, and methods and (2) the amount of any 
contributions reasonably anticipated to be made for the 
preceding plan year.\1355\ Reasonably anticipated contributions 
for the preceding year are taken into account in determining 
the plan's funded percentage as of the beginning of the plan 
year.
---------------------------------------------------------------------------
    \1355\ Because contributions for a plan year may be made up to 8\1/
2\ months after the end of the plan year, some contributions for the 
preceding year might not have been made by the time of the 
certification.
---------------------------------------------------------------------------
    If a plan is in funding restoration status for a plan year, 
the minimum required contribution is the greater of (1) the 
amount otherwise required without regard to restoration status 
and (2) the normal cost of the plan for the plan year.\1356\ 
Thus, an accumulated funding deficiency will result if 
contributions are less than normal cost.
---------------------------------------------------------------------------
    \1356\ In certain cases, a specific funding method (i.e., the entry 
age normal funding method) must be used in determining normal cost for 
this purpose.
---------------------------------------------------------------------------
    If a CSEC plan is certified as being in funding restoration 
status, within 180 days after receipt of the certification, the 
plan sponsor must establish a written funding restoration plan. 
If a CSEC plan remains in funding restoration status for more 
than a year, the plan sponsor must update the funding 
restoration plan each year within 180 days after receipt of the 
certification of funding restoration status. If a plan sponsor 
fails to adopt or update a funding restoration plan as 
required, the plan sponsor may be subject to an excise tax 
under the Code or an ERISA penalty of up to $100 per day.
    A funding restoration plan must consist of actions that are 
calculated, based on reasonably anticipated experience and 
reasonable actuarial assumptions, to increase the plan's funded 
percentage to 100 percent over seven years, or, if sooner, the 
shortest amount of time practicable. The funding restoration 
plan is to take into account contributions required under the 
minimum funding requirements (determined without regard to the 
funding restoration plan).
    If a CSEC plan is in funding restoration status for a plan 
year, no plan amendment may take effect during the plan year if 
it has the effect of increasing plan liabilities by means of 
increases in benefits, establishment of new benefits, changing 
the rate of benefit accrual, or changing the rate at which 
benefits vest under the plan. However, this prohibition does 
not apply to any plan amendment required to comply with any 
applicable law. The prohibition ceases to apply with respect to 
any plan year, effective as of the first day of the plan year 
(or if later, the effective date of the amendment), if a plan 
contribution is made, in addition to any contribution otherwise 
required under the funding rules, in an amount equal to the 
increase in the plan's funding liability as a result of the 
plan amendment.

Funding-related benefit restrictions

    CSEC plans are permanently exempted from the PPA funding-
related benefit restrictions. CSEC plans are also exempted from 
(1) the restrictions on benefit increases when an employer 
maintaining a plan is involved in bankruptcy proceedings and 
(2) the ERISA restriction on prohibited payments if a plan has 
a liquidity shortfall, and a quarterly installment is less than 
the amount required to cover the liquidity shortfall.

                        Explanation of Provision

    The provision amends the definition of CSEC plan to include 
a plan that, as of January 1, 2000, was maintained by an 
employer (1) that is a tax-exempt charitable organization, (2) 
has been in existence since at least 1938, (3) that conducts 
medical research directly or indirectly through grant making, 
and (4) whose primary exempt purpose is to provide services 
with respect to mothers and children.

                             Effective Date

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

                     Subtitle D--Finance Committee


1. Exemption for telehealth services (sec. 3701 of the Act and sec. 223 
        of the Code)

                              Present Law


Health savings accounts

    An individual may establish a health savings account (an 
``HSA'') only if the individual is covered under a plan that 
meets the requirements for a high deductible health plan, as 
described below. In general, HSAs provide tax-favored treatment 
for current medical expenses, as well as the ability to save on 
a tax-favored basis for future medical expenses. In general, an 
HSA is a tax-exempt trust or custodial account created 
exclusively to pay for the qualified medical expenses of the 
account holder and his or her spouse and dependents.
    Within limits,\1357\ contributions to an HSA made by or on 
behalf of an eligible individual are deductible by the 
individual. Contributions to an HSA are excludible from income 
and employment taxes if made by the employer. Earnings in HSAs 
are not taxable. Distributions from an HSA for qualified 
medical expenses are not includible in gross income. 
Distributions from an HSA that are not used for qualified 
medical expenses are includible in gross income and are subject 
to an additional tax of 20 percent. The 20-percent additional 
tax does not apply if the distribution is made after death, 
disability, or the individual attains the age of Medicare 
eligibility (age 65).
---------------------------------------------------------------------------
    \1357\ For 2020, the basic limit on annual contributions that can 
be made to an HSA is $3,550 ($3,600 for 2021) in the case of self-only 
coverage and $7,100 ($7,200 for 2021) in the case of family coverage. 
The basic annual contributions limits are increased by $1,000 for 
individuals who have attained age 55 by the end of the taxable year 
(referred to as ``catch-up'' contributions).
---------------------------------------------------------------------------

High deductible health plans

    A high deductible health plan is a health plan that has an 
annual deductible which is not less than $1,400 (for 2020 and 
2021) for self-only coverage (twice this amount for family 
coverage), and for which the sum of the annual deductible and 
other annual out-of-pocket expenses (other than premiums) for 
covered benefits does not exceed $6,900 (for 2020) and $7,000 
(for 2021) for self-only coverage (twice this amount for family 
coverage).\1358\ These dollar thresholds are subject to 
inflation adjustment, based on chained CPI.\1359\
---------------------------------------------------------------------------
    \1358\ Sec. 223(c)(2).
    \1359\ Sec. 223(g).
---------------------------------------------------------------------------
    An individual who is covered under a high deductible health 
plan is eligible to establish an HSA, provided that while such 
individual is covered under the high deductible health plan, 
the individual is not covered under any health plan that (1) is 
not a high deductible health plan and (2) provides coverage for 
any benefit (subject to certain exceptions) covered under the 
high deductible health plan.\1360\
---------------------------------------------------------------------------
    \1360\ Sec. 223(c)(1).
---------------------------------------------------------------------------
    Various types of coverage are disregarded for this purpose, 
including coverage of any benefit provided by permitted 
insurance, coverage (whether through insurance or otherwise) 
for accidents, disability, dental care, vision care, or long-
term care, as well as certain limited coverage through health 
flexible savings accounts.\1361\ Permitted insurance means 
insurance under which substantially all of the coverage 
provided relates to liabilities incurred under workers' 
compensation laws, tort liabilities, liabilities relating to 
ownership or use of property, or such other similar liabilities 
as specified by the Secretary under regulations. Permitted 
insurance also means insurance for a specified disease or 
illness and insurance paying a fixed amount per day (or other 
period) of hospitalization.\1362\
---------------------------------------------------------------------------
    \1361\ Sec. 223(c)(1)(B).
    \1362\ Sec. 223(c)(3).
---------------------------------------------------------------------------
    Under a safe harbor, a high deductible health plan is 
permitted to provide coverage for preventive care (within the 
meaning of section 1861 of the Social Security Act, except as 
otherwise provided by the Secretary) before satisfaction of the 
minimum deductible.\1363\ IRS guidance provides a safe harbor 
of the types of coverage that constitute preventive care for 
this purpose.\1364\
---------------------------------------------------------------------------
    \1363\ Sec. 223(c)(2)(C).
    \1364\ Notice 2004-23, 2004-15 I.R.B. 725, April 12, 2004. See also 
Notice 2004-50, 2004-33 I.R.B. 1, August 9, 2004; Notice 2008-59, 2008-
29 I.R.B. 123, July 21, 2008; Notice 2013-37, 2013-40 I.R.B. 293, 
September 30, 2013; and Notice 2019-45, 2019-32 I.R.B. 593, August 5, 
2019.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision provides that for plan years beginning on or 
before December 31, 2021, a high deductible health plan is 
permitted to provide telehealth and other remote care services 
without satisfaction of the plan's minimum deductible. Thus, 
under the provision, a health plan will not fail to be treated 
as a high deductible health plan merely by reason of failing to 
require a deductible for telehealth and other remote care 
services for plan years beginning on or before December 31, 
2021, and an individual who is covered under such a plan may 
contribute to an HSA.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

2. Inclusion of certain over-the-counter medical products as qualified 
 medical expenses (sec. 3702 of the Act and secs. 106, 220, and 223 of 
                               the Code)


                              Present Law


Individual deduction for medical expenses

    Under the rules relating to itemized deductions, an 
individual may deduct expenses for medical care, not reimbursed 
by insurance or otherwise, to the extent the expenses exceed 
7.5 percent of AGI (10 percent for taxable years beginning on 
or after January 1, 2021).\1365\ Medical care is defined 
broadly as amounts paid for the diagnoses, cure, mitigation, 
treatment or prevention of disease, or for the purpose of 
affecting any structure of the body.\1366\
---------------------------------------------------------------------------
    \1365\ Secs. 213(a) and (f).
    \1366\ Sec. 213(d). There are certain limitations on the general 
definition including a rule that cosmetic surgery or similar procedures 
are generally not medical care.
---------------------------------------------------------------------------
    Any amount paid during a taxable year for medicine or drugs 
is deductible as a medical expense only if the medicine or drug 
is a prescribed drug or insulin.\1367\ The term prescribed drug 
means a drug or biological that requires a prescription of a 
physician for its use by an individual.\1368\ Thus, any amount 
paid for a medicine or drug available without a prescription 
(``over-the-counter medicine'') is not deductible as a medical 
expense, including any medicine or drug prescribed or 
recommended by a physician.\1369\
---------------------------------------------------------------------------
    \1367\ Sec. 213(b).
    \1368\ Sec. 213(d)(3).
    \1369\ Rev. Rul. 2003-58, 2003-1 CB 959.
---------------------------------------------------------------------------

Exclusion for employer-provided health care

    Employees generally may exclude from gross income the value 
of employer-provided health coverage under an accident or 
health plan.\1370\ In addition, any reimbursements paid by an 
employer under an accident or health plan for medical care 
expenses for employees, their spouses, and their dependents 
generally are excluded from gross income and employment 
taxes.\1371\ An employer may reimburse expenses for medical 
care of its employees (and their spouses and dependents) not 
covered by a health insurance plan through a health flexible 
spending arrangement (an ``FSA'') up to a specified dollar 
amount.\1372\ An employer may also reimburse these expenses 
under a health reimbursement arrangement (an ``HRA''). 
Reimbursements under these arrangements are also excludible 
from gross income as reimbursements for medical care under 
employer-provided health coverage.
---------------------------------------------------------------------------
    \1370\ Sec. 106.
    \1371\  Sec. 105(b).
    \1372\ Sec. 125(i). For 2020 and 2021, this limit is $2,750.
---------------------------------------------------------------------------

Health savings accounts

    An individual may establish a health savings account (an 
``HSA'') only if the individual is covered under a plan that 
meets the requirements for a high deductible health plan and 
the individual is not covered under any other health plan 
(other than a plan that provides certain permitted insurance or 
permitted coverage).\1373\ In general, an HSA is a tax-exempt 
trust or custodial account created exclusively to pay for the 
qualified medical expenses of the account holder and his or her 
spouse and dependents. Accordingly, HSAs provide tax-favored 
treatment for current medical expenses as well as the ability 
to save on a tax-favored basis for future medical expenses.
---------------------------------------------------------------------------
    \1373\ A high deductible health plan is a health plan that has an 
annual deductible which is not less than $1,400 (for 2020 and 2021) for 
self-only coverage and twice this amount for family coverage, and for 
which the sum of the annual deductible and other annual out-of-pocket 
expenses (other than premiums) for covered benefits does not exceed 
$6,900 (for 2020; $7,000 for 2021) for self-only coverage and twice 
this amount for family coverage. Sec. 223(c)(2).
---------------------------------------------------------------------------
    Within limits,\1374\ contributions to an HSA made by or on 
behalf of an eligible individual are deductible by the 
individual. Contributions to an HSA made by the employer are 
excludable from income and exempt from employment taxes. 
Earnings in HSAs are not taxable.
---------------------------------------------------------------------------
    \1374\ For 2020, the basic limit on annual contributions that can 
be made to an HSA is $3,550 in the case of self-only coverage and 
$7,100 in the case of family coverage. (These amounts increased to 
$3,600 and $7,200 for 2021). The basic annual contributions limits are 
increased by $1,000 for individuals who have attained age 55 by the end 
of the taxable year (referred to as ``catch-up'' contributions).
---------------------------------------------------------------------------
    Distributions from an HSA for qualified medical expenses 
are excludable from gross income. Distributions from an HSA 
that are not used for qualified medical expenses are includible 
in gross income and are subject to an additional tax of 20 
percent. The 20 percent additional tax does not apply if the 
distribution is made after death or disability, or the 
individual attains the age of Medicare eligibility (age 65). 
Similar rules apply for another type of medical savings 
arrangement called an Archer MSA.\1375\
---------------------------------------------------------------------------
    \1375\ Sec. 220.
---------------------------------------------------------------------------

Medical care for excludable reimbursements and distributions

    For purposes of the exclusion for reimbursements under 
employer-provided accident and health plans (including under 
health FSAs and HRAs), and for distributions from HSAs and 
Archer MSAs used for qualified medical expenses, the definition 
of medical care is generally the same as the definition that 
applies for the itemized deduction for the cost of medical 
care. However, prior to the enactment of the Patient Protection 
and Affordable Care Act (the ``PPACA''),\1376\ the limitation 
(applicable to the itemized deduction) that only prescription 
medicines or drugs and insulin are taken into account did not 
apply. Thus, for example, reimbursements from a health FSA or 
HRA or funds distributed from an HSA for expenses of 
nonprescription drugs, such as nonprescription aspirin, allergy 
medicine, antacids, or pain relievers, were excludable from 
income even though, if the taxpayer paid for such amounts 
directly, the expenses could not be taken into account in 
determining the itemized deduction for medical expenses.\1377\
---------------------------------------------------------------------------
    \1376\ Pub. L. No 111-148, March 23, 2010.
    \1377\ Rev. Rul. 2003-102, 2993-2 C.B. 559, now obsoleted by Rev. 
Rul. 2010-23, 2010-39 I.R.B. 388, September 3, 2010.
---------------------------------------------------------------------------
    For years beginning after December 31, 2010, the PPACA 
changed the definition of medical care for purposes of the 
exclusion for reimbursements for medical care under employer-
provided accident and health plans and for distributions from 
HSAs and Archer MSAs used for qualified medical expenses. The 
revised definition required that over-the-counter medicine 
(other than insulin) be prescribed by a physician in order for 
the medicine to be medical care for these purposes.\1378\ Thus, 
a health FSA or an HRA is only permitted to treat a 
reimbursement for the cost of over-the-counter medicine as a 
qualified medical expense if the medicine or drug is prescribed 
by a physician, and a distribution from an HSA or an Archer MSA 
used to purchase over-the-counter medicine is not a qualified 
medical expense unless the medicine or drug is prescribed by a 
physician.
---------------------------------------------------------------------------
    \1378\ Sec. 9003 of the PPACA. Notice 2010-59, 2010-39 I.R.B. 388, 
provides guidance on this change to the definition of medical care for 
these purposes.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, qualified medical expenses for 
purposes of distributions from an HSA are no longer limited to 
those medicines and drugs that are prescribed, allowing over-
the-counter medicines and drugs to be paid for with HSA funds. 
In addition, qualified medical expenses include amounts paid 
for menstrual care products (defined as tampons, pads, liners, 
cups, sponges, or similar products used by individuals with 
respect to menstruation or other genital-tract secretions).
    The provision similarly amends the definition of qualified 
medical expense for Archer MSAs to permit distributions for 
over-the-counter medicine and drugs and menstrual care 
products.
    The provision also similarly amends the definition of 
qualified medical expense for health FSAs and HRAs to permit 
reimbursements for expenses incurred for over-the-counter 
medicine and drugs and for menstrual care products.

                             Effective Date

    The provision applies to distributions from HSAs and MSAs 
for amounts paid after December 31, 2019.
    The provision applies to reimbursements from health FSAs 
and HRAs for expenses incurred after December 31, 2019.

            TITLE IV--ECONOMIC STABILIZATION AND ASSISTANCE


      TO SEVERELY DISTRESSED SECTORS OF THE UNITED STATES ECONOMY


       Subtitle A--Coronavirus Economic Stabilization Act of 2020


1. Suspension of certain aviation excise taxes (sec. 4007 of the Act)

                              Present Law


In general

    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial aviation to fund the Airport and 
Airway Trust Fund.\1379\ The aviation excise taxes are as 
follows:
---------------------------------------------------------------------------
    \1379\ The Airport and Airway Trust Fund excise taxes (except for 
4.3 cents per gallon of the taxes on aviation fuels) are scheduled to 
expire after September 30, 2023. The 4.3-cents-per-gallon fuels tax 
rate is permanent.
    \1380\ A segment consists of a single takeoff and a single landing. 
which is taxable transportation. The domestic flight segment portion of 
the tax is adjusted annually (effective each January 1) for inflation. 
Rev. Proc. 19-44, sec. 3.45 (2019).
    \1381\ The international arrival and departure tax rate is adjusted 
annually for inflation. For a domestic segment that begins or ends in 
Alaska or Hawaii, a reduced tax per person applies only to departures. 
For calendar year 2020, that reduced rate is $9.50 per departure (to/
from mainland United States). Ibid.
    \1382\ 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 Trust Fund.

------------------------------------------------------------------------
          Tax (and code section)                      Tax rates
------------------------------------------------------------------------
a. Domestic air passengers (sec. 4261)....  7.5 percent of fare, plus
                                             $4.30 (2020) per domestic
                                             flight segment generally
                                             \1380\
b. International air passengers (sec.       $18.90 (2020) per arrival or
 4261).                                      departure \1381\
c. Amounts paid for right to award free or  7.5 percent of amount paid
 reduced rate passenger air transportation
 (sec. 4261).
d. Air cargo (freight) transportation       6.25 percent of amount
 (sec. 4271).                                charged for domestic
                                             transportation; no tax on
                                             international cargo
                                             transportation
e. Aviation fuels (sec. 4081): \1382\.....
    i. Commercial aviation................  4.3 cents per gallon
    ii. Non-commercial (general) aviation:
        Aviation gasoline.................  19.3 cents per gallon
        Jet fuel..........................  21.8 cents per gallon
f. Surtax on fuel used in fractional        14.1 cents per gallon
 ownership program aircraft (sec. 4043).
------------------------------------------------------------------------

Commercial aviation

    ``Commercial aviation'' is defined as any use of an 
aircraft in the business of transporting persons or property by 
air for compensation or hire. It does not include aircraft used 
for skydiving, small aircraft on nonestablished lines, 
transportation for affiliated group members, transportation by 
seaplanes, or transportation when the fuel is subject to the 
surtax on fuel used in fractional ownership program 
aircraft.\1383\ Whether the transportation by air is 
``commercial aviation'' for Code purposes is determined on a 
flight-by-flight basis and is not determined by Federal 
Aviation Administration classifications.
---------------------------------------------------------------------------
    \1383\ Sec. 4083(b).
---------------------------------------------------------------------------
    The Code imposes tax on certain removals, entries, and 
sales of taxable fuel, including kerosene. In general, kerosene 
is taxed at 24.3 cents per gallon. However, a reduced rate of 
4.3 cents per gallon is imposed on kerosene removed from any 
refinery or terminal directly into the fuel tank of an aircraft 
for use in commercial aviation. As noted above, an additional 
0.1-cent-per-gallon excise tax is imposed to fund the Leaking 
Underground Storage Tank Trust Fund. In the case of kerosene 
removed directly into the fuel tank of an aircraft for use in 
commercial aviation, the operator of the aircraft is liable on 
the removal at the reduced tax rate of 4.3 cents per 
gallon.\1384\
---------------------------------------------------------------------------
    \1384\ Sec. 4081(a)(4).
---------------------------------------------------------------------------
    If kerosene is taxed at the 24.3-cents-per-gallon rate and 
later used in commercial aviation, the reduced rate is 
effectuated through claims filed for the difference.\1385\ The 
0.1-cent-per-gallon excise tax for the Leaking Underground 
Storage Tank Trust Fund is not refundable. A claim may be made 
by the ultimate purchaser (the operator) for taxed kerosene 
used in commercial aviation (other than foreign trade). The 
registered ultimate vendor of kerosene for use in commercial 
aviation (other than foreign trade) may make this claim if the 
ultimate purchaser waives its right to the credit or payment by 
providing the registered ultimate vendor with a waiver.
---------------------------------------------------------------------------
    \1385\ Sec. 6427(l)(4).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision suspends the imposition of certain aviation 
excise taxes from March 28, 2020, through December 31, 2020 
(the ``excise tax holiday period'').\1386\
---------------------------------------------------------------------------
    \1386\ The CARES Act was signed by the President on March 27, 2020. 
The ``excise tax holiday period'' is the period beginning after the 
date of enactment and before January 1, 2021.
---------------------------------------------------------------------------
    For commercial aviation only, the provision suspends 
certain excise taxes during the excise tax holiday period. For 
fuel used in commercial aviation, the 4.3 cents-per-gallon rate 
for commercial aviation is reduced to zero during the excise 
tax holiday period only when fuel is removed from a terminal 
directly into the fuel tank of an aircraft. If kerosene removed 
from the terminal rack at a higher rate is later used in 
commercial aviation, a claim for the difference can be made 
under section 6427(l). The provision does not affect the 
imposition of the 0.1-cent-per-gallon excise tax to fund the 
Leaking Underground Storage Tank Trust Fund.
    The provision also suspends the excise taxes imposed under 
sections 4261 and 4271 on amounts paid during the excise tax 
holiday period for the transportation by air of persons or 
property. The suspension only applies to amounts actually paid 
during the excise tax holiday period. The excise tax holiday 
does not apply to amounts paid before March 28, 2020, even if 
the travel occurs during the excise tax holiday period.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

                            OTHER PROVISIONS

1. Loan forgiveness (sec. 1106 of the Act)

                        Explanation of Provision

In general
    Under the provision, a recipient of a covered loan is 
eligible for forgiveness of indebtedness on the loan in an 
amount generally equal to the sum of certain costs incurred and 
payments made during the eight-week period beginning on the 
date of the origination of the covered loan, including payroll 
costs, certain mortgage interest payments, certain rent 
payments, and certain utility payments. For this purpose, a 
covered loan is a loan guaranteed under paragraph (36) of 
section 7(a) of the Small Business Act,\1387\ as added by 
section 1102 of the Act, the ``Paycheck Protection Program.'' 
\1388\
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    \1387\ 15 U.S.C. 636(a).
    \1388\ Treasury and the Small Business Administration have issued 
FAQs on the Paycheck Protection Program, including answers to common 
questions regarding the determination of the amount of loan 
forgiveness. See ``Paycheck Protection Program Loans Frequently Asked 
Questions (FAQs)'', available at https://home.treasury.gov/system/
files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf 
(last visited April 22, 2020).
---------------------------------------------------------------------------
    The amount forgiven may be reduced (by an amount not to 
exceed the principal amount of the covered loan) if the 
recipient reduces the number of the recipient's employees, or 
the amount of salaries and wages paid, by a specified amount 
during the covered period.
    A covered loan recipient must apply for loan forgiveness. 
Once an application is submitted to the lender with the 
required documentation, the lender must issue a decision on the 
loan forgiveness within 60 days.
    Amounts that have been forgiven under the provision are 
considered canceled indebtedness by a lender authorized under 
section 7(a) of the Small Business Act (15 U.S.C. 636(a)). The 
provision requires the Administrator of the Small Business 
Administration to remit to the lender, no later than 90 days 
after the date on which the amount of forgiveness under the 
provision is determined, an amount equal to the amount of 
forgiveness, plus any interest accrued through the date of 
payment.
Federal tax consequences
    For Federal tax purposes, any amount which (but for the 
provision) would be includible in gross income of the recipient 
of a covered loan by reason of forgiveness pursuant to the 
provision is excluded from gross income.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).
2. Emergency relief and taxpayer protections (sec. 4003 of the Act)

                        Explanation of Provision

In general
    The provision authorizes the Secretary, notwithstanding any 
other provision of law, to provide liquidity to eligible 
businesses, States, and municipalities related to losses 
incurred as a result of coronavirus. The Secretary is 
authorized (1) to make loans, loan guarantees, and other 
investments in support of eligible businesses, States, and 
municipalities that do not, in the aggregate, exceed $500 
billion and (2) to provide the subsidy amounts necessary for 
the loans, loan guarantees, and other investments in accordance 
with the provisions of the Federal Credit Reform Act of 1990 (2 
U.S.C. 661 et seq.).
    Under the provision, the Secretary must make a loan, loan 
guarantee, or other investment in such form and on such terms 
and conditions and with such covenants, representations, 
warranties, and requirements (including requirements for 
audits) as the Secretary determines appropriate. The provision 
requires that any loans made by the Secretary under the 
provision be at a rate that the Secretary determines based on 
the risk and the current average yield on outstanding 
marketable obligations of the United States of comparable 
maturity.
Federal tax consequences
    Any loan made by or guaranteed by the Treasury under the 
provision is treated as indebtedness for Federal tax purposes 
and as issued for its stated principal amount. Any stated 
interest on any such loan is treated as qualified stated 
interest.
    The provision directs the Secretary (or the Secretary's 
delegate) to prescribe such regulations or guidance as may be 
necessary or appropriate to carry out the purposes of the 
provision, including guidance providing that the acquisition of 
warrants, stock options, common or preferred stock or other 
equity under the provision does not result in an ownership 
change for purposes of section 382.

                             Effective Date

    The provision is effective on the date of enactment (March 
27, 2020).

 PART SEVEN: CONTINUING APPROPRIATIONS ACT, 2021 AND OTHER EXTENSIONS 
                    ACT (PUBLIC LAW 116-159) \1389\
---------------------------------------------------------------------------

    \1389\ H.R. 8337. The bill was introduced in the House of 
Representatives on September 22, 2020 and was passed by the House the 
same day. The Senate passed the bill without amendment on September 30, 
2020. The President signed the bill on October 1, 2020.
---------------------------------------------------------------------------

          DIVISION B--SURFACE TRANSPORTATION PROGRAM EXTENSION

                         TITLE II--TRUST FUNDS

1. Extension of expenditure and contract liquidation authority for the 
        Highway Trust Fund, the Sport Fish Restoration and Boating 
        Trust Fund, and the Leaking Underground Storage Tank Trust Fund 
        (secs. 1201, 1202, and 1203 of the Act and secs. 9503, 9504, 
        and 9508 of the Code)

                              Present Law

    The Highway Trust Fund, the Sport Fish Restoration and 
Boating Trust Fund, and the Leaking Underground Storage Tank 
Trust Fund serve as dedicated trust fund sources for certain 
program expenditures. Current expenditure authority is 
scheduled to expire on October 1, 2020. After that date, 
expenditures are only permitted to liquidate contracts entered 
into prior to that date.

                       Explanation of Provisions

    The provisions extend expenditure and contract liquidation 
authority for an additional year, through October 1, 2021.

                             Effective Date

    The provisions are effective on the date of enactment 
(October 1, 2020).

     2. Further additional transfers to the Highway Trust Fund and 
 additional transfer to the Airport and Airway Trust Fund (secs. 1204 
        and 1205 of the Act and secs. 9502 and 9503 of the Code)

                              Present Law

    On several occasions, money has been transferred from the 
General Fund to the Highway Trust Fund to address revenue 
shortfalls. The most recent transfer occurred under the FAST 
Act, which transferred $51,900,000,000 to the Highway Account 
and $18,100,000,000 to the Mass Transit account.\1390\
---------------------------------------------------------------------------
    \1390\ Pub. L. No. 114-94. An additional $300,000,000 also was 
transferred from the Leaking Underground Storage Tank Trust Fund to the 
Highway Trust Fund in three $100 million installments. See sec. 
9508(c)(4).
---------------------------------------------------------------------------

                       Explanation of Provisions

    The provision provides that out of money in the Treasury 
that is not otherwise appropriated, the following transfers are 
to be made from the General Fund to the Highway Trust Fund: 
$10,400,000,000 to the Highway Account and $3,200,000,000 to 
the Mass Transit account.
    The provision provides that out of money in the Treasury 
that is not otherwise appropriated, $14,000,000,000 is 
appropriated to the Airport and Airway Trust Fund.

                             Effective Date

    The provisions are effective on the date of enactment 
(October 1, 2020).

PART EIGHT: CONSOLIDATED APPROPRIATIONS ACT, 2021 (PUBLIC LAW 116-260) 
                                 \1391\
---------------------------------------------------------------------------

    \1391\ H.R. 133. On January 15, 2020, the Senate passed an 
amendment in the nature of a substitute to a House bill introduced and 
passed in January 2019. The House passed the Senate amendment with an 
amendment on December 21, 2020. The Senate passed the House amendment 
the same day. The President signed the bill on December 27, 2020.
---------------------------------------------------------------------------

         DIVISION N--ADDITIONAL CORONAVIRUS RESPONSE AND RELIEF

     TITLE II--ASSISTANCE TO INDIVIDUALS, FAMILIES, AND BUSINESSES

            Subtitle B--COVID-Related Tax Relief Act of 2020

1. Additional 2020 recovery rebates for individuals (sec. 272 of the 
        Act and sec. 6428A of the Code)

                              Present Law

    Background for the provision and a description of the 2020 
recovery rebates for individuals that the provision relates to 
may be found above in the section describing section 2201 of 
the CARES Act (Pub. L. No. 116-136) in Part Six of this 
document.

                        Explanation of Provision

In general
    The provision provides an additional one-year refundable 
income tax credit for 2020, referred to as the additional 2020 
recovery rebate. Like the first 2020 recovery rebate, the 
additional 2020 recovery rebate includes rules, described 
below, under which the Secretary makes an advance payment to a 
taxpayer for the amount of the credit (determined based on 
prior year filing characteristics or other information) before 
the taxpayer files a 2020 Federal income tax return. Such 
additional advance payments are also known as the second round 
of economic impact payments. The additional 2020 recovery 
rebate has many of the same features as the first recovery 
rebate.
    An eligible individual is allowed a refundable income tax 
credit for the first taxable year beginning in 2020 equal to 
the sum of:
           $600 ($1,200 in the case of a joint return), 
        and
           $600 for each qualifying child of such 
        individual.\1392\
---------------------------------------------------------------------------
    \1392\ Sec. 6428A(a).
---------------------------------------------------------------------------
    An eligible individual is any individual other than: (1) a 
nonresident alien; (2) an estate or trust; or (3) a 
dependent.\1393\ For these purposes, the child tax credit 
definition of a qualifying child applies (generally, a 
qualifying child as defined in section 152 who is under the age 
of 17).
---------------------------------------------------------------------------
    \1393\ Sec. 6428A(d).
---------------------------------------------------------------------------
    The amount of the credit is phased out at a rate of five 
percent of AGI above certain threshold amounts.\1394\ The 
threshold amount at which the credit begins phasing out is 
$150,000 of AGI for joint filers or a surviving spouse, 
$112,500 of AGI for head of household filers, and $75,000 of 
AGI for all other filers.\1395\ Thus, the credit is fully 
phased out (i.e., reduced to zero) for joint filers with no 
children at $174,000 of AGI and for a single filer at $87,000 
of AGI.
---------------------------------------------------------------------------
    \1394\  Sec. 6428A(c).
    \1395\ For example, a married couple that files jointly with two 
qualifying children and has an AGI below the phaseout range would be 
entitled to an additional recovery rebate of $2,400 ($1,200 + $600 + 
$600). If that couples AGI was $175,000, the additional recovery rebate 
would be $1,150 ($2,400 - .05 * ($175,000 - $150,000)). The credit 
would be fully phased out for this couple at $198,000 of AGI.
---------------------------------------------------------------------------
Identification number requirement
    No credit is allowed to an individual who does not include 
a valid identification number on the individual's income tax 
return.\1396\ In the case of a joint return that does not 
include a valid identification number for either spouse, no 
credit is allowed. Unlike the first recovery rebate, in the 
case of a joint return that includes a valid identification 
number for only one spouse, a $600 credit is allowed (rather 
than no credit under the first recovery rebate). A qualifying 
child shall not be taken into account in determining the amount 
of the credit unless a valid identification number (i) for the 
taxpayer (or for at least one spouse in the case of a joint 
return) and (ii) for the child are included on the return.
---------------------------------------------------------------------------
    \1396\ Sec. 6428A(g).
---------------------------------------------------------------------------
    For purposes of this requirement, a valid identification 
number is an SSN as defined for purposes of the child tax 
credit,\1397\ which means that it must be issued by the Social 
Security Administration before the due date of the return 
(including extensions) to a citizen of the United States or 
pursuant to a provision of the Social Security Act relating to 
the lawful admission for employment in the United States.\1398\ 
Two exceptions to the identification number requirement are 
provided. First, an adoption identification number is 
considered a valid identification number in the case of a 
qualifying child who is adopted or placed for adoption. Second, 
when a married couple files a joint return and at least one 
spouse was a member of the Armed Forces of the United States 
during the taxable year for which the return is filed, only one 
spouse is required to provide a valid identification number to 
receive the full $1,200 credit (subject to the income-based 
phaseout).
---------------------------------------------------------------------------
    \1397\ Sec. 24(h)(7).
    \1398\ See also sec. 205(c)(2)(B)(i)(I) (or that portion of 
subclause (III) that relates to subclause (I)) of the Social Security 
Act.
---------------------------------------------------------------------------
    The failure to provide a correct valid identification 
number is treated as a mathematical or clerical error. If a 
taxpayer claims an individual as a qualifying child, but based 
on the SSN provided the individual is too old to be a 
qualifying child, the provision of the SSN is treated as a 
mathematical or clerical error.

Advance payments of the additional recovery rebate

    Many taxpayers received the additional recovery rebate 
automatically as an advance refund in the form of a direct 
deposit to their bank account or as a check or prepaid debit 
card issued by the Secretary.\1399\ The amount of the 
additional advance refund is computed in the same manner as the 
additional recovery rebate, except that the calculation is made 
on the basis of the income tax return filed for 2019 (instead 
of 2020), if available.\1400\ Accordingly, the additional 
advance refund amount generally is based on a taxpayer's filing 
status, number of qualifying children, and AGI as reported for 
2019. The Secretary is directed to issue additional advance 
refunds as rapidly as possible, and no advance refund is to be 
made or allowed after January 15, 2021.\1401\
---------------------------------------------------------------------------
    \1399\ Payments started during the last week of December 2020 and 
continued into January 2021. Direct deposit payments were issued to 
individuals with valid routing and account information on file with the 
IRS. IRS, ``Questions and Answers about the Second Economic Impact 
Payment,'' available at https://www.irs.gov/coronavirus/second-eip-faqs 
(last visited January 24, 2021). As of January 8, 2021, over 100 
million advance refunds had been direct deposited into eligible 
recipients' bank accounts. IRS, ``IRS Statement--Update on Economic 
Impact Payments,'' January 11, 2021, available at https://www.irs.gov/
newsroom/irs-statement-update-on-economic-impact-payments.
    \1400\ Sec. 6428A(f).
    \1401\ In the case of a mirror Code territory, the additional 
recovery rebate credit payments can be made or allowed until September 
30, 2021.
---------------------------------------------------------------------------
    If a taxpayer did not file an income tax return for 2019 at 
the time the Secretary makes a determination regarding 
payments, the Secretary may use information to administer the 
additional advance refund with respect to that taxpayer that is 
provided (1) in the case of a specified Social Security or 
Supplemental Security Income (SSI) recipient, by the Social 
Security Administration, (2) in the case of a specified 
railroad retirement beneficiary, by the Railroad Retirement 
Board, and (3) in the case of a specified veterans beneficiary, 
by the Department of Veterans Affairs (VA).\1402\ Payments for 
such specified individuals may be provided to the individual's 
representative payee or fiduciary. The entire payment must be 
provided to the individual or used for the benefit of the 
individual. Enforcement provisions apply to prevent the misuse 
of the payment.\1403\
---------------------------------------------------------------------------
    \1402\ Sec. 6428A(f)(5).
    \1403\ See 42 U.S.C. sec. 1320a-8(a)(3) (for Social Security 
Administration payees), 45 U.S.C. sec. 231l (for Railroad Retirement 
Board payees), 38 U.S.C. secs. 5502, 6106, and 6108 (for Department of 
Veterans Affairs payees).
---------------------------------------------------------------------------
    For other individuals who did not have a return-filing 
obligation, the Secretary could utilize information provided by 
such individuals who successfully registered for the first 
advance refund by filing a simplified tax return using the 
``non-filer portal,'' a web tool developed by the IRS, or who 
submitted a simplified Federal income tax return to receive the 
first advance refund.\1404\
---------------------------------------------------------------------------
    \1404\ IRS, ``Treasury and IRS begin delivering second round of 
Economic Impact Payments to millions of Americans, IR-2020-280, 
December 29, 2020, available at https://www.irs.gov/news
room/treasury-and-irs-begin-delivering-second-round-of-economic-impact-
payments-to-millions-of-americans.
---------------------------------------------------------------------------
    An individual who died before January 1, 2020, is not 
eligible to receive the additional advance refund. If a married 
couple files a joint return and one spouse died before January 
1, 2020, the surviving spouse is allowed (subject to other 
requirements) a $600 payment. No payment may be issued with 
respect to qualifying children of a taxpayer who died before 
January 1, 2020 (or, in the case of joint return, if both 
taxpayers died before January 1, 2020).
    The amount of the additional recovery rebate credit allowed 
on a taxpayer's 2020 income tax return (based on 2020 
information) must be reduced (but not below zero) by any 
additional advance refund received (based on 2019 
information).\1405\ If the additional recovery rebate less the 
additional advance refund is a positive number (because, for 
example, a qualifying child was born to the taxpayer during 
2020), the taxpayer is allowed that difference as a refundable 
credit against 2020 income tax liability. If, however, the 
result is negative (because, for example, the taxpayer's AGI 
was higher in 2020 and was in the phaseout range), the 
taxpayer's 2020 tax liability is not increased by that negative 
amount. In addition, an eligible taxpayer who does not receive 
an additional advance refund may claim the additional recovery 
rebate on his or her 2020 income tax return. A taxpayer's 
failure to reduce the additional recovery rebate by any 
additional advance refund is treated as a mathematical or 
clerical error. The additional advance refund is not includible 
in gross income.\1406\
---------------------------------------------------------------------------
    \1405\ Sec. 6428A(e).
    \1406\ Under section 6409, the additional recovery rebate is 
disregarded in the administration of Federal programs and Federally 
assisted programs. Any refund due to the credit, including any advance 
payment of the credit, is not taken into account as income and is not 
taken into account as resources for a period of 12 months from receipt 
for purposes of determining eligibility for benefits or assistance 
under any Federal program or under any State or local program financed 
with Federal funds.
---------------------------------------------------------------------------
    As soon as practicable after the distribution of the 
additional advance refund, the Secretary is required to send a 
notice by mail to the taxpayer's last known address that 
indicates the method by which the payment was made, the amount 
of such payment, and a phone number at the IRS to report any 
failure to receive such payment. The Secretary is also required 
to carry out a public awareness campaign regarding the 
availability of the additional recovery rebate credit and the 
additional advance refund, including with regard to individuals 
who may not have filed a tax return for taxable year 2019.

Treatment of the U.S. territories

    The provision directs the Secretary to make payments to 
each mirror Code territory (Guam, the Commonwealth of the 
Northern Mariana Islands, and the U.S. Virgin Islands) that 
relate to the cost (if any) of each territory's additional 
recovery rebate. The Secretary is further directed to make 
similar payments to each non-mirror Code territory (American 
Samoa and Puerto Rico).
    The provision directs the Secretary to pay to each mirror 
Code territory amounts equal to the aggregate amount of the 
credits allowable by reason of the provision to that 
territory's residents against its income tax. Such amounts are 
determined by the Secretary based on information provided by 
the government of the respective territory.
    To each non-mirror Code territory, the provision requires 
the Secretary to pay amounts estimated by the Secretary as 
being equal to the aggregate credits that would have been 
allowed to residents of that territory if a mirror Code tax 
system had been in effect in that territory. Accordingly, the 
amount of each payment to a non-mirror Code territory is an 
estimate of the aggregate amount of the credits that would be 
allowed to the territory's residents if the credit provided by 
the provision to U.S. residents were provided by the territory 
to its residents. This payment will not be made to any U.S. 
territory unless it has a plan that has been approved by the 
Secretary under which the territory will promptly distribute 
the payment to its residents.
    No credit against U.S. income taxes is permitted under the 
provision for any person to whom a credit is allowed against 
territory income taxes as a result of the provision (for 
example, under that territory's mirror income tax). Similarly, 
no credit against U.S. income taxes is permitted for any person 
who is eligible for a payment under a non-mirror Code 
territory's plan for distributing to its residents the payment 
described above from the U.S. Treasury.

Exception from reduction or offset

    Any refund payable as an additional advance refund or any 
similar payment to a resident of the U.S. territories is not 
subject to reduction or offset by other assessed Federal taxes 
that would otherwise be subject to levy or collection. In 
addition, the overpayments resulting from these credits 
generally are not subject to offset for other taxes or non-tax 
debts owed to the Federal government or State governments.
    Unlike the first advance refund, the additional advance 
refund is not subject to reduction or offset for past-due child 
support. The additional advance refund also is not subject to 
transfer, assignment, execution, levy, attachment, garnishment, 
or other legal process, or the operation of any bankruptcy or 
insolvency law. The provision directs the Secretary to encode 
payments that are paid electronically as a result of any 
applicable payment with a unique identifier that allows the 
financial institution maintaining the account to identify the 
payment as protected.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

2. Amendments to recovery rebates under the CARES Act (sec. 273 of the 
        Act and sec. 6428 of the Code)

                              Present Law

    Background for the provision and a description of the 2020 
recovery rebates for individuals that the provision modifies 
may be found in the section describing section 2201 of the 
CARES Act (Pub. L. No. 116-136) in Part Six of this document.

                        Explanation of Provision

    The provision makes several modifications to the 2020 
recovery rebate credit.
    The provision provides that surviving spouses are subject 
to phase out of the credit at $150,000 of AGI, rather than 
$75,000 of AGI. Surviving spouses, therefore, have the same AGI 
phase out threshold as joint filers.
    The provision provides that in the case of an individual 
for which information to make an advance refund was provided by 
the Social Security Administration, the Railroad Retirement 
Board, or the Department of Veterans Affairs, such payment may 
be made to the individual's representative payee or fiduciary. 
The entire payment must be provided to the individual or used 
for the benefit of the individual. Enforcement provisions apply 
to prevent the misuse of the payment.\1407\
---------------------------------------------------------------------------
    \1407\ See 42 U.S.C. sec. 1320a-8(a)(3) (for Social Security 
Administration payees), 45 U.S.C. sec. 231l (for Railroad Retirement 
Board payees), 38 U.S.C. secs. 5502, 6106, and 6108 (for Department of 
Veterans Affairs payees).
---------------------------------------------------------------------------
    The provision modifies the identification number 
requirements for the recovery rebate credit to provide that in 
the case of a joint return that includes a valid identification 
number for only one spouse, a $1,200 credit is allowed (subject 
to income-based phaseouts). Under prior law, no credit was 
allowed. In addition, in the case of a joint return, the 
provision allows an additional amount for a qualifying child if 
a valid identification number for at least one spouse and for 
the child are included on the return. Under prior law, a valid 
identification number for both spouses was required. The 
provision does not modify the identification number 
requirements for the first round of advance refunds, so no 
additional amounts of advance refunds are to be made on the 
basis of the modified identification number requirements. Any 
additional amount owed as a result of the modified 
identification number requirements may be claimed on the 2020 
Federal income tax return.
    The provision provides that the restrictions against 
reduction or offset of the recovery rebate credit by other 
assessed Federal taxes, other taxes, and non-tax debts owed to 
the Federal government or States governments apply to the 
advance refunds only. Thus any recovery rebate credit claimed 
on a 2020 Federal income tax return may be subject to reduction 
or offset.

                             Effective Date

    The provision applies as if included in section 2201 of the 
CARES Act (Pub. L. No. 116-136), which was effective on the 
date of enactment of the CARES Act, March 27, 2020.

3. Extension of certain deferred payroll taxes (sec. 274 of the Act)

                              Present Law

    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include Federal income 
tax as well as taxes levied under the Federal Insurance 
Contributions Act (``FICA'') and Federal Unemployment Tax Act 
(``FUTA'').\1408\ In addition, tier 1 of the Railroad 
Retirement Tax Act (``RRTA'') imposes a tax on compensation 
paid to railroad employees and representatives.\1409\
---------------------------------------------------------------------------
    \1408\ Secs. 3401, 3101, 3111, and 3301.
    \1409\ Sec. 3221.
---------------------------------------------------------------------------
    FICA taxes are comprised of two components: Old-Age, 
Survivors, and Disability Insurance (``OASDI'') and Hospital 
Insurance (``HI'') taxes.\1410\ With respect to OASDI taxes, 
the applicable rate is 12.4 percent with half of such rate (6.2 
percent) imposed on employee wages and the remainder (6.2 
percent) imposed on the employer.\1411\ The tax is assessed on 
covered wages up to the OASDI wage base ($142,800 in 2021). 
Generally, the OASDI wage base rises based on increases in the 
national average wage index.\1412\
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    \1410\ The Hospital Insurance (``HI'') tax has two components: 
Medicare tax and Additional Medicare tax. Medicare tax is imposed on 
wages, as defined in Section 3121(a), with respect to employment, as 
defined in Section 3121(b), at a rate of 1.45 percent for the employer. 
Sec. 3101(b)(1). An equivalent 1.45 percent is withheld from employee 
wages. Sec. 3111(b)(1). For purposes of this description, Medicare tax 
does not include Additional Medicare tax. Additional Medicare taxes are 
withheld from employee wages in excess of $200,000 at a rate of 0.9 
percent. Sec. 3101(b)(2). There is no equivalent employer's share of 
Additional Medicare taxes.
    \1411\ Sec. 3101.
    \1412\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
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    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1413\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes remuneration such as salaries, vacation allowances, 
bonuses, deferred compensation, commissions, and fringe 
benefits. The term ``employment'' is generally defined for FICA 
tax purposes as any service, of whatever nature, performed by 
an employee for the person employing him or her, with certain 
specific exceptions.
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    \1413\ Sec. 3121(a).
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Railroad retirement program

    Railroad workers do not participate in the OASDI system. 
Accordingly, compensation subject to RRTA tax is exempt from 
FICA taxes.\1414\ The RRTA imposes a tax on compensation paid 
by covered employers to employees in recognition for the 
performance of services.\1415\ Employees whose compensation is 
subject to RRTA taxes are ultimately eligible for railroad 
retirement benefits that fall under a two-tier structure. 
Railroad employees and employers pay tier 1 taxes at the same 
rate as FICA taxes.\1416\ In addition, rail employees and 
employers both pay tier 2 taxes that are used to finance 
railroad retirement benefits over and above Social Security 
benefit levels.\1417\ Tier 2 benefits are similar to benefits 
under a defined benefit plan. Those taxes are funneled to the 
railroad retirement system and used to fund basic retirement 
benefits for railroad workers and an investment trust that 
generates returns for the pension fund.
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    \1414\ Sec. 3121(b)(9).
    \1415\ Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the Social Security and Medicare taxes under FICA. Under 
the RRTA, employers and employees are also subject to an additional 
tax, referred to as the ``tier 2'' tax, on compensation up to a certain 
amount.
    \1416\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $142,800 in 2021, and 1.45 percent for Medicare hospital 
insurance on all earnings. An additional 0.9 percent in Medicare taxes 
are withheld from employees on earnings above $200,000.
    \1417\ In 2021, the tier 2 tax rate on earnings up to $106,200 is 
4.9 percent for employees and 13.1 percent for employers. Tier 2 tax 
rates are based on an average account benefits ration that take into 
account railroad retirement funding levels.
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Self-employment taxes

    The Self-Employment Contributions Act (``SECA'') imposes 
tax on the self-employment income of an individual. SECA taxes 
consist of OASDI tax and HI tax.\1418\ Under the OASDI 
component, the first rate of tax is 12.4 percent on self-
employment income up to the OASDI wage base ($142,8/00 for 
2021).\1419\ Under the basic HI tax component, the second rate 
of tax is 2.9 percent of all self-employment income (without 
regard to the OASDI wage base).\1420\ As is the case with 
employees, an Additional Medicare tax applies to the HI portion 
of SECA tax on self-employment income in excess of a threshold 
amount.\1421\
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    \1418\ Sec. 1401(a) and (b).
    \1419\ Sec. 1401(a). In calculating the SECA tax for OASDI, the 
OASDI wage base taken into account is reduced by FICA wages paid to the 
individual during the taxable year.
    \1420\ Sec. 1401(b)(1).
    \1421\ Sec. 1401(b)(2).
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    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment are equal to the gross income 
derived by an individual from any trade or business less 
allowed deductions that are attributable to the trade or 
business and permitted under the SECA rules. Certain passive 
income and related deductions are not taken into account in 
determining net earnings from self-employment, including 
rentals from real estate unless received in the course of a 
trade or business as a real estate dealer,\1422\ dividends and 
interest unless such dividends and interest are received in the 
course of a trade or business as a dealer in stocks or 
securities,\1423\ and sales or exchanges of capital assets and 
certain other property unless the property is stock in trade 
that would properly be included in inventory or held primarily 
for sale to customers in the ordinary course of the trade or 
business.\1424\
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    \1422\ Sec. 1402(a)(1).
    \1423\ Sec. 1402(a)(2).
    \1424\ Sec. 1402(a)(3).
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    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI and HI, i.e., 7.65 percent of 
net earnings.\1425\ This deduction is determined without regard 
to the additional 0.9 percent Additional Medicare tax that may 
apply to an individual. This deduction reflects the fact that 
the FICA rates apply to an employee's wages, which do not 
include FICA taxes paid by the employer, whereas the self-
employed individual's net earnings are economically equivalent 
to an employee's wages plus the employer's share of FICA 
taxes.\1426\ This is generally referred to as the ``regular 
method'' of determining net earnings from self-employment, and 
in Internal Revenue Service (``IRS'') forms and publications it 
is expressed as multiplying total net earnings from self-
employment by 92.35 percent.
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    \1425\ Sec. 1402(a)(12).
    \1426\ The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid. As presently written, the deduction for 
SECA taxes is not the exact economic equivalent to the deduction for 
FICA taxes. See Joint Committee on Taxation, Options to Improve Tax 
Compliance and Reform Tax Expenditures, (JCS-2-05), January 27, 2005, 
for a detailed description of this issue.
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Deposit requirements

    The employee portion of OASDI taxes must be withheld and 
remitted to the Federal government by the employer during the 
quarter, as required by the applicable deposit rules.\1427\ The 
employer is liable for the employee portion of OASDI taxes, in 
addition to its own share, whether or not the employer withheld 
the amount from the employee's wages.\1428\ Employers that make 
payments of wages and withhold Federal income and FICA taxes 
are required to make deposits of those taxes in a timely 
manner.
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    \1427\ Sec. 3102(a) and Treas. Reg. sec. 31.3121(a)-2. Sec. 6302.
    \1428\ Sec. 3102(b).
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    Employers generally must deposit employment taxes under a 
monthly or semi-weekly schedule, with certain exceptions.\1429\ 
The applicable deposit schedule is determined based on the 
total tax liability reported on an employer's quarterly 
employment tax return during a lookback period. In general, an 
employer is a monthly depositor if the total Federal income and 
FICA tax liability for the four quarters in the lookback period 
was $50,000 or less. A semiweekly depositor is an employer for 
which the total tax liability reported during the lookback 
period was more than $50,000. Employers that accumulate 
$100,000 or more of employment tax liability on any day are 
required to make deposits of those taxes by the close of the 
next banking day.\1430\
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    \1429\ Treas. Reg. sec. 31.6302-1. In certain circumstances, 
employers may make employment tax payments with the filing of a return 
instead of periodic deposits under a monthly or semiweekly schedule. 
For example, to the extent an employer's total employment tax liability 
for the current or prior quarter is less than $2,500, the employer may 
make a payment with a timely filed IRS Form 944, Employer's ANNUAL 
Federal Tax Return, or IRS Form 941, Employer's QUARTERLY Federal Tax 
Return.
    \1430\ Treas. Reg. sec. 31.6302-1(c).
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    If the aggregate amount of tax reported on an employment 
tax return exceeds the total amount of deposits made by the 
employer for the same quarter, the balance due must be remitted 
in accordance with the applicable form and instructions.\1431\
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    \1431\ Treas. Reg. secs. 31.6302-1(h)(7) and 31.6302-1(i)(2).
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    A penalty may be imposed for the failure to deposit 
employment taxes by the prescribed date.\1432\ The amount of 
the penalty varies depending on when the deposit is made in 
relation to the applicable deadline. The penalty is two percent 
of the unpaid amount if the payment is made within five days of 
the deadline, five percent if the payment is made within six to 
15 days of the due date, 10 percent if the payment is made more 
than 15 days after the due date, and 15 percent for taxes still 
unpaid after the 10th day following a notice and demand from 
the IRS. The failure to deposit penalty may be waived if the 
taxpayer demonstrates the failure was due to reasonable cause 
and not willful neglect.\1433\
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    \1432\ Sec. 6656.
    \1433\ Sec. 6656(a).
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    A penalty may also apply in the event that a taxpayer fails 
to make a payment of tax due on a tax return with the return 
absent a showing that the failure to pay was due to reasonable 
cause and not due to willful neglect.\1434\ The amount of the 
penalty is equal to one-half percent of the net amount of tax 
due for each month that the return is not filed. This penalty 
is coordinated with the penalty for the failure to timely file 
a tax return, by reducing the failure to file penalty by the 
amount of the failure to pay penalty for that month.\1435\ The 
maximum amount of the failure to pay penalty is 25 percent of 
the tax due.
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    \1434\ Secs. 6151(a) and 6651(a)(2).
    \1435\ Sec. 6651(a)(1).
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    With respect to self-employed individuals, estimated tax 
payments at least equal to (1) 90 percent of the current year's 
tax liability or (2) 100 percent of the prior year's tax 
liability, must be made by the applicable deadlines.\1436\ A 
penalty is imposed by applying the underpayment interest rate 
to the amount of the underpayment for the period of 
underpayment. The penalty does not apply if the tax shown on 
the return is less than $1,000. There is no general reasonable 
cause waiver for the failure to pay estimated tax, but a waiver 
is available to the extent the Secretary determines that a 
taxpayer suffered a casualty or other unusual circumstance if 
imposition of a penalty would be against equity and good 
conscience.\1437\
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    \1436\ Sec. 6654.
    \1437\ Sec. 6654(e)(3).
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Third-party arrangements

    Responsibility for employment tax obligations generally 
rests with the person who is the employer of an employee under 
a common-law test that has been incorporated into Treasury 
regulations.\1438\ An employer-employee relationship exists if 
the person for whom the services are performed has the right to 
direct and control the performance of services by an 
individual, not only to the result to be accomplished by the 
work but also the details and means by which that result is 
accomplished. In some cases, however, a person other than the 
common-law employer may be responsible for effectuating the 
employer's employment tax obligations.
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    \1438\ Treas. Reg. secs. 31.3401(c)-1, 31.3121(d)-1(c)(1) and 
31.3306(i)-1(a). A similar concept for RRTA purposes applies under 
Treas. Reg. sec. 31.3231(b)-1(a)(1)(i).
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    An employer may designate a third-party agent to be 
responsible for employment tax withholding, depositing, and 
reporting requirements on behalf of that employer.\1439\ The 
reporting functions undertaken by this third party, a ``section 
3504 agent,'' may include filing employment tax returns and 
furnishing and filing Forms W-2, Wage and Tax Statement, to the 
employer's employees. An employer remains jointly and severally 
liable with the section 3504 agent for satisfaction of the 
employer's employment tax obligations.\1440\
---------------------------------------------------------------------------
    \1439\ Sec. 3504. Treas. Reg. sec. 31-3504-1 provides the criteria 
for the designation by an employer of an agent by application to the 
IRS. IRS Form 2678 is used for this purpose. In addition, under Treas. 
Reg. sec. 31-3504-2, designation of an agent may result from the 
payment of wages or compensation by a payor to an individual performing 
services for a client of the payor pursuant to a services agreement 
meeting certain criteria. The rules for designating an agent is a 
departure from the general principle that a taxpayer has a nondelegable 
duty with respect to employment tax obligations. See U.S. v. Boyle, 469 
U.S. 241 (1985).
    \1440\ Treas. Reg. sec. 31.3405-1(a).
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    Another type of third-party entity is a professional 
employer organization (``PEO''), which provides employees to 
perform services in the business of the PEO's customers, 
including small and medium-sized businesses.\1441\ In many 
cases, before the PEO arrangement is finalized, the employees 
already work in the customer's business as employees of the 
customer. Depending on the facts and circumstances, the 
customer may be the common law employer ultimately liable for 
the satisfaction of employment tax obligations with respect to 
its work-site employees under the PEO arrangement.
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    \1441\ ``Professional employer organization'' is not a legal term 
with a specific definition. The term ``employee leasing company'' is 
also occasionally used to describe the same or similar relationship 
between service provider and customer in this context, but both terms 
can be used to describe a variety of arrangements.
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    A ``certified professional employer organization'' 
(``CPEO'') is a PEO that has applied to the Secretary to be 
treated as a CPEO and has been certified to meet certain 
requirements. A CPEO is treated as the employer of any work-
site employee performing services for any customer of the CPEO 
but only with respect to remuneration remitted by the CPEO to a 
work-site employee.\1442\ A CPEO is subject to employment tax 
withholding, depositing, and reporting requirements and 
associated liability with respect to the work-site employees 
performing services for a customer of the CPEO, subject to the 
limitations and requirements of section 3511.
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    \1442\ Sec. 3511.
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Delay of employment tax deadlines

    The President of the United States issued a Presidential 
Memorandum on August 8, 2020, which directed the Secretary to 
defer the withholding, deposit, and payment of certain payroll 
tax obligations pursuant to section 7508A.\1443\ The IRS 
subsequently implemented this provision.\1444\ In Notice 2020-
65, the due date for the withholding and payment of the 
employee's share of OASDI tax, and the equivalent amount of 
RRTA tax, on applicable wages by affected taxpayers was 
postponed until the period beginning January 1, 2021 and ending 
on April 30, 2021. Affected taxpayers includes employers that 
were impacted by COVID-19 and that were required to withhold 
and pay the employee's share of OASDI tax or the equivalent 
amount of RRTA tax.
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    \1443\ Exec. Order, 85 Fed. Reg. 49587 (August 8, 2020).
    \1444\ Notice 2020-65, 2020-38 I.R.B. 567, September 14, 2020.
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    The delay of withholding, deposit, and payment of 
applicable employment taxes applied to wages, as defined in 
section 3121(a) for OASDI tax purposes, or compensation, as 
defined in section 3231(e)(3) for RRTA tax purposes, paid to an 
employee on a pay date during the period beginning on September 
1, 2020, and ending on December 31, 2020. This delay only 
applies if the amount of such wages or compensation paid for a 
bi-weekly pay period is less than the threshold amount of 
$4,000, or the equivalent threshold amount with respect to 
other pay periods. The IRS provided that affected taxpayers 
must deposit the deferred employment taxes on applicable wages 
between January 1, 2021 and April 30, 2021; otherwise, or 
interest, penalties, and additions to tax would begin to accrue 
with respect to unpaid taxes on May 1, 2021.

                        Explanation of Provision

    The provision directs the Secretary (or the Secretary's 
delegate) to extend the relief provided in IRS Notice 2020-65. 
First, the date April 30, 2021 is replaced with December 31, 
2021 in each place that it appeared in the notice. The result 
is that affected taxpayers may delay the withholding, deposit, 
and payment of applicable employment taxes on wages and 
compensation paid to employees until December 31, 2021. Second, 
the date May 1, 2021 is replaced with January 1, 2022 in each 
place that it appeared. In effect, penalties and interest will 
not begin to accrue on amounts to be repaid until January 1, 
2022.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

4. Regulations or guidance clarifying application of educator expense 
        tax deduction (sec. 275 of the Act and sec. 62 of the Code)

                              Present Law


Educator expense deduction

    In general, ordinary and necessary business expenses are 
deductible. However, unreimbursed employee business expenses 
that are miscellaneous itemized deductions are not deductible 
for taxable years beginning before January 1, 2026.
    Certain expenses of eligible educators are allowed as an 
above-the-line deduction from gross income to determine 
adjusted gross income. Specifically, an above-the-line 
deduction is allowed for up to $250 annually of expenses paid 
or incurred by an eligible educator for (1) participation in 
professional development courses related to the curriculum in 
which he or she provides instruction to students; and (2) 
books, supplies (other than nonathletic supplies for courses of 
instruction in health or physical education), computer 
equipment (including related software and services) and other 
equipment, and supplementary materials used by the eligible 
educator in the classroom.\1445\ The $250 maximum deduction 
amount is indexed for inflation. To be eligible for this 
deduction, the expenses must be otherwise deductible under 
section 162 as a trade or business expense. A deduction is 
allowed only to the extent the amount of expenses exceeds the 
amount excludable from income under section 135 (relating to 
education savings bonds), section 529(c)(1) (relating to 
qualified tuition programs), and section 530(d)(2) (relating to 
Coverdell education savings accounts).
---------------------------------------------------------------------------
    \1445\ Sec. 62(a)(2)(D).
---------------------------------------------------------------------------
    An eligible educator is a kindergarten through grade twelve 
teacher, instructor, counselor, principal, or aide in a school 
for at least 900 hours during a school year. A school means any 
school that provides elementary education or secondary 
education (kindergarten through grade 12), as determined under 
State law.

COVID-19 expenses

    In response to a Congressional inquiry, the IRS advised 
that cleaning supplies, air purifiers, personal protective 
equipment (including face masks), and similar items purchased 
during the COVID-19 pandemic are not deductible as an above-
the-line educator expense deduction because they are not 
otherwise deductible under section 162.\1446\ Specifically, 
such expenses are not deductible under section 162 because they 
are not customary and directly related to the subject matter 
that the educator may teach, even though the expenses may be 
helpful or appropriate.
---------------------------------------------------------------------------
    \1446\ Letter from John P. Moriarty, Associate Chief Counsel 
(Income Tax & Accounting), IRS, to Representative Stephanie Murphy, 
September 18, 2020, available at https://murphy.house.gov/
uploadedfiles/2020-25551_murphy_response_final_signed--091820.pdf.
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                        Explanation of Provision

    The provision directs the Secretary to issue regulations or 
other guidance clarifying that personal protective equipment, 
disinfectant, and other supplies used for the prevention of the 
spread of COIVD-19 are treated as deductible expenses for 
purposes of the above-the-line educator expense deduction. Such 
regulations or other guidance shall apply to expenses paid or 
incurred after March 12, 2020.
    The IRS subsequently has implemented this provision.\1447\
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    \1447\ In Revenue Procedure 2021-15, the IRS provides a safe harbor 
for eligible educators to treat unreimbursed expenses paid or incurred 
after March 12, 2020 for personal protective equipment, disinfectant, 
and other supplies used for the prevention of the spread of COVID-19 in 
the classroom as deductible expenses for purposes of the above-the-line 
educator expense deduction. See also IRS, Instructions for Form 1040 
and Form 1040-SR, January 6, 2021, at 89.
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                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

  5. Clarification of tax treatment of forgiveness of covered loans, 
 clarification of tax treatment of certain loan forgiveness and other 
     business financial assistance, and authority to waive certain 
information reporting requirements (secs. 276, 278, and 279 of the Act)


                              Present Law


Tax treatment relating to amounts excluded from income

            Exclusions from income
    Gross income means all income from whatever source 
derived.\1448\ Specific exclusions from income apply to certain 
otherwise includable amounts and payments, however. For 
example, income exclusions apply to qualified disaster relief 
payments and qualified disaster mitigation payments.\1449\
---------------------------------------------------------------------------
    \1448\ Sec. 61; U.S. v. Kirby Lumber Co., 284 U.S. 1 (1931).
    \1449\ Sec. 139.
---------------------------------------------------------------------------
            Tax treatment of forgiveness of loans
    The forgiveness of a loan is generally treated as income 
from discharge of indebtedness.\1450\ As a simple example, if a 
taxpayer borrows $1,000 from a lender, and if the lender 
subsequently forgives the loan so the taxpayer does not repay 
it, the taxpayer has discharge of indebtedness income of $1,000 
that is taken into account in determining income tax. However, 
limited exclusions apply to income from a discharge of 
indebtedness that occurs in a Title 11 case (generally, a 
bankruptcy case), or that occurs when the taxpayer is insolvent 
to the extent of the insolvency amount, or arises from the 
discharge of qualified farm indebtedness.\1451\
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    \1450\ Sec. 61(a)(11).
    \1451\ Sec. 108(a).
---------------------------------------------------------------------------
            Effect of income exclusion on deductions, tax attributes, 
                    and basis
    In general.--Several provisions limit deductions, tax 
attributes, or basis increases associated with excluded income. 
These provisions maintain accurate income measurement by 
preventing the reduction of taxable income for costs associated 
with untaxed income.
    Limitations on deductions.--One such rule, section 265, 
disallows deductions that are allocable to a class of income 
wholly exempt from income tax.\1452\ Similarly, a pro rata 
limitation on interest deductions applies in the case of a 
financial institution with tax-exempt interest income.\1453\ An 
interest deduction limitation rule applies in the case of a 
life insurance contract, the death benefit under which is 
excludable from income by section 101(a).\1454\
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    \1452\ Sec. 265(a)(1). This rule applies with respect to exempt 
income other than interest; section 265 also disallows the deduction 
for interest expense on debt incurred or continued to purchase or carry 
obligations the interest income on which is wholly exempt from income 
tax (sec. 265(a)(2)), and disallows deductions otherwise allowable 
under section 212 for expenses for the production of interest income 
wholly exempt from income tax.
    \1453\ The limitation ratio is (1) the average adjusted bases of 
certain types of tax-exempt obligations, to (2) average adjusted bases 
for all assets of the taxpayer (sec. 265(b)).
    \1454\ Sec. 264(f). This pro rata interest deduction limitation 
permits no deduction for that portion of the taxpayer's interest 
expense determined by applying the ratio of (1) unborrowed policy cash 
values, to (2) the sum of all the taxpayer's average unborrowed policy 
cash values and average adjusted bases of all other assets (sec. 
264(f)(1) and (2)).
---------------------------------------------------------------------------
    Reductions in tax attributes.--In the case of discharge of 
indebtedness income that is excluded from income,\1455\ rules 
for reduction of tax attributes apply.\1456\ The excluded 
amount is applied to reduce the tax attributes of the taxpayer 
in the order prescribed by statute: (1) net operating losses, 
(2) general business credit, (3) minimum tax credit, (4) 
capital loss carryovers, (5) basis of the taxpayer's property, 
(6) passive activity loss and credit carryovers, and (7) 
foreign tax credit carryovers.
---------------------------------------------------------------------------
    \1455\ Sec. 108.
    \1456\ Secs. 108(b) and 1017.
---------------------------------------------------------------------------
    Limitations on basis increases.--Limitations apply to 
otherwise allowable increases in the basis of property 
associated with excluded income. For example, in the case of 
qualified disaster mitigation payments that are excluded from 
income, no increase in the basis or adjusted basis of property 
is allowed for any amount so excluded.\1457\
---------------------------------------------------------------------------
    \1457\ Sec. 139(g)(3). See also section 139(h) (denial of double 
benefit rule). As another example, the basis of property is reduced to 
the extent of contributions to capital of a corporation excludable from 
gross income under section 118 (see sec. 362).
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    Circumstances in which limitations not imposed.--
Limitations on deductions, tax attributes, or basis increases 
are not imposed in certain situations in which the policy of 
the exclusion may outweigh the income tax policy of accurate 
income measurement. For example, in the case of excludable 
parsonage and military housing allowances, no deduction is 
denied for mortgage interest or real property taxes on the 
taxpayer's home under the section 265 deduction limitation by 
reason of the receipt of the excludable amount.\1458\ As 
another example, the pro rata interest deduction limitation for 
financial institutions with exempt income generally does not 
apply in the case of tax-exempt obligations issued in 2009 or 
2010.\1459\
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    \1458\ Sec. 265(a)(6).
    \1459\ Sec. 265(b)(7). This rule is subject to the proviso that the 
amount of such tax-exempt obligations does not exceed two percent of 
the taxpayer's average adjusted bases of tax-exempt obligations to 
which the interest limitation does apply. The years 2009 and 2010 
followed the financial crisis of 2008.
---------------------------------------------------------------------------
    Tax treatment of partnerships.--A partnership generally is 
not subject to Federal income tax, but rather, income and gain 
of the partnership are generally taxed to partners. Items of 
partnership income (including tax exempt income), gain, loss, 
deduction, and credit pass through to partners.\1460\ Although 
loss (including capital loss) and deductions of the partnership 
pass through to partners, a partner is allowed a loss or 
deduction only to the extent of the adjusted basis of the 
partnership interest, generally measured at the end of the 
partnership year in which the loss occurs or the deduction 
arises.\1461\
---------------------------------------------------------------------------
    \1460\ Secs. 701 and 702.
    \1461\ Sec. 704(d). Other limitations may apply. See e.g., secs. 
465 and 469.
---------------------------------------------------------------------------
    Tax exempt or excluded income items of the partnership can 
affect the partner's basis in the partnership interest. 
Adjustments are made to the basis of a partner's interest to 
account for the partner's distributive share of partnership 
items.\1462\ The basis in the partnership interest is increased 
by the partner's distributive share of partnership income, 
including income that is exempt from tax.\1463\ A partner's 
basis in the partnership interest generally is increased by an 
increase in the partner's share of partnership liabilities and 
is decreased by a decrease in the partner's share of 
liabilities.\1464\
---------------------------------------------------------------------------
    \1462\ The basis of a partner's interest that is acquired by 
contribution to the partnership is generally the amount of money and 
the adjusted basis of property contributed (sec. 722) and is adjusted 
under section 705. Section 705 provides that the basis of the 
partnership interest in increased by the sum of the partner's 
distributive share of taxable income, income exempt from tax, and the 
excess of depletion deductions over the basis of the depletable 
property. The basis of the partnership interest is decreased by 
distributions from the partnership and by the sum of the partner's 
distributive share of losses, expenditures that are not deductible in 
computing taxable income and not properly chargeable to capital 
account, and certain depletion deductions.
    \1463\ Sec. 705(a)(1)(B).
    \1464\ Sec. 752. An increase in a partner's share of partnership 
liabilities is treated as a contribution to the partnership (sec. 
752(a)), and a decrease in a partner's share of partnership liabilities 
is treated as a distribution from the partnership (sec. 752(b)).
---------------------------------------------------------------------------
    Tax treatment of S corporations.--Income of an S 
corporation is taxed to the S corporation shareholders. Each S 
corporation shareholder's pro rata share of S corporation 
income (including tax exempt income), gain, loss, deduction and 
credit is passed through to the shareholder.\1465\ The basis of 
an S corporation shareholder's stock is adjusted to account for 
the shareholder's pro rata share of S corporation income 
(including tax exempt income \1466\), loss, deduction or 
credit. An S corporation shareholder's stock basis is not 
adjusted to take account of S corporation-level debt (unlike a 
partner's basis in its partnership interest).
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    \1465\ Secs. 1363(a) and 1366.
    \1466\ Secs. 1367(a)(1)(A) and 1366(a)(1)(A).
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Certain loans, advances, and payments made under the CARES Act \1467\
---------------------------------------------------------------------------

    \1467\ Pub. L. No. 116-36.
---------------------------------------------------------------------------
            Paycheck Protection Program loan forgiveness
    The CARES Act established the Paycheck Protection Program 
and provided rules for covered loans.\1468\ A recipient of a 
covered loan is eligible for forgiveness of indebtedness on the 
loan in an amount generally equal to the sum of certain costs 
incurred and payments made during the eight-week period 
beginning on the date of the origination of the covered loan, 
including payroll costs, certain mortgage interest payments, 
certain rent payments, and certain utility payments.\1469\
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    \1468\ For this purpose, a covered loan is a loan guaranteed under 
paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 
636(a)) (elsewhere in this Act redesignated to another statutory 
location), as added by section 1102 of the CARES Act.
    \1469\ CARES Act sec. 1106. Treasury and the Small Business 
Administration issued FAQs on the Paycheck Protection Program, 
including answers to common questions regarding the determination of 
the amount of loan forgiveness. See ``Paycheck Protection Program Loans 
Frequently Asked Questions (FAQs)'', available at https://
home.treasury.gov/system/files/136/Paycheck-Protection-Program-
Frequently-Asked-Questions.pdf (last visited January 13, 2021).
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    The amount forgiven may be reduced (by an amount not to 
exceed the principal amount of the covered loan) if the 
recipient reduces the number of the recipient's employees, or 
the amount of salaries and wages paid, by a specified amount 
during the covered period. A covered loan recipient must apply 
for loan forgiveness. Once an application is submitted to the 
lender with the required documentation, the lender must issue a 
decision on the loan forgiveness within 60 days.
    Amounts that have been forgiven under the provision are 
considered as canceled indebtedness. The provision requires the 
Administrator of the Small Business Administration to remit to 
the lender, no later than 90 days after the date on which the 
amount of forgiveness under the provision is determined, an 
amount equal to the amount of forgiveness, plus any interest 
accrued through the date of payment.
    The CARES Act provides that for Federal tax purposes, any 
amount which (but for the provision) would be includible in 
gross income of the recipient of a covered loan by reason of 
forgiveness pursuant to the provision is excluded from gross 
income.\1470\
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    \1470\ CARES Act sec. 1106(i).
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            Treasury program management authority loan forgiveness
    The CARES Act provides authority to the Treasury Department 
to establish criteria for additional lenders to participate in 
the Paycheck Protection Program.\1471\ Requirements for lenders 
generally provide that the rate of interest may not exceed the 
maximum permissible rate for Paycheck Protection Program loans, 
and that, to the maximum extent practicable, terms and 
conditions are consistent with those applicable to Paycheck 
Protection Program loans.\1472\
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    \1471\ CARES Act sec. 1109.
    \1472\ CARES Act sec. 1109(d)(2)(A) and (B).
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    The provision requires that loans under the authority 
provide for loan forgiveness under terms and conditions that 
are consistent with forgiveness under the Paycheck Protection 
Program.\1473\ As a condition of receiving loan under this 
provision, the borrower must certify that the borrower does not 
have an application pending for a loan under the Paycheck 
Protection Program \1474\ for the same purpose, and has not 
received such a loan during the period beginning February 15, 
2020 and ending on December 31, 2020.
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    \1473\ CARES Act secs. 1109(d)(2)(D) and 1106.
    \1474\ CARES Act sec. 1109(f).
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            Targeted EIDL advances that are not required to be repaid
    An eligible entity that applies for a specified type of 
Small Business Act loan \1475\ may request an advance.\1476\ 
The advance generally may not exceed $10,000. The applicant is 
not required to repay the advance, even if the loan for which 
the applicant applied is subsequently denied.\1477\
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    \1475\ Economic Injury Disaster Loan (``EIDL''). This is a loan 
under section 7(b)(2) of the Small Business Act, 15 U.S.C. 636(b)(2) 
(elsewhere in this Act redesignated to another statutory location).
    \1476\ CARES Act sec. 1110(e).
    \1477\ CARES Act sec. 1110(e)(5).
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            Subsidy for certain loan payments
    The Small Business Administration (rather than the 
borrower) must pay principal, interest, and fees for a 
specified six-month period on certain loans guaranteed through 
the Small Business Administration.\1478\ Thus, the borrower is 
relieved of the obligation to make these payments. The 
provision generally applies to loans guaranteed by the Small 
Business Administration and made under the Community Advantage 
Pilot Program or under title V of the Small Business Investment 
Act.\1479\
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    \1478\ CARES Act sec. 1112(c).
    \1479\ These loans are defined in CARES Act section 1112(a)(1) and 
(2) as loans ``guaranteed by the Administration under (A) section 7(a) 
of the Small Business Act (15 U.S.C. 636(a) (elsewhere in this Act 
redesignated to another statutory location))--(i) including a loan made 
under the Community Advantage Pilot Program of the Administration; and 
(ii) excluding a loan made under paragraph (36) of such section 7(a), 
as added by section 1102; or (B) title V of the Small Business 
Investment Act of 1958 (15 U.S.C. 695 et seq.); or (2) made by an 
intermediary to a small business concern using loans or grants received 
under section 7(m) of the Small Business Act (15 U.S.C. 636(m)).'' The 
six-month period for which the payments are made on the borrower's 
behalf depends on when the loan is made, as set forth in CARES Act 
section 1112(c)(1).
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Treasury guidance regarding deductibility of costs relating to excluded 
        income from forgiven loans under the Paycheck Protection 
        Program

    After the CARES Act was enacted on March 27, 2020, the 
Treasury Department issued Notice 2020-32 providing that no 
deduction is allowed for an expense that is otherwise 
deductible if the payment of the expense results in the 
forgiveness of a covered loan under the Paycheck Protection 
Program and the income associated with the forgiveness is 
excluded from gross income.\1480\
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    \1480\ IRS Notice 2020-32, April 30, 2020, https://www.irs.gov/pub/
irs-drop/n-20-32.pdf. See also Rev. Rul. 2020-27, 2020-50 I.R.B. 1552, 
December 7, 2020.
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    Notice 2020-32 describes the CARES Act rules regarding what 
the recipient of the loan must do to obtain loan forgiveness in 
an amount equal to the sum of payments for certain eligible 
section 1106 expenses. Such CARES Act section 1106 eligible 
expenses are payroll costs, certain interest on mortgage 
obligations, certain rent obligations, and certain utility 
payments. The Notice points to the exclusion from gross income 
under CARES Act section 1106(i) for any amount otherwise 
includable in gross income by reason of the loan forgiveness 
under CARES Act section 1106(b). Because the income exclusion 
results in a class of exempt income, Notice 2020-32 states, 
Code section 265 disallows any otherwise allowable deduction 
for the amount of any payment of an eligible CARES Act section 
1106 expense to the extent of the resulting loan forgiveness 
because the payment is allocable to tax-exempt income.

Reporting requirements

            Information returns and payee statements in general
    Information returns are required to be filed concerning a 
variety of transactions and payments.\1481\ A person that is 
required to file an information return generally is also 
required to furnish a statement to the other party to the 
transaction or the recipient of the payment.
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    \1481\  See Chapter 61 of the Code, relating to information and 
returns, which includes sections 6001-6117.
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            Reporting of cancellation of indebtedness income 
    Reporting of cancellation of indebtedness income on Form 
1099-C or 1099-A generally is required if debt is discharged in 
whole or in part. A person required to report such income 
includes certain financial institutions and their affiliates 
and organizations engaged in a significant trade or business of 
lending, as well as certain governmental entities (and quasi-
governmental entities, such as the FDIC, and their 
affiliates).\1482\
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    \1482\ Sec. 6050P. The reporting requirement applies when a debt is 
cancelled or when an identifiable event (described in guidance) occurs. 
Treas. Reg. 1.6050P-1 and-2; and see Instructions for Forms 1099-A and 
1099-C, https://www.irs.gov/pub/irs-pdf/i1099ac.pdf, page 4 (``When a 
Debt is Cancelled'').
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                        Explanation of Provision


Paycheck Protection Program loans

            Tax treatment of forgiveness in general
    In the case of a Paycheck Protection Program loan that is 
forgiven in whole or in part, the provision clarifies that for 
Federal income tax purposes no amount is included in the income 
of an eligible recipient of such a loan by reason of the 
forgiveness.\1483\ Similarly, no amount is included in the 
income of an eligible entity by reason of such forgiveness in a 
taxable year ending after December 27, 2020.\1484\
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    \1483\ Sec. 276 of the Act.
    \1484\ Elsewhere in this Act, these rules regarding Paycheck 
Protection Program loans are transferred to section 7A of the Small 
Business Act, and the Paycheck Protection Program is expanded and 
extended. The transfer and redesignation is made in section 304 of the 
``Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues 
Act,'' Title III of Division N of the Consolidated Appropriations Act, 
2021; that section and following sections of Title III of Division N 
modify the rules for the Paycheck Protection Program. In particular, 
section 311 of Title III of Division N expands the costs that may 
result in forgiveness to include, for example, ``covered worker 
protection expenditures'' and ``covered supplier costs.'' The transfer 
and redesignation of rules regarding Paycheck Protection Program loans 
also modify the term ``eligible recipient'' to refer to an ``eligible 
entity.''
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    Further, no deduction is denied, no tax attribute is 
reduced, and no basis increase is denied, by reason of the 
exclusion from income.\1485\ As a result, otherwise deductible 
costs remain deductible if the costs are paid with proceeds of 
the forgiven loan, or are associated with the forgiven loan, 
even though the forgiven amount is excluded from income. 
Similarly, because section 108 does not apply, no tax attribute 
is reduced by reason of the exclusion from income.\1486\ 
Further, an otherwise allowable increase in the basis of 
property remains allowable even if the expenditure giving rise 
to the basis increase is paid with proceeds of the forgiven 
loan or is associated with the forgiven loan that is excluded 
from income.
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    \1485\ This rule reverses IRS Notice 2020-32, April 30, 2020, 
https://www.irs.gov/pub/irs-drop/n-20-32.pdf. The IRS announced that 
IRS Notice 2020-32 is obsolete in Rev. Rul. 2021-2, January 6, 2021, 
https://www.irs.gov/pub/irs-drop/rr-21-02.pdf.
    \1486\ By removing the parenthetical in CARES Act section 1106(i) 
as originally enacted, the provision clarifies that the exclusion in 
Act section 276 operates independently of any exclusion provided by 
Code section 108. Thus, the exclusion is allowed under Act section 276 
and not under Internal Revenue Code section 108, so the tax attribute 
reduction requirements that relate to the income exclusion under 
section 108 do not apply.
---------------------------------------------------------------------------
    For example, if a taxpayer that is engaged in a trade or 
business receives a Paycheck Protection Program loan and uses 
the proceeds to pay deductible wages of employees of the 
business, the section 162 deduction for the wages is not 
disallowed even though the loan is forgiven and the amount of 
the forgiveness is excluded from income.\1487\ If that taxpayer 
uses the proceeds to pay wages that are properly capitalized 
into inventory, the taxpayer may increase the basis of such 
inventory even though the amount of the forgiveness is excluded 
from income.
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    \1487\ Separate rules provide for coordination between use of 
proceeds of Paycheck Protection Program loans, and expenditure 
requirements for employee retention tax credit; see section 206(b) of 
Division N of this Act.
---------------------------------------------------------------------------
            Partnerships and S corporations
    In the case of an eligible recipient (or eligible entity) 
that is a partnership or S corporation, any amount excluded 
from income by reason of the provision is treated as tax exempt 
income for purposes of sections 705 (the determination of a 
partner's basis in the partnership interest) and 1366 (the 
passthrough of items to an S corporation shareholder). In 
general, this allows for an owner of an eligible recipient (or 
eligible entity) that is a partnership or S corporation to 
increase its basis in the interest in, or the stock of, the 
entity so that the deduction allowable under the provision may 
be allowed.\1488\
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    \1488\ Subchapter K and Subchapter S each provide analogous rules 
that the partner's, or shareholder's, share of deductions of the entity 
is limited to the adjusted basis of the partnership interest or of the 
stock and debt of the S corporation (secs. 704(d) and 1366(d)), and 
that tax exempt income gives rise to a basis increase under these rules 
(secs. 705(a)(1)(B) and 1366(a)(1)(A)). Thus, a basis increase 
(correlating to the deduction allowed) in the partner's adjusted basis 
in the partnership interest, or in the shareholder's adjusted basis in 
the S corporation stock, allows the owner to utilize the deduction that 
is allowable under the Act.
---------------------------------------------------------------------------
    For example, assume that an S corporation has two 
shareholders (A and B). Each of A and B owns 50 percent of the 
stock of the S corporation. A's stock basis is $50. B's stock 
basis is $0. The S corporation is an eligible recipient and 
receives a $100 Paycheck Protection Program loan in 2020, pays 
$100 in amounts giving rise to forgiveness in 2020; and the 
Paycheck Protection Program loan is forgiven in 2021. The S 
corporation has no other items of income, gain, loss or 
deduction in 2021. While the S corporation (and thus each of A 
and B) does not have income as a result of the forgiveness, the 
S corporation is treated as having $100 of tax-exempt income 
for purposes of section 1366. Thus, each of A and B's basis in 
S corporation stock is increased by $50.\1489\ Assuming that 
the $100 is used to pay wages that are properly deductible, 
each of A and B may deduct $50.\1490\ A's basis in S 
corporation stock is sufficient for A to claim the deduction in 
2020 \1491\ and, by reason of the provision, B's basis in S 
corporation stock is sufficient for B to claim the deduction 
generally in 2021.
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    \1489\ Secs. 1367(a)(1)(A) and 1366(a)(1)(A).
    \1490\ Secs. 1363(a) and 1366.
    \1491\ With respect to A, the provision ensures that the benefit of 
the exclusion is not later reversed when, for example, A later claims a 
deduction or loss of the S corporation or A sells its interests in the 
S corporation.
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    An additional rule applies when the eligible recipient (or 
eligible entity) is a partnership. Except as provided by the 
Secretary of the Treasury (or the Secretary's delegate), any 
increase in the adjusted basis of a partner's interest in a 
partnership under section 705 (the determination of the basis 
of a partner's interest) with respect to any amount excluded 
from income under the provision equals the partner's 
distributive share of deductions resulting from costs giving 
rise to forgiveness. This rule addresses the allocation of the 
amount treated as tax exempt income for purposes of determining 
a partner's basis in its partnership interest. It generally 
ensures that the benefit of deductions and basis increases not 
denied are allowed at the partner level.\1492\ The grant of 
authority allows the Secretary of the Treasury (or the 
Secretary's delegate) to, for example, address situations in 
which the costs giving rise to excluded amounts are capitalized 
or are nondeductible amounts.\1493\
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    \1492\ Furthermore, the provision ensures that the benefit of the 
exclusion is not later reversed when, for example, the partnership 
later allocates a deduction or loss to the partner or the partner sells 
its interests in the partnership.
    \1493\ The grant of authority also, for example, allows the 
Secretary of the Treasury (or the Secretary's delegate) to address 
situations in which specific rules are needed to carry out the purposes 
of the provision, for example, if interests in a partnership are 
transferred or redeemed while a Paycheck Protection Program loan is 
outstanding.
---------------------------------------------------------------------------
    For example, assume that a partnership has two partners (A 
and B). A and B are each entitled to 50 percent of the 
partnership's income and gain. A is entitled to 100 percent of 
the partnership's losses. B is entitled to 100 percent of the 
partnership's deductions. A's basis in its partnership interest 
is $50. B's basis in its partnership interest is $0. The 
partnership is an eligible recipient and receives a $100 
Paycheck Protection Program loan in 2020, and in 2020 pays $100 
in payroll costs, rent payments, and utility payments that 
qualify for loan forgiveness, and the loan is forgiven in 2020. 
The partnership (and thus each of A and B) exclude from income 
the forgiven amount. Assuming that the $100 of costs paid are 
otherwise deductible and are all properly allocated to B, B's 
basis in the partnership is increased by $100 as a result of 
the provision. That is, the adjusted basis of B's partnership 
is increased by the $100 forgiven loan amount that is excluded 
from income and that is treated as tax exempt income so that B 
may claim the $100 deduction for the costs.\1494\
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    \1494\ That is, the section 704(d) limitation does not prevent B 
from claiming the deduction.
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            Treasury Department guidance
    Guidance issued on January 6, 2021, by the Treasury 
Department provides that IRS Notice 2020-32 (applying section 
265 to deny deductions for certain expenses relating to 
Paycheck Protection Program loans for which a forgiven amount 
is excluded from income) is obsolete.\1495\
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    \1495\ Rev. Rul. 2021-2, https://www.irs.gov/pub/irs-drop/rr-21-
02.pdf. And see the IRS explanation at https://www.irs.gov/newsroom/
eligible-paycheck-protection-program-expenses-now-deductible.
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                             Effective Date

    These provisions of the Act apply both to original loans 
issued under the Paycheck Protection Program under the terms of 
the CARES Act (effective for taxable years ending after the 
date of enactment of the CARES Act (March 27, 2020)), and to 
subsequent Paycheck Protection Program loans (effective for 
taxable years ending after the date of enactment of this Act 
(December 27, 2020)).

Treasury program management authority loans

            Tax treatment of forgiveness in general
    In the case of a loan made under Treasury program 
management authority \1496\ that is forgiven \1497\ in whole or 
in part, the provision provides that, for Federal income tax 
purposes, no amount is included in the income of a borrower by 
reason of the forgiveness.\1498\
---------------------------------------------------------------------------
    \1496\ CARES Act sec. 1109.
    \1497\ CARES Act sec. 1109(d)(2)(D) provides for forgiveness.
    \1498\ Sec. 278(a) of Division N of the Act.
---------------------------------------------------------------------------
    Further, no deduction is denied, no tax attribute is 
reduced, and no basis increase is denied, by reason of the 
exclusion from income of the forgiven amount. As a result, 
otherwise deductible costs remain deductible if the costs are 
paid with proceeds of the forgiven loan or are associated with 
the forgiven loan, even though the amount of the forgiveness is 
excluded from income. Similarly, because section 108 does not 
apply to the forgiveness provided under the provision, no tax 
attribute is reduced by reason of the exclusion from 
income.\1499\ Further, an otherwise allowable increase in the 
basis of property remains allowable even though the expenditure 
giving rise to the basis increase is paid with proceeds of the 
forgiven loan or is associated with the forgiven loan that is 
excluded from income.
---------------------------------------------------------------------------
    \1499\ Because the exclusion from income is allowed under section 
278(a) of Division N of the Act, and not under Internal Revenue Code 
section 108, the tax attribute reduction requirements that relate to 
the income exclusion under section 108 do not apply.
---------------------------------------------------------------------------
    For example, if a taxpayer that is engaged in a trade or 
business receives a loan under the Treasury program management 
authority and uses the proceeds to pay deductible wages of 
employees of the business, the section 162 deduction for the 
wages is not disallowed even though the loan is forgiven and 
the amount of the forgiveness is excluded from income.\1500\
---------------------------------------------------------------------------
    \1500\ Separate rules provide for coordination between use of 
proceeds of Paycheck Protection Program loans and the expenditure 
requirements for employee retention tax credit; see section 206(b) of 
Division N of the Act, and see IRS Notice 2021-20, Guidance on the 
Employee Retention Credit under Section 2301 of the Coronavirus Aid, 
Relief, and Economic Security Act, March 1, 2021.
---------------------------------------------------------------------------
            Partnerships and S corporations
    In the case of a borrower that is a partnership or S 
corporation, any amount excluded from income by reason of the 
provision is treated as tax exempt income for purposes of 
sections 705 (the determination of a partner's basis in the 
partnership interest) and 1366 (the passthrough of items to an 
S corporation shareholder).
    An additional rule applies when a borrower is a 
partnership. Except as provided by the Secretary of the 
Treasury (or the Secretary's delegate), any increase in the 
adjusted basis of a partner's interest in a partnership under 
section 705 with respect to any amount excluded from income 
under the provision equals the partner's distributive share of 
deductions resulting from costs giving rise to forgiveness.

                             Effective Date

    These rules apply to taxable years ending after the date of 
enactment of the CARES Act (March 27, 2020).

Emergency EIDL grants and targeted EIDL advances

            Tax treatment of advance or funding in general
    An EIDL advance \1501\ that is not repaid \1502\ in whole 
or in part is not included in the income of the person that 
receives the advance, for Federal income tax purposes.\1503\ In 
the case of funding that is received relating to small business 
continuity, adaptation, and resiliency,\1504\ the funding is 
not included in the income of the person that receives the 
funding.\1505\
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    \1501\ CARES Act sec. 1110(e).
    \1502\ CARES Act sec. 1110(e)(5) provides that the advance is not 
required to be repaid.
    \1503\ Sec. 278(b) of Division N of the Act. And see Treasury 
guidance mentioning the exclusion in IRS Publication 525, Taxable and 
Nontaxable Income, ``What's New,'' pages 1-2, rev. April 6, 2021, 
https://www.irs.gov/pub/irs-pdf/p525.pdf.
    \1504\ This funding is provided in section 331 of the Economic Aid 
to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which is in 
Division N of this Act. The total amount of such funding that a covered 
entity may receive is $10,000, and if a covered entity received an EIDL 
grant (advance) under section 1110(e) of the CARES Act, the amount of 
the grant under this section 331 is the difference between $10,000 and 
the amount of the previously received grant (sec. 331(b)). A covered 
entity for this purpose is generally defined as an entity that is 
eligible for a specified type of Small Business Administration loan, 
applies for such a loan during the period January 31, 2020 and ending 
December 31, 2021, is located in a low-income community, has suffered 
an economic loss of greater than 30 percent, and employs no more than 
300 employees (sec. 331(a)(2)).
    \1505\ Sec. 278(b) of Division N of the Act.
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    Further, no deduction is denied, no tax attribute is 
reduced, and no basis increase is denied, by reason of the 
exclusion from income. As a result, otherwise deductible costs 
remain deductible even though the costs are paid with the 
excluded income or are associated with the excluded amount. 
Similarly, because section 108 does not apply to the exclusion 
from income provided under the provision, no tax attribute is 
reduced by reason of the exclusion.\1506\ Further, an otherwise 
allowable increase in the basis of property remains allowable 
even if the expenditure giving rise to the basis increase is 
paid with the excluded income or is associated with the 
excluded amount.
---------------------------------------------------------------------------
    \1506\ Because the exclusion from income is allowed under section 
278(b) of Division N of the Act, and not under Internal Revenue Code 
section 108, the tax attribute reduction requirements that relate to 
the income exclusion under section 108 do not apply.
---------------------------------------------------------------------------
    For example, if a person engaged in a trade or business 
receives an EIDL advance or funding described in the provision 
and uses the proceeds to pay deductible wages of employees of 
the business, the section 162 deduction for the wages is not 
disallowed even though the advance or funding is excluded from 
income.
    Partnerships and S corporations If the person that receives 
the advance or funding is a partnership or S corporation, any 
amount excluded from income by reason of the provision is 
treated as tax exempt income for purposes of sections 705 (the 
determination of a partner's basis in the partnership interest) 
and 1366 (the passthrough of items to an S corporation 
shareholder). The provision also requires the Secretary of the 
Treasury (or the Secretary's delegate) to prescribe rules for 
determining a partner's distributive share of any amount 
treated as tax exempt income under the provision.
    For example, assume that a partnership has two partners (A 
and B). The partnership is engaged in a trade or business, 
receives an EIDL advance of $10,000, and uses the proceeds to 
pay deductible wages of employees of the business. The section 
162 deduction for the wages is not disallowed even though the 
advance is excluded from income. A's and B's aggregate basis in 
the partnership is increased by $10,000. Treasury guidance will 
determine by how much each of A's and B's basis in their 
partnership interests, respectively, is increased.

                             Effective Date

    The rules governing EIDL advances apply to taxable years 
ending after the date of enactment of the CARES Act (March 27, 
2020). The rules governing funding relating to small business 
continuity, adaptation, and resiliency apply to taxable years 
ending after the date of enactment of this Act (December 27, 
2020).

Subsidy for certain loan repayments

            Tax effects of payments by Small Business Administrator of 
                    loan principal, interest, and fees
    In the case of a payment made on behalf of a person by the 
Small Business Administrator of principal, interest, and fees 
with respect to on certain loans guaranteed through the Small 
Business Administration,\1507\ the payment is not included in 
the gross income of the person on whose behalf the payment is 
made.\1508\
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    \1507\ CARES Act section 1112(a) defines covered loans in more 
detail. Section 325 of this Act provides additional rules relating to 
the extension of the debt relief program originally enacted in CARES 
Act section 1112.
    \1508\ Sec. 278(c) of Division N of the Act. And see Treasury 
guidance mentioning the exclusion in IRS Publication 525, Taxable and 
Nontaxable Income, ``What's New,'' pages 1-2, rev. April 6, 2021, 
https://www.irs.gov/pub/irs-pdf/p525.pdf.
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    Further, no deduction is denied, no tax attribute is 
reduced, and no basis increase is denied, by reason of the 
exclusion from income. As a result, otherwise deductible costs 
remain deductible even though the costs are paid with funds 
made available by reason of the payment on the person's behalf 
that is excluded from income, or are associated with the 
excluded amount. Similarly, because section 108 does not apply 
to the exclusion from income provided under the provision, no 
tax attribute is reduced by reason of the exclusion.\1509\ 
Further, an otherwise allowable increase in the basis of 
property remains allowable even though the expenditure giving 
rise to the basis increase is associated with the excluded 
income.
---------------------------------------------------------------------------
    \1509\ Because the exclusion from income is allowed under section 
278(c) of Division N of the Act, and not under Internal Revenue Code 
section 108, the tax attribute reduction requirements that relate to 
the income exclusion under section 108 do not apply.
---------------------------------------------------------------------------
    For example, assume a person is engaged in a trade or 
business, and payments of principal, interest, or fees with 
respect to certain loans are made by the Small Business 
Administrator on the person's behalf. If the person (in lieu of 
making those payments of principal, interest, or fees) pays 
deductible wages of employees of the business, the section 162 
deduction for the wages is not disallowed even though the 
payments of principal, interest, or fees made on behalf of the 
person that were excluded from income permitted the person to 
pay the wages.
            Partnerships and S corporations
    If the person on whose behalf the loan payment is made is a 
partnership or S corporation, any amount excluded from income 
by reason of the provision is treated as tax exempt income for 
purposes of sections 705 (the determination of a partner's 
basis in the partnership interest) and 1366 (the passthrough of 
items to an S corporation shareholder).
    An additional rule applies if the person on whose behalf 
the loan payment is made is a partnership. In such a case, 
except as provided by the Secretary of the Treasury (or the 
Secretary's delegate), any increase in the adjusted basis of a 
partner's interest in a partnership under section 705 equals 
the sum of the partner's distributive share of deductions 
resulting from interest and fees paid by the Small Business 
Administrator on the partnership's behalf and the partner's 
share, as determined under section 752 (the treatment of 
liabilities of a partnership), of principal paid by the Small 
Business Administrator on the partnership's behalf.
    For example, assume that a partnership has two partners (A 
and B). A and B are each entitled to 50 percent of partnership 
income and gain. B is entitled to 100 percent of the 
deductions. Ignoring partnership liabilities, each of A and B's 
adjusted basis in its partnership interest is $0. But assume 
that the partnership has a $50 outstanding loan described in 
section 1112(c) of the CARES Act that is wholly allocated to A 
under the rules of section 752. Thus, A's basis in its 
partnership interest is $50 and B's basis in its partnership 
interest is $0. Assume that the Small Business Administrator 
pays, on behalf of the partnership, all $50 in loan principal. 
After the payment is made, A's basis in its partnership 
interest remains $50 and B's basis in its partnership interest 
remains $0.

                             Effective Date

    The rules governing emergency payments made on behalf of a 
person by the Small Business Administrator of principal, 
interest, and fees with respect to certain loans guaranteed 
through the Small Business Administration apply to taxable 
years ending after the date of enactment of the CARES Act 
(March 27, 2020).

Shuttered venue grants

            In general
    The Act provides authority for the Office of Disaster 
Assistance to coordinate and formulate policies relating to the 
administration of grants for certain shuttered venues.\1510\ A 
person eligible for such a grant is generally a live venue 
operator or promoter, a theatrical producer, a live performing 
arts organization operator, a relevant museum operator, a 
motion picture theatre operator, or a talent representative 
that meets statutory requirements.\1511\ Amounts received under 
such a grant are to be used for specified costs incurred during 
the period beginning March 1, 2020, and ending December 31, 
2021 (ending June 30, 2022 for certain supplemental 
grants).\1512\ The total amount of initial and supplemental 
grants received by any one person may not exceed 
$10,000,000.\1513\
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    \1510\ Sec. 324(b) of Division N of the Act.
    \1511\ Sec. 324(a) of Division N of the Act. The requirements 
relate to, among other criteria, a reduction in revenue in 2020 over 
2019.
    \1512\ Sec. 324(d) of Division N of the Act. Permitted costs 
include certain defined expenditures relating to payroll, rent, 
utilities, principal or interest on business debt incurred before 
February 2020 and mortgage debt, worker protection expenditures, and 
specified ordinary and necessary business expenses such as maintenance, 
insurance, or advertising. Prohibited costs include those to purchase 
real estate, to invest or re-lend funds, or to make political 
contributions.
    \1513\ Sec. 324(c)(3) of Division N of the Act.
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            Tax treatment of shuttered venue grants
    For Federal income tax purposes, any such grant \1514\ is 
not included in the income of the person that receives the 
grant.\1515\
---------------------------------------------------------------------------
    \1514\ That is, a grant made under section 324 of the Hard-Hit 
Small Businesses, Nonprofits, and Venues Act (in Division N).
    \1515\ Sec. 278(d) of the Act. And see Treasury guidance mentioning 
the exclusion in IRS Publication 525, Taxable and Nontaxable Income, 
``What's New,'' pages 1-2, rev. April 6, 2021, https://www.irs.gov/pub/
irs-pdf/p525.pdf.
---------------------------------------------------------------------------
    Further, no deduction is denied, no tax attribute is 
reduced, and no basis increase is denied, by reason of the 
exclusion from income. As a result, otherwise deductible costs 
remain deductible if the costs are paid with grant proceeds 
that are excluded from income, or are associated with grant 
proceeds that are excluded. Similarly, because section 108 does 
not apply to the exclusion provided under the provision, no tax 
attribute is reduced by reason of the exclusion from 
income.\1516\ Further, an otherwise allowable increase in the 
basis of property remains allowable even though the expenditure 
giving rise to the basis increase is paid with grant proceeds 
that are excluded from income, or are associated with grant 
proceeds that are excluded.
---------------------------------------------------------------------------
    \1516\ Because the exclusion from income is allowed under section 
278(d) of Division N of the Act, and not under Internal Revenue Code 
section 108, the tax attribute reduction requirements that relate to 
the income exclusion under section 108 do not apply.
---------------------------------------------------------------------------
    For example, if a taxpayer that is engaged in a trade or 
business receives a grant that is excluded from income under 
the provision and uses the proceeds to pay deductible wages of 
employees of the business, the section 162 deduction for the 
wages is not disallowed even though the grant is excluded from 
income.
            Partnerships and S corporations
    If the person that receives the grant is a partnership or S 
corporation, any amount excluded from income by reason of the 
provision is treated as tax exempt income for purposes of 
sections 705 (the determination of a partner's basis in the 
partnership interest) and 1366 (the passthrough of items to an 
S corporation shareholder).
    The provision requires the Secretary of the Treasury (or 
the Secretary's delegate) to prescribe rules for determining a 
partner's distributive share of any amount treated as tax 
exempt income under the provision.

                             Effective Date

    The rules governing the grants apply to taxable years 
ending after the date of enactment of this Act (December 27, 
2020).

Treasury may waive reporting requirements

    The Secretary of the Treasury (or the Secretary's delegate) 
may provide an exception from the requirement to file an 
information return by the rules of Chapter 61 of the 
Code,\1517\ relating to information and returns, with respect 
to any amount excluded from gross income by reason of the 
provisions of the Act that are described above. Implementing 
this authority, IRS Notice 2021-06 \1518\ waives the 
requirement to file certain information returns or furnish 
certain payee statements otherwise required by Chapter 61 of 
the Code with respect to certain amounts excluded from income 
by reason of the provisions of the Act that are described 
above.
---------------------------------------------------------------------------
    \1517\ For example, Chapter 61 of the Code includes section 6050P, 
which requires returns relating to the cancellation of indebtedness by 
certain entities.
    \1518\ IRS Notice 2021-06, Waiver of Information Reporting 
Requirements with respect to Certain Amounts Excluded from Gross 
Income, January 19, 2021, https://www.irs.gov/pub/irs-drop/n-21-06.pdf.
---------------------------------------------------------------------------

6. Emergency financial aid grants (sec. 277 of the Act and secs. 25A, 
        117, and 139 of the Code)

                              Present Law


Higher education grants and qualified scholarships

    Gross income includes all income from whatever source 
derived unless a specific exception applies. In general, grants 
received for higher education are includible in gross income 
unless such amounts constitute qualified scholarships.\1519\ 
Qualified scholarships are amounts received as a scholarship or 
fellowship grant to the extent that the individual establishes 
that such amounts are used for qualified tuition and related 
expenses. The exclusion for qualified scholarships does not 
apply to any amount received by a student that represents 
payment for teaching, research, or other services by the 
student required as a condition for receiving the scholarship.
---------------------------------------------------------------------------
    \1519\ Sec. 117.
---------------------------------------------------------------------------
    Sections 3504, 18004, and 18008 of the CARES Act, allow 
higher education institutions to use certain funds allocated by 
the Department of Education to support students and higher 
education institutions with expenses and financial needs 
related to the COVID-19 pandemic. These provisions allow higher 
education institutions to use additional grant funds to award 
emergency financial aid grants to students for expenses related 
to the COVID-19 pandemic. Such expenses are not limited to 
qualified tuition and related expenses and may including living 
expenses.

Disaster relief payments

    Gross income does not include amounts received by 
individuals as qualified disaster relief payments under section 
139. Qualified disaster relief payments include amounts paid to 
or for the benefit of an individual: (1) to reimburse or pay 
reasonable and necessary personal, family, living, or funeral 
expenses incurred as a result of a qualified disaster; (2) to 
reimburse or pay reasonable and necessary expenses incurred for 
the repair or rehabilitation of a personal residence or repair 
or replacement of its contents to the extent that the need for 
such repair, rehabilitation, or replacement is attributable to 
a qualified disaster; (3) by a person engaged in the furnishing 
or sale of transportation by reason of death or personal 
injuries as a result of a qualified disaster; or (4) by a 
Federal, State, or local government, or agency or 
instrumentality thereof, in connection with a qualified 
disaster in order to promote the general welfare.
    Pursuant to Frequently Asked Questions released by the IRS, 
a student who receives an emergency financial aid grant under 
sections 3504, 18004, or 18008 of the CARES Act for unexpected 
expenses, unmet financial need, or expenses related to the 
disruption of campus operations on account of the COVID-19 
pandemic may exclude such grants from gross income because the 
grants are qualified disaster relief payments under section 
139.\1520\ Unexpected expenses may include expenses for food, 
housing course materials, technology, health care, or child 
care. However, qualified tuition and related expenses paid with 
emergency financial aid grant money may not be used to claim 
any deduction or credit for such expenses, including the 
American Opportunity Tax Credit, the Lifetime Learning Credit, 
or the tuition and fees deduction.
---------------------------------------------------------------------------
    \1520\ IRS, ``FAQs: Higher Education Emergency Relief Fund and 
Emergency Financial Aid Grants under the CARES Act,'' December 14, 
2020, available at https://www.irs.gov/newsroom/faqs-higher-education-
emergency-relief-fund-and-emergency-financial-aid-grants-under-the-
cares-act.
---------------------------------------------------------------------------

American Opportunity Tax Credit

    The American Opportunity Tax Credit (``AOTC'') is a 
partially refundable income tax credit for certain costs 
associated with postsecondary education. The amount of the AOTC 
is 100 percent of the first $2,000 of qualifying expenses and 
25 percent of the next $2,000 of these expenses.
    Expenses for which the credit are allowed are qualified 
tuition and related expenses that an individual pays in the 
taxable year for education furnished in any academic period 
that begins in that year to an eligible student for whom an 
election is in effect for the year.\1521\
---------------------------------------------------------------------------
    \1521\ Sec. 25A(a)(1), (b)(1).
---------------------------------------------------------------------------
    Qualified tuition and related expenses are tuition, fees, 
and course materials required for the taxpayer's, the 
taxpayer's spouse's, or the taxpayer's dependent's enrollment 
or attendance at an eligible educational institution for 
courses of instruction.\1522\ Qualified tuition and related 
expenses do not, however, include (1) expenses for any course 
or other education involving sports, games, or hobbies unless 
the course or other education is part of the individual's 
degree program or (2) student activity fees, athletic fees, 
insurance expenses, or other expenses unrelated to an 
individual's academic course of instruction.\1523\ Examples of 
non-qualifying expenses are room and board and transportation 
expenses.\1524\
---------------------------------------------------------------------------
    \1522\ Sec. 25A(f)(1)(A), (D).
    \1523\ Sec. 25A(f)(1)(B), (C).
    \1524\ See Treas. Reg. sec. 1.25A-2(d)(3).
---------------------------------------------------------------------------
    The AOTC is determined on a per-student basis, with a 
maximum credit of $2,500 for any single eligible student.\1525\ 
As an example of the per-student calculation, a taxpayer who 
pays $4,000 or more of qualified expenses for each of two 
eligible students may, subject to other AOTC rules, be allowed 
a credit of $5,000.
---------------------------------------------------------------------------
    \1525\ See Treas. Reg. sec. 1.25A-3(b).
---------------------------------------------------------------------------
    The Lifetime Learning Credit (also in section 25A) 
generally allows a taxpayer a 20-percent credit for up to 
$10,0000 in qualified tuition and related expenses that the 
taxpayer pays during a taxable year for education furnished in 
an academic period beginning that year.\1526\ Qualified tuition 
and related expenses taken into account for the AOTC may not be 
taken into account for determining the Lifetime Learning 
Credit.\1527\
---------------------------------------------------------------------------
    \1526\ Sec. 25A(a)(2), (c). In contrast with the AOTC, the Lifetime 
Learning Credit is a per-taxpayer (rather than per-student) credit. As 
a consequence, the maximum Lifetime Learning Credit is $2,000. In 
contrast with the AOTC scope of qualifying expenses, qualified tuition 
and related expenses for the Lifetime Learning Credit does not include 
course materials. See sec. 25A(f)(1)(D). By contrast, for the Lifetime 
Learning Credit, solely for purposes of the Lifetime Learning Credit, 
qualified tuition and related expenses includes required tuition and 
fees with respect to any course of instruction at an eligible 
educational institution to acquire or improve job skills of the 
individual. Sec. 25A(c)(2)(B).
    \1527\ Sec. 25A(c)(2)(A).
---------------------------------------------------------------------------
    For the purpose of determining the amount of the AOTC, the 
Lifetime Learning Credit, and the tuition and fees deduction, 
qualified tuition and related expenses that may be taken into 
account for an individual for any academic period must be 
reduced by the amount of tax-free educational assistance that 
is paid for the benefit of that individual and is allocable to 
that period.\1528\ For this purpose, tax-free educational 
assistance means a qualified scholarship that is excludable 
from gross income under section 117; a veterans or member-of-
the-armed-forces educational assistance allowance under certain 
provisions of the U.S. Code; employer-provided educational 
assistance that is excludable from income under section 127; or 
any other educational assistance that is excludable from gross 
income (other than as a gift, bequest, devise, or inheritance 
within the meaning of section 102(a)).\1529\
---------------------------------------------------------------------------
    \1528\ Secs. 25A(g)(2) and 222(d)(1); Treas. Reg. sec. 1.25A-5(c).
    \1529\ Treas. Reg. sec. 1.25A-5(c)(1).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision follows the IRS Frequently Asked Questions in 
stating that amounts received as a qualified emergency 
financial aid grants shall not be included in gross income. In 
addition, such amounts shall not be treated as reducing 
qualified tuition and related expenses that may be taken into 
account for purposes of claiming the AOTC, the Lifetime 
Learning Credit, or the tuition and fees deduction.\1530\
---------------------------------------------------------------------------
    \1530\ See also IRS, ``Higher Education Emergency Grants Frequently 
Asked Questions,'' May 19, 2021, available at https://www.irs.gov/
newsroom/higher-education-emergency-grants-frequently-asked-questions.
---------------------------------------------------------------------------
    A qualified emergency financial aid grant is defined as an 
emergency financial aid grant awarded under sections 3504 and 
18004 of the CARES Act and any other emergency financial aid 
grant made to a student from a Federal agency, a State, an 
Indian tribe, an institution of higher education, or a 
scholarship-granting organization for the purpose of providing 
financial relief to students enrolled at institutions of higher 
education in response to a qualifying emergency.\1531\
---------------------------------------------------------------------------
    \1531\ A qualifying emergency is defined in section 3502(a)(4) of 
the CARES Act is (i) a public health emergency related to the 
coronavirus declared by the Secretary of Health and Human Services 
pursuant to section 319 of the Public Health Service Act (42 U.S.C. 
247d), (ii) an event related to the coronavirus for which the President 
declared a major disaster or an emergency under section 401 or 501 of 
the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 
U.S.C. 5170 and 5191), or (iii) a national emergency related to the 
coronavirus declared by the President under section 201 of the National 
Emergencies Act (50 U.S.C. 1601 et seq.).
---------------------------------------------------------------------------
    The provision does not apply to any amount received that 
represents payment for teaching, research, or other services 
required as a condition for receiving the emergency financial 
aid grant.

                             Effective Date

    The provision is shall apply to qualified emergency 
financial aid grants made after March 26, 2020.

7. Application of special rules to money purchase pension plans (sec. 
        280 of the Act and sec. 401 of the Code)

                              Present Law


Distributions from tax-favored retirement plans

            In general
    A distribution from a tax-qualified plan described in 
section 401(a) (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.\1532\ These plans 
are referred to collectively as ``eligible retirement plans.'' 
\1533\ 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.\1534\
---------------------------------------------------------------------------
    \1532\ 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.
    \1533\ Sec. 402(c)(8)(B). Eligible retirement plans also include 
annuity plans described in section 403(a).
    \1534\ 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 IRS 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.\1535\
---------------------------------------------------------------------------
    \1535\ Rev. Proc. 2020-46, 2020-45 I.R.B. 995, provides for a self-
certification procedure (subject to verification on audit) that may be 
used by a taxpayer claiming eligibility for a waiver of the 60-day 
requirement with respect to a rollover into a plan or IRA in certain 
specified circumstances.
---------------------------------------------------------------------------
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, for many types of 
plans, restrictions apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions or withdrawals. Despite such restrictions, an in-
service distribution from a qualified retirement plan that 
includes a qualified cash-or-deferred arrangement (a ``section 
401(k) plan'') or a section 403(b) plan may be permitted in the 
case of financial hardship. Similarly, a governmental section 
457(b) plan may permit distributions in the case of an 
unforeseeable emergency. Under a qualified retirement plan that 
is a pension plan (i.e., defined benefit pension plan or money 
purchase pension plan), distributions generally may be made 
only in the event of retirement, death, disability, or other 
separation from service, although in-service distributions may 
be permitted after age 59\1/2\.\1536\
---------------------------------------------------------------------------
    \1536\ Sec. 401(a)(36); Treas. Reg. secs. 1.401-1(b)(1)(i) and 
1.401(a)-1(b)(1)(i). Section 401(k) plans, section 403(b) plans, and 
governmental section 457(b) plans also may permit in-service 
distributions after age 59\1/2\.
---------------------------------------------------------------------------
            Coronavirus-related distributions
    Section 2202 of the CARES Act \1537\ allows an exception to 
the 10-percent early withdrawal tax for a ``coronavirus-related 
distribution'' from a qualified retirement plan, a section 
403(b) plan, or an IRA.\1538\ The provision also allows a 
taxpayer to include income attributable to a coronavirus-
related distribution ratably over three years and to 
recontribute the amount of the distribution to an eligible 
retirement plan within three years.
---------------------------------------------------------------------------
    \1537\ Pub. L. No. 116-136.
    \1538\ This exception also applies to an annuity plan described in 
section 403(a). The 10-percent early withdrawal tax generally does not 
apply to section 457 plans. Sec. 72(t)(1).
---------------------------------------------------------------------------
    A ``coronavirus-related distribution'' is any distribution 
from a qualified retirement plan, section 403(b) plan, 
governmental section 457(b) plan, or an IRA, made on or after 
January 1, 2020, and before December 31, 2020, to an individual 
(1) who was diagnosed with the virus SARS-CoV-2 or with 
coronavirus disease 2019 (``COVID-19'') by a test approved by 
the Centers for Disease Control and Prevention; (2) whose 
spouse or dependent \1539\ is diagnosed with such virus or 
disease by such a test; or (3) who experiences adverse 
financial consequences as a result of being quarantined, being 
furloughed or laid off, or having work hours reduced due to 
such virus or disease, being unable to work due to lack of 
child care due to such virus or disease, closing or reducing 
hours of a business owned or operated by the individual due to 
such virus or disease, or other factors as determined by the 
Secretary (or the Secretary's delegate).\1540\ The 
administrator of the plan may rely on the individual's 
certification that he or she satisfies the conditions described 
in clauses (1), (2), or (3) in determining whether any 
distribution is a coronavirus-related distribution.
---------------------------------------------------------------------------
    \1539\ Dependent is defined in section 152.
    \1540\ A coronavirus-related distribution is subject to income tax 
withholding unless the recipient elects otherwise. Mandatory 20-percent 
withholding does not apply.
---------------------------------------------------------------------------
    A plan is not treated as violating any Code requirement 
merely because it treats a distribution as a coronavirus-
related 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. A plan is not required to treat a 
distribution as a coronavirus-related distribution.
    A coronavirus-related distribution is treated as meeting 
certain requirements relating to the timing of distributions 
under a section 401(k) plan, section 403(b) plan, governmental 
section 457(b) plan, and the Thrift Savings Plan.\1541\ 
However, it is not treated as meeting requirements relating to 
the timing of distributions under a pension plan (including a 
money purchase pension plan).\1542\
---------------------------------------------------------------------------
    \1541\ Secs. 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 
457(d)(1)(A), and 5 U.S.C. 8433(h)(1).
    \1542\ See Notice 2020-50, 2020-28 I.R.B. 35, June 19, 2020.
---------------------------------------------------------------------------
    Any amount required to be included in income as a result of 
a coronavirus-related 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 coronavirus-related distribution may, at 
any time during the three-year period beginning the day after 
the date on which the distribution was received, be 
recontributed in one or more contributions 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 coronavirus-
related distribution in 2020, that amount is included in 
income, generally ratably over the year of the distribution and 
the following two years and is not subject to the 10-percent 
early withdrawal tax. If, in 2022, the amount of the 
coronavirus-related distribution is recontributed to an 
eligible retirement plan, the individual may file amended 
returns to claim a refund of the tax attributable to the 
amounts previously included in income. In addition, if 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.

                        Explanation of Provision

    The provision amends section 2202(a) of the CARES Act to 
provide that, in the case of a money purchase pension plan, a 
coronavirus-related distribution that is an in-service 
withdrawal is treated as meeting the distribution requirements 
applicable to qualified retirement plans.\1543\
---------------------------------------------------------------------------
    \1543\ Sec. 401(a).
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective as if included in the enactment 
of section 2202 of the CARES Act.

8. Election to waive application of certain modifications to farming 
        losses (sec. 281 of the Act and sec. 172 of the Code)

                              Present Law

    A taxpayer generally may deduct in a taxable year a net 
operating loss (``NOL'') \1544\ carried to such year.\1545\ 
Special rules apply with respect to NOLs arising in certain 
circumstances. These include a special rule generally providing 
a two-year carryback in the case of certain farming 
losses.\1546\
---------------------------------------------------------------------------
    \1544\ A net operating loss generally means the amount by which a 
taxpayer's business deductions exceed its gross income. Sec. 172(c).
    \1545\ Sec. 172(a). Certain additional limitations apply to NOLs 
claimed by taxpayers other than a corporation. See sec. 172(d)(4).
    \1546\ Sec. 172(b)(1)(B). For this purpose, the term ``farming 
loss'' means the lesser of (1) the amount that would be the NOL for the 
taxable year if only income and deductions attributable to farming 
businesses (as defined in section 263A(e)(4)) are taken into account, 
or (2) the amount of the NOL for such taxable year. For any loss year, 
a farming business may irrevocably elect out of the two-year carryback. 
The election must be made in the manner as prescribed by the Secretary 
by the due date (including extensions) of the taxpayer's return for the 
taxable year of the NOL.
---------------------------------------------------------------------------
    The CARES Act made several changes with respect to NOLs 
arising in taxable years beginning after December 31, 2017, and 
before January 1, 2021.\1547\ For example, the limitation of 
the NOL deduction to 80 percent of taxable income determined 
without regard to the NOL deduction (the ``80-percent taxable 
income limitation'') is suspended for taxable years beginning 
after December 31, 2017, and before January 1, 2021.\1548\ 
However, in the case of any taxable year beginning after 
December 31, 2020, and with respect to NOLs arising in taxable 
years beginning after December 31, 2017, carried to such a 
taxable year, the 80-percent taxable income limitation 
applies.\1549\
---------------------------------------------------------------------------
    \1547\ Background for the provision and a description of the net 
operating loss rules that the provision modifies may be found above in 
the section describing section 2303 of the CARES Act (Pub. L. No. 116-
136) in Part Six of this document.
    \1548\ Sec. 172(a).
    \1549\ Sec. 172(a)(2). Section 172(a)(2)(A) provides that NOLs 
arising in taxable years beginning before January 1, 2018, carried to a 
taxable year beginning after December 31, 2020, are not subject to the 
80-percent taxable income limitation.
---------------------------------------------------------------------------
    In addition, any NOL arising in a taxable year beginning 
after December 31, 2017, and before January 1, 2021, may be 
carried to the five taxable years preceding the taxable year of 
such loss (the ``five-year carryback period'').\1550\ NOLs 
eligible for the five-year carryback period include, for 
example, those arising with respect to farming losses, which 
would otherwise be subject to a two-year carryback 
period.\1551\ For any loss year, a farming business may 
irrevocably elect out of a carryback. The election must be made 
in the manner as prescribed by the Secretary by the due date 
(including extensions) of the taxpayer's return for the taxable 
year of the NOL.\1552\
---------------------------------------------------------------------------
    \1550\ See sec. 172(b)(1)(D)(i). Pursuant to section 172(b)(2), any 
NOL carryback must be carried to the earliest taxable years to which 
such loss may be carried.
    \1551\ See sec. 172(b)(1)(B). For this purpose, the term ``farming 
loss'' means the lesser of (1) the amount that would be the NOL for the 
taxable year if only income and deductions attributable to farming 
businesses (as defined in section 263A(e)(4)) are taken into account, 
or (2) the amount of the NOL for such taxable year.
    \1552\ See sec. 172(b)(1)(B) and (3).
---------------------------------------------------------------------------
    Special rules also apply to NOL carrybacks to years to 
which section 965 applies.

                        Explanation of Provision

    In the case of farming losses arising in taxable years 
beginning in 2018, 2019, or 2020, the provision allows a 
taxpayer to elect out of the modifications made by the CARES 
Act to the 80-percent taxable income limitation and the rules 
relating to NOL carrybacks. Thus, a farming business that 
previously claimed a two-year carryback (after application of 
the 80-percent taxable income limitation) may elect to keep 
such carryback without having to amend any applicable returns 
to reflect a five-year carryback period after suspension of the 
80-percent taxable income limitation. If such an election is 
made, it applies to all of the taxpayer's taxable years 
beginning in 2018, 2019, and 2020 (i.e., farming losses arising 
in all such years will only be eligible for a two-year 
carryback period after application of the 80-percent taxable 
income limitation).
    The election is made (under rules prescribed by the 
Secretary) by the due date (including extensions) for filing 
the taxpayer's return for the taxpayer's first taxable year 
ending after December 27, 2020. Once made, the election is 
irrevocable. A taxpayer who previously claimed a two-year 
carryback of a farming loss after application of the 80-percent 
taxable income limitation and does not amend the applicable 
returns to reflect the suspension of the 80-percent taxable 
income limitation and a five-year carryback period by the due 
date (including extensions) for filing the taxpayer's return 
for the taxpayer's first taxable year ending after December 27, 
2020, is deemed to have made the election to disregard such 
modifications. Authority is provided to promulgate regulations 
or other guidance necessary to carry out the purposes of the 
provision, including regulations or other guidance relating to 
the application of section 172(a) as in effect before March 27, 
2020, to taxpayers making the election.\1553\
---------------------------------------------------------------------------
    \1553\ See Rev. Proc. 2021-14, 2021-30 I.R.B. 158.
---------------------------------------------------------------------------
    In addition, the provision provides that any election to 
forgo any carryback of a farming loss arising in a taxable year 
beginning in 2018 or 2019 that was made before December 27, 
2020, may be revoked.

                             Effective Date

    The provision is effective as if included in section 2303 
of the CARES Act.

9. Oversight and audit reporting (sec. 282 of the Act and sec. 19010 of 
        the CARES Act)

                              Present Law

    The Comptroller General monitors and oversees the exercise 
of authorities, or the receipt, disbursement, and use of funds 
made available under the CARES Act or any other Act to prepare 
for, respond to, and recover from the Coronavirus 2019 
pandemic.\1554\ In conducting monitoring and oversight, the 
Comptroller General offers regular briefings to the appropriate 
congressional committees regarding Federal public health and 
homeland security efforts and publishes reports regarding the 
monitoring and oversight efforts (which, along with any audits 
and investigations conducted by the Comptroller General are 
submitted to the appropriate congressional committees and 
posted on the website of the Government Accountability Office).
---------------------------------------------------------------------------
    \1554\ Sec. 19010 of the CARES Act, Pub. L. No. 116-136.
---------------------------------------------------------------------------
    Appropriate congressional committees include: the Committee 
on Appropriations of the Senate; the Committee on Homeland 
Security and Governmental Affairs of the Senate; the Committee 
on Health, Education, Labor, and Pensions of the Senate; the 
Committee on Appropriations of the House of Representatives; 
the Committee on Homeland Security of the House of 
Representatives; the Committee on Oversight and Reform of the 
House of Representatives; and the Committee on Energy and 
Commerce of the House of Representatives.

                        Explanation of Provision

    The provision amends section 19010 of the CARES Act to add 
the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives to the list of 
appropriate congressional committees.

                             Effective Date

    The provision is effective as of the date of enactment 
(December 27, 2020).

10. Disclosures to identify tax receivables not eligible for collection 
pursuant to qualified tax collection contracts (sec. 283 of the Act and 
        new sec. 6103(k)(15) and current sec. 6306 of the Code)


                              Present Law

    Under the Code, the IRS is permitted to use private debt 
collection companies to locate and contact taxpayers owing 
outstanding Federal tax liabilities of any type and to arrange 
payment of those taxes by the taxpayers.\1555\ Specifically, 
the Code requires the Secretary to enter into qualified tax 
collection contracts for the collection of inactive tax 
receivables.\1556\ Inactive tax receivables are defined as any 
tax receivable (i) removed from the active inventory for lack 
of resources or inability to locate the taxpayer, (ii) for 
which more than 1/3 of the applicable limitations period has 
lapsed and no IRS employee has been assigned to collect the 
receivable (and for tax receivables identified by the Secretary 
or the Secretary's delegate after December 31, 2020, more than 
two years have passed since assessment and receivable has not 
been assigned for collection to any employee of the IRS), or 
(iii) for which a receivable has been assigned for collection 
but more than 365 days have passed without interaction with the 
taxpayer or a third party for purposes of furthering the 
collection.\1557\ Tax receivables are defined as any 
outstanding assessment which the IRS includes in potentially 
collectible inventory.
---------------------------------------------------------------------------
    \1555\ Sec. 6306(a).
    \1556\ Sec. 6306(c).
    \1557\ Sec. 6306(c)(2).
---------------------------------------------------------------------------
    Certain tax receivables are not eligible for collection 
under qualified tax collection contracts. A receivable is not 
eligible if the receivable: (i) is subject to a pending or 
active offer-in-compromise or installment agreement; (ii) is 
classified as an innocent spouse case; (iii) involves a 
taxpayer identified by the Secretary as being (a) deceased, (b) 
under the age of 18, (c) in a designated combat zone, (d) a 
victim of identity theft; (iv) is currently under examination, 
litigation, criminal investigation, or levy; or (v) is 
currently subject to a proper exercise of a right of appeal 
under Title 26.\1558\
---------------------------------------------------------------------------
    \1558\ Sec. 6306(d).
---------------------------------------------------------------------------
    In addition, certain tax receivables identified by the 
Secretary (or the Secretary's delegate) after December 31, 2020 
are not eligible for collection under qualified tax collection 
contracts. In this category, a receivable is not eligible if 
the receivable involves a taxpayer identified by the Secretary 
as being (a) a taxpayer substantially all of whose income 
consists of Social Security disability insurance or 
supplemental security income benefits, or (b) a taxpayer who is 
an individual with adjusted gross income (as determined for the 
most recent taxable year for which such information is 
available) which does not exceed 200 percent of the poverty 
level as determined by the Secretary.\1559\
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    \1559\ Sec. 6306(d)(3)(E), (F).
---------------------------------------------------------------------------
    Under the Code, returns and return information are 
confidential, and no officer or employee of the United States, 
and certain other persons, can disclose such information unless 
a specific Title 26 exception allowing the disclosure 
applies.\1560\ Civil and criminal penalties apply to the 
unauthorized disclosure or inspection of a return or return 
information. Return information includes, among other items, a 
taxpayer's identity, tax payments, and any data collected by 
the Secretary with respect to the determination of the 
existence or possible existence of liability for any tax, 
penalty, interest, fine, forfeiture, or other imposition or 
offense.\1561\ The term ``taxpayer identity'' means the name of 
a person with respect to whom a return is filed, their mailing 
address, their taxpayer identification number, or a combination 
of these items.\1562\
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    \1560\ Sec. 6103(a).
    \1561\ Sec. 6103(b)(2)(A).
    \1562\ Sec. 6103(b)(6).
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                        Explanation of Provision

    The provision amends the Code to allow the Secretary of the 
Treasury to disclose taxpayer identities (within the meaning of 
the Code) and dates of birth to the Social Security 
Administration (``SSA'') and contractors of the SSA to 
determine if tax receivables involving such individuals are 
ineligible for collection. The provision requires the 
Commissioner of Social Security to respond to the Secretary's 
inquiry with an indication as to whether the individual 
receives Social Security disability insurance or supplemental 
security income benefits. The provision restricts the IRS's use 
of this information to determining whether the individual's tax 
receivables are eligible for collection pursuant to a qualified 
tax collection contract. The Secretary is required to pay for 
the full costs (including administrative and system costs) of 
SSA providing the indication.
    The provision subjects SSA contractors to the general rule 
of confidentiality for information SSA contractors receive and 
to civil and criminal penalties for unauthorized inspection or 
disclosure of the information. Disclosures to SSA and its 
contractors under the provision are subject to recordkeeping, 
reporting, and safeguarding requirements for the information 
received.

                             Effective Date

    The provision applies to disclosures made on or after the 
date of enactment (December 27, 2020).

11. Modification of certain protections for taxpayer return information 
        (sec. 284 of the Act and sec. 6103(l)(13) of the Code)

                              Present Law

    As discussed below, the Fostering Undergraduate Talent by 
Unlocking Resources for Education (``FUTURE'') Act \1563\ 
amended and rewrote section 6103(l)(13) to authorize the 
disclosure of certain return information for purposes of 
administering student financial aid and loan programs. Further 
revisions were made by the CARES Act.\1564\
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    \1563\ Pub. L. No. 116-91, sec. 3, December 19, 2019.
    \1564\ Pub. L. No. 116-136, sec. 3516, March 27, 2020.
---------------------------------------------------------------------------

General rule of confidentiality and exception for certain disclosures 
        to administer certain student financial aid and loan programs

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by Title 
26 (the Code).\1565\ Among others, this general rule applies to 
officers and employees of the United States and to any person 
who has or had access to returns or return information under 
section 6103(l)(13). The FUTURE Act substantially revised 
section 6103(l)(13) to authorize the disclosure of certain 
return information for purposes of administering student 
financial aid and loan programs.
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    \1565\ Sec. 6103(a).
---------------------------------------------------------------------------
    The provision requires the IRS to disclose certain return 
information to the Department of Education and others for the 
purpose of administering financial aid and loan programs. Upon 
receiving a written request from the Secretary of 
Education,\1566\ the IRS must disclose specified return 
information to authorized persons for the purposes of (1) 
determining eligibility for, and repayment obligations under, 
income-contingent or income-based repayment plans; (2) 
monitoring and reinstating loans that were discharged based on 
a total and permanent disability; and (3) determining the 
eligibility for, and the amount of, awards of Federal student 
financial aid.
---------------------------------------------------------------------------
    \1566\ The Secretary of Education can make a request for disclosure 
under section 6103(l)(13) with respect to an individual only if the 
Secretary of Education has obtained approval from the individual for 
such disclosure.
---------------------------------------------------------------------------
    Authorized persons may only use the disclosed information 
for the purposes above and for three additional purposes 
related to the programs. These additional purposes are (1) 
reducing the net cost of improper payments under such plans, 
relating to such awards, or relating to such discharges; (2) 
oversight activities by the Office of Inspector General of the 
Department of Education as authorized by the Inspector General 
Act of 1978; and (3) conducting analyses and forecasts for 
estimating costs related to such plans, discharges, or awards. 
The additional purposes do not include conducting criminal 
investigations or prosecutions.
    An ``authorized person'' is any person who is an officer, 
employee, or contractor of the Department of Education, and is 
specifically authorized and designated by the Secretary of 
Education for purposes of the specific disclosure authority 
programs (income-contingent or income-based repayment plans, 
loans discharged based on a total and permanent disability, and 
awards of Federal student financial aid (the designation is 
applied separately with respect to each program)).
    With the approval of the taxpayer, authorized persons may 
redisclose the return information received from the IRS to 
certain institutions of higher education, State higher 
education agencies, and scholarship organizations solely for 
use in financial aid programs.

Civil damage remedy for unauthorized disclosure or unauthorized 
        inspection of returns and return information

    A taxpayer whose return or return information is disclosed 
in violation of section 6103(a) may bring a lawsuit in a 
district court of the United States for actual or statutory 
damages and, in certain cases, punitive damages. If a Federal 
employee makes knowingly or by reason of negligence, a 
disclosure or inspection in violation of any provision of 
section 6103, a taxpayer may sue the United States. If a person 
other than a Federal employee knowingly or by reason of 
negligence inspects or discloses any return or return 
information with respect to a taxpayer in violation of any 
provision of section 6103, suit may be brought directly against 
such person.
    No liability results from a disclosure based on a good 
faith, but erroneous, interpretation of section 6103. A 
disclosure or inspection requested by the taxpayer will also 
relieve liability.
    Upon a finding of liability, a taxpayer can recover the 
greater of $1,000 per act of unauthorized disclosure (or 
inspection) or the sum of actual damages plus, in the case of 
an inspection or disclosure that was willful or the result of 
gross negligence, punitive damages. The taxpayer may also 
recover the costs of the action and, if found to be a 
prevailing party, reasonable attorney fees.
    The taxpayer has two years from the date of the discovery 
of the unauthorized inspection or disclosure to bring suit. The 
IRS is required to notify a taxpayer of an unauthorized 
inspection or disclosure as soon as practicable after any 
person is criminally charged by indictment or information for 
unlawful inspection or disclosure. In addition, the taxpayer is 
to be notified if the IRS or a Federal or State agency (upon 
notice to the Secretary by such Federal or State agency) 
proposes an administrative determination as to disciplinary or 
adverse action against an employee arising from the employee's 
unauthorized inspection or disclosure of the taxpayer's return 
or return information.

Safeguards and accountings

    Unless specifically listed in the statute as excluded from 
the accounting requirement, section 6103(p)(3) requires the IRS 
to maintain a permanent system of standardized records or 
accountings of all requests for inspection or disclosure of 
returns and return information (including the reasons for and 
dates of such requests) and of returns and return information 
inspected or disclosed under section 6103 (and section 
6104(c)). Pursuant to the FUTURE Act, prior to amendment by the 
CARES Act as described below, the IRS was required to account 
for all disclosures made under section 6103(l)(13), including 
those made to the Department of Education and its contractors, 
as well as redisclosures made by authorized persons to 
institutions of higher education, State higher education 
agencies, and scholarship organizations. The Secretary of 
Education is required to annually submit a written report to 
the Secretary of the Treasury regarding: (1) redisclosures of 
return information to institutions of higher education, State 
higher education agencies, and scholarship organizations, 
including the number of such redisclosures; and (2) any 
unauthorized use, access, or disclosure of the return 
information under section 6103(l)(13).
    Section 6103(p)(4) requires, as a condition of receiving 
returns and return information, that Federal and State agencies 
and specified other recipients provide safeguards to the 
satisfaction of the Secretary of the Treasury as necessary or 
appropriate to protect the confidentiality of returns or return 
information.\1567\ It also requires that a report be furnished 
to the Secretary at such time and containing such information 
as prescribed by the Secretary, regarding the procedures 
established and utilized for ensuring the confidentiality of 
returns and return information. The Secretary, after an 
administrative review, may take such actions as are necessary 
to ensure these requirements are met, including the refusal to 
disclose returns and return information.
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    \1567\ The IRS has published guidelines for safeguarding the 
confidentiality of Federal tax information in IRS Publication 1075, Tax 
Information Security Guidelines for Federal, State and Local Agencies 
(2016), https://www.irs.gov/pub/irs-pdf/p1075.pdf.
---------------------------------------------------------------------------
    Pursuant to the FUTURE Act, prior to amendment by the CARES 
Act as described below, all agencies and other persons 
described in section 6103(l)(13) as authorized to receive 
confidential return information (i.e., the Department of 
Education, its contractors, certain institutions of higher 
education, State higher education agencies, and scholarship 
organizations) were required to safeguard such information to 
the satisfaction of the Secretary.

CARES Act amendments to confidentiality, accounting, and safeguard 
        provisions

    The CARES Act amended section 6103(l)(13) to remove certain 
confidentiality, accounting, and safeguard requirements.
    Specifically, pursuant to the CARES Act, a person who has 
or had access to return information under section 
6103(l)(13)(D)(iii) (i.e., certain institutions of higher 
education, State higher education agencies, scholarship 
organizations, and the authorized persons designated to the 
make redisclosures to such entities) is no longer required to 
maintain the confidentiality of that return information as 
provided by section 6103(a). As a result, the general rule of 
confidentiality and nondisclosure under section 6103(a) does 
not apply to these entities with respect to the information 
redisclosed to them, and a civil action for damages due to 
inspections and disclosures by such entities in violation of 
section 6103(a) is no longer available.
    In addition, pursuant to the CARES Act, the IRS is no 
longer required to maintain a permanent system of standardized 
records to account for disclosures the IRS makes to the 
Department of Education and its contractors. The IRS is still 
required to account for redisclosures made by authorized 
persons to institutions of higher education, State higher 
education agencies, and scholarship organizations.
    Finally, for institutions of higher education, State higher 
education agencies, scholarship organizations, and the 
authorized persons designated to make redisclosures to such 
entities, the CARES Act eliminated the requirement that as a 
condition of receiving return information such entities 
establish safeguard requirements to the satisfaction of the 
Secretary of the Treasury.

                        Explanation of Provision


Redisclosure to contractors of institutions of higher education or 
        State higher education agencies

    The provision allows an institution of higher education or 
a State higher education agency to designate a contractor to 
receive directly return information on such entity's behalf 
pursuant to section 6103(l)(13)(D)(iii) for the purposes of 
administering aspects of the entity's activities for the 
application, award, and administration of financial aid. The 
designation must occur under such terms and conditions as may 
be prescribed by the Secretary after consultation with the 
Department of Education.

Additional redisclosure authority

    The provision extends authority to disclose return 
information to additional persons in three situations.
    First, any return information redisclosed pursuant to 
section 6103(l)(13)(D)(iii) (that is, disclosed from the IRS to 
the Department of Education and redisclosed to certain 
institutions of higher education, State higher education 
agencies, designated scholarship organizations, or contractors 
on behalf of institutions of higher education and State higher 
education agencies) may be further disclosed by such entities 
to the Office of the Inspector General of the Department of 
Education and independent auditors conducting audits of the 
entity's administration of the programs for which return 
information was received.\1568\ An institution of higher 
education, a State higher education agency, or designated 
scholarship organization also may further disclose return 
information it has received to its contractors. These further 
disclosures are allowed only to the extent necessary for 
purposes of the application, award, and administration of 
financial aid.
---------------------------------------------------------------------------
    \1568\ Sec. 6103(l)(13)(D)(iv).
---------------------------------------------------------------------------
    Second, any return information that has been disclosed and 
used for purposes of (1) determining eligibility for, and 
repayment obligations under, income-contingent or income-based 
repayment plans or (2) determining the eligibility for, and the 
amount of, awards of Federal student financial aid, or has been 
redisclosed pursuant to section 6103(l)(13)(D)(iii), may be 
further disclosed to certain family members that have provided 
approval for such disclosure and redisclosure of their return 
information.\1569\ For disclosures related to income-contingent 
or income-based repayment plans, such family members are the 
plan applicant and the applicant's spouse. For disclosures 
related to Federal student financial aid, such family members 
are the plan applicant, the applicant's parent, and the 
applicant's spouse.
---------------------------------------------------------------------------
    \1569\ Sec. 6103(l)(13)(D)(v).
---------------------------------------------------------------------------
    Third, any return information received for purposes of 
determining the eligibility for, and the amount of, awards of 
Federal student financial aid may be redisclosed in the form of 
a complete, unredacted Student Aid Report to the aid applicant 
and, with the written consent of the applicant, directly from 
an institution of higher education to a scholarship granting 
organization or an organization assisting the applicant in 
applying for and receiving Federal, State, local, or tribal 
assistance, as designated by the applicant.\1570\ The 
redisclosure must be for the purposes of assisting the 
applicant in applying for and receiving financial assistance as 
specified in section 494(c) of the Higher Education Act of 1965 
\1571\ (as in effect on the date of enactment of the 
provision).
---------------------------------------------------------------------------
    \1570\ Sec. 6103(l)(13)(D)(vi).
    \1571\ 20 U.S.C. 1098h.
---------------------------------------------------------------------------

Reinstating confidentiality, accounting, and safeguard provisions

    The provision reinstates certain requirements that were 
removed by the CARES Act.
    First, the provision reinstates the requirement that a 
person who has or had access to return information under 
section 6103(l)(13)(D)(iii) (i.e., certain institutions of 
higher education, State higher education agencies, scholarship 
organizations, and contractors of institutions of higher 
education and State higher education agencies) must maintain 
the confidentiality of that return information as provided by 
section 6103(a). Accordingly, the general rules of 
confidentiality and nondisclosure under section 6103(a) apply 
to these entities with respect to information redisclosed to 
them, and a civil action for damages may be pursued against 
such entities in violation of section 6103(a). The general 
rules of confidentiality and nondisclosure are also extended to 
redisclosures to the Office of the Inspector General of the 
Department of Education and independent auditors. The general 
rules of confidentiality and nondisclosure are not extended to 
disclosures or redisclosures to family members or to 
scholarship granting organizations or organizations assisting 
the applicant in applying for financial assistance.\1572\
---------------------------------------------------------------------------
    \1572\ See secs. 6103(l)(13)(D)(v) and (vi).
---------------------------------------------------------------------------
    Second, the provision reinstates the requirement that the 
IRS maintain a permanent system of standardized records to 
account for disclosures the IRS makes to the Department of 
Education and its contractors. The IRS is not required to 
account for certain redisclosures. Specifically, the IRS is not 
required to account for redisclosures made by institutions of 
higher education, State higher education agencies, or 
designated scholarship organizations to: their contractors, or, 
when such entity is under audit, the Office of the Inspector 
General of the Department of Education or independent auditors. 
The IRS is not required to account for redisclosures of return 
information to family members, nor of financial aid information 
provided pursuant to an applicant's consent to scholarship 
granting organizations or organizations assisting the applicant 
in applying for financial assistance as described in section 
494(c) of the Higher Education Act as added by the 
provision.\1573\
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    \1573\ See secs. 6103(l)(13)(D)(iv), (v), and (vi).
---------------------------------------------------------------------------

                             Effective Date

    The amendments made by the provision apply to disclosures 
made after the date of enactment of the FUTURE Act (Pub. L. No. 
116-91) (December 19, 2019).

12. 2020 election to terminate transfer period for qualified transfers 
        from pension plan for covering future retiree costs (sec. 285 
        of the Act and sec. 420 of the Code)

                              Present Law


Defined benefit pension plan reversions

    Defined benefit plan assets generally may not revert to an 
employer prior to termination of the plan and satisfaction of 
all plan liabilities.\1574\ Upon plan termination, the accrued 
benefits of all plan participants are required to be 100-
percent vested. A reversion prior to plan termination may 
constitute a prohibited transaction and may result in plan 
disqualification. Any assets that revert to the employer upon 
plan termination are includible in the gross income of the 
employer and subject to an excise tax. The excise tax rate is 
20 percent if the employer maintains a replacement plan or 
makes certain benefit increases in connection with the 
termination; if not, the excise tax rate is 50 percent.
---------------------------------------------------------------------------
    \1574\ In addition, a reversion may occur only if the terms of the 
plan so provide.
---------------------------------------------------------------------------

Retiree medical accounts

    A defined benefit plan may provide medical benefits to 
retired employees through a separate account that is part of 
the plan (``retiree medical accounts'').\1575\ Medical benefits 
provided through a retiree medical account are generally not 
includible in the retired employee's gross income.\1576\
---------------------------------------------------------------------------
    \1575\ Sec. 401(h) and Treas. Reg. sec. 1.401-1(b).
    \1576\ Treas. Reg. sec. 1.72-15(h).
---------------------------------------------------------------------------

Transfers of excess pension assets

            In general
    A qualified transfer of excess assets of a defined benefit 
plan, including a multiemployer plan, may be made to a retiree 
medical account or life insurance account within the plan to 
fund retiree health benefits and group term life insurance 
coverage (``applicable retiree benefits'').\1577\ A qualified 
transfer does not result in plan disqualification, is not a 
prohibited transaction, and is not treated as a reversion. 
Thus, transferred assets are not includible in the gross income 
of the employer and are not subject to the excise tax on 
reversions. No more than one qualified transfer may be made in 
any taxable year. For this purpose, a transfer to a retiree 
medical account and a transfer to a retiree life insurance 
account in the same year are treated as one transfer. No 
qualified transfer may be made after December 31, 2025.
---------------------------------------------------------------------------
    \1577\ Sec. 420.
---------------------------------------------------------------------------
    Excess assets generally means the excess, if any, of the 
value of the plan's assets \1578\ over 125 percent of the sum 
of the plan's funding target and target normal cost for the 
plan year. In addition, excess assets transferred in a 
qualified transfer may not exceed the amount reasonably 
estimated to be the amount that the employer will pay out of 
such account during the taxable year of the transfer for 
qualified current retiree liabilities.\1579\ No deduction is 
allowed to the employer for (1) a qualified transfer, or (2) 
the payment of applicable retiree benefits out of transferred 
funds (and any income thereon). In addition, no deduction is 
allowed for amounts paid other than from transferred funds for 
qualified current retiree liabilities to the extent such 
amounts are not greater than the excess of (1) the amount 
transferred (and any income thereon), over (2) qualified 
current retiree liabilities paid out of transferred assets (and 
any income thereon). An employer may not contribute any amount 
to a health benefits account or welfare benefit fund with 
respect to qualified current retiree liabilities for which 
transferred assets are required to be used.
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    \1578\ The value of plan assets for this purpose is the lesser of 
fair market value or actuarial value, reduced by any prefunding balance 
or standard carryover balance.
    \1579\ ``Qualified current retiree liabilities'' means, with 
respect to any taxable year, the aggregate amounts (including 
administrative expenses) which would have been allowable as a deduction 
to the employer for such taxable year with respect to applicable health 
benefits and applicable life insurance benefits provided during such 
taxable year if (i) such benefits were provided directly by the 
employer, and (ii) the employer used the cash receipts and 
disbursements method of accounting. Sec. 420(e)(1).
---------------------------------------------------------------------------
    Transferred assets (and any income thereon) must be used to 
pay qualified current retiree liabilities for the taxable year 
of the transfer. Transferred amounts generally must benefit 
pension plan participants, other than key employees, who are 
entitled upon retirement to receive applicable retiree benefits 
through the separate account or accounts.\1580\ Applicable 
retiree benefits of key employees may not be paid out of 
transferred assets.
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    \1580\ In the case of group term life insurance coverage, the 
transfer may be provided only to the extent that coverage is provided 
under a policy for retired employees and the cost of such coverage is 
excludable from the retired employee's gross income under section 79. 
Thus, generally, only group term life insurance coverage not in excess 
of $50,000 may be purchased with such transferred assets.
---------------------------------------------------------------------------
    Amounts not used to pay qualified current retiree 
liabilities for the taxable year of the transfer are to be 
returned to the general assets of the plan. These amounts are 
not includible in the gross income of the employer, but are 
treated as an employer reversion and are subject to a 20-
percent excise tax.
    In order for the transfer to be qualified, accrued 
retirement benefits under the pension plan generally must be 
100-percent vested as if the plan terminated immediately before 
the transfer (or in the case of a participant who separated in 
the one-year period ending on the date of the transfer, 
immediately before the separation). A maintenance of effort 
requirement also applies (separately to transfers to retiree 
medical accounts and the life insurance accounts), under which 
the employer generally must maintain applicable retiree 
benefits at the same cost level for the taxable year of the 
transfer and the following four years.
    In addition, the Employee Retirement Income Security Act of 
1974 (``ERISA'') \1581\ provides that, at least 60 days before 
the date of a qualified transfer, the employer must notify the 
Secretary of Labor, the Secretary of the Treasury, employee 
representatives, and the plan administrator of the transfer, 
and the plan administrator must notify each plan participant 
and beneficiary of the transfer.\1582\
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    \1581\ Pub. L. No. 93-406.
    \1582\ ERISA sec. 101(e). ERISA also provides that a qualified 
transfer is not a prohibited transaction under ERISA or a prohibited 
reversion.
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            Qualified future transfers and collectively bargained 
                    transfers
    If certain requirements are satisfied, transfers of excess 
pension assets under a single-employer plan to retiree medical 
accounts and life insurance accounts to fund the expected cost 
of applicable retiree benefits are permitted for the current 
and future years (a ``qualified future transfer'') and such 
transfers are also allowed in the case of benefits provided 
under a collective bargaining agreement (a ``collectively 
bargained transfer'').\1583\ Transfers must be made for at 
least a two-year period, and for no more than a 10-year period. 
An employer can elect to make a qualified future transfer or a 
collectively bargained transfer rather than a qualified 
transfer. A qualified future transfer or collectively bargained 
transfer must meet the requirements applicable to qualified 
transfers with modifications related to: (1) the determination 
of excess pension assets; (2) the limitation on the amount 
transferred; and (3) the maintenance of effort requirement.
---------------------------------------------------------------------------
    \1583\ Sec. 420(f). The rules for qualified future transfers and 
collectively bargained transfers were added by the PPA and apply to 
transfers after the date of enactment (August 17, 2006).
---------------------------------------------------------------------------
    With respect to the determination of excess pension assets, 
in the case of a qualified future transfer or a collectively 
bargained transfer, excess assets generally means the excess, 
if any, of (i) the value of the plan's assets \1584\ over (ii) 
120 percent (rather than 125 percent) of the sum of the plan's 
funding target and target normal cost for the plan year. In 
addition, a special rule applies relating to the maintenance of 
a plan's funded status. If, as of any valuation date of any 
plan year in the transfer period, the amount described in 
clause (ii) above exceeds the amount described in clause (i), 
than an amount not less than the amount required to reduce such 
excess to zero as of such date must either be contributed to 
the plan by the employer maintaining the plan, or must be 
transferred to the plan from the retiree medical account or 
life insurance account (as applicable).\1585\
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    \1584\ The value of plan assets for this purpose is the lesser of 
fair market value or actuarial value, reduced by any prefunding balance 
or standard carryover balance.
    \1585\ Sec. 420(f)(2)(B)(ii).
---------------------------------------------------------------------------
    With respect to the limitation on the amount transferred, 
in the case of a qualified future transfer, the amount of 
excess pension assets that may be transferred may not exceed 
the sum of (i) if the transfer period includes the taxable year 
of the transfer, the amount reasonably estimated to be the 
amount that the employer will pay out of the retiree medical 
account or life insurance account during the taxable year of 
the transfer for qualified current retiree liabilities, and 
(ii) in the case of all other taxable years in the transfer 
period, the sum of the qualified current retiree liabilities 
that the plan reasonably estimates (in accordance with guidance 
issued by the Secretary) will be incurred for each of such 
years. In the case of a collectively bargained transfer, the 
amount of excess pension assets that may be transferred may not 
exceed the amount that is reasonably estimated, in accordance 
with the provisions of the collective bargaining agreement and 
generally accepted accounting principles, to be the amount the 
employer maintaining the plan will pay (whether directly or 
through reimbursement) out of such account during the 
collectively bargained cost maintenance period \1586\ for 
collectively bargained retiree liabilities. Any assets 
transferred to a retiree medical account or life insurance 
account in a qualified future transfer or collectively 
bargained transfer that are not used as described in this 
paragraph must be returned to the general assets of the 
plan.\1587\
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    \1586\ As defined in section 420(f)(6)(A).
    \1587\ Sec. 420(c)(1).
---------------------------------------------------------------------------
    The general sunset applicable to qualified transfers 
applies in this context (i.e., no transfers can be made after 
December 31, 2025).

                        Explanation of Provision

    The provision provides a special rule for 2021 for plans 
that have made qualified future transfers. Under the provision, 
the employer of such a plan may, not later than December 31, 
2021, elect to terminate the transfer period with respect to 
the qualified future transfer effective as of any taxable year 
specified by the taxpayer that begins after the date of the 
election.
    Under the provision, certain requirements apply to plans 
that elect to terminate the transfer period. Any assets 
transferred to a retiree medical account or life insurance 
account in a qualified future transfer (and any income 
allocable thereto) that are not used as of the effective date 
of the election must be transferred to the transferor plan 
within a reasonable period of time. Such a transfer is treated 
as an employer reversion unless, before the end of the five-
year period beginning after the original transfer period,\1588\ 
an equivalent amount is transferred back to such retiree 
medical account or life insurance account (as 
applicable).\1589\
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    \1588\ The original transfer period is the transfer period under 
section 420(f) with respect to a qualified future transfer determined 
without regard to an election to terminate the transfer period.
    \1589\ The provision provides that any transfers back may be made 
without regard to section 401(h)(1) (providing that benefits under a 
pension or annuity plan for sickness, accident, hospitalization, and 
medical expenses for retired employees, their spouses, and their 
dependents must be subordinate to the retirement benefits provided by 
the plan).
---------------------------------------------------------------------------
    In addition, modifications apply to the rules relating to 
the determination of excess assets and the maintenance of a 
plan's funded status during the transfer period. Under the 
provision, these rules apply to the plan without regard to the 
plan's election to terminate the transfer period, and in 
applying such rules during the original transfer period, the 
value of the plan's assets is compared to 100 percent of the 
sum of the plan's funding target and target normal cost for the 
plan year, rather than 120 percent.\1590\ If, as of the 
valuation date of the plan year in the last year of the 
original transfer period, the required funding level of the 
plan exceeds the value of the plan's assets,\1591\ the rules 
relating to the determination of excess assets for a qualified 
future transfer and the maintenance of a plan's funded status 
apply for five years after the end of the original transfer 
period, except that the ``applicable percentage'' is 
substituted for 120 percent. The ``applicable percentage'' is 
determined, under the provision, according to the table below.
---------------------------------------------------------------------------
    \1590\ The provision also provides that the minimum cost 
requirements under section 420(c)(3) and (f)(2)(D) apply with respect 
to a qualified future transfer without regard to any election to 
terminate the transfer period.
    \1591\ As determined under section 420(f)(2)(B)(ii) (when 120 
percent of the sum of the plan's funding target and target normal cost 
for the plan year exceeds the value of the plan's assets).
---------------------------------------------------------------------------
    For the valuation of the plan year in the following:
    The applicable percentage is: year after the original 
transfer period:
        1st--104 percent
        2nd--108 percent
        3rd--112 percent
        4th--116 percent
        5th--120 percent
    However, this rule (relating to the five years after the 
original transfer period) ceases to apply if, as of the 
valuation date of any plan year in the first four years after 
the original transfer period, the plan's required funding level 
would not exceed the value of the plan's assets if the 
applicable percentage were 120 percent.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2019.

13. Extension of credits for paid sick and family leave (sec. 286 of 
        the Act)

                              Present Law


In general

    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include Federal income 
tax as well as taxes levied under Federal Insurance 
Contributions Act (``FICA'') and Federal Unemployment Tax Act 
(``FUTA'').\1592\ In addition, tier 1 of the Railroad 
Retirement Tax Act (``RRTA'') imposes a tax on compensation 
paid to railroad employees and representatives.\1593\
---------------------------------------------------------------------------
    \1592\ Secs. 3401, 3101, 3111, and 3301.
    \1593\ Sec. 3221.
---------------------------------------------------------------------------
    FICA taxes are comprised of two components: the Old-Age, 
Survivors, and Disability Insurance (``OASDI'') taxes and 
Medicare taxes.\1594\ With respect to OASDI taxes, the 
applicable rate is 12.4 percent with half of such rate (6.2 
percent) imposed on the employee and the remainder (6.2 
percent) imposed on the employer.\1595\ The tax is assessed on 
covered wages up to the OASDI wage base ($137,700 in 
2020).\1596\ Generally, the OASDI wage base rises based on 
increases in the national average wage index.\1597\
---------------------------------------------------------------------------
    \1594\ The Hospital Insurance (``HI'') tax has two components: 
Medicare tax and Additional Medicare tax. Medicare tax is imposed on 
wages, as defined in Section 3121(a), with respect to employment, as 
defined in Section 3121(b), at a rate of 1.45 percent for the employer. 
Sec. 3101(b)(1). An equivalent 1.45 percent is withheld from employee 
wages. Sec. 3111(b)(1). For purposes of this description, Medicare tax 
does not include Additional Medicare tax. Additional Medicare taxes are 
withheld from employee wages in excess of $200,000 at a rate of 0.9 
percent. Sec. 3101(b)(2). There is no equivalent employer's share of 
Additional Medicare taxes.
    \1595\ Sec. 3101.
    \1596\ Indexed for inflation, the OASDI wage base for 2021 is 
$142,800.
    \1597\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
---------------------------------------------------------------------------
    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1598\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes salaries, vacation allowances, bonuses, deferred 
compensation, commissions, and fringe benefits. The term 
``employment'' is generally defined for FICA tax purposes as 
any service, of whatever nature, performed by an employee for 
the person employing him or her, with certain specific 
exceptions.
---------------------------------------------------------------------------
    \1598\ Sec. 3121(a).
---------------------------------------------------------------------------

Railroad retirement program

    Railroad workers do not participate in the OASDI system. 
Accordingly, compensation subject to RRTA tax is exempt from 
FICA taxes.\1599\ The RRTA imposes a tax on compensation paid 
by covered employers to employees in recognition for the 
performance of services.\1600\ Employees whose compensation is 
subject to RRTA are ultimately eligible for railroad retirement 
benefits that fall under a two-tier structure. Rail employees 
and employers pay tier 1 taxes at the same rate as FICA 
taxes.\1601\ In addition, rail employees and employers both pay 
tier 2 taxes that are used to finance railroad retirement 
benefits over and above Social Security benefit levels.\1602\ 
Tier 2 benefits are similar to benefits under a defined benefit 
plan. Those taxes are funneled to the railroad retirement 
system and used to fund basic retirement benefits for railroad 
workers and an investment trust that generates returns for the 
pension fund.
---------------------------------------------------------------------------
    \1599\ Sec. 3121(b)(9).
    \1600\ Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the Social Security and Medicare taxes under FICA. Under 
the RRTA, employers and employees are also subject to an additional 
tax, referred to as the ``tier 2'' tax, on compensation up to a certain 
amount.
    \1601\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $137,700 in 2020 and $142,800 in 2021, and 1.45 percent 
for Medicare hospital insurance on all earnings. An additional 0.9 
percent in Medicare taxes are withheld from employees on earnings above 
$200,000.
    \1602\ In 2020, the tier 2 tax rate on earnings up to $102,300 is 
4.9 percent for employees and 13.1 percent for employers. In 2021, the 
tier 2 tax rates remain the same with an increase in taxable earnings 
to $106,200.
---------------------------------------------------------------------------

Self-employment taxes

    The Self-Employed Contributions Act (``SECA'') imposes tax 
on the self-employment income of an individual. SECA taxes 
consist of OASDI tax and Medicare tax.\1603\ Under the OASDI 
component, the first rate of tax is 12.4 percent on self-
employment income up to the OASDI wage base ($137,700 for 
2020).\1604\ Under the basic Medicare tax component, the second 
rate of tax is 2.9 percent of all self-employment income 
(without regard to the OASDI wage base).\1605\ As is the case 
with employees, an Additional Medicare tax applies to the 
Medicare portion of SECA tax on self-employment income in 
excess of a threshold amount.\1606\
---------------------------------------------------------------------------
    \1603\ Sec. 1401(a) and (b).
    \1604\ Sec. 1401(a). In calculating the SECA tax for OASDI, the 
OASDI wage base taken into account is reduced by FICA wages paid to the 
individual during the taxable year.
    \1605\ Sec. 1401(b)(1).
    \1606\ Sec. 1401(b)(2).
---------------------------------------------------------------------------
    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment are equal to the gross income 
derived by an individual from any trade or business less 
allowed deductions that are attributable to the trade or 
business and permitted under the SECA rules. Certain passive 
income and related deductions are not taken into account in 
determining net earnings from self-employment, including 
rentals from real estate (unless received in the course of a 
trade or business as a real estate dealer),\1607\ dividends and 
interest (unless such dividends and interest are received in 
the course of a trade or business as a dealer in stocks or 
securities),\1608\ and sales or exchanges of capital assets and 
certain other property (unless the property is stock in trade 
that would properly be included in inventory or held primarily 
for sale to customers in the ordinary course of the trade or 
business).\1609\
---------------------------------------------------------------------------
    \1607\ Sec. 1402(a)(1).
    \1608\ Sec. 1402(a)(2).
    \1609\ Sec. 1402(a)(3).
---------------------------------------------------------------------------
    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI and Medicare (i.e., 7.65 percent 
of net earnings).\1610\ This deduction is determined without 
regard to the additional 0.9 percent Additional Medicare tax 
that may apply to an individual. This deduction reflects the 
fact that the FICA rates apply to an employee's wages, which do 
not include FICA taxes paid by the employer, whereas the self-
employed individual's net earnings are economically equivalent 
to an employee's wages plus the employer's share of FICA 
taxes.\1611\ This is generally referred to as the ``regular 
method'' of determining net earnings from self-employment, and 
in Internal Revenue Service forms and publications it is 
expressed as multiplying total net earnings from self-
employment by 92.35 percent.
---------------------------------------------------------------------------
    \1610\ Sec. 1402(a)(12).
    \1611\ The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid. As presently written, the deduction for 
SECA taxes is not the exact economic equivalent to the deduction for 
FICA taxes. See Joint Committee on Taxation, Options to Improve Tax 
Compliance and Reform Tax Expenditures (JCS-2-05), January 2005, for a 
detailed description of this issue.
---------------------------------------------------------------------------

Paid sick and family leave for employees

    The Families First Coronavirus Response Act (``FFCRA'') 
\1612\ required certain employers with fewer than 500 employees 
to provide paid sick and expanded family and medical leave to 
employees unable to work or telework for specified reasons 
related to COVID-19. The paid sick leave requirements in the 
Emergency Paid Sick Leave Act (``EPSLA''),\1613\ and the 
expanded family and medical leave requirements in the Emergency 
Family and Medical Leave Expansion Act (``EFMLEA''),\1614\ 
expired on December 31, 2020.
---------------------------------------------------------------------------
    \1612\ Pub. L. No. 116-127 (March 18, 2020).
    \1613\ Division E, FFCRA, Pub. L. No. 116-127.
    \1614\ Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    An employer is allowed a credit against the OASDI tax 
\1615\ or the equivalent amount of tax under the Railroad 
Retirement Tax Act (``RRTA'') imposed on the employer for each 
calendar quarter in an amount equal to 100 percent of the 
qualified sick leave wages and qualified family leave wages 
paid by the employer with respect to that calendar quarter, 
subject to limitations.\1616\ Qualified sick leave wages are 
defined as wages \1617\ and compensation \1618\ paid by an 
employer which are required to be paid by reason of the EPSLA.
---------------------------------------------------------------------------
    \1615\ The Federal Insurance Contributions Act (``FICA'') imposes 
taxes on ``wages,'' as defined in Section 3121(a), with respect to 
``employment,'' as defined in Section 3121(b). The term wages is 
defined for FICA purposes as all remuneration for employment, with 
certain specific exceptions. Employment is defined as any service, of 
whatever nature, performed by an employee for the person employing him, 
with certain specific exceptions. FICA taxes consist of the OASDI tax 
and the HI tax. HI tax includes an employer's share imposed on wages at 
a rate of 1.45 percent under Section 3111(b). The employee's share of 
HI tax is imposed on wages at a rate of 1.45 percent under Section 
3101(b). Unlike OASDI, there is no contribution limit on wages subject 
to HI tax.
    \1616\ Notice 2020-21, 2020-16 I.R.B. 660 (April 13, 2020).
    \1617\ Sec. 3121(a).
    \1618\ Sec. 3231(e).
---------------------------------------------------------------------------
    Qualified family leave wages are wages \1619\ and 
compensation \1620\ paid by an employer which are required to 
be paid by reason of the EFMLEA.\1621\ In addition to qualified 
sick leave wages and qualified family leave wages, the credit 
could be increased by certain health plan expenses of the 
employer.
---------------------------------------------------------------------------
    \1619\ Sec. 3121(a).
    \1620\ Sec. 3231(e).
    \1621\ See Notice 2020-54, 2020-31 I.R.B. 226 (July 27, 2020).
---------------------------------------------------------------------------
            Amount of credit for paid sick leave
    Certain employers must provide an employee with up to 80 
hours of paid sick time to the extent that: (1) the employee is 
subject to a Federal, State, or local quarantine or isolation 
order related to COVID-19; (2) the employee has been advised by 
a health care provider to self-quarantine due to concerns 
related to COVID-19; (3) the employee is experiencing symptoms 
of COVID-19 and is seeking a medical diagnosis; (4) the 
employee is caring for an individual who is subject to a 
quarantine or isolation order or has been advised by a health 
care provider to self-quarantine; (5) the employee is caring 
for the employee's son or daughter if the school or place of 
care of the son or daughter has been closed, or the child care 
provider of such son or daughter is unavailable due to COVID-19 
precautions; or (6) the employee is experiencing any other 
substantially similar condition specified by the Secretary of 
Health and Human Services in consultation with the Secretary of 
Treasury and the Secretary of Labor.\1622\
---------------------------------------------------------------------------
    \1622\ Sec. 5102(a), Division E, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The amount of qualified sick leave wages that may be taken 
into account for an employee for purposes of the credit is 
limited based on the circumstances under which qualified sick 
leave wages are paid. In the case of paid sick time qualifying 
under categories (1), (2), or (3) above, the amount of 
qualified sick leave wages taken into account for purposes of 
the credit may not exceed $511 for any day (or portion thereof) 
when the individual is paid such sick time. In the case of paid 
sick time qualifying under categories (4), (5), or (6) above, 
the amount of qualified sick leave wages taken into account may 
not exceed $200 for any day (or portion thereof) for which the 
individual is paid such sick time. In addition, the aggregate 
number of days that may be taken into account with respect to 
an individual under all six circumstances may not exceed the 
excess (if any) of 10 days over the aggregate number of days 
taken into account for all preceding calendar quarters.
            Amount of credit for expanded family and medical leave
    Certain employers must provide public health emergency 
leave to employees under the Family and Medical Leave Act of 
1993 (``FMLA''), as amended by EFMLEA.\1623\ This requirement 
generally applies when an employee is unable to work or 
telework due to a need for leave to care for a son or daughter 
under age 18 because the school or place of care has been 
closed, or the child care provider is unavailable, due to a 
public health emergency. An employer with employees who are 
health care providers or emergency responders may elect to 
exclude such employees from this requirement to provide paid 
family leave. A public health emergency for this purpose is an 
emergency with respect to COVID-19 declared by a Federal, 
State, or local authority.
---------------------------------------------------------------------------
    \1623\ Sec. 3102, Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The first 10 days of public health emergency leave required 
under the EFMLEA may consist of unpaid leave, after which paid 
leave is required for ten weeks until December 31, 2020. The 
amount of required paid leave is calculated based on: (a) an 
amount that is not less than two-thirds of an employee's 
regular rate of pay; and (b) the number of hours the employee 
would otherwise be normally scheduled to work. The paid leave 
mandated by the EFMLEA does not exceed $200 per day and $10,000 
in the aggregate.
    Employers are allowed a credit against OASDI taxes or the 
equivalent amount of RRTA taxes in an amount equal to 100 
percent of qualified family leave wages paid by the employer 
during the quarter. Consistent with the mandate, the maximum 
amount of the qualified family leave wages eligible for the 
credit is $200 for any day (or portion thereof) for which the 
employee is paid qualified family leave wages, and in the 
aggregate with respect to all quarters, $10,000. Employers are 
not allowed the credit in respect of unpaid leave.
            Additional rules
    The credit allowed for paid sick or paid family leave is 
increased by the employer's qualified health plan expenses as 
are properly allocable to the qualified sick leave wages for 
which the credit is allowed. Qualified health plan expenses are 
amounts paid or incurred by the employer to provide and 
maintain a group health plan,\1624\ but only to the extent such 
amounts are excluded from the employees' income as coverage 
under an accident or health plan.\1625\ Qualified health plan 
expenses are allocated to qualified sick leave wages in such 
manner as the Secretary of Treasury (or the Secretary's 
delegate) may prescribe. Except as otherwise provided by the 
Secretary, such allocations are treated as properly made if 
they are pro rata among covered employees and pro rata on the 
basis of periods of coverage (relative to the time periods of 
leave to which such wages relate).
---------------------------------------------------------------------------
    \1624\ Sec. 5000(b)(1).
    \1625\ Sec. 106(a).
---------------------------------------------------------------------------
    The credit allowed may not exceed the OASDI tax or 
equivalent amount of RRTA tax imposed on the employer, reduced 
by any credits allowed for the employment of qualified veterans 
\1626\ and research expenditures of qualified small businesses 
\1627\ for that calendar quarter on the wages paid with respect 
to all the employer's employees. However, if for any calendar 
quarter the amount of the credit exceeds the OASDI tax or RRTA 
tax imposed on the employer, reduced as described in the prior 
sentence, such excess is treated as a refundable 
overpayment.\1628\
---------------------------------------------------------------------------
    \1626\ Sec. 3111(e).
    \1627\ Sec. 3111(f).
    \1628\ The excess is treated as an overpayment and refunded under 
sections 6402(a) and 6413(b). In addition, any amount that is due to an 
employer is treated in the same manner as a refund due from a credit 
provision. 31 U.S.C. 1324. Thus, amounts are appropriated to the 
Secretary of Treasury for refunding such excess amounts.
---------------------------------------------------------------------------
    If a taxpayer claims a credit, the amount so claimed is 
included in gross income. Thus, the credit is not taken into 
account for purposes of determining any amount allowable as a 
payroll tax deduction or deduction for qualified sick leave 
wages or qualified family leave wages (or any amount 
capitalizable to basis).
    Any qualified sick leave wages taken into account for 
purposes of a credit are not taken into account for purposes of 
determining the section 45S general business credit for 
employer paid family and medical leave. Thus, the employer may 
not claim a credit under section 45S with respect to the 
qualified sick leave wages or qualified family leave wages paid 
but may be allowed a credit under section 45S with respect to 
any additional wages paid.
    An employer may elect not to claim a tax credit for a 
calendar quarter for qualified sick leave wages or qualified 
family leave wages. Further, the credit allowed does not apply 
to the government of the United States, the government of any 
State or political subdivision thereof, or any agency or 
instrumentality of any of those entities. Employers in the U.S. 
territories may claim the credit by filing their quarterly 
Federal employment tax returns.
    Any wages or compensation required to be paid to employees 
pursuant to the EPSLA or EFMLEA before December 31, 2020, are 
not considered wages for purposes of OASDI tax or compensation 
for purposes of RRTA tax. In addition, or, in the case of wages 
or compensation paid after December, 31, 2020 and before April 
1, 2021, any wages or compensation with respect to which a 
credit is allowed, are not considered wages for purposes of 
OASDI tax or compensation for purposes of RRTA tax. As a 
result, no taxes are collected on these amounts from employers 
or employees.\1629\
---------------------------------------------------------------------------
    \1629\ An amount equal to the reduction in revenues to the Treasury 
by reason of the FFCRA is appropriated to the OASDI Trust Funds and the 
Social Security Equivalent Benefit Account established under the 
Railroad Retirement Act of 1974. This amount is transferred from the 
general fund at such times and in such manner as to replicate to the 
extent possible the transfers that would have occurred to the OASDI 
Trust Funds or Social Security Equivalent Benefit Account had this 
provision not been enacted.
---------------------------------------------------------------------------

Paid sick leave and expanded family and medical leave for self-employed 
        individuals

    An eligible self-employed individual may claim an income 
tax credit for any taxable year for a qualified sick leave 
equivalent amount or qualified family leave equivalent amount. 
An eligible self-employed individual is defined as an 
individual who regularly carries on any trade or business 
\1630\ and who would be entitled to receive paid leave during 
the taxable year under the EPSLA or EFMLEA.
---------------------------------------------------------------------------
    \1630\ Within the meaning of sec. 1402.
---------------------------------------------------------------------------
    The qualified sick leave equivalent amount with respect to 
an eligible self-employed individual is an amount equal to the 
number of days during the taxable year that the self-employed 
individual cannot perform services for which that individual 
would have been entitled to sick leave pursuant to the EPSLA 
\1631\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (1) $511 in the case 
of paid sick time described in categories (1), (2), or (3) 
above with respect to section 5102(a) of the EPSLA ($200 in the 
case of paid sick time described in categories (4), (5), or (6) 
above); or (2) 100 percent of the average daily self-employment 
income of the individual for the taxable year in the case of 
any day of paid sick time described in categories (1), (2), or 
(3) above (67 percent in the case of paid sick time described 
in categories (4), (5), or (6) above).
---------------------------------------------------------------------------
    \1631\ Division E and C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The number of days taken into account in determining the 
qualified sick leave equivalent amount may not exceed, with 
respect to any taxable year, 10 days, taking into account any 
days taken in all preceding taxable years. The individual's 
average daily self-employment income under the provision is an 
amount equal to the net earnings from self-employment for the 
taxable year divided by 260.
    If an eligible self-employed individual receives qualified 
sick leave wages,\1632\ the individual's qualified sick leave 
equivalent amount determined under the provision is reduced 
(but not below zero) to the extent that the sum of the 
qualified sick leave equivalent amount and the qualified sick 
leave wages received exceeds $2,000 ($5,110 in the case of any 
day any portion of which is paid sick time described in 
category (1), (2), or (3) above).
---------------------------------------------------------------------------
    \1632\  As defined by sec. 7001(c) of FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The qualified family leave equivalent amount with respect 
to an eligible self-employed individual is an amount equal to 
the number of days (up to 50) during the taxable year that the 
self-employed individual cannot perform services for which that 
individual would be entitled to paid leave pursuant to the 
EFMLEA \1633\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (1) 67 percent of the 
average daily self-employment income of the individual for the 
taxable year, or (2) $200. The individual's average daily self-
employment income under the provision is an amount equal to the 
individual's net earnings from self-employment for the year 
divided by 260.
---------------------------------------------------------------------------
    \1633\ Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The credit allowed for the qualified sick leave equivalent 
amount or qualified family leave equivalent amount is applied 
against federal income taxes and is a refundable credit.\1634\
---------------------------------------------------------------------------
    \1634\ Any refund due to an individual is treated in the same 
manner as a refund due from a credit provision. 31 U.S.C. sec. 1324. 
Thus, amounts are appropriated to the Secretary (or the Secretary's 
delegate) for refunding such amounts.
---------------------------------------------------------------------------
    If an eligible self-employed individual receives qualified 
family leave wages,\1635\ the individual's qualified family 
leave equivalent amount determined under the provision is 
reduced (but not below zero) to the extent that the sum of the 
qualified family leave equivalent amount and the qualified 
family leave wages received exceeds $10,000.
---------------------------------------------------------------------------
    \1635\ As defined by sec. 7003(c) of the FFCRA, Pub. L. No. 116-
127.
---------------------------------------------------------------------------

Application of credit in certain territories

    The Secretary of Treasury is directed to make payments to 
each territory with a mirror Code tax system that relate to the 
cost (if any) of each territory's credits for sick leave or 
expanded family and medical leave for certain self-employed 
individuals. The Secretary is further directed to make similar 
payments to each non-mirror Code territory.
    With respect to mirror Code territories, the Secretary is 
required to make payments equal to the loss in revenue by 
reason of the application of the credit for sick leave or 
expanded family and medical leave for certain self-employed 
individuals to the territory's mirror Code. This amount is 
determined by the Secretary based on information provided by 
the governments of the respective territories.
    With respect to Puerto Rico and American Samoa (non-mirror 
Code territories), the Secretary is directed to make payments 
in an amount estimated by the Secretary as being equal to the 
aggregate benefits that would have been provided to the 
residents of each territory from the credit for sick leave or 
expanded family and medical leave for certain self-employed 
individuals if a mirror Code tax system had been in effect in 
such territory. The Secretary must not make these payments 
unless the territory has a plan approved by the Secretary to 
promptly distribute the payments to its residents.
    The Secretary of Treasury is directed to prescribe such 
regulations or other guidance as may be necessary to carry out 
the purposes of the provision, including (1) to effectuate the 
purposes of this Act, and (2) to minimize compliance and 
record-keeping burdens under the provision.\1636\
---------------------------------------------------------------------------
    \1636\ Notice 2020-54, 2020-31 I.R.B. 226 (July 27, 2020).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision allows eligible employers to continue to 
receive tax credits for qualifying wages paid to employees on 
paid sick or expanded family leave until March 31, 2021. The 
EPSLA and EFMLEA, which were the provisions requiring certain 
employers to provide paid sick and expanded family and medical 
leave as noted above, expired on December 31, 2020. This 
mandate was not extended. However, the provision modifies 
qualified sick leave wages to include wages and compensation 
that would have been required to be paid if the EPSLA had been 
effective until March 31, 2021.\1637\ Qualified family leave 
wages also includes wages and compensation that would have been 
required to be paid if the EFMLEA had been effective until 
March 31, 2021.\1638\ Employers that provide qualified sick 
leave wages and qualified family leave wages in the first 
quarter of 2021 may receive a tax credit.
---------------------------------------------------------------------------
    \1637\ Sec. 7001 of Pub. L. No. 116-127.
    \1638\ Sec. 7001 of Pub. L. No. 116-127.
---------------------------------------------------------------------------
    An eligible self-employed individual may also claim an 
income tax credit for any taxable year for a qualified sick 
leave equivalent amount or qualified family leave equivalent 
amount. Under the provision, an eligible self-employed 
individual is defined as an individual who regularly carries on 
any trade or business \1639\ and who would be entitled to 
receive paid leave during the taxable year under the EPSLA or 
EFMLEA, if the individual were an employee of an employer 
(other than himself or herself) that would be subject to the 
requirements of the Acts and as if the Acts were in effect 
through March 31, 2021.
---------------------------------------------------------------------------
    \1639\ Within the meaning of sec. 1402.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020) as if included in the provisions of the 
FFCRA to which they relate.

14. Election to use prior year net earnings from self-employment in 
        determining average daily self-employment income for purposes 
        of credits for paid sick and family leave (sec. 287 of the Act)

                              Present Law


In general

    The Self-Employed Contributions Act (``SECA'') imposes tax 
on the self-employment income of an individual. SECA taxes 
consist of the Old-Age, Survivors, and Disability Insurance 
(``OASDI'') tax and Medicare tax.\1640\ Under the OASDI 
component, the first rate of tax is 12.4 percent on self-
employment income up to the OASDI wage base ($137,700 for 
2020).\1641\ Under the basic Medicare tax component, the second 
rate of tax is 2.9 percent of all self-employment income 
(without regard to the OASDI wage base).\1642\ As is the case 
with employees, an Additional Medicare tax applies to the 
Medicare portion of SECA tax on self-employment income in 
excess of a threshold amount.\1643\
---------------------------------------------------------------------------
    \1640\ Sec. 1401(a) and (b).
    \1641\ Sec. 1401(a). In calculating the SECA tax for OASDI, the 
OASDI wage base taken into account is reduced by FICA wages paid to the 
individual during the taxable year. Indexed for inflation, the OASDI 
wage base for 2021 is $142,800.
    \1642\ Sec. 1401(b)(1).
    \1643\ Sec. 1401(b)(2).
---------------------------------------------------------------------------
    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment are equal to the gross income 
derived by an individual from any trade or business less 
allowed deductions that are attributable to the trade or 
business and are permitted under the SECA rules. Certain 
passive income and related deductions are not taken into 
account in determining net earnings from self-employment, 
including rentals from real estate (unless received in the 
course of a trade or business as a real estate dealer),\1644\ 
dividends and interest (unless such dividends and interest are 
received in the course of a trade or business as a dealer in 
stocks or securities),\1645\ and sales or exchanges of capital 
assets and certain other property (unless the property is stock 
in trade that would properly be included in inventory or held 
primarily for sale to customers in the ordinary course of the 
trade or business).\1646\
---------------------------------------------------------------------------
    \1644\ Sec. 1402(a)(1).
    \1645\ Sec. 1402(a)(2).
    \1646\ Sec. 1402(a)(3).
---------------------------------------------------------------------------
    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI and Medicare (i.e., 7.65 percent 
of net earnings).\1647\ This deduction is determined without 
regard to the additional 0.9 percent Additional Medicare tax 
that may apply to an individual. This deduction reflects the 
fact that the FICA rates apply to an employee's wages, which do 
not include FICA taxes paid by the employer, whereas the self-
employed individual's net earnings are economically equivalent 
to an employee's wages plus the employer's share of FICA 
taxes.\1648\
---------------------------------------------------------------------------
    \1647\ Sec. 1402(a)(12).
    \1648\ The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid.s presently written, the 
deduction for SECA taxes is not the exact economic equivalent to the 
deduction for FICA taxes. See Joint Committee on Taxation, Options to 
Improve Tax Compliance and Reform Tax Expenditures (JCS-2-05), January 
2005, for a detailed description of this issue. This is generally 
referred to as the ``regular method'' of determining net earnings from 
self-employment, and in Internal Revenue Service forms and publications 
it is expressed as multiplying total net earnings from self-employment 
by 92.35 percent.
---------------------------------------------------------------------------

Paid sick leave and expanded family and medical leave for self-employed 
        individuals

    An eligible self-employed individual may claim an income 
tax credit for any taxable year for a qualified sick leave 
equivalent amount or qualified family leave equivalent amount. 
An eligible self-employed individual is defined as an 
individual who regularly carries on any trade or business 
\1649\ and who would be entitled to receive paid leave during 
the taxable year under the Emergency Paid Sick Leave Act 
(``EPSLA'') or Emergency Family and Medical Leave Expansion Act 
(``EFMLEA'').
---------------------------------------------------------------------------
    \1649\ Within the meaning of sec. 1402.
---------------------------------------------------------------------------
    The qualified sick leave equivalent amount with respect to 
an eligible self-employed individual is an amount equal to the 
number of days during the taxable year that the self-employed 
individual cannot perform services for which that individual 
would have been entitled to sick leave pursuant to the EPSLA 
\1650\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (1) $511 in the case 
of paid sick time described in categories (1), (2), or (3) with 
respect to section 5102(a) of the EPSLA ($200 in the case of 
paid sick time described in categories (4), (5), or (6)); or 
(2) 100 percent of the average daily self-employment income of 
the individual for the taxable year in the case of any day of 
paid sick time described in categories (1), (2), or (3) (67 
percent in the case of paid sick time described in categories 
(4), (5), or (6)).\1651\
---------------------------------------------------------------------------
    \1650\ Division E and C, FFCRA, Pub. L. No. 116-127.
    \1651\ Certain employers must provide an employee with up to 80 
hours of paid sick time to the extent that (1) the employee is subject 
to a Federal, State, or local quarantine or isolation order related to 
COVID-19; (2) the employee has been advised by a health care provider 
to self-quarantine due to concerns related to COVID-19; (3) the 
employee is experiencing symptoms of COVID-19 and is seeking a medical 
diagnosis; (4) the employee is caring for an individual who is subject 
to a quarantine or isolation order or has been advised by a health care 
provider to self-quarantine; (5) the employee is caring for the 
employee's son or daughter if the school or place of care of the son or 
daughter has been closed, or the child care provider of such son or 
daughter is unavailable due to COVID-19 precautions; or (6) the 
employee is experiencing any other substantially similar condition 
specified by the Secretary of Health and Human Services in consultation 
with the Secretary of Treasury and the Secretary of Labor. Sec. 
5102(a), Division E, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The number of days taken into account in determining the 
qualified sick leave equivalent amount may not exceed, with 
respect to any taxable year, 10 days, taking into account any 
days taken in all preceding taxable years. The individual's 
average daily self-employment income under the provision is an 
amount equal to the net earnings from self-employment for the 
taxable year divided by 260.
    If an eligible self-employed individual receives qualified 
sick leave wages,\1652\ the individual's qualified sick leave 
equivalent amount determined under the provision is reduced 
(but not below zero) to the extent that the sum of the 
qualified sick leave equivalent amount and the qualified sick 
leave wages received exceeds $2,000 ($5,110 in the case of any 
day any portion of which is paid sick time described in 
category (1), (2), or (3) above).
---------------------------------------------------------------------------
    \1652\ As defined by sec. 7001(c) of FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The qualified family leave equivalent amount with respect 
to an eligible self-employed individual is an amount equal to 
the number of days (up to 50) during the taxable year that the 
self-employed individual cannot perform services for which that 
individual would be entitled to paid leave pursuant to the 
EFMLEA1A\1653\ (if the individual were employed by an 
employer), multiplied by the lesser of two amounts: (1) 67 
percent of the average daily self-employment income of the 
individual for the taxable year; or (2) $200. The individual's 
average daily self-employment income under the provision is an 
amount equal to the individual's net earnings from self-
employment for the year divided by 260.
---------------------------------------------------------------------------
    \1653\ Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The credit allowed for the qualified sick leave equivalent 
amount or qualified family leave equivalent amount is applied 
against federal income taxes and is a refundable credit.\1654\
---------------------------------------------------------------------------
    \1654\ Any refund due to an individual is treated in the same 
manner as a refund due from a credit provision. 31 U.S.C. sec. 1324. 
Thus, amounts are appropriated to the Secretary (or the Secretary's 
delegate) for refunding such amounts.
---------------------------------------------------------------------------
    If an eligible self-employed individual receives qualified 
family leave wages,\1655\ the individual's qualified family 
leave equivalent amount determined under the provision is 
reduced (but not below zero) to the extent that the sum of the 
qualified family leave equivalent amount and the qualified 
family leave wages received exceeds $10,000.
---------------------------------------------------------------------------
    \1655\ As defined by sec. 7003(c) of the FFCRA, Pub. L. No. 116-
127.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision modifies the definition of the qualified sick 
leave equivalent amount and qualified family leave equivalent 
amount. For purposes of determining the qualified sick leave 
equivalent amount and qualified family leave equivalent amount, 
self-employed individuals may elect to calculate the average 
daily self-employment income by dividing the net earnings from 
self-employment of the individual for 2019 (rather than 2020) 
by 260.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020) as if included in the provisions of the 
Families First Coronavirus Response Act to which they relate.

15. Certain technical improvements to credits for paid sick and family 
        leave (sec. 288 of the Act)

                              Present Law


In general

    Federal employment taxes are imposed on wages paid to 
employees with respect to employment and include Federal income 
taxes as well as taxes levied under Federal Insurance 
Contributions Act (``FICA'') and Federal Unemployment Tax Act 
(``FUTA'').\1656\ In addition, tier 1 of the Railroad 
Retirement Tax Act (``RRTA'') imposes a tax on compensation 
paid to railroad employees and representatives.\1657\
---------------------------------------------------------------------------
    \1656\ Secs. 3401, 3101, 3111, and 3301.
    \1657\ Sec. 3221.
---------------------------------------------------------------------------
    FICA taxes are comprised of two components: Old-Age, 
Survivors, and Disability Insurance (``OASDI'') taxes and 
Medicare taxes.\1658\ With respect to OASDI taxes, the 
applicable rate is 12.4 percent with half of such rate (6.2 
percent) imposed on the employee and the remainder (6.2 
percent) imposed on the employer.\1659\ The tax is assessed on 
covered wages up to the OASDI wage base ($137,700 in 
2020).\1660\ Generally, the OASDI wage base rises based on 
increases in the national average wage index.\1661\
---------------------------------------------------------------------------
    \1658\ The Hospital Insurance (``HI'') tax has two components: 
Medicare tax and Additional Medicare tax. Medicare tax is imposed on 
wages, as defined in Section 3121(a), with respect to employment, as 
defined in Section 3121(b), at a rate of 1.45 percent for the employer. 
Sec. 3101(b)(1). An equivalent 1.45 percent is withheld from employee 
wages. Sec. 3111(b)(1). For purposes of this description, Medicare tax 
does not include Additional Medicare tax. Additional Medicare taxes are 
withheld from employee wages in excess of $200,000 at a rate of 0.9 
percent. Sec. 3101(b)(2). There is no equivalent employer's share of 
Additional Medicare taxes.
    \1659\ Sec. 3101.
    \1660\ Indexed for inflation, the OASDI wage base is $142,800 in 
2021.
    \1661\ Sec. 230 of the Social Security Act (42 U.S.C. sec. 430).
---------------------------------------------------------------------------
    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1662\ The name given 
to the remuneration for employment is immaterial. OASDI wages 
includes salaries, vacation allowances, bonuses, deferred 
compensation, commissions, and fringe benefits. The term 
``employment'' is generally defined for FICA tax purposes as 
any service, of whatever nature, performed by an employee for 
the person employing him or her, with certain specific 
exceptions.
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    \1662\ Sec. 3121(a).
---------------------------------------------------------------------------

Railroad retirement program

    Railroad workers do not participate in the OASDI system. 
Accordingly, compensation subject to RRTA tax is exempt from 
FICA taxes.\1663\ The RRTA imposes a tax on compensation paid 
by covered employers to employees in recognition for the 
performance of services.\1664\ Employees whose compensation is 
subject to RRTA are ultimately eligible for railroad retirement 
benefits that fall under a two-tier structure. Rail employees 
and employers pay tier 1 taxes at the same rate as FICA 
taxes.\1665\ In addition, rail employees and employers both pay 
tier 2 taxes that are used to finance railroad retirement 
benefits over and above Social Security benefit levels.\1666\ 
Tier 2 benefits are similar to benefits under a defined benefit 
plan. Those taxes are funneled to the railroad retirement 
system and used to fund basic retirement benefits for railroad 
workers and an investment trust that generates returns for the 
pension fund.
---------------------------------------------------------------------------
    \1663\ Sec. 3121(b)(9).
    \1664\ Secs. 3201 through 3233. Instead of FICA taxes, railroad 
employers and employees are subject, under the RRTA, to taxes 
equivalent to the Social Security and Medicare taxes under FICA. Under 
the RRTA, employers and employees are also subject to an additional 
tax, referred to as the ``tier 2'' tax, on compensation up to a certain 
amount.
    \1665\ 7.65 percent, consisting of 6.2 percent for retirement on 
earnings up to $137,700 in 2020, and 1.45 percent for Medicare hospital 
insurance on all earnings. An additional 0.9 percent in Medicare taxes 
are withheld from employees on earnings above $200,000.
    \1666\ In 2020, the tier 2 tax rate on earnings up to $102,300 is 
4.9 percent for employees and 13.1 percent for employers. In 2021, the 
tier 2 tax rates remain the same with an increase in taxable earnings 
to $106,200.
---------------------------------------------------------------------------

Self-employment taxes

    The Self-Employed Contributions Act (``SECA'') imposes tax 
on the self-employment income of an individual. SECA taxes 
consist of OASDI tax and Medicare tax.\1667\ Under the OASDI 
component, the first rate of tax is 12.4 percent on self-
employment income up to the OASDI wage base ($137,700 for 
2020).\1668\ Under the basic Medicare tax component, the second 
rate of tax is 2.9 percent of all self-employment income 
(without regard to the OASDI wage base).\1669\ As is the case 
with employees, an Additional Medicare tax applies to the 
Medicare portion of SECA tax on self-employment income in 
excess of a threshold amount.\1670\
---------------------------------------------------------------------------
    \1667\ Sec. 1401(a) and (b).
    \1668\ Sec. 1401(a). In calculating the SECA tax for OASDI, the 
OASDI wage base taken into account is reduced by FICA wages paid to the 
individual during the taxable year.
    \1669\ Sec. 1401(b)(1).
    \1670\ Sec. 1401(b)(2).
---------------------------------------------------------------------------
    Self-employment income subject to SECA tax is determined as 
the net earnings from self-employment derived by an individual 
during any taxable year, subject to certain exceptions. Net 
earnings from self-employment are equal to the gross income 
derived by an individual from any trade or business less 
allowed deductions that are attributable to the trade or 
business and permitted under the SECA rules. Certain passive 
income and related deductions are not taken into account in 
determining net earnings from self-employment, including 
rentals from real estate (unless received in the course of a 
trade or business as a real estate dealer),\1671\ dividends and 
interest (unless such dividends and interest are received in 
the course of a trade or business as a dealer in stocks or 
securities),\1672\ and sales or exchanges of capital assets and 
certain other property (unless the property is stock in trade 
that would properly be included in inventory or held primarily 
for sale to customers in the ordinary course of the trade or 
business).\1673\
---------------------------------------------------------------------------
    \1671\ Sec. 1402(a)(1).
    \1672\ Sec. 1402(a)(2).
    \1673\ Sec. 1402(a)(3).
---------------------------------------------------------------------------
    For purposes of computing net earnings from self-
employment, taxpayers are permitted a deduction equal to the 
product of the taxpayer's net self-employment income 
(determined without regard to this deduction) and one-half of 
the sum of the rates for OASDI and Medicare (i.e., 7.65 percent 
of net earnings).\1674\ This deduction is determined without 
regard to the additional 0.9 percent Additional Medicare tax 
that may apply to an individual. This deduction reflects the 
fact that the FICA rates apply to an employee's wages, which do 
not include FICA taxes paid by the employer, whereas the self-
employed individual's net earnings are economically equivalent 
to an employee's wages plus the employer's share of FICA 
taxes.\1675\ This is generally referred to as the ``regular 
method'' of determining net earnings from self-employment, and 
in Internal Revenue Service forms and publications it is 
expressed as multiplying total net earnings from self-
employment by 92.35 percent.
---------------------------------------------------------------------------
    \1674\ Sec. 1402(a)(12).
    \1675\ The deduction is intended to provide parity between FICA and 
SECA taxes because the employer may deduct, as a business expense, its 
share of the FICA taxes paid. As presently written, the deduction for 
SECA taxes is not the exact economic equivalent to the deduction for 
FICA taxes. See Joint Committee on Taxation, Options to Improve Tax 
Compliance and Reform Tax Expenditures (JCS-2-05), January 2005, for a 
detailed description of this issue.
---------------------------------------------------------------------------

Paid sick and family leave for employees

    The Families First Coronavirus Response Act (``FFCRA'') 
\1676\ required certain employers with fewer than 500 employees 
to provide paid sick and expanded family and medical leave to 
employees unable to work or telework for specified reasons 
related to COVID-19. The paid sick leave requirements in the 
Emergency Paid Sick Leave Act (``EPSLA''),\1677\ and the 
expanded family and medical leave requirements in the Emergency 
Family and Medical Leave Expansion Act (``EFMLEA''),\1678\ 
expired on December 31, 2020.
---------------------------------------------------------------------------
    \1676\ Pub. L. No. 116-127 (March 18, 2020).
    \1677\ Division E, FFCRA, Pub. L. No. 116-127.
    \1678\ Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    An employer is allowed a credit against the Old-Age, 
Survivors and Disability Insurance (``OASDI'') tax \1679\ or 
the equivalent amount of tax under the Railroad Retirement Tax 
Act (``RRTA'') imposed on the employer for each calendar 
quarter in an amount equal to 100 percent of the qualified sick 
leave wages and qualified family leave wages paid by the 
employer with respect to that calendar quarter, subject to 
limitations.\1680\ Qualified sick leave wages are defined as 
wages \1681\ and compensation \1682\ paid by an employer which 
are required to be paid by reason of the EPSLA.
---------------------------------------------------------------------------
    \1679\ The Federal Insurance Contributions Act (``FICA'') imposes 
taxes on ``wages,'' as defined in Section 3121(a), with respect to 
``employment,'' as defined in Section 3121(b). The term wages is 
defined for FICA purposes as all remuneration for employment, with 
certain specific exceptions. Employment is defined as any service, of 
whatever nature, performed by an employee for the person employing him, 
with certain specific exceptions. FICA taxes consist of the OASDI tax 
and the HI tax. HI tax includes an employer's share imposed on wages at 
a rate of 1.45 percent under Section 3111(b). The employee's share of 
HI tax is imposed on wages at a rate of 1.45 percent under Section 
3101(b). Unlike OASDI, there is no contribution limit on wages subject 
to HI tax.
    \1680\ Notice 2020-21, 2020-16 I.R.B. 660, April 13, 2020.
    \1681\ Sec. 3121(a).
    \1682\ Sec. 3231(e).
---------------------------------------------------------------------------
    Qualified family leave wages are wages \1683\ and 
compensation \1684\ paid by an employer which are required to 
be paid by reason of the EFMLEA.\1685\ In addition to qualified 
sick leave wages and qualified family leave wages, the credit 
could be increased by certain health plan expenses of the 
employer.
---------------------------------------------------------------------------
    \1683\ Sec. 3121(a).
    \1684\ Sec. 3231(e).
    \1685\ See Notice 2020-54, 2020-31 I.R.B. 226, July 27, 2020.
---------------------------------------------------------------------------
            Amount of credit for paid sick leave
    Certain employers must provide an employee with up to 80 
hours of paid sick time to the extent that (1) the employee is 
subject to a Federal, State, or local quarantine or isolation 
order related to COVID-19; (2) the employee has been advised by 
a health care provider to self-quarantine due to concerns 
related to COVID-19; (3) the employee is experiencing symptoms 
of COVID-19 and is seeking a medical diagnosis; (4) the 
employee is caring for an individual who is subject to a 
quarantine or isolation order or has been advised by a health 
care provider to self-quarantine; (5) the employee is caring 
for the employee's son or daughter if the school or place of 
care of the son or daughter has been closed, or the child care 
provider of such son or daughter is unavailable due to COVID-19 
precautions; or (6) the employee is experiencing any other 
substantially similar condition specified by the Secretary of 
Health and Human Services in consultation with the Secretary of 
Treasury and the Secretary of Labor.\1686\
---------------------------------------------------------------------------
    \1686\ Sec. 5102(a), Division E, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The amount of qualified sick leave wages that may be taken 
into account for an employee for purposes of the credit is 
limited based on the circumstances under which qualified sick 
leave wages are paid. In the case of paid sick time qualifying 
under categories (1), (2), or (3) above, the amount of 
qualified sick leave wages taken into account for purposes of 
the credit may not exceed $511 for any day (or portion thereof) 
when the individual is paid such sick time. In the case of paid 
sick time qualifying under categories (4), (5), or (6) above, 
the amount of qualified sick leave wages taken into account may 
not exceed $200 for any day (or portion thereof) for which the 
individual is paid such sick time. In addition, the aggregate 
number of days that may be taken into account with respect to 
an individual under all six circumstances may not exceed the 
excess (if any) of 10 days over the aggregate number of days 
taken into account for all preceding calendar quarters.
            Amount of credit for expanded family and medical leave
    Certain employers must provide public health emergency 
leave to employees under the Family and Medical Leave Act of 
1993 (``FMLA''), as amended by the EFMLEA.\1687\ This 
requirement generally applies when an employee is unable to 
work or telework due to a need for leave to care for a son or 
daughter under age 18 because the school or place of care has 
been closed, or the child care provider is unavailable, due to 
a public health emergency. An employer with employees who are 
health care providers or emergency responders may elect to 
exclude such employees from this requirement to provide paid 
family leave. A public health emergency for this purpose is an 
emergency with respect to COVID-19 declared by a Federal, 
State, or local authority.
---------------------------------------------------------------------------
    \1687\ Sec. 3102, Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The first 10 days of public health emergency leave required 
under the EFMLEA may consist of unpaid leave, after which paid 
leave is required for ten weeks until December 31, 2020. The 
amount of required paid leave is calculated based on: (a) an 
amount that is not less than two-thirds of an employee's 
regular rate of pay; and (b) the number of hours the employee 
would otherwise be normally scheduled to work. The paid leave 
mandated by the EFMLEA does not exceed $200 per day and $10,000 
in the aggregate.
    Employers are allowed a credit against OASDI taxes or the 
equivalent amount of RRTA taxes in an amount equal to 100 
percent of qualified family leave wages paid by the employer 
during the quarter. Consistent with the mandate, the maximum 
amount of the qualified family leave wages eligible for the 
credit is $200 for any day (or portion thereof) for which the 
employee is paid qualified family leave wages, and in the 
aggregate with respect to all quarters, $10,000. Employers are 
not allowed the credit in respect of unpaid leave.
            Additional rules
    The credit allowed for paid sick or paid family leave is 
increased by the employer's qualified health plan expenses as 
are properly allocable to the qualified sick leave wages for 
which the credit is allowed. Qualified health plan expenses are 
amounts paid or incurred by the employer to provide and 
maintain a group health plan,\1688\ but only to the extent such 
amounts are excluded from the employees' income as coverage 
under an accident or health plan.\1689\ Qualified health plan 
expenses are allocated to qualified sick leave wages in such 
manner as the Secretary of Treasury (or the Secretary's 
delegate) may prescribe. Except as otherwise provided by the 
Secretary, such allocations are treated as properly made if 
they are pro rata among covered employees and pro rata on the 
basis of periods of coverage (relative to the time periods of 
leave to which such wages relate).
---------------------------------------------------------------------------
    \1688\ Sec. 5000(b)(1).
    \1689\ Sec. 106(a).
---------------------------------------------------------------------------
    The credit allowed may not exceed the OASDI tax or 
equivalent amount of RRTA tax imposed on the employer, reduced 
by any credits allowed for the employment of qualified veterans 
\1690\ and research expenditures of qualified small businesses 
\1691\ for that calendar quarter on the wages paid with respect 
to all the employer's employees. However, if for any calendar 
quarter the amount of the credit exceeds the OASDI tax or RRTA 
tax imposed on the employer, reduced as described in the prior 
sentence, such excess is treated as a refundable 
overpayment.\1692\
---------------------------------------------------------------------------
    \1690\ Sec. 3111(e).
    \1691\ Sec. 3111(f).
    \1692\ The excess is treated as an overpayment and refunded under 
sections 6402(a) and 6413(b). In addition, any amount that is due to an 
employer is treated in the same manner as a refund due from a credit 
provision. 31 U.S.C. 1324. Thus, amounts are appropriated to the 
Secretary of Treasury for refunding such excess amounts.
---------------------------------------------------------------------------
    If a taxpayer claims a credit, the amount so claimed is 
included in gross income. Thus, the credit is not taken into 
account for purposes of determining any amount allowable as a 
payroll tax deduction or deduction for qualified sick leave 
wages or qualified family leave wages (or any amount 
capitalizable to basis).
    Any qualified sick leave wages taken into account for 
purposes of a credit are not taken into account for purposes of 
determining the section 45S general business credit for 
employer paid family and medical leave. Thus, the employer may 
not claim a credit under section 45S with respect to the 
qualified sick leave wages or qualified family leave wages paid 
but may be allowed a credit under section 45S with respect to 
any additional wages paid.
    An employer may elect not to claim a tax credit for a 
calendar quarter for qualified sick leave wages or qualified 
family leave wages. Further, the credit allowed does not apply 
to the government of the United States, the government of any 
State or political subdivision thereof, or any agency or 
instrumentality of any of those entities. Employers in the U.S. 
territories may claim the credit by filing their quarterly 
Federal employment tax returns.
    Any wages or compensation required to be paid to employees 
pursuant to the EPSLA or EFMLEA before December 31, 2020, are 
not considered wages for purposes of OASDI tax or compensation 
for purposes of RRTA tax. In addition, or, in the case of wages 
or compensation paid after December, 31, 2020 and before April 
1, 2021, any wages or compensation with respect to which a 
credit is allowed, are not considered wages for purposes of 
OASDI tax or compensation for purposes of RRTA tax. As a 
result, no taxes are collected on these amounts from employers 
or employees.\1693\
---------------------------------------------------------------------------
    \1693\ An amount equal to the reduction in revenues to the Treasury 
by reason of the FFCRA is appropriated to the OASDI Trust Funds and the 
Social Security Equivalent Benefit Account established under the 
Railroad Retirement Act of 1974.\1693\ This amount is transferred from 
the general fund at such times and in such manner as to replicate to 
the extent possible the transfers that would have occurred to the OASDI 
Trust Funds or Social Security Equivalent Benefit Account had this 
provision not been enacted.
---------------------------------------------------------------------------

Paid sick leave and expanded family and medical leave for self-employed 
        individuals

    An eligible self-employed individual may claim an income 
tax credit for any taxable year for a qualified sick leave 
equivalent amount or qualified family leave equivalent amount. 
An eligible self-employed individual is defined as an 
individual who regularly carries on any trade or business 
\1694\ and who would be entitled to receive paid leave during 
the taxable year under the EPSLA or EFMLEA.
---------------------------------------------------------------------------
    \1694\ Within the meaning of sec. 1402.
---------------------------------------------------------------------------
    The qualified sick leave equivalent amount with respect to 
an eligible self-employed individual is an amount equal to the 
number of days during the taxable year that the self-employed 
individual cannot perform services for which that individual 
would have been entitled to sick leave pursuant to the EPSLA 
\1695\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (1) $511 in the case 
of paid sick time described in categories (1), (2), or (3) 
above with respect to section 5102(a) of the EPSLA ($200 in the 
case of paid sick time described in categories (4), (5), or (6) 
above); or (2) 100 percent of the average daily self-employment 
income of the individual for the taxable year in the case of 
any day of paid sick time described in categories (1), (2), or 
(3) above (67 percent in the case of paid sick time described 
in categories (4), (5), or (6) above).
---------------------------------------------------------------------------
    \1695\ Division E and C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The number of days taken into account in determining the 
qualified sick leave equivalent amount may not exceed, with 
respect to any taxable year, 10 days, taking into account any 
days taken in all preceding taxable years. The individual's 
average daily self-employment income under the provision is an 
amount equal to the net earnings from self-employment for the 
taxable year divided by 260.
    If an eligible self-employed individual receives qualified 
sick leave wages,\1696\ the individual's qualified sick leave 
equivalent amount determined under the provision is reduced 
(but not below zero) to the extent that the sum of the 
qualified sick leave equivalent amount and the qualified sick 
leave wages received exceeds $2,000 ($5,110 in the case of any 
day any portion of which is paid sick time described in 
category (1), (2), or (3) above).
---------------------------------------------------------------------------
    \1696\ As defined by sec. 7001(c) of FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The qualified family leave equivalent amount with respect 
to an eligible self-employed individual is an amount equal to 
the number of days (up to 50) during the taxable year that the 
self-employed individual cannot perform services for which that 
individual would be entitled to paid leave pursuant to the 
EFMLEA \1697\ (if the individual were employed by an employer), 
multiplied by the lesser of two amounts: (1) 67 percent of the 
average daily self-employment income of the individual for the 
taxable year; or (2) $200. The individual's average daily self-
employment income under the provision is an amount equal to the 
individual's net earnings from self-employment for the year 
divided by 260.
---------------------------------------------------------------------------
    \1697\ Division C, FFCRA, Pub. L. No. 116-127.
---------------------------------------------------------------------------
    The credit allowed for the qualified sick leave equivalent 
amount or qualified family leave equivalent amount is applied 
against federal income taxes and is a refundable credit.\1698\
---------------------------------------------------------------------------
    \1698\ Any refund due to an individual is treated in the same 
manner as a refund due from a credit provision. 31 U.S.C. sec. 1324. 
Thus, amounts are appropriated to the Secretary (or the Secretary's 
delegate) for refunding such amounts.
---------------------------------------------------------------------------
    If an eligible self-employed individual receives qualified 
family leave wages,\1699\ the individual's qualified family 
leave equivalent amount determined under the provision is 
reduced (but not below zero) to the extent that the sum of the 
qualified family leave equivalent amount and the qualified 
family leave wages received exceeds $10,000.
---------------------------------------------------------------------------
    \1699\ As defined by sec. 7003(c) of the FFCRA, Pub. L. No. 116-
127.
---------------------------------------------------------------------------

Application of credit in certain territories

    The Secretary of Treasury is directed to make payments to 
each territory with a mirror Code tax system that relate to the 
cost (if any) of each territory's credits for sick leave or 
expanded family and medical leave for certain self-employed 
individuals. The Secretary is further directed to make similar 
payments to each non-mirror Code territory.
    With respect to mirror Code territories, the Secretary is 
required to make payments equal to the loss in revenue by 
reason of the application of the credit for sick leave or 
expanded family and medical leave for certain self-employed 
individuals to the territory's mirror Code. This amount is 
determined by the Secretary based on information provided by 
the governments of the respective territories.
    With respect to Puerto Rico and American Samoa (non-mirror 
Code territories), the Secretary is directed to make payments 
in an amount estimated by the Secretary as being equal to the 
aggregate benefits that would have been provided to the 
residents of each territory from the credit for sick leave or 
expanded family and medical leave for certain self-employed 
individuals if a mirror Code tax system had been in effect in 
such territory. The Secretary must not make these payments 
unless the territory has a plan approved by the Secretary to 
promptly distribute the payments to its residents.
    The Secretary of Treasury is directed to prescribe such 
regulations or other guidance as may be necessary to carry out 
the purposes of the provision, including (1) to effectuate the 
purposes of this Act, and (2) to minimize compliance and 
record-keeping burdens under the provision.\1700\
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    \1700\ Notice 2020-54, 2020-31 I.R.B. 226. July 27, 2020.
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                        Explanation of Provision

    Generally, the term ``wages'' for OASDI tax purposes means 
all remuneration for ``employment,'' including the cash value 
of all remuneration (including benefits) paid in any medium 
other than cash, with certain exceptions.\1701\ The provision 
amends the definitions of qualified sick leave wages and 
qualified family leave wages to define such wages without 
regard to the exceptions in paragraphs (1) through (22) of 
section 3121(b), which define wages for OASDI purposes. In 
addition, the definition of qualified sick leave wages and 
qualified family leave wages for RRTA purposes does not include 
the exceptions to the definition of compensation for RRTA 
purposes outlined in section 3231(e). The provision provides 
that paid sick and family leave wages and compensation which 
may be otherwise excluded from OASDI or RRTA tax may be 
eligible for the credit.
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    \1701\ Sec. 3121(a).
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    The provision also clarifies that the amount of the credit 
allowed for qualified sick leave wages and qualified family 
leave wages is increased by the amount of Medicare taxes on 
such wages for which a credit is allowed as well as so much of 
the RRTA tax as is attributable to the Medicare tax rate in 
effect.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020) as if included in the provisions of the 
Families First Coronavirus Response Act to which they relate.

      DIVISION Y--AMERICAN MINER BENEFITS IMPROVEMENT ACT OF 2020


1. Transfers to 1974 UMWA pension plan (sec. 2 of the Act and sec. 402 
        of the Surface of Mining Control and Reclamation Act of 1977)

                              Present Law


United Mineworkers of America (``UMWA'') retiree health benefits

            In general
    Three multiemployer plans provide retiree health benefits 
for employees in the coal industry (and their beneficiaries): 
the UMWA Combined Benefit Fund (``Combined Fund''), the UMWA 
1992 Benefit Plan (``1992 Benefit Plan''), and the UMWA 1993 
Benefit Plan (``1993 Benefit Plan''). In addition, retiree 
health benefits are provided to some retirees through plans 
maintained by their particular employers (``individual employer 
plans''). Moreover, pension benefits are provided by the UMWA 
1974 Pension Plan (the ``Pension Plan'').\1702\
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    \1702\ Another plan, the UMWA 1950 Pension Plan, generally covering 
employees who retired before 1976, was merged into the Pension Plan on 
June 30, 2007. Section 9701(a)(3) refers to the Pension Plan as the 
``1974 UMWA Pension Plan'' and describes participation in the Pension 
Plan as being substantially limited to individuals who retired in 1976 
and thereafter.
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    The Combined Fund and the 1992 Benefit Plan were 
established under the Coal Industry Retiree Health Benefit Act 
of 1992 (the ``Coal Act'').\1703\ The Combined Fund provides 
health benefits with respect to retirees (and related 
beneficiaries) who, on July 20, 1992, were receiving health 
benefits under previous UMWA plans.\1704\ The 1992 Benefit Plan 
provides benefits with respect to participants (and related 
beneficiaries) who were eligible for health benefits under 
previous UMWA plans based on age and service earned as of 
February 1, 1993, or to whom coverage was required to be 
provided by an individual employer plan but who does not 
receive coverage,\1705\ provided that the participant retired 
from the coal industry by September 30, 1994.
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    \1703\ Pub. L. No. 102-486, which enacted Chapter 99 of the Code 
(secs. 9701-9722). Section 9702 provides for the establishment of the 
Combined Fund, and section 9712 provides for the establishment of the 
1992 Plan. Chapter 99 also contains provisions relating to benefits 
under the plans and funding of the plans.
    \1704\ The previous plans were the UMWA 1950 Benefit Plan and the 
UMWA 1974 Benefit Plan.
    \1705\ Section 9711 requires coverage under individual employer 
plans to be provided to participants (and related beneficiaries) 
receiving benefits as of February 1, 1993, or with respect to whom the 
age and service requirements for eligibility were met as of that date 
and who retired by September 30, 1994.
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    The 1993 Benefit Plan was established under the National 
Bituminous Coal Wage Agreement of 1993. Generally, the 1993 
Benefit Plan provides health benefits to certain retired and 
disabled mine workers who are not eligible for benefits under 
the Combined Fund or the 1992 Benefit Plan and would have been 
eligible for benefits under the previous UMWA plans, but for 
enactment of the Coal Act. The UMWA 1993 Benefit Plan also 
provides benefits to certain retirees under the Pension Plan 
whose last employer contributed to the 1993 Benefit Plan and 
whose retiree health benefits would end because, inter alia, 
the employer is no longer engaged in mining operations, is 
financially unable to provide the benefits, and has no related 
entity that is financially able to provide the benefits.
            Retiree health plan funding
    The Combined Fund and the 1992 Benefit Plan are funded in 
part by premiums required under the Code to be paid by coal 
mining operators.\1706\ The 1993 Benefit Plan is funded in part 
by contributions by employers that are bargaining agreement 
signatories. The three plans (collectively, the ``UMWA Health 
Plans'') are funded also in part by transfers under the Surface 
Mining Control and Reclamation Act of 1977 (``SMCRA'').\1707\
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    \1706\ Secs. 9704 and 9712(d). Failure to pay the required premiums 
under section 9704 may result in the imposition of a penalty under 
section 9707. In addition, under section 9721, a civil action may be 
brought by a plan fiduciary, employer, or plan participant or 
beneficiary with respect to an obligation to pay the required premiums, 
in the same manner as a claim arising from an employer's obligation to 
pay withdrawal liability under section 4301 of the Employee Retirement 
Income Security Act of 1974 (``ERISA'').
    \1707\ Sec. 402 of Pub. L. No. 95-87; 30 U.S.C. sec. 1232.
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    Under SMCRA, coal mining operators are required to pay 
certain fees to the Secretary of the Interior, which are 
deposited in the Abandoned Mine Reclamation Fund (commonly 
referred to as the ``Abandoned Mine Land Fund'' or the ``AML 
Fund''). In addition to transfers to States and Indian tribes 
relating to mining reclamation, the Secretary of the Treasury 
(``Secretary'') is authorized to transfer interest earned on 
the AML Fund to the UMWA Health Plans for financial assistance. 
To the extent interest transferred from the AML Fund is not 
sufficient to provide benefits under the UMWA Health Plans, the 
Secretary is authorized under SMCRA to make supplemental 
payments on an annual basis from the General Fund of the U.S. 
Treasury. The supplemental payments to the UMWA Health Plans, 
together with payments from the General Fund for certain States 
and Indian Tribes, are subject to a combined annual limit of 
$750 million.\1708\
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    \1708\ Sec. 402(i)(3) of SMCRA; 30 U.S.C sec. 1232(i)(3). Amounts 
to be transferred to the recipients are adjusted as needed to come 
within this limit.
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    In the case of transfers of interest from the AML Fund to 
the 1993 Benefit Plan,\1709\ the benefits due under the plan 
are determined by taking into account those retirees (and 
related beneficiaries) who were actually enrolled in the plan 
as of December 31, 2006, and who are eligible for benefits on 
the first day of the calendar year for which the transfer is 
made, even though those benefits were provided to the 
individual pursuant to a settlement agreement approved by order 
of a bankruptcy court entered on or before September 30, 2004; 
in other words, those individuals are considered to be actually 
enrolled in the Plan and receive benefits under the Plan 
beginning on December 31, 2006.
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    \1709\ Under SMCRA, the 1993 Benefit Plan is referred to as the 
``Multiemployer Health Benefit Plan.''
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    In 2016 \1710\, SMCRA was amended to authorize the transfer 
of federal funds to the 1993 Benefit Plan through April 30, 
2017, for an expanded group, including (1) retirees (and 
related beneficiaries) actually enrolled in the 1993 Benefit 
Plan as of the date of enactment of the Continued Health 
Benefits for Miners Act (the ``2016 Act''), and who are 
eligible for benefits on the first day of the calendar year for 
which the transfer is made,\1711\ and (2) retirees (and related 
beneficiaries) whose health benefits would be denied or reduced 
as a result of a bankruptcy proceeding commenced in 2012 or 
2015.\1712\ In 2017 \1713\, SMCRA was further amended to 
permanently authorize the annual transfer of funds to the 1993 
Plan for those retirees. In 2019, SMCRA was amended to 
authorize additional transfers from the General Fund to the 
1993 Benefit Plan to also cover beneficiaries whose health 
benefits, which are payable following death or retirement or 
upon a finding of disability directly by an employer in the 
bituminous coal industry under a coal wage agreement,\1714\ 
would otherwise be denied or reduced as a result of a coal 
industry bankruptcy in 2018 or 2019.\1715\ In determining the 
amount of the excess that may be transferred to the 1993 
Benefit Plan, the costs of administering the dispute resolution 
process (as of December 31, 2019) by the Trustees of the plan 
are to be taken into account.
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    \1710\ See Further Continuing and Security Assistance 
Appropriations Act, 2017, Pub. L. No. 114-254, December 10, 2016.
    \1711\ However, this group does not include individuals (and 
related beneficiaries) enrolled in the 1993 Benefit Plan under the 
terms of a participation agreement with the current or former employer 
of the individuals.
    \1712\ The Act further provides that individuals described in (2) 
are to be treated as eligible to receive health benefits under the 1993 
Benefit Plan for the plan year that includes April 1, 2017.
    \1713\ See Health Benefits for Miners Act of 2017, Pub. L. No. 115-
31, May 5, 2017.
    \1714\ Defined in sec. 9701(b)(3).
    \1715\ Sec. 102 of Div. M, the Bipartisan American Miners Act of 
2019, Pub. L. No. 116-94.
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    The 2016 Act also contains additional rules with respect to 
a voluntary employees' beneficiary association (``VEBA'') 
\1716\ established as a result of a bankruptcy proceeding 
described in (2). The administrator of the VEBA is directed to 
transfer to the 1993 Benefit Plan any amounts received as a 
result of the bankruptcy proceeding, reduced by the amount of 
the VEBA's administrative costs. Further, the amount that would 
otherwise be transferred by the Secretary to the 1993 Benefit 
Plan under SMCRA, as amended by the 2016 Act, is reduced by any 
amount transferred to the 1993 Benefit Plan by the VEBA.
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    \1716\ A VEBA is an organization exempt from tax under section 
501(c)(9).
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UMWA 1974 Pension Plan

    The Pension Plan is a multiemployer defined benefit plan 
established by the National Bituminous Coal Wage Agreement of 
1974 between the United Mine Workers of America (``UMWA'') and 
the Bituminous Coal Operators Association (``BCOA''), effective 
December 6, 1974.\1717\ The Pension Plan provides retirement, 
disability, and survivors' benefits to employees in the coal 
industry and their beneficiaries in accordance with plan terms. 
Prior to the enactment of the Bipartisan American Miners 
Act,\1718\ SMCRA did not provide for funds to be transferred to 
the Pension Plan.
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    \1717\ In a multiemployer defined benefit pension, participants 
typically receive a monthly payment in retirement that is based on a 
formula that uses the participant's length of service and a benefit 
rate.
    \1718\ Div. M. of Pub. L. No. 116-94.
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    For fiscal years beginning after September 30, 2016, if 
amounts available for transfer under the $750 million annual 
limit exceed the amounts required to be transferred for other 
purposes (including to the UMWA Health Plans), the Secretary is 
to transfer the excess to the Pension Plan to pay plan 
benefits.\1719\ Transfers are to end as of the first fiscal 
year beginning after the first plan year for which the Pension 
Plan's funded percentage (as defined under the Code's funding 
rules) \1720\ is at least 100 percent. Until that time, the 
Pension Plan will be treated as if it is in critical status 
\1721\ and will maintain and comply with its rehabilitation 
plan (including any updates).\1722\
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    \1719\ The provision describes the Pension Plan as the 1974 UMWA 
Pension Plan under section 9701(a)(3), but without regard to the 
limitation on participation to individuals who retired in 1976 and 
thereafter, thereby reflecting the merger of the UMWA 1950 Pension Plan 
into the Pension Plan.
    \1720\ See sec. 432(j)(2).
    \1721\ For purposes of secs. 412(b)(3), 432(e)(3) and 4971(g) and 
secs. 302(b)(3) and 305(e)(3) of ERISA.
    \1722\ However, the provisions of section 432(c) and (d) and 
section 305(c) and (d) of ERISA will not apply.
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    During any fiscal year in which the Pension Plan receives a 
transfer, no plan amendment may be adopted that increases plan 
liabilities by reason of a benefit increase, a change in the 
accrual of benefits, or a change in the rate at which benefits 
vest under the plan unless the amendment is required as a 
condition for qualified retirement plan status under the Code. 
In addition, a transfer is not to be made for a fiscal year 
unless the persons obligated to contribute to the Pension Plan 
on the date of the transfer are obligated to make contributions 
at rates that are not less than those in effect on the date 30 
days before the date of enactment of the provision (December 
20, 2019). Any amounts transferred to the Pension Plan are 
disregarded in determining the unfunded vested benefits of the 
Pension Plan and the allocation of unfunded vested benefits to 
an employer for withdrawal liability purposes.
    Like other pension plans, the Pension Plan is subject to 
various annual reporting and notice requirements under the Code 
and ERISA.\1723\ Some of these reporting requirements are met 
by the filing of Form 5500, Annual Return/Report of Employee 
Benefit Plan. Additional requirements apply in the case of an 
underfunded multiemployer defined benefit plan in endangered or 
critical status, including with respect to a funding 
improvement or rehabilitation plan.\1724\
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    \1723\ See, for example, secs. 6057-6059 and ERISA secs. 101(f), 
103 and 104.
    \1724\ For a discussion of the rules relating to plans in 
endangered or critical status, see Part I.D.3 of Joint Committee on 
Taxation, Present Law, Data, and Selected Proposals Relating to 
Multiemployer Defined Benefit Plans (JCX-9-16), February 26, 2016, 
available at www.jct.gov.
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    Not later than the 90th day of each plan year beginning 
after December 20, 2019, the Pension Plan trustees must also 
file with the Secretary \1725\ and the Pension Benefit Guaranty 
Corporation (``PBGC'') a report (including appropriate 
documentation and actuarial certifications from the plan 
actuary, as required by the Secretary) that provides--
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    \1725\ References in this description to ``Secretary'' include the 
Secretary's delegate, for this purpose, the Internal Revenue Service.
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           Whether the Pension Plan is in endangered or 
        critical status;
           The Pension Plan's funded percentage as of 
        the first day of the plan year and the underlying 
        actuarial value of assets and liabilities taken into 
        account in determining the funded percentage;
           The market value of plan assets as of the 
        last day of the preceding plan year;
           The total of all plan contributions made 
        during the preceding plan year;
           The total benefits paid during the preceding 
        plan year;
           Cash flow projections for the plan year and 
        either the six or 10 succeeding plan years, at the 
        election of the trustees, and the assumptions relied on 
        in making the projections;
           Funding standard account projections for the 
        plan year and the nine succeeding plan years, and the 
        assumptions relied on in making the projections;
           The total investment gains or losses during 
        the preceding plan year;
           Any significant reduction in the number of 
        active participants during the preceding plan year and 
        the reason for the reduction;
           A list of employers that withdrew from the 
        Pension Plan in the preceding plan year and the 
        resulting reduction in contributions;
           A list of employers that paid withdrawal 
        liability to the Pension Plan during the preceding plan 
        year and, for each employer, a total assessment of the 
        withdrawal liability paid, the annual payment amount, 
        and the number of years remaining in the payment 
        schedule with respect to the withdrawal liability;
           Any material changes to benefits, accrual 
        rates, or contribution rates during the preceding plan 
        year;
           Any scheduled benefit increase or decrease 
        in the preceding plan year having a material effect on 
        plan liabilities;
           Details of any funding improvement plan or 
        rehabilitation plan and updates;
           The number of participants and beneficiaries 
        during the preceding plan year who are active 
        participants, the number of participants and 
        beneficiaries in pay status, and the number of 
        terminated vested participants and beneficiaries;
           The information contained in the Pension 
        Plan's most recent annual funding notice;
           The information contained in the Pension 
        Plan's most recent Form 5500; and
           Copies of the plan document and amendments, 
        other retirement benefit or ancillary benefit plans 
        relating to the Pension Plan and contribution 
        obligations under those plans, a breakdown of the 
        Pension Plan's administrative expenses, participant 
        census data and distribution of benefits, the most 
        recent actuarial valuation report as of the plan year, 
        copies of collective bargaining agreements, and 
        financial reports, and such other information as the 
        Secretary may require, in consultation with the 
        Secretary of Labor and the Director of the PBGC.
    This report must be submitted electronically, and the 
Secretary is directed to share the information in the report 
with the Secretary of Labor. A failure to file the report on or 
before the date required results in a tax reporting penalty of 
$100 per day while the failure continues unless the Secretary 
determines that reasonable diligence was exercised by the plan 
sponsor in attempting to timely file the report.

                        Explanation of Provision

    Under the provision, transfers from the General Fund to the 
1993 Benefit Plan are expanded to cover beneficiaries who are 
enrolled in the plan as of the date of enactment of the Act 
(December 27, 2020),\1726\ as well as beneficiaries whose 
health benefits, which are payable following death or 
retirement or upon a finding of disability directly by an 
employer in the bituminous coal industry under a coal wage 
agreement,\1727\ or a related coal wage agreement, would 
otherwise be denied or reduced as a result of a coal industry 
bankruptcy in 2018 or 2019, or any year thereafter (or, in the 
case of any such health benefits confirmed in any bankruptcy 
proceeding, would be subsequently denied or reduced).\1728\
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    \1726\ These beneficiaries must also be eligible to receive health 
benefits under the 1993 Benefits Plan on the first day of the calendar 
year for which the transfer is made, other than those beneficiaries 
enrolled in the plan under the terms of a participation agreement with 
the current or former employer of such beneficiaries.
    \1727\ Defined in sec. 9701(b)(1).
    \1728\ In addition, for the purposes of SMCRA section 
402(h)(2)(C)(ii)(I), the provision states that a beneficiary enrolled 
in the 1993 Benefit Plan as of December 27, 2020, is deemed to have 
been eligible to receive benefits under that plan on January 1, 2020.
---------------------------------------------------------------------------
    The provision also states that the $750 million dollar cap 
on the combined annual limit on supplemental payments to the 
UMWA Health Plans, together with payments from the General Fund 
for certain States and Indian Tribes, is to be increased by the 
amount of the cost to provide benefits which are taken into 
account as described in the preceding paragraph.\1729\
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    \1729\ Those benefits taken into account under subsection 
402(h)(2)(c)(ii) of SMCRA solely by reason of the American Miner 
Benefits Improvement Act of 2020.
---------------------------------------------------------------------------

                             Effective Date

    The provision is generally effective on the date of 
enactment of the Act.\1730\
---------------------------------------------------------------------------
    \1730\ The amendment to section 402(h)(2)(C)(ii)(II) of SMCRA which 
provides that in calculating the amount to be transferred to the 1993 
Benefit Plan, health benefits confirmed in any bankruptcy proceeding 
which would have been subsequently denied or reduced are taken into 
account, applies to such denials and reductions after December 31, 
2019.
---------------------------------------------------------------------------

   DIVISION BB--PRIVATE HEALTH INSURANCE AND PUBLIC HEALTH PROVISIONS

                       TITLE I--NO SURPRISES ACT

1. Health savings accounts and the No Surprises Act (sec. 102 of the 
        Act and sec. 223 of the Code)

                              Present Law

Requirements for group health plans
    A group health plan is a plan of, or contributed to by, an 
employer or employee organization to provide health care to the 
employees, former employees, the employer, others associated or 
formerly associated with the employer in a business 
relationship, or their families.\1731\ Self-insured plans 
managed by an employer are included in the definition of group 
health plan.
---------------------------------------------------------------------------
    \1731\ Sec. 5000(b)(1). By definition, a group health plan is a 
plan providing employment-related health benefits.
---------------------------------------------------------------------------
    Various requirements generally apply to group health plans, 
including limitations on exclusions on benefits for preexisting 
conditions, a prohibition on discrimination against individuals 
based on health status or genetic information, guaranteed 
renewability of an employer's participation in a multiemployer 
plan (generally, a plan providing benefits under collective 
bargaining agreements to employees of two or more unrelated 
employers) or in a multiple-employer welfare arrangement 
(generally, a plan providing benefits to employees of two or 
more unrelated employers, but not under collective bargaining 
agreements), specified benefits for mothers and newborns, 
mental health parity, and coverage for students on a medical 
leave of absence from school.\1732\ Compliance with these 
requirements is enforced through an excise tax.\1733\
---------------------------------------------------------------------------
    \1732\ These requirements for group health plans are contained in 
Chapter 100 of the Code, sections 9801, et seq. Certain group health 
plans (e.g., governmental plans and plans covering fewer than two 
active employees) and certain types of coverage are exempt from these 
Code requirements.
    \1733\ Sec. 4980D.
---------------------------------------------------------------------------
    The excise tax generally is $100 per day imposed on the 
employer or the plan (in the case of a multiple-employer 
welfare arrangement for certain guaranteed renewability 
failures or in the case of a multiemployer plan) for any 
failure of a group health plan to meet certain group health 
plan requirements beginning on the date the failure first 
occurs and ending on the date the failure is corrected with 
respect to each individual to whom the failure relates. The 
excise tax does not apply to failures not discovered where 
reasonable diligence was exercised, to failures (due to 
reasonable cause and not willful neglect) corrected within 
certain time periods, or to failures waived by the Secretary in 
specified circumstances. The excise tax also does not apply to 
certain insured small employer plans.
    Parallel requirements generally apply to group health plans 
of private employers under the Employee Retirement Income 
Security Act of 1974 (``ERISA''), to group health plans of 
State and local government employers under the Public Health 
Service Act (the ``PHSA''), and to health insurance issued in 
connection with group health plans subject to ERISA and the 
PHSA.\1734\ Some requirements apply also to individual health 
insurance under the PHSA.
---------------------------------------------------------------------------
    \1734\ Part 7 of Title I of ERISA, 29 U.S.C. 1181 et seq., and 
Title XXVII of the PHSA, 42 U.S.C. 300gg et seq. Similar requirements 
apply also under the Federal Employees Health Benefits Program.
---------------------------------------------------------------------------

Health savings accounts

    An individual may establish a health savings account (an 
``HSA'') only if the individual is covered under a plan that 
meets the requirements for a high deductible health plan and 
the individual is not covered under any other health plan 
(other than a plan that provides certain permitted insurance or 
permitted coverage).\1735\ In general, an HSA is a tax-exempt 
trust or custodial account created exclusively to pay for the 
qualified medical expenses of the account holder and his or her 
spouse and dependents. Accordingly, HSAs provide tax-favored 
treatment for current medical expenses as well as the ability 
to save on a tax-favored basis for future medical expenses.
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    \1735\ A high deductible health plan is a health plan that has an 
annual deductible which is not less than $1,400 (for 2021) for self-
only coverage and twice this amount for family coverage, and for which 
the sum of the annual deductible and other annual out-of-pocket 
expenses (other than premiums) for covered benefits does not exceed 
$7,000 (for 2021) for self-only coverage and twice this amount for 
family coverage. Sec. 223(c)(2).
---------------------------------------------------------------------------
    Within limits,\1736\ contributions to an HSA made by or on 
behalf of an eligible individual are deductible by the 
individual. Contributions to an HSA made by the employer are 
excludable from income and exempt from employment taxes. 
Earnings in HSAs are not taxable.
---------------------------------------------------------------------------
    \1736\ For 2021, the basic limit on annual contributions that can 
be made to an HSA is $3,600 in the case of self-only coverage and 
$7,200 in the case of family coverage. The basic annual contributions 
limits are increased by $1,000 for individuals who have attained age 55 
by the end of the taxable year (referred to as ``catch-up'' 
contributions).
---------------------------------------------------------------------------
    Distributions from an HSA for qualified medical expenses 
are excludable from gross income. Distributions from an HSA 
that are not used for qualified medical expenses are includible 
in gross income and are subject to an additional tax of 20 
percent. The 20-percent additional tax does not apply if the 
distribution is made after death or disability, or the 
individual attains the age of Medicare eligibility (age 65). 
Similar rules apply for another type of medical savings 
arrangement called an Archer MSA.\1737\
---------------------------------------------------------------------------
    \1737\ Sec. 220.
---------------------------------------------------------------------------

High deductible health plans

    A high deductible health plan is a health plan that has an 
annual deductible which is not less than $1,400 (for 2021) for 
self-only coverage and twice this amount for family coverage, 
and for which the sum of the annual deductible and other annual 
out-of-pocket expenses (other than premiums) for covered 
benefits does not exceed $7,000 (for 2021) for self-only 
coverage and twice this amount for family coverage.\1738\ These 
dollar thresholds are subject to inflation adjustment, based on 
chained CPI.\1739\
---------------------------------------------------------------------------
    \1738\ Sec. 223(c)(2).
    \1739\ Sec. 223(g).
---------------------------------------------------------------------------
    Various types of coverage are disregarded for this purpose, 
including coverage of any benefit provided by permitted 
insurance; coverage (whether through insurance or otherwise) 
for accidents, disability, dental care, vision care, or long-
term; and certain limited coverage through health flexible 
savings arrangements.\1740\ Permitted insurance means insurance 
under which substantially all of the coverage provided relates 
to liabilities incurred under workers' compensation laws, tort 
liabilities, liabilities relating to ownership or use of 
property, or such other similar liabilities as specified by the 
Secretary under regulations. Permitted insurance also means 
insurance for a specified disease or illness, and insurance 
paying a fixed amount per day (or other period) of 
hospitalization.\1741\
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    \1740\ Sec. 223(c)(1)(B).
    \1741\ Sec. 223(c)(3).
---------------------------------------------------------------------------

Individuals eligible

    Individuals eligible for HSAs are individuals who are 
covered by a high deductible health plan and no other health 
plan that (1) is not a high deductible health plan and (2) 
provides coverage for any benefit which is covered under the 
high deductible health plan.\1742\ After an individual has 
attained age 65 and becomes enrolled in Medicare, contributions 
cannot be made to the individual's HSA.\1743\
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    \1742\ Sec. 223(c)(1).
    \1743\ See sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2 
I.R.B. 269 (December 22, 2003), corrected by Announcement 2004-67, 
2004-36 I.R.B. 459 (September 7, 2004).
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                        Explanation of Provision


No Surprises Act

    The No Surprises Act (the ``Act'') \1744\ amends the PHSA, 
ERISA, and the Code to provide generally that if a group health 
plan provides or covers benefits with respect to services in an 
emergency department of a hospital or with respect to emergency 
services in a freestanding emergency department, the plan or 
issuer must cover emergency services in accordance with certain 
requirements.\1745\ The Act generally expands restrictions on 
certain billing and charging practices.
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    \1744\ Title I of Div. BB of Pub. L. No. 116-260.
    \1745\ In accordance with section 2799A-1 of the PHSA; section 9816 
of the Code; and section 716 of ERISA, as added by this Act.
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    In addition, the Act provides certain requirements related 
to the provision of emergency services. For example:
           The plan or coverage must cover emergency 
        services (as defined) whether the health care provider 
        is a participating provider or a participating 
        emergency facility, with respect to such services;
           Emergency services provided by a 
        nonparticipating provider must be provided without 
        imposing any pre-authorization requirement on services 
        or any limitation in coverage that is more restrictive 
        than the requirements or limitations that apply to 
        emergency services provided by participating providers;
           The cost-sharing requirement must not be 
        greater for a non-participating provider (or emergency 
        facility) than would apply if a participating provider 
        (or emergency facility) were providing the service;
           Any cost-sharing payments made by the 
        participant or beneficiary with respect to such 
        emergency services must be counted toward any in-
        network deductible or out-of-pocket maximums applied 
        under the plan or coverage, respectively, (and such in-
        network deductible and out-of-pocket maximums must be 
        applied) in the same manner as if such cost-sharing 
        payments were made with respect to emergency services 
        furnished by a participating provider or a 
        participating emergency facility; and
           The plan or coverage must provide such 
        emergency services without regard to any other term or 
        condition of such plan or coverage (other than 
        exclusion or coordination of benefits, or an 
        affiliation or waiting period, otherwise 
        permitted,\1746\ and other than applicable cost-
        sharing).
---------------------------------------------------------------------------
    \1746\ Under section 2704 of the Act, including as incorporated 
pursuant to section 715 of ERISA and section 9815 of the Code.
---------------------------------------------------------------------------
    The Act also imposes certain requirements related to the 
provision of non-emergency services covered by a group health 
plan furnished to a participant or beneficiary of such plan 
performed by nonparticipating providers at certain 
participating facilities. For example:
           The plan may not impose a cost-sharing 
        requirement for non-emergency items or services that is 
        greater than the cost-sharing requirement that would 
        apply under the plan had those items or services been 
        furnished by a participating provider;
           The plan must calculate the cost-sharing 
        requirement as if the total amount that would have been 
        charged for the items and services by the participating 
        provider were equal to the recognized amount for such 
        items and services, plan, and year;
           Not later than 30 calendar days after the 
        bill for such items or services is transmitted by the 
        provider, the plan must send the provider an initial 
        payment or notice of denial of the payment;
           The plan must pay a total plan payment 
        directly, in accordance with the applicable timing 
        requirement, to the provider furnishing such items and 
        services to the participant or beneficiary that is, 
        with application of the initial payment described 
        above, equal to the amount by which the out-of-network 
        rate for such items and services exceeds the cost 
        sharing amount imposed under the plan for such items 
        and services; and
           The plan must count any cost-sharing 
        payments made by the participant or beneficiary (and 
        must apply any in-network deductible and out-of-pocket 
        maximum) with respect to such items and services that 
        are furnished in the same manner as if the cost-sharing 
        payments were with respect to items and services 
        furnished by a participating provider.

Health savings accounts

    Under the provision, an individual does not fail to be 
treated as an individual eligible to participate in an HSA 
merely because the individual receives benefits for medical 
care subject to and in accordance with the applicable 
provisions of the Code, the PHSA \1747\ or ERISA,\1748\ 
relating to preventing surprise medical billing, or any State 
law providing similar protections to such individual.
---------------------------------------------------------------------------
    \1747\ Sec. 9816 or 9817, or sec. 2799A-1 or 2799A-2 of the PHSA.
    \1748\ Sec. 716 or 717 of ERISA.
---------------------------------------------------------------------------

High deductible health plan

    Under the provision, a plan does not fail to be treated as 
a high deductible health plan by reason of providing benefits 
for medical care in accordance with the applicable provisions 
of the Code, the PHSA \1749\ or ERISA \1750\ or any State law 
providing similar protections to individuals, prior to the 
satisfaction of the annual deductible.\1751\
---------------------------------------------------------------------------
    \1749\ Sec. 9816 or 9817, or sec. 2799A-1 or 2799A-2 of the PHSA.
    \1750\ Sec. 716 or 717 of ERISA.
    \1751\ The annual deductible is defined in section 223(c)(2)(A)(i).
---------------------------------------------------------------------------

                             Effective Date

    The amendments relating to health savings accounts and high 
deductible health plans apply for plan years beginning on or 
after January 1, 2022.

  DIVISION EE--TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF 2020

           TITLE I--EXTENSION OF CERTAIN EXPIRING PROVISIONS

             Subtitle A--Certain Provisions Made Permanent

1. Reduction in medical expense deduction floor (sec. 101 of the Act 
        and sec. 213 of the Code)

                              Present Law

    For taxable years beginning before January 1, 2021, 
individuals may claim an itemized deduction for unreimbursed 
medical expenses paid during the taxable year, but only to the 
extent that the expenses exceed 7.5 percent of adjusted gross 
income (``AGI'') for purposes of regular tax and the 
alternative minimum tax (``AMT'').\1752\ For taxable years 
beginning after December 31, 2020, the 7.5-percent threshold is 
increased to 10 percent.
---------------------------------------------------------------------------
    \1752\ Sec. 213. The threshold was amended by the Patient 
Protection and Affordable Care Act (Pub. L. No. 111-148). For taxable 
years beginning after December 31, 2012, the threshold was 10 percent 
for regular tax purposes and AMT purposes. A temporary special rule 
applied in the case of a taxpayer who attained age 65 (or, in the case 
of a married taxpayer, if either the taxpayer or the taxpayer's spouse 
attained age 65) before the close of the taxable year, in which case 
the threshold was 7.5 percent for regular tax purposes. The 2017 Tax 
Act (Pub. L. No. 115-97) reduced the floor to 7.5 percent for all 
taxpayers for taxable years beginning after December 31, 2016, and 
ending before January 1, 2019. The Taxpayer Certainty and Disaster Tax 
Relief Act of 2019 (Pub. L. No. 116-94) extended the reduction of the 
floor to 7.5 percent for all taxpayers for taxable years ending after 
December 31, 2018 and beginning before January 1, 2021.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision permanently reduces the threshold for 
deducting medical expenses to 7.5 percent of AGI. The 7.5-
percent threshold applies for purposes of regular tax as well 
as the AMT.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2020.
2. Energy efficient commercial buildings deduction (sec. 102 of the Act 
        and sec. 179D of the Code)

                              Present Law

In general
    Section 179D permits a taxpayer an immediate deduction 
equal to energy-efficient commercial building property 
expenditures made by the taxpayer. Energy-efficient commercial 
building property is defined as property (1) which is installed 
on or in any building located in the United States that is 
within the scope of Standard 90.1-2007 of the American Society 
of Heating, Refrigerating, and Air Conditioning Engineers and 
the Illuminating Engineering Society of North America 
(``ASHRAE/IESNA''), (2) which is installed as part of (i) the 
interior lighting systems, (ii) the heating, cooling, 
ventilation, and hot water systems, or (iii) the building 
envelope, and (3) which is certified as being installed as part 
of a plan designed to reduce the total annual energy and power 
costs with respect to the interior lighting systems, heating, 
cooling, ventilation, and hot water systems of the building by 
50 percent or more in comparison to a reference building which 
meets the minimum requirements of Standard 90.1-2007 (as in 
effect before the date of the adoption of ASHRAE/IESNA Standard 
90.1-2010). For each building, 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.\1753\ Individuals qualified to determine 
compliance shall only be those recognized by one or more 
organizations certified by the Secretary for such 
purposes.\1754\
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    \1753\ 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.
    \1754\ The IRS has specified that only a ``qualified individual'' 
(as defined in section 5.05 of IRS Notice 2008-52) can certify that 
energy efficient building property has met the requirements of the 
section 179D deduction. A qualified individual is an individual who (1) 
is not related (within the meaning of section 45(e)(4)) to the taxpayer 
claiming the deduction under section 179D; (2) is an engineer or 
contractor that is properly licensed as a professional engineer or 
contractor in the jurisdiction in which the building is located; and 
(3) has represented in writing to the taxpayer that the qualified 
individual has the requisite qualifications to provide the 
certification required or to perform the inspection and testing 
required by IRS Notice 2008-40.
---------------------------------------------------------------------------
    For energy-efficient commercial building property 
expenditures made by a Federal, state, or local government or a 
political subdivision thereof, such as a public school, the 
deduction may be allocated to the person primarily responsible 
for designing the energy efficient commercial building property 
in lieu of the government or political subdivision thereof.
    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, 2018.

Partial allowance of deduction

            System-specific deductions
    In the case of a building that does not meet the overall 
building requirement of 50-percent energy savings, a partial 
deduction is allowed with respect to each separate building 
system that comprises energy efficient property and which is 
certified by a qualified individual \1755\ 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.
---------------------------------------------------------------------------
    \1755\ Ibid.
---------------------------------------------------------------------------
            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.\1756\ 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.
---------------------------------------------------------------------------
    \1756\ IRS Notice 2008-40, supra, set a target of a 10-percent 
reduction in total energy and power costs with respect to the building 
envelope, and 20 percent each with respect to the interior lighting 
system and the heating, cooling, ventilation and hot water systems. IRS 
Notice 2012-26 (2012-17 I.R.B. 847, April 23, 2012) established new 
targets of 10-percent reduction in total energy and power costs with 
respect to the building envelope, 25 percent with respect to the 
interior lighting system and 15 percent with respect to the heating, 
cooling, ventilation and hot water 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 adds an inflation adjustment, updates the 
standards, and makes the energy efficient commercial buildings 
deduction permanent. The inflation adjustment uses calendar 
year 2019 as the base year.
    The building standard is updated from ASHRAE/IESNA standard 
90.1-2007 to the most recent ASHRAE/IESNA standard 90.1 that 
has been published, and affirmed by the Secretary in 
consultation with Secretary of Energy, at least two years prior 
to the date that construction begins on the property for which 
the deduction will be claimed. Similarly, the provision 
requires that the Treasury regulations based on the provisions 
of the 2005 California Nonresidential Alternative Calculation 
Method Approval Manual be updated to conform with the most 
recent such manual as in effect, and affirmed by the Secretary 
in consultation with the Secretary of Energy, at least two 
years prior to the date that construction begins on the 
property for which the deduction will be claimed.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2020.

3. Benefits provided to volunteer firefighters and emergency medical 
        responders (sec. 103 of the Act and sec. 139B of the Code)

                              Present Law

    Background for this provision may be found above in the 
section describing section 301 of the SECURE Act (Division O of 
Pub. L. No. 116-94) in Part Three of this document.

                        Explanation of Provision

    The provision makes permanent the income exclusions for 
qualified State or local tax benefits and qualified payments 
provided to members of qualified volunteer emergency response 
organizations.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2020.

4. Lifetime learning credit (sec. 104 of the Act and secs. 25A and 222 
        of the Code)

                              Present Law

    A variety of provisions offer tax benefits to taxpayers for 
education expenses. These provisions include tax benefits for 
current expenses, such as the American Opportunity credit and 
the Lifetime Learning credit \1757\, as well as the above-the-
line deduction for certain higher education expenses.\1758\ For 
each taxable year, a taxpayer may claim either the American 
Opportunity credit and the Lifetime Learning credit or an 
above-the-line deduction for qualified higher education 
expenses.
---------------------------------------------------------------------------
    \1757\ Sec. 25A.
    \1758\ Sec. 222.
---------------------------------------------------------------------------

American Opportunity credit

    The American Opportunity credit is a credit of up to $2,500 
per eligible student per year for qualified tuition and related 
expenses paid for each of the first four years of the student's 
post-secondary education in a degree or certificate program. 
The amount of the credit is 100 percent on the first $2,000 of 
qualified tuition and related expenses, and 25 percent on the 
next $2,000 of qualified tuition and related expenses.
    Qualified tuition and related expenses generally include 
tuition, fees, and course materials required for enrollment or 
attendance of the taxpayer, the taxpayer's spouse, or any 
dependent of the taxpayer at an eligible institution. They do 
not include student activity fees, other fees and expenses 
unrelated to an individual's academic course of instruction, or 
expenses with respect to a course of education involving 
sports, games, or hobbies that is not part of the individual's 
degree program. In addition, an eligible student must be 
carrying at least half the normal work load for the course of 
study being pursued.
    The credit that a taxpayer may otherwise claim is phased 
out ratably for taxpayers with modified AGI between $80,000 and 
$90,000 ($160,000 and $180,000 for married taxpayers filing a 
joint return). The credit may be claimed against a taxpayer's 
AMT liability.
    Forty percent of a taxpayer's otherwise allowable modified 
credit is refundable. A refundable credit is a credit which, if 
the amount of the credit exceeds the taxpayer's Federal income 
tax liability, the excess is payable to the taxpayer.

Lifetime Learning credit

    Taxpayers may be eligible to claim a nonrefundable credit, 
the Lifetime Learning credit, against Federal income taxes 
equal to 20 percent of qualified tuition and related expenses 
\1759\ incurred during the taxable year on behalf of the 
taxpayer, the taxpayer's spouse, or any dependents.\1760\ Up to 
$10,000 of qualified tuition and related expenses per taxpayer 
return are eligible for the Lifetime Learning credit (i.e., the 
maximum credit per taxpayer return is $2,000).
---------------------------------------------------------------------------
    \1759\ Qualified tuition and related expenses for the lifetime 
learning credit generally include tuition and fees required for 
enrollment or attendance of the taxpayer, the taxpayer's spouse, or any 
dependent of the taxpayer at an eligible institution. However, unlike 
the American opportunity credit, they do not include course materials.
    \1760\ Sec. 25A. The Lifetime Learning credit may be claimed 
against a taxpayer's AMT liability.
---------------------------------------------------------------------------
    A taxpayer may claim the Lifetime Learning credit for an 
unlimited number of taxable years and the maximum amount of the 
Lifetime Learning credit that may be claimed on a taxpayer's 
return does not vary based on the number of students in the 
taxpayer's family. The Lifetime Learning credit amount that a 
taxpayer may otherwise claim is phased out ratably for 
taxpayers with modified AGI between $59,000 and $69,000 
($118,000 and $138,000 for married taxpayers filing a joint 
return) in 2020.\1761\
---------------------------------------------------------------------------
    \1761\ For tax year 2021, the AGI amount used by joint filers to 
determine the reduction in the Lifetime Learning Credit is $119,000.
---------------------------------------------------------------------------
    The Lifetime Learning credit is available in the taxable 
year the expenses are paid, subject to the requirement that the 
education is furnished to the student during that year or 
during an academic period beginning during the first three 
months of the next taxable year. Qualified tuition and related 
expenses paid with the proceeds of a loan generally are 
eligible for the Lifetime Learning credit. However, repayment 
of a loan is not a qualified tuition expense.
    A taxpayer may claim the Lifetime Learning credit with 
respect to a student who is not the taxpayer or the taxpayer's 
spouse (e.g., in cases in which the student is the taxpayer's 
child) only if the taxpayer claims the student as a dependent 
for the taxable year for which the credit is claimed. If a 
student is claimed as a dependent by a parent or other 
taxpayer, the student may not claim the Lifetime Learning 
credit for that taxable year on the student's own tax return. 
If a parent (or other taxpayer) claims a student as a 
dependent, any qualified tuition and related expenses paid by 
the student are treated as paid by the parent (or other 
taxpayer) for purposes of the provision.
    A taxpayer may claim the Lifetime Learning credit for a 
taxable year with respect to one or more students, even though 
the taxpayer also claims an American Opportunity tax credit for 
that same taxable year with respect to other students. If, for 
a taxable year, a taxpayer claims an American Opportunity tax 
credit with respect to a student, then the Lifetime Learning 
credit is not available with respect to that same student for 
that year (although the Lifetime Learning credit may be 
available with respect to that same student for other taxable 
years). As with the American Opportunity tax credit, a taxpayer 
may not claim the Lifetime Learning credit and also claim a 
deduction for qualified tuition and related expenses.

Deduction for qualified tuition and related expenses

    A taxpayer is allowed a deduction for qualified tuition and 
related expenses for higher education paid by the taxpayer 
during the taxable year.\1762\ The deduction is allowed in 
computing AGI. The term qualified tuition and related expenses 
is defined in the same manner as for the American Opportunity 
and Lifetime Learning credits, and includes tuition and fees 
required for the enrollment or attendance of the taxpayer, the 
taxpayer's spouse, or any dependent of the taxpayer with 
respect to whom the taxpayer is allowed a deduction for a 
personal exemption,\1763\ at an eligible institution of higher 
education for courses of instruction of such individual at such 
institution.\1764\ 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.
---------------------------------------------------------------------------
    \1762\ Sec. 222.
    \1763\ 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).
    \1764\ 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 a taxpayer whose AGI 
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 AGI 
does not exceed $80,000 ($160,000 in the case of a joint 
return). No deduction is allowed for a taxpayer whose AGI 
exceeds the relevant AGI 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. Generally, no deduction 
is allowed unless the taxpayer receives a payee statement 
furnished by the eligible institution of higher education or 
other entity subject to reporting that reports qualified 
tuition and related expenses.\1765\
---------------------------------------------------------------------------
    \1765\ Secs. 222(d)(6) and 6050S.
---------------------------------------------------------------------------
    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,\1766\ 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.\1767\ 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 a student for 
whom an American Opportunity credit or a Lifetime Learning 
credit is elected for such taxable year.
---------------------------------------------------------------------------
    \1766\  Secs. 222(d)(1) and 25A(g)(2).
    \1767\ Sec. 222(c). These reductions are the same as those that 
apply to the American Opportunity and Lifetime Learning credits.
---------------------------------------------------------------------------
    The deduction for qualified tuition and expenses is not 
available for taxable years beginning after December 31, 2020.

                        Explanation of Provision

    The provision increases the income threshold for claiming 
the Lifetime Learning credit to $80,000 of modified AGI (or 
$160,000 for married taxpayers filing jointly). The credit 
phases out between $80,000 and $90,000 of modified AGI (or 
$160,000 and $180,000 for married taxpayers filing jointly).
    The provision also repeals the deduction for qualified 
tuition and related expenses for higher education paid by the 
individual during the taxable year.\1768\
---------------------------------------------------------------------------
    \1768\ Sec. 222.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2020.

5. Railroad track maintenance credit (sec. 105 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, 2023 (the ``railroad track maintenance 
credit'' or ``credit'').\1769\ 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.\1770\ The credit may 
reduce a taxpayer's tax liability below its tentative minimum 
tax.\1771\
---------------------------------------------------------------------------
    \1769\ 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).
    \1770\ 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.
    \1771\ 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 
\1772\ (1) owned or leased by an eligible taxpayer as of the 
close of its taxable year,\1773\ 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.\1774\ 
Amounts that exceed the limitation are not carried over to 
another taxable year.\1775\
---------------------------------------------------------------------------
    \1772\ 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).
    \1773\ 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).
    \1774\ Sec. 45G(b)(1).
    \1775\ 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.\1776\ 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.\1777\ Such 
assignment is taken into account for the taxable year of the 
assignee that includes the date that such assignment is treated 
as effective. However, assignments, including related 
expenditures paid or incurred, for a taxable year beginning on 
or after January 1, 2018, and ending before January 1, 2020, 
are treated as effective as of the close of such taxable year 
if made pursuant to a written agreement entered into no later 
than March 19, 2020.\1778\
---------------------------------------------------------------------------
    \1776\ Sec. 45G(b)(2). See also Treas. Reg. sec. 1.45G-1(d).
    \1777\ 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).
    \1778\ Further Consolidated Appropriates Act of 2020, Pub. L. No. 
116-94, Division Q, Title I, Subtitle B, sec. 112(b), December 20, 
2019.
---------------------------------------------------------------------------

Eligible taxpayer

    An eligible taxpayer means any Class II or Class III 
railroad, and any person (including a Class I railroad \1779\) 
who transports property using the rail facilities \1780\ of a 
Class II or Class III railroad or who furnishes railroad-
related property \1781\ or services \1782\ 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.\1783\
---------------------------------------------------------------------------
    \1779\ The Surface Transportation Board currently classifies a 
Class I railroad as a carrier with annual operating revenue of 
$504,803,294 or more ($489,935,956 or more for 2018). See the Surface 
Transportation Board Railroad Revenue Deflator Factors, available at 
https://prod.stb.gov/reports-data/economic-data/railroad-revenue-
deflator-factors/. The seven Class I railroads are BNSF Railway 
Company, Canadian National Railway (Grand Trunk Corporation), Canadian 
Pacific (Soo Line Corporation), CSX Transportation, Kansas City 
Southern Railway Company, Norfolk Southern Combined Railroad 
Subsidiaries, and Union Pacific Railroad Company. See the U.S. 
Department of Transportation Federal Railroad Administration Freight 
Rail Overview, available at https://railroads.dot.gov/rail-network-
development/freight-rail-overview.
    \1780\ 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).
    \1781\ 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.
    \1782\ 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.
    \1783\ 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).\1784\
---------------------------------------------------------------------------
    \1784\ 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 $40,384,263 or more, but 
less than $504,803,294 ($39,194,876 or more, but less than 
$489,935,956, for 2018), and a Class III railroad as a carrier with 
annual operating revenue of less than $40,384,263 (less than 
$39,194,876 for 2018). See the Surface Transportation Board Railroad 
Revenue Deflator Factors, available at https://prod.stb.gov/reports-
data/economic-data/railroad-revenue-deflator-factors/.
---------------------------------------------------------------------------

Qualified railroad track maintenance expenditures

    Qualified railroad track maintenance expenditures are 
defined as gross expenditures (whether or not otherwise 
chargeable to capital account \1785\) 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 which made the assignment of such 
track.\1786\ 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.\1787\ 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.\1788\
---------------------------------------------------------------------------
    \1785\ 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.
    \1786\ Sec. 45G(d); Treas. Reg. sec. 1.45G-1(b)(5).
    \1787\ Treas. Reg. sec. 1.45G-1(c)(3)(ii).
    \1788\ 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.\1789\ 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.\1790\ 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.\1791\
---------------------------------------------------------------------------
    \1789\ Sec. 45G(e)(3). See also sec. 1016(a)(29) and Treas. Reg. 
Sec. 1.45G-1(e).
    \1790\ Treas. Reg. sec. 1.45G-1(e)(2).
    \1791\ Ibid.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision makes the credit permanent and reduces the 
credit to 40 percent of qualified railroad track maintenance 
expenditures paid or incurred by an eligible taxpayer during 
taxable years beginning on or after January 1, 2023.

                             Effective Date

    The provision applies to taxable years ending after the 
date of enactment (December 27, 2020).

6. Provisions related to beer, wine, and distilled spirits (secs. 106-
        110 of the Act and sec. 263A, sec. 5001, sec. 5041, sec. 5051, 
        new sec. 5067, sec. 5212, sec. 5415, sec. 5555, new sec. 6038E, 
        and sec. 7652 of the Code)

Production period for beer, wine, and distilled spirits

                              Present Law

    The uniform capitalization (``UNICAP'') rules require 
certain direct and indirect costs allocable to real property or 
tangible personal property produced by the taxpayer to be 
included in either inventory costs or capitalized into the 
basis of such property, as applicable. For real or personal 
property acquired by the taxpayer for resale, section 263A 
generally requires certain direct and indirect costs allocable 
to such property to be included in inventory.\1792\
---------------------------------------------------------------------------
    \1792\ Sec. 263A. Note that a taxpayer that meets the gross 
receipts test of section 448(c) is generally exempt from the 
application of section 263A. See sec. 263A(i). The gross receipts test 
looks to whether the average annual gross receipts for the three-
taxable-year period ending with the prior taxable year is under a 
threshold amount ($26 million for 2020). See sec. 448(c) and Rev. Proc. 
2019-44, 2019-47 I.R.B. 1093.
---------------------------------------------------------------------------
    In the case of interest expense, the UNICAP rules apply 
only to interest paid or incurred during the property's 
production period \1793\ and that is allocable to property 
produced by the taxpayer which (1) is either real property or 
property with a class life of at least 20 years, (2) has an 
estimated production period exceeding two years, or (3) has an 
estimated production period exceeding one year and a cost 
exceeding $1,000,000.\1794\ The production period with respect 
to any property is the period beginning on the date on which 
production of the property begins,\1795\ and, except as 
described below, ending on the date on which the property is 
ready to be placed in service or held for sale.\1796\
---------------------------------------------------------------------------
    \1793\ See Treas. Reg. sec. 1.263A-12.
    \1794\ Sec. 263A(f).
    \1795\ In the case of tangible personal property, the production 
period begins on the first date the taxpayer's accumulated production 
expenditures, including planning and design expenditures, are at least 
five percent of the taxpayer's total estimated accumulated production 
expenditures for the property unit. Treas. Reg. sec. 1.263A-12(c)(3). 
Thus, the production period may begin before physical production 
activity has commenced. See Treas. Reg. sec. 1.263A-12(c)(3). For 
example, in the case of the beer, wine, and distilled spirits 
industries, the production period may include time spent planning and 
designing ingredients, production space, or production personnel.
    \1796\ Sec. 263A(f)(5)(B). The production period for a unit of 
property produced for sale ends on the date that the unit is ready to 
be held for sale and all production activities reasonably expected to 
be undertaken by, or for, the taxpayer or a related person are 
complete. Treas. Reg. sec. 1.263A-12(d)(1).
---------------------------------------------------------------------------
    For interest costs paid or accrued after December 31, 2017, 
and before January 1, 2021, the aging period for beer,\1797\ 
wine,\1798\ or distilled spirits \1799\ is excluded from the 
production period as determined for purposes of the UNICAP 
interest capitalization rules. Thus, producers of beer, wine, 
or distilled spirits (other than spirits unfit for beverage 
purposes) are able to deduct interest expenses (subject to any 
other applicable limitation) attributable to the aging period 
of beer, wine, or distilled spirits. In the case of interest 
costs paid or accrued after December 31, 2020, the production 
period as determined for purposes of the UNICAP interest 
capitalization rules will include the aging period for beer, 
wine, or distilled spirits.
---------------------------------------------------------------------------
    \1797\ As defined in section 5052(a).
    \1798\ As defined in section 5041(a).
    \1799\ As defined in section 5002(a)(8), except such spirits that 
are unfit for use for beverage purposes.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision makes permanent the exclusion of the aging 
period for beer, wine, or distilled spirits from the production 
period as determined for purposes of the UNICAP interest 
capitalization rules.

                             Effective Date

    The provision applies to interest costs paid or accrued 
after December 31, 2020.

Reduced rate of excise tax on beer, refunds in lieu of reduced rates 
        for beer produced outside the United States, and other 
        provisions related to beer

                              Present Law


In general

    Federal excise taxes are imposed at different rates on 
distilled beer, wine, and distilled spirits and are imposed on 
these products when produced or imported. Generally, these 
excise taxes are administered and enforced by the Alcohol and 
Tobacco Tax and Trade Bureau (the ``TTB''), except the taxes on 
imported bottled beer, wine, and distilled spirits are 
collected by the Customs and Border Protection Bureau (the 
``CBP'') of the Department of Homeland Security (under 
delegation by the Secretary).\1800\
---------------------------------------------------------------------------
    \1800\ Treasury Order 100-16 (May 15, 2003). Bulk (non-bottled) 
beer, wine, and distilled spirits may be imported and transferred in 
bond free of tax. See secs. 5232, 5364, and 5418.TB collects tax on 
such items when they are removed from bond.
---------------------------------------------------------------------------
    Liability for the excise tax on beer arises when the 
alcohol is produced or imported but is not payable until the 
beer is removed from the brewery or customs custody for 
consumption or sale. Generally, beer may be transferred between 
commonly owned breweries without payment of tax; however, tax 
liability follows these products. Imported bulk beer may be 
released from customs custody without payment of tax and 
transferred in bond to a brewery, which becomes liable for the 
tax on such beer. Beer may be exported without payment of tax 
and may be withdrawn from a brewery without payment of tax or 
free of tax for certain authorized uses, including industrial 
uses and non-beverage uses.\1801\
---------------------------------------------------------------------------
    \1801\ Sec. 5053.
---------------------------------------------------------------------------

Temporary reduced rates

    Notwithstanding the temporary rates for calendar years 
2018, 2019, and 2020 described below, the rate of tax on beer 
is $18 per barrel.\1802\ Small brewers are eligible for a 
reduced tax rate of $7 per barrel on the first 60,000 barrels 
of beer domestically produced and removed each year.\1803\ 
Small brewers are brewers producing not more than two million 
barrels of beer during a calendar year. The lower rates for 
small producers reduce the effective per-gallon tax rate from 
approximately 58 cents per gallon to approximately 22.6 cents 
per gallon for this beer.
---------------------------------------------------------------------------
    \1802\ Sec. 5051. One barrel is equal to 31 gallons of beer.
    \1803\ Sec. 5051(a)(2).
---------------------------------------------------------------------------
    In the case of a controlled group, the two million barrel 
limitation for small brewers is applied to the controlled 
group,\1804\ and the 60,000 barrels eligible for the reduced 
rate of tax are apportioned among the brewers that are 
component members of such group. Additionally, two or more 
entities (whether or not under common control) that produce 
beer marketed under a similar brand, license, franchise, or 
other arrangement are treated as a single taxpayer (the ``beer 
single taxpayer rule'').
---------------------------------------------------------------------------
    \1804\ The term ``controlled group'' has the meaning assigned to it 
by section 1563(a), except that the phrase ``more than 50 percent'' is 
substituted for the phrase ``at least 80 percent'' in each place it 
appears in section 1563(a).
---------------------------------------------------------------------------
    Individuals may produce limited quantities of beer for 
personal or family use without payment of tax during each 
calendar year. The limit is 200 gallons per calendar year for 
households of two or more adults and 100 gallons per calendar 
year for single-adult households.

Temporary reduced rates

    For calendar years 2018, 2019, and 2020, the rate of tax on 
beer is temporarily lowered to $16 per barrel on the first six 
million barrels brewed by the brewer or imported by the 
importer. For an importer to receive the tax benefit, the 
importer must be an electing importer and the barrels of beer 
must be assigned to the importer by the person producing the 
beer. In general, in the case of a controlled group of brewers, 
the six million barrel limitation is applied and apportioned at 
the level of the controlled group. Beer brewed or imported in 
excess of the six million barrel limitation continues to be 
taxed at $18 per barrel. In the case of small brewers, such 
brewers are taxed at a rate of $3.50 per barrel on the first 
60,000 barrels domestically produced, and $16 per barrel on any 
further barrels produced.

Transfer rules and removals without tax

    Certain removals or transfers of beer are exempt from tax. 
Beer may be transferred without payment of tax between bonded 
premises under certain conditions specified in the 
regulations.\1805\ The tax liability accompanies the beer that 
is transferred in bond. However, beer may only be transferred 
without payment of tax between breweries if both breweries are 
owned by the same brewer (the ``shared ownership 
requirement'').
---------------------------------------------------------------------------
    \1805\ Sec. 5414.
---------------------------------------------------------------------------
    The shared ownership requirement is temporarily relaxed for 
calendar years 2018, 2019, and 2020. Thus, a brewer may 
transfer beer from one brewery to another without payment of 
tax, including instances where (1) the breweries are owned by 
the same person; (2) one brewery owns a controlling interest in 
the other; (3) the same person or persons have a controlling 
interest in both breweries; or (4) the proprietors of the 
transferring and receiving premises are independent of each 
other, and the transferor has divested itself of all interest 
in the beer so transferred, and the transferee has accepted 
responsibility for payment of the tax.
    For purposes of transferring the tax liability pursuant to 
(4) above, such relief from liability will be effective from 
the time of removal from the transferor's bonded premises, or 
from the time of divestment, whichever is later.

                        Explanation of Provision

    The provision makes permanent the reduced rate schedule on 
beer.
    The provision modifies the rules for transfers of beer 
without payment of tax between bonded breweries. Under the 
provision, such transfers do not require the bonded breweries 
to be owned by the same brewer. As under present law, a brewer 
may transfer beer from one brewery to another without payment 
of tax, including instances where (1) the breweries are owned 
by the same person; (2) one brewery owns a controlling interest 
in the other; (3) the same person or persons have a controlling 
interest in both breweries; or (4) the proprietors of the 
transferring and receiving premises are independent of each 
other, and the transferor has divested itself of all interest 
in the beer so transferred, and the transferee has accepted 
responsibility for payment of the tax.
    The provision clarifies that beer smuggled into the United 
States or produced other than as authorized under chapter 51 of 
the Code is not eligible for reduced tax rates.
    Under the provision modifying the beer single taxpayer 
rule, two or more entities (whether or not under common 
control) that produce beer under a license, franchise, or other 
arrangement are treated as a single taxpayer.

Refunds in lieu of reduced rates

    The provision provides that barrels of beer that are 
produced outside the United States, imported into the United 
States, and removed after December 31, 2022, do not qualify for 
reduced excise tax rates, but the importer may claim a refund 
in lieu of reduced rates. Refunds are treated as overpayment of 
tax and determined for periods no less frequently than 
quarterly. As under prior law, in order for an importer to 
receive the tax benefit, the importer must be an electing 
importer and the barrels of beer must be assigned to the 
importer by the person producing the beer.
    Under the provision, the amount of refund with respect to 
any importer for a given filing period is equal to (1) the 
excess (if any) of (a) the amount of tax imposed on the barrels 
of beer removed during the filing period over (b) the amount of 
tax that would have been imposed on such barrels if the 
importer had been eligible to receive reduced rates, plus (2) 
the amount of interest that would be allowed and paid on an 
overpayment of tax at the overpayment rate, if that rate 
applied to the amount determined in (1) for the number of days 
in the filing period. The overpayment rate is the rate 
established under section 6621(a)(1), but without regard to the 
lower rate for corporate overpayments of tax exceeding $10,000. 
Generally, no additional interest is paid on the refund if the 
refund is paid within 90 days after the tax return is filed.

Information reporting in case of assignment of lower rates or refunds 
        by foreign producers of beer

    The provision requires that a foreign producer that elects 
to make an assignment of lower rates or refunds to an importer 
must provide the documentation required by the Secretary, which 
may include providing information about the controlled group 
structure of the foreign producer.
    The provision also requires the Secretary (or the 
Secretary's delegate within the Treasury Department) to 
implement and administer the new refund regime for beer, in 
coordination with the CBP. The Secretary (or the Secretary's 
delegate within the Treasury Department) must prescribe such 
regulations as may be necessary or appropriate, including 
regulations to require foreign producers to provide the 
information necessary to enforce the volume limitations for 
beer. The Secretary (or the Secretary's delegate within the 
Treasury Department), in coordination with CBP, must make 
publicly available a report detailing plans for implementing 
and administering the new refund regime not later than 180 days 
after the date of enactment.

                             Effective Date

    The provision to make permanent the reduced rate schedule 
on beer applies to beer removed after December 31, 2020.
    The provision to modify the rules regarding transfer of 
beer between bonded breweries applies to calendar quarters 
beginning after December 31, 2020.
    The provision to clarify the treatment of smuggled beer 
applies to beer produced after the date of enactment (December 
27, 2020).
    The provision to modify the beer single taxpayer rule 
applies to beer removed after December 31, 2020.
    The provision to provide refunds in lieu of reduced rates 
for imported beer applies to beer removed after December 31, 
2022.
    The provision requiring information reporting by foreign 
producers is effective for elections to make an assignment of 
lower rates or refunds for beer after December 31, 2020.

Credits against excise tax on certain wine, refunds in lieu of credits 
        for wine produced outside the United States, and other 
        provisions related to wine

                              Present Law


In general

    Excise taxes are imposed on wine, based on the wine's 
alcohol content and carbonation levels. In general, 
notwithstanding the temporary changes made for calendar years 
2018, 2019, and 2020, the following table outlines the rates of 
tax on wine.
---------------------------------------------------------------------------
    \1806\ A ``still wine'' is a non-effervescent or minimally 
effervescent wine containing no more than 0.392 grams of carbon dioxide 
per hundred milliliters of wine. Champagne wine typically contains more 
than twice that amount.
    \1807\ A wine gallon is a U.S. liquid gallon.

------------------------------------------------------------------------
          Tax (and Code Section)                      Tax Rates
------------------------------------------------------------------------
 Wines (sec. 5041)
    ``Still wines'' \1806\ not more than    $1.07 per wine gallon \1807\
     14 percent alcohol.
    ``Still wines'' more than 14 percent,   $1.57 per wine gallon
     but not more than 21 percent, alcohol.
    ``Still wines'' more than 21 percent,   $3.15 per wine gallon
     but not more than 24 percent, alcohol.
    ``Still wines'' more than 24 percent    $13.50 per proof gallon
     alcohol.                                (taxed as distilled
                                             spirits)
    Champagne and other sparkling wines...  $3.40 per wine gallon
    Artificially carbonated wines.........  $3.30 per wine gallon
------------------------------------------------------------------------

    Liability for the excise taxes on wine arises when the wine 
is produced or imported but is not payable until the wine is 
removed from the bonded wine cellar or winery, or from customs 
control, for consumption or sale. Generally, bulk and bottled 
wine may be transferred between bonded premises; however, the 
tax liability on such wine becomes the responsibility of the 
transferee. Bulk natural wine may be released from customs 
custody without payment of tax and transferred in bond to a 
winery. Wine may be exported without payment of tax and may be 
withdrawn from a wine cellar or winery without payment of tax 
or free of tax for certain authorized uses, including 
industrial uses and non-beverage uses.\1808\
---------------------------------------------------------------------------
    \1808\ Sec. 5042.
---------------------------------------------------------------------------

Credits and exemptions for certain wine producers

    Notwithstanding the temporary modifications described 
below, domestic wine producers having aggregate annual 
production not exceeding 250,000 wine gallons (``small domestic 
producers'') receive a credit against the wine excise tax equal 
to 90 cents per gallon (the amount of a wine tax increase 
enacted in 1990) on the first 100,000 wine gallons of wine 
domestically produced and removed during a calendar year.\1809\ 
The credit is reduced (but not below zero) by one percent for 
each 1,000 gallons produced in excess of 150,000 wine gallons; 
the credit may not be applied to the tax liability on sparkling 
wines. In the case of a controlled group,\1810\ the 250,000 
wine gallon limitation for wineries is applied to the 
controlled group, and the 100,000 wine gallons eligible for the 
credit are apportioned among the wineries that are component 
members of such group. Additionally, two or more entities 
(whether or not under common control) that produce wine 
marketed under a similar brand, license, franchise, or other 
arrangement are treated as a single taxpayer (the ``wine single 
taxpayer rule'').
---------------------------------------------------------------------------
    \1809\ Sec. 5041(c).
    \1810\ The term ``controlled group'' has the meaning assigned to it 
by section 1563(a), except that the phrase ``more than 50 percent'' is 
substituted for the phrase ``at least 80 percent'' in each place it 
appears in section 1563(a).
---------------------------------------------------------------------------
            Temporary modifications
    The credit against the wine excise tax for small domestic 
producers is temporarily modified for calendar years 2018, 
2019, and 2020 in several ways. First, the 250,000 wine gallon 
domestic production limitation is removed (thus making the 
credit available for all wine producers and importers). In 
order for an importer to receive the tax benefit, the importer 
must be an electing importer and the wine gallons of wine must 
be assigned to the importer by the person producing the wine. 
Second, under the modifications, the credit may be applied to 
the tax liability on sparkling wine. Third, with respect to 
wine produced in, or imported into, the United States during a 
calendar year, the credit amount is modified to (1) $1 per wine 
gallon for the first 30,000 wine gallons of wine, plus; (2) 90 
cents per wine gallon on the next 100,000 wine gallons of wine, 
plus; (3) 53.5 cents per wine gallon on the next 620,000 wine 
gallons of wine.\1811\ Finally, there is no phaseout of the 
credit with additional production.
---------------------------------------------------------------------------
    \1811\ The credit rate for hard cider is tiered at the same level 
of production or importation, but is equal to 6.2 cents, 5.6 cents, and 
3.3 cents, respectively.
---------------------------------------------------------------------------
    Alcohol-by-volume levels of the first two tiers of the 
excise tax on wine are temporarily modified for calendar years 
2018, 2019, and 2020, by changing 14 percent to 16 
percent.\1812\ Thus, a wine producer or importer may 
temporarily produce or import ``still wine'' that has an 
alcohol-by-volume level of up to 16 percent and remain subject 
to the lowest rate of $1.07 per wine gallon.
---------------------------------------------------------------------------
    \1812\ Sec. 5041(b)(1) and (2).
---------------------------------------------------------------------------
    Mead and certain sparkling, low alcohol-by-volume wines are 
temporarily designated to be taxed at the lowest rate 
applicable to ``still wine,'' $1.07 per wine gallon of wine, 
for calendar years 2018, 2019, and 2020.\1813\ To qualify for 
the lowest rate, mead is defined as wine that contains not more 
than 0.64 grams of carbon dioxide per hundred milliliters of 
wine,\1814\ which is derived solely from honey and water, 
contains no fruit product or fruit flavoring, and contains less 
than 8.5 percent alcohol-by-volume. The sparkling wines 
eligible to be taxed at the lowest rate are those wines that 
contain not more than 0.64 grams of carbon dioxide per hundred 
milliliters of wine,\1815\ which are derived primarily from 
grapes or grape juice concentrate and water, which contain no 
fruit flavoring other than grape, and which contain less than 
8.5 percent alcohol by volume.
---------------------------------------------------------------------------
    \1813\ Sec. 5041(h).
    \1814\ The Secretary is authorized to prescribe tolerances to this 
limitation as may be reasonably necessary in good commercial practice.
    \1815\ The Secretary is authorized to prescribe tolerances to this 
limitation as may be reasonably necessary in good commercial practice.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision makes permanent the temporary changes that 
were in effect for calendar years 2018, 2019, and 2020. 
Specifically, the provision makes permanent
           the modifications to the credit against the 
        wine excise tax,
           the modifications to the alcohol-by-volume 
        levels for application of the wine excise tax, and
           the rates on mead and certain sparkling, low 
        alcohol-by-volume wines.
    The provision also clarifies that wine smuggled into the 
United States or produced other than as authorized under 
chapter 51 of the Code is not eligible for the wine excise tax 
credit.
    Under the provision modifying the wine single taxpayer 
rule, two or more entities (whether or not under common 
control) that produce wine under a license, franchise, or other 
arrangement are treated as a single taxpayer.

Refunds in lieu of tax credits

    The provision provides that wine gallons of wine that are 
produced outside the United States, imported into the United 
States, and removed after December 31, 2022, do not qualify for 
credit against wine excise tax, but the importer may claim a 
refund in lieu of credits. Refunds are treated as overpayment 
of tax and determined for periods no less frequently than 
quarterly. As under prior law, in order for an importer to 
receive the tax benefit, the importer must be an electing 
importer and the wine gallons of wine must be assigned to the 
importer by the person producing the wine.
    Under the provision, the amount of refund with respect to 
any importer for a given filing period is equal to (1) the 
excess (if any) of (a) the amount of tax imposed on wine 
gallons of wine removed during the filing period over (b) the 
amount of tax that would have been imposed on such wine gallons 
if the importer had been eligible to receive a credit against 
wine excise tax, plus (2) the amount of interest that would be 
allowed and paid on an overpayment of tax at the overpayment 
rate, if that rate applied to the amount determined in (1) for 
the number of days in the filing period. The overpayment rate 
is the rate established under section 6621(a)(1), but without 
regard to the lower rate for corporate overpayments of tax 
exceeding $10,000. Generally, no additional interest is paid on 
the refund if the refund is paid within 90 days after the tax 
return is filed.

Information reporting in case of assignment of credits or refunds by 
        foreign producers of wine

    The provision requires that a foreign producer that elects 
to make an assignment of credits or refunds to an importer must 
provide the documentation required by the Secretary, which may 
include providing information about the controlled group 
structure of the foreign producer.
    The provision also requires the Secretary (or the 
Secretary's delegate within the Treasury Department) to 
implement and administer the new refund regime for wine, in 
coordination with the CBP. The Secretary (or the Secretary's 
delegate within the Treasury Department) must prescribe such 
regulations as may be necessary or appropriate, including 
regulations to require foreign producers to provide the 
information necessary to enforce the volume limitations for 
wine. The Secretary (or the Secretary's delegate within the 
Treasury Department), in coordination with CBP, must make 
publicly available a report detailing plans for implementing 
and administering the new refund regime not later than 180 days 
after the date of enactment.

                             Effective Date

    The provision to make permanent the modifications to the 
wine excise credit applies to wine removed after December 31, 
2020.
    The provision to make permanent the modifications to the 
alcohol-by-volume levels applies to wine removed after December 
31, 2020.
    The provision to make permanent the rates on mead and 
certain sparkling, low alcohol-by-volume wines applies to wine 
removed after December 31, 2020.
    The provision to clarify the treatment of smuggled wine 
applies to wine produced after the date of enactment (December 
27, 2020).
    The provision to modify the wine single taxpayer rule 
applies to wine removed after December 31, 2020.
    The provision to provide refunds in lieu of credits for 
imported wine applies to wine removed after December 31, 2022.
    The provision requiring information reporting by foreign 
producers is effective for elections to make an assignment of 
credits or refunds for wine after December 31, 2020.

Reduced rate of excise tax on certain distilled spirits, refunds in 
        lieu of reduced rates for distilled spirits, and other 
        provisions related to distilled spirits

                              Present Law

    Notwithstanding the current, temporary rates described 
below, distilled spirits are taxed at a rate of $13.50 per 
proof gallon.\1816\ Liability for the excise tax on distilled 
spirits arises when the distilled spirits are produced or 
imported 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. 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 be exported without 
payment of tax and may be withdrawn from a distillery without 
payment of tax or free of tax for certain authorized uses, 
including industrial uses and non-beverage uses.
---------------------------------------------------------------------------
    \1816\ Secs. 5001, 5006, 5043, and 5054.
---------------------------------------------------------------------------

Temporary reduced rates

    For calendar years 2018, 2019, and 2020, there is a 
temporary tax rate schedule for distilled spirits based on the 
annual quantity (1) distilled or processed and removed for 
consumption or sale, or (2) imported into the United States. 
The rate of tax is lowered to $2.70 per proof gallon on the 
first 100,000 proof gallons of distilled spirits produced, 
$13.34 on the next 22,130,000 proof gallons, and $13.50 for 
amounts thereafter.
    In the case of a controlled group,\1817\ the 100,000 and 
22,130,000 proof gallon limitations are applied to the 
controlled group and apportioned among the distillers that are 
component members of such group. In order for an importer to 
receive the tax benefit, the importer must be an electing 
importer and the proof gallons of distilled spirits must be 
assigned to the importer by the person producing the distilled 
spirits. Two or more entities (whether or not under common 
control) that produce distilled spirits marketed under a 
similar brand, license, franchise, or other arrangement are 
treated as a single taxpayer for purposes of the temporary 
lower rates (the ``distilled spirits single taxpayer rule'').
---------------------------------------------------------------------------
    \1817\ The term ``controlled group'' has the meaning assigned to it 
by section 1563(a), except that the phrase ``more than 50 percent'' is 
substituted for the phrase ``at least 80 percent'' in each place it 
appears in section 1563(a).
---------------------------------------------------------------------------
    For calendar years 2018, 2019, and 2020, distillers may 
also transfer distilled spirits in bond in containers other 
than bulk containers without payment of tax.

Cover over rules

    For purposes of the excise tax on distilled spirits, the 
territories of Puerto Rico and the U.S. Virgin Islands are not 
considered part of the United States.\1818\ Additionally, 
distilled spirits brought into the United States from these 
territories are not considered imports for purposes of the 
excise tax.\1819\ 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.
---------------------------------------------------------------------------
    \1818\ Sec. 7701(a)(9).
    \1819\ 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.\1820\ 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.\1821\ 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.\1822\ The revenues are 
apportioned between the two treasuries according to a formula 
determined by the Secretary.\1823\
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    \1820\ 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).
    \1821\ Sec. 7652(b)(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).
    \1822\ Sec. 7652(e)(1). 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).
    \1823\ 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. 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, 
2021.\1824\ 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.
---------------------------------------------------------------------------
    \1824\ Sec. 7652(f)(1).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision makes permanent the reduced rate schedule on 
distilled spirits.
    The provision modifies the rules for transfer of distilled 
spirits, allowing distillers to transfer spirits in bond in 
containers other than bulk containers without payment of tax if 
(1) distilled spirits are transferred between bonded premises 
belonging to the same person or members of the same controlled 
group (within the meaning of section 5001(c)(2)), or (2) 
distilled spirits are transferred in bond from the person who 
distilled (or processed) the distilled spirits (the 
``transferor'') to another person for bottling or storage and 
returned to the transferor for removal, and the transferor 
retained title during the entire period between distillation 
(or processing) and removal.
    The provision provides that a distilled spirit is not 
treated as processed for purposes of the reduced tax rates 
unless a process described in section 5002(a)(5)(A) (other than 
bottling) is performed with respect to the distilled 
spirit.\1825\
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    \1825\ Processes described in section 5002(a)(5)(A) include 
manufacturing and mixing.
---------------------------------------------------------------------------
    The provision clarifies that distilled spirits smuggled 
into the United States or produced other than as authorized 
under chapter 51 of the Code are not eligible for reduced tax 
rates.
    The provision modifies the distilled spirits single 
taxpayer rule and expands it to apply to processors of 
distilled spirits. Under the provision, two or more entities 
(whether or not under common control) that produce or process 
distilled spirits under a license, franchise, or other 
arrangement are treated as a single taxpayer.

Refunds in lieu of reduced rates

            In general
    The provision provides that proof gallons of distilled 
spirits produced outside the United States, imported into the 
United States, and removed after December 31, 2022, do not 
qualify for reduced excise tax rates, but the importer may 
claim a refund in lieu of reduced rates. Refunds are treated as 
overpayment of tax and determined for periods no less 
frequently than quarterly. As under prior law, in order for an 
importer to receive the tax benefit, the importer must be an 
electing importer and the proof gallons of distilled spirits 
must be assigned to the importer by the person producing the 
distilled spirits.
    Under the provision, the amount of refund with respect to 
any importer for a given filing period is equal to (1) the 
excess (if any) of (a) the amount of tax imposed on the proof 
gallons of distilled spirits removed during the filing period 
over (b) the amount of tax that would have been imposed on such 
proof gallons if the importer had been eligible to receive 
reduced rates, plus (2) the amount of interest that would be 
allowed and paid on an overpayment of tax at the overpayment 
rate, if that rate applied to the amount determined in (1) for 
the number of days in the filing period. The overpayment rate 
is the rate established under section 6621(a)(1), but without 
regard to the lower rate for corporate overpayments of tax 
exceeding $10,000. Generally, no additional interest is paid on 
the refund if the refund is paid within 90 days after the tax 
return is filed.
            Coordination with cover over to Puerto Rico and Virgin 
                    Islands
    With respect to 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 provision clarifies that the 
amounts covered over to Puerto Rico and the Virgin Islands are 
determined without regard to reduced rates or refunds in lieu 
of reduced rates. The provision also clarifies that refunds in 
lieu of reduced rates are not treated as refunds for purposes 
of determining the amounts of cover over.

Information reporting in case of assignment of lower rates or refunds 
        by foreign producers of distilled spirits

    The provision requires that a foreign producer that elects 
to make an assignment of lower rates or refunds to an importer 
must provide the documentation required by the Secretary, which 
may include providing information about the controlled group 
structure of the foreign producer.
    The provision also requires the Secretary (or the 
Secretary's delegate within the Treasury Department) to 
implement and administer the new refund regime for distilled 
spirits, in coordination with the CBP. The Secretary (or the 
Secretary's delegate within the Treasury Department) must 
prescribe such regulations as may be necessary or appropriate, 
including regulations to require foreign producers to provide 
the information necessary to enforce the volume limitations for 
distilled spirits. The Secretary (or the Secretary's delegate 
within the Treasury Department), in coordination with CBP, must 
make publicly available a report detailing plans for 
implementing and administering the new refund regime not later 
than 180 days after the date of enactment.

                             Effective Date

    The provision to make permanent the reduced rate schedule 
applies to distilled spirits removed after December 31, 2020.
    The provision to modify the rules for transfers of 
distilled spirits between bonded premises applies to distilled 
spirits transferred in bond after December 31, 2020.
    The provision to provide minimum processing requirements 
applies to distilled spirits removed after December 31, 2021.
    The provision to clarify the treatment of smuggled 
distilled spirits applies to distilled spirits produced after 
the date of enactment (December 27, 2020).
    The provision modifying the distilled spirits single 
taxpayer rule applies to distilled spirits removed after 
December 31, 2020.
    The provision to provide refunds in lieu of reduced rates 
for imported distilled spirits and coordinate with cover over 
rules applies to distilled spirits brought into the United 
States and removed after December 31, 2022.
    The provision requiring information reporting by foreign 
producers is effective for elections to make an assignment of 
lower rates or refunds for distilled spirits after December 31, 
2020.

Simplification of rules regarding records, statements, and returns

                              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.\1826\ For calendar quarters 
beginning after February 9, 2018, and before January 1, 2021, 
the Secretary must 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 which has been removed for consumption on 
the premises of the brewery.
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    \1826\ Sec. 5555(a).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision makes permanent the requirement that the 
Secretary 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 which has been removed for consumption on the premises of 
the brewery.

                             Effective Date

    The provision applies to calendar quarters beginning after 
December 31, 2020.

          Subtitle B--Certain Provisions Extended Through 2025


1. Extension of look-through treatment of payments between related 
        controlled foreign corporations under foreign personal holding 
        company rules (sec. 111 of the Act and sec. 954(c)(6) of the 
        Code)

                              Present Law


In general

    The rules of subpart F \1827\ require U.S. shareholders 
with a 10-percent or greater interest in a controlled foreign 
corporation (``CFC'') to include certain income of the CFC 
(referred to as ``subpart F income'') on a current basis for 
U.S. tax purposes.\1828\
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    \1827\ Secs. 951-964.
    \1828\ Sec. 951(a).
---------------------------------------------------------------------------
    Subpart F income includes foreign base company 
income.\1829\ One category of foreign base company income is 
foreign personal holding company income, which includes passive 
income such as dividends, interest, rents, and royalties, among 
other types of income.\1830\ There are several exceptions to 
these rules. For example, foreign personal holding company 
income does not include dividends and interest received by a 
CFC from a related corporation organized and operating in the 
same foreign country in which the CFC is organized, or rents 
and royalties received by a CFC from a related corporation for 
the use of property within the country in which the CFC is 
organized.\1831\ Interest, rent, and royalty payments do not 
qualify for this exclusion to the extent that such payments 
reduce the subpart F income of the payor.
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    \1829\ Secs. 952(a)(2) and 954.
    \1830\ Sec. 954(c)(1).
    \1831\ Sec. 954(c)(3).
---------------------------------------------------------------------------
    In addition, subpart F income of a CFC does not include any 
item of income from sources within the United States that is 
effectively connected with the conduct by such CFC of a trade 
or business within the United States (``ECI'') unless such item 
is exempt from taxation (or is subject to a reduced rate of 
tax) pursuant to a tax treaty.\1832\
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    \1832\ Sec. 952(b).
---------------------------------------------------------------------------

``CFC look-through''

    Section 954(c)(6), colloquially referred to as ``CFC look-
through,'' provides that dividends, interest (including 
factoring income that is treated as equivalent to interest 
under section 954(c)(1)(E)), rents, and royalties received or 
accrued by one CFC from a related CFC are not treated as 
foreign personal holding company income to the extent 
attributable or properly allocable to income of the payor that 
is neither subpart F income nor treated as ECI. For this 
purpose, a related CFC is a CFC that controls or is controlled 
by the other CFC, or a CFC that is controlled by the same 
person or persons that control the other CFC. Ownership of more 
than 50 percent of the CFC's stock (by vote or value) 
constitutes control for these purposes.
    The Secretary is authorized to prescribe regulations that 
are necessary or appropriate to carry out CFC look-through, 
including such regulations as may be necessary or appropriate 
to prevent the abuse of the purposes of such rule.
    CFC look-through applies to taxable years of foreign 
corporations beginning after December 31, 2005, and before 
January 1, 2021, and to taxable years of U.S. shareholders with 
or within which such taxable years of foreign corporations end.

                        Explanation of Provision

    The provision extends for five years the application of CFC 
look-through, to taxable years of foreign corporations 
beginning before January 1, 2026, and to taxable years of U.S. 
shareholders with or within which such taxable years of foreign 
corporations end.

                             Effective Date

    The provision applies to taxable years of foreign 
corporations beginning after December 31, 2020, and to taxable 
years of U.S. shareholders with or within which such taxable 
years of foreign corporations end.

2. New markets tax credit (sec. 112 of the Act and sec. 45D of the 
        Code)

                              Present Law


In general

    The New Markets Tax Credit (``NMTC'') is a geography-based 
tax credit program. Under section 45D(a), an investor may claim 
tax credits for a qualified equity investment in a qualified 
community development entity (``CDE''). The qualified CDE 
designates equity investments as qualified equity investments, 
rendering the investor eligible to receive tax credits. The 
qualified CDE can only designate up to an amount allocated to 
it by the Department of the Treasury's Community Development 
Financial Institutions Fund (``CDFI Fund''). The CDFI Fund 
allocates amounts to qualified CDEs through a competitive 
application process.
    The amount of the NMTC is determined on a credit allowance 
date as an amount equal to the applicable percentage of the 
investment in the qualified CDE on that date. The applicable 
percentage is five percent for the first three years of the 
investment and six percent for the remaining four years, for a 
total credit of 39 percent over seven years. The credit 
allowance date is the date of the investment and the next six 
anniversary dates of the investment.
    To continue to be eligible for tax credits, the taxpayer 
must continue to hold the qualified equity investment on the 
credit allowance date of each year. In other words, if the 
qualified equity investment ceases, or ceases to be qualified, 
the remaining tax credits are no longer allowed. The credits 
already claimed may also be subject to recapture if the CDE 
ceases to be qualified, if the proceeds of the investment cease 
to be used in a qualified manner, or if the taxpayer redeems 
its qualified equity investment.
    Regulated financial institutions provide most of the equity 
for NMTC transactions. In addition to receiving the NMTC, 
financial institutions often receive credit under the Community 
Reinvestment Act for investing in low-income census tracts.
    Substantially all of the qualified equity investment must 
be used by the qualified CDE to provide investments in low-
income communities through qualified active low-income 
community businesses.

Qualifying geography

    The NMTC provisions require CDEs to serve or provide 
investment capital for low-income communities or low-income 
persons. A low-income community is either (1) a population 
census tract that meets certain criteria or (2) a specific area 
designated by the Secretary. Specifically, a ``low-income 
community'' is a population census tract with either (1) a 
poverty rate of at least 20 percent or (2) median family income 
which does not exceed 80 percent of the greater of metropolitan 
area median family income or statewide median family income 
(for a 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. In addition, a 
population census tract with a population of less than 2,000 is 
treated as a low-income community for purposes of the NMTC if 
such tract is within an empowerment zone (the designation of 
which is in effect under section 1391) and is contiguous to one 
or more low-income communities.
    CDEs may also qualify for the NMTC if they serve targeted 
populations, as designated by the Secretary, regardless of the 
composition of the population census tract or tracts in which 
the targeted populations live. 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 80 percent of 
the area median family income or 80 percent of the statewide 
nonmetropolitan area median family income.

Project structures

    In a typical NMTC structure, an intermediary entity (the 
``investment fund LLC'') receives equity investments from 
investors (usually financial institutions) and debt from other 
sources. The investment fund LLC's proceeds are then invested 
as equity investment into a qualified CDE. The qualified CDE in 
turn makes a qualified low-income community investment in a 
qualified active low-income community business.
    A qualified CDE is any domestic corporation or partnership: 
(1) whose primary mission is serving or providing investment 
capital for low-income communities or low-income persons; (2) 
that maintains accountability to residents of low-income 
communities by their representation on any governing board of 
or any advisory board to the CDE; and (3) that is certified by 
the Secretary as being a qualified CDE. A qualified equity 
investment means stock (other than nonqualified preferred 
stock) in a corporation or a capital interest in a partnership 
that is acquired directly from a CDE for cash and includes an 
investment of a subsequent purchaser if such investment was a 
qualified equity investment in the hands of the prior holder. 
Substantially all the investment proceeds must be used by the 
CDE to make qualified low-income community investments. For 
this purpose, qualified low-income community investments 
include: (1) capital or equity investments in, or loans to, 
qualified low income community businesses; (2) certain 
financial counseling and other services to businesses and 
residents in low-income communities; (3) the purchase from 
another CDE of any loan made by such entity that is a qualified 
low-income community investment; or (4) an equity investment 
in, or loan to, another CDE.
    Although equity investments in qualified active low-income 
community businesses qualify under the NMTC rules, generally, 
such investments are in the form of loans. Equity investors 
that own a majority interest in a low-income community business 
can have their NMTC credits recaptured if the business violates 
the rules for qualification. However, Treasury regulations 
provide a ``reasonable expectation'' safe harbor for CDEs that 
lend to such a business; if the CDE ``reasonably expects'' that 
the rules are being satisfied, NMTC credits are not subject to 
recapture.\1833\
---------------------------------------------------------------------------
    \1833\ Treas. Reg. sec. 1.45(D)-1(d)(6)(i).
---------------------------------------------------------------------------
    A qualified active low-income community business is defined 
as a business that satisfies, with respect to a taxable year, 
the following requirements: (1) at least 50 percent of the 
total gross income of the business is derived from the active 
conduct of trade or business activities in any low-income 
community; (2) a substantial portion of the tangible property 
of such business is used in a low-income community; (3) a 
substantial portion of the services performed for such business 
by its employees is performed in a low-income community; and 
(4) less than five percent of the average of the aggregate 
unadjusted bases of the property of such business is 
attributable to certain financial property or to certain 
collectibles.

Allocation process

    The CDFI Fund annually allocates NMTCs to CDEs under a 
competitive application process. CDEs, in turn, allocate NMTCs 
to equity investors. The maximum annual amount of NMTCs that 
the CDFI Fund can allocate is $3.5 billion for calendar years 
2010 through 2019 and $5 billion for calendar year 2020. No 
amount of unused allocation limitation may be carried to any 
calendar year after 2025.
    For the 2019 allocation application round, the CDFI Fund 
awarded 76 CDEs more than $3.5 billion in NMTCs from a total of 
206 applications requesting $14.7 billion.\1834\ Out of the 
total awarded, approximately $2.6 billion (74.6 percent) of 
NMTC investment proceeds will likely be used to finance and 
support loans to or investments in operating businesses in low-
income communities, and approximately $882.8 million (25.4 
percent) of NMTC investment proceeds will likely be used to 
finance and support real estate projects in low-income 
communities.\1835\
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    \1834\ Information is available at https://www.cdfifund.gov/
programs-training/programs/new-markets-tax-credit/award-announcement-
step (last visited April 26, 2021).
    \1835\ Information is available in the 2019 NMTC Award Book. It is 
available at https://www.cdfifund.gov/sites/cdfi/files/documents/2019-
nmtc-award-book-finalforwebsite-13july2020.pdf (last visited April 26, 
2021).
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    Applications for NMTCs are reviewed in two phases.\1836\ In 
Phase 1, applications are reviewed, scored, and ranked based on 
two criteria: business strategy and community outcomes. 
Applicants that meet the minimum scoring thresholds in Phase 1 
advance to Phase 2 review and will be provided with 
``preliminary'' awards, in descending order of final rank 
score, until the available allocation authority is fulfilled. 
Final rank scores are determined by evaluating management 
capacity, capitalization strategy, and information regarding 
previous awards.\1837\
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    \1836\ The 2019 NMTC program allocation application provides 
information on reviewer criteria. It is available at https://
www.cdfifund.gov/sites/cdfi/files/documents/cy-2019-nmtc-application-
final.pdf (last visited April 26, 2021).
    \1837\ Information on the allocation application review process, 
general characteristics of a highly ranked application, and application 
ratings is available at https://www.cdfifund.gov/sites/cdfi/files/
documents/2019-nmtc-program-allocation-evaluation-process_508-
compliant.pdf (last visited April 26, 2021).
---------------------------------------------------------------------------
    In Phase 1, in evaluating and scoring the business strategy 
criteria, the CDFI Fund is looking for a CDE to articulate, 
with specificity, its strategy to use an allocation and to 
describe a long track record serving low-income communities, 
and of providing products and services like those that it 
intends to provide through its investments. The CDE can earn 
``priority points'' if it has a track record of five or more 
years of experience providing capital and/or technical 
assistance to disadvantaged businesses and communities. For the 
community outcomes criteria, the CDFI Fund considers the extent 
to which the CDE is working in particularly economically 
distressed or otherwise underserved communities, shows that its 
projected financing activities will generate demonstrable 
community outcomes, and demonstrates meaningful engagement with 
community stakeholders when vetting potential investments. In 
general, the highest ranked applications provide specifics 
concerning job creation, community development benefits, and a 
track record of providing capital and/or technical assistance 
to disadvantaged businesses and communities.
    In Phase 2, management capacity is evaluated based on 
management experience in low-income communities, asset and risk 
management, and fulfilling government compliance requirements. 
Capitalization is evaluated based on an applicant's track 
record of raising capital, investor commitments (or a strategy 
to secure such commitments), plan to pass along the benefits of 
the credit to the underlying businesses, and willingness to 
invest in amounts that exceed the minimum statutory 
requirements. Applicants with prior year allocations are 
evaluated on their effective use of prior-year allocations and 
whether they have substantiated a need for additional 
allocation authority.

                        Explanation of Provision

    This provision extends the new markets tax credit for five 
years, from 2021 through 2025, permitting up to $5 billion in 
qualified equity investments for each calendar year. The 
provision also extends for five years, through 2030, the 
carryover period for unused new markets tax credits.

                             Effective Date

    The provision applies to calendar years beginning after 
December 31, 2020.

3. Work opportunity credit (sec. 113 of the Act and sec. 51 of the 
        Code)

                              Present Law

    Background for the provision and a description of the work 
opportunity credit that the provision extends may be found 
above in the section describing section 143 of the Taxpayer 
Certainty and Disaster Tax Relief Act of 2019 (Division Q of 
Pub. L. No. 116-94) in Part Three of this document.

Expiration

    The work opportunity tax credit is not available for 
individuals who begin work for an employer after December 31, 
2020.

                        Explanation of Provision

    The provision extends for five years the work opportunity 
tax credit, making it available with respect to individuals who 
begin work for an employer before January 1, 2026.

                             Effective Date

    The provision generally applies to individuals who begin 
work for an employer after December 31, 2020.

4. Exclusion from gross income of discharge of qualified principal 
        residence indebtedness (sec. 114 of the Act and sec. 108 of the 
        Code)

                              Present Law

    Background for the provision and a description of the 
exclusion from gross income of discharge of qualified principal 
residence indebtedness that the provision modifies may be found 
above in the section describing section 101 of the Taxpayer 
Certainty and Disaster Tax Relief Act of 2019 (Division Q of 
Pub. L. No. 116-94) in Part Three of this document.

                        Explanation of Provision

    The provision extends for five additional years the 
exclusion from gross income for discharges of qualified 
principal residence indebtedness. Thus, the exclusion for 
qualified principal residence indebtedness is effective for 
discharges of indebtedness before January 1, 2026 and for 
discharges of indebtedness on or after January 1, 2026 if the 
discharge is subject to a written arrangement entered into 
prior to January 1, 2026.
    The provision also reduces the maximum amount of 
acquisition indebtedness that may be taken into account for 
qualified principal residence indebtedness to $750,000.\1838\
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    \1838\ The limitation is $375,000 in the case of a married 
individual filing a separate return. See sec. 114(b) of the Act.
---------------------------------------------------------------------------

                             Effective Date

    The provision generally applies to discharges of 
indebtedness after December 31, 2020.

5. Seven-year recovery period for motorsports entertainment complexes 
        (sec. 115 of the Act and sec. 168(i)(15) 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.\1839\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\1840\ 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 
placed in service convention.\1841\ For some assets, the 
recovery period for the asset is provided in section 168.\1842\ 
In other cases, the recovery period of an asset is generally 
set forth in Revenue Procedure 87-56.\1843\
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    \1839\ 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 use 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.
    \1840\ 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).
    \1841\ Sec. 168.
    \1842\ See sec. 168(e) and (g).
    \1843\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785). Exercising authority granted by Congress, the 
Secretary issued Rev. Proc. 87-56, 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,\1844\ 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.
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    \1844\ 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, 27.5 years for residential 
rental property, and 15 years for qualified improvement 
property.\1845\ The straight line depreciation method is 
required for the aforementioned real property.\1846\ 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.\1847\ 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.\1848\
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    \1845\ Sec. 168(c) and (e).
    \1846\ Sec. 168(b)(3).
    \1847\ Sec. 168(d)(2) and (d)(4)(B).
    \1848\ 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.\1849\ 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.\1850\ Racetrack facilities are excluded from the 
definition of theme and amusement park facilities classified 
under asset class 80.0.\1851\
---------------------------------------------------------------------------
    \1849\ 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).
    \1850\ 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, landscaping, etc.) 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.
    \1851\ 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, 2021.\1852\ For this purpose, a motorsports 
entertainment complex means a racing track facility which (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 which are open to the public for the price of 
admission.\1853\
---------------------------------------------------------------------------
    \1852\ Sec. 168(e)(3)(C)(ii) and (i)(15)(D).
    \1853\ 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).\1854\ 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.
    A motorsports entertainment complex does not include any 
transportation equipment, administrative services assets, 
warehouses, administrative buildings, hotels, or motels.\1855\
---------------------------------------------------------------------------
    \1854\ Sec. 168(i)(15)(B).
    \1855\ Sec. 168(i)(15)(C).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the seven-year recovery period for 
motorsports entertainment complexes for five years to apply to 
property placed in service before January 1, 2026.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2020.

6. Expensing rules for certain productions (sec. 116 of the Act and 
        sec. 181 of the Code)

                              Present Law

    Under section 181, a taxpayer may elect \1856\ 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, 2021,\1857\ 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.\1858\ 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.\1859\
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    \1856\ See Treas. Reg. sec. 1.181-2 for rules on making (and 
revoking) an election under section 181.
    \1857\ 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.
    \1858\ 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, e.g., 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.
    \1859\ Sec. 181(a)(2)(B).
---------------------------------------------------------------------------
    A section 181 election may only be made by an owner of the 
production.\1860\ 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.\1861\ 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.\1862\ 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.\1863\
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    \1860\ Treas. Reg. sec. 1.181-1(a).
    \1861\ Treas. Reg. sec. 1.181-1(a)(2)(i).
    \1862\ 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).
    \1863\ 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.\1864\ Solely for purposes of this rule, the term 
``compensation'' does not include participations and residuals 
(as defined in section 167(g)(7)(B)).\1865\
---------------------------------------------------------------------------
    \1864\ Sec. 181(d)(3)(A).
    \1865\ 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.\1866\ Qualified 
productions do not include sexually explicit productions as 
referenced by section 2257 of title 18 of the U.S. Code.\1867\
---------------------------------------------------------------------------
    \1866\ Sec. 181(d)(2)(B).
    \1867\ Sec. 181(d)(2)(C).
---------------------------------------------------------------------------
    A qualified live theatrical production is defined as a live 
staged production of a play (with or without music) which 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.\1868\ 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 which has an audience capacity of not 
more than 6,500.\1869\ 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 productions that include or consist 
of any performance of conduct described in section 2257(h)(1) 
of title 18 of the U.S. Code.\1870\
---------------------------------------------------------------------------
    \1868\ Sec. 181(e)(2)(A).
    \1869\ Sec. 181(e)(2)(D).
    \1870\ 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.\1871\ 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.\1872\
---------------------------------------------------------------------------
    \1871\ Sec. 1245(a)(2)(C). For a discussion of the recapture rules 
applicable to depreciation and amortization deductions, see Joint 
Committee on Taxation, Tax Incentives for Domestic Manufacturing (JCX-
15-21), March 12, 2021, pp. 14-17. This document can be found on the 
Joint Committee on Taxation website at www.jct.gov.
    \1872\ 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 five years to qualified productions commencing prior to 
January 1, 2026.

                             Effective Date

    The provision applies to productions commencing after 
December 31, 2020.

7. Oil Spill Liability Trust Fund rate (sec. 117 of the Act and sec. 
        4611 of the Code)

                              Present Law

    Background for the provision and a description of the Oil 
Spill Liability Trust Fund financing rate that the provision 
modifies may be found above in the section describing section 
134 of the Taxpayer Certainty and Disaster Tax Relief Act of 
2019 (Division Q of Pub. L. No. 116-94) in Part Three of this 
document.

                        Explanation of Provision

    The provision extends the Oil Spill Liability Trust Fund 
financing rate for an additional five years, through December 
31, 2025.

                             Effective Date

    The provision applies on and after January 1, 2021.

8. Empowerment zone tax incentives (sec. 118 of the Act and secs. 1391, 
        1394, 1396, 1397A, and 1397B of the Code)

                              Present Law

    The Omnibus Budget Reconciliation Act of 1993 (``OBRA 93'') 
\1873\ authorized the designation of nine empowerment zones 
(``Round I empowerment zones'') to provide tax incentives for 
businesses to locate within certain targeted areas \1874\ 
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,\1875\ 
which were located in smaller rural areas and cities.\1876\
---------------------------------------------------------------------------
    \1873\ Pub. L. No. 103-66.
    \1874\ 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.
    \1875\ Sec. 1391(b)(1).
    \1876\ 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 \1877\ 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'') \1878\ 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.\1879\ In addition, the 2000 Community 
Renewal Act conformed the tax incentives that are available to 
businesses in the Round I, Round II, and Round III empowerment 
zones and extended the empowerment zone incentives through 
December 31, 2009. Subsequent legislation, most recently the 
Further Consolidated Appropriations Act, 2020, extended the 
empowerment zone incentives through December 31, 2020.\1880\
---------------------------------------------------------------------------
    \1877\ Pub. L. No. 10.
    \1878\ 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.
    \1879\ 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, MO/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 Uni.e., 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.
    \1880\ Pub. L. No. 116-94, Div. Q, sec. 118 (2019); 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, 
2020 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, and deferral of capital gains tax on the 
sale of qualified assets sold and replaced.
    The following is a description of the empowerment zone tax 
incentives as in effect through 2020.

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.\1881\
---------------------------------------------------------------------------
    \1881\ 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, 2018. 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.\1882\
---------------------------------------------------------------------------
    \1882\ 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.\1883\ Wages are not to be taken into account for purposes 
of the wage credit if taken into account in determining the 
employer's work opportunity tax credit under section 51.\1884\ 
In addition, the $15,000 cap is reduced by any wages taken into 
account in computing the work opportunity tax credit.\1885\ The 
wage credit may be used to offset up to 25 percent of the 
employer's alternative minimum tax liability.\1886\
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    \1883\ Sec. 280C(a).
    \1884\ Sec. 1396(c)(3)(A).
    \1885\ Sec. 1396(c)(3)(B) .
    \1886\ Sec. 38(c)(2). The corporate alternative minimum tax is 
repealed for taxable years beginning after December 31, 2017. However, 
the full amount of the minimum tax credit is allowed in taxable years 
beginning before 2020. See sec. 53(e).
---------------------------------------------------------------------------
            Increased section 179 expensing limitation
    An enterprise zone business \1887\ is allowed up to an 
additional $35,000 of section 179 expensing for qualified zone 
property placed in service before January 1, 2021.\1888\ For 
taxable years beginning in 2020, the total amount that may be 
expensed is $1,075,000.\1889\ 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.\1890\ 
However, only 50 percent of the cost of qualified zone property 
placed in service during the year by the taxpayer is taken into 
account in determining whether the cost of qualifying property 
placed in service during the taxable year exceeds the specified 
dollar amount.\1891\
---------------------------------------------------------------------------
    \1887\ 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).
    \1888\ Sec. 1397A. Note that section 168(k) provides 100-percent 
bonus depreciation for qualified property acquired and placed in 
service after September 27, 2017 and before January 1, 2023. The 100-
percent allowance is phased down by 20 percent per calendar year for 
qualified property placed in service after December 31, 2022. Qualified 
property includes MACRS property with an applicable recovery period of 
20 years or less, and therefore generally includes qualified zone 
property other than buildings.
    \1889\ $1,040,000 section 179(b)(1) limitation + $35,000 increase 
for qualified zone property = $1,075,000 maximum dollar limitation. See 
sec. 179(b)(1) and Section 3.26 of Rev. Proc. 2019-44.
    \1890\ For taxable years beginning in 2020, the relevant dollar 
amount is $2,590,000. Sec. 179(b)(2) and Section 3.26 of Rev. Proc. 
2019-44.
    \1891\ Sec. 1397A(a)(2). For example, assume that during 2020 a 
calendar year taxpayer in an enterprise zone business purchased and 
placed in service $5,500,000 of section 179 property that is qualified 
zone property. The $1,040,000 section 179(b)(1) dollar amount for 2020 
is increased to $1,075,000 (by the lesser of $35,000 or $5,500,000). 
That amount is reduced by the excess section 179 property cost amount 
of $160,000 ((50 percent  $5,500,000) - $2,590,000)). The 
taxpayer's expensing limitation is $915,000 ($1,075,000 - $160,000). 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.
---------------------------------------------------------------------------
    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.\1892\ Special rules are provided in the case of property 
that is substantially renovated by the taxpayer.\1893\
---------------------------------------------------------------------------
    \1892\ 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(e)).
    \1893\ Sec. 1397D(a)(2).
---------------------------------------------------------------------------
    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.\1894\
---------------------------------------------------------------------------
    \1894\ Sec. 1397C(b).
---------------------------------------------------------------------------
    A qualified proprietorship is any qualified business 
carried on by an individual as a proprietorship if for such 
year: (1) at least 50 percent of the total gross income of such 
individual from such business is derived from the active 
conduct of such business in an empowerment zone; (2) a 
substantial portion of the use of the tangible property of such 
individual in such business (whether owned or leased) is within 
an empowerment zone; (3) a substantial portion of the 
intangible property of such business is used in the active 
conduct of such business; (4) a substantial portion of the 
services performed for such individual in such business by 
employees of such business are performed in an empowerment 
zone; (5) at least 35 percent of such employees are residents 
of an empowerment zone; (6) less than five percent of the 
average of the aggregate unadjusted bases of the property of 
such individual which is used in such business is attributable 
to collectibles other than collectibles that are held primarily 
for sale to customers in the ordinary course of such business; 
and (7) less than five percent of the average of the aggregate 
unadjusted bases of the property of such individual which is 
used in such business is attributable to nonqualified financial 
property.\1895\
---------------------------------------------------------------------------
    \1895\ Sec. 1397C(c). For these purposes, the term ``employee'' 
includes the proprietor.
---------------------------------------------------------------------------
    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.\1896\ 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. 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.
---------------------------------------------------------------------------
    \1896\ 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).
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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.\1897\ These bonds can be 
used in areas designated enterprise communities as well as 
areas designated empowerment zones. To qualify, 95 percent (or 
more) of the net proceeds from the bond issue must be used to 
finance: (1) qualified zone property whose principal user is an 
enterprise zone business; and (2) certain land functionally 
related and subordinate to such property.
---------------------------------------------------------------------------
    \1897\ Sec. 1394.
---------------------------------------------------------------------------
    The term enterprise zone business is the same as that used 
for purposes of the increased section 179 deduction limitation 
(discussed above) with certain modifications for start-up 
businesses. First, 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.\1898\ 
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 which 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.
---------------------------------------------------------------------------
    \1898\ Pub. L. No. 114-113, Div. Q, sec. 171 (2015) (effective for 
bonds issued after 2015).
---------------------------------------------------------------------------
    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).\1899\
---------------------------------------------------------------------------
    \1899\ Sec. 1394(b)(3).
---------------------------------------------------------------------------
    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 so long as 35 percent of its employees are residents 
of an empowerment zone, an 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.\1900\ 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.
---------------------------------------------------------------------------
    \1900\ Sec. 1397B.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for five years, through December 31, 
2025, the period for which the designation of an empowerment 
zone is in effect, thus extending for five years two 
empowerment zone tax incentives: the wage credit and tax-exempt 
bond financing.
    The provision terminates the two other empowerment zone tax 
incentives: increased section 179 expensing for qualified zone 
property under section 1397A and deferral of capital gains tax 
on the sale of qualified assets replaced with other qualified 
assets under section 1397B. Section 1397A will not apply to any 
property placed in service in taxable years beginning after 
December 31, 2020, and section 1397B will not apply to sales in 
taxable years beginning after December 31, 2020.
    The provision also provides that in the case of a 
designation of an empowerment zone the nomination for which 
included a termination date which is December 31, 2020, 
termination shall not apply with respect to such designation if 
the entity which made such nomination amends the nomination to 
provide for a new termination date in such manner as the 
Secretary may provide.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2020.

9. Employer credit for paid family and medical leave (sec. 119 of the 
        Act and sec. 45S of the Code)

                              Present Law


In general

    The Family and Medical Leave Act of 1993, as amended (the 
``FMLA''), generally requires employers to provide employees 
with up to 26 weeks of leave under certain circumstances.\1901\ 
In general, FMLA does not require that the employer continue to 
pay employees during such leave, although employers may choose 
to pay for all or a portion of such leave. State and local 
governments may provide, or State and local laws may require 
employers to provide, employees with up to a certain amount of 
paid leave for types of leave that may or may not fall under 
the FMLA.
---------------------------------------------------------------------------
    \1901\ Pub. L. No. 103-3 (Feb. 5, 1993); 29 U.S.C. sec. 2601, et 
seq.
---------------------------------------------------------------------------

Employer credit for paid family and medical leave

    For wages paid in taxable years beginning after December 
31, 2017, and before January 1, 2021, eligible employers may 
temporarily claim a general business credit equal to 12.5 
percent of the amount of eligible wages (based on the normal 
hourly wage rate) \1902\ paid to ``qualifying employees'' 
during any period in which such employees are on ``family and 
medical leave'' if the rate of payment under the program is 50 
percent of the wages normally paid to an employee for actual 
services performed for the employer.\1903\ The credit is 
increased by 0.25 percentage points (but not above 25 percent) 
for each percentage point by which the rate of payment exceeds 
50 percent. The maximum amount of family and medical leave that 
may be taken into account with respect to any qualifying 
employee for any taxable year is 12 weeks.
---------------------------------------------------------------------------
    \1902\ Wages for this purpose are Federal Unemployment Tax Act 
wages defined in section 3306(b), without regard to the dollar 
limitation, but do not include amounts taken into account for purposes 
of determining any other credit under subpart D of the Code. A 
technical correction may be necessary to reflect that the wages with 
respect to the credit are limited to the employee's normal hourly wage 
rate and do not include additional amounts, such as a bonus, that could 
be paid during the leave period.
    \1903\ Pub. L. 115-97 (December 22, 2017), as amended by Pub. L. 
116-94 (December 20, 2019); Notice 2018-71, 2018-41 I.R.B.548.
---------------------------------------------------------------------------
    An ``eligible employer'' is one which has in place a 
written policy that allows all qualifying full-time employees 
not less than two weeks of annual paid family and medical 
leave, and which allows all less-than-full-time qualifying 
employees a commensurate amount of leave (on a pro rata basis) 
compared to the leave provided to full-time employees. The 
policy must also provide that the rate of payment under the 
program is not less than 50 percent of the wages normally paid 
to any such employee for services performed for the employer.
    In addition, in order to be an eligible employer, the 
employer is prohibited from certain practices or acts which are 
also prohibited under the FMLA, regardless of whether the 
employer is subject to the FMLA. Specifically, the employer 
must provide paid family and medical leave in compliance with a 
written policy that ensures that the employer will not 
interfere with, restrain, or deny the exercise of or the 
attempt to exercise, any right provided under the policy and 
will not discharge or in any other manner discriminate against 
any individual for opposing any practice prohibited by the 
policy.
    A ``qualifying employee'' means any individual who is an 
employee under tax rules and principles and is defined in 
section 3(e) of the Fair Labor Standards Act of 1938,\1904\ as 
amended, who has been employed by the employer for one year or 
more, and who for the preceding year, had compensation not in 
excess of 60 percent of the compensation threshold for highly 
compensated employees.\1905\ For 2020 and 2021, this 60 percent 
amount is $78,000.
---------------------------------------------------------------------------
    \1904\ Pub. L. No. 75-718 (June 25, 1938).
    \1905\ Sec. 414(q)(1)(B) ($130,000 for 2020).
---------------------------------------------------------------------------
    ``Family and medical leave'' for purposes of section 45S is 
generally defined as leave described under sections 
102(a)(1)(A)-(E) or 102(a)(3) of the FMLA.\1906\ If an employer 
provides paid leave as vacation leave, personal leave, or other 
medical or sick leave \1907\ (unless the medical or sick leave 
is specifically for one or more of the ``family and medical 
leave'' purposes defined above), such paid leave would not be 
considered to be family and medical leave. In addition, leave 
paid for by a State or local government or required by State or 
local law (including such leave required to be paid by the 
employer) is not taken into account in determining the amount 
of paid family and medical leave provided by the employer that 
is eligible for the credit.
---------------------------------------------------------------------------
    \1906\ FMLA section 102(a)(1) provides leave for FMLA purposes due 
to (A) the birth of a son or daughter of the employee and in order to 
care for such son or daughter; (B) the placement of a son or daughter 
with the employee for adoption or foster care; (C) caring for the 
spouse, or a son, daughter, or parent, of the employee, if such spouse, 
son, daughter, or parent has a serious health condition; (D) a serious 
health condition that makes the employee unable to perform the 
functions of the employee's position; (E) any qualifying exigency (as 
the Secretary of Labor shall, by regulation, determine) arising out of 
the fact that the spouse, or a son, daughter, or parent of the employee 
is on covered active duty (or has been notified of an impending call or 
order to covered active duty) in the Armed Forces. In addition, FMLA 
section 102(a)(3) provides leave for FMLA purposes due to the need of 
an employee who is a spouse, son, daughter, parent, or next-of-kin of 
an eligible service member to care for such service member.
    \1907\ These terms mean these types of leave within the meaning of 
FMLA section 102(d)(2).
---------------------------------------------------------------------------
    The Secretary will make determinations as to whether an 
employer or an employee satisfies the applicable requirements 
for an eligible employer or qualifying employee, based on 
information provided by the employer that the Secretary 
determines to be necessary or appropriate.

Employer credit and paid sick and family leave related to COVID-19

    The Families First Coronavirus Response Act (``FFCRA'') 
\1908\ required certain employers with fewer than 500 employees 
to provide paid sick and expanded family and medical leave to 
employees unable to work or telework for specified reasons 
related to COVID-19. Employers that paid sick or family leave 
wages could receive a corresponding payroll tax credit. The 
paid sick leave requirements in the Emergency Paid Sick Leave 
Act,\1909\ and the expanded family and medical leave 
requirements in the Emergency Family and Medical Leave 
Expansion Act,\1910\ expired on December 31, 2020, but the 
credits were extended to March 31, 2021.\1911\
---------------------------------------------------------------------------
    \1908\ Pub. L. No. 116-127 (March 18, 2020).
    \1909\ Division E, FFCRA, Pub. L. No. 116-127.
    \1910\ Division C, FFCRA, Pub. L. No. 116-127.
    \1911\  Pub. L. No. 116-260 (December 27, 2020).
---------------------------------------------------------------------------
    Any qualified sick leave wages or qualified family leave 
wages taken into account for the payroll tax credit on such 
wages are not taken into account for purposes of determining 
the employer credit for certain paid family and medical leave 
under section 45S.\1912\ Thus, the employer may not claim a 
credit under section 45S with respect to the qualified sick 
leave or family leave wages paid, but may be able to take a 
credit under section 45S with respect to any additional wages 
paid, provided the requirements of section 45S are met with 
respect to the additional wages.
---------------------------------------------------------------------------
    \1912\ Pub. L. No. 116-127 (March 18, 2020).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extended the employer credit for paid family 
and medical leave so that it will expire on December 31, 2025 
rather than December 31, 2021.

                             Effective Date

    The provision is effective for all wages paid in taxable 
years beginning after December 31, 2020.

10. Exclusion for certain employer payments of student loans (sec. 120 
        of the Act and secs. 127, 3121, 3306, and 3401 of the Code)

                              Present Law


Employer-provided educational assistance programs

    Under section 127, an employee may exclude from gross 
income for income tax purposes \1913\ and the employer may 
exclude from wages for employment tax purposes \1914\ up to 
$5,250 annually of educational assistance provided by the 
employer to the employee. For the exclusion to apply, certain 
requirements must be satisfied: (1) the educational assistance 
must be provided pursuant to a separate written plan of the 
employer; (2) employers must provide reasonable notification of 
the terms and availability of the program to eligible 
employees; (3) the employer's educational assistance program 
must not discriminate in favor of highly compensated employees; 
and (4) no more than five percent of the amounts paid or 
incurred by the employer during the year for educational 
assistance under a qualified educational assistance program may 
be provided for the class of individuals consisting of (i) more 
than five-percent owners of the employer and (ii) the spouses 
or dependents of such owners.
---------------------------------------------------------------------------
    \1913\ See also sec. 3401(a)(18).
    \1914\ Secs. 3121(a)(18) and 3306(b)(13).
---------------------------------------------------------------------------
    For purposes of the exclusion, ``educational assistance'' 
means the payment by an employer of expenses incurred by or on 
behalf of the employee for education of the employee including, 
but not limited to, tuition, fees and similar payments, books, 
supplies, and equipment. Educational assistance also includes 
the provision by the employer of courses of instruction for the 
employee, including books, supplies, and equipment. Educational 
assistance does not include payment for or the provision of (1) 
tools or supplies that may be retained by the employee after 
completion of a course, (2) meals, lodging, or transportation, 
or (3) any education involving sports, games, or hobbies. The 
education need not be job-related or part of a degree 
program.\1915\ Educational assistance qualifies for the 
exclusion only if the employer does not give the employee a 
choice between educational assistance and other remuneration 
includible in the employee's income.
---------------------------------------------------------------------------
    \1915\ Treas. Reg. sec. 1.127-2(c)(4).
---------------------------------------------------------------------------
    Educational assistance also includes certain payments of 
principal or interest made by an employer on a qualified 
education loan incurred by an employee of the employer, 
discussed more below.
    The exclusion for employer-provided educational assistance 
applies only with respect to education provided to the 
employee. The exclusion does not apply, for example, to 
assistance provided directly or indirectly for the education of 
the spouse or a child of the employee.
    The employer's costs for providing such educational 
assistance are generally deductible as a trade or business 
expense.\1916\
---------------------------------------------------------------------------
    \1916\ See sec. 162.
---------------------------------------------------------------------------
    In the absence of the specific exclusion for employer-
provided educational assistance under section 127, employer-
provided educational assistance is excludable from gross income 
for income tax purposes \1917\ and wages for employment tax 
purposes \1918\ only if the education expenses qualify as a 
working condition fringe benefit under section 132(d) or as a 
qualified tuition reduction under section 117(d). In general, 
education qualifies as a working condition fringe benefit if 
the employee could have deducted the education expenses under 
section 162 if the employee paid for the education.\1919\ In 
general, education expenses are deductible by an individual 
under section 162 if the education (1) maintains or improves a 
skill required in a trade or business currently engaged in by 
the taxpayer, or (2) meets the express requirements of the 
taxpayer's employer, applicable law, or regulations imposed as 
a condition of continued employment.\1920\ However, education 
expenses are generally not deductible if they relate to certain 
minimum educational requirements or to education or training 
that enables a taxpayer to begin working in a new trade or 
business.\1921\
---------------------------------------------------------------------------
    \1917\ See also sec. 3401(a)(19).
    \1918\ Secs. 3121(a)(20) and 3306(b)(16).
    \1919\ Sec. 132(d).
    \1920\ Treas. Reg. sec. 1.162-5.
    \1921\ For taxable years beginning before January 1, 2026, trade or 
business expenses relating to the trade or business of the performance 
of services by the taxpayer as an employee are disallowed miscellaneous 
itemized deductions. Secs. 62(a)(1), 67(g), and 162(a).
---------------------------------------------------------------------------
    Section 117(d) provides an exclusion from gross income and 
wages for qualified tuition reductions for certain education 
provided to employees of certain educational organizations, and 
to the spouses and dependents of such employees.

Deduction for student loan interest

    Under section 221, certain individual taxpayers may claim 
an above-the-line deduction for interest paid on student 
loans.\1922\ Only interest paid on a ``qualified education 
loan'' is eligible for the deduction.
---------------------------------------------------------------------------
    \1922\  Sec. 62(a)(17), 221; see also sec. 163(h)(2)(F).
---------------------------------------------------------------------------
    A qualified education loan generally is defined as any 
indebtedness incurred to pay for the costs of attendance at an 
eligible educational institution on at least a half-time 
basis.\1923\ The payments may be for the attendance of the 
taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer as of the time the indebtedness was incurred. Eligible 
educational institutions are (1) post-secondary educational 
institutions and certain vocational schools defined by 
reference to section 481 of the Higher Education Act of 1965, 
and (2) institutions conducting internship or residency 
programs leading to a degree or certificate from an institution 
of higher education, a hospital, or a health care facility 
conducting postgraduate training.\1924\ Additionally, to 
qualify as an eligible educational institution, an institution 
must be eligible to participate in Department of Education 
student aid programs.
---------------------------------------------------------------------------
    \1923\ Secs. 221(d)(1)-(3); see also sec. 25A(b)(3).
    \1924\ Secs. 25A(f)(2) and 221(d)(2).
---------------------------------------------------------------------------
    The maximum allowable deduction per year is $2,500. The 
deduction is phased out and reduced to zero at higher-income 
levels.\1925\ Dependents are ineligible to claim the deduction.
---------------------------------------------------------------------------
    \1925\ For 2020, the phaseout range is for modified adjusted gross 
income between $140,000 to $170,000 for married taxpayers filing a 
joint return and between $70,000 and $85,000 for other taxpayers. Sec. 
221(b)(2)(B); Rev. Proc. 2019-44, 2019-47 I.R.B. 1093.
---------------------------------------------------------------------------

Employer payment of employee student loans

    For payments made before January 1, 2021, the term 
``educational assistance'' under section 127 includes payments 
of principal or interest made by an employer on a qualified 
education loan incurred by an employee of the employer.\1926\ 
Thus, the employee may exclude these payments from gross income 
for income tax purposes and the employer may exclude these 
payments from wages for employment tax purposes. The term 
``qualified education loan'' is defined in section 221(d)(1). 
The loan must be incurred for the education of the employee. 
The exclusion applies to payments made to the employee or a 
lender.
---------------------------------------------------------------------------
    \1926\ Sec. 127(c)(1)(B)
---------------------------------------------------------------------------
    The employee may not claim a deduction under section 221 
for interest paid on student loans on an amount for which an 
exclusion is allowable under the provision.\1927\
---------------------------------------------------------------------------
    \1927\ Sec. 221(e)(1).
---------------------------------------------------------------------------
    These amounts are generally deductible by the employer as a 
trade or business expense.\1928\
---------------------------------------------------------------------------
    \1928\ See sec. 162.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the exclusion of payments of 
principal or interest made by an employer on a qualified 
education loan incurred by an employee of the employer to 
payments made before January 1, 2026.

                             Effective Date

    The provision is effective for payments made after December 
31, 2020.

11. Credit for carbon oxide sequestration (sec. 121 of the Act and sec. 
        45Q of the Code)

                              Present Law


In general

    A credit is available for the capture and sequestration of 
carbon oxide and carbon dioxide. Significant changes to the 
credit rate and structure were made in 2018 by the Bipartisan 
Budget Act of 2018 (``BBA'').\1929\ These changes were 
effective for taxable years beginning after December 31, 2017. 
This description of present law describes the rules in effect 
after the effective date of the BBA.
---------------------------------------------------------------------------
    \1929\ Pub. L. 115-123, sec. 41119.
---------------------------------------------------------------------------

Carbon dioxide captured using equipment placed in service before 
        February 9, 2018 (Pre-BBA)

    For carbon dioxide captured using equipment placed in 
service before February 9, 2018, 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.\1930\
---------------------------------------------------------------------------
    \1930\ Sec. 45Q(a)(2).
---------------------------------------------------------------------------
    For carbon dioxide captured in taxable years beginning 
after December 31, 2017, using equipment placed in service 
before February 9, 2018, a credit of $10 per metric ton is also 
available for carbon dioxide that is ``utilized'' by a taxpayer 
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 which 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.\1931\
---------------------------------------------------------------------------
    \1931\ Sec. 45Q(f)(5).
---------------------------------------------------------------------------
    Finally, for carbon dioxide captured using equipment placed 
in service before February 9, 2018, 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 or utilized by a taxpayer in a prescribed 
manner.
    All three credit amounts are adjusted for inflation using 
2008 as the base year. For 2020, as adjusted for inflation, the 
$10 credit is increased to $11.91 per metric ton and the $20 
credit is increased to $23.82 per metric ton of carbon 
dioxide.\1932\
---------------------------------------------------------------------------
    \1932\ Notice 2020-40, 2020-25 I.R.B. 953, June 15, 2020.
---------------------------------------------------------------------------
    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.\1933\
---------------------------------------------------------------------------
    \1933\ Final Treasury regulations for section 45Q were published in 
the Federal Register on January 15, 2021. T.D. 9944, 86 Fed. Reg. 4728, 
January 15, 2021.
---------------------------------------------------------------------------
    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.
    In general, a qualified facility is any industrial facility 
or direct air capture facility located in the United States or 
a possession of the United States the construction of which 
begins before January 1, 2024, and the construction of carbon 
capture equipment begins before such date or is integrated into 
the original planning and design of the facility.
    Qualified facilities also must capture a minimum amount of 
carbon oxide. For electricity generation facilities that emit 
500,000 metric tons or more of carbon oxide in a taxable, the 
facility must capture at least 500,000 metric tons of carbon 
oxide. For facilities that emit less than 500,000 metric tons 
of carbon oxide or non-power facilities that emit at least 
500,000 metric tons of carbon oxide, the facility must 
generally capture at least 100,000 metric tons of carbon oxide 
per taxable year. However, where the carbon oxide is captured 
at a facility that emits less than 500,000 metric tons of 
carbon oxide and is being utilized for commercial purposes, 
this minimum amount is reduced to 25,000 metric tons of carbon 
oxide. Direct air capture facilities (described below) must 
also capture at least 100,000 metric tons of carbon oxide per 
taxable year to be qualified facilities.
    Credits are generally attributable to the person that 
captures and physically or contractually ensures the disposal, 
utilization, or use as a tertiary injectant, of the qualified 
carbon dioxide. Such persons may elect to transfer the credit 
to the taxpayer that disposes of, utilizes, or uses (as a 
tertiary injectant) the qualified carbon dioxide.
    Credits are subject to recapture with respect to any 
qualified carbon dioxide that ceases to be captured, disposed 
of, or used as a tertiary injectant in a manner consistent with 
the credit rules.\1934\
---------------------------------------------------------------------------
    \1934\ Sec. 45Q(f)(4).
---------------------------------------------------------------------------
    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 taken into 
account for purposes of the credit. As of May 11, 2018, the 
credit had been claimed for 72,087,903 tons of qualified carbon 
dioxide.\1935\
---------------------------------------------------------------------------
    \1935\ Notice 2020-40, 2020-25 I.R.B. 954, June 15, 2020.
---------------------------------------------------------------------------

Carbon oxide captured using equipment placed in service on or after 
        February 9, 2018 (Post-BBA)

    For carbon captured using equipment placed in service on or 
after February 9, 2018, the definition of qualified carbon is 
expanded to include all carbon oxides, not just carbon dioxide. 
In addition, qualified carbon is no longer limited to carbon 
capture from industrial sources, but includes carbon captured 
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 oxide utilization, 
the credit rate for carbon oxide captured using equipment 
placed in service on or after February 9, 2018, is $12.83 per 
metric ton in 2017, increasing linearly each calendar year to 
$35 per metric ton by December 31, 2026, and adjusted for 
inflation thereafter. For qualified carbon oxide disposed of in 
secure geological storage, the credit rate is $22.66 per metric 
ton in 2017, increasing linearly each calendar year to $50 per 
metric ton by December 31, 2026, and adjusted for inflation 
thereafter. For 2020, the credit rates are $20.22 and $31.77 
respectively.\1936\
---------------------------------------------------------------------------
    \1936\ Treas. Reg. sec. 1.45Q-1(d).
---------------------------------------------------------------------------
    Carbon oxide captured using equipment placed in service on 
or after February 9, 2018, is not subject to the 75 million 
metric ton cap applicable to the pre-February 9, 2018 credit 
rules. 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.\1937\ In general, a qualified facility has the 
same definition as a pre-BBA qualified facility, except that it 
is placed in service on or after February 9, 2018.
---------------------------------------------------------------------------
    \1937\ Sec. 45Q(d).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends for two years, through calendar year 
2025, the period in which the construction of an otherwise 
qualified carbon capture facility must begin.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

           Subtitle C--Extension of Certain Other Provisions


  1. Credit for electricity produced from certain renewable resources 
     (secs. 131 and 204 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'').\1938\ 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.
---------------------------------------------------------------------------
    \1938\ Sec. 45. In addition to the renewable electricity production 
credit, section 45 also provides income tax credits for the production 
of Indian coal and refined coal at qualified facilities.

                   SUMMARY OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES
----------------------------------------------------------------------------------------------------------------
                                              Credit amount for 2020
  Eligible electricity production activity   \1\ (cents per kilowatt-                Expiration \2\
                 (sec. 45)                             hour)
----------------------------------------------------------------------------------------------------------------
Wind.......................................                      2.5   December 31, 2020
Closed-loop biomass........................                      2.5   December 31, 2020
Open-loop biomass (including agricultural                        1.3   December 31, 2020
 livestock waste nutrient facilities)
Geothermal.................................                      2.5   December 31, 2020
Municipal solid waste (including landfill                        1.3   December 31, 2020
 gas facilities and trash combustion
 facilities)
Qualified hydropower.......................                      1.3   December 31, 2020
Marine and hydrokinetic....................                      1.3   December 31, 2020
----------------------------------------------------------------------------------------------------------------
\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 years 2018 and 2020, and by 60 percent for facilities the construction of which begins in
  calendar year 2019. Inflation adjustment calculations may be found in IRS Notice 2020-38, Internal Revenue
  Bulletin 2020-23, p. 903, June 1, 2020.
\2\ Expires for property the construction of which begins after this date.

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

    A taxpayer may make an irrevocable election to have certain 
property which is part of a qualified renewable electricity 
production facility be treated as energy property eligible for 
a 30 percent investment credit under section 48. For 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 years 2018 and 2020, 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

    In general, for renewable power facilities, the provisions 
extend for one year, through December 31, 2021, the beginning 
of construction deadline for the renewable electricity 
production credit and the election to claim the energy credit 
in lieu of the electricity production credit.\1939\ For wind 
facilities the construction of which begins in calendar year 
2021, the credit is reduced by 40 percent.
---------------------------------------------------------------------------
    \1939\ See sec. 131 of the Act.
---------------------------------------------------------------------------
    The provisions create a special rule for property used in 
qualified offshore wind facilities.\1940\ Qualified offshore 
wind facilities are qualified wind facilities (within the 
meaning of the section 45 renewable electricity production 
credit, without regard to any sunset date) that are located in 
the inland navigable waters of the United States or in the 
coastal waters of the United States, and include property owned 
by the taxpayer necessary to condition electricity for use on 
the grid such as subsea cables and voltage transformers. For 
this purpose, coastal waters include the waters of the Great 
Lakes, the territorial seas, the exclusive economic zone, and 
the outer continental shelf, but only if such waters are 
treated as within the United States or a possession of the 
United States for purposes of section 45(e)(1).\1941\ Such 
property the construction of which begins before January 1, 
2026, is eligible for a 30 percent investment credit and is not 
subject to the phasedown applicable to other wind facilities.
---------------------------------------------------------------------------
    \1940\ See sec. 204 of the Act.
    \1941\ A technical correction may be necessary to clarify the 
meaning of this term.
---------------------------------------------------------------------------

                             Effective Date

    The provision extending the renewable electricity 
production credit takes effect on January 1, 2021. The 
provision creating a special rule for qualified offshore wind 
facility property is effective for periods after December 31, 
2016, under rules similar to the rules of section 48(m) of the 
Code (as in effect on the day before the date of the enactment 
of the Revenue Reconciliation Act of 1990).

2. Modification of energy investment credit (secs. 132 and 203 of the 
        Act and sec. 48 of the Code)

                              Present Law


In general

    A permanent nonrefundable 10-percent business energy credit 
\1942\ is allowed for the cost of new property that is 
equipment that either (1) uses solar energy to generate 
electricity, to heat or cool (or provide hot water for use in) 
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 (but not including) the electric 
transmission stage. Property used to generate energy for the 
purposes of heating a swimming pool is not eligible solar 
energy property.
---------------------------------------------------------------------------
    \1942\ 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 the construction of which begins 
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.\1943\ An unused general business credit generally may 
be carried back one year and carried forward 20 years.\1944\ 
The taxpayer's basis in the property is reduced by one-half of 
the amount of the credit claimed.\1945\ 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.
---------------------------------------------------------------------------
    \1943\ Sec. 38(b)(1)
    \1944\ Sec. 39.
    \1945\ Sec. 50(c)(3).
---------------------------------------------------------------------------

Increased credit rate for solar energy property

    For property the construction of which begins before 
January 1, 2022, 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 (subject to a phase-down rule) for property the 
construction of which begins prior to January 1, 2022. Under 
the phase-down rule, the credit rate is reduced to 26 percent 
for property the construction of which begins in calendar year 
2020 and to 22 percent for property the construction of which 
begins in calendar year 2021. Eligible property must be placed 
in service before January 1, 2024.

Fuel cells and microturbines

    The energy credit applies to qualified fuel cell power 
plants, but only for the construction of which begins prior to 
January 1, 2022. The credit rate is 30 percent and is subject 
to the same phase-down rule as fiber optic solar property 
(described above).
    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, 2022. 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 
nameplate capacity of less than 2,000 kilowatts.

Geothermal heat pump property

    The energy credit applies to qualified geothermal heat pump 
property the construction of which begins prior to January 1, 
2022. 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 the construction of which begins prior to January 1, 
2022. The credit rate is 30 percent and is subject to the same 
phase-down rule as fiber optic solar property (described 
above). 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 the construction of which begins prior to 
January 1, 2022. 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 (or a combination thereof), 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 five-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, 2021, 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, 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 years 2018 and 2020, 
and by 60 percent for facilities the construction of which 
begins in calendar year 2019.\1946\
---------------------------------------------------------------------------
    \1946\ See section 131 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 provisions generally extend the energy credit for 2 
years, through December 31, 2023.\1947\
---------------------------------------------------------------------------
    \1947\ See section 132 of the Act.
---------------------------------------------------------------------------
    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, 
2024, subject to a credit rate phasedown. For property the 
construction of which begins in calendar years 2020, 2021, and 
2022, and that is placed in service by the end of calendar year 
2025, the credit rate is 26 percent. For property the 
construction of which begins in calendar year 2023 and that is 
placed in service by the end of calendar year 2025, the credit 
rate is 22 percent. No credit is available for property the 
construction of which begins after calendar year 2023 or that 
does not meet the 2025 placed-in-service deadline.
    For solar energy property, the provisions extends the 
enhanced credit rate through December 31, 2023, subject to a 
credit rate phasedown. For property the construction of which 
begins in calendar years 2020, 2021, and 2022, and that is 
placed in service by the end of calendar year 2025, the credit 
rate is 26 percent. For property the construction of which 
begins in calendar year 2023 and that is placed in service by 
the end of calendar year 2025, the credit rate is 22 percent. 
For property the construction of which begins after calendar 
year 2023 or that began in any year before calendar year 2024 
but which is not placed in service by the end of calendar year 
2025, no enhanced credit rate is available, but taxpayers may 
still claim the permanent 10 percent credit.
    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, 2024.
    The provisions also add waste energy recovery property to 
the energy credit.\1948\ Waste energy recovery property is 
property that generates electricity solely from heat from 
buildings or equipment if the primary purpose of such building 
or equipment is not the generation of electricity. Qualified 
property does not include any property which has a capacity in 
excess of 50 megawatts. In the case of property that qualifies 
as both waste energy recovery property and CHP system property, 
no double benefit is permitted but a taxpayer may elect to 
claim the higher credit. The credit rate for waste energy 
recovery property is initially 30 percent, subject to the same 
phase-down and sunset rules as fiber optic solar property, fuel 
cell property, and small wind energy property.
---------------------------------------------------------------------------
    \1948\ See section 203 of the Act.
---------------------------------------------------------------------------

                             Effective Date

    The provision extending the energy credit is effective 
beginning January 1, 2020. The provision adding waste energy 
recovery property to the energy credit is effect for periods 
after December 31, 2020, 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.

  3. Treatment of mortgage insurance premiums as qualified residence 
       interest (sec. 133 of the Act and sec. 163(h) of the Code)


                              Present Law

    Background for the provision and a description of the 
treatment of mortgage insurance premiums as qualified residence 
interest that the provision modifies may be found above in the 
section describing section 102 of the Taxpayer Certainty and 
Disaster Tax Relief Act of 2019 (Division Q of Pub. L. No. 116-
94) in Part Three of this document.

                        Explanation of Provision

    The provision extends the deduction for qualified mortgage 
insurance premiums for one year (with respect to contracts 
entered into after December 31, 2006). Thus, the provision 
applies to amounts paid or accrued in 2021 (and not properly 
allocable to any period after December 31, 2021).

                             Effective Date

    The provision applies to amounts paid or accrued after 
December 31, 2020.

4. Credit for health insurance costs of eligible individuals (sec. 134 
        of the Act and sec. 35 of the Code)

                              Present Law

    Background for the provision and a description of the 
health coverage tax credit that the provision extends may be 
found above in the section describing section 146 of the 
Taxpayer Certainty and Disaster Tax Relief Act of 2019 
(Division Q of Pub. L. No. 116-94) in Part Three of this 
document.

                        Explanation of Provision

    The provision extends the availability of the health 
coverage tax credit for 12 months by amending the definition of 
eligible coverage month to include months beginning before 
January 1, 2022.

                             Effective Date

    The provision is effective for months beginning after 
December 31, 2020.

5. Indian employment credit (sec. 135 of the Act and sec. 45A of the 
        Code)

                              Present Law

    Background for the provision and a description of the 
Indian employment credit that the provision modifies may be 
found above in the section describing section 111 of the 
Taxpayer Certainty and Disaster Tax Relief Act of 2019 
(Division Q of Pub. L. No. 116-94) in Part Three of this 
document.\1949\
---------------------------------------------------------------------------
    \1949\ 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 $50,000 for 2019). See 
Instructions for Form 8845, Indian Employment Credit (Rev. January 
2020).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the Indian employment credit for one 
year (through taxable years beginning on or before December 31, 
2021).

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2020.

6. Mine rescue team training credit (sec. 136 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 (the ``mine rescue 
team training credit'').\1950\
---------------------------------------------------------------------------
    \1950\ 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.\1951\
---------------------------------------------------------------------------
    \1951\ Sec. 45N(b).
---------------------------------------------------------------------------
    An eligible employer is any taxpayer which employs 
individuals as miners in underground mines in the United 
States.\1952\ The term ``wages'' has the meaning given to such 
term by section 3306(b) \1953\ (determined without regard to 
any dollar limitation contained in that section).\1954\
---------------------------------------------------------------------------
    \1952\ Sec. 45N(c).
    \1953\ Section 3306(b) defines wages for purposes of Federal 
Unemployment Tax.
    \1954\ Sec. 45N(d).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of the expenses 
otherwise allowable as a deduction for the taxable year that is 
equal to the amount of the mine rescue team training credit 
determined for the taxable year.\1955\ The credit does not 
apply to taxable years beginning after December 31, 2020.\1956\ 
Additionally, the credit is not allowable for purposes of 
computing the alternative minimum tax.\1957\
---------------------------------------------------------------------------
    \1955\ Sec. 280C(e).
    \1956\ Sec. 45N(e).
    \1957\ Sec. 38(c). Note that the corporate alternative minimum tax 
was repealed for taxable years beginning after December 31, 2017. See 
Pub. L. No. 115-97, sec. 12001, December 22, 2017.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for one year through 
taxable years beginning before January 1, 2022.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2020.

7. Classification of certain race horses as three-year property (sec. 
        137 of the Act and sec. 168(e)(3)(A) 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.\1958\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\1959\ 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 
placed in service convention.\1960\ For some assets, the 
recovery period for the asset is provided in section 168.\1961\ 
In other cases, the recovery period of an asset is generally 
set forth in Revenue Procedure 87-56.\1962\
---------------------------------------------------------------------------
    \1958\ 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.(0A.
    \1959\ 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).
    \1960\ Sec. 168.
    \1961\ See sec. 168(e) and (g).
    \1962\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785). Exercising authority granted by Congress, the 
Secretary issued Rev. Proc. 87-56, 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,\1963\ 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.
---------------------------------------------------------------------------
    \1963\ 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, 
2021, and (2) placed in service after December 31, 2020, and 
more than two years old at such time it is placed in service by 
the purchaser.\1964\ A seven-year recovery period applies to 
any race horse that is placed in service after December 31, 
2020, and that is two years old or younger at the time it is 
placed in service.\1965\
---------------------------------------------------------------------------
    \1964\ 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.
    \1965\ 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, 2022. 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, 2021.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2020.

8. Accelerated depreciation for business property on Indian 
        reservations (sec. 138 of the Act and sec. 168(j) of the Code)

                              Present Law

    With respect to certain property used in connection with 
the conduct of a trade or business within an Indian 
reservation, depreciation deductions under section 168(j) are 
determined using the following recovery periods:
          3-year property--2 years
          5-year property--3 years
          7-year property--4 years
          10-year property--6 years
          15-year property--9 years
          20-year property--12 years
          Nonresidential real property--22 years \1966\
---------------------------------------------------------------------------
    \1966\ Section 168(j)(2) does not provide shorter recovery periods 
for water utility property, residential rental property, or railroad 
grading and tunnel bores.
---------------------------------------------------------------------------
    ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property described in the 
table above which is: (1) used by the taxpayer predominantly in 
the active conduct of a trade or business within an Indian 
reservation; (2) not used or located outside the reservation on 
a regular basis; (3) not acquired (directly or indirectly) by 
the taxpayer from a person who is related to the taxpayer; 
\1967\ and (4) is not property placed in service for purposes 
of conducting or housing certain gaming activities.\1968\
---------------------------------------------------------------------------
    \1967\ For these purposes, the term ``related persons'' is defined 
in section 465(b)(3)(C).
    \1968\ 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).\1969\
---------------------------------------------------------------------------
    \1969\ 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)) \1970\ or section 4(10) of the Indian Child Welfare 
Act of 1978 (25 U.S.C. 1903(10)).\1971\ The definition in 
section 3(d) of the Indian Financing Act of 1974 includes, in 
addition to current Indian reservations and certain other 
lands, ``former Indian reservations in Oklahoma.'' For purposes 
of section 168(j), 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).\1972\
---------------------------------------------------------------------------
    \1970\ Pub. L. No. 93-262.
    \1971\ Pub. L. No. 95-608.
    \1972\ Sec. 168(j)(6). See also IRS Notice 98-45, 1998-2 C.B. 257 
(defining ``former Indian reservations in Oklahoma'' for purposes of 
section 168(j)(6)); and the IRS ``Geographic Boundaries Determined for 
Tax Incentives Associated with `Former Indian Reservations in 
Oklahoma','' available at https://www.irs.gov/newsroom/geographic-
boundaries-determined-for-tax-incentives-associated-with-former-indian-
reservations-in-oklahoma#main-content.
---------------------------------------------------------------------------
    The depreciation deduction allowed for regular tax purposes 
is also allowed for purposes of the alternative minimum 
tax.\1973\
---------------------------------------------------------------------------
    \1973\ Sec. 168(j)(3). Note that the corporate alternative minimum 
tax was repealed for taxable years beginning after December 31, 2017. 
See Pub. L. No. 115-97, sec. 12001, December 22, 2017.
---------------------------------------------------------------------------
    The accelerated depreciation for qualified Indian 
reservation property is available with respect to property 
placed in service before January 1, 2021.\1974\ A taxpayer may 
annually make an irrevocable election out of section 168(j) on 
a class-by-class basis.\1975\
---------------------------------------------------------------------------
    \1974\ Sec. 168(j)(9).
    \1975\ 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, 2022.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2020.

9. American Samoa economic development credit (sec. 139 of the Act)

                              Present Law

    Beginning in 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.\1976\
---------------------------------------------------------------------------
    \1976\ This credit was previously extended during the 116th 
Congress by section 119 of the Taxpayer Certain and Disaster Tax Relief 
Act of 2019 (Division Q of the ``Further Consolidated Appropriations 
Act of 2020,'' Pub. L. No. 116-94), as described above in Part Three of 
this document.
---------------------------------------------------------------------------
    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 \1977\ in an election in effect for its 
taxable year that included October 13, 1995, or that acquired 
all of the assets of a trade or business that met the foregoing 
conditions. 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.
---------------------------------------------------------------------------
    \1977\ 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.
---------------------------------------------------------------------------
    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 rule denying a credit or deduction for any possessions 
tax or foreign tax paid with respect to taxable income that is 
taken into account in computing the credit under section 936 
\1978\ does not apply with respect to the credit allowed by the 
provision.
---------------------------------------------------------------------------
    \1978\ See sec. 936(c).
---------------------------------------------------------------------------
    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 15 
taxable years of the corporation which begin after December 31, 
2005, and before January 1, 2021. For any other corporation, 
the credit applies to the first nine taxable years of that 
corporation which begin after December 31, 2011, and before 
January 1, 2021

                        Explanation of Provision

    The provision extends the credit for one year to apply (a) 
in the case of a corporation that is an existing credit 
claimant with respect to American Samoa and that elected the 
application of section 936 for its last taxable year beginning 
before January 1, 2006, to the first 16 taxable years of the 
corporation which begin after December 31, 2005, and before 
January 1, 2022, and (b) in the case of any other corporation, 
to the first ten taxable years of the corporation which begin 
after December 31, 2011 and before January 1, 2022.
    For purposes of this credit, the Code is applied without 
regard to the repeal of sections 30A and 936 in 2018,\1979\ or 
the repeal of section 199 in 2017.\1980\
---------------------------------------------------------------------------
    \1979\ See The Consolidated Appropriations Act 2018, Pub. L. No. 
115-141, Division U, Title IV, at sec. 401(d)(1)(C) (the repeal of 
section 936) and sec. 401(d)(1)(D)(viii)(I) (definition of intangible 
property added to section 367(d)) (March 23, 2018).
    \1980\ Pub. L. 115-97, section 13305(a).
---------------------------------------------------------------------------

                             Effective Date

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

10. Second generation biofuel producer credit (sec. 140 of the Act and 
        sec. 40 of the Code)

                              Present Law

    Background for the provision and a description of the 
second generation biofuel producer credit that the provision 
modifies may be found above in the section describing section 
122 of the Taxpayer Certainty and Disaster Tax Relief Act of 
2019 (Division Q of Pub. L. No. 116-94) in Part Three of this 
document.

                        Explanation of Provision

    The provision extends the credit for an additional year, 
through December 31, 2021.

                             Effective Date

    The provision applies to qualified second generation 
biofuel production after December 31, 2020.

11. Nonbusiness energy property (sec. 141 of the Act and sec. 25C of 
        the Code)

                              Present Law

    Background for the provision and a description of the 
nonbusiness energy property credit that the provision extends 
may be found above in the section describing section 123 of the 
Taxpayer Certainty and Disaster Relief Act of 2019 (Division Q 
of Pub. L. No. 116-94) in Part Three of this document.

                        Explanation of Provision

    The provision extends the nonbusiness energy property 
credit for one year, through December 31, 2021.\1981\
---------------------------------------------------------------------------
    \1981\ Note that section 148 of the Act eliminates the credit for 
biomass fueled stoves from the nonbusiness energy property credit and 
replaces it with a new residential energy efficient property credit 
under section 25D of the Code.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for property placed in service 
after December 31, 2020.

12. Qualified fuel cell motor vehicles (sec. 142 of the Act and sec. 
        30B of the Code)

                              Present Law

    A credit is available through 2020 for vehicles propelled 
by chemically combining oxygen with hydrogen and creating 
electricity (``fuel cell vehicles'').\1982\ 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.
---------------------------------------------------------------------------
    \1982\ Sec. 30B.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for fuel cell vehicles for 
one year, through December 31, 2021.

                             Effective Date

    The provision applies to property purchased after December 
31, 2020.

13. Alternative fuel refueling property credit (sec. 143 of the Act and 
        sec. 30C of the Code)

                              Present Law

    Background for the provision and a description of the 
alternative fuel refueling property credit that the provision 
extends may be found above in the section describing section 
125 of the Taxpayer Certainty and Disaster Relief Act of 2019 
(Division Q of Pub. L. No. 116-94) in Part Three of this 
document.

                        Explanation of Provision

    The provision extends for one year the 30-percent credit 
for alternative fuel refueling property, through December 31, 
2021.

                             Effective Date

    The provision applies to property placed in service after 
December 31, 2020.

14. Two-wheeled plug-in electric vehicle credit (sec. 144 of the Act 
        and sec. 30D of the Code)

                              Present Law

    In general, for vehicles acquired before 2021, a 10-percent 
credit is available for qualified two-wheeled plug-in electric 
vehicles (``qualified electric motorcycles'').\1983\ Qualified 
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 qualified electric motorcycle is $2,500.
---------------------------------------------------------------------------
    \1983\ Sec. 30D(g). The credit lapsed and was not available for 
vehicles placed in service in calendar year 2014. Before 2014, the 
credit was also available for qualified vehicles having three wheels.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the qualified electric motorcycles 
credit for one year, through December 31, 2021.

                             Effective Date

    The provision applies to vehicles acquired after December 
31, 2020.

15. Production credit for Indian coal facilities (sec. 145 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 Indian coal facility during the 
15-year period beginning January 1, 2006, and ending December 
31, 2020.\1984\ 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, $2.570 per 
ton for 2020). 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.
---------------------------------------------------------------------------
    \1984\ Sec. 45(e)(10).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the credit for the production of 
Indian coal for one year, through December 31, 2021.

                             Effective Date

    The extension of the credit applies to Indian coal produced 
after December 31, 2020.

16. Energy-efficient homes credit (sec. 146 of the Act and sec. 45L of 
        the Code)

                              Present Law

    Background for the provision and a description of the 
energy-efficient homes credit that the provision extends may be 
found above in the section describing section 129 of the 
Taxpayer Certainty and Disaster Relief Act of 2019 (Division Q 
of Pub. L. No. 116-94) in Part Three of this document.

                        Explanation of Provision

    The provision extends the credit for one year, to homes 
that are acquired prior to January 1, 2022.

                             Effective Date

    The provision applies to homes acquired after December 31, 
2020.

17. Extension of excise tax credits relating to alternative fuels (sec. 
        147 of the Act and secs. 6426 and 6427 of the Code)

                              Present Law

    Background for the provision and a description of the 
excise tax credits relating to alternative fuels that the 
provision modifies may be found above in the section describing 
section 133 of the Taxpayer Certainty and Disaster Tax Relief 
Act of 2019 (Division Q of Pub. L. No. 116-94) in Part Three of 
this document.

                        Explanation of Provision

    The provision extends the alternative fuel credit and 
related payment provisions, and the alternative fuel mixture 
credit for an additional year, through December 31, 2021.

                             Effective Date

    The provision applies to fuel sold or used after December 
31, 2020.

    18. Extension and modification of credit for residential energy 
 efficient property (sec. 148 of the Act and secs. 25C and 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.\1985\ In general, the 
credit rate is equal to 30 percent of qualifying expenditures.
---------------------------------------------------------------------------
    \1985\ Sec. 25D.
---------------------------------------------------------------------------
    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, 2021. The credit rate 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 
located in the United States and used as a residence by the 
taxpayer. 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 by the taxpayer 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 of electricity 
using an electrochemical process. 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 connection 
with a dwelling unit located in the United States and used as a 
residence by the taxpayer.
    Qualified geothermal heat pump property means any equipment 
which (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 which 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, and for piping and wiring to 
interconnect such property to the dwelling unit, 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 two years, through December 31, 
2023, the residential energy efficient property credit. The 
provision also extends the rate phasedown rule. For property 
placed in service in calendar years 2021 and 2022, the credit 
rate is 26 percent. For property placed in service in calendar 
year 2023, the credit rate is 22 percent.
    The provision also adds biomass fuel property expenditures 
as qualified expenditures for purposes of the residential 
energy efficient property credit. The term ``qualified biomass 
fuel property expenditure'' is defined as property which uses 
the burning of 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 a dwelling unit, and which has a 
thermal efficiency rating of at least 75 percent. The term 
``biomass fuel'' means any plant-derived fuel available on a 
renewable or recurring basis. To avoid a double benefit, the 
provision eliminates the credit for energy efficient biomass-
fueled stoves allowed for under section 25C, as a nonbusiness 
energy property credit.

                             Effective Date

    The provision is generally effective for property placed in 
service after December 31, 2020. In the case of qualified 
biomass fuel property expenditures, the provision is effective 
for expenditures paid or incurred in taxable years beginning 
after December 31, 2020.

19. Black Lung Disability Trust Fund excise tax (sec. 149 of the Act 
        and sec. 4121 of the Code)

                              Present Law

    Before January 1, 2021, coal extracted from mines is taxed 
at either $1.10 per ton if from an underground mine, or $0.55 
per ton if from a surface mine.\1986\ The total amount of tax 
was not to exceed 4.4 percent of the price at which such ton of 
coal was sold by the producer.
---------------------------------------------------------------------------
    \1986\ Sec. 4121.
---------------------------------------------------------------------------
    After December 31, 2020, the ``temporary increase 
termination date,'' the tax rates are to decline to rates of 
$0.50 for underground mines, and $0.25 for surface mines. After 
the temporary increase termination date, the total amount of 
tax is not to exceed two percent of the price at which such ton 
of coal is sold by the producer.
    Additional background for the provision and a description 
of the coal excise tax that the provision modifies may be found 
above in the section describing section 105 of the Taxpayer 
Certainty and Disaster Tax Relief Act of 2019 (Division Q of 
Pub. L. No. 116-94) in Part Three of this document.\1987\
---------------------------------------------------------------------------
    \1987\ From January 1, 2019 to December 31, 2019, the tax rate 
temporarily dropped to 50 cents per ton or two percent of sales price 
for underground mined coal, and for surface mined coal, the tax was 25 
cents per ton or two percent of sales price.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends the increased rates for an additional 
year, through December 31, 2021.

                             Effective Date

    The provision applies to sales after December 31, 2020.

                       TITLE II--OTHER PROVISIONS


1. Minimum low-income housing tax credit rate (sec. 201 of the Act and 
        sec. 42 of the Code)

                              Present Law

    Background for the provision and a description of the low-
income housing tax credit that the provision modifies may be 
found above in the section describing section 207 of the 
Taxpayer Certainty and Disaster Tax Relief Act of 2019 
(Division Q of Pub. L. No. 116-94) in Part Three of this 
document.

                        Explanation of Provision

    The provision provides that the applicable percentage is 
set at a minimum of 4 percent for Federally subsidized newly 
constructed housing, Federally subsidized substantial 
rehabilitation, and certain housing acquisition costs (the 
``four-percent floor''). The application of the four-percent 
floor on the credit implies that the present value of the 
credit amounts (as computed under section 42(b)(1)(B) and (C)) 
is always 30 percent or more of qualified basis.
    The four-percent floor applies only to new or existing 
buildings that are placed into service after December 31, 2020.

                             Effective Date

    The provision is effective for buildings that receive an 
allocation of credit after December 31, 2020, and buildings of 
which any portion is financed with a tax-exempt obligation 
described in section 42(h)(4)(A) and issued after December 31, 
2020.

2. Depreciation of certain residential rental property over 30-year 
        period (sec. 202 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.\1988\ The period 
for depreciation or amortization generally begins when the 
asset is placed in service by the taxpayer.\1989\ 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 
placed in service convention.\1990\ For some assets, the 
recovery period for the asset is provided in section 168.\1991\ 
In other cases, the recovery period of an asset is generally 
set forth in Revenue Procedure 87-56.\1992\
---------------------------------------------------------------------------
    \1988\ 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.
    \1989\ 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).
    \1990\ Sec. 168.
    \1991\ See sec. 168(e) and (g).
    \1992\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785). Exercising authority granted by Congress, the 
Secretary issued Rev. Proc. 87-56, 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,\1993\ 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. The recovery periods 
for most real property are 39 years for nonresidential real 
property, 27.5 years for residential rental property, and 15 
years for qualified improvement property. The straight line 
depreciation method is required for the aforementioned real 
property.
---------------------------------------------------------------------------
    \1993\ 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.
---------------------------------------------------------------------------
    Depreciation of an asset begins when the asset is deemed to 
be placed in service under the applicable convention.\1994\ 
Under MACRS, nonresidential real property, residential rental 
property, and any railroad grading or tunnel bore generally are 
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.\1995\ 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 to reflect the assumption that 
assets are placed in service ratably throughout the year.\1996\ 
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,\1997\ designed to 
prevent the recognition of disproportionately large amounts of 
first-year depreciation under the half-year convention.
---------------------------------------------------------------------------
    \1994\ Treas. Reg. sec. 1.167(a)-10(b).
    \1995\ Sec. 168(d)(2) and (d)(4)(B).
    \1996\ Sec. 168(d)(1) and (d)(4)(A).
    \1997\ The mid-quarter convention 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).
---------------------------------------------------------------------------

Alternative depreciation system

    The alternative depreciation system (``ADS'') is required 
to be used for tangible property used predominantly outside the 
United States,\1998\ certain tax-exempt use property,\1999\ 
tax-exempt bond financed property,\2000\ certain imported 
property covered by an Executive order,\2001\ and certain 
property held by either a real property trade or business 
\2002\ or a farming business \2003\ electing out of the 
business interest limitation under section 163(j). \2004\ In 
addition, an election to use ADS is available to taxpayers for 
any class of property for any taxable year. \2005\
---------------------------------------------------------------------------
    \1998\ Sec. 168(g)(1)(A).
    \1999\ Sec. 168(g)(1)(B).
    \2000\ Sec. 168(g)(1)(C).
    \2001\ Sec. 168(g)(1)(D).
    \2002\ Sec. 168(g)(1)(F) and (g)(8). An electing real property 
trade or business is defined in section 163(j)(7)(B) by cross reference 
to section 469(c)(7)(C) (i.e., any real property development, 
redevelopment, construction, reconstruction, acquisition, conversion, 
rental, operation, management, leasing, or brokerage trade or 
business).
    \2003\ Sec. 168(g)(1)(G). An electing farming business is defined 
in section 163(j)(7)(C), which defines an electing farming business as 
(i) a farming business as defined in section 263A(e)(4), or (ii) any 
trade or business of a specified agricultural or horticultural 
cooperative as defined in section 199A(g)(4) (a clerical correction may 
be necessary to correct this reference).
    \2004\ Sec. 168(g).
    \2005\ Sec. 168(g)(1)(E) and (g)(7).
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    Under ADS, all property is depreciated using the straight 
line method and the applicable convention over recovery periods 
which generally are equal to the class life of the property, 
with certain exceptions.\2006\ For example, nonresidential real 
property has a 40-year ADS recovery period, while residential 
rental property has a 40-year ADS recovery period if placed in 
service before January 1, 2018, and a 30-year ADS recovery 
period if placed in service after December 31, 2017.\2007\
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    \2006\ Sec. 168(g)(2) and (3).
    \2007\ Sec. 168(g)(3).
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Change in use

    As previously noted, certain property held by an electing 
real property trade or business or electing farming business 
under section 163(j) is required to be depreciated using ADS. 
In the case of such property that was placed in service by the 
electing business in taxable years beginning before the 
election year under section 163(j), the required change from 
MACRS to ADS is treated as a change in the use of the property, 
not a change in method of accounting under section 
446(e).\2008\ As a result, depreciation for such property 
beginning in the election year and subsequent taxable years is 
determined under the rules of Treas. Reg. sec. 1.168(i)-4(d). 
Under these rules, if a change in the use of MACRS property 
results in a longer recovery period than the recovery period 
used before the change in use, the depreciation allowances 
beginning with the year of change are determined as though the 
MACRS property had been originally placed in service by the 
taxpayer with the longer recovery period.\2009\ Further, the 
taxpayer does not retroactively change the depreciation claimed 
for the property. Rather, the taxpayer generally computes 
depreciation in the year of change and any subsequent taxable 
year based on its adjusted depreciable basis in the property 
\2010\ as of the beginning of each taxable year in the longer 
recovery period (taking into account the applicable 
convention), determined from the original placed in service 
date.\2011\
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    \2008\ See secs. 163(j)(11) and 168(i)(5); Treas. Reg. sec. 
1.168(i)-4; and sec. 4.02(2)(b) of Rev. Proc. 2019-08, 2019-03 I.R.B. 
347.
    \2009\ Treas. Reg. sec. 1.168(i)-4(d)(4)(i).
    \2010\ Adjusted depreciable basis is the unadjusted depreciable 
basis of the property, as defined in Treas. Reg. sec. 1.168(b)-1(a)(3), 
less the adjustments described in section 1016(a)(2) and (3). Treas. 
Reg. sec. 1.168(b)-1(a)(4).
    \2011\ Treas. Reg. sec. 1.168(i)-4(d)(2)(iii) and (d)(4)(ii). For 
method change rules that may apply if the business fails to change to 
use ADS in the section 163(j) election year, see sec. 4.02(3) of Rev. 
Proc. 2019-08, 2019-03 I.R.B. 347, and sec. 6.05 of Rev. Proc. 2019-43, 
2019-48 I.R.B. 1107, as modified by Rev. Proc. 2020-25, 2020-19 I.R.B. 
785, and Rev. Proc. 2020-50, 2020-48 I.R.B. 1122.
---------------------------------------------------------------------------
    For example, assume a calendar year electing real property 
trade or business uses residential rental property in its trade 
or business that it placed in service in January 1993 and 
depreciates using the mid-month convention and straight-line 
method over 27.5 years. Such taxpayer elects out of section 
163(j) for 2020. The taxpayer is required to change to use a 
40-year ADS recovery period for such residential rental 
property starting in 2020. Pursuant to Treas. Reg. sec. 
1.168(i)-4(d)(4), the taxpayer's allowable depreciation 
deduction for 2020 and subsequent taxable years is determined 
as though the residential rental property had been placed in 
service in January 1993 as property subject to an ADS recovery 
period of 40 years. The depreciation in 2020 is determined 
based on the property's adjusted depreciable basis as of 
January 1, 2020, using the straight-line method over the number 
of years remaining as of the beginning of the taxable year 
(taking into account the mid-month convention) of the 40-year 
recovery period (i.e., approximately 13 years).

                        Explanation of Provision

    The provision requires a real property trade or business 
electing out of the interest limitation under section 163(j) to 
use a 30-year ADS recovery period to depreciate any of its 
residential rental property that was (i) placed in service 
before January 1, 2018, and (ii) not subject to ADS (regardless 
of whether the use of ADS was required or elected) \2012\ prior 
to January 1, 2018.\2013\ For example, assuming the same facts 
as in the example above, the electing real property trade or 
business is required to change to use a 30-year ADS recovery 
period for its residential rental property in 2020. Pursuant to 
Treas. Reg. sec. 1.168(i)-4(d)(4), the taxpayer will determine 
its depreciation for the residential rental property in 2020 
based on the adjusted depreciable basis of the property as of 
January 1, 2020, using the straight-line method over the number 
of years remaining as of the beginning of the taxable year 
(taking into account the mid-month convention) of the 30-year 
recovery period (i.e., approximately 3 years).
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    \2012\ Specifically, such property for which section 168(g)(1)(A), 
(B), (C), (D), or (E) did not apply.
    \2013\ See also Rev. Proc. 2021-28, 2021-27 I.R.B. 5. Note that if 
residential rental property to which the 30-year ADS recovery period 
applies was depreciated using a 40-year ADS recovery period in 2018 
and/or 2019 by the electing real property trade or business, the 
business may be eligible to file an amended return, administrative 
adjustment request under section 6227, or IRS Form 3115, Application 
for Change in Accounting Method, to change to the required 30-year ADS 
recovery period. See sec. 446(e); Rev. Proc. 2021-29, 2021-27 I.R.B. 
12; and sec. 6 of Rev. Proc. 2019-43, 2019-48 I.R.B. 1107, as modified 
by Rev. Proc. 2020-25, 2020-19 I.R.B. 785, Rev. Proc. 2020-50, 2020-48 
I.R.B. 1122, and Rev. Proc. 2021-28, 2021-27 I.R.B. 5.
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                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2017.

3. Modification of energy investment credit (sec. 203 of the Act and 
        sec. 48 of the Code)

    For an explanation of this provision, see the explanation 
for section 132 of the Act, above.

4. Extension of energy credit for offshore wind facilities (sec. 204 of 
        the Act and sec. 48 of the Code)

    For an explanation of this provision, see the explanation 
for section 131 of the Act, above.

5. Minimum rate of interest for certain determinations related to life 
        insurance contracts (sec. 205 of the Act and sec. 7702 of the 
        Code)

                              Present Law


Section 7702 definition of a life insurance contract

    A statutory definition of a life insurance contract was 
enacted in 1984 because of ``a general concern with the 
proliferation of investment-oriented life insurance 
contracts.'' \2014\
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    \2014\ Joint Committee on Taxation, General Explanation of the 
Revenue Provisions of the Deficit Reduction Act of 1984, JCS-41-84, 
December 31, 1984, page 646. The provision enacted in 1984 is narrower 
in some respects than 1982 and 1983 temporary guidelines relating to 
flexible premium life insurance contracts because of Congress' concern 
about investment oriented life insurance products. Ibid.
---------------------------------------------------------------------------
    A life insurance contract is defined as any contract that 
is a life insurance contract under applicable State or foreign 
law, but only if the contract meets either of two alternatives: 
(1) a cash value accumulation test, or (2) a test consisting of 
a guideline premium requirement and a cash value corridor 
requirement.\2015\ Whichever test is chosen, that test must be 
met for the entire life of the contract in order for the 
contract to be treated as life insurance for tax purposes. 
Because the cash value accumulation test must be met at all 
times by the terms of the contract, failure of a contract to 
meet this requirement means that the contract must meet, at all 
times, the guideline premium/cash value corridor test. Rather 
than being a requirement of the terms of the contract the 
guideline premium/cash value corridor test is applied in 
practice and calls for specific corrective actions if a 
contract fails to meet it at any time. Although the guideline 
premium/cash value corridor test does not have to be met by the 
terms of the contract, the test limitations can be built into a 
contract to make compliance with the test automatic and to 
avoid inadvertent violation. In the case of a variable life 
insurance contract,\2016\ the determination of whether the 
contract meets the cash value accumulation test, or meets the 
guideline premium requirements and falls within the cash value 
corridor, must be made whenever the amount of the death benefit 
under the contract changes, but not less frequently than once 
during each 12-month period. If a contract does not meet either 
of the two alternative tests under the definition of a life 
insurance contract, the income on the contract for any taxable 
year of the policyholder is treated as ordinary income received 
or accrued by the policyholder during that year. For this 
purpose, the income on the contract for a taxable year is the 
amount by which the sum of the increase in the net surrender 
value of the contract and the cost of life insurance protection 
exceeds premiums paid less policyholder dividends paid under 
the contract during the taxable year.
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    \2015\ Sec. 7702.
    \2016\ Sec. 817.
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Minimum interest rates

    Computational rules under both the cash value accumulation 
test and the guideline premium/cash value corridor test require 
the use of a minimum interest rate. The minimum interest rate 
applies to determine either the maximum permitted accumulation 
of cash value in the contract, or a guideline premium that 
serves as an upper bound on the amount that can be invested in 
the contract.\2017\
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    \2017\ ``The guideline premium portion of the test distinguishes 
between contracts under which the policyholder makes traditional levels 
of investment through premiums and those which involve greater 
investments by the policyholder. . . . In combination [with the cash 
value corridor], these requirements are intended to limit the 
definition of life insurance to contracts which require only relatively 
modest investment and permit relatively modest investment returns.'' 
Joint Committee on Taxation, General Explanation of the Revenue 
Provisions of the Deficit Reduction Act of 1984, JCS-41-84, December 
31, 1984, page 650.
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    Under the cash value accumulation test, the minimum 
interest rate is the greater of an annual effective rate of 
four percent, or the rate or rates guaranteed on issuance of 
the contract.\2018\ Under the guideline premium piece of the 
guideline premium/cash value corridor test, the minimum 
interest rate is the greater of an annual effective rate of six 
percent, or the rate or rates guaranteed on issuance of the 
contract.\2019\
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    \2018\ Sec. 7702(b)(2)(A).
    \2019\ Sec. 7702(c)(3)(B)(iii).
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    The rate guaranteed on issuance of the contract refers to 
the floor rate, that is, the rate below which the interest 
credited to the cash surrender value of the contract cannot 
fall.\2020\ In the absence of a higher interest rate in a life 
insurance contract guaranteed by the issuer through contractual 
declaration or by operation of a formula or index, the rate or 
rates guaranteed in the contract mean the interest rate or 
rates reflected in the contract's nonforfeiture value (which is 
the minimum amount that a policyholder receives in the event of 
nonpayment of premiums) assuming the use of the method in the 
Standard Nonforfeiture Law.\2021\ The method for determining 
that rate is described in the NAIC's Valuation Manual,\2022\ 
which is amended as needed.\2023\ In 2020, the minimum 
nonforfeiture interest rate described in the NAIC's Valuation 
Manual is four percent for most life insurance contracts,\2024\ 
though that minimum interest rate has since been amended.\2025\
---------------------------------------------------------------------------
    \2020\ The issuing company may guarantee a higher interest rate in 
a life insurance contract from time to time, either by contractual 
declaration or by operation of a formula or index.
    \2021\ The National Association of Insurance Commissioners 
(``NAIC'') publishes model laws and regulations for various types of 
life insurance contracts. The NAIC publishes a standard nonforfeiture 
law for life insurance contracts governing the minimum nonforfeiture 
amount the policyholder receives in the event of nonpayment of premiums 
or the minimum cash surrender value received on surrender of the 
contract. See NAIC Model Regulation 808, Standard Nonforfeiture Law for 
Life Insurance, section 2 and section 5c.I.2. (published January 2014). 
Standard nonforfeiture laws are adopted and implemented by States in 
connection with State regulation of insurance business.
    \2022\ For contracts issued after the operative date of the latest 
Valuation Manual, the nonforfeiture interest rate is provided by the 
Valuation Manual (section 5c.I.2. of NAIC Model Regulation 808, 
Standard Nonforfeiture Law for Life Insurance (published January 
2014)).
    \2023\ The NAIC adopted the Valuation Manual on December 2, 2012, 
and periodically has amended it. See adoption and amendment dates at 
page 3 of the January 1, 2020 Edition of the Valuation Manual, https://
content.naic.org/sites/default/files/pbr_data_val_2020_edition_
redline.pdf.
    \2024\ See the January 1, 2020 Edition of the Valuation Manual, VM-
02, ``Minimum Nonforfeiture Mortality and Interest,'' section 3.A. at 
https://content.naic.org/sites/default/files/
pbr_data_val_2020_edition_redline.pdf.
    \2025\ On July 25, 2020, the NAIC published a proposed amendment to 
the applicable Valuation Manual to remove the four percent floor from 
the Standard Nonforfeiture Law for life insurance contracts. The 
description of the amendment to the Valuation Manual states, ``Upon any 
possible tax code (IRC, S. 7702) modifications to remove the hardcoded 
interest rate floor starting in 1/1/2021, the life standard 
nonforfeiture rate is being updated to ensure the minimum funding under 
state requirements does not exceed the maximum funding under federal 
requirements for life insurance contracts issued starting in 1/1/
2021.'' Under the proposed amendment, the Valuation Manual is amended 
to strike the rate of four percent and to provide, ``the nonforfeiture 
interest rate shall not be less than the applicable interest rate used 
prescribed to meet the definition of life insurance in the Cash Value 
Accumulation Test under Section 7702 (Life Insurance Contract Defined) 
of the U.S. Internal Revenue Code.'' See NAIC, Amendments for the 2021 
Valuation Manual for the Consideration of the Life Insurance and 
Annuities Committee, July 10, 2020. On January 1, 2021, the NAIC 
published a redlined January 1, 2021 Edition of the Valuation Manual, 
showing that the amendment quoted above was adopted on August 14, 2020, 
and showing in redline the change made in the 2021 edition of the 
Valuation Manual. NAIC, Valuation Manual January 1, 2021, pages i and 
02-1, https://content.naic.org/sites/default/files/
pbr_data_valuation_manual_future_edition_redline.pdf. The change to the 
minimum interest rates in Code section 7702, described below, was 
enacted on December 27, 2020.
---------------------------------------------------------------------------
    For comparison, to illustrate recent governmentally 
determined rates, the table below shows the midterm monthly 
applicable federal rate \2026\ of interest for the month of 
July in each of the years 2010-2020.
---------------------------------------------------------------------------
    \2026\ The applicable federal rates are determined by the Treasury 
Department under section 1274(d). The midterm applicable federal rate 
is a component of the minimum interest rates for section 7702 as 
determined under the provision of the Act described below.

   MID-TERM APPLICABLE FEDERAL RATE (AFR) FOR JULY, ANNUAL COMPOUNDING
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2020....................................................           0.45%
2019....................................................           2.08%
2018....................................................           2.87%
2017....................................................           1.89%
2016....................................................           1.43%
2015....................................................           1.77%
2014....................................................           1.82%
2013....................................................           1.22%
2012....................................................           0.92%
2011....................................................           2.00%
2010....................................................           2.35%
------------------------------------------------------------------------
Source: IRS Revenue Rulings 2020-14, 2019-16, 2018-19, 2017-14, 2016-17,
  2015-15, 2014-20, 2013-15, 2012-20, 2011-14, 2010-18.

                        Explanation of Provision

    The provision changes the calculation of minimum interest 
rates under both the cash value accumulation test and the 
guideline premium/cash value corridor test of section 7702 for 
purposes of determining if a contract meets the Federal tax 
statutory definition of a life insurance contract. Instead of 
the prior-law minimum rates of four percent (or six percent), 
the minimum interest rate under section 7702 is the least of 
three rates, unless a higher rate is guaranteed on issuance of 
the contract. Absent a higher rate guaranteed on issuance by 
the issuing company for a contract, the minimum interest rate 
is unlikely to increase following a period of low market 
interest rates unless the rate (of the three) that is 
prescribed by the NAIC increases.
    The provision modifies the minimum interest rate under the 
cash value accumulation test by eliminating the four percent 
rate and substituting the rate that is the lesser of four 
percent or the insurance interest rate. The insurance interest 
rate, in turn, is defined as the lesser of two other rates: (1) 
the average of the midterm applicable Federal rates (``AFR'') 
for the most recent 60-month period ending two years before the 
most recent adjustment year,\2027\ or (2) the rate prescribed 
in the NAIC's Standard Valuation model law as the U.S. 
valuation interest rate for life insurance contracts with 
guaranteed durations of more than 20 years for the calendar 
year ending before the most recent adjustment year.\2028\
---------------------------------------------------------------------------
    \2027\ Sec. 7702(f)(11)(C), defining the section 7702 applicable 
federal interest rate. Because this rate is an average of the annually 
compounded mid-term AFRs over a relatively long period, 60 months, 
volatility over the period is muted. Because it is a lagging rate in 
that it is measured over the 60-month period that ends two years before 
the first year following any adjustment in the insurance interest rate, 
it does not reflect any current interest rate at the time the contract 
is issued (that is, neither the current mid-term AFR nor any market 
rate in the year of contract issuance). Because of this lag, it is 
unlikely in a period of level or rising interest rates that increases 
in this rate will cause an increase in the minimum interest rate under 
section 7702.
    \2028\ See the model law published by the NAIC, referred to as the 
NAIC Standard Valuation Law (July 2010), section 4, https://
content.naic.org/sites/default/files/inline-files/MDL-820.pdf.
---------------------------------------------------------------------------
    An adjustment year means the next calendar year after the 
year a change in that U.S. valuation interest rate becomes 
effective.
    Notwithstanding these rules of the provision, a transition 
rule provides that the minimum interest rate for this purpose 
is two percent, for calendar years beginning with 2021 and 
ending with the year before the first subsequent adjustment 
year. Specifically, the insurance interest rate is two percent 
starting with calendar year 2021, until the calendar year 
following the year in which a change becomes effective in the 
NAIC-prescribed U.S. valuation interest rate for life insurance 
with guaranteed durations of more than 20 years.
    The provision defines the minimum interest rate under the 
guideline premium/cash value corridor test as the rate that is 
two percentage points higher than the rate determined under the 
cash value accumulation test. This parallels the prior-law two-
percentage-point difference between the rates, which were four 
and six percent, respectively. Thus, under the transition rule, 
the minimum interest rate for purposes of the guideline 
premium/cash value corridor test is four percent, that is, two 
percentage points higher than the two-percent rate under the 
transition rule for purposes of the cash value accumulation 
test.

                             Effective Date

    The provision is effective for contracts issued after 
December 31, 2020.

6. Clarification and technical improvements to CARES Act employee 
        retention credit (sec. 206 of the Act and sec. 2301 of the 
        CARES Act)

                              Present Law

    Background for the provision and a description of the 
employee retention credit that the provision modifies may be 
found above in section describing section 2301 of the CARES Act 
(Pub. L. No. 116-136) in Part Six of this document.

                        Explanation of Provision

    The provision modifies the employee retention credit that 
was included in the CARES Act in the following ways.
    First, the provision clarifies that, in the case of an 
organization which is described in section 501(c) of the Code, 
any reference to gross receipts in the CARES Act employee 
retention credit (as modified by the Act) shall be treated as a 
reference to gross receipts within the meaning of section 6033 
of the Code.
    The provision also clarifies that health plan expenses paid 
to provide and maintain a group health plan \2029\ are treated 
as wages that are potentially eligible for the credit, assuming 
other requirements are met. The amount of such expenses per 
employee and per period shall be the amount properly allocable 
to such employee and such period under rules prescribed by the 
Secretary. Except as otherwise provided by the Secretary, an 
allocation of such expenses is proper if made on the basis of 
being pro rata among periods of coverage.
---------------------------------------------------------------------------
    \2029\ As defined in section 5000(b)(1) of the Code.
---------------------------------------------------------------------------
    The provision alters the interaction of the credit and the 
Paycheck Protection Program. The provision removes the rule in 
section 2301(j) of the CARES Act that provided that an employer 
that received a Paycheck Protection Program (``PPP'') loan 
\2030\ was ineligible for the credit, as well as the 
instruction to the Secretary in section 2301(l)(3) of the CARES 
Act to provide for recapture of the credit in the event it was 
allowed to a taxpayer who received a PPP loan. As a result, 
taxpayers receiving a PPP loan may be eligible for the credit. 
Section 1106 of the CARES Act \2031\ is amended to provide that 
the definition of payroll costs that may give rise to loan 
forgiveness described in section 1106(b) of the CARES Act 
\2032\ shall not include qualified wages taken into account in 
determining the credit. The provision then provides that an 
employer may elect not to take into account any amount of the 
employer's qualified wages for purposes of calculating the 
credit. However, such an election does not prevent payroll 
costs paid during the covered period from being treated as 
qualified wages of the eligible employer to the extent that a 
PPP loan is not forgiven by reason of a decision by the lender 
under section 1106(g) of the CARES Act \2033\ to deny 
forgiveness.
---------------------------------------------------------------------------
    \2030\ Referred to in the statute as a ``small business 
interruption loan'' and defined as a covered loan under paragraph (36) 
of section 7(a) of the Small Business Act (15 U.S.C. 636(a), as added 
by section 1102 of the CARES Act, and also known as a Paycheck 
Protection Program loan.
    \2031\ Section 304(b)(1) of Title III of Division N of the Act 
redesignates section 1106 of the CARES Act as section 7A of the Small 
Business Act (15 U.S.C. Sec.  631 et seq.).
    \2032\ Redesignated by the Act as section 7A(b) of the Small 
Business Act.
    \2033\ Redesignated by the Act as section 7A(g) of the Small 
Business Act.
---------------------------------------------------------------------------
    Finally, the provision requires the Secretary to issue such 
forms, instructions, regulations, and guidance as are necessary 
to prevent the avoidance of the purposes of the limitations on 
the credit, including through the leaseback of employees.

                             Effective Date

    In general, the amendments made by the provision are 
effective as if included in the provisions of the CARES Act to 
which they relate.
    The effective date of the provision includes a special rule 
permitting any employer who has filed a return of tax with 
respect to applicable employment taxes before the date of 
enactment of the Act to elect to treat any applicable amount as 
an amount paid in the calendar quarter which includes the date 
of enactment of the Act (i.e., the 4th quarter of calendar year 
2020). An applicable amount is any amount of either group 
health plan expenses treated as wages by subsection (b) of the 
provision or wages permitted to be treated as qualified wages 
as a result of subsection (c)(2) of the provision (addressing 
coordination between the Paycheck Protection Program and the 
credit),\2034\ provided such amount was paid in a calendar 
quarter beginning after December 31, 2019, and before October 
1, 2020, and was not taken into account by the taxpayer in 
calculating the credit for such calendar quarter.
---------------------------------------------------------------------------
    \2034\ A technical correction may be needed to carry out this 
intent.
---------------------------------------------------------------------------

7. Extension and modification of employee retention and rehiring credit 
        (sec. 207 of the Act and sec. 2301 of the CARES Act)

                              Present Law

    Background for the provision and a description of the 
employee retention credit that the provision modifies may be 
found above in section describing section 2301 of the CARES Act 
(Pub. L. No. 116-136) in Part Six of this document. 
Additionally, the provision makes changes to the law as 
modified by the preceding provision of the Act, described 
above.

                        Explanation of Provision

    The provision extends and modifies the employee retention 
credit that was included in the CARES Act in the following 
ways.
    The provision extends the credit to apply to wages paid 
before July 1, 2021, extending by two calendar quarters the 
end-date provided by section 2301(m) of the CARES Act.
    The provision makes several changes to limitations on the 
credit.
    First, the provision increases the percentage of qualified 
wages used to calculate the credit from 50 percent of such 
wages to 70 percent of such wages.
    Second, the provision increases the amount of qualified 
wages per employee that may be taken into account in 
calculating the credit from $10,000 for all calendar quarters 
to $10,000 per calendar quarter.
    Third, the provision permits an employer to qualify as an 
eligible employer under the reduced gross receipts test with 
respect to a calendar quarter for which the gross receipts of 
the employer are less than 80 percent of the gross receipts of 
the same employer for the same calendar quarter in 2019. For 
employers not in existence at the beginning of the relevant 
calendar quarter in 2019, this rule is applied by reference to 
the same calendar quarter in 2020 rather than 2019. 
Additionally, the provision permits employers to elect to 
compare the gross receipts of the immediately preceding 
calendar quarter to the gross receipts for the corresponding 
calendar quarter in 2019, rather than using the quarter for 
which the credit is claimed. For employers not in existence in 
2019, the election permits the employer to compare the gross 
receipts of the immediately preceding calendar quarter to the 
corresponding calendar quarter in 2020.
    Fourth, with regard to the definition of qualified wages, 
the provision increases the average number of full-time and 
full-time-equivalent employees the eligible employer may have 
had during 2019 to claim credit for any wages paid to an 
employee--rather than merely wages with respect to which the 
employee is not providing services--from 100 or fewer to 500 or 
fewer.
    Finally, the provision eliminates the rule that qualified 
wages paid to an employee by an eligible employer that had more 
than 500 full-time employees in 2019 cannot exceed the amount 
such employee would have been paid for working an equivalent 
duration during the 30 days immediately preceding the period in 
which the eligible employer met either the governmental order 
test or the reduced gross receipts test.
    The provision modifies the rule prohibiting certain 
government employers from claiming the credit. First, the 
provision excludes from the rule any organization described in 
section 501(c)(1) of the Code and exempt from tax under section 
501(a) of the Code. Second, the provision excludes from the 
rule any entity that is a college or university and any entity 
the principal purpose or function of which is providing medical 
or hospital care. As a result, such organizations and entities 
are not prevented from claiming the credit by reason of the 
general prohibition against certain government employers 
claiming the credit. With respect to any organization or entity 
meeting either exception, wages as defined in section 3121(a) 
of the Code shall be determined for purposes of the credit 
without regard to paragraphs (5) and (6) (relating to certain 
services performed in the employ of the United States or an 
instrumentality of the United States), (7) (relating to certain 
services performed in the employ of a State, any political 
subdivision thereof, or any instrumentality of one or more of 
the foregoing which is wholly owned thereby), (10) (relating to 
certain services performed in connection with a school, 
college, or university), and (13) (relating to certain services 
performed as a student nurse) of section 3121(b).
    The provision revises and expands upon the denial of double 
benefit rules that were included in section 2301(h) of the 
CARES Act to provide that any wages taken into account in 
determining the credit shall not be taken into account as wages 
for purposes of sections 41 (providing a credit for increasing 
research activities), 45A (the Indian employment credit), 45P 
(providing an employer wage credit for employees who are active 
duty members of the uniformed services), 45S (providing an 
employer credit for paid family and medical leave), 51 (the 
work opportunity credit), and 1396 (the empowerment zone 
employment credit).
    Under rules to be provided by the Secretary, the provision 
permits small employers (i.e., those for whom the average 
number of full-time and full-time-equivalent employees during 
2019 was not greater than 500) to elect to receive an advance 
payment of the credit for any quarter in an amount not to 
exceed 70 percent of the average quarterly wages paid by the 
employer in calendar year 2019. An employer who employs 
seasonal workers \2035\ may elect a limitation equal to 70 
percent of the wages for the calendar quarter in 2019 that 
corresponds to the calendar quarter to which the election 
relates, rather than 70 percent of average quarterly wages for 
2019. For employers not in existence in 2019, the limitations 
under both the general rule and the election are calculated 
using 2020 numbers rather than 2020 numbers. The amount of the 
credit which would be allowed but for receipt of such an 
advance payment is reduced by the amount of the advance 
payment.\2036\ If the advance payments to a taxpayer for a 
calendar quarter exceed the credit allowed but for receipt of 
the advance payment, the tax imposed by chapters 21 (FICA) or 
22 (RRTA) of the Code (whichever is applicable) are increased 
by the amount of the excess.
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    \2035\ As defined in section 45R(d)(5)(B) of the Code.
    \2036\ Any failure to so reduce the credit is treated as arising 
out of a mathematical or clerical error and any excess tax due as a 
result is assessed according to section 6213(b) of the Code.
---------------------------------------------------------------------------
    The provision modifies the grant of authority in section 
2301(l) of the CARES Act to require that any forms, 
instructions, regulations, or guidance issued with respect to 
application of the credit to third party payors (including 
professional employer organizations, certified professional 
employer organizations, or agents under section 3504 of the 
Code) require the customer to be responsible for the accounting 
of the credit and for any liability for improperly claimed 
credits. Such forms, etc., shall require the third party payor 
to accurate report the credit based on the information provided 
by the customer.
    The provision requires the Secretary to conduct a public 
awareness campaign, in coordination with the Administrator of 
the Small Business Administration, to provide information 
regarding the availability of the credit. As part of the 
outreach, the Secretary is required to provide notice about the 
credit to all employers who reported 500 or fewer employees on 
their most recently filed employment tax return, and, within 30 
days of the date of enactment of the Act, provide educational 
materials about the credit to all employers.
    Finally, under the provision an election not to take into 
account any amount of the employer's qualified wages for 
purposes of calculating the credit does not prevent payroll 
costs paid during the covered period from being treated as 
qualified wages of the eligible employer to the extent that a 
Paycheck Protection Program second draw loan described in 15 
U.S.C. section 636(a)(37) is not forgiven by reason of the 
application of paragraph (37)(J) of such section.

                             Effective Date

    The amendments made by the provision are effective for 
calendar quarters beginning after December 31, 2020.

8. Minimum age for distributions during working retirement (sec. 208 of 
        the Act and sec. 401(a) of the Code)

                              Present Law


In general

    For purposes of the qualification requirements under the 
Code, a pension plan is defined as a plan established and 
maintained primarily to provide systematically for the payment 
of definitely determinable benefits to employees over a period 
of years, usually for life, after retirement or attainment of 
normal retirement age.\2037\ However, a pension plan does not 
fail to be a qualified retirement plan solely because the plan 
provides that a distribution may be made to an employee who has 
attained age 59\1/2\ and who is not separated from employment 
at the time of the distribution.\2038\ Pension plans include 
both defined benefit plans \2039\ and money purchase pension 
plans.
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    \2037\ Treas. Reg. sec. 1.401-1(b)(1)(i).
    \2038\ Sec. 401(a)(36); Treas. Reg. sec. 1.401-1(b)(i). The 
Bipartisan American Miners Act (Division M of Pub. L. No. 116-94) 
lowered the age at which a pension plan may provide in-service 
distributions from age 62 to age 59\1/2\. See the description of 
section 104 of the Bipartisan American Miners Act in Part Three of this 
document.
    \2039\ As defined in section 414(j).
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Multiemployer plans

    A multiemployer plan is a plan to which more than one 
unrelated employer contributes, that is established pursuant to 
one or more collective bargaining agreements, and which meets 
such other requirements as specified by the Secretary of 
Labor.\2040\ Multiemployer plans are governed by a board of 
trustees consisting of an equal number of employer and employee 
representatives, referred to as the plan sponsor. In general, 
the level of contributions to a multiemployer plan is specified 
in the applicable collective bargaining agreements, and the 
level of plan benefits is established by the plan sponsor.
---------------------------------------------------------------------------
    \2040\ Sec. 414(f) and sec. 2(37) of ERISA.
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                        Explanation of Provision

    Under the provision, the age at which a pension plan may 
provide in-service distributions is lowered from age 59\1/2\ to 
age 55 in the case of a multiemployer plan that primarily 
covers employees in the building and construction 
industry,\2041\ with respect to individuals who were 
participants in the plan on or before April 30, 2013, if the 
following requirements are satisfied: (i) the plan's trust was 
in existence before January 1, 1970; (ii) before December 31, 
2011, at a time when the plan provided that distributions may 
be made to an employee who has attained age 55 and who is not 
separated from employment at the time of such distribution, the 
plan received at least one written determination from the IRS 
that the plan's trust is a qualified trust.\2042\
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    \2041\ As defined in section 4203(b)(1)(B)(i) of ERISA.
    \2042\ Within the meaning of section 401(a).
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                             Effective Date

    The provision is effective for distributions made before, 
on, or after the date of enactment of the Act (December 27, 
2020).

9. Temporary rule preventing partial plan termination (sec. 209 of the 
        Act and sec. 411 of the Code)

                              Present Law


Vesting standards

    To ensure that employees with substantial periods of 
service with an employer do not lose plan benefits upon 
separation from employment, under a qualified plan,\2043\ (1) a 
participant's benefits must be fully vested upon attainment of 
normal retirement age under the plan; (2) a participant must be 
fully vested at all times in the benefit derived from employee 
contributions; and (3) employer-provided benefits must vest at 
least as rapidly as under one of three alternative minimum 
vesting schedules.\2044\ Under these schedules, an employee's 
right to benefits derived from employer contributions is 
required to become nonforfeitable (vested) at varying rates 
upon completion of a specified period of service with an 
employer.
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    \2043\ A qualified plan is a retirement plan that satisfies the 
requirements of section 401(a).
    \2044\ Sec. 411(a).
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    In addition, under the Code, in the event of a partial 
termination of a qualified plan, the rights of all affected 
employees \2045\ to benefits accrued to the date of the partial 
termination generally must become nonforfeitable to the extent 
those benefits are funded.\2046\
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    \2045\ While ``affected employee'' is not defined in the Code or 
Treasury guidance, the court in Borda v. Hardy, 138 F. 3d 1062, 1067 
(6th Cir. 1998), for example, indicated that an employee who had 
separated from service and was one who stood to be ``affected'' by the 
termination of the plan should be treated as an ``affected employee.''
    \2046\ Sec. 411(d)(3).
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Partial terminations

    Whether a partial termination of a qualified plan has 
occurred (and the time of its occurrence) is determined by the 
Commissioner of the Internal Revenue Service (``IRS'') on the 
basis of all the facts and circumstances in a particular case. 
According to Treasury regulations,\2047\ such facts and 
circumstances include: the exclusion, by reason of a plan 
amendment or severance by the employer, of a group of employees 
who have previously been covered by the plan; and plan 
amendments which adversely affect the rights of employees to 
vest in benefits under the plan. To the extent a termination, 
or partial termination, occurs, these rules only apply to the 
part of the plan that is terminated.\2048\
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    \2047\ Treas. Reg. sec. 1.411(d)-2(b).
    \2048\ Treas. Reg. sec. 1.411(d)-2(b)(3).
---------------------------------------------------------------------------
    Under guidance,\2049\ the IRS has ruled that if the 
turnover rate is at least 20 percent, there is a presumption 
that a partial termination of the plan has occurred, but noted 
that whether a partial termination of a qualified plan occurs 
on account of participant turnover (and the time of such event) 
depends on all the facts and circumstances, including whether 
the turnover rate for an applicable period is routine for the 
employer.\2050\
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    \2049\ Rev. Rul. 2007-43, 2007-2 C.B. 45.
    \2050\ In that ruling, the IRS determined there was a partial 
termination because the severances from employment occurred as a result 
of the shutdown of one of the employer's business locations and not as 
a result of routine turnover. IRS has also indicated that a partial 
termination can occur (among other circumstances) in connection with a 
significant corporate event such as a closing of a plant or division, 
or as a result of general employee turnover due to adverse economic 
conditions or other reasons that are not within the employer's control. 
See Internal Revenue Service, Retirement Plan FAQs regarding Partial 
Plan Termination, Sept. 4, 2020, available at https://www.irs.gov/
retirement-plans/retirement-plan-faqs-regarding-partial-plan-
termination.
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                        Explanation of Provision

    Under the provision, a plan is not treated as having a 
partial termination during any plan year which includes the 
period beginning on March 13, 2020, and ending on March 31, 
2021, if the number of active participants covered by the plan 
on March 31, 2021 is at least 80 percent of the number of 
active participants covered by the plan on March 13, 2020.

                             Effective Date

    The provision is effective on the date of enactment.

10. Temporary allowance of full deduction for business meals (sec. 210 
        of the Act and sec. 274 of the Code)

                              Present Law

    Under section 274, no deduction is permitted with respect 
to entertainment, amusement, or recreation.\2051\ In addition, 
a deduction for any expense for food or beverages is generally 
limited to 50 percent of the amount otherwise deductible.\2052\ 
In general, no deduction is allowed for the expense of any food 
or beverage unless such expense is not lavish or extravagant, 
and the taxpayer (or an employee of the taxpayer) is present at 
the meal.\2053\ Thus, for example, a taxpayer may generally 
deduct 50 percent of the food or beverage expenses associated 
with operating its trade or business (e.g., meals consumed by 
employees on work travel that are properly substantiated and a 
business meal with a client that is not lavish or 
extravagant).\2054\ When a meal is served during an activity 
that constitutes entertainment, a 50 percent deduction for 
meals served at the event may be allowable if the cost of the 
food or beverages is separately stated on the invoice.\2055\ 
For example, food or beverages consumed during a theatre or 
sporting event are subject to the 50-percent deduction 
limitation to the extent the meal is delineated from the cost 
of the entertainment.\2056\
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    \2051\ For a description of section 274 as it applied to the 
deductibility of meals and entertainment for amounts paid or incurred 
before January 1, 2018, see Joint Committee on Taxation, General 
Explanation of Public Law No. 115-97 (JCS-1-18), December 2018.
    \2052\ Sec. 274(n)(1)(A). This includes expenses for food or 
beverages (and facilities used in connection therewith) furnished on 
the business premises of the taxpayer primarily for the taxpayer's 
employees under section 274(e)(1).
    \2053\ Sec. 274(k)(1). See also, Treas. Reg. sec. 1.274-12.
    \2054\ Sec. 274(d) and (k).
    \2055\ Treas. Reg. sec. 1-274-11(b)(1)(ii).
    \2056\ See, e.g., Treas. Reg. sec. 1.274-11(d), Examples 2 through 
4.
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    The expenses of an employer associated with providing food 
or beverages to employees through an eating facility that meet 
the requirements for de minimis fringe benefits and for the 
convenience of the employer are similarly subject to the 50 
percent deduction limitation. However, such amounts incurred or 
paid after December 31, 2025 are not deductible.
    There are exceptions to the general rule limiting 
deductions for food or beverage expenses to 50 percent of the 
otherwise deductible amount. One such exception applies to food 
or beverage expenses reported by the taxpayer as compensation 
and as wages to an employee.\2057\ Another exception applies to 
the extent that the food or beverage expenses are includible in 
the gross income of a recipient who is not an employee (e.g., a 
nonemployee director) as compensation for services rendered or 
as a prize or award.\2058\ The exceptions apply only to the 
extent that amounts are properly reported by the employer as 
compensation and wages or otherwise includible in income. In no 
event may the amount of the deduction exceed the amount of the 
taxpayer's actual cost, even if a greater amount (i.e., fair 
market value) is includible in income.\2059\
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    \2057\ Sec. 274(e)(2); Treas. Reg. sec. 1.274-12(c)(2)(i).
    \2058\ Sec. 274(e)(9); Treas. Reg. sec. 1.274-12(c)(2)(i).
    \2059\ Treas. Reg. sec. 1.162-25T(a).
---------------------------------------------------------------------------
    Other exceptions to the 50-percent deduction limitation 
include the following: food or beverage expenses paid or 
incurred by the taxpayer, in connection with the performance of 
services for another person (other than an employer), under a 
reimbursement or other expense allowance arrangement if the 
taxpayer accounts for the expenses to such person; \2060\ 
expenses for food or beverage expenses at recreational, social, 
or similar activities primarily for the benefit of employees 
other than certain owners and highly compensated employees; 
\2061\ expenses for food or beverages made available by the 
taxpayer to the general public; \2062\ and food or beverages 
which are sold by the taxpayer in a bona fide transaction for 
an adequate and full consideration in money or money's 
worth.\2063\ Other exceptions to the 50-percent deduction 
limitation include exceptions for food or beverage expenses 
includible in an employee's income under section 82 (in 
connection with moving from one residence to another residence 
attributable to employment), and expenses for food or beverages 
provided to crew members of certain commercial vessels and 
certain oil or gas platform or drilling rig workers.\2064\
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    \2060\ Sec. 274(e)(3); Treas. Reg. sec. 1.274-12(c)(2)(ii).
    \2061\ Sec. 274(e)(4); Treas. Reg. sec. 1.274-12(c)(2)(iii).
    \2062\ Sec. 274(e)(7); Treas. Reg. sec. 1.274-12(c)(2)(iv).
    \2063\ Sec. 274(e)(8); Treas. Reg. sec. 1.274-12(c)(2)(v).
    \2064\ Secs. 274(n)(2)(B) and (C).
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                        Explanation of Provision

    The provision provides an exception to the 50 percent 
deduction limitation for any food or beverage expense if such 
expense is for food or beverages provided by a restaurant and 
paid or incurred after December 31, 2020 and before January 1, 
2023.\2065\ Thus, for example, amounts paid or incurred during 
2021 and 2022 (1) for employee travel meals, (2) for business 
meals with a client, to the extent the meal is not extravagant 
or lavish, (3) for meals consumed during certain business 
activities, such as professional development conferences, or 
(4) by an employer associated with providing food or beverages 
to employees through an eating facility that meet the 
requirements for de minimis fringe benefits and for the 
convenience of the employer, are not subject to the 50 percent 
deduction limitation if such food or beverages are provided by 
a restaurant. The provision does not change the tax treatment 
of entertainment expenses, which remain nondeductible. However, 
amounts paid or incurred during 2021 and 2022 for food or 
beverages provided by a restaurant in connection with 
entertainment may not be subject to the 50-percent deduction 
limitation if such costs are separately stated on an invoice.
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    \2065\ The term ``restaurant'' is not defined in the Code.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for amounts paid or incurred 
after December 31, 2020.

11. Temporary special rule for determination of earned income (sec. 211 
        of the Act and secs. 24 and 32 of the Code)

                              Present Law

    Eligible taxpayers may claim an earned income tax credit 
(``EITC'') and a child tax credit. In general, the EITC is a 
refundable income tax credit for low-income workers.\2066\ 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.
---------------------------------------------------------------------------
    \2066\ Sec. 32.
---------------------------------------------------------------------------
    Taxpayers with incomes below certain threshold amounts are 
eligible for a $2,000 child tax credit for each qualifying 
child.\2067\ In some circumstances, all or a portion of the 
otherwise allowable credit is treated as a refundable income 
tax credit (the ``additional child tax credit''). Generally, 
the amount of the additional child tax credit equals 15 percent 
of the taxpayer's earned income in excess of $2,500. The 
maximum amount of the refundable credit for each qualifying 
child is $1,400 for taxable years beginning in 2020.\2068\
---------------------------------------------------------------------------
    \2067\ Sec. 24.
    \2068\ Rev. Proc. 2019-44. This amount is indexed for inflation.
---------------------------------------------------------------------------
    Congress has at times enacted provisions that allow 
individuals to use their earned income from the prior, rather 
than current, taxable year in determining the amount of the 
earned income tax credit or additional child tax credit.\2069\
---------------------------------------------------------------------------
    \2069\ See, e.g., Pub. L. No. 116-94, sec. 204(c), December 20, 
2019 (certain disasters occurring in 2018 and 2019); Pub. L. No. 115-
123, sec. 20104(c), February 9, 2018 (certain California wildfires); 
Pub. L. No. 115-64, sec. 504(c), September 29, 2017 (hurricanes Harvey, 
Irma, Maria); former sec. 1400S(d) (hurricanes Katrina, Rita, and 
Wilma), repealed by Pub. L. No. 115-141, March 23, 2018.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision permits a taxpayer to elect to calculate the 
taxpayer's EITC and additional child tax credit for taxable 
years beginning in 2020 using 2019 rather than 2020 earned 
income if the taxpayer's earned income in 2020 is less than in 
2019.
    For purposes of the provision, in the case of a joint 
return, the earned income which is attributable to the taxpayer 
for 2019 is the sum of the earned income which is attributable 
to each spouse for 2019.
    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 
(December 27, 2020).

12. Certain charitable contributions deductible by non-itemizers (sec. 
       212 of the Act and secs. 170, 6662, and 6751 of the Code)


                              Present Law


Adjusted gross income and taxable income of an individual

            Adjusted gross income
    Under the Code, gross income means ``income from whatever 
source derived'' except for certain items specifically exempt 
or excluded by statute.\2070\ An individual's AGI is determined 
by subtracting certain ``above-the-line'' deductions from gross 
income. These deductions include trade or business expenses, 
losses from the sale or exchange of property, contributions to 
a qualified retirement plan by a self-employed individual, 
contributions to certain IRAs, certain moving expenses for 
members of the Armed Forces, and certain education-related 
expenses.\2071\
---------------------------------------------------------------------------
    \2070\ Sec. 61.
    \2071\ Sec. 62. In addition, alimony payments are generally 
deductible by the payor spouse for divorce and separation instruments 
executed before January 1, 2019.
---------------------------------------------------------------------------
            Taxable income
    To determine taxable income, an individual reduces AGI by 
the applicable standard deduction or his or her itemized 
deductions,\2072\ and by the deduction for qualified business 
income.\2073\
---------------------------------------------------------------------------
    \2072\ Sec. 63(a) and (b).
    \2073\ Secs. 63(b)(3), (d)(3), and 199A.
---------------------------------------------------------------------------
    A taxpayer may reduce AGI by the amount of the applicable 
standard deduction to arrive at taxable income. The basic 
standard deduction varies depending on a taxpayer's filing 
status. For 2021, the amount of the standard deduction is 
$12,550 for a single individual and for a married individual 
filing separately, $18,800 for a head of household, and $25,100 
for married taxpayers filing jointly and for a surviving 
spouse. An additional standard deduction is allowed with 
respect to any individual who is elderly (i.e., above age 64) 
and/or blind.\2074\ The amounts of the basic standard deduction 
and the additional standard deductions are indexed annually for 
inflation.
---------------------------------------------------------------------------
    \2074\ For 2021, the additional amount is $1,350 for married 
taxpayers (for each spouse meeting the applicable criterion) and 
surviving spouses. The additional amount for single individuals and 
heads of households is $1,700. If an individual is both elderly and 
blind, the individual is entitled to two additional standard 
deductions, for a total additional amount (for 2021) of $2,700 or 
$3,400, as applicable.
---------------------------------------------------------------------------
    In lieu of taking the applicable standard deduction, an 
individual may elect to itemize deductions. The deductions that 
may be itemized include personal State and local income, 
property, and sales taxes (up to $10,000 annually ($5,000 for 
married taxpayers filing separately)), home mortgage interest 
(on mortgages up to certain specified dollar amounts), 
charitable contributions, certain investment interest, medical 
expenses (in excess of 7.5 percent of AGI), and casualty and 
theft losses attributable to Federally declared disasters (in 
excess of 10 percent of AGI and in excess of $100 per loss).

Itemized deduction for charitable contributions

    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 
recipient organization.\2075\ For individuals, the deduction 
for charitable contributions is available only to a taxpayer 
who elects to itemize deductions.
---------------------------------------------------------------------------
    \2075\ 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.
    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 recipient 
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.\2076\
---------------------------------------------------------------------------
    \2076\ Sec. 170(b)(1)(H).
---------------------------------------------------------------------------
    Charitable contributions that exceed the applicable 
percentage limit generally may be carried forward for up to 
five years.\2077\ In general, contributions carried over from a 
prior year are taken into account after contributions for the 
current year that are subject to the same percentage limit.
---------------------------------------------------------------------------
    \2077\ Sec. 170(b)(1)(G)(ii) and (d).
---------------------------------------------------------------------------

Temporary above-the-line deduction for certain charitable contributions

    Under the CARES Act (Pub. L. No. 116-136), described in 
Part Six of this document, an eligible individual may claim an 
above-the-line deduction in an amount not to exceed $300 for 
qualified charitable contributions made during a taxable year 
that begins in 2020.\2078\ The above-the-line deduction is not 
available for contributions made during a taxable year that 
begins after 2020. An eligible individual is an individual who 
does not elect to itemize deductions.\2079\ Thus, a taxpayer 
taking the standard deduction, who absent the temporary rule 
would not be able to deduct any charitable contributions, may 
claim an above-the-line deduction for qualified charitable 
contributions.
---------------------------------------------------------------------------
    \2078\ Sec. 62(a)(22).
    \2079\ Sec. 62(f)(1). The $300 limit applies to the tax-filing 
unit. Thus, for example, married taxpayers who file a joint return and 
do not elect to itemize deductions are allowed to deduct up to a total 
of $300 in qualified charitable contributions on the joint return.
---------------------------------------------------------------------------
    A qualified charitable contribution is a cash contribution 
for which a deduction is allowable under section 170 
(determined without regard to the percentage limitations under 
section 170(b)) that is paid 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)).\2080\ 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. A qualified charitable contribution 
does not include an amount that is treated as a contribution in 
the taxable year by reason of being carried forward from a 
prior contribution year under section 170(b)(1)(G) or (d)(1).
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    \2080\ Sec. 62(f)(2).
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Accuracy-related penalty (sec. 6662)

    An accuracy-related penalty under section 6662 applies to 
the portion of any underpayment that is attributable to (1) 
negligence, (2) any substantial understatement of income tax, 
(3) any substantial valuation misstatement, (4) any substantial 
overstatement of pension liabilities, or (5) any substantial 
estate or gift tax valuation understatement. If the correct 
income tax liability exceeds that reported by the taxpayer by 
the greater of 10 percent of the correct tax or $5,000 (or, in 
the case of corporations, by the lesser of (a) 10 percent of 
the correct tax (or $10,000 if greater) or (b) $10 million), 
then a substantial understatement exists and a penalty may be 
imposed equal to 20 percent of the underpayment of tax 
attributable to the understatement.\2081\ Except in the case of 
tax shelters,\2082\  the amount of any understatement is 
reduced by any portion attributable to an item if (1) the 
treatment of the item is supported by substantial authority, or 
(2) facts relevant to the tax treatment of the item were 
adequately disclosed and there was a reasonable basis for its 
tax treatment. The Secretary may prescribe a list of positions 
that the Secretary believes do not meet the requirements for 
substantial authority under this provision.
---------------------------------------------------------------------------
    \2081\ Sec. 6662.
    \2082\ A tax shelter is defined for this purpose as a partnership 
or other entity, an investment plan or arrangement, or any other plan 
or arrangement if a significant purpose of such partnership, other 
entity, plan, or arrangement is the avoidance or evasion of Federal 
income tax. Sec. 6662(d)(2)(C).
---------------------------------------------------------------------------
    The section 6662 penalty generally is abated (even with 
respect to tax shelters) in cases in which the taxpayer can 
demonstrate that there was ``reasonable cause'' for the 
underpayment and that the taxpayer acted in good faith.\2083\ 
The relevant regulations provide that reasonable cause exists 
where the taxpayer ``reasonably relies in good faith on [a 
professional] tax advisor's analysis of the pertinent facts and 
authorities [that] . . . unambiguously states that the tax 
advisor concludes that there is a greater than 50-percent 
likelihood that the tax treatment of the item will be upheld if 
challenged'' by the IRS.\2084\
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    \2083\ Sec. 6664(c).
    \2084\ Treas. Reg. sec. 1.6662-4(g)(4)(i)(B). See also Treas. Reg. 
sec. 1.6664-4(c).
---------------------------------------------------------------------------
    With certain exceptions, section 6662 does not apply to any 
portion of an underpayment that is attributable to a reportable 
transaction understatement on which a penalty is imposed under 
section 6662A.\2085\
---------------------------------------------------------------------------
    \2085\ Sec. 6662(b) (flush language).
---------------------------------------------------------------------------
    The 20-percent penalty is increased to 40 percent when 
there is a gross valuation misstatement involving a substantial 
valuation overstatement, a substantial overstatement of pension 
liabilities, a substantial estate or gift tax valuation 
understatement, or when a transaction lacking economic 
substance is not properly disclosed.\2086\
---------------------------------------------------------------------------
    \2086\ Secs. 6662(h) and 6662(i).
---------------------------------------------------------------------------

Mandatory supervisory approval to assert penalty

    Assessment of an addition to tax or penalty under the Code 
is barred in the absence of prior supervisory approval. Such 
approval requires that the initial determination of the penalty 
or addition to tax be approved in writing by the immediate 
supervisor of the person asserting the penalty. The Code 
authorizes the Secretary to designate a higher level official 
to provide the supervisory approval. Certain penalties are 
exempt from the requirement for supervisory approval, including 
those penalties ``automatically calculated through electronic 
means.'' \2087\ Because the IRS bears the burden of producing 
evidence to support assessment of a penalty in any court 
proceeding, the Commissioner must produce evidence of 
compliance with the supervisory approval requirement, even if 
the IRS does not bear the burden of proof.\2088\
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    \2087\ Sec. 6751(b), generally. Other penalties exempt from the 
pre-approval requirement are penalties under sections 6651 (failure to 
file or pay taxes), 6654 (failure to pay estimated individual taxes) 
and 6655 (failure to pay estimated corporate taxes).
    \2088\ Graev v. Commissioner, 149 T.C. 485 (2017). Cf. Chai v. 
Commissioner, 851 F.3d 190 (2d Cir. 2017) (held that the Commissioner 
bears both the burden of production and burden of proof with respect to 
the penalty).
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                        Explanation of Provision

    Under the provision, an individual who does not itemize 
deductions may claim a deduction in an amount not to exceed 
$300 ($600 in the case of a joint return) for certain 
charitable contributions made during a taxable year that begins 
in 2021.\2089\ The deduction is not available for contributions 
made during a taxable year that begins after 2021.
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    \2089\ New sec. 170(p). Unlike the temporary above-the-line 
charitable deduction under the CARES Act for certain contributions made 
during a taxable year that begins in 2020, the new deduction is not 
subtracted from gross income in determining the individual's AGI and 
thus is not an above-the-line deduction. Instead, as with the standard 
deduction and an individuals itemized deductions, qualifying charitable 
contributions made by a non-itemizer in a taxable year that begins in 
2021 are subtracted from AGI in determining an individual's taxable 
income.
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    Contributions taken into account for this purpose include 
only contributions made in cash during the taxable year 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. A qualifying 
charitable contribution does not include an amount that is 
treated as a contribution in the taxable year by reason of 
being carried forward from a prior contribution year under 
section 170(b)(1)(G) or (d)(1).
    The provision increases the penalty under section 6662 for 
an underpayment of tax resulting from an overstatement of the 
temporary nonitemizer charitable deduction for contributions 
made during a taxable year that begins in 2021. The penalty is 
increased from 20 percent of the underpayment to 50 percent of 
the underpayment. In addition, the provision exempts the 
section 6662 penalty relating to an overstatement of the 
temporary nonitemizer charitable deduction from the requirement 
for supervisory approval under section 6751(b).

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2020.

13. Modification of limitations on charitable contributions (sec. 213 
        of the Act and sec. 170 of the Code)

                              Present Law


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 
recipient organization.\2090\
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    \2090\ 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 contribution base is defined 
as the taxpayer's AGI computed without regard to any net 
operating loss carryback. The applicable percentage of the 
contribution base varies depending on the type of recipient 
organization and property contributed.
    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, 
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 
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 with certain modifications.
    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.
            Carryforwards of excess contributions
    Charitable contributions that exceed the applicable 
percentage limitation may be carried forward for up to five 
years.\2091\ 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 rule.
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    \2091\ Sec. 170(d).
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Contributions of food inventory

    A taxpayer's deduction for charitable contributions of 
inventory generally is limited to the taxpayer's basis 
(typically, cost) in the inventory, or, if less, the fair 
market value of the inventory. For certain contributions of 
inventory, however, a C corporation may claim an enhanced 
deduction equal to the lesser of (1) basis plus one-half of the 
item's appreciation (i.e., basis plus one-half of fair market 
value in excess of basis) or (2) two times basis.\2092\
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    \2092\ Sec. 170(e)(3).
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    Any taxpayer engaged in a trade or business, whether or not 
a C corporation, is eligible to claim the enhanced deduction 
for donations of food inventory.\2093\ The enhanced deduction 
for food inventory is available only for food that qualifies as 
``apparently wholesome food.'' Apparently wholesome food is 
defined as food intended for human consumption that meets all 
quality and labeling standards imposed by Federal, State, and 
local laws and regulations even though the food may not be 
readily marketable due to appearance, age, freshness, grade, 
size, surplus, or other conditions.
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    \2093\ Sec. 170(e)(3)(C).
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    For taxpayers other than C corporations, the total 
deduction for donations of food inventory in a taxable year 
generally may not exceed 15 percent of the taxpayer's net 
income for such taxable year from all sole proprietorships, S 
corporations, or partnerships (or other non-C corporation 
trades or businesses) from which contributions of apparently 
wholesome food are made. For C corporations, these 
contributions are made subject to a limitation of 15 percent of 
taxable income (as modified). The general 10-percent limitation 
for a C corporation does not apply to these contributions, but 
the 10-percent limitation applicable to other contributions is 
reduced by the amount of these contributions. Qualifying food 
inventory contributions in excess of these 15-percent 
limitations may be carried forward and treated as qualifying 
food inventory contributions in each of the five succeeding 
taxable years in order of time.

Temporary modifications to charitable contribution limitations

            In general
    Congress has at times liberalized the charitable 
contribution limitations for contributions made in response to 
certain natural disasters.\2094\
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    \2094\ See, e.g., sec. 20104(a) of Pub. L. No. 115-123 (increasing 
limits in response to 2017 California wildfires); sec. 504(a) of Pub. 
L. No. 115-63 (increasing limits in response to Hurricanes Harvey, 
Irma, and Maria); and former sec. 1400S (increasing limits in response 
to Hurricanes Katrina, Rita, and Wilma). For a more detailed 
description of the most recently enacted provision (related to the 2017 
California wildfires), see Joint Committee on Taxation, General 
Explanation of Certain Tax Legislation Enacted in the 115th Congress 
(JCS-2-19), October 2019, pp. 27-29.
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            CARES Act
    Section 2205 of the CARES Act (Pub. L. No. 116-136), 
described in Part Six of this document, temporarily increases 
the charitable contribution limitations. In the case of an 
individual, the deduction for qualified contributions is 
allowed up to the amount by which the taxpayer's contribution 
base (AGI computed without regard to any net operating loss 
carryback) exceeds the deduction for other charitable 
contributions. Contributions in excess of this amount are 
carried over to succeeding taxable years as contributions 
described in section 170(b)(1)(G), subject to the limitations 
of section 170(b)(1)(G)(ii).
    In the case of a corporation, the deduction for qualified 
contributions is allowed up to 25 percent of the corporation's 
taxable income. 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 
calendar year 2020 to a charitable organization described in 
section 170(b)(1)(A), other than contributions (i) to 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. A taxpayer 
must elect to have contributions treated as qualified 
contributions.
    For charitable contributions of food inventory that are 
made during 2020 and which qualify for the enhanced deduction, 
the 15-percent limitations described above are increased to 25 
percent.

                        Explanation of Provision

    The provision generally extends the temporary modifications 
of the charitable contribution limits under the CARES Act to 
contributions made during 2021. This is accomplished by (1) 
amending the definition of a qualified contribution to include 
a contribution paid during 2021 and (2) amending the temporary 
increase in the limit for contributions of food inventory to 
include contributions made during 2021.

                             Effective Date

    The provision is effective for contributions made after 
December 31, 2020.

14. Temporary special rules for health and dependent care flexible 
        spending arrangements (sec. 214 of the Act and sec. 125 of the 
        Code)

                              Present Law


Flexible spending arrangements

    A flexible spending arrangement (``FSA'') generally is 
defined as a benefit program which provides employees with 
coverage under which specific incurred expenses may be 
reimbursed (subject to reimbursement maximums and other 
conditions) and the maximum amount of reimbursement reasonably 
available is less than 500 percent of the value of such 
coverage.\2095\ A flexible spending arrangement under a 
cafeteria plan (as defined below) allows an employee to make 
salary reduction contributions for use in receiving 
reimbursements for certain incurred expenses.\2096\ The 
arrangement can also include non-elective employer 
contributions (known as employer flex-credits) that the 
employer makes available for every employee eligible to 
participate in the employer's cafeteria plan, to be used only 
for certain tax-excludable benefits (but not as cash or a 
taxable benefit).\2097\ Types of expenses that may be 
reimbursed under a flexible spending arrangement in a cafeteria 
plan include medical expenses (under a ``health FSA'') and 
dependent care expenses (under a ``dependent care FSA'').
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    \2095\ Sec. 106(c)(2) and Prop. Treas. Reg. sec. 1.125-5(a).
    \2096\ Sec. 125 and Prop. Treas. Reg. sec. 1.125-5.
    \2097\ Prop. Treas. Reg. sec. 1.125-5(b).
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Cafeteria plans

    A cafeteria plan is a separate written plan of an employer 
under which all participants are employees, and participants 
are permitted to choose among at least one permitted taxable 
benefit (for example, current cash compensation) and at least 
one qualified benefit.\2098\ Qualified benefits are generally 
employer-provided benefits that are not includible in gross 
income by reason of an express provision of the Code. Examples 
include employer-provided health coverage (including a health 
FSA), group term life insurance coverage not in excess of 
$50,000, and benefits under a dependent care assistance program 
(including a dependent care FSA).\2099\ In order to be 
excludable from gross income, any qualified benefit elected 
under a cafeteria plan must independently satisfy any 
requirements under the Code section that provides the 
exclusion. If an employee receives a qualified benefit based on 
his or her election between the qualified benefit and a taxable 
benefit under a cafeteria plan, the qualified benefit generally 
is not includible in gross income.\2100\ However, if a plan 
offering an employee an election between taxable benefits 
(including cash) and nontaxable qualified benefits does not 
meet the requirements for being a cafeteria plan, the election 
between taxable and nontaxable benefits results in gross income 
to the employee, regardless of the benefit elected and when the 
election is made.\2101\
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    \2098\ Sec. 125(d).
    \2099\ Benefits under a health FSA are excludable from gross income 
under sections 105(b) and 106, and benefits under a dependent care FSA 
are excludable from gross income under section 129.
    \2100\ Sec. 125(a).
    \2101\ Sec. 125; Prop. Treas. Reg. sec. 1.125-1(b).
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    Cafeteria plans generally may not provide for the deferral 
of compensation.\2102\ Elections under a cafeteria plan 
generally must be made prior to the first day of the plan year 
and must be irrevocable, except under certain circumstances 
permitted under Treasury regulations, such as if the 
participant experiences a change in status.\2103\ In addition, 
a cafeteria plan may be amended during a plan year, but the 
amendment must only be effective prospectively.\2104\
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    \2102\ Sec. 125(d)(2).
    \2103\ Treas. Reg. sec. 1.125-4.
    \2104\ Prop. Treas. Reg. sec. 1.125-1(c)(5).
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Health FSAs

    In order for coverage and reimbursements under a health FSA 
to qualify for tax-favored treatment, the health FSA must 
qualify as an accident and health plan.\2105\ Under the Code, 
the value of employer-provided health coverage under an 
accident or health plan is generally excludable from gross 
income,\2106\ as are reimbursements under the plan for medical 
care expenses for employees, their spouses, and their 
dependents.\2107\ A health FSA may only reimburse medical 
expenses as defined in section 213(d).
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    \2105\ Sec. 105 and 106; Prop. Treas. Reg. sec. 1.125-5(k)(1).
    \2106\ Sec. 106. Health coverage provided to active members of the 
uniformed services, military retirees, and their dependents are 
excludable from gross income under section 134. That section provides 
an exclusion for ``qualified military benefits,'' defined as benefits 
received by reason of status or service as a member of the uniformed 
services and which were excludable from gross income on September 9, 
1986, under any provision of law, regulation, or administrative 
practice then in effect.
    \2107\ Sec. 105(b).
---------------------------------------------------------------------------
    A benefit provided under a cafeteria plan through employer 
contributions to a health FSA is not treated as a qualified 
benefit unless the cafeteria plan provides that an employee may 
not elect salary reduction contributions in excess of $2,500, 
adjusted for inflation, for any taxable year.\2108\ For taxable 
year 2021, the limit is $2,750.
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    \2108\ Sec. 125(i).
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Dependent care FSAs

    Amounts paid or incurred by an employer for dependent care 
assistance provided to an employee are excludable from the 
employee's income if the amounts are furnished pursuant to a 
dependent care assistance program.\2109\ A dependent care 
assistance program is a separate written plan of an employer 
for the exclusive benefit of the employees that provides 
dependent care assistance and meets certain other requirements 
under the Code, including requirements relating to non-
discriminatory benefits, limits on principal shareholders, and 
information to be provided to eligible employees.\2110\ A 
dependent care FSA is a type of dependent care assistance 
program.\2111\
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    \2109\ Sec. 129(a)(1).
    \2110\ Sec. 129(d).
    \2111\ Prop. Treas. Reg. sec. 1.125-5(h).
---------------------------------------------------------------------------
    Dependent care assistance means the payment or provision of 
services that would be considered employment-related expenses 
under section 21(b)(2) (relating to expenses for household and 
dependent care services necessary for gainful employment) if 
paid for by the employee.\2112\ Such employment-related 
expenses include expenses for the care of a qualifying 
individual. Qualifying individual is defined as (i) a dependent 
of the taxpayer \2113\ who has not attained age 13 or (ii) a 
dependent \2114\ or spouse of the taxpayer who is physically or 
mentally incapable of caring for himself or herself and who has 
the same principal place of abode as the taxpayer for more than 
one-half of the taxable year.\2115\
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    \2112\ Sec. 129(e)(1).
    \2113\ As defined in sec. 152(a)(1).
    \2114\ As defined in sec. 152, determined without regard to 
subsections (b)(1), (b)(2), and (d)(1)(B).
    \2115\ Sec. 21(b)(1).
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    The amount that may be excluded from an employee's gross 
income under a dependent care assistance program, including a 
dependent care FSA, is limited to $5,000 ($2,500 in the case of 
a separate return by a married individual).\2116\ In addition, 
a plan may permit an individual who has ceased participation in 
a dependent care FSA (due to, for example, termination of 
employment) to apply unused amounts remaining in the dependent 
care FSA to expenses incurred through the last day of that plan 
year.\2117\
---------------------------------------------------------------------------
    \2116\ Sec. 129(a)(2).
    \2117\ Prop. Treas. Reg. sec. 1.125-6. This rule does not apply to 
Health FSAs.
---------------------------------------------------------------------------

``Use-or-lose'' rule

    Health FSAs and dependent care FSAs are subject to the 
general requirements for cafeteria plans, including the 
requirement that the plan generally may not provide for the 
deferral of compensation.\2118\ Thus, amounts remaining in a 
health FSA or dependent care FSA at the end of a plan year 
generally must be forfeited by the employee (referred to as the 
``use-or-lose'' rule).\2119\ However, a cafeteria plan may 
allow a grace period not to exceed two and one-half months 
immediately following the end of the plan year during which 
unused amounts may be paid or reimbursed to participants for 
qualified expenses incurred during the grace period.\2120\ 
Alternatively, a cafeteria plan may permit up to $550 of unused 
amounts remaining in a health FSA at the end of a plan year to 
be paid or reimbursed to plan participants for qualifying 
medical expenses during the following plan year.\2121\ Such a 
carryover is not permitted in a dependent care FSA. A cafeteria 
plan may only permit a carryover of amounts in a health FSA if 
the plan does not also allow a grace period with respect to the 
health FSA.
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    \2118\ Sec. 125(d)(2).
    \2119\ Sec. 125(d)(2) and Prop. Treas. Reg. sec. 1.125-5(c).
    \2120\ Notice 2005-42, 2005-1 C.B. 1204, June 6, 2005 and Prop. 
Treas. Reg. sec. 1.125-1(e).
    \2121\ Notice 2020-33, 2020-22 I.R.B. 868, May 26, 2020. For plan 
years beginning before 2020, the amount that may be carried over to the 
following plan year is $500. Notice 2013-71, 2013-47 I.R.B. 532, 
November 18, 2013.
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Special rules relating to COVID-19

    Under IRS guidance, special rules apply to a health FSA or 
dependent care FSA for 2020, due to the public health emergency 
posed by the outbreak of COVID-19.\2122\ A cafeteria plan may 
permit participants to apply unused amounts remaining in a 
health FSA or dependent care FSA as of the end of a grace 
period ending in 2020 or a plan year ending in 2020 to pay or 
reimburse expenses incurred under the FSA through December 31, 
2020. In addition, a plan may permit mid-year elections during 
calendar year 2020 with respect to health and dependent care 
FSAs (without requiring the employee to meet the criteria set 
forth in the Treasury regulations, such as a change in status).
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    \2122\ Notice 2020-29, 2020-22 I.R.B. 864, May 26, 2020.
---------------------------------------------------------------------------

                        Explanation of Provision

    Under the provision, for plan years ending in 2020 or 2021, 
a plan that includes a health FSA or dependent care FSA does 
not fail to be treated as a cafeteria plan merely because the 
plan permits participants to carry over (under rules similar to 
the rules applicable to health FSAs) any unused benefits or 
contributions remaining in the FSA from such plan year to the 
following plan year. Thus, for example, a cafeteria plan may 
permit a participant in a dependent care FSA to be paid or 
reimbursed for dependent care expenses incurred during the plan 
year ending in 2021 by applying unused amounts remaining in 
that participant's dependent care FSA at the end of the plan 
year ending in 2020.
    In addition, for plan years ending in 2020 or 2021, a 
cafeteria plan may extend the grace period applicable to a 
health FSA or dependent care FSA (with respect to unused 
benefits or contributions remaining in the FSA) to 12 months 
after the end of the plan year.
    Under the provision, a cafeteria plan that includes a 
health FSA may allow an employee who ceases participation in 
the plan during calendar year 2020 or 2021 (for example, due to 
termination of employment) to continue to receive 
reimbursements from unused benefits or contributions through 
the end of the plan year in which such participation ceased 
(including any grace period, taking into account the 
modification to the grace period under this provision). Rules 
similar to the rules applicable to dependent care FSAs apply.
    The provision also modifies the definition of qualifying 
individual as it applies to a dependent care FSA in certain 
circumstances so that the term includes dependents who have not 
yet reached age 14 (rather than age 13). To qualify for this 
treatment, an employee must be enrolled in a dependent care FSA 
for the last plan year with respect to which the end of the 
regular enrollment period for the plan year was on or before 
January 31, 2020. In addition, the employee must either have a 
dependent who attains age 13 during such plan year, or, in the 
case of an employee who has an unused balance remaining in the 
FSA at the end of the plan year, must have a dependent who 
attains age 13 during the subsequent plan year. In the former 
case, the amended definition of qualifying individual 
(substituting age 14 for age 13) applies for that plan year 
(i.e., the last plan year with respect to which the end of the 
regular enrollment period for the plan year was on or before 
January 31, 2020). In the latter case, the amended definition 
applies during the subsequent plan year, and applies only to so 
much of the amounts paid for dependent care assistance with 
respect to the dependent who attains age 13 during that 
subsequent plan year as does not exceed the unused balance.
    Under the provision, for plan years ending in 2021, a 
cafeteria plan may permit an employee to modify prospectively 
the amount (but not in excess of any applicable dollar 
limitation) of the employee's contributions to a health FSA or 
dependent care FSA (without regard to any change in status).
    A cafeteria plan does not fail to qualify as such merely 
because it is amended in accordance with the provision, so long 
as the amendment is adopted no later than the last day of the 
first calendar year beginning after the end of the plan year in 
which the amendment is effective, and the plan is operated in 
accordance with the amendment during the period beginning on 
the amendment's effective date and ending on the date the 
amendment is adopted.

                             Effective Date

    The provision is effective as of the date of enactment of 
the Act (December 27, 2020).

                     TITLE III--DISASTER TAX RELIEF

1. Definitions (sec. 301 of the Act and secs. 24, 32, 38, 42, 72, 165, 
        and 170 of the Code)

                              Present Law

    The provisions below provide temporary tax relief to those 
areas affected by certain major disasters declared in 2020 and 
some portion of 2021. The provisions use the terms ``qualified 
disaster area,'' ``qualified disaster zone,'' ``qualified 
disaster,'' and ``incident period.''
    As used in the bill, ``qualified disaster area'' refers to 
an area with respect to which a major disaster has been 
declared by the President during the period beginning on 
January 1, 2020, and ending on the date which is 60 days after 
the date of enactment of the Act (December 27, 2020), under 
section 401 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (the ``Stafford Act''), if the 
incident period of the disaster with respect to which such 
declaration is made begins on or after December 28, 2019 and on 
or before the date of enactment of the Act. However, a 
qualified disaster area does not include any area with respect 
to which a major disaster has been declared only by reason of 
COVID-19.
    A ``qualified disaster zone'' refers to that portion of the 
applicable ``qualified disaster area,'' as described above, 
which has been determined by the President to warrant 
individual or individual and public assistance from the Federal 
government under the Stafford Act by reason of the applicable 
qualified disaster.
    A ``qualified disaster'' means, with respect to the 
applicable qualified disaster area, the disaster by reason of 
which a major disaster was declared with respect to such area.
    ``Incident period'' means, with respect to the applicable 
qualified disaster, the period specified by the Federal 
Emergency Management Agency as the period during which such 
disaster occurred, except that such period shall not be treated 
as ending after the date which is 30 days after the date of 
enactment of the Act.
2. Special disaster-related rules for use of retirement funds (sec. 302 
        of the Act and sec. 72 of the Code)

                              Present Law

Distributions from tax-favored retirement plans
    A distribution from a tax-qualified plan described in 
section 401(a) (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.\2123\ These plans 
are referred to collectively as ``eligible retirement plans.'' 
\2124\ 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.\2125\
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    \2123\  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.
    \2124\ Sec. 402(c)(8)(B). Eligible retirement plans also include 
annuity plans described in section 403(a).
    \2125\ 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 IRS 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.\2126\
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    \2126\ Rev. Proc 2020-46, 2020-45 I.R.B. 995, provides for a self-
certification procedure (subject to verification on audit) that may be 
used by a taxpayer claiming eligibility for a waiver of the 60-day 
requirement with respect to a rollover into a plan or IRA in certain 
specified circumstances.
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    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 under certain types of plans in 
the case of financial hardship or an unforeseeable emergency.
Loans from tax-favored retirement plans
    Employer-sponsored retirement plans are permitted, but not 
required, to 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 (1) the loan amount must not exceed the lesser 
of 50 percent of the participant's account balance or $50,000 
(generally taking into account outstanding balances of previous 
loans), and (2) 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.\2127\ 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 a 10-percent early withdrawal tax, if applicable. A deemed 
distribution is not eligible for rollover to another eligible 
retirement plan. The rules generally do not limit the number of 
loans an employee may obtain from a plan except to the extent 
that any additional loan would cause the aggregate loan balance 
to exceed limitations.
---------------------------------------------------------------------------
    \2127\ 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.
Disaster relief
    Congress has at times liberalized the plan distribution and 
loan provisions for individuals affected by certain natural 
disasters.\2128\
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    \2128\ See, e.g., sec. 20102 of Pub. L. No. 115-123 (providing 
relief in response to 2017 California wildfires); sec. 502 of Pub. L. 
No. 115-63 (providing relief in response to Hurricanes Harvey, Irma, 
and Maria); former sec. 1400Q (providing relief in response to 
Hurricanes Katrina, Rita, and Wilma); and sec. 202 of Div. Q of Pub. L. 
No. 116-94. For a more detailed description of the most recently 
enacted provision, see Joint Committee on Taxation, General Explanation 
of Certain Tax Legislation Enacted in the 115th Congress (JCS-2-19), 
October 2019, pp. 22-26.
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    Congress has also provided relief from the plan 
distribution and loan provisions for individuals affected by 
COVID-19.\2129\
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    \2129\ See sec. 2202 of Pub. L. No. 116-136 (providing relief for 
``coronavirus-related distributions'').
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                        Explanation of Provision

Distributions and recontributions
    The provision allows an exception to the 10-percent early 
withdrawal tax for a ``qualified disaster distribution'' from a 
qualified retirement plan, a section 403(b) plan, or an 
IRA.\2130\ The provision also allows a taxpayer to include 
income attributable to a qualified disaster distribution 
ratably over three years and to recontribute the amount of the 
distribution to an eligible retirement plan within three years.
---------------------------------------------------------------------------
    \2130\ This exception also applies to an annuity plan described in 
section 403(a). The 10-percent early withdrawal tax generally does not 
apply to section 457 plans. Sec. 72(t)(1).
---------------------------------------------------------------------------
    A ``qualified disaster distribution'' is any distribution 
from a qualified retirement plan, section 403(b) plan, 
governmental section 457(b) plan, or an IRA, made on or after 
the first day of the incident period of a qualified disaster 
and before the date which is 180 days after the date of 
enactment, to an individual whose principal place of abode at 
any time during the incident period is located in the qualified 
disaster area and who has sustained an economic loss by reason 
of such disaster.\2131\
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    \2131\ A qualified disaster distribution is subject to income tax 
withholding unless the recipient elects otherwise. Mandatory 20-percent 
withholding does not apply.
---------------------------------------------------------------------------
    A plan is not treated as violating any Code requirement 
merely because it treats a distribution as a qualified disaster 
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 for each qualified disaster. The total 
amount of distributions to an individual from all eligible 
retirement plans that may be treated as qualified disaster 
distributions with respect to each qualified disaster is 
$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, or because 
an individual may have been affected by more than one qualified 
disaster.
    Any amount required to be included in income as a result of 
a qualified disaster 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 disaster distribution may, at 
any time during the three-year period beginning the day after 
the date on which the distribution was received, be 
recontributed in one or more contributions 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 disaster 
distribution in 2020, that amount is included in income, 
generally ratably over the year of the distribution and the 
following two years and is not subject to the 10-percent early 
withdrawal tax. If, in 2022, the amount of the qualified 
disaster distribution is recontributed to an eligible 
retirement plan, the individual may file amended returns to 
claim a refund of the tax attributable to the amounts 
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 \2132\ 
during the period beginning on the date which is 180 days 
before the first day of the incident period of the qualified 
disaster and ending on the date which is 30 days after the last 
day of such incident period, which was to be used to purchase 
or construct a principal residence in a qualified disaster 
area, but which was not so used on account of the qualified 
disaster, may, during the ``applicable period,'' make one or 
more contributions in an aggregate amount not to exceed the 
amount of such qualified distribution to an eligible retirement 
plan \2133\ of which such individual is a beneficiary and to 
which a rollover contribution of such distribution could be 
made.\2134\ The ``applicable period'' is, in the case of a 
principal residence in a qualified disaster area with respect 
to any qualified disaster, the period beginning on the first 
day of the incident period of such qualified disaster and 
ending on the date which is 180 days after the date of 
enactment.
---------------------------------------------------------------------------
    \2132\ Defined as a distribution described in sections 
401(k)(2)(B)(i)(IV), 403(b)(7)(A)(i)(V), 403(b)(11)(B), or 72(t)(2)(F).
    \2133\ As defined in section 402(c)(8)(B).
    \2134\ Under sections 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), 
as the case may be.
---------------------------------------------------------------------------

Loans

    The provision modifies the rules applicable to loans, 
providing that for a qualified individual, in order for the 
loan not to be treated as a distribution, the permitted maximum 
loan amount from a qualified employer plan \2135\ during the 
180-day period beginning on the date of enactment is the lesser 
of the present value of the nonforfeitable accrued benefit of 
the employee under the plan or $100,000.\2136\ For this 
purpose, qualified individual has the same meaning as persons 
eligible to receive qualified disaster distributions.
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    \2135\ For this purpose, qualified employer plan is defined in 
section 72(p)(4).
    \2136\ See sec. 72(p)(2)(A).
---------------------------------------------------------------------------
    In the case of a qualified individual (with respect to any 
qualified disaster) with an outstanding loan from a qualified 
employer plan (on or after the first day of the incident period 
of such qualified disaster), the provision delays by one year 
the due date for any repayment with respect to such loan (or, 
if later, until the date which is 180 days after the date of 
enactment), if the due date for any repayment otherwise would 
fall during the period beginning on the first day of the 
incident period of such qualified disaster and ending on the 
date which is 180 days after the last day of such incident 
period. Under the provision, any subsequent repayments are 
appropriately adjusted to reflect the delay in the earlier 
repayment due date and any interest accruing during that delay. 
The repayment delay is disregarded for purposes of the 
requirement that a loan be repaid within five years.

Plan amendments

    A plan amendment made under the provision (or a regulation 
interpreting the provision) 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 on or after January 1, 2022 (or in the case of a 
governmental plan, January 1, 2024), or a later date prescribed 
by the Secretary. The provision treats the plan as being 
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 to be made (or, if 
earlier, the date the amendment is adopted). For an amendment 
to be treated as 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.

3. Employee retention credit for employers affected by qualified 
        disasters (sec. 303 of the Act and sec. 38 of the Code)

                              Present Law


Employee retention credits

    Congress has at times enacted employee retention credits 
against employer income tax in response to specific natural 
disasters.\2137\ There is not a generally applicable employer 
income tax credit for wages paid in connection with natural 
disasters.
---------------------------------------------------------------------------
    \2137\ See, e.g., sec 203 of Pub. L. No. 116-94, December 20, 2019 
(certain disasters occurring in 2018 and 2019); sec. 20103 of Pub. L. 
No. 115-123 (providing a credit in response to 2017 California 
wildfires); sec. 503 of Pub. L. No. 115-63, as amended by sec. 20201(b) 
of Pub. L. No. 115-123 (providing a credit in response to Hurricanes 
Harvey, Irma, and Maria); and former sec. 1400R (providing a credit in 
response to Hurricanes Katrina, Rita, and Wilma).
---------------------------------------------------------------------------

Payroll tax credits

            In general
    There are a limited number of credits that may be taken 
against certain payroll taxes, rather than the income tax. 
Under section 3111(e) (the credit for employment of qualified 
veterans) a qualified tax-exempt organization is allowed a 
credit against the Old-Age, Survivors, and Disability Insurance 
(``OASDI'') tax imposed on the employer for each calendar 
quarter in an amount equal to a percentage of wages paid to a 
qualified veteran.\2138\ Under section 3111(f) (the credit for 
research expenditures of qualified small businesses), a 
qualified small business that has made an election under 
section 41(h) is allowed a credit against the OASDI tax imposed 
on the employer for each calendar quarter in an amount equal to 
a percentage of qualified research expenses.\2139\
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    \2138\ See also section 51. The term ``qualified tax-exempt 
organization'' means an employer that is an organization described in 
section 501(c) and exempt from taxation under section 501(a).
    \2139\ See also section 41.
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    In addition, Congress enacted three temporary refundable 
payroll tax credits in response to COVID-19: Under section 7001 
of the Families First Coronavirus Response Act \2140\ 
(``FFCRA'') (the payroll tax credit for required paid sick 
leave), an employer is generally allowed a credit against the 
OASDI tax or Railroad Retirement Tax Act (``RRTA'') tax imposed 
on the employer for each calendar quarter in an amount equal to 
100 percent of the qualified sick leave wages paid by the 
employer with respect to that calendar quarter. Under section 
7003 of FFCRA (the payroll tax credit for required paid family 
leave), an employer is generally allowed a credit against the 
OASDI tax or RRTA tax imposed on the employer for each calendar 
quarter in an amount equal to 100 percent of the qualified 
family leave wages paid by the employer with respect to that 
calendar quarter. Under section 2301 of the CARES Act (the 
employee retention credit for employers subject to closure due 
to COVID-19),\2141\ an applicable employer is generally allowed 
a credit against the OASDI tax or RRTA tax imposed on the 
employer for each calendar quarter in an amount equal to a 
percentage of the qualified wages with respect to each employee 
of such employer for such calendar quarter.
---------------------------------------------------------------------------
    \2140\ Pub. L. No. 116-127.
    \2141\ Pub. L. No. 116-136.
---------------------------------------------------------------------------
            Ordering of credits
    Section 7001 of the FFCRA, section 7003 of the FFCRA, and 
section 2301 of the CARES Act contain rules for the ordering of 
the credits prior to refundability:
    The credit allowed under section 7001 of the FFCRA may not 
exceed the OASDI tax or RRTA tax imposed on the employer for 
that calendar quarter on the wages paid with respect to all the 
employer's employees, reduced by any credits allowed under 
section 3111(e) or section 3111(f). However, if for any 
calendar quarter the amount of the credit exceeds the OASDI tax 
or RRTA tax imposed on the employer, reduced as described in 
the prior sentence, such excess is treated as a refundable 
overpayment.
    The credit allowed under section 7003 of the FFCRA may not 
exceed the OASDI tax or RRTA tax imposed on the employer for 
that calendar quarter on the wages paid with respect to all the 
employer's employees, reduced by any credits allowed under 
section 3111(e), section 3111(f), or section 7001 of the FFCRA. 
However, if for any calendar quarter the amount of the credit 
exceeds the OASDI tax or RRTA tax imposed on the employer, 
reduced as described in the prior sentence, such excess is 
treated as a refundable overpayment.
    The credit allowed under section 2301 of the CARES Act may 
not exceed the OASDI tax or RRTA tax imposed on the employer 
for that calendar quarter on the wages paid with respect to all 
the employer's employees, reduced by any credits allowed under 
section 3111(e), section 3111(f), section 7001 of the FFCRA, or 
section 7003 of the FFCRA. However, if for any calendar quarter 
the amount of the credit exceeds the OASDI tax or RRTA tax 
imposed on the employer, reduced as described in the prior 
sentence, such excess is treated as a refundable overpayment.

                        Explanation of Provision


In general

    The provision provides a credit against income tax equal to 
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 in a qualified disaster zone at any 
time during the incident period of the applicable qualified 
disaster and (2) with respect to which the trade or business 
described in (1), as a result of damage sustained by reason of 
the applicable qualified disaster, is inoperable on any day 
during the period beginning on the first day of the applicable 
incident period of the applicable qualified disaster and ending 
on the date of enactment of this bill.
    An eligible employee is, with respect to an eligible 
employer, an employee whose principal place of employment, 
determined immediately before the applicable qualified 
disaster, with such eligible employer was in the applicable 
qualified 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 \2142\ paid or incurred by an 
eligible employer with respect to an eligible employee 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 applicable 
qualified disaster and (2) ending on the earlier of (i) the 
date on which the trade or business resumes significant 
operations at such principal place of employment or (ii) the 
date which is 150 days after the last day of the applicable 
incident period. Qualified wages include wages paid without 
regard to whether the employee performs services, performs 
services at a different place of employment than the principal 
place of employment, or performs services at the principal 
place of employment before significant operations resume. Wages 
do not include wages taken into account under the employee 
retention credit under section 2301 of the CARES ACT.
---------------------------------------------------------------------------
    \2142\ For this purpose, ``wages'' is defined in section 51(c)(1), 
without regard to section 3306(b)(2)(B).
---------------------------------------------------------------------------
    Any wages taken into account in determining the credit 
shall not be taken into account as wages for purposes of 
sections 41 (providing a credit for increasing research 
activities), 45A (the Indian employment credit), 45P (providing 
an employer wage credit for employees who are active duty 
members of the uniformed services), 45S (providing an employer 
credit for paid family and medical leave), 51 (the work 
opportunity credit), and 1396 (the empowerment zone employment 
credit).
    The credit is treated as a current year business credit 
under section 38(b) and therefore is subject to the income tax 
liability limitations of section 38(c). Rules similar to 
sections 51(i)(1), 52, and 280C(a) apply.\2143\
---------------------------------------------------------------------------
    \2143\ Section 51(i)(2) provides a rule that employers may not 
claim the work opportunity credit for wages paid to rehired 
employees.ection 52 provides, for purposes of the work opportunity 
credit, rules to treat a controlled group of corporations, or trades or 
businesses under common control, as a single employer, as well as 
special rules for tax-exempt organizations, estates and trusts, and 
certain other entities.ection 280C denies a deduction for the portion 
of wages paid or incurred for the taxable year for which certain wage-
based credits are earned.
---------------------------------------------------------------------------

Payroll tax credit

            In general
    The provision allows a qualified tax-exempt organization to 
claim a credit against OASDI tax imposed on the organization 
under section 3111(a) equal to 40 percent of the qualified 
wages paid to an eligible employee. The amount of qualified 
wages with respect to any employee which may be taken into 
account in calculating the credit for all calendar quarters may 
not exceed $6,000.
    The credit allowed may not exceed the applicable employment 
taxes imposed on the eligible employer for that calendar 
quarter on the wages paid with respect to all of the employer's 
employees, reduced by any credits allowed under section 3111(e) 
or section 3111(f). Any excess is carried forward to the next 
calendar quarter.
    The term ``qualified tax-exempt organization'' means an 
organization described in section 501(c) of the Internal 
Revenue Code of 1986 and exempt from taxation under section 
501(a) of such Code if such organization would be an eligible 
employer if the activities of such organization were an active 
trade or business. Additionally, the credit is not available to 
the Government of the United States, the government of any 
State or political subdivision thereof, or any agency or 
instrumentality of any of those entities. However, the 
provision excludes from this rule (1) any organization 
described in section 501(c)(1) of the Code and exempt from tax 
under section 501(a) of the Code, and (2) any entity that is a 
college or university or any entity the principal purpose or 
function of which is providing medical or hospital care. As a 
result, such organizations and entities are not prevented from 
claiming the credit by reason of the general prohibition 
against certain government employers claiming the credit.
    For purposes of this provision, the terms ``eligible 
employee'' and ``qualified wages'' shall be applied with 
respect to any qualified tax-exempt organization by treating 
the activities of such organization as an active trade or 
business.\2144\
---------------------------------------------------------------------------
    \2144\ In addition, ``qualified wages'' and other terms used for 
the payroll tax credit which are also used in chapter 21 or 22 of the 
Internal Revenue Code of 1986 shall have the same meaning as when used 
in such chapter.
---------------------------------------------------------------------------
    Employers in the U.S. territories may claim the credit by 
filing their quarterly Federal employment tax returns.
    An employer may elect, at such time and in such manner as 
provided by the Secretary (or the Secretary's delegate), to 
have the credit not apply to such employer for a calendar 
quarter.
    Amounts are appropriated to the OASDI Trust Funds and the 
Social Security Equivalent Benefit Account established under 
the RRTA \2145\ equal to the reduction in revenues to the 
Treasury by reason of the credit. Such amounts are transferred 
from the general fund at such times and in such manner as to 
replicate to the extent possible the transfers that would have 
occurred to the OASDI Trust Funds or Social Security Equivalent 
Benefit Account had the credit not been enacted.
---------------------------------------------------------------------------
    \2145\ Sec. 15A(a) of the RRTA (45 U.S.C. sec. 231n-1(a)).
---------------------------------------------------------------------------
            Administrative rules, penalties, and regulations
    Any credit allowed under the provision is treated as a 
credit described in section 3511(d)(2) (relating to third party 
payors).
    The provision directs the Secretary (or the Secretary's 
delegate) to waive any penalty under section 6656 for failure 
to make a deposit of applicable employment taxes if the 
Secretary (or the Secretary's delegate) determines that such 
failure was due to the reasonable anticipation of the credit 
allowed under the provision.
    The Secretary (or the Secretary's delegate) shall provide 
such regulations or other guidance as may be necessary to carry 
out the purposes of the credit, including regulations or other 
guidance: (1) to allow the advance payment of the credit based 
on such information as the Secretary (or the Secretary's 
delegate) may require; (2) to provide for the reconciliation of 
such advance payment with the amount advanced at the time of 
filing the return of tax for the applicable calendar quarter or 
taxable year; (3) with respect to the application of the credit 
to third party payors (including professional employer 
organizations, certified professional employer organizations, 
or agents under section 3504), including regulations or 
guidance allowing such payors to submit documentation necessary 
to substantiate the eligible employer status of employers that 
use such payors; and (4) to recapture the benefit of the credit 
in cases where there is a subsequent adjustment to the credit.
            Ordering of credits
    The provision applies before the temporary refundable 
payroll tax credits enacted in response to the coronavirus 
pandemic:
    The credit allowed under section 7001 of the FFCRA may not 
exceed the OASDI tax or RRTA tax imposed on the employer for 
that calendar quarter on the wages paid with respect to all the 
employer's employees, reduced by any credits allowed under 
section 3111(e), section 3111(f), or the provision. However, if 
for any calendar quarter the amount of the credit exceeds the 
OASDI tax or RRTA tax imposed on the employer, reduced as 
described in the prior sentence, such excess is treated as a 
refundable overpayment.
    The credit allowed under section 7003 of the FFCRA may not 
exceed the OASDI tax or RRTA tax imposed on the employer for 
that calendar quarter on the wages paid with respect to all the 
employer's employees, reduced by any credits allowed under 
section 3111(e), section 3111(f), the provision, or section 
7001 of the FFCRA. However, if for any calendar quarter the 
amount of the credit exceeds the OASDI tax or RRTA tax imposed 
on the employer, reduced as described in the prior sentence, 
such excess is treated as a refundable overpayment.
    The credit allowed under section 2301 of the CARES Act may 
not exceed the OASDI tax or RRTA tax imposed on the employer 
for that calendar quarter on the wages paid with respect to all 
the employer's employees, reduced by any credits allowed under 
section 3111(e), section 3111(f), the provision, section 7001 
of the FFCRA, or section 7003 of the FFCRA. However, if for any 
calendar quarter the amount of the credit exceeds the OASDI tax 
or RRTA tax imposed on the employer, reduced as described in 
the prior sentence, such excess is treated as a refundable 
overpayment.
            Coordination with the Payroll Protection Program
    Section 7A(a)(12) of the Small Business Act is amended to 
provide that the definition of payroll costs that may give rise 
to loan forgiveness shall not include qualified wages taken 
into account in determining the credit under the provision.
    However, under the provision an election not to take into 
account any amount of the employer's qualified wages for 
purposes of calculating the credit does not prevent payroll 
costs paid during the covered period from being treated as 
qualified wages of the eligible employer to the extent that a 
Paycheck Protection Program second draw loan described in 15 
U.S.C. section 636(a)(37) is not forgiven by reason of the 
application of paragraph (37)(J) of such section.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

4. Special rules for qualified disaster relief contributions of 
        corporations (sec. 304(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.\2146\
---------------------------------------------------------------------------
    \2146\ 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, 
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.\2147\ 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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    \2147\ Sec. 170(d).
---------------------------------------------------------------------------

Temporary increase in percentage limitations under the CARES Act

    Section 2205 of the CARES Act (Pub. L. No. 116-136), 
described in Part Six of this document, temporarily increases 
the charitable contribution limitations. In the case of an 
individual, the deduction for qualified contributions is 
allowed up to the amount by which the taxpayer's contribution 
base (AGI computed without regard to any net operating loss 
carryback) exceeds the deduction for other charitable 
contributions. Contributions in excess of this amount are 
carried over to succeeding taxable years as contributions 
described in section 170(b)(1)(G), subject to the limitations 
of section 170(b)(1)(G)(ii).
    In the case of a corporation, the deduction for qualified 
contributions is allowed up to 25 percent of the corporation's 
taxable income. 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 
calendar year 2020 to a charitable organization described in 
section 170(b)(1)(A), other than contributions (i) to 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. A taxpayer 
must elect to have contributions treated as qualified 
contributions.
    For charitable contributions of food inventory that are 
made during 2020 and which qualify for the enhanced deduction, 
the 15-percent limitations described above are increased to 25 
percent.
    Section 213 of this Act generally extends the temporary 
modifications of the charitable contribution limits under the 
CARES Act to contributions made during 2021.

                        Explanation of Provision

    In the case of a qualified disaster relief contribution of 
a corporation, the provision generally increases the 25 percent 
limitation established by the CARES Act to 100 percent of a 
corporation's taxable income. The 25 percent limitation under 
the CARES Act is first applied to qualified contributions (as 
defined in the CARES Act) other than qualified disaster relief 
contributions. The increased percentage limitation is next 
applied to qualified disaster relief contributions by 
substituting 100 percent for 25 percent. As a result, the 
deduction for qualified disaster relief 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 (including 
qualified contributions under the CARES Act other than 
qualified disaster relief contributions). Contributions in 
excess of this amount are carried over to succeeding taxable 
years, subject to the limitations under section 170(d)(2).
    A qualified disaster relief contribution is a qualified 
contribution within the meaning of section 2205 of the CARES 
Act \2148\ that is paid during the period beginning on January 
1, 2020, and ending on the date which is 60 days after the date 
of enactment, and which is made for relief efforts in one or 
more qualified disaster areas. A taxpayer must obtain from the 
recipient organization a contemporaneous written acknowledgment 
substantiating that the contribution was used (or is to be 
used) for this purpose. A taxpayer must elect to have the 
contribution treated as a qualified disaster relief 
contribution.
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    \2148\ For example, the contribution must be paid in cash to a 
charitable organization described in section 170(b)(1)(A), other than 
contributions (i) to 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)).
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                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

5. Special rules for qualified disaster-related personal casualty 
        losses (sec. 304(b) of the Act and sec. 165 of the Code)

                              Present Law

    An individual taxpayer may claim an itemized deduction for 
a personal casualty loss only if the loss was attributable to a 
disaster declared by the President under section 401 of the 
Stafford Act.\2149\ All other personal casualty losses are 
deductible only to the extent that those losses do not exceed 
the individual's personal casualty gains. Personal casualty 
losses are deductible only if they exceed $100 per casualty. In 
addition, aggregate net losses (i.e., the excess of personal 
casualty losses over personal casualty gains) are deductible 
only to the extent they exceed 10 percent of the individual 
taxpayer's adjusted gross income.
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    \2149\ 165(h)(5).
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    Congress has at times enacted more generous casualty loss 
provisions in response to specific natural disasters.\2150\
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    \2150\ See, e.g., Pub. L. No. 116-94, sec. 204(b), December 20, 
2019 (certain disasters occurring in 2018 and 2019); sec. 20104(b) of 
Pub. L. No. 115-123 (certain California wildfires); Sec. 504(b) of Pub. 
L. No. 115-63 (Hurricanes Harvey, Irma, and Maria); and former sec. 
1400S(b) (Hurricanes Katrina, Rita, and Wilma).
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                        Explanation of Provision

    Under the provision, if an individual has a personal 
casualty loss which arose in a qualified disaster area on or 
after the first day of the incident period of the applicable 
qualified disaster and which was attributable to that qualified 
disaster, the individual is allowed a deduction for the loss 
without regard to whether the individual's aggregate net losses 
exceed 10 percent of adjusted gross income. A casualty loss is 
deductible, however, only if it exceeds $500.\2151\
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    \2151\ The $100 per casualty rule still applies with respect to 
other deductible personal casualty losses.
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    For a personal casualty loss to which the provision 
applies, an individual is allowed a deduction in addition to 
the standard deduction. The deduction is also allowed in 
determining alternative minimum tax.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

6. Low-income housing tax credit (sec. 305 of the Act and sec. 42 of 
        the Code)

                              Present Law

    Background for the provision and a description of the low-
income housing tax credit that the provision modifies may be 
found above in the section describing section 207 of the 
Taxpayer Certainty and Disaster Tax Relief Act of 2019 
(Division Q of Pub. L. No. 116-94) in Part Three of this 
document.

                        Explanation of Provision

    Under the provision, for calendar years 2021 and 2022, a 
State's housing credit ceiling is increased by the amount of 
housing credit allocated by the State housing credit agency for 
each year to buildings located in qualified disaster zones 
\2152\ in the State, subject to certain limitations. For 2021, 
the amount of the State ceiling increase cannot exceed the 
applicable dollar limitation. The applicable dollar limitation 
is equal to the lesser of (1) the product of $3.50 multiplied 
by the population which resided in qualified disaster zones in 
the State in 2020, and (2) 65 percent of the State ceiling for 
2020. For 2022, the amount of the State ceiling increase cannot 
exceed the applicable dollar limitation reduced by the amount 
of the State ceiling increase for 2021. Therefore, a State may 
increase its State ceilings for 2021 and 2022 in total by no 
more than the amount of the applicable dollar limitation.
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    \2152\ A qualified disaster zone is a portion of any qualified 
disaster area which was determined by the President (during the period 
beginning on January 1, 2020 and ending on the date which is 60 days 
after the date of enactment) to warrant individual or individual and 
public assistance from the Federal government under the Stafford Act by 
reason of a major disaster with respect to such area. A qualified 
disaster area is an area with respect to which a major disaster was 
declared by the President (during the period beginning on January 1, 
2020 and ending on the date which is 60 days after the date of 
enactment) under the Stafford Act if the incident period of such 
disaster begins on or after December 28, 2019, and on or before the 
date of the enactment. Qualified disaster areas do not include areas 
for which a major disaster has been declared only by reason of COVID-
19.
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    The provision also provides that housing credit that is 
allocated by a State housing credit agency for calendar year 
2021 or 2022 to a building located in a qualified disaster zone 
in the State may receive an extension to have the building 
placed in service by the end of the third calendar year 
following the calendar year in which the allocation was made. 
The State housing credit agency must designate the housing 
credit to receive the extension. The amount of designated 
housing credit for a given year cannot exceed the amount of the 
State ceiling increase for that year, as provided under the 
provision.
    The provision also specifies that credit allocations are 
treated as made first from these additional amounts for 
purposes of determining the unused State housing credit ceiling 
to be carried forward in a calendar year.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

7. Treatment of certain possessions (sec. 306 of the Act)

                              Present Law

    Citizens of the United States are generally subject to 
Federal income tax on their U.S. and foreign income regardless 
of whether they live in a U.S. State, the District of Columbia, 
a foreign country, or a U.S. territory. Residents of the U.S. 
territories 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 source of income specific to the territory.
    The application of the Federal tax rules to the territories 
varies from one territory to another. Three territories, Guam, 
the Commonwealth of the Northern Mariana Islands, and the U.S. 
Virgin Islands, are referred to as mirror Code territories 
because the Code serves as the internal tax law of those 
territories (substituting the particular territory for the 
United States wherever the Code refers to the United States). A 
resident of one of those territories generally files a single 
tax return only with the territory of which the individual is a 
resident, and not with the United States.\2153\ Income tax paid 
by a bona fide resident of a mirror Code territory generally is 
allocated between the U.S. government and the territory 
government under special rules administered by the U.S. 
Treasury Department and the revenue authority of the territory 
government.
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    \2153\ Sec. 932 and former sec. 935.
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    American Samoa and Puerto Rico, by contrast, are non-mirror 
Code territories. These two territories have their own internal 
tax laws, and a resident of either American Samoa \2154\ or 
Puerto Rico may be required to file income tax returns with 
both the territory of residence and the United States. In 
general, U.S.-source income and other income from outside the 
territory of residence is included on a U.S. income tax return, 
and income from sources within the territory of residence is 
reported on the territory income tax return.
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    \2154\ The tax laws of American Samoa follow, with certain 
modification, the Internal Revenue Code as in effect December 31, 2000. 
See Am. Sam. Code Ann. sec. 11.0404.
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                        Explanation of Provision

    The provision requires the Secretary to make a payment to 
each mirror Code territory in an amount equal to the loss in 
revenue by reason of the temporary disaster-related tax relief 
allowable by reason of Title III of the Act to residents of 
such territory against its income tax. The Secretary must 
determine the amount of each payment based on information 
provided by the government of the respective territory.
    The provision requires the Secretary to make a payment to 
each non-mirror Code territory in an amount estimated by the 
Secretary as the aggregate benefits (if any) of the temporary 
disaster-related tax relief that would have been provided to 
residents of that territory if a mirror code tax system had 
been in effect in the territory. Accordingly, the amount of 
each payment to a non-mirror Code territory is an estimate of 
the aggregate benefits that would be allowed to the territory's 
residents if the temporary tax relief provided by Title III of 
the Act to U.S. residents were provided by the territory to its 
residents. The Secretary is not permitted to make a payment to 
a territory unless the territory has a plan that has been 
approved by the Secretary under which the territory will 
promptly distribute the payment to its residents.

                             Effective Date

    The provision is effective on the date of enactment 
(December 27, 2020).

      

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                    ESTIMATED BUDGET EFFECTS OF TAX

               LEGISLATION ENACTED IN THE 116TH CONGRESS

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