[House Report 116-384]
[From the U.S. Government Publishing Office]


116th Congress    }                                            {   Report
                          HOUSE OF REPRESENTATIVES
 2d Session       }                                            {  116-384

======================================================================



 
                     ECONOMIC MOBILITY ACT OF 2019

                                _______
                                

February 4, 2020.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Neal, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3300]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3300) to amend the Internal Revenue Code of 1986 to 
provide tax relief for workers and families, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
ECONOMIC MOBILITY ACT OF 2019....................................     1
REPORT...........................................................     1
  I. SUMMARY AND BACKGROUND...........................................8
          A. Purpose and Summary.................................     8
          B. Background and Need for Legislation.................     9
          C. Legislative History.................................    10
 II. EXPLANATION OF THE BILL.........................................10
TITLE I--EARNED INCOME TAX CREDIT................................    10
          1. Strengthening the earned income tax credit for 
              individuals with no qualifying children, and 
              certain other changes to the earned income tax 
              credit (secs. 101-104 of the bill and sec. 32 of 
              the Code)..........................................    10
          2. Application of earned income tax credit in 
              territories of the United States (sec. 105 of the 
              bill and new sec. 7529 of the Code)................    15
 II. ................................................................00
TITLE II--CHILD TAX CREDIT.......................................    17
          1. Child tax credit fully refundable for 2019 and 2020 
              (secs. 201 and 203 of the bill and sec. 24 of the 
              Code)..............................................    17
          2. Payments to territories relating to the child tax 
              credit (sec. 202 of the bill)......................    20
TITLE III--DEPENDENT CARE ASSISTANCE.............................    20
          1. Refundability and enhancement of child and dependent 
              care tax credit (sec. 301 of the bill and sec. 21 
              of the Code).......................................    20
          2. Increase in exclusion for employer-provided 
              dependent care assistance (sec. 302 of the bill and 
              sec. 129 of the Code)..............................    24
TITLE IV--CERTAIN FRINGE BENEFIT EXPENSES........................    25
          1. Repeal of inclusion of certain fringe benefit 
              expenses in unrelated business taxable income (sec. 
              401 of the bill and sec. 512(a)(7) of the Code)....    25
III. VOTES OF THE COMMITTEE..........................................27
 IV. BUDGET EFFECTS OF THE BILL......................................31
          A. Committee Estimate of Budgetary Effects.............    31
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    34
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    34
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......38
          A. Committee Oversight Findings and Recommendations....    38
          B. Statement of General Performance Goals and 
              Objectives.........................................    38
          C. Information Relating to Unfunded Mandates...........    38
          D. Applicability of House Rule XXI, Clause 5(b)........    38
          E. Tax Complexity Analysis.............................    39
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    39
          G. Duplication of Federal Programs.....................    40
          H. Hearings............................................    40
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL........................40
VII. DISSENTING VIEWS................................................79

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Economic Mobility 
Act of 2019''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

                   TITLE I--EARNED INCOME TAX CREDIT

Sec. 101. Strengthening the earned income tax credit for individuals 
with no qualifying children.
Sec. 102. Taxpayer eligible for childless earned income credit in case 
of qualifying children who fail to meet certain identification 
requirements.
Sec. 103. Credit allowed in case of certain separated spouses.
Sec. 104. Elimination of disqualified investment income test.
Sec. 105. Application of earned income tax credit in possessions of the 
United States.

                       TITLE II--CHILD TAX CREDIT

Sec. 201. Child tax credit fully refundable for 2019 and 2020.
Sec. 202. Payments to possessions.

                  TITLE III--DEPENDENT CARE ASSISTANCE

Sec. 301. Refundability and enhancement of child and dependent care tax 
credit.
Sec. 302. Increase in exclusion for employer-provided dependent care 
assistance.

               TITLE IV--CERTAIN FRINGE BENEFIT EXPENSES

Sec. 401. Repeal of inclusion of certain fringe benefit expenses in 
unrelated business taxable income.

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

                   TITLE I--EARNED INCOME TAX CREDIT

SEC. 101. STRENGTHENING THE EARNED INCOME TAX CREDIT FOR INDIVIDUALS 
                    WITH NO QUALIFYING CHILDREN.

  (a) Special Rules for 2019 and 2020.--Section 32 is amended by adding 
at the end the following new subsection:
  ``(n) Special Rules for Individuals Without Qualifying Children.--In 
the case of any taxable year beginning in 2019 or 2020--
          ``(1) Credit allowed for certain individuals over age 18.--
                  ``(A) In general.--Except in the case of a full-time 
                student (or, in the case of a married individual, 
                except if both the individual and the individual's 
                spouse are full-time students), subsection 
                (c)(1)(A)(ii)(II) shall be applied by substituting `age 
                19' for `age 25'.
                  ``(B) Full-time student.--For purposes of this 
                paragraph, the term `full-time student' means, with 
                respect to a taxable year, an individual who is an 
                eligible student (as defined in section 25A(b)(3)) 
                during at least 5 calendar months during the taxable 
                year.
          ``(2) Increase in maximum age for credit.--Subsection 
        (c)(1)(A)(ii)(II) shall be applied by substituting `age 66' for 
        `age 65'.
          ``(3) Increase in credit and phaseout percentages.--The table 
        contained in subsection (b)(1) shall be applied by substituting 
        `15.3' for `7.65' each place it appears therein.
          ``(4) Increase in earned income and phaseout amounts.--
                  ``(A) In general.--The table contained in subsection 
                (b)(2)(A) shall be applied--
                          ``(i) by substituting `$9,570' for `$4,220', 
                        and
                          ``(ii) by substituting `$11,310' for 
                        `$5,280'.
                  ``(B) Coordination with inflation adjustment.--
                          ``(i) In general.--In the case of any taxable 
                        year beginning after 2019, the $9,570 and 
                        $11,310 amounts in subparagraph (A) shall each 
                        be increased by an amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f)(3) for 
                                the calendar year in which the taxable 
                                year begins, determined by substituting 
                                `2018' for `2016' in subparagraph 
                                (A)(ii) thereof.
                          ``(ii) Rounding.--If any increase under 
                        clause (i) is not a multiple of $10, such 
                        increase shall be rounded to the nearest 
                        multiple of $10.
                          ``(iii) Coordination with other inflation 
                        adjustment.--Subsection (j) shall not apply to 
                        any dollar amount specified in this 
                        paragraph.''.
  (b) Information Return Matching.--As soon as practicable, the 
Secretary of the Treasury (or the Secretary's delegate) shall develop 
and implement procedures for checking an individual's claim for a 
credit under section 32 of the Internal Revenue Code of 1986, by reason 
of subsection (n)(1) thereof, against any information return made with 
respect to such individual under section 6050S (relating to returns 
relating to higher education tuition and related expenses).
  (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 102. TAXPAYER ELIGIBLE FOR CHILDLESS EARNED INCOME CREDIT IN CASE 
                    OF QUALIFYING CHILDREN WHO FAIL TO MEET CERTAIN 
                    IDENTIFICATION REQUIREMENTS.

  (a) In General.--Section 32(c)(1) is amended by striking subparagraph 
(F).
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 103. CREDIT ALLOWED IN CASE OF CERTAIN SEPARATED SPOUSES.

  (a) In General.--Section 32(d) is amended--
          (1) by striking ``Married Individuals.--In the case of'' and 
        inserting the following: ``Married Individuals.--
          ``(1) In general.--In the case of'', and
          (2) by adding at the end the following new paragraph:
          ``(2) Determination of marital status.--For purposes of this 
        section--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), marital status shall be determined under section 
                7703(a).
                  ``(B) Special rule for separated spouse.--An 
                individual shall not be treated as married if such 
                individual--
                          ``(i) is married (as determined under section 
                        7703(a)) and does not file a joint return for 
                        the taxable year,
                          ``(ii) lives with a qualifying child of the 
                        individual for more than one-half of such 
                        taxable year, and
                          ``(iii)(I) during the last 6 months of such 
                        taxable year, does not have the same principal 
                        place of abode as the individual's spouse, or
                          ``(II) has a decree, instrument, or agreement 
                        (other than a decree of divorce) described in 
                        section 121(d)(3)(C) with respect to the 
                        individual's spouse and is not a member of the 
                        same household with the individual's spouse by 
                        the end of the taxable year.''.
  (b) Conforming Amendments.--
          (1) Section 32(c)(1)(A) of such Code is amended by striking 
        the last sentence.
          (2) Section 32(c)(1)(E)(ii) of such Code is amended by 
        striking ``(within the meaning of section 7703)''.
          (3) Section 32(d)(1) of such Code, as amended by subsection 
        (a), is amended by striking ``(within the meaning of section 
        7703)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 104. ELIMINATION OF DISQUALIFIED INVESTMENT INCOME TEST.

  (a) In General.--Section 32 of the Internal Revenue Code of 1986 is 
amended by striking subsection (i).
  (b) Conforming Amendments.--
          (1) Section 32(j)(1) of such Code is amended by striking 
        ``subsections (b)(2) and (i)(1)'' and inserting ``subsection 
        (b)(2)''.
          (2) Section 32(j)(1)(B)(i) of such Code is amended by 
        striking ``subsections (b)(2)(A) and (i)(1)'' and inserting 
        ``subsection (b)(2)(A)''.
          (3) Section 32(j)(2) of such Code is amended--
                  (A) by striking subparagraph (B), and
                  (B) by striking ``Rounding.--'' and all that follows 
                through ``If any dollar amount'' and inserting the 
                following: ``Rounding.--If any dollar amount''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 105. APPLICATION OF EARNED INCOME TAX CREDIT IN POSSESSIONS OF THE 
                    UNITED STATES.

  (a) In General.--Chapter 77 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new section:

``SEC. 7529. APPLICATION OF EARNED INCOME TAX CREDIT TO POSSESSIONS OF 
                    THE UNITED STATES.

  ``(a) Puerto Rico.--
          ``(1) In general.--With respect to calendar year 2020 and 
        each calendar year thereafter, the Secretary shall, except as 
        otherwise provided in this subsection, make payments to Puerto 
        Rico equal to--
                  ``(A) the specified matching amount for such calendar 
                year, plus
                  ``(B) in the case of calendar years 2020 through 
                2024, the lesser of--
                          ``(i) the expenditures made by Puerto Rico 
                        during such calendar year for education efforts 
                        with respect to individual taxpayers and tax 
                        return preparers relating to the earned income 
                        tax credit, or
                          ``(ii) $1,000,000.
          ``(2) Requirement to reform earned income tax credit.--The 
        Secretary shall not make any payments under paragraph (1) with 
        respect to any calendar year unless Puerto Rico has in effect 
        an earned income tax credit for taxable years beginning in or 
        with such calendar year which (relative to the earned income 
        tax credit which was in effect for taxable years beginning in 
        or with calendar year 2019) increases the percentage of earned 
        income which is allowed as a credit for each group of 
        individuals with respect to which such percentage is separately 
        stated or determined in a manner designed to substantially 
        increase workforce participation.
          ``(3) Specified matching amount.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `specified matching 
                amount' means, with respect to any calendar year, the 
                lesser of--
                          ``(i) the excess (if any) of--
                                  ``(I) the cost to Puerto Rico of the 
                                earned income tax credit for taxable 
                                years beginning in or with such 
                                calendar year, over
                                  ``(II) the base amount for such 
                                calendar year, or
                          ``(ii) the product of 3, multiplied by the 
                        base amount for such calendar year.
                  ``(B) Base amount.--
                          ``(i) Base amount for 2020.--In the case of 
                        calendar year 2020, the term `base amount' 
                        means the greater of--
                                  ``(I) the cost to Puerto Rico of the 
                                earned income tax credit for taxable 
                                years beginning in or with calendar 
                                year 2019 (rounded to the nearest 
                                multiple of $1,000,000), or
                                  ``(II) $200,000,000.
                          ``(ii) Inflation adjustment.--In the case of 
                        any calendar year after 2020, the term `base 
                        amount' means the dollar amount determined 
                        under clause (i) increased by an amount equal 
                        to--
                                  ``(I) such dollar amount, multiplied 
                                by--
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f)(3) for 
                                such calendar year, determined by 
                                substituting `calendar year 2019' for 
                                `calendar year 2016' in subparagraph 
                                (A)(ii) thereof.
                        Any amount determined under this clause shall 
                        be rounded to the nearest multiple of 
                        $1,000,000.
          ``(4) Rules related to payments and reports.--
                  ``(A) Timing of payments.--The Secretary shall make 
                payments under paragraph (1) for any calendar year--
                          ``(i) after receipt of the report described 
                        in subparagraph (B) for such calendar year, and
                          ``(ii) except as provided in clause (i), 
                        within a reasonable period of time before the 
                        due date for individual income tax returns (as 
                        determined under the laws of Puerto Rico) for 
                        taxable years which began on the first day of 
                        such calendar year.
                  ``(B) Annual reports.--With respect to calendar year 
                2020 and each calendar year thereafter, Puerto Rico 
                shall provide to the Secretary a report which shall 
                include--
                          ``(i) an estimate of the costs described in 
                        paragraphs (1)(B)(i) and (3)(A)(i)(I) with 
                        respect to such calendar year, and
                          ``(ii) a statement of such costs with respect 
                        to the preceding calendar year.
                  ``(C) Adjustments.--
                          ``(i) In general.--In the event that any 
                        estimate of an amount is more or less than the 
                        actual amount as later determined and any 
                        payment under paragraph (1) was determined on 
                        the basis of such estimate, proper payment 
                        shall be made by, or to, the Secretary (as the 
                        case may be) as soon as practicable after the 
                        determination that such estimate was 
                        inaccurate. Proper adjustment shall be made in 
                        the amount of any subsequent payments made 
                        under paragraph (1) to the extent that proper 
                        payment is not made under the preceding 
                        sentence before such subsequent payments.
                          ``(ii) Additional reports.--The Secretary may 
                        require such additional periodic reports of the 
                        information described in subparagraph (B) as 
                        the Secretary determines appropriate to 
                        facilitate timely adjustments under clause (i).
                  ``(D) Determination of cost of earned income tax 
                credit.--For purposes of this subsection, the cost to 
                Puerto Rico of the earned income tax credit shall be 
                determined by the Secretary on the basis of the laws of 
                Puerto Rico and shall include reductions in revenues 
                received by Puerto Rico by reason of such credit and 
                refunds attributable to such credit, but shall not 
                include any administrative costs with respect to such 
                credit.
                  ``(E) Prevention of manipulation of base amount.--No 
                payments shall be made under paragraph (1) if the 
                earned income tax credit as in effect in Puerto Rico 
                for taxable years beginning in or with calendar year 
                2019 is modified after the date of the enactment of 
                this subsection.
  ``(b) Possessions With Mirror Code Tax Systems.--
          ``(1) In general.--With respect to calendar year 2020 and 
        each calendar year thereafter, the Secretary shall, except as 
        otherwise provided in this subsection, make payments to the 
        Virgin Islands, Guam, and the Commonwealth of the Northern 
        Mariana Islands equal to--
                  ``(A) 75 percent of the cost to such possession of 
                the earned income tax credit for taxable years 
                beginning in or with such calendar year, plus
                  ``(B) in the case of calendar years 2020 through 
                2024, the lesser of--
                          ``(i) the expenditures made by such 
                        possession during such calendar year for 
                        education efforts with respect to individual 
                        taxpayers and tax return preparers relating to 
                        such earned income tax credit, or
                          ``(ii) $50,000.
          ``(2) Application of certain rules.--Rules similar to the 
        rules of subparagraphs (A), (B), (C), and (D) of subsection 
        (a)(4) shall apply for purposes of this subsection.
  ``(c) American Samoa.--
          ``(1) In general.--With respect to calendar year 2020 and 
        each calendar year thereafter, the Secretary shall, except as 
        otherwise provided in this subsection, make payments to 
        American Samoa equal to--
                  ``(A) the lesser of--
                          ``(i) 75 percent of the cost to American 
                        Samoa of the earned income tax credit for 
                        taxable years beginning in or with such 
                        calendar year, or
                          ``(ii) $12,000,000, plus
                  ``(B) in the case of calendar years 2020 through 
                2024, the lesser of--
                          ``(i) the expenditures made by American Samoa 
                        during such calendar year for education efforts 
                        with respect to individual taxpayers and tax 
                        return preparers relating to such earned income 
                        tax credit, or
                          ``(ii) $50,000.
          ``(2) Requirement to enact and maintain an earned income tax 
        credit.--The Secretary shall not make any payments under 
        paragraph (1) with respect to any calendar year unless American 
        Samoa has in effect an earned income tax credit for taxable 
        years beginning in or with such calendar year which allows a 
        refundable tax credit to individuals on the basis of the 
        taxpayer's earned income which is designed to substantially 
        increase workforce participation.
          ``(3) Inflation adjustment.--In the case of any calendar year 
        after 2020, the $12,000,000 amount in paragraph (1)(A)(ii) 
        shall be increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by--
                  ``(B) the cost-of-living adjustment determined under 
                section 1(f)(3) for such calendar year, determined by 
                substituting `calendar year 2019' for `calendar year 
                2016' in subparagraph (A)(ii) thereof.
        Any increase determined under this clause shall be rounded to 
        the nearest multiple of $100,000.
          ``(4) Application of certain rules.--Rules similar to the 
        rules of subparagraphs (A), (B), (C), and (D) of subsection 
        (a)(4) shall apply for purposes of this subsection.
  ``(d) Treatment of Payments.--For purposes of section 1324 of title 
31, United States Code, the payments under this section shall be 
treated in the same manner as a refund due from a credit provision 
referred to in subsection (b)(2) of such section.''.
  (b) Clerical Amendment.--The table of sections for chapter 77 of such 
Code is amended by adding at the end the following new item:

``Sec. 7529. Application of earned income tax credit to possessions of 
the United States.''.

                       TITLE II--CHILD TAX CREDIT

SEC. 201. CHILD TAX CREDIT FULLY REFUNDABLE FOR 2019 AND 2020.

  (a) In General.--Section 24(h) is amended by adding at the end the 
following new paragraph:
          ``(8) Credit fully refundable for 2019 and 2020.--In the case 
        of an individual other than a nonresident alien, for any 
        taxable year beginning in 2019 or 2020--
                  ``(A) paragraph (5) of this subsection shall not 
                apply, and
                  ``(B) the increase determined under the first 
                sentence of subsection (d)(1) shall be the amount 
                determined under subparagraph (A) of such subsection 
                (determined without regard to paragraph (4) of this 
                subsection).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 202. PAYMENTS TO POSSESSIONS.

  (a) Mirror Code Possession.--The Secretary of the Treasury shall pay 
to each possession of the United States with a mirror code tax system 
amounts equal to the loss to that possession by reason of the 
application of section 24 of the Internal Revenue Code of 1986 with 
respect to taxable years beginning after 2018. Such amounts shall be 
determined by the Secretary of the Treasury based on information 
provided by the government of the respective possession.
  (b) Other Possessions.--The Secretary of the Treasury shall pay to 
each possession of the United States which does not have a mirror code 
tax system amounts estimated by the Secretary of the Treasury as being 
equal to the aggregate benefits that would have been provided to 
residents of such possession by reason of the application of section 24 
of such Code for taxable years beginning after 2018 if the provisions 
of such section had been in effect in such possession. The preceding 
sentence shall not apply with respect to any possession of the United 
States unless such possession has a plan, which has been approved by 
the Secretary of the Treasury, under which such possession will 
promptly distribute such payments to the residents of such possession 
in a manner which replicates to the greatest degree practicable the 
benefits that would have been so provided to each such resident.
  (c) Coordination With Credit Allowed Against United States Income 
Taxes.--
          (1) In general.--No credit shall be allowed against United 
        States income taxes for any taxable year under section 24 of 
        the Internal Revenue Code of 1986 to any person--
                  (A) to whom a credit is allowed against taxes imposed 
                by a possession with a mirror code tax system by reason 
                of the application of section 24 of such Code in such 
                possession for such taxable year, or
                  (B) who is eligible for a payment under a plan 
                described in subsection (b) with respect to such 
                taxable year.
          (2) Restriction on refundable credit.--In the case of any 
        person to whom a credit would be allowed against taxes imposed 
        by a possession which does not have a mirror code tax system if 
        the provisions of such section 24 had been in effect in such 
        possession for the taxable year (and who is not described in 
        paragraph (1)(B)), section 24(h)(8) of such Code (as added by 
        this Act) shall not apply to such person for such taxable year.
  (d) Definitions and Special Rules.--
          (1) Possession of the united states.--For purposes of this 
        section, the term ``possession of the United States'' includes 
        the Commonwealth of Puerto Rico and the Commonwealth of the 
        Northern Mariana Islands.
          (2) Mirror code tax system.--For purposes of this section, 
        the term ``mirror code tax system'' means, with respect to any 
        possession of the United States, the income tax system of such 
        possession if the income tax liability of the residents of such 
        possession under such system is determined by reference to the 
        income tax laws of the United States as if such possession were 
        the United States.
          (3) Treatment of payments.--For purposes of section 
        1324(b)(2) of title 31, United States Code, the payments under 
        this section shall be treated in the same manner as a refund 
        due from the credit allowed under section 24 of the Internal 
        Revenue Code of 1986.

SEC. 203. INCREASED CHILD TAX CREDIT FOR CHILDREN WHO HAVE NOT ATTAINED 
                    AGE 4.

  (a) In General.--Section 24(h)(2) is amended to read to as follows:
          ``(2) Credit amount.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), subsection (a) shall be applied by substituting 
                `$2,000' for `$1,000'.
                  ``(B) Taxable years beginning in 2019 and 2020.--In 
                the case of any taxable year beginning in 2019 or 2020, 
                subsection (a) shall be applied by substituting `$2,000 
                ($3,000 in the case of a qualifying child who has not 
                attained age 4 as of the close of the calendar year in 
                which the taxable year of the taxpayer begins)' for 
                `$1,000'.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2018.

                  TITLE III--DEPENDENT CARE ASSISTANCE

SEC. 301. REFUNDABILITY AND ENHANCEMENT OF CHILD AND DEPENDENT CARE TAX 
                    CREDIT.

  (a) In General.--Section 21 is amended by adding at the end the 
following new subsection:
  ``(g) Special Rules for 2019 and 2020.--In the case of any taxable 
year beginning in 2019 or 2020--
          ``(1) Credit made refundable.--In the case of an individual 
        other than a nonresident alien, the credit allowed under 
        subsection (a) shall be treated as a credit allowed under 
        subpart C (and not allowed under this subpart).
          ``(2) Increase in applicable percentage.--Subsection (a)(2) 
        shall be applied--
                  ``(A) by substituting `50 percent' for `35 percent ', 
                and
                  ``(B) by substituting `$120,000' for `$15,000'.
          ``(3) Increase in dollar limit on amount creditable.--
        Subsection (c) shall be applied--
                  ``(A) by substituting `$6,000' for `$3,000' in 
                paragraph (1) thereof, and
                  ``(B) by substituting `twice the amount in effect 
                under paragraph (1)' for `$6,000' in paragraph (2) 
                thereof.
          ``(4) Inflation adjustment of dollar amounts.--In the case of 
        any taxable year beginning after 2019, the $120,000 amount in 
        paragraph (2)(B) and the $6,000 amount in paragraph (3)(A) 
        shall each be increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment determined under 
                section 1(f)(3) for the calendar year in which the 
                taxable year begins, determined by substituting `2018' 
                for `2016' in subparagraph (A)(ii) thereof.
        If any increase determined under this paragraph is not a 
        multiple of $100, such increase shall be rounded to the next 
        lowest multiple of $100.
          ``(5) Income limitation.--
                  ``(A) In general.--Paragraphs (1) through (4) of this 
                subsection shall not apply to any taxpayer for any 
                taxable year if the modified adjusted gross income of 
                such taxpayer for such taxable year exceeds $1,000,000.
                  ``(B) Modified adjusted gross income.--For purposes 
                of this paragraph, the term `modified adjusted gross 
                income' means adjusted gross income determined without 
                regard to sections 911, 931, and 933.''.
  (b) Conforming Amendment.--Section 1324(b)(2) of title 31, United 
States Code, is amended by inserting ``21 (by reason of subsection (g) 
thereof),'' before ``25A''.
  (c) Coordination With Possession Tax Systems.--Section 21(g)(1) of 
the Internal Revenue Code of 1986 (as added by this section) shall not 
apply to any person--
          (1) to whom a credit is allowed against taxes imposed by a 
        possession with a mirror code tax system by reason of the 
        application of section 21 of such Code in such possession for 
        such taxable year, or
          (2) to whom a credit would be allowed against taxes imposed 
        by a possession which does not have a mirror code tax system if 
        the provisions of section 21 of such Code had been in effect in 
        such possession for such taxable year.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 302. INCREASE IN EXCLUSION FOR EMPLOYER-PROVIDED DEPENDENT CARE 
                    ASSISTANCE.

  (a) In General.--Section 129(a)(2) is amended by adding at the end 
the following new subparagraph:
                  ``(D) Special rule for 2020 and 2021.--In the case of 
                any taxable year beginning in 2020 or 2021--
                          ``(i) In general.--Subparagraph (A) shall be 
                        applied be substituting `$10,500 (half such 
                        dollar amount' for `$5,000 ($2,500'.
                          ``(ii) Inflation adjustment.--In the case of 
                        any taxable year beginning after 2020, the 
                        $10,500 amount in clause (i) shall be increased 
                        by an amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f)(3) for 
                                the calendar year in which the taxable 
                                year begins, determined by substituting 
                                `2019' for `2016' in subparagraph 
                                (A)(ii) thereof.
                        Any increase determined under the preceding 
                        sentence which is not a multiple of $50, shall 
                        be rounded to the nearest multiple of $50.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2019.

               TITLE IV--CERTAIN FRINGE BENEFIT EXPENSES

SEC. 401. REPEAL OF INCLUSION OF CERTAIN FRINGE BENEFIT EXPENSES IN 
                    UNRELATED BUSINESS TAXABLE INCOME.

  (a) In General.--Section 512(a) is amended by striking paragraph (7).
  (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendments made by section 13703 of Public 
Law 115-97.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3300, the ``Economic Mobility Act of 2019'' 
as amended and ordered reported by the Committee on Ways and 
Means on June 20 2019, (1) increases and makes other 
modifications to the earned income tax credit, (2) modifies the 
rules relating to the additional child tax credit, and 
increases the child tax credit for families with young 
children, (3) increases the value of the child and dependent 
care credit, makes that credit refundable, and increases the 
maximum exclusion amount for employer-provided dependent care 
assistance; and (4) repeals the requirement that unrelated 
business taxable income of tax-exempt organizations be 
increased by certain fringe benefits.

                 B. Background and Need for Legislation

    This legislation represents the first time in a decade that 
the Committee on Ways & Means has considered major improvements 
to anti-poverty tax programs. The Earned Income Tax Credit 
(EITC) and Child and Dependent Care Tax Credit (CDCTC)--two 
provisions that help working and middle-class taxpayers and 
their children--were not revised in the 2017 tax law, P.L. 115-
97. The Child Tax Credit (CTC) was revised in P.L. 115-97, but 
not meaningfully targeted at families that are struggling the 
most.
    To correct this lack of relief for families and 
individuals, the legislation contains two-year expansions to 
the EITC, CTC, and CDCTC. These expansions are based on several 
bills that have been introduced in this and past Congresses by 
Members of the Committee and other Members of Congress. For 
example, the legislation draws from the Earned Income Tax 
Credit Improvement and Simplification Act (H.R. 822, 115th 
Congress), the Tax Equity and Prosperity for Puerto Rican 
Families Act (H.R. 2649), the American Family Act (H.R. 1560), 
the Child and Dependent Care Tax Credit Enhancement Act (H.R. 
1967), the Working Families Relief Act (H.R. 2879), the PACE 
Act (H.R. 1696), and the Stop the Tax Hike on Charities and 
Places of Worship Act (H.R.1223). Preliminary Committee 
estimates indicate that the EITC expansion alone could double 
the number of workers eligible for the credit and increase the 
average amount each worker receives by several times.
    In addition, this legislation was considered and favorably 
reported by the Committee along with three other bills, 
including H.R. 3301, the Taxpayer Certainty and Disaster Relief 
Act of 2019 (the Taxpayer Certainty Act). The Taxpayer 
Certainty Act extends through 2020 34 provisions that expired 
at the end of 2017, expired at the end of 2018, or will expire 
at the end of 2019.
    Many of the provisions in the Taxpayer Certainty Act are 
related to businesses. The two-year expansions to the EITC, 
CTC, and CDCTC are meant to create balance by providing 
benefits to working and middle-class individuals and families. 
In the Committee's view, the extension of the provisions in the 
Taxpayer Certainty Act are linked to the two-year expansions in 
this legislation.
    Finally, the legislation repeals P.L. 115-97's imposition 
of unrelated business income tax for certain qualified 
transportation fringe benefits of tax-exempt organizations (the 
so-called ``church parking tax''). After gathering input from 
Members of Congress, affected organizations, and other 
stakeholders, the Committee decided to eliminate this 
particularly onerous and unfair policy decision made in P.L. 
115-97.

                         C. Legislative History


Background

    H.R. 3300, the ``Economic Mobility Act of 2019,'' was 
introduced on June 18, 2019, and was referred to the Committee 
on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 3300 on June 
20, 2019, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The Committee held a hearing on the 2017 Tax Law and Who It 
Left Behind on March 27, 2019. The witnesses for this hearing 
were Professor Nancy Abramowitz from American University, Dr. 
Elise Gould from the Economic Policy Institute, Dr. Douglas 
Holtz-Eakin from the American Action Forum, Professor Jason Oh 
of the University of California, Los Angeles, and Mr. 
Christopher Shelton of the Communication Workers of America.

                      II. EXPLANATION OF THE BILL


                   TITLE I--EARNED INCOME TAX CREDIT


 1. Strengthening the Earned Income Tax Credit for Individuals With No 
Qualifying Children, and Certain Other Changes to the Earned Income Tax 
       Credit (secs. 101-104 of the bill and sec. 32 of the Code)


                              PRESENT LAW

Overview

    Low- and moderate-income workers may be eligible for the 
refundable earned income tax credit (``EITC''). The amount of 
the EITC is based on the presence and number of qualifying 
children in the worker's family, filing status, adjusted gross 
income (``AGI''), earned income, and investment income.
    The EITC generally equals a specified percentage of earned 
income up to a maximum dollar amount. The maximum amount 
applies over a certain income range and then diminishes to zero 
over a specified phaseout range. For taxpayers with earned 
income (or AGI, if greater) in excess of the beginning of the 
phaseout range, the maximum EITC amount is reduced by the 
phaseout rate multiplied by the amount of earned income (or 
AGI, if greater) in excess of the beginning of the phaseout 
range. For taxpayers with earned income (or AGI, if greater) in 
excess of the end of the phaseout range, no credit is allowed. 
The specified percentage, maximum dollar amount, and phaseout 
rate and range vary with filing status and number of children. 
Four separate credit percentage schedules apply: one for 
taxpayers with no qualifying children, one for taxpayers with 
one qualifying child, one for taxpayers with two qualifying 
children, and one for taxpayers with three or more qualifying 
children.\1\
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    \1\All income thresholds are indexed for inflation annually.
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    An individual is not eligible for the EITC if the aggregate 
amount of certain investment income, known as disqualified 
income, of the taxpayer for the taxable year exceeds $3,600 
(for 2019). This threshold is indexed for inflation. 
Disqualified income is the sum of (1) interest (both taxable 
and tax exempt), (2) dividends, (3) net rent and royalty income 
(if greater than zero), (4) capital gains net income, and (5) 
net passive income that is not self-employment income (if 
greater than zero).
    The EITC may be claimed by a taxpayer if the taxpayer is a 
U.S. citizen or a resident alien. Individuals who are 
nonresident aliens for any portion of the taxable year are not 
eligible to claim the EITC unless an election under section 
6013(g) or (h) (relating to individuals who are married to an 
individual who is either a citizen or resident of the United 
States at year end) is in effect for the taxable year. In 
addition, individuals who claim the benefits of section 911 
(relating to the income exclusion election available to U.S. 
citizens or resident aliens living abroad) are not eligible to 
claim the EITC.
    To claim the EITC, the taxpayer must include the taxpayer's 
valid Social Security number (``SSN'') and valid SSN for the 
qualifying child (and, if married, the spouse's SSN) on his or 
her tax return. For these purposes, a valid SSN is an SSN 
issued to an individual, other than an SSN issued to an 
individual solely for the purpose of applying for or receiving 
Federally funded benefits, on or before the due date for filing 
the return for the taxable year.\2\ The EITC is a refundable 
credit, meaning that if the amount of the credit (together with 
other refundable credits) exceeds the taxpayer's Federal income 
tax liability (reduced by nonrefundable credits), the excess is 
treated as an overpayment of tax payable to the taxpayer.\3\
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    \2\Sec. 205(c)(2)(B)(i)(II) (and that portion of sec. 
205(c)(2)(B)(i)(III) relating to it) of the Social Security Act.
    \3\Sec. 6401(b)(1).
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Filing status

    An unmarried individual may claim the EITC if he or she 
files as a single filer or as a head of household. Married 
individuals generally may not claim the EITC unless they file 
jointly. An exception to the joint return filing requirement 
applies to certain spouses who are separated. Under this 
exception, a married taxpayer who is separated from his or her 
spouse for the last six months of the taxable year is not 
considered to be married (and, accordingly, may file a return 
as head of household and claim the EITC), provided that the 
taxpayer maintains a household that constitutes the principal 
place of abode for a dependent child (including a son, stepson, 
daughter, stepdaughter, adopted child, or a foster child) for 
over half the taxable year, and pays over half the cost of 
maintaining the household in which he or she resides with the 
child during the year.

Qualifying child

    In order for an individual to be a qualifying child for 
purposes of the EITC, that individual must meet the 
relationship, age, and residency tests. In addition to meeting 
all three of these tests, the individual who is being claimed 
as a qualifying child may not file a joint return for the 
taxable year.
    The relationship test requires that the individual is the 
taxpayer's son, daughter, adopted child, stepchild, foster 
child, or a descendant of any of them (e.g., the taxpayer's 
grandchild). Additionally, the child can be the taxpayer's 
brother, sister, half-brother, half-sister, stepbrother, 
stepsister, or a descendant of any of them (e.g., the 
taxpayer's niece or nephew).
    The age test requires that the individual must be either 
(1) under the age of 19 at the end of the calendar year, (2) 
under the age of 24 at the end of the calendar year and a full-
time student,\4\ or (3) permanently and totally disabled at any 
time during the calendar year, regardless of age.\5\ The 
residency test requires that the individual has the same 
principal place of abode as the taxpayer for more than half of 
the calendar year and such place must be in the United States. 
Special rules apply in the case of divorced or separated 
parents.
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    \4\To qualify as a student, the individual must be, during some 
part of each of any five calendar months during the calendar year: (1) 
a full-time student at a school that has a regular teaching staff, 
course of study, and regular student body at the school, or (2) a 
student taking a full-time, on-farm training course given by a school 
described in (1), or a state, county, or local government.
    \5\An individual is permanently and totally disabled if he or she 
cannot engage in any substantial gainful activity because of a physical 
or mental condition and a doctor determines the condition has lasted or 
can be expected to last continuously for at least a year or can lead to 
death.
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    If more than one taxpayer lives with a qualifying child, 
and the taxpayers file separate returns, only one of these 
taxpayer may claim the qualifying child for purposes of the 
EITC. Special rules, known as the tiebreaker rules, prescribe 
which taxpayer may claim that qualifying child for purposes of 
the EITC.\6\ The IRS previously took the position that if more 
than one individual would be eligible to claim a qualifying 
child but for the fact that another individual claimed the 
qualifying child on their return (either because of a decision 
made among the taxpayers or by operation of law), then that 
individual may not claim an EITC for the taxable year, unless 
the taxpayer claims the EITC with respect to another qualifying 
child. The IRS changed this position in proposed regulations, 
which taxpayers could choose to apply upon publication of the 
proposed regulations.\7\ These proposed regulations provide 
that if an individual meets the definition of a qualifying 
child for more than one taxpayer and the individual is not 
treated as the qualifying child of a taxpayer under the 
tiebreaker rules, then that taxpayer may claim the EITC for 
taxpayers without a qualifying child provided that the taxpayer 
meets the other requirements to claim that credit.
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    \6\Sec. 152(c)(4).
    \7\Prop. Treas. reg. sec. 1.32-2(c)(3)(ii). 82 Fed. Reg. 6370 (Jan. 
19, 2017).
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EITC for taxpayers with no qualifying children

    Taxpayers with no qualifying children may claim a credit if 
they are age 25 or older and below age 65, have a principal 
place of abode in the United States for more than half the 
year, and cannot be claimed as dependent on anyone else's 
return. For 2019, the credit is 7.65 percent of earned income 
up to $6,920, resulting in a maximum credit of $529. The 
maximum credit is available for those with earned income 
between $6,920 and $8,650 ($14,450 if married filing jointly). 
The credit begins to phase out at a rate of 7.65 percent of 
earned income (or AGI, if greater) above $8,650 ($14,450 if 
married filing jointly) resulting in a $0 credit at $15,570 of 
earned income ($21,370 if married filing jointly).
    Any eligible taxpayer with at least one qualifying child 
who does not claim the EITC with respect to qualifying children 
due to failure to meet certain identification requirements with 
respect to such children (i.e., providing the name, age, and 
SSN of each of such children) may not claim the EITC for 
taxpayers without qualifying children.

                           REASONS FOR CHANGE

    The EITC is intended to provide tax relief to low and 
moderate income workers, to combat poverty, and to improve 
incentives to work. In addition, the EITC is an effective means 
by which the overall progressivity of the tax system can be 
promoted. The Committee believes that expanding access to the 
EITC to more workers and increasing the amount of the credit 
for taxpayers with no qualifying children will further these 
goals.
    For taxpayers with no qualifying children, the Committee 
believes expanding the credit to include younger and older 
workers would allow the credit to better reflect the modern 
workforce. Workers without children are the only taxpayers that 
are taxed into poverty from the combination of Federal income 
and payroll taxes. Therefore, the Committee believes the amount 
of the credit should be substantially increased in order to 
provide meaningful relief and achieve the goal of encouraging 
work. This change would be the largest expansion of the EITC in 
a decade, and the first expansion for workers without children 
in 25 years aside from inflation adjustments.
    The Committee also believes that the more modest EITC for 
no qualifying children should be available to taxpayers who 
meet the applicable criteria but are unable to claim the more 
generous EITC for taxpayers with qualifying children because 
they fail to meet the identification requirements for 
qualifying children. Finally, the Committee believes that 
separated individuals and individuals with investment income 
should be eligible for the EITC.

                        EXPLANATION OF PROVISION

Temporary expansion of EITC for taxpayers with no qualifying children

    In general, for two years, the provision expands 
eligibility for, and the amount of credit for, taxpayers with 
no qualifying children.
    For any taxable year beginning in 2019 or 2020, in the case 
of the credit for a taxpayer with no qualifying children, the 
minimum age is reduced from age 25 to age 19. Under the 
provision, the age reduction does not apply to an individual 
who is a full-time student (or, in the case of a married 
individual, if both the individual and the individual's spouse 
are full-time students). A full-time student means, with 
respect to a taxable year, an individual who is an eligible 
student during at least five calendar months during the taxable 
year. An eligible student is defined in section 25A(b)(3) 
(relating to the American Opportunity and Lifetime Learning 
credits) as a student who, with respect to any academic period, 
meets the requirements of section 484(a)(1) of the Higher 
Education Act of 1965\8\ and is carrying at least half the 
normal full-time work load for the course of study the student 
is pursuing.
---------------------------------------------------------------------------
    \8\20 U.S.C. ch. 28 Sec. 1001 et seq.
---------------------------------------------------------------------------
    For any taxable year beginning in 2019 or 2020, the 
provision also increases the upper age limit for the credit for 
taxpayers with no qualifying children from age 65 to age 66.
    Finally, for any taxable year beginning in 2019 or 2020, 
the provision increases the amount of the credit for taxpayers 
with no qualifying children. The provision increases the credit 
percentage and phaseout percentage from 7.65 percent to 15.3 
percent. In addition, the earned income amount is increased to 
$9,570, and the phaseout amount is increased to $11,310. The 
maximum amount of the credit is $1,464. These increased amounts 
are adjusted for inflation after 2019.
    The provision requires the Secretary to develop and 
implement procedures, as soon as practicable, for checking an 
individual's claim for the EITC under the provision for 
individuals without qualifying children ages 19 to 24 against 
any information returns made with respect to such individual 
under section 6050S (returns relating to higher education 
tuition and related expenses).

Permanent expansions of EITC eligibility

    The provision repeals the rule that an eligible taxpayer 
with at least one qualifying child who does not claim the EITC 
with respect to qualifying children due to failure to meet the 
identification requirements, including the valid SSN 
requirement, with respect to such child or children may not 
claim the EITC for taxpayers without qualifying children.\9\ 
Accordingly, such a taxpayer may claim the EITC for a taxpayer 
without qualifying children under the provision.
---------------------------------------------------------------------------
    \9\Sec. 32(c)(1)(F).
---------------------------------------------------------------------------
    Under the provision, an otherwise married individual 
separated from the individual's spouse is treated as not 
married for purposes of the EITC if a joint return is not 
filed. Thus, the EITC may be claimed by the taxpayer on a 
separate return. The provision applies only if the taxpayer 
lives with a qualifying child of the taxpayer for more than 
one-half of the taxable year and either (1) does not have the 
same principal place of abode as the individual's spouse during 
the last six months of the taxable year or (2) has a decree, 
instrument, or agreement (other than a decree of divorce) with 
respect to the individual's spouse and is not a member of the 
same household with the individual's spouse by the end of the 
taxable year.
    The provision eliminates the denial of the credit to 
individuals with disqualified investment income. Thus, the 
eligibility of individuals to claim the EITC is determined 
without regard to the amount of their disqualified investment 
income.

                             EFFECTIVE DATE

    The provision to temporarily expand the EITC for taxpayers 
with no qualifying children applies to taxable years beginning 
after December 31, 2018.
    The provisions to permanently expand EITC eligibility apply 
to taxable years beginning after the date of enactment.

2. Application of Earned Income Tax Credit in Territories of the United 
      States (sec. 105 of the bill and new sec. 7529 of the Code)


                              PRESENT LAW

    Citizens of the United States are generally subject to 
Federal income tax on their worldwide income, including those 
citizens in the U.S. territories. Residents of the U.S. 
territories are generally subject to the Federal income tax 
system based on their status as U.S. citizens or residence in 
the territories, with certain special rules for determining 
residence and source of income specific to the territory. 
Broadly, a bona fide individual resident of a territory is 
exempt from U.S. tax on income derived from sources within that 
territory but is subject to U.S. tax on U.S.-source and non-
territory-source income.\10\
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    \10\See secs. 932, 933, and 937.
---------------------------------------------------------------------------
    The application of the Federal tax rules to the territories 
vary 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. 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 or Puerto Rico may be 
required to file income tax returns with both their territory 
of residence and the United States.
    The three mirror Code territories have, under their mirror 
Code, an earned income tax credit identical to that in the U.S. 
Code.\11\ Puerto Rico has an earned income tax credit 
(``EITC'') under its internal tax laws. American Samoa does not 
have an EITC under its internal tax laws. Each territory that 
has an EITC credit bears the cost of the credit.
---------------------------------------------------------------------------
    \11\For a full discussion of present law and an explanation of the 
provisions regarding the EITC with respect to the United States, see 
the discussion regarding secs. 101-104 of the bill.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The EITC is intended to provide tax relief to low-and 
moderate-income workers to combat poverty and to improve 
incentives to work. The Committee wishes to encourage Puerto 
Rico to expand its EITC in order to further these goals, and 
wishes to encourage American Samoa to enact an EITC in order to 
further these goals. The Committee recognizes the importance of 
providing funding to all of the territories, the citizens of 
which are U.S. citizens or nationals, in order to help fund 
their EITC programs. The Committee believes that provisions 
proven to reduce poverty are especially timely due to the 
impact of recent natural disasters on Puerto Rico and other 
territories.

                        EXPLANATION OF PROVISION

    Under the provision, the Secretary makes payments to 
certain territories that relate to the cost of each of the 
territory's EITC.
    With respect to Puerto Rico, if Puerto Rico enacts changes 
to its EITC which increase the percentage of earned income 
allowed as a credit in a manner designed to substantially 
increase workforce participation, the Secretary makes payments 
to Puerto Rico each calendar year, starting in 2020, of a 
specified matching amount. The specified matching amount for a 
calendar year is the lesser of (1) the cost to Puerto Rico of 
the EITC for taxable years beginning in or with such calendar 
year over the base amount of such calendar year or (2) three 
times the base amount for such calendar year. The base amount 
is the greater of (1) the cost to Puerto Rico of the EITC for 
taxable years beginning in or with calendar year 2019 (rounded 
to the nearest multiple of $1 million) or (2) $200 million; the 
base amount is indexed to inflation for calendar years after 
2020. For example, if Puerto Rico spends $210 million on the 
EITC in 2019 and projects spending $850 million on the EITC in 
2020 (through an appropriate increase in the percentage of 
earned income allowed as a credit), the base amount is $210 
million (the greater of $210 million and $200 million) and the 
specified matching amount is $630 million (the lesser of (i) 
$850 million - $210 million = $640 million and (ii) 3  
$210 million = $630 million). For calendar years 2020 through 
2024, the Secretary also makes a payment to Puerto Rico of the 
lesser of (1) Puerto Rico's expenditures for education efforts 
with respect to taxpayers and tax return preparers regarding 
the EITC or (2) $1 million.
    Under the provision, the Secretary determines the cost of 
the EITC for Puerto Rico based on the laws of Puerto Rico, but 
such cost does not include administrative costs with respect to 
such credit. Puerto Rico must provide annual reports to the 
Secretary that include an estimate of costs and a statement of 
costs with respect to the preceding year. The Secretary then 
makes the payments described above to Puerto Rico after receipt 
of such annual reports and within a reasonable period of time 
before the individual income tax filing date in Puerto Rico. 
Adjustments to such payments are made as soon as practicable 
after the determination that an estimate was inaccurate.
    The Secretary will not make any payments if the EITC as in 
effect in Puerto Rico for taxable years beginning in or with 
calendar year 2019 is modified after the date of enactment of 
this provision. The intent of this rule is to prevent Puerto 
Rico from making changes to its EITC for the purpose of 
manipulating the base amount. For example, if, after enactment 
of this provision, Puerto Rico amended its EITC for taxable 
years beginning in or with calendar year 2019 such that the 
cost of the EITC for such taxable years is $300 million, Puerto 
Rico would not be eligible for payments under the provision.
    With respect to the Virgin Islands, Guam, and the 
Commonwealth of the Northern Mariana Islands, the Secretary 
will make payments to each mirror Code territory every calendar 
year, starting in 2020. These payments equal to 75 percent of 
the cost to such territory of its EITC each year for taxable 
years beginning in or with such calendar year. For calendar 
years 2020 through 2024, the Secretary also makes a payment of 
the lesser of (1) the territory's expenditures for education 
efforts with respect to taxpayers and tax return preparers 
regarding the EITC or (2) $50,000. The Secretary determines the 
cost of the credit and provide payments with respect to each 
territory under rules similar to the rules described above for 
Puerto Rico. The territories must provide annual reports to the 
Secretary that include an estimate of costs and a statement of 
costs with respect to the preceding year.
    With respect to American Samoa, the Secretary makes 
payments to American Samoa each calendar year that American 
Samoa has a refundable EITC designed to substantially increase 
workforce participation, starting in 2020. These payments equal 
the lesser of (1) 75 percent of the cost to American Samoa of 
such credit for taxable years beginning in or with such 
calendar year or (2) $12 million, indexed to inflation. For 
calendar years 2020 through 2024, the Secretary also makes a 
payment of the lesser of (1) the territory's expenditures for 
education efforts with respect to taxpayers and tax return 
preparers regarding the EITC or (2) $50,000. The Secretary 
determines the cost of the credit and provide payments with 
respect to American Samoa under rules similar to the rules 
described above for Puerto Rico. American Samoa must provide 
annual reports to the Secretary that include an estimate of 
costs and a statement of costs with respect to the preceding 
year.

                             EFFECTIVE DATE

    The provision is effective beginning in calendar year 2020.

                                  II.


                       TITLE II--CHILD TAX CREDIT


 1. Child Tax Credit Fully Refundable for 2019 and 2020 (secs. 201 and 
                203 of the bill and sec. 24 of the Code)


                              PRESENT LAW

    An individual is allowed a tax credit of $2,000 for each 
qualifying child.\12\ The aggregate amount of otherwise 
allowable child tax credits is phased out for an individual 
with income over a threshold amount. Specifically, the 
otherwise allowable child tax credit amount is reduced by $50 
for each $1,000 (or fraction thereof) of modified adjusted 
gross income (``AGI'') over $400,000 for joint returns, and 
$200,000 for all other taxpayers.\13\ For purposes of this 
limitation, modified AGI includes certain otherwise excludable 
income earned by U.S. citizens or residents living abroad or in 
certain U.S. territories.
---------------------------------------------------------------------------
    \12\For taxable years beginning after December 31, 2025, the credit 
amount is $1,000.
    \13\For taxable years beginning after December 31, 2025, the 
modified AGI threshold amounts at which the credit begins to phase out 
are $75,000 for single individuals or heads of households, $110,000 for 
married individuals filing joint returns, and $55,000 for married 
individuals filing separate returns.
---------------------------------------------------------------------------
    The child tax credit may be claimed by any taxpayer, 
regardless of citizenship or residency, if the requirements for 
claiming the credit are met.
    The credit is allowable against both the regular tax and 
the alternative minimum tax (``AMT'').
    In some circumstances, all or a portion of the otherwise 
allowable credit is treated as a refundable credit (the 
``additional child tax credit''). The amount treated as a 
refundable credit reduces the amount of the nonrefundable 
credit. A refundable credit creates an overpayment of income 
tax to the extent the credit (together with other refundable 
credits) exceeds the taxpayer's income tax liability (reduced 
by nonrefundable credits).
    The credit is treated as refundable in an amount equal to 
15 percent of earned income in excess of $2,500\14\ (the 
``earned income formula''). Earned income is defined as the sum 
of wages, salaries, tips, and other taxable employee 
compensation plus net self-employment earnings. Only items 
taken into account in computing taxable income are treated as 
earned income.\15\ However, combat pay is treated as earned 
income for these purposes.
---------------------------------------------------------------------------
    \14\ For taxable years beginning after December 31, 2025, the 
earned income threshold for the refundable child tax credit is $3,000.
    \15\For example, some ministers' parsonage allowances are 
considered self-employment income, and thus are considered earned 
income for purposes of computing the EITC. However, the allowances are 
excluded from gross income for income tax purposes, and thus are not 
considered earned income for purposes of the additional child tax 
credit, because the income is not included in taxable income.
---------------------------------------------------------------------------
    A taxpayer with three or more qualifying children may 
determine the additional child tax credit using the 
``alternative formula,'' if this results in a larger additional 
child tax credit than determined under the earned income 
formula. Under the alternative formula, the additional child 
tax credit equals the amount by which the taxpayer's Social 
Security taxes exceed the taxpayer's EITC.
    The maximum amount of the refundable child tax credit may 
not exceed $1,400 per qualifying child. This $1,400 amount is 
indexed for inflation, although the amount may not exceed 
$2,000.\16\
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    \16\For taxable years beginning after December 31, 2025, there is 
no maximum amount of the refundable child tax credit; however, the 
refundable credit may not exceed the total amount of the credit, which 
is $1,000 for taxable years beginning after December 31, 2025.
---------------------------------------------------------------------------
    The name and Social Security number (``SSN'') of the 
qualifying child must appear on the return, and the SSN must be 
issued before the due date for filing the return.\17\ The SSN 
also 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.\18\ 
The taxpayer identification number (``TIN'') of the taxpayer 
must also be issued on or before the due date for filing the 
return.
---------------------------------------------------------------------------
    \17\For taxable years beginning after December 31, 2025, the child 
tax credit may be claimed if the TIN of the qualifying child, rather 
than the SSN of the child, appears on the return.
    \18\Sec. 205(c)(2)(B)(i)(I) (or that portion of subclause (III) 
that relates to subclause (I)) of the Social Security Act.
---------------------------------------------------------------------------
            Qualifying child
    Generally, for purposes of the child tax credit, a 
qualifying child is any individual under the age of 17\19\ who 
is the taxpayer's son, daughter, stepson, stepdaughter, 
brother, sister, stepbrother, stepsister, or a descendant of 
any such individual. The child must share the same principal 
place of abode as the taxpayer for more than one-half of the 
taxable year, may not have provided over one-half of their own 
support for the taxable year, and may not file a joint return 
with a spouse.\20\ In order to qualify for the child tax 
credit, the child must be a U.S. citizen, national, or 
resident.
---------------------------------------------------------------------------
    \19\Sec. 24(c)(1).
    \20\Sec. 152(c).
---------------------------------------------------------------------------
            Credit for other dependents
    An individual may be claimed as a taxpayer's dependent, if 
the individual is a qualifying child \21\ or a qualifying 
relative of the taxpayer and meets certain other 
requirements.\22\ An individual is a taxpayer's qualifying 
relative if such individual (1) bears the appropriate 
relationship to the taxpayer, (2) has a gross income that does 
not exceed the personal exemption amount,\23\ (3) receives one-
half of his or her support from the taxpayer, and (4) is not a 
qualifying child of the taxpayer. Generally, an individual 
bears the appropriate relationship to the taxpayer if the 
individual is the taxpayer's lineal descendent or ancestor, 
brother, sister, aunt, uncle, niece, or nephew. Some relations 
by marriage also qualify, including stepmothers, stepfathers, 
stepbrothers, stepsisters, sons-in-law, daughters-in-law, 
fathers-in-law, mothers-in-law, brothers-in-law, and sisters-
in-law. In addition, an individual bears the appropriate 
relationship if the individual has the same principal place of 
abode as the taxpayer and is a member of the taxpayer's 
household.
---------------------------------------------------------------------------
    \21\In the context of the dependency rules under section 152, the 
age requirements differ from the rules for the child tax credit. Under 
these rules, an individual meets the age requirement either (a) if they 
are under age 19 or (b) they are a student who is under age 24. Thus, 
for example, a student who is age 20 and meets the otherwise applicable 
requirements would not be eligible for the child tax credit, but would 
still be considered a qualifying child for purposes of the dependency 
rules. See sec. 152(c)(3).
    \22\Sec. 152(d).
    \23\For taxable years 2018-2025, the reduction of the personal 
exemption amount to zero will not be taken into account in determining 
whether a taxpayer is a qualifying relative under section 152(d)(1)(B). 
The exemption amount referenced in section 152(d)(1)(B) will be treated 
as $4,150 (adjusted for inflation after 2018). See Notice 2018-70, 
2018-38 I.R.B. 441.
---------------------------------------------------------------------------
    An individual is allowed a $500 nonrefundable credit for 
each additional dependent, other than a qualifying child, as 
defined for purposes of the child tax credit.\24\ The SSN 
requirement does not apply with respect to a qualifying 
dependent for whom a $500 nonrefundable credit is claimed. In 
order to claim the $500 nonrefundable credit with respect to 
any individual, however, the taxpayer must include such 
individual's TIN on the tax return.\25\
---------------------------------------------------------------------------
    \24\An individual who is a qualifying child for purposes of the 
dependency rules under section 152, but not a qualifying child for 
purposes of the child tax credit (e.g., a child who is age 17 or 18, or 
a student under age 24) is eligible to be a qualifying dependent for 
purposes of the $500 nonrefundable credit. For taxable years beginning 
after December 31, 2025, there is no tax credit for non-child 
dependents.
    \25\A technical correction may be necessary to reflect this intent.
---------------------------------------------------------------------------
            Nonresident alien
    A noncitizen is treated as a resident alien of the United 
States with respect to any calendar year if such individual is 
(1) a lawful permanent resident of the United States at any 
time during such calendar year or (2) satisfies the substantial 
presence test for such calendar year.\26\ An alien generally 
meets the substantial presence test for a calendar year if the 
alien is present in the United States for at least 31 days 
during the calendar year and meets a 183-day test which looks 
to the current calendar year and the two prior calendar years.
---------------------------------------------------------------------------
    \26\Sec. 7701(b)(1)(A). In certain cases, an alien may elect to be 
treated as a resident for a portion of the year that immediately 
precedes the year in which the substantial presence test is first met.
---------------------------------------------------------------------------
    An individual is a nonresident alien if the individual is 
neither a citizen of the United States nor a resident alien of 
the United States.\27\
---------------------------------------------------------------------------
    \27\Sec. 7701(b)(1)(B).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that a tax credit for families with 
children recognizes the importance of helping families raise 
children by lessening the associated financial burden. The 
Committee also recognizes that families with young children are 
in need of additional support, and that policies targeting this 
crucial stage in childhood development are especially effective 
in improving long-term economic outcomes. The provision extends 
the refundable child tax credit to the most vulnerable families 
who would otherwise be unable to claim the credit or only be 
able to claim the credit in part, and it makes the credit more 
generous for families with young children.

                        EXPLANATION OF PROVISION

    Under the provision, the child tax credit is made fully 
refundable for any taxable year beginning in 2019 or 2020. 
Thus, the child tax credit is generally refundable up to $2,000 
per child, without regard to the amount of earned income or 
Social Security taxes paid. The adjusted gross income 
limitation on the credit still applies (regardless of 
refundability), and the $500 credit for dependents other than 
qualified children remains non-refundable.
    Nonresident aliens are not eligible for the fully 
refundable credit without regard to the amount of earned income 
or Social Security taxes paid,\28\ but may still be eligible to 
claim a nonrefundable child tax credit to offset a U.S. tax 
liability and a refundable credit determined with regard to 
earned income or Social Security taxes paid.
---------------------------------------------------------------------------
    \28\This limitation is included to prevent a nonresident alien 
individual who may have no income tax liability to the United States 
(for example, because his or her income is not effectively connected 
income) from being able to receive a payment from the United States.
---------------------------------------------------------------------------
    Additionally, for taxable years beginning in 2019 or 2020, 
the credit, in the case of a qualifying child who has not 
attained age four as of the close of the calendar year, is 
increased to $3,000.

                             EFFECTIVE DATE

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

 2. Payments to Territories Relating to the Child Tax Credit (sec. 202 
                              of the bill)


                              PRESENT LAW

Territories

    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 residence in 
the territories, with certain special rules for determining 
residence and source of income specific to the territory. 
Broadly, a bona fide individual resident of a territory is 
exempt from U.S. tax on income derived from sources within that 
territory but is subject to U.S. tax on U.S.-source and non-
territory-source income.\29\
---------------------------------------------------------------------------
    \29\See secs. 932, 933, and 937.
---------------------------------------------------------------------------
    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. 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 or Puerto Rico may be 
required to file income tax returns with both the territory of 
residence and the United States.

Child tax credit

    An individual is allowed a tax credit of $2,000 for each 
qualifying child.\30\ In some circumstances, all or a portion 
of the otherwise allowable credit is treated as a refundable 
credit (the ``additional child tax credit''). The amount 
treated as a refundable credit reduces the amount of the 
nonrefundable credit. A refundable credit creates an 
overpayment of income tax to the extent the credit (together 
with other refundable credits) exceeds the taxpayer's income 
tax liability (reduced by nonrefundable credits).
---------------------------------------------------------------------------
    \30\For a full discussion of present law and an explanation of the 
provision regarding the child tax credit with respect to the United 
States, see the discussion immediately above. For taxable years 
beginning after December 31, 2025, the tax credit amount is $1,000.
---------------------------------------------------------------------------
    The credit is treated as refundable in an amount equal to 
15 percent of earned income in excess of $2,500\31\ (the 
``earned income formula''). Earned income is defined as the sum 
of wages, salaries, tips, and other taxable employee 
compensation plus net self-employment earnings. A taxpayer with 
three or more qualifying children may determine the additional 
child tax credit using the ``alternative formula,'' if this 
results in a larger additional child tax credit than determined 
under the earned income formula. Under the alternative formula, 
the additional child tax credit equals the amount by which the 
taxpayer's Social Security taxes exceed the taxpayer's EITC.
---------------------------------------------------------------------------
    \31\For taxable years beginning after December 31, 2025, the earned 
income threshold for the refundable child tax credit is $3,000.
---------------------------------------------------------------------------
    The maximum amount of the refundable child tax credit may 
not exceed $1,400 per qualifying child. This $1,400 amount is 
indexed for inflation, although the amount may not exceed 
$2,000.\32\
---------------------------------------------------------------------------
    \32\For taxable years beginning after December 31, 2025, there is 
no maximum amount of the refundable child tax credit; however, the 
refundable credit may not exceed the total amount of the credit, which 
is $1,000 for taxable years beginning after December 31, 2025.
---------------------------------------------------------------------------
    The three mirror Code territories have, under their mirror 
Codes, a child tax credit identical to that in the U.S. Code. 
Each mirror Code territory funds the child tax credit through 
its own Treasury. Puerto Rico and American Samoa do not have a 
child tax credit under their internal revenue laws.
    In addition, residents of the territories with three or 
more qualifying children are, under the alternative formula, 
eligible for the additional child tax credit under the U.S. 
Code. The U.S. Treasury makes payments to the territory (or, in 
the case of Puerto Rico, directly to applicable residents of 
the territory)\33\ to cover the cost of this credit.
---------------------------------------------------------------------------
    \33\Residents of Puerto Rico may claim the additional child tax 
credit under the alternative formula by filing a Form 1040-SS with the 
Internal Revenue Service.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that a tax credit for families with 
children recognizes the importance of helping families raise 
children by lessening the associated financial burden. The 
Committee recognizes the importance of providing funding to all 
of the territories, the citizens of which are U.S. citizens or 
nationals, in order to fund programs that benefit families with 
children. The Committee believes that provisions proven to 
reduce poverty are especially timely due to the impact of 
recent natural disasters on Puerto Rico and other territories.

                        EXPLANATION OF PROVISION

    Under the provision, the Secretary makes payments to each 
mirror Code territory that relate to the cost of each 
territory's child tax credit or approximate such cost.
    With respect to mirror Code territories, for each taxable 
year beginning after 2018, the Secretary makes payments equal 
to the loss in revenue by reason of the application of the 
child tax credit to the territory's mirror Code with respect to 
such taxable year. 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, for each 
taxable year beginning after 2018, the Secretary makes 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 child tax credit if a 
mirror Code tax system had been in effect in such territory 
with respect to such taxable year. These payments will not be 
made unless the territory has a plan approved by the Secretary 
to promptly distribute the payments to its residents in a 
manner that replicates to the greatest extent practicable the 
benefits of the child tax credit that would have been provided 
to each such resident under a mirror Code.
    With respect to residents of the mirror Code territories, 
no child tax credit under the U.S. Code is permitted for any 
person to whom a child tax credit is allowed against income 
taxes of the territory. Similarly, with respect to the non-
mirror Code territories of Puerto Rico and American Samoa, no 
child tax credit under the U.S. Code is permitted for any 
person who is eligible for a payment under the territory's plan 
for distributing to its residents the payments described above. 
If a non-mirror Code territory does not have such a plan in 
place for any taxable year beginning in 2019 or 2020, residents 
of such territories may not claim the expanded refundable child 
tax credit for taxable years beginning in 2019 or 2020 as 
described above. However, these residents may claim the child 
tax credit to the extent allowed under present law; for 
example, residents of Puerto Rico may claim the present law 
refundable child tax credit under the alternative formula.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                  TITLE III--DEPENDENT CARE ASSISTANCE


1. Refundability and Enhancement of Child and Dependent Care Tax Credit 
             (sec. 301 of the Bill and sec. 21 of the Code)


                              PRESENT LAW

    A taxpayer who maintains a household that includes one or 
more qualifying individuals may claim a nonrefundable credit 
against income tax liability for up to 35 percent of a limited 
amount of employment-related child and dependent care expenses. 
For this purpose, employment-related expenses are expenses for 
household services and expenses for the care of a qualifying 
individual. These expenses must be incurred to enable the 
taxpayer to be gainfully employed and do not include amounts 
paid for camps where qualifying individuals stay overnight.
    Eligible child and dependent care expenses related to 
employment are limited to $3,000 if there is one qualifying 
individual or $6,000 if there are two or more qualifying 
individuals. Thus, the maximum credit is $1,050 if there is one 
qualifying individual and $2,100 if there are two or more 
qualifying individuals. The applicable dollar limit is reduced 
by any amount excluded from income under an employer-provided 
dependent care assistance program. The 35 percent credit rate 
is reduced, but not below 20 percent, by one percentage point 
for each $2,000 (or fraction thereof) of AGI above $15,000. 
Thus, for taxpayers with AGI above $43,000, the credit rate is 
20 percent. The phaseout threshold and the amount of expenses 
eligible for the credit are not indexed for inflation.
    Generally, a qualifying individual is (1) a qualifying 
child of the taxpayer under the age of 13 for whom the taxpayer 
may claim a dependency exemption, or (2) a dependent or spouse 
of the taxpayer if the dependent or spouse is physically or 
mentally incapable of caring for himself or herself, and shares 
the same principal place of abode with the taxpayer for over 
one half the year. Married taxpayers must file a joint return 
in order to claim the credit.
    The child and dependent care tax credit may be claimed by 
any taxpayer, regardless of citizenship or residency, if the 
requirements for claiming the credit are met.

                           REASONS FOR CHANGE

    The Committee recognizes the importance of supporting 
working families who are raising children or caring for 
dependents and wishes to provide increased relief to help 
offset the costs of such care. The Committee believes that 
expanding families' ability to afford quality child care is 
critical to increasing workforce participation and reducing 
child poverty.

                        EXPLANATION OF PROVISION

    The provision temporarily expands the child and dependent 
care tax credit for any taxable year beginning in 2019 or 2020. 
First, the provision makes the credit fully refundable for 
taxpayers other than nonresident aliens.\34\ In addition, the 
provision increases the maximum credit rate to 50 percent and 
amends the phaseout threshold to begin at AGI above $120,000. 
Thus, in 2019, for taxpayers with AGI above $178,000, the 
credit rate is 20 percent. The provision also doubles the 
amount of child and dependent care expenses that are eligible 
for the credit; thus, such expenses are limited to $6,000 for 
one qualifying individual and $12,000 for two or more 
qualifying individuals. Finally, the provision temporarily 
indexes for inflation the phaseout threshold and the amount of 
expenses eligible for the credit beginning after 2019.
---------------------------------------------------------------------------
    \34\The limitation to taxpayers other than nonresident aliens is 
included to prevent a nonresident alien individual who may have no 
income tax liability to the United States (for example, because his or 
her income is not effectively connected income) from being able to 
receive a payment from the United States.
---------------------------------------------------------------------------
    The provision to make the credit fully refundable does not 
apply to residents of the territories, but residents of the 
territories may still be eligible to claim the nonrefundable 
credit pursuant to existing rules.
    Nonresident aliens are also not eligible for the refundable 
credit, but may still be eligible to claim a nonrefundable 
child and dependent care tax credit to the extent they meet the 
requirements for claiming the credit.
    Taxpayers with modified adjusted gross income in excess of 
$1 million are ineligible to claim the benefits of the 
temporarily expanded child and dependent care tax credit, but 
may still claim the pre-expansion child and dependent care 
credit, if eligible. For purposes of this limitation, modified 
adjusted gross income is adjusted gross income determined 
without regards to sections 911, 931, and 933.

                             EFFECTIVE DATE

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

     2. Increase in Exclusion for Employer-Provided Dependent Care 
       Assistance (sec. 302 of the Bill and sec. 129 of the Code)


                              PRESENT LAW

    An annual exclusion\35\ from the gross income of an 
employee is allowed for employer-provided dependent care 
assistance in an amount up to $5,000 ($2,500 in the case of a 
separate return by a married individual) if such assistance is 
provided pursuant to a ``dependent care assistance program.'' 
Among other requirements, a dependent care assistance 
program\36\ must be a separate written plan of an employer for 
the exclusive benefit of the employer's employees to provide 
such employees with dependent care assistance that does not 
discriminate in favor of highly compensated employees or their 
dependents as to contributions, benefits, and eligibility.\37\
---------------------------------------------------------------------------
    \35\Sec. 129(a).
    \36\Sec. 129(d).
    \37\Sec. 129(d)(2) and (3). The exclusion applies if the 
contributions or benefits under the program do not discriminate in 
favor of highly compensated employees, within the meaning of section 
414(q), or their dependents, and the program benefits employees under a 
classification established by the employer found not to be 
discriminatory in favor or such highly compensated employees or their 
dependents.
---------------------------------------------------------------------------
    The amount excludable for any taxable year cannot exceed 
the earned income of the employee or, if the employee is 
married, the lesser of the earned income of the employee or the 
earned income of the employee's spouse.\38\
---------------------------------------------------------------------------
    \38\Sec. 129(b). The provisions of section 21(d)(2) apply in 
determining the earned income of a spouse who is a student or incapable 
of caring for himself. Sec. 129(b)(2).
---------------------------------------------------------------------------
    Amounts attributable to dependent care assistance that are 
excludible from gross income are also excludible from wages for 
employment tax purposes.\39\
---------------------------------------------------------------------------
    \39\Sec. 3121(a)(18).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes the importance of supporting 
working families who are raising children or caring for 
dependents, and it also recognizes the value in encouraging 
employers to provide assistance to employees for such care. The 
provision increases the annual exclusion with respect to 
employer-provided dependent care assistance in order to provide 
increased support to working families and a further incentive 
for employers to offer such a benefit.

                        EXPLANATION OF PROVISION

    The provision temporarily increases, for any taxable year 
beginning in 2020 or 2021, the amount of the exclusion for 
employer-provided dependent care assistance. The provision 
increases such amount from $5,000 to $10,500 (and from $2,500 
to $5,250 in the case of a separate return by a married 
individual). This amount is adjusted for inflation for any 
taxable year beginning after 2020.

                             EFFECTIVE DATE

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

               TITLE IV--CERTAIN FRINGE BENEFIT EXPENSES


1. Repeal of Inclusion of Certain Fringe Benefit Expenses in Unrelated 
Business Taxable Income (sec. 401 of the Bill 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, in general

    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.\40\ An organization that is subject to UBIT and that 
has $1,000 or more of gross unrelated business taxable income 
(``UBTI'') must report that income on Form 990-T (Exempt 
Organization Business Income Tax Return). An organization 
determines its UBTI by subtracting from its gross unrelated 
business income the deductions directly connected with the 
unrelated trade or business.\41\
---------------------------------------------------------------------------
    \40\Secs. 511-514.
    \41\Sec. 512(a).
---------------------------------------------------------------------------
    The UBIT rules apply to most tax-exempt organizations, 
including (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), (2) qualified pension, profit-sharing, and stock bonus 
plans described in section 401(a), and (3) certain State 
colleges and universities.\42\
---------------------------------------------------------------------------
    \42\Sec. 511(a)(2).
---------------------------------------------------------------------------

Exclusions from UBTI

    Certain types of income are specifically excluded from 
UBTI, such as dividends, interest, royalties, and certain 
rents,\43\ unless derived from debt-financed property or from 
certain 50-percent controlled subsidiaries.\44\ 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.\45\ Additional activities exempt from 
UBIT include certain activities of trade shows and State 
fairs,\46\ conducting bingo games,\47\ and the distribution of 
low-cost items incidental to the solicitation of charitable 
contributions.\48\
---------------------------------------------------------------------------
    \43\Sec. 512(b).
    \44\Sec. 512(b)(13).
    \45\Sec. 513(a).
    \46\Sec. 513(d).
    \47\Sec. 513(f).
    \48\Sec. 513(h).
---------------------------------------------------------------------------

Specific deduction against UBTI

    In computing UBTI, 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.\49\
---------------------------------------------------------------------------
    \49\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.\50\
---------------------------------------------------------------------------
    \50\Ibid.
---------------------------------------------------------------------------

Increase in UBTI for certain fringe benefits

    Under section 512(a)(7), UBTI 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\51\ or any parking facility used 
in connection with qualified parking.\52\ The determination of 
UBTI 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.
---------------------------------------------------------------------------
    \51\See sec. 132(f).
    \52\See sec. 132(f)(5)(C).
---------------------------------------------------------------------------
    This requirement to increase UBTI does not apply to any 
item directly connected with an unrelated trade or business 
that is regularly carried on by the organization. The $1,000 
specific deduction available to organizations under section 
512(b)(12) may be used to offset UBTI resulting from the 
provision of transportation fringes.

                           REASONS FOR CHANGE

    A number of tax-exempt organizations, including churches 
and other religious organizations, have noted the complexity 
associated with calculating the tax they owe for providing 
their employees with certain fringe benefits. Many of these 
organizations have no UBIT obligations other than the tax on 
these fringe benefits, and many have no Form 990 filing 
obligation with the IRS. The Committee believes that the 
compliance burden associated with collecting this tax outweighs 
the increased revenue and the desire for parity in treatment of 
taxable and tax-exempt employers.

                        EXPLANATION OF PROVISION

    The provision repeals the requirement that UBTI be 
increased by certain fringe benefits.

                             EFFECTIVE DATE

    The provision is effective for amounts paid or incurred 
after December 31, 2017.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 3300, the ``Economic Mobility Act of 
2019'', on June 20, 2019.
    A Manager's amendment to the amendment in the nature of a 
substitute to H.R. 3300 offered by Chairman Neal, which would 
increase the value of the child tax credit to $3,000 for 
taxpayers with qualifying children age 3 and younger, was 
agreed by a roll call vote of 22 yeas to 19 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................       X   .......  .........  Mr. Brady..........  .......       X   .........
Mr. Lewis........................       X   .......  .........  Mr. Nunes..........  .......       X   .........
Mr. Doggett......................  .......       X   .........  Mr. Buchanan.......  .......  .......  .........
Mr. Thompson.....................       X   .......  .........  Mr. Smith..........  .......       X   .........
Mr. Larson.......................       X   .......  .........  Mr. Marchant.......  .......       X   .........
Mr. Blumenauer...................       X   .......  .........  Mr. Reed...........  .......       X   .........
Mr. Kind.........................  .......       X   .........  Mr. Kelly..........  .......       X   .........
Mr. Pascrell.....................       X   .......  .........  Mr. Holding........  .......       X   .........
Mr. Davis........................       X   .......  .........  Mr. Smith..........  .......       X   .........
Ms. Sanchez......................       X   .......  .........  Mr. Rice...........  .......       X   .........
Mr. Higgins......................       X   .......  .........  Mr. Schweikert.....  .......       X   .........
Ms. Sewell.......................       X   .......  .........  Ms. Walorski.......  .......       X   .........
Ms. DelBene......................       X   .......  .........  Mr. LaHood (IL)....  .......       X   .........
Ms. Chu (CA).....................       X   .......  .........  Mr. Wenstrup.......  .......       X   .........
Ms. Moore........................       X   .......  .........  Mr. Arrington......  .......       X   .........
Mr. Kildee.......................       X   .......  .........  Mr. Ferguson.......  .......       X   .........
Mr. Boyle........................       X   .......  .........  Mr. Estes..........  .......       X   .........
Mr. Beyer........................       X   .......  .........
Mr. Evans........................       X   .......  .........
Mr. Schneider....................       X   .......  .........
Mr. Suozzi.......................       X   .......  .........
Mr. Panetta......................       X   .......  .........
Ms. Murphy.......................  .......       X   .........
Mr. Gomez........................       X   .......  .........
Mr. Horsford.....................       X   .......  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Ranking Member Brady, which would strike all 
provisions except the repeal of the unrelated business income 
tax on certain fringe benefits of non-profits, was defeated by 
a roll call vote of 16 yeas to 23 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................  .......       X   .........  Mr. Brady..........       X   .......  .........
Mr. Lewis........................  .......       X   .........  Mr. Nunes..........       X   .......  .........
Mr. Doggett......................  .......       X   .........  Mr. Buchanan.......  .......  .......  .........
Mr. Thompson.....................  .......       X   .........  Mr. Smith..........       X   .......  .........
Mr. Larson.......................  .......       X   .........  Mr. Marchant.......       X   .......  .........
Mr. Blumenauer...................  .......  .......  .........  Mr. Reed...........       X   .......  .........
Mr. Kind.........................  .......       X   .........  Mr. Kelly..........       X   .......  .........
Mr. Pascrell.....................  .......       X   .........  Mr. Holding........       X   .......  .........
Mr. Davis........................  .......       X   .........  Mr. Smith..........       X   .......  .........
Ms. Sanchez......................  .......       X   .........  Mr. Rice...........       X   .......  .........
Mr. Higgins......................  .......       X   .........  Mr. Schweikert.....       X   .......  .........
Ms. Sewell.......................  .......       X   .........  Ms. Walorski.......       X   .......  .........
Ms. DelBene......................  .......       X   .........  Mr. LaHood (IL)....       X   .......  .........
Ms. Chu (CA).....................  .......       X   .........  Mr. Wenstrup.......       X   .......  .........
Ms. Moore........................  .......       X   .........  Mr. Arrington......       X   .......  .........
Mr. Kildee.......................  .......       X   .........  Mr. Ferguson.......       X   .......  .........
Mr. Boyle........................  .......  .......  .........  Mr. Estes..........       X   .......  .........
Mr. Beyer........................  .......       X   .........
Mr. Evans........................  .......       X   .........
Mr. Schneider....................  .......       X   .........
Mr. Suozzi.......................  .......       X   .........
Mr. Panetta......................  .......       X   .........
Ms. Murphy.......................  .......       X   .........
Mr. Gomez........................  .......       X   .........
Mr. Horsford.....................  .......       X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Representative Walorski, which would prevent 
taxpayers with over $1,000,000 in income from receiving the 
expansions of the child and dependent care tax credit provided 
by the bill, was agreed to by a voice vote (with a quorum being 
present).
    An amendment to the amendment in the nature of a substitute 
offered by Representative Rice, which would disallow the 
refundability of certain tax credits for 10 taxable years if 
the taxpayer makes a prior fraudulent claim or for 2 taxable 
years if the taxpayer makes a reckless claim, was defeated by a 
roll call vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................  .......       X   .........  Mr. Brady..........       X   .......  .........
Mr. Lewis........................  .......       X   .........  Mr. Nunes..........       X   .......  .........
Mr. Doggett......................  .......       X   .........  Mr. Buchanan.......  .......  .......  .........
Mr. Thompson.....................  .......       X   .........  Mr. Smith..........       X   .......  .........
Mr. Larson.......................  .......       X   .........  Mr. Marchant.......       X   .......  .........
Mr. Blumenauer...................  .......  .......  .........  Mr. Reed...........       X   .......  .........
Mr. Kind.........................  .......       X   .........  Mr. Kelly..........       X   .......  .........
Mr. Pascrell.....................  .......       X   .........  Mr. Holding........       X   .......  .........
Mr. Davis........................  .......       X   .........  Mr. Smith..........       X   .......  .........
Ms. Sanchez......................  .......       X   .........  Mr. Rice...........       X   .......  .........
Mr. Higgins......................  .......       X   .........  Mr. Schweikert.....       X   .......  .........
Ms. Sewell.......................  .......       X   .........  Mr. Walorski.......       X   .......  .........
Ms. DelBene......................  .......       X   .........  Mr. Mr. LaHood (IL)       X   .......  .........
Ms. Chu (CA).....................  .......       X   .........  Mr. Wenstrup.......       X   .......  .........
Ms. Moore........................  .......       X   .........  Mr. Arrington......       X   .......  .........
Mr. Kildee.......................  .......       X   .........  Mr. Ferguson.......       X   .......  .........
Mr. Boyle........................  .......       X   .........  Mr. Estes..........       X   .......  .........
Mr. Beyer........................  .......       X   .........
Mr. Evans........................  .......       X   .........
Mr. Schneider....................  .......       X   .........
Mr. Suozzi.......................  .......       X   .........  ...................
Mr. Panetta......................  .......       X   .........
Ms. Murphy.......................  .......       X   .........
Mr. Gomez........................  .......       X   .........
Mr. Horsford.....................  .......       X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Representative Arrington, which would require a 
valid Social Security number for both the taxpayer and 
qualifying individuals in order to claim the child and 
dependent care tax credit, was defeated by a roll call vote of 
16 yeas to 25 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................  .......       X   .........  Mr. Brady..........       X   .......  .........
Mr. Lewis........................  .......       X   .........  Mr. Nunes..........  .......  .......  .........
Mr. Doggett......................  .......       X   .........  Mr. Buchanan.......       X   .......  .........
Mr. Thompson.....................  .......       X   .........  Mr. Smith..........       X   .......  .........
Mr. Larson.......................  .......       X   .........  Mr. Marchant.......       X   .......  .........
Mr. Blumenauer...................  .......       X   .........  Mr. Reed...........       X   .......  .........
Mr. Kind.........................  .......       X   .........  Mr. Kelly..........       X   .......  .........
Mr. Pascrell.....................  .......       X   .........  Mr. Holding........       X   .......  .........
Mr. Davis........................  .......       X   .........  Mr. Smith..........       X   .......  .........
Ms. Sanchez......................  .......       X   .........  Mr. Rice...........       X   .......  .........
Mr. Higgins......................  .......       X   .........  Mr. Schweikert.....       X   .......  .........
Ms. Sewell.......................  .......       X   .........  Mr. Walorski.......       X   .......  .........
Ms. DelBene......................  .......       X   .........  Mr. Mr. LaHood (IL)       X   .......  .........
Ms. Chu (CA).....................  .......       X   .........  Mr. Wenstrup.......       X   .......  .........
Ms. Moore........................  .......       X   .........  Mr. Arrington......       X   .......  .........
Mr. Kildee.......................  .......       X   .........  Mr. Ferguson.......       X   .......  .........
Mr. Boyle........................  .......       X   .........  Mr. Estes..........       X   .......  .........
Mr. Beyer........................  .......       X   .........
Mr. Evans........................  .......       X   .........
Mr. Schneider....................  .......       X   .........
Mr. Suozzi.......................  .......       X   .........
Mr. Panetta......................  .......       X   .........
Ms. Murphy.......................  .......       X   .........
Mr. Gomez........................  .......       X   .........
Mr. Horsford.....................  .......       X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Representative Rice, which would improve the 
integrity of the dependent care assistance credit, was defeated 
by a roll call vote of 16 yeas to 25 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................  .......       X   .........  Mr. Brady..........       X   .......  .........
Mr. Lewis........................  .......       X   .........  Mr. Nunes..........  .......  .......  .........
Mr. Doggett......................  .......       X   .........  Mr. Buchanan.......       X   .......  .........
Mr. Thompson.....................  .......       X   .........  Mr. Smith..........       X   .......  .........
Mr. Larson.......................  .......       X   .........  Mr. Marchant.......       X   .......  .........
Mr. Blumenauer...................  .......       X   .........  Mr. Reed...........       X   .......  .........
Mr. Kind.........................  .......       X   .........  Mr. Kelly..........       X   .......  .........
Mr. Pascrell.....................  .......       X   .........  Mr. Holding........       X   .......  .........
Mr. Davis........................  .......       X   .........  Mr. Smith..........       X   .......  .........
Ms. Sanchez......................  .......       X   .........  Mr. Rice...........       X   .......  .........
Mr. Higgins......................  .......       X   .........  Mr. Schweikert.....       X   .......  .........
Ms. Sewell.......................  .......       X   .........  Mr. Walorski.......       X   .......  .........
Ms. DelBene......................  .......       X   .........  Mr. Mr. LaHood (IL)       X   .......  .........
Ms. Chu (CA).....................  .......       X   .........  Mr. Wenstrup.......       X   .......  .........
Ms. Moore........................  .......       X   .........  Mr. Arrington......       X   .......  .........
Mr. Kildee.......................  .......       X   .........  Mr. Ferguson.......       X   .......  .........
Mr. Boyle........................  .......       X   .........  Mr. Estes..........       X   .......  .........
Mr. Beyer........................  .......       X   .........
Mr. Evans........................  .......       X   .........
Mr. Schneider....................  .......       X   .........
Mr. Suozzi.......................  .......       X   .........
Mr. Panetta......................  .......       X   .........
Ms. Murphy.......................  .......       X   .........
Mr. Gomez........................  .......       X   .........
Mr. Horsford.....................  .......       X   .........
----------------------------------------------------------------------------------------------------------------

    The Chairman's Amendment in the nature of a substitute as 
amended was agreed to by a voice vote (with a quorum being 
present).
    H.R. 3300 as amended by an amendment in the nature of a 
substitute was ordered favorably reported to the House of 
Representatives by a roll call vote of 22 yeas to 19 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................       X   .......  .........  Mr. Brady..........  .......       X   .........
Mr. Lewis........................       X   .......  .........  Mr. Nunes..........  .......  .......  .........
Mr. Doggett......................  .......       X   .........  Mr. Buchanan.......  .......       X   .........
Mr. Thompson.....................       X   .......  .........  Mr. Smith (NE).....  .......       X   .........
Mr. Larson.......................       X   .......  .........  Mr. Marchant.......  .......       X   .........
Mr. Blumenauer...................       X   .......  .........  Mr. Reed...........  .......       X   .........
Mr. Kind.........................  .......       X   .........  Mr. Kelly..........  .......       X   .........
Mr. Pascrell.....................       X   .......  .........  Mr. Holding........  .......       X   .........
Mr. Davis........................       X   .......  .........  Mr. Smith (MO).....  .......       X   .........
Ms. Sanchez......................       X   .......  .........  Mr. Rice...........  .......       X   .........
Mr. Higgins......................       X   .......  .........  Mr. Schweikert.....  .......       X   .........
Ms. Sewell.......................       X   .......  .........  Mr. Walorski.......  .......       X   .........
Ms. DelBene......................       X   .......  .........  Mr. Mr. LaHood.....  .......       X   .........
Ms. Chu..........................       X   .......  .........  Mr. Wenstrup.......  .......       X   .........
Ms. Moore........................       X   .......  .........  Mr. Arrington......  .......       X   .........
Mr. Kildee.......................       X   .......  .........  Mr. Ferguson.......  .......       X   .........
Mr. Boyle........................       X   .......  .........  Mr. Estes..........  .......       X   .........
Mr. Beyer........................       X   .......  .........
Mr. Evans........................       X   .......  .........
Mr. Schneider....................       X   .......  .........
Mr. Suozzi.......................       X   .......  .........
Mr. Panetta......................       X   .......  .........
Ms. Murphy.......................  .......       X   .........
Mr. Gomez........................       X   .......  .........
Mr. Horsford.....................       X   .......  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill.
    The bill is estimated to decrease Federal fiscal year 
budget receipts by $131 billion dollars for the period 2019 
through 2029.


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee states that the bill 
involves no new or increased budget authority. The Committee 
further states that the revenue-reducing provisions of the bill 
include increased tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, requiring a cost estimate prepared by 
CBO, the following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 9, 2019.
Hon. Richard Neal,
Chairman, Committee on Ways and Means, House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3300, the Economic 
Mobility Act of 2019.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Shannon Mok.
            Sincerely,
                                         Phillip L. Swagel,
                                                          Director.
    Enclosure. 
    
    

    Bill Summary: H.R. 3300 would increase assistance provided 
to taxpayers through tax credits and make other changes to the 
tax code. Provisions of the bill would increase the amount of 
EITC for workers without qualifying children, expand 
eligibility for the EITC, increase the amount of the child tax 
credit for young children, and make the child tax credit fully 
refundable. It would also increase the amount of the child and 
dependent care tax credit and the exclusion for employer-
provided dependent care assistance. The Secretary would make 
payments to U.S. possessions related to their costs of the EITC 
and the child tax credit. In addition, the bill would exclude 
expenses for certain transportation and parking fringe benefits 
from the unrelated business taxable income of tax-exempt 
organizations.

                                                                       TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 3300
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                By fiscal year, millions of dollars--
                                                                    ----------------------------------------------------------------------------------------------------------------------------
                                                                       2019      2020       2021      2022     2023     2024     2025     2026     2027     2028     2029   2019-2024  2019-2029
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Decreases (-) in Revenues
 
Title I. EITC......................................................     -149     -2,547     -1,839     -108     -115     -120     -119     -120     -119     -119     -121     -4,880     -5,477
Title II. Child Tax Credit.........................................        0     -8,888     -1,004        0        0        0        0        0        0        0        0     -9,893     -9,893
Title III. Dependent Care Assistance...............................     -389     -7,092     -3,840     -515        0        0        0        0        0        0        0    -11,836    -11,836
Title IV. Certain Fringe Benefit Expenses..........................      -99       -146       -145     -156     -166     -175     -186     -197     -208     -220     -234       -887     -1,931
    Total Revenues.................................................     -637    -18,672     -6,827     -779     -281     -295     -305     -317     -327     -339     -355    -27,495    -29,136
 
                                                                                  Increases in Direct Spending
 
Title I. EITC:
    Estimated Budget Authority.....................................        0      7,832      8,605      962      994    1,026    1,045    1,059    1,065    1,082    1,099     19,417     24,767
    Estimated Outlays..............................................        0      7,832      8,605      962      994    1,026    1,045    1,059    1,065    1,082    1,099     19,417     24,767
Title II. Child Tax Credit:
    Estimated Budget Authority.....................................        0     32,599     32,980      715      728      741      745      741      376      380      384     67,762     70,389
    Estimated Outlays..............................................        0     32,599     32,980      715      728      741      745      741      376      380      384     67,762     70,389
Title III. Dependent Care Assistance:
    Estimated Budget Authority.....................................        0      5,227      1,756        0        0        0        0        0        0        0        0      6,982      6,982
    Estimated Outlays..............................................        0      5,227      1,756        0        0        0        0        0        0        0        0      6,982      6,982
        Total Outlays..............................................        0     45,658     43,341    1,677    1,722    1,767    1,790    1,800    1,441    1,462    1,483     94,161    102,138
 
                                                            Net Increase in the Deficit From Changes in Direct Spending and Revenues
 
Effect on the Deficit..............................................      637     64,330     50,168    2,456    2,003    2,062    2,095    2,117    1,768    1,801    1,838    121,656    131,274
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding.

    Estimated Federal cost: The estimated budgetary effect of 
H.R. 3300 is shown in Table 1. The costs of the legislation 
fall within budget functions 500 (education, training, 
employment, and social services) and 600 (income security).
    Basis of estimate: The Congressional Budget Act of 1974, as 
amended, stipulates that revenue estimates provided by the 
staff of the Joint Committee on Taxation (JCT) are the official 
estimates for all tax legislation considered by the Congress. 
CBO therefore incorporates such estimates into its cost 
estimates of the effects of legislation. All of the estimates 
for the provisions of H.R. 3300 were provided by JCT.
    Revenues: JCT estimates enacting the bill would decrease 
revenues by $29.1 billion over the 2019-2029 period.
    Title I. Earned Income Tax Credit. Title I would increase 
the EITC for workers without qualifying children for tax years 
2019 and 2020 and permanently expand eligibility for the EITC. 
JCT estimates that those provisions would reduce revenues by 
$5.5 billion over the 2019-2029 period.
    Title II. Child Tax Credit. Title II would increase the 
amount of the child tax credit for children under age four for 
tax years 2019 and 2020. JCT estimates that the provision would 
reduce revenues by $9.9 billion over the 2019-2029 period.
    Title III. Dependent Care Assistance. Title III would 
increase the child and dependent care credit for tax years 2019 
and 2020 and increase the exclusion for employer-provided 
dependent care assistance for tax years 2020 and 2021. JCT 
estimates that those provisions would reduce revenues by $11.8 
billion over the 2019-2029 period.
    Title IV. Certain Fringe Benefit Expenses. Title IV would 
exclude expenses for certain fringe benefits in unrelated 
business taxable income. JCT estimates that the provision would 
reduce revenues by $1.9 billion over the 2019-2029 period.
    Direct spending: JCT estimates enacting the bill would 
increase direct spending by $102.1 billion over the 2019-2029 
period.
    Title I. Earned Income Tax Credit. Title I would 
temporarily increase the EITC for workers without qualifying 
children, permanently expand eligibility for the EITC, and make 
payments to U.S. possessions for their costs related to the 
EITC. The EITC is refundable; if the credit exceeds the rest of 
the filer's income tax liability, the government pays all or 
some portion of that excess to the taxpayer. JCT estimates that 
those provisions would increase direct spending by $24.8 
billion over the 2019-2029 period.
    Title II. Child Tax Credit. Title II would increase the 
amount of the child tax credit for children under age four and 
make the credit fully refundable for tax years 2019 and 2020. 
It would also make payments to U.S. possessions for their costs 
related to the child tax credit. JCT estimates that those 
provisions would increase direct spending by $70.4 billion over 
the 2019-2029 period.
    Title III. Dependent Care Assistance. Title III would 
increase the child and dependent care credit and make the 
credit refundable for tax years 2019 and 2020. JCT estimates 
that the provision would increase direct spending by $7 billion 
over the 2019-2029 period.

Uncertainty

    These budgetary estimates are uncertain because they rely 
on underlying projections and other estimates that are 
uncertain. Specifically, they are based in part on CBO's 
economic projections for the next decade under current law, and 
on estimates of changes in taxpayers' behavior in response to 
changes in tax rules.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown above in 
Table 1.
    Increase in long-term deficits: JCT estimates that enacting 
H.R. 3300 would not increase on-budget deficits by more than $5 
billion in any of the four consecutive 10-year periods 
beginning in 2030.
    Mandates: JCT has reviewed H.R. 3300 and determined that it 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act.
    Estimate prepared by: Revenues: Staff of the Joint 
Committee on Taxation and Shannon Mok; Mandates: Staff of the 
Joint Committee on Taxation.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; John McClelland, Assistant Director for Tax 
Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee made findings and recommendations that are 
reflected in this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

            D. Applicability of House Rule XXI, Clause 5(b)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``It shall not be in 
order to consider a bill, joint resolution, amendment, or 
conference report carrying a retroactive Federal income tax 
rate increase.'' The Committee, after careful review, states 
that the bill does not involve any retroactive Federal income 
tax rate increase within the meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of Public Law 105-206, the Internal Revenue 
Service Restructuring and Reform Act of 1998 (the ``RRA''), 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is required 
under section 4022(b) of the RRA for two provisions, sections 
201 and 203 of the bill, which provide for temporary 
modifications of the child tax credit for 2019 and 2020.

             LIST OF PROVISIONS IN THE COMPLEXITY ANALYSIS

    Section 201 of the bill temporarily modifies the child tax 
credit to make it fully refundable. For taxable years beginning 
in 2019 or 2020, the child tax credit is generally refundable 
up to $2,000 per child, without regard to the amount of earned 
income or Social Security taxes paid.
    Section 203 of the bill temporarily increases the amount of 
the child tax credit for certain qualifying children. For 
taxable years beginning in 2019 or 2020, the credit in the case 
of a qualifying child who has not attained age four as of the 
close of the calendar year is increased to $3,000.

                      NUMBER OF AFFECTED TAXPAYERS

    It is estimated that the provision will affect 
approximately 22 million tax returns.

                               DISCUSSION

    The IRS will need to modify its forms and publications to 
reflect the provision. It is not anticipated that taxpayers 
will need to keep additional records due to the provision, or 
that compliance with the provision will impose any costs on 
taxpayers. Regulatory guidance will not be necessary to 
implement this provision. The provision should not result in an 
increase in disputes with the IRS. The provision should not, 
other than as previously stated, have any effect on the IRS.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee, after careful review, 
states that no provision of the bill contains any congressional 
earmark, limited tax benefit, or limited tariff benefit within 
the meaning of the rule.

                   G. Duplication of Federal Programs

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes (1) a program 
of the Federal Government known to be duplicative of another 
Federal program, (2) a program included in any report from the 
Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or (3) a program related to a 
program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to section 6104 of 
title 31, United States Code.

                              H. Hearings

    In compliance with Sec. 103(i) of H. Res. 6 (116th 
Congress), the following hearing was used to develop or 
consider H.R. 3301:
    The full Committee hearing on the 2017 Tax Law and Who It 
Left Behind, held on March 27, 2019.

              VI. CHANGES IN EXISTING LAW MADE BY THE BILL


         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986



           *       *       *       *       *       *       *
Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--DETERMINATION OF TAX LIABILITY

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


               Subpart A--NONREFUNDABLE PERSONAL CREDITS

SEC. 21. EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERVICES NECESSARY 
                    FOR GAINFUL EMPLOYMENT.

  (a) Allowance of credit.--
          (1) In general.--In the case of an individual for 
        which there are 1 or more qualifying individuals (as 
        defined in subsection (b)(1)) with respect to such 
        individual, there shall be allowed as a credit against 
        the tax imposed by this chapter for the taxable year an 
        amount equal to the applicable percentage of the 
        employment-related expenses (as defined in subsection 
        (b)(2)) paid by such individual during the taxable 
        year.
          (2) Applicable percentage defined.--For purposes of 
        paragraph (1), the term ``applicable percentage'' means 
        35 percent reduced (but not below 20 percent) by 1 
        percentage point for each $2,000 (or fraction thereof) 
        by which the taxpayer's adjusted gross income for the 
        taxable year exceeds $15,000.
  (b) Definitions of qualifying individual and employment-
related expenses.--For purposes of this section--
          (1) Qualifying individual.--The term ``qualifying 
        individual'' means--
                  (A) a dependent of the taxpayer (as defined 
                in section 152(a)(1)) who has not attained age 
                13,
                  (B) a dependent of the taxpayer (as defined 
                in section 152, determined without regard to 
                subsections (b)(1), (b)(2), and (d)(1)(B)) 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 such taxable year, or
                  (C) the spouse of the taxpayer, if the spouse 
                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 such taxable year.
          (2) Employment-related expenses.--
                  (A) In general.--The term ``employment-
                related expenses'' means amounts paid for the 
                following expenses, but only if such expenses 
                are incurred to enable the taxpayer to be 
                gainfully employed for any period for which 
                there are 1 or more qualifying individuals with 
                respect to the taxpayer:
                          (i) expenses for household services, 
                        and
                          (ii) expenses for the care of a 
                        qualifying individual.
                Such term shall not include any amount paid for 
                services outside the taxpayer's household at a 
                camp where the qualifying individual stays 
                overnight.
                  (B) Exception.--Employment-related expenses 
                described in subparagraph (A) which are 
                incurred for services outside the taxpayer's 
                household shall be taken into account only if 
                incurred for the care of--
                          (i) a qualifying individual described 
                        in paragraph (1)(A), or
                          (ii) a qualifying individual (not 
                        described in paragraph (1)(A)) who 
                        regularly spends at least 8 hours each 
                        day in the taxpayer's household.
                  (C) Dependent care centers.--Employment-
                related expenses described in subparagraph (A) 
                which are incurred for services provided 
                outside the taxpayer's household by a dependent 
                care center (as defined in subparagraph (D)) 
                shall be taken into account only if--
                          (i) such center complies with all 
                        applicable laws and regulations of a 
                        State or unit of local government, and
                          (ii) the requirements of subparagraph 
                        (B) are met.
                  (D) Dependent care center defined.--For 
                purposes of this paragraph, the term 
                ``dependent care center'' means any facility 
                which--
                          (i) provides care for more than six 
                        individuals (other than individuals who 
                        reside at the facility), and
                          (ii) receives a fee, payment, or 
                        grant for providing services for any of 
                        the individuals (regardless of whether 
                        such facility is operated for profit).
  (c) Dollar limit on amount creditable.--The amount of the 
employment-related expenses incurred during any taxable year 
which may be taken into account under subsection (a) shall not 
exceed--
          (1) $3,000 if there is 1 qualifying individual with 
        respect to the taxpayer for such taxable year, or
          (2) $6,000 if there are 2 or more qualifying 
        individuals with respect to the taxpayer for such 
        taxable year.
The amount determined under paragraph (1) or (2) (whichever is 
applicable) shall be reduced by the aggregate amount excludable 
from gross income under section 129 for the taxable year.
  (d) Earned income limitation.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amount of the employment-related 
        expenses incurred during any taxable year which may be 
        taken into account under subsection (a) shall not 
        exceed--
                  (A) in the case of an individual who is not 
                married at the close of such year, such 
                individual's earned income for such year, or
                  (B) in the case of an individual who is 
                married at the close of such year, the lesser 
                of such individual's earned income or the 
                earned income of his spouse for such year.
          (2) Special rule for spouse who is a student or 
        incapable of caring for himself.--In the case of a 
        spouse who is a student or a qualifying individual 
        described in subsection (b)(1)(C), for purposes of 
        paragraph (1), such spouse shall be deemed for each 
        month during which such spouse is a full-time student 
        at an educational institution, or is such a qualifying 
        individual, to be gainfully employed and to have earned 
        income of not less than--
                  (A) $250 if subsection (c)(1) applies for the 
                taxable year, or
                  (B) $500 if subsection (c)(2) applies for the 
                taxable year.
        In the case of any husband and wife, this paragraph 
        shall apply with respect to only one spouse for any one 
        month.
  (e) Special rules.--For purposes of this section--
          (1) Place of abode.--An individual shall not be 
        treated as having the same principal place of abode of 
        the taxpayer if at any time during the taxable year of 
        the taxpayer the relationship between the individual 
        and the taxpayer is in violation of local law.
          (2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, 
        the credit shall be allowed under subsection (a) only 
        if the taxpayer and his spouse file a joint return for 
        the taxable year.
          (3) Marital status.--An individual legally separated 
        from his spouse under a decree of divorce or of 
        separate maintenance shall not be considered as 
        married.
          (4) Certain married individuals living apart.--If--
                  (A) an individual who is married and who 
                files a separate return--
                          (i) maintains as his home a household 
                        which constitutes for more than one-
                        half of the taxable year the principal 
                        place of abode of a qualifying 
                        individual, and
                          (ii) furnishes over half of the cost 
                        of maintaining such household during 
                        the taxable year, and
                  (B) during the last 6 months of such taxable 
                year such individual's spouse is not a member 
                of such household,
        such individual shall not be considered as married.
          (5) Special dependency test in case of divorced 
        parents, etc..--If--
                  (A) section 152(e) applies to any child with 
                respect to any calendar year, and
                  (B) such child is under the age of 13 or is 
                physically or mentally incapable of caring for 
                himself,
        in the case of any taxable year beginning in such 
        calendar year, such child shall be treated as a 
        qualifying individual described in subparagraph (A) or 
        (B) of subsection (b)(1) (whichever is appropriate) 
        with respect to the custodial parent (as defined in 
        section 152(e)(4)(A)), and shall not be treated as a 
        qualifying individual with respect to the noncustodial 
        parent.
          (6) Payments to related individuals.--No credit shall 
        be allowed under subsection (a) for any amount paid by 
        the taxpayer to an individual--
                  (A) with respect to whom, for the taxable 
                year, a deduction under section 151(c) 
                (relating to deduction for personal exemptions 
                for dependents) is allowable either to the 
                taxpayer or his spouse, or
                  (B) who is a child of the taxpayer (within 
                the meaning of section 152(f)(1)) who has not 
                attained the age of 19 at the close of the 
                taxable year.
        For purposes of this paragraph, the term ``taxable 
        year'' means the taxable year of the taxpayer in which 
        the service is performed.
          (7) Student.--The term ``student'' means an 
        individual who during each of 5 calendar months during 
        the taxable year is a full-time student at an 
        educational organization.
          (8) Educational organization.--The term ``educational 
        organization'' means an educational organization 
        described in section 170(b)(1)(A)(ii).
          (9) Identifying information required with respect to 
        service provider.--No credit shall be allowed under 
        subsection (a) for any amount paid to any person 
        unless--
                  (A) the name, address, and taxpayer 
                identification number of such person are 
                included on the return claiming the credit, or
                  (B) if such person is an organization 
                described in section 501(c)(3) and exempt from 
                tax under section 501(a), the name and address 
                of such person are included on the return 
                claiming the credit.
        In the case of a failure to provide the information 
        required under the preceding sentence, the preceding 
        sentence shall not apply if it is shown that the 
        taxpayer exercised due diligence in attempting to 
        provide the information so required.
          (10) Identifying information required with respect to 
        qualifying individuals.--No credit shall be allowed 
        under this section with respect to any qualifying 
        individual unless the TIN of such individual is 
        included on the return claiming the credit.
  (f) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes of 
this section.
  (g) Special Rules for 2019 and 2020.--In the case of any 
taxable year beginning in 2019 or 2020--
          (1) Credit made refundable.--In the case of an 
        individual other than a nonresident alien, the credit 
        allowed under subsection (a) shall be treated as a 
        credit allowed under subpart C (and not allowed under 
        this subpart).
          (2) Increase in applicable percentage.--Subsection 
        (a)(2) shall be applied--
                  (A) by substituting ``50 percent'' for ``35 
                percent '', and
                  (B) by substituting ``$120,000'' for 
                ``$15,000''.
          (3) Increase in dollar limit on amount creditable.--
        Subsection (c) shall be applied--
                  (A) by substituting ``$6,000'' for ``$3,000'' 
                in paragraph (1) thereof, and
                  (B) by substituting ``twice the amount in 
                effect under paragraph (1)'' for ``$6,000'' in 
                paragraph (2) thereof.
          (4) Inflation adjustment of dollar amounts.--In the 
        case of any taxable year beginning after 2019, the 
        $120,000 amount in paragraph (2)(B) and the $6,000 
        amount in paragraph (3)(A) shall each be increased by 
        an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``2018'' for ``2016'' in 
                subparagraph (A)(ii) thereof.
        If any increase determined under this paragraph is not 
        a multiple of $100, such increase shall be rounded to 
        the next lowest multiple of $100.
          (5) Income limitation.--
                  (A) In general.--Paragraphs (1) through (4) 
                of this subsection shall not apply to any 
                taxpayer for any taxable year if the modified 
                adjusted gross income of such taxpayer for such 
                taxable year exceeds $1,000,000.
                  (B) Modified adjusted gross income.--For 
                purposes of this paragraph, the term ``modified 
                adjusted gross income'' means adjusted gross 
                income determined without regard to sections 
                911, 931, and 933.

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a) Allowance of credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year 
with respect to each qualifying child of the taxpayer for which 
the taxpayer is allowed a deduction under section 151 an amount 
equal to $1,000.
  (b) Limitations.--
          (1) Limitation based on adjusted gross income.--The 
        amount of the credit allowable under subsection (a) 
        shall be reduced (but not below zero) by $50 for each 
        $1,000 (or fraction thereof) by which the taxpayer's 
        modified adjusted gross income exceeds the threshold 
        amount. For purposes of the preceding sentence, the 
        term ``modified adjusted gross income'' means adjusted 
        gross income increased by any amount excluded from 
        gross income under section 911, 931, or 933.
          (2) Threshold amount.--For purposes of paragraph (1), 
        the term ``threshold amount'' means--
                  (A) $110,000 in the case of a joint return,
                  (B) $75,000 in the case of an individual who 
                is not married, and
                  (C) $55,000 in the case of a married 
                individual filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
  (c) Qualifying child.--For purposes of this section--
          (1) In general.--The term ``qualifying child'' means 
        a qualifying child of the taxpayer (as defined in 
        section 152(c)) who has not attained age 17.
          (2) Exception for certain noncitizens.--The term 
        ``qualifying child'' shall not include any individual 
        who would not be a dependent if subparagraph (A) of 
        section 152(b)(3) were applied without regard to all 
        that follows ``resident of the United States''.
  (d) Portion of credit refundable.--
          (1) In general.--The aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the 
        lesser of--
                  (A) the credit which would be allowed under 
                this section without regard to this subsection 
                and the limitation under section 26(a) or
                  (B) the amount by which the aggregate amount 
                of credits allowed by this subpart (determined 
                without regard to this subsection) would 
                increase if the limitation imposed by section 
                26(a) were increased by the greater of--
                          (i) 15 percent of so much of the 
                        taxpayer's earned income (within the 
                        meaning of section 32) which is taken 
                        into account in computing taxable 
                        income for the taxable year as exceeds 
                        $3,000, or
                          (ii) in the case of a taxpayer with 3 
                        or more qualifying children, the excess 
                        (if any) of--
                                  (I) the taxpayer's social 
                                security taxes for the taxable 
                                year, over
                                  (II) the credit allowed under 
                                section 32 for the taxable 
                                year.
        The amount of the credit allowed under this subsection 
        shall not be treated as a credit allowed under this 
        subpart and shall reduce the amount of credit otherwise 
        allowable under subsection (a) without regard to 
        section 26(a). For purposes of subparagraph (B), any 
        amount excluded from gross income by reason of section 
        112 shall be treated as earned income which is taken 
        into account in computing taxable income for the 
        taxable year.
          (2) Social security taxes.--For purposes of paragraph 
        (1)--
                  (A) In general.--The term ``social security 
                taxes'' means, with respect to any taxpayer for 
                any taxable year--
                          (i) the amount of the taxes imposed 
                        by sections 3101 and 3201(a) on amounts 
                        received by the taxpayer during the 
                        calendar year in which the taxable year 
                        begins,
                          (ii) 50 percent of the taxes imposed 
                        by section 1401 on the self-employment 
                        income of the taxpayer for the taxable 
                        year, and
                          (iii) 50 percent of the taxes imposed 
                        by section 3211(a) on amounts received 
                        by the taxpayer during the calendar 
                        year in which the taxable year begins.
                  (B) Coordination with special refund of 
                social security taxes.--The term ``social 
                security taxes'' shall not include any taxes to 
                the extent the taxpayer is entitled to a 
                special refund of such taxes under section 
                6413(c).
                  (C) Special rule.--Any amounts paid pursuant 
                to an agreement under section 3121(l) (relating 
                to agreements entered into by American 
                employers with respect to foreign affiliates) 
                which are equivalent to the taxes referred to 
                in subparagraph (A)(i) shall be treated as 
                taxes referred to in such subparagraph.
          (3) Exception for taxpayers excluding foreign earned 
        income.--Paragraph (1) shall not apply to any taxpayer 
        for any taxable year if such taxpayer elects to exclude 
        any amount from gross income under section 911 for such 
        taxable year.
  (e) Identification requirements.--
          (1) Qualifying child identification requirement.--No 
        credit shall be allowed under this section to a 
        taxpayer with respect to any qualifying child unless 
        the taxpayer includes the name and taxpayer 
        identification number of such qualifying child on the 
        return of tax for the taxable year and such taxpayer 
        identification number was issued on or before the due 
        date for filing such return.
          (2) Taxpayer identification requirement.--No credit 
        shall be allowed under this section if the taxpayer 
        identification number of the taxpayer was issued after 
        the due date for filing the return for the taxable 
        year.
  (f) Taxable year must be full taxable year.--Except in the 
case of a taxable year closed by reason of the death of the 
taxpayer, no credit shall be allowable under this section in 
the case of a taxable year covering a period of less than 12 
months.
  (g) Restrictions on taxpayers who improperly claimed credit 
in prior year.--
          (1) Taxpayers making prior fraudulent or reckless 
        claims.--
                  (A) In general.--No credit shall be allowed 
                under this section for any taxable year in the 
                disallowance period.
                  (B) Disallowance period.--For purposes of 
                subparagraph (A), the disallowance period is--
                          (i) the period of 10 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to fraud, 
                        and
                          (ii) the period of 2 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to reckless 
                        or intentional disregard of rules and 
                        regulations (but not due to fraud).
          (2) Taxpayers making improper prior claims.--In the 
        case of a taxpayer who is denied credit under this 
        section for any taxable year as a result of the 
        deficiency procedures under subchapter B of chapter 63, 
        no credit shall be allowed under this section for any 
        subsequent taxable year unless the taxpayer provides 
        such information as the Secretary may require to 
        demonstrate eligibility for such credit.
  (h) Special rules for taxable years 2018 through 2025.--
          (1) In general.--In the case of a taxable year 
        beginning after December 31, 2017, and before January 
        1, 2026, this section shall be applied as provided in 
        paragraphs (2) through (7).
          [(2) Credit amount.--Subsection (a) shall be applied 
        by substituting ``$2,000'' for ``$1,000''.]
          (2) Credit amount.--
                  (A) In general.--Except as provided in 
                subparagraph (B), subsection (a) shall be 
                applied by substituting ``$2,000'' for 
                ``$1,000''.
                  (B) Taxable years beginning in 2019 and 
                2020.--In the case of any taxable year 
                beginning in 2019 or 2020, subsection (a) shall 
                be applied by substituting ``$2,000 ($3,000 in 
                the case of a qualifying child who has not 
                attained age 4 as of the close of the calendar 
                year in which the taxable year of the taxpayer 
                begins)'' for ``$1,000''.
          (3) Limitation.--In lieu of the amount determined 
        under subsection (b)(2), the threshold amount shall be 
        $400,000 in the case of a joint return ($200,000 in any 
        other case).
          (4) Partial credit allowed for certain other 
        dependents.--
                  (A) In general.--The credit determined under 
                subsection (a) (after the application of 
                paragraph (2)) shall be increased by $500 for 
                each dependent of the taxpayer (as defined in 
                section 152) other than a qualifying child 
                described in subsection (c).
                  (B) Exception for certain noncitizens.--
                Subparagraph (A) shall not apply with respect 
                to any individual who would not be a dependent 
                if subparagraph (A) of section 152(b)(3) were 
                applied without regard to all that follows 
                ``resident of the United States''.
                  (C) Certain qualifying children.--In the case 
                of any qualifying child with respect to whom a 
                credit is not allowed under this section by 
                reason of paragraph (7), such child shall be 
                treated as a dependent to whom subparagraph (A) 
                applies.
          (5) Maximum amount of refundable credit.--
                  (A) In general.--The amount determined under 
                subsection (d)(1)(A) with respect to any 
                qualifying child shall not exceed $1,400, and 
                such subsection shall be applied without regard 
                to paragraph (4) of this subsection.
                  (B) Adjustment for inflation.--In the case of 
                a taxable year beginning after 2018, the $1,400 
                amount in subparagraph (A) shall be increased 
                by an amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for 
                        the calendar year in which the taxable 
                        year begins, determined by substituting 
                        ``2017'' for ``2016'' in subparagraph 
                        (A)(ii) thereof.
                If any increase under this clause is not a 
                multiple of $100, such increase shall be 
                rounded to the next lowest multiple of $100.
          (6) Earned income threshold for refundable credit.--
        Subsection (d)(1)(B)(i) shall be applied by 
        substituting ``$2,500'' for ``$3,000''.
          (7) Social security number required.--No credit shall 
        be allowed under this section to a taxpayer with 
        respect to any qualifying child unless the taxpayer 
        includes the social security number of such child on 
        the return of tax for the taxable year. For purposes of 
        the preceding sentence, the term ``social security 
        number'' means a social security number issued to an 
        individual by the Social Security Administration, but 
        only if the social security number is issued--
                  (A) to a citizen of the United States or 
                pursuant to subclause (I) (or that portion of 
                subclause (III) that relates to subclause (I)) 
                of section 205(c)(2)(B)(i) of the Social 
                Security Act, and
                  (B) before the due date for such return.
          (8) Credit fully refundable for 2019 and 2020.--In 
        the case of an individual other than a nonresident 
        alien, for any taxable year beginning in 2019 or 2020--
                  (A) paragraph (5) of this subsection shall 
                not apply, and
                  (B) the increase determined under the first 
                sentence of subsection (d)(1) shall be the 
                amount determined under subparagraph (A) of 
                such subsection (determined without regard to 
                paragraph (4) of this subsection).

           *       *       *       *       *       *       *


Subpart C--REFUNDABLE CREDITS

           *       *       *       *       *       *       *


SEC. 32. EARNED INCOME.

  (a) Allowance of credit.--
          (1) In general.--In the case of an eligible 
        individual, there shall be allowed as a credit against 
        the tax imposed by this subtitle for the taxable year 
        an amount equal to the credit percentage of so much of 
        the taxpayer's earned income for the taxable year as 
        does not exceed the earned income amount.
          (2) Limitation.--The amount of the credit allowable 
        to a taxpayer under paragraph (1) for any taxable year 
        shall not exceed the excess (if any) of--
                  (A) the credit percentage of the earned 
                income amount, over
                  (B) the phaseout percentage of so much of the 
                adjusted gross income (or, if greater, the 
                earned income) of the taxpayer for the taxable 
                year as exceeds the phaseout amount.
  (b) Percentages and amounts.--For purposes of subsection 
(a)--
          (1) Percentages.--The credit percentage and the 
        phaseout percentage shall be determined as follows:
          (2) Amounts.--
                  (A) In general.--Subject to subparagraph (B), 
                the earned income amount and the phaseout 
                amount shall be determined as follows:
                  (B) Joint returns.--In the case of a joint 
                return filed by an eligible individual and such 
                individual's spouse, the phaseout amount 
                determined under subparagraph (A) shall be 
                increased by $5,000.
  (c) Definitions and special rules.--For purposes of this 
section--
          (1) Eligible individual.--
                  (A) In general.--The term ``eligible 
                individual'' means--
                          (i) any individual who has a 
                        qualifying child for the taxable year, 
                        or
                          (ii) any other individual who does 
                        not have a qualifying child for the 
                        taxable year, if--
                                  (I) such individual's 
                                principal place of abode is in 
                                the United States for more than 
                                one-half of such taxable year,
                                  (II) such individual (or, if 
                                the individual is married, 
                                either the individual or the 
                                individual's spouse) has 
                                attained age 25 but not 
                                attained age 65 before the 
                                close of the taxable year, and
                                  (III) such individual is not 
                                a dependent for whom a 
                                deduction is allowable under 
                                section 151 to another taxpayer 
                                for any taxable year beginning 
                                in the same calendar year as 
                                such taxable year.
                 [ For purposes of the preceding sentence, 
                marital status shall be determined under 
                section 7703.]
                  (B) Qualifying child ineligible.--If an 
                individual is the qualifying child of a 
                taxpayer for any taxable year of such taxpayer 
                beginning in a calendar year, such individual 
                shall not be treated as an eligible individual 
                for any taxable year of such individual 
                beginning in such calendar year.
                  (C) Exception for individual claiming 
                benefits under section 911.--The term 
                ``eligible individual'' does not include any 
                individual who claims the benefits of section 
                911 (relating to citizens or residents living 
                abroad) for the taxable year.
                  (D) Limitation on eligibility of nonresident 
                aliens.--The term ``eligible individual'' shall 
                not include any individual who is a nonresident 
                alien individual for any portion of the taxable 
                year unless such individual is treated for such 
                taxable year as a resident of the United States 
                for purposes of this chapter by reason of an 
                election under subsection (g) or (h) of section 
                6013.
                  (E) Identification number requirement.--No 
                credit shall be allowed under this section to 
                an eligible individual who does not include on 
                the return of tax for the taxable year--
                          (i) such individual's taxpayer 
                        identification number, and
                          (ii) if the individual is married 
                        [(within the meaning of section 7703)], 
                        the taxpayer identification number of 
                        such individual's spouse.
                  [(F) Individuals who do not include TIN, 
                etc., of any qualifying child.--No credit shall 
                be allowed under this section to any eligible 
                individual who has one or more qualifying 
                children if no qualifying child of such 
                individual is taken into account under 
                subsection (b) by reason of paragraph (3)(D).]
          (2) Earned income.--(A) The term ``earned income'' 
        means--
                  (i) wages, salaries, tips, and other employee 
                compensation, but only if such amounts are 
                includible in gross income for the taxable 
                year, plus
                  (ii) the amount of the taxpayer's net 
                earnings from self-employment for the taxable 
                year (within the meaning of section 1402(a)), 
                but such net earnings shall be determined with 
                regard to the deduction allowed to the taxpayer 
                by section 164(f).
          (B) For purposes of subparagraph (A)--
                  (i) the earned income of an individual shall 
                be computed without regard to any community 
                property laws,
                  (ii) no amount received as a pension or 
                annuity shall be taken into account,
                  (iii) no amount to which section 871(a) 
                applies (relating to income of nonresident 
                alien individuals not connected with United 
                States business) shall be taken into account,
                  (iv) no amount received for services provided 
                by an individual while the individual is an 
                inmate at a penal institution shall be taken 
                into account,
                  (v) no amount described in subparagraph (A) 
                received for service performed in work 
                activities as defined in paragraph (4) or (7) 
                of section 407(d) of the Social Security Act to 
                which the taxpayer is assigned under any State 
                program under part A of title IV of such Act 
                shall be taken into account, but only to the 
                extent such amount is subsidized under such 
                State program, and
                  (vi) a taxpayer may elect to treat amounts 
                excluded from gross income by reason of section 
                112 as earned income.
          (3) Qualifying child.--
                  (A) In general.--The term ``qualifying 
                child'' means a qualifying child of the 
                taxpayer (as defined in section 152(c), 
                determined without regard to paragraph (1)(D) 
                thereof and section 152(e)).
                  (B) Married individual.--The term 
                ``qualifying child'' shall not include an 
                individual who is married as of the close of 
                the taxpayer's taxable year unless the taxpayer 
                is entitled to a deduction under section 151 
                for such taxable year with respect to such 
                individual (or would be so entitled but for 
                section 152(e)).
                  (C) Place of abode.--For purposes of 
                subparagraph (A), the requirements of section 
                152(c)(1)(B) shall be met only if the principal 
                place of abode is in the United States.
                  (D) Identification requirements.--
                          (i) In general.--A qualifying child 
                        shall not be taken into account under 
                        subsection (b) unless the taxpayer 
                        includes the name, age, and TIN of the 
                        qualifying child on the return of tax 
                        for the taxable year.
                          (ii) Other methods.--The Secretary 
                        may prescribe other methods for 
                        providing the information described in 
                        clause (i).
          (4) Treatment of military personnel stationed outside 
        the United States.--For purposes of paragraphs 
        (1)(A)(ii)(I) and (3)(C), the principal place of abode 
        of a member of the Armed Forces of the United States 
        shall be treated as in the United States during any 
        period during which such member is stationed outside 
        the United States while serving on extended active duty 
        with the Armed Forces of the United States. For 
        purposes of the preceding sentence, the term ``extended 
        active duty'' means any period of active duty pursuant 
        to a call or order to such duty for a period in excess 
        of 90 days or for an indefinite period.
  (d)  [Married individuals.--].--[In the case of] Married 
Individuals._
          (1) In general._In the case of  an individual who is 
        married [(within the meaning of section 7703)], this 
        section shall apply only if a joint return is filed for 
        the taxable year under section 6013.
          (2) Determination of marital status.--For purposes of 
        this section--
                  (A) In general.--Except as provided in 
                subparagraph (B), marital status shall be 
                determined under section 7703(a).
                  (B) Special rule for separated spouse.--An 
                individual shall not be treated as married if 
                such individual--
                          (i) is married (as determined under 
                        section 7703(a)) and does not file a 
                        joint return for the taxable year,
                          (ii) lives with a qualifying child of 
                        the individual for more than one-half 
                        of such taxable year, and
                          (iii)(I) during the last 6 months of 
                        such taxable year, does not have the 
                        same principal place of abode as the 
                        individual's spouse, or
                          (II) has a decree, instrument, or 
                        agreement (other than a decree of 
                        divorce) described in section 
                        121(d)(3)(C) with respect to the 
                        individual's spouse and is not a member 
                        of the same household with the 
                        individual's spouse by the end of the 
                        taxable year.
  (e) Taxable year must be full taxable year.--Except in the 
case of a taxable year closed by reason of the death of the 
taxpayer, no credit shall be allowable under this section in 
the case of a taxable year covering a period of less than 12 
months.
  (f) Amount of credit to be determined under tables.--
          (1) In general.--The amount of the credit allowed by 
        this section shall be determined under tables 
        prescribed by the Secretary.
          (2) Requirements for tables.--The tables prescribed 
        under paragraph (1) shall reflect the provisions of 
        subsections (a) and (b) and shall have income brackets 
        of not greater than $50 each--
                  (A) for earned income between $0 and the 
                amount of earned income at which the credit is 
                phased out under subsection (b), and
                  (B) for adjusted gross income between the 
                dollar amount at which the phaseout begins 
                under subsection (b) and the amount of adjusted 
                gross income at which the credit is phased out 
                under subsection (b).
  [(i) Denial of credit for individuals having excessive 
investment income.--
          [(1) In general.--No credit shall be allowed under 
        subsection (a) for the taxable year if the aggregate 
        amount of disqualified income of the taxpayer for the 
        taxable year exceeds $2,200.
          [(2) Disqualified income.--For purposes of paragraph 
        (1), the term ``disqualified income'' means--
                  [(A) interest or dividends to the extent 
                includible in gross income for the taxable 
                year,
                  [(B) interest received or accrued during the 
                taxable year which is exempt from tax imposed 
                by this chapter,
                  [(C) the excess (if any) of--
                          [(i) gross income from rents or 
                        royalties not derived in the ordinary 
                        course of a trade or business, over
                          [(ii) the sum of--
                                  [(I) the deductions (other 
                                than interest) which are 
                                clearly and directly allocable 
                                to such gross income, plus
                                  [(II) interest deductions 
                                properly allocable to such 
                                gross income,
                  [(D) the capital gain net income (as defined 
                in section 1222) of the taxpayer for such 
                taxable year, and
                  [(E) the excess (if any) of--
                          [(i) the aggregate income from all 
                        passive activities for the taxable year 
                        (determined without regard to any 
                        amount included in earned income under 
                        subsection (c)(2) or described in a 
                        preceding subparagraph), over
                          [(ii) the aggregate losses from all 
                        passive activities for the taxable year 
                        (as so determined).
        For purposes of subparagraph (E), the term ``passive 
        activity'' has the meaning given such term by section 
        469.]
  (j) Inflation adjustments.--
          (1) In general.--In the case of any taxable year 
        beginning after 2015, each of the dollar amounts in 
        [subsections (b)(2) and (i)(1)] subsection (b)(2) shall 
        be increased by an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting in subparagraph (A)(ii) thereof--
                          (i) in the case of amounts in 
                        [subsections (b)(2)(A) and (i)(1)] 
                        subsection (b)(2)(A), ``calendar year 
                        1995'' for ``calendar year 2016'', and
                          (ii) in the case of the $5,000 amount 
                        in subsection (b)(2)(B), ``calendar 
                        year 2008'' for ``calendar year 2016''.
          (2)  [Rounding.-- 
                  [(A) In general.--If any dollar amount] 
                Rounding._If any dollar amount  in subsection 
                (b)(2)(A) (after being increased under 
                subparagraph (B) thereof), after being 
                increased under paragraph (1), is not a 
                multiple of $10, such dollar amount shall be 
                rounded to the nearest multiple of $10.
                  [(B) Disqualified income threshold amount.--
                If the dollar amount in subsection (i)(1), 
                after being increased under paragraph (1), is 
                not a multiple of $50, such amount shall be 
                rounded to the next lowest multiple of $50.]
  (k) Restrictions on taxpayers who improperly claimed credit 
in prior year.--
          (1) Taxpayers making prior fraudulent or reckless 
        claims.--
                  (A) In general.--No credit shall be allowed 
                under this section for any taxable year in the 
                disallowance period.
                  (B) Disallowance period.--For purposes of 
                paragraph (1), the disallowance period is--
                          (i) the period of 10 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to fraud, 
                        and
                          (ii) the period of 2 taxable years 
                        after the most recent taxable year for 
                        which there was a final determination 
                        that the taxpayer's claim of credit 
                        under this section was due to reckless 
                        or intentional disregard of rules and 
                        regulations (but not due to fraud).
          (2) Taxpayers making improper prior claims.--In the 
        case of a taxpayer who is denied credit under this 
        section for any taxable year as a result of the 
        deficiency procedures under subchapter B of chapter 63, 
        no credit shall be allowed under this section for any 
        subsequent taxable year unless the taxpayer provides 
        such information as the Secretary may require to 
        demonstrate eligibility for such credit.
  (l) Coordination with certain means-tested programs.--For 
purposes of--
          (1) the United States Housing Act of 1937,
          (2) title V of the Housing Act of 1949,
          (3) section 101 of the Housing and Urban Development 
        Act of 1965,
          (4) sections 221(d)(3), 235, and 236 of the National 
        Housing Act, and
          (5) the Food and Nutrition Act of 2008,
any refund made to an individual (or the spouse of an 
individual) by reason of this section shall not be treated as 
income (and shall not be taken into account in determining 
resources for the month of its receipt and the following 
month).
  (m) Identification numbers.--Solely for purposes of 
subsections (c)(1)(E) and (c)(3)(D), a taxpayer identification 
number means a social security number issued to an individual 
by the Social Security Administration (other than a social 
security number issued pursuant to clause (II) (or that portion 
of clause (III) that relates to clause (II)) of section 
205(c)(2)(B)(i) of the Social Security Act) on or before the 
due date for filing the return for the taxable year.
  (n) Special Rules for Individuals Without Qualifying 
Children.--In the case of any taxable year beginning in 2019 or 
2020--
          (1) Credit allowed for certain individuals over age 
        18.--
                  (A) In general.--Except in the case of a 
                full-time student (or, in the case of a married 
                individual, except if both the individual and 
                the individual's spouse are full-time 
                students), subsection (c)(1)(A)(ii)(II) shall 
                be applied by substituting ``age 19'' for ``age 
                25''.
                  (B) Full-time student.--For purposes of this 
                paragraph, the term ``full-time student'' 
                means, with respect to a taxable year, an 
                individual who is an eligible student (as 
                defined in section 25A(b)(3)) during at least 5 
                calendar months during the taxable year.
          (2) Increase in maximum age for credit.--Subsection 
        (c)(1)(A)(ii)(II) shall be applied by substituting 
        ``age 66'' for ``age 65''.
          (3) Increase in credit and phaseout percentages.--The 
        table contained in subsection (b)(1) shall be applied 
        by substituting ``15.3'' for ``7.65'' each place it 
        appears therein.
          (4) Increase in earned income and phaseout amounts.--
                  (A) In general.--The table contained in 
                subsection (b)(2)(A) shall be applied--
                          (i) by substituting ``$9,570'' for 
                        ``$4,220'', and
                          (ii) by substituting ``$11,310'' for 
                        ``$5,280''.
                  (B) Coordination with inflation adjustment.--
                          (i) In general.--In the case of any 
                        taxable year beginning after 2019, the 
                        $9,570 and $11,310 amounts in 
                        subparagraph (A) shall each be 
                        increased by an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting ``2018'' for 
                                ``2016'' in subparagraph 
                                (A)(ii) thereof.
                          (ii) Rounding.--If any increase under 
                        clause (i) is not a multiple of $10, 
                        such increase shall be rounded to the 
                        nearest multiple of $10.
                          (iii) Coordination with other 
                        inflation adjustment.--Subsection (j) 
                        shall not apply to any dollar amount 
                        specified in this paragraph.

Subchapter B--COMPUTATION OF TAXABLE INCOME

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 129. DEPENDENT CARE ASSISTANCE PROGRAMS.

  (a) Exclusion.--
          (1) In general.--Gross income of an employee does not 
        include amounts paid or incurred by the employer for 
        dependent care assistance provided to such employee if 
        the assistance is furnished pursuant to a program which 
        is described in subsection (d).
          (2) Limitation of exclusion.--
                  (A) In general.--The amount which may be 
                excluded under paragraph (1) for dependent care 
                assistance with respect to dependent care 
                services provided during a taxable year shall 
                not exceed $5,000 ($2,500 in the case of a 
                separate return by a married individual).
                  (B) Year of inclusion.--The amount of any 
                excess under subparagraph (A) shall be included 
                in gross income in the taxable year in which 
                the dependent care services were provided (even 
                if payment of dependent care assistance for 
                such services occurs in a subsequent taxable 
                year).
                  (C) Marital status.--For purposes of this 
                paragraph, marital status shall be determined 
                under the rules of paragraphs (3) and (4) of 
                section 21(e).
                  (D) Special rule for 2020 and 2021.--In the 
                case of any taxable year beginning in 2020 or 
                2021--
                          (i) In general.--Subparagraph (A) 
                        shall be applied be substituting 
                        ``$10,500 (half such dollar amount'' 
                        for ``$5,000 ($2,500''.
                          (ii) Inflation adjustment.--In the 
                        case of any taxable year beginning 
                        after 2020, the $10,500 amount in 
                        clause (i) shall be increased by an 
                        amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting ``2019'' for 
                                ``2016'' in subparagraph 
                                (A)(ii) thereof.
                        Any increase determined under the 
                        preceding sentence which is not a 
                        multiple of $50, shall be rounded to 
                        the nearest multiple of $50.
  (b) Earned income limitation.--
          (1) In general.--The amount excluded from the income 
        of an employee under subsection (a) for any taxable 
        year shall not exceed--
                  (A) in the case of an employee who is not 
                married at the close of such taxable year, the 
                earned income of such employee for such taxable 
                year, or
                  (B) in the case of an employee who is married 
                at the close of such taxable year, the lesser 
                of--
                          (i) the earned income of such 
                        employee for such taxable year, or
                          (ii) the earned income of the spouse 
                        of such employee for such taxable year.
          (2) Special rule for certain spouses.--For purposes 
        of paragraph (1), the provisions of section 21(d)(2) 
        shall apply in determining the earned income of a 
        spouse who is a student or incapable of caring for 
        himself.
  (c) Payments to related individuals.--No amount paid or 
incurred during the taxable year of an employee by an employer 
in providing dependent care assistance to such employee shall 
be excluded under subsection (a) if such amount was paid or 
incurred to an individual--
          (1) with respect to whom, for such taxable year, a 
        deduction is allowable under section 151(c) (relating 
        to personal exemptions for dependents) to such employee 
        or the spouse of such employee, or
          (2) who is a child of such employee (within the 
        meaning of section 152(f)(1)) under the age of 19 at 
        the close of such taxable year.
  (d) Dependent care assistance program.--
          (1) In general.--For purposes of this section a 
        dependent care assistance program is a separate written 
        plan of an employer for the exclusive benefit of his 
        employees to provide such employees with dependent care 
        assistance which meets the requirements of paragraphs 
        (2) through (8) of this subsection. If any plan would 
        qualify as a dependent care assistance program but for 
        a failure to meet the requirements of this subsection, 
        then, notwithstanding such failure, such plan shall be 
        treated as a dependent care assistance program in the 
        case of employees who are not highly compensated 
        employees.
          (2) Discrimination.--The contributions or benefits 
        provided under the plan shall not discriminate in favor 
        of employees who are highly compensated employees 
        (within the meaning of section 414(q)) or their 
        dependents.
          (3) Eligibility.--The program shall benefit employees 
        who qualify under a classification set up by the 
        employer and found by the Secretary not to be 
        discriminatory in favor of employees described in 
        paragraph (2), or their dependents.
          (4) Principal shareholders or owners.--Not more than 
        25 percent of the amounts paid or incurred by the 
        employer for dependent care assistance during the year 
        may be provided for the class of individuals who are 
        shareholders or owners (or their spouses or 
        dependents), each of whom (on any day of the year) owns 
        more than 5 percent of the stock or of the capital or 
        profits interest in the employer.
          (5) No funding required.--A program referred to in 
        paragraph (1) is not required to be funded.
          (6) Notification of eligible employees.--Reasonable 
        notification of the availability and terms of the 
        program shall be provided to eligible employees.
          (7) Statement of expenses.--The plan shall furnish to 
        an employee, on or before January 31, a written 
        statement showing the amounts paid or expenses incurred 
        by the employer in providing dependent care assistance 
        to such employee during the previous calendar year.
          (8) Benefits.--
                  (A) In general.--A plan meets the 
                requirements of this paragraph if the average 
                benefits provided to employees who are not 
                highly compensated employees under all plans of 
                the employer is at least 55 percent of the 
                average benefits provided to highly compensated 
                employees under all plans of the employer.
                  (B) Salary reduction agreements.--For 
                purposes of subparagraph (A), in the case of 
                any benefits provided through a salary 
                reduction agreement, a plan may disregard any 
                employees whose compensation is less than 
                $25,000. For purposes of this subparagraph, the 
                term ``compensation'' has the meaning given 
                such term by section 414(q)(4), except that, 
                under rules prescribed by the Secretary, an 
                employer may elect to determine compensation on 
                any other basis which does not discriminate in 
                favor of highly compensated employees.
          (9) Excluded employees.--For purposes of paragraphs 
        (3) and (8), there shall be excluded from 
        consideration--
                  (A) subject to rules similar to the rules of 
                section 410(b)(4), employees who have not 
                attained the age of 21 and completed 1 year of 
                service (as defined in section 410(a)(3)), and
                  (B) employees not included in a dependent 
                care assistance program who are included in a 
                unit of employees covered by an agreement which 
                the Secretary finds to be a collective 
                bargaining agreement between employee 
                representatives and 1 or more employees, if 
                there is evidence that dependent care benefits 
                were the subject of good faith bargaining 
                between such employee representatives and such 
                employer or employers.
  (e) Definitions and special rules.--For purposes of this 
section--
          (1) Dependent care assistance.--The term ``dependent 
        care assistance'' means the payment of, or provision 
        of, those services which if paid for by the employee 
        would be considered employment-related expenses under 
        section 21(b)(2) (relating to expenses for household 
        and dependent care services necessary for gainful 
        employment).
          (2) Earned income.--The term ``earned income'' shall 
        have the meaning given such term in section 32(c)(2), 
        but such term shall not include any amounts paid or 
        incurred by an employer for dependent care assistance 
        to an employee.
          (3) Employee.--The term ``employee'' includes, for 
        any year, an individual who is an employee within the 
        meaning of section 401(c)(1) (relating to self-employed 
        individuals).
          (4) Employer.--An individual who owns the entire 
        interest in an unincorporated trade or business shall 
        be treated as his own employer. A partnership shall be 
        treated as the employer of each partner who is an 
        employee within the meaning of paragraph (3).
          (5) Attribution rules.--
                  (A) Ownership of stock.--Ownership of stock 
                in a corporation shall be determined in 
                accordance with the rules provided under 
                subsections (d) and (e) of section 1563 
                (without regard to section 1563(e)(3)(C)).
                  (B) Interest in unincorporated trade or 
                business.--The interest of an employee in a 
                trade or business which is not incorporated 
                shall be determined in accordance with 
                regulations prescribed by the Secretary, which 
                shall be based on principles similar to the 
                principles which apply in the case of 
                subparagraph (A).
          (6) Utilization test not applicable.--A dependent 
        care assistance program shall not be held or considered 
        to fail to meet any requirements of subsection (d) 
        (other than paragraphs (4) and (8) thereof) merely 
        because of utilization rates for the different types of 
        assistance made available under the program.
          (7) Disallowance of excluded amounts as credit or 
        deduction.--No deduction or credit shall be allowed to 
        the employee under any other section of this chapter 
        for any amount excluded from the gross income of the 
        employee by reason of this section.
          (8) Treatment of onsite facilities.--In the case of 
        an onsite facility maintained by an employer, except to 
        the extent provided in regulations, the amount of 
        dependent care assistance provided to an employee 
        excluded with respect to any dependent shall be based 
        on--
                  (A) utilization of the facility by a 
                dependent of the employee, and
                  (B) the value of the services provided with 
                respect to such dependent.
          (9) Identifying information required with respect to 
        service provider.--No amount paid or incurred by an 
        employer for dependent care assistance provided to an 
        employee shall be excluded from the gross income of 
        such employee unless--
                  (A) the name, address, and taxpayer 
                identification number of the person performing 
                the services are included on the return to 
                which the exclusion relates, or
                  (B) if such person is an organization 
                described in section 501(c)(3) and exempt from 
                tax under section 501(a), the name and address 
                of such person are included on the return to 
                which the exclusion relates.
        In the case of a failure to provide the information 
        required under the preceding sentence, the preceding 
        sentence shall not apply if it is shown that the 
        taxpayer exercised due diligence in attempting to 
        provide the information so required.

           *       *       *       *       *       *       *


Subchapter F--EXEMPT ORGANIZATIONS

           *       *       *       *       *       *       *


PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS

           *       *       *       *       *       *       *


SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

  (a) Definition.--For purposes of this title--
          (1) General rule.--Except as otherwise provided in 
        this subsection, the term ``unrelated business taxable 
        income'' means the gross income derived by any 
        organization from any unrelated trade or business (as 
        defined in section 513) regularly carried on by it, 
        less the deductions allowed by this chapter which are 
        directly connected with the carrying on of such trade 
        or business, both computed with the modifications 
        provided in subsection (b).
          (2) Special rule for foreign organizations.--In the 
        case of an organization described in section 511 which 
        is a foreign organization, the unrelated business 
        taxable income shall be--
                  (A) its unrelated business taxable income 
                which is derived from sources within the United 
                States and which is not effectively connected 
                with the conduct of a trade or business within 
                the United States, plus
                  (B) its unrelated business taxable income 
                which is effectively connected with the conduct 
                of a trade or business within the United 
                States.
          (3) Special rules applicable to organizations 
        described in paragraph (7), (9), or (17) of section 
        501(c).--
                  (A) General rule.--In the case of an 
                organization described in paragraph (7), (9), 
                or (17) of section 501(c), the term ``unrelated 
                business taxable income'' means the gross 
                income (excluding any exempt function income), 
                less the deductions allowed by this chapter 
                which are directly connected with the 
                production of the gross income (excluding 
                exempt function income), both computed with the 
                modifications provided in paragraphs (6), (10), 
                (11), and (12) of subsection (b). For purposes 
                of the preceding sentence, the deductions 
                provided by sections 243 and 245 (relating to 
                dividends received by corporations) shall be 
                treated as not directly connected with the 
                production of gross income.
                  (B) Exempt function income.--For purposes of 
                subparagraph (A), the term ``exempt function 
                income'' means the gross income from dues, 
                fees, charges, or similar amounts paid by 
                members of the organization as consideration 
                for providing such members or their dependents 
                or guests goods, facilities, or services in 
                furtherance of the purposes constituting the 
                basis for the exemption of the organization to 
                which such income is paid. Such term also means 
                all income (other than an amount equal to the 
                gross income derived from any unrelated trade 
                or business regularly carried on by such 
                organization computed as if the organization 
                were subject to paragraph (1)), which is set 
                aside--
                          (i) for a purpose specified in 
                        section 170(c)(4), or
                          (ii) in the case of an organization 
                        described in paragraph (9) or (17) of 
                        section 501(c), to provide for the 
                        payment of life, sick, accident, or 
                        other benefits,
                including reasonable costs of administration 
                directly connected with a purpose described in 
                clause (i) or (ii). If during the taxable year, 
                an amount which is attributable to income so 
                set aside is used for a purpose other than that 
                described in clause (i) or (ii), such amount 
                shall be included, under subparagraph (A), in 
                unrelated business taxable income for the 
                taxable year.
                  (C) Applicability to certain corporations 
                described in section 501(c)(2).--In the case of 
                a corporation described in section 501(c)(2), 
                the income of which is payable to an 
                organization described in paragraph (7), (9), 
                or (17) of section 501(c), subparagraph (A) 
                shall apply as if such corporation were the 
                organization to which the income is payable. 
                For purposes of the preceding sentence, such 
                corporation shall be treated as having exempt 
                function income for a taxable year only if it 
                files a consolidated return with such 
                organization for such year.
                  (D) Nonrecognition of gain.--If property used 
                directly in the performance of the exempt 
                function of an organization described in 
                paragraph (7), (9), or (17) of section 501(c) 
                is sold by such organization, and within a 
                period beginning 1 year before the date of such 
                sale, and ending 3 years after such date, other 
                property is purchased and used by such 
                organization directly in the performance of its 
                exempt function, gain (if any) from such sale 
                shall be recognized only to the extent that 
                such organization's sales price of the old 
                property exceeds the organization's cost of 
                purchasing the other property. For purposes of 
                this subparagraph, the destruction in whole or 
                in part, theft, seizure, requisition, or 
                condemnation of property, shall be treated as 
                the sale of such property, and rules similar to 
                the rules provided by subsections (b), (c), 
                (e), and (j) of section 1034 (as in effect on 
                the day before the date of the enactment of the 
                Taxpayer Relief Act of 1997) shall apply.
                  (E) Limitation on amount of setaside in the 
                case of organizations described in paragraph 
                (9) or (17) of section 501(c).--
                          (i) In general.--In the case of any 
                        organization described in paragraph (9) 
                        or (17) of section 501(c), a set-aside 
                        for any purpose specified in clause 
                        (ii) of subparagraph (B) may be taken 
                        into account under subparagraph (B) 
                        only to the extent that such set-aside 
                        does not result in an amount of assets 
                        set aside for such purpose in excess of 
                        the account limit determined under 
                        section 419A (without regard to 
                        subsection (f)(6) thereof) for the 
                        taxable year (not taking into account 
                        any reserve described in section 
                        419A(c)(2)(A) for post-retirement 
                        medical benefits).
                          (ii) Treatment of existing reserves 
                        for post-retirement medical or life 
                        insurance benefits.--
                                  (I) Clause (i) shall not 
                                apply to any income 
                                attributable to an existing 
                                reserve for post-retirement 
                                medical or life insurance 
                                benefits.
                                  (II) For purposes of 
                                subclause (I), the term 
                                ``reserve for post-retirement 
                                medical or life insurance 
                                benefits'' means the greater of 
                                the amount of assets set aside 
                                for purposes of post-retirement 
                                medical or life insurance 
                                benefits to be provided to 
                                covered employees as of the 
                                close of the last plan year 
                                ending before the date of the 
                                enactment of the Tax Reform Act 
                                of 1984 or on July 18, 1984.
                                  (III) All payments during 
                                plan years ending on or after 
                                the date of the enactment of 
                                the Tax Reform Act of 1984 of 
                                post-retirement medical 
                                benefits or life insurance 
                                benefits shall be charged 
                                against the reserve referred to 
                                in subclause (II). Except to 
                                the extent provided in 
                                regulations prescribed by the 
                                Secretary, all plans of an 
                                employer shall be treated as 1 
                                plan for purposes of the 
                                preceding sentence.
                          (iii) Treatment of tax exempt 
                        organizations.--This subparagraph shall 
                        not apply to any organization if 
                        substantially all of the contributions 
                        to such organization are made by 
                        employers who were exempt from tax 
                        under this chapter throughout the 5-
                        taxable year period ending with the 
                        taxable year in which the contributions 
                        are made.
          (4) Special rule applicable to organizations 
        described in section 501(c)(19).--In the case of an 
        organization described in section 501(c)(19), the term 
        ``unrelated business taxable income'' does not include 
        any amount attributable to payments for life, sick, 
        accident, or health insurance with respect to members 
        of such organizations or their dependents which is set 
        aside for the purpose of providing for the payment of 
        insurance benefits or for a purpose specified in 
        section 170(c)(4). If an amount set aside under the 
        preceding sentence is used during the taxable year for 
        a purpose other than a purpose described in the 
        preceding sentence, such amount shall be included, 
        under paragraph (1), in unrelated business taxable 
        income for the taxable year.
          (5) Definition of payments with respect to securities 
        loans.--
                  (A) The term ``payments with respect to 
                securities loans'' includes all amounts 
                received in respect of a security (as defined 
                in section 1236(c)) transferred by the owner to 
                another person in a transaction to which 
                section 1058 applies (whether or not title to 
                the security remains in the name of the lender) 
                including--
                          (i) amounts in respect of dividends, 
                        interest, or other distributions,
                          (ii) fees computed by reference to 
                        the period beginning with the transfer 
                        of securities by the owner and ending 
                        with the transfer of identical 
                        securities back to the transferor by 
                        the transferee and the fair market 
                        value of the security during such 
                        period,
                          (iii) income from collateral security 
                        for such loan, and
                          (iv) income from the investment of 
                        collateral security.
                  (B) Subparagraph (A) shall apply only with 
                respect to securities transferred pursuant to 
                an agreement between the transferor and the 
                transferee which provides for--
                          (i) reasonable procedures to 
                        implement the obligation of the 
                        transferee to furnish to the 
                        transferor, for each business day 
                        during such period, collateral with a 
                        fair market value not less than the 
                        fair market value of the security at 
                        the close of business on the preceding 
                        business day,
                          (ii) termination of the loan by the 
                        transferor upon notice of not more than 
                        5 business days, and
                          (iii) return to the transferor of 
                        securities identical to the transferred 
                        securities upon termination of the 
                        loan.
          (6) Special rule for organization with more than 1 
        unrelated trade or business.--In the case of any 
        organization with more than 1 unrelated trade or 
        business--
                  (A) unrelated business taxable income, 
                including for purposes of determining any net 
                operating loss deduction, shall be computed 
                separately with respect to each such trade or 
                business and without regard to subsection 
                (b)(12),
                  (B) the unrelated business taxable income of 
                such organization shall be the sum of the 
                unrelated business taxable income so computed 
                with respect to each such trade or business, 
                less a specific deduction under subsection 
                (b)(12), and
                  (C) for purposes of subparagraph (B), 
                unrelated business taxable income with respect 
                to any such trade or business shall not be less 
                than zero.
          [(7) Increase in unrelated business taxable income by 
        disallowed fringe.--Unrelated business taxable income 
        of an organization shall be increased by any amount for 
        which a deduction is not allowable under this chapter 
        by reason of section 274 and which is paid or incurred 
        by such organization for any qualified transportation 
        fringe (as defined in section 132(f)), any parking 
        facility used in connection with qualified parking (as 
        defined in section 132(f)(5)(C)), or any on-premises 
        athletic facility (as defined in section 132(j)(4)(B)). 
        The preceding sentence shall not apply to the extent 
        the amount paid or incurred is directly connected with 
        an unrelated trade or business which is regularly 
        carried on by the organization. The Secretary shall 
        issue such regulations or other guidance as may be 
        necessary or appropriate to carry out the purposes of 
        this paragraph, including regulations or other guidance 
        providing for the appropriate allocation of 
        depreciation and other costs with respect to facilities 
        used for parking or for on-premises athletic 
        facilities.]
  (b) Modifications.--The modifications referred to in 
subsection (a) are the following:
          (1) There shall be excluded all dividends, interest, 
        payments with respect to securities loans (as defined 
        in subsection (a)(5)), amounts received or accrued as 
        consideration for entering into agreements to make 
        loans, and annuities, and all deductions directly 
        connected with such income.
          (2) There shall be excluded all royalties (including 
        overriding royalties) whether measured by production or 
        by gross or taxable income from the property, and all 
        deductions directly connected with such income.
          (3) In the case of rents--
                  (A) Except as provided in subparagraph (B), 
                there shall be excluded--
                          (i) all rents from real property 
                        (including property described in 
                        section 1245(a)(3)(C)), and
                          (ii) all rents from personal property 
                        (including for purposes of this 
                        paragraph as personal property any 
                        property described in section 
                        1245(a)(3)(B)) leased with such real 
                        property, if the rents attributable to 
                        such personal property are an 
                        incidental amount of the total rents 
                        received or accrued under the lease, 
                        determined at the time the personal 
                        property is placed in service.
                  (B) Subparagraph (A) shall not apply--
                          (i) if more than 50 percent of the 
                        total rent received or accrued under 
                        the lease is attributable to personal 
                        property described in subparagraph 
                        (A)(ii), or
                          (ii) if the determination of the 
                        amount of such rent depends in whole or 
                        in part on the income or profits 
                        derived by any person from the property 
                        leased (other than an amount based on a 
                        fixed percentage or percentages of 
                        receipts or sales).
                  (C) There shall be excluded all deductions 
                directly connected with rents excluded under 
                subparagraph (A).
          (4) Notwithstanding paragraph (1), (2), (3), or (5), 
        in the case of debt-financed property (as defined in 
        section 514) there shall be included, as an item of 
        gross income derived from an unrelated trade or 
        business, the amount ascertained under section 
        514(a)(1), and there shall be allowed, as a deduction, 
        the amount ascertained under section 514(a)(2).
          (5) There shall be excluded all gains or losses from 
        the sale, exchange, or other disposition of property 
        other than--
                  (A) stock in trade or other property of a 
                kind which would properly be includible in 
                inventory if on hand at the close of the 
                taxable year, or
                  (B) property held primarily for sale to 
                customers in the ordinary course of the trade 
                or business.
        There shall also be excluded all gains or losses 
        recognized, in connection with the organization's 
        investment activities, from the lapse or termination of 
        options to buy or sell securities (as defined in 
        section 1236(c)) or real property and all gains or 
        losses from the forfeiture of good-faith deposits (that 
        are consistent with established business practice) for 
        the purchase, sale, or lease of real property in 
        connection with the organization's investment 
        activities. This paragraph shall not apply with respect 
        to the cutting of timber which is considered, on the 
        application of section 631, as a sale or exchange of 
        such timber.
          (6) The net operating loss deduction provided in 
        section 172 shall be allowed, except that--
                  (A) the net operating loss for any taxable 
                year, the amount of the net operating loss 
                carryback or carryover to any taxable year, and 
                the net operating loss deduction for any 
                taxable year shall be determined under section 
                172 without taking into account any amount of 
                income or deduction which is excluded under 
                this part in computing the unrelated business 
                taxable income; and
                  (B) the terms ``preceding taxable year'' and 
                ``preceding taxable years'' as used in section 
                172 shall not include any taxable year for 
                which the organization was not subject to the 
                provisions of this part.
          (7) There shall be excluded all income derived from 
        research for (A) the United States, or any of its 
        agencies or instrumentalities, or (B) any State or 
        political subdivision thereof; and there shall be 
        excluded all deductions directly connected with such 
        income.
          (8) In the case of a college, university, or 
        hospital, there shall be excluded all income derived 
        from research performed for any person, and all 
        deductions directly connected with such income.
          (9) In the case of an organization operated primarily 
        for purposes of carrying on fundamental research the 
        results of which are freely available to the general 
        public, there shall be excluded all income derived from 
        research performed for any person, and all deductions 
        directly connected with such income.
          (10) In the case of any organization described in 
        section 511(a), the deduction allowed by section 170 
        (relating to charitable etc. contributions and gifts) 
        shall be allowed (whether or not directly connected 
        with the carrying on of the trade or business), but 
        shall not exceed 10 percent of the unrelated business 
        taxable income computed without the benefit of this 
        paragraph.
          (11) In the case of any trust described in section 
        511(b), the deduction allowed by section 170 (relating 
        to charitable etc. contributions and gifts) shall be 
        allowed (whether or not directly connected with the 
        carrying on of the trade or business), and for such 
        purpose a distribution made by the trust to a 
        beneficiary described in section 170 shall be 
        considered as a gift or contribution. The deduction 
        allowed by this paragraph shall be allowed with the 
        limitations prescribed in section 170(b)(1)(A) and (B) 
        determined with reference to the unrelated business 
        taxable income computed without the benefit of this 
        paragraph (in lieu of with reference to adjusted gross 
        income).
          (12) Except for purposes of computing the net 
        operating loss under section 172 and paragraph (6), 
        there shall be allowed a specific deduction of $1,000. 
        In the case of a diocese, province of a religious 
        order, or a convention or association of churches, 
        there shall also be allowed, with respect to each 
        parish, individual church, district, or other local 
        unit, a specific deduction equal to the lower of--
                  (A) $1,000, or
                  (B) the gross income derived from any 
                unrelated trade or business regularly carried 
                on by such local unit.
          (13) Special rules for certain amounts received from 
        controlled entities.--
                  (A) In general.--If an organization (in this 
                paragraph referred to as the ``controlling 
                organization'') receives or accrues (directly 
                or indirectly) a specified payment from another 
                entity which it controls (in this paragraph 
                referred to as the ``controlled entity''), 
                notwithstanding paragraphs (1), (2), and (3), 
                the controlling organization shall include such 
                payment as an item of gross income derived from 
                an unrelated trade or business to the extent 
                such payment reduces the net unrelated income 
                of the controlled entity (or increases any net 
                unrelated loss of the controlled entity). There 
                shall be allowed all deductions of the 
                controlling organization directly connected 
                with amounts treated as derived from an 
                unrelated trade or business under the preceding 
                sentence.
                  (B) Net unrelated income or loss.--For 
                purposes of this paragraph--
                          (i) Net unrelated income.--The term 
                        ``net unrelated income'' means--
                                  (I) in the case of a 
                                controlled entity which is not 
                                exempt from tax under section 
                                501(a), the portion of such 
                                entity's taxable income which 
                                would be unrelated business 
                                taxable income if such entity 
                                were exempt from tax under 
                                section 501(a) and had the same 
                                exempt purposes as the 
                                controlling organization, or
                                  (II) in the case of a 
                                controlled entity which is 
                                exempt from tax under section 
                                501(a), the amount of the 
                                unrelated business taxable 
                                income of the controlled 
                                entity.
                          (ii) Net unrelated loss.--The term 
                        ``net unrelated loss'' means the net 
                        operating loss adjusted under rules 
                        similar to the rules of clause (i).
                  (C) Specified payment.--For purposes of this 
                paragraph, the term ``specified payment'' means 
                any interest, annuity, royalty, or rent.
                  (D) Definition of control.--For purposes of 
                this paragraph--
                          (i) Control.--The term ``control'' 
                        means--
                                  (I) in the case of a 
                                corporation, ownership (by vote 
                                or value) of more than 50 
                                percent of the stock in such 
                                corporation,
                                  (II) in the case of a 
                                partnership, ownership of more 
                                than 50 percent of the profits 
                                interests or capital interests 
                                in such partnership, or
                                  (III) in any other case, 
                                ownership of more than 50 
                                percent of the beneficial 
                                interests in the entity.
                          (ii) Constructive ownership.--Section 
                        318 (relating to constructive ownership 
                        of stock) shall apply for purposes of 
                        determining ownership of stock in a 
                        corporation. Similar principles shall 
                        apply for purposes of determining 
                        ownership of interests in any other 
                        entity.
                  (E) Paragraph to apply only to certain excess 
                payments.--
                          (i) In general.--Subparagraph (A) 
                        shall apply only to the portion of a 
                        qualifying specified payment received 
                        or accrued by the controlling 
                        organization that exceeds the amount 
                        which would have been paid or accrued 
                        if such payment met the requirements 
                        prescribed under section 482.
                          (ii) Addition to tax for valuation 
                        misstatements.--The tax imposed by this 
                        chapter on the controlling organization 
                        shall be increased by an amount equal 
                        to 20 percent of the larger of--
                                  (I) such excess determined 
                                without regard to any amendment 
                                or supplement to a return of 
                                tax, or
                                  (II) such excess determined 
                                with regard to all such 
                                amendments and supplements.
                          (iii) Qualifying specified payment.--
                        The term ``qualifying specified 
                        payment'' means a specified payment 
                        which is made pursuant to--
                                  (I) a binding written 
                                contract in effect on the date 
                                of the enactment of this 
                                subparagraph, or
                                  (II) a contract which is a 
                                renewal, under substantially 
                                similar terms, of a contract 
                                described in subclause (I).
                  (F) Related persons.--The Secretary shall 
                prescribe such rules as may be necessary or 
                appropriate to prevent avoidance of the 
                purposes of this paragraph through the use of 
                related persons.
          (15) Except as provided in paragraph (4), in the case 
        of a trade or business--
                  (A) which consists of providing services 
                under license issued by a Federal regulatory 
                agency,
                  (B) which is carried on by a religious order 
                or by an educational organization described in 
                section 170(b)(1)(A)(ii) maintained by such 
                religious order, and which was so carried on 
                before May 27, 1959, and
                  (C) less than 10 percent of the net income of 
                which for each taxable year is used for 
                activities which are not related to the purpose 
                constituting the basis for the religious 
                order's exemption,
        there shall be excluded all gross income derived from 
        such trade or business and all deductions directly 
        connected with the carrying on of such trade or 
        business, so long as it is established to the 
        satisfaction of the Secretary that the rates or other 
        charges for such services are competitive with rates or 
        other charges charged for similar services by persons 
        not exempt from taxation.
          (16)(A) Notwithstanding paragraph (5)(B), there shall 
        be excluded all gains or losses from the sale, 
        exchange, or other disposition of any real property 
        described in subparagraph (B) if--
                  (i) such property was acquired by the 
                organization from--
                          (I) a financial institution described 
                        in section 581 or 591(a) which is in 
                        conservatorship or receivership, or
                          (II) the conservator or receiver of 
                        such an institution (or any government 
                        agency or corporation succeeding to the 
                        rights or interests of the conservator 
                        or receiver),
                  (ii) such property is designated by the 
                organization within the 9-month period 
                beginning on the date of its acquisition as 
                property held for sale, except that not more 
                than one-half (by value determined as of such 
                date) of property acquired in a single 
                transaction may be so designated,
                  (iii) such sale, exchange, or disposition 
                occurs before the later of--
                          (I) the date which is 30 months after 
                        the date of the acquisition of such 
                        property, or
                          (II) the date specified by the 
                        Secretary in order to assure an orderly 
                        disposition of property held by persons 
                        described in subparagraph (A), and
                  (iv) while such property was held by the 
                organization, the aggregate expenditures on 
                improvements and development activities 
                included in the basis of the property are (or 
                were) not in excess of 20 percent of the net 
                selling price of such property.
          (B) Property is described in this subparagraph if it 
        is real property which--
                  (i) was held by the financial institution at 
                the time it entered into conservatorship or 
                receivership, or
                  (ii) was foreclosure property (as defined in 
                section 514(c)(9)(H)(v)) which secured 
                indebtedness held by the financial institution 
                at such time.
For purposes of this subparagraph, real property includes an 
interest in a mortgage.
          (17) Treatment of certain amounts derived from 
        foreign corporations.--
                  (A) In general.--Notwithstanding paragraph 
                (1), any amount included in gross income under 
                section 951(a)(1)(A) shall be included as an 
                item of gross income derived from an unrelated 
                trade or business to the extent the amount so 
                included is attributable to insurance income 
                (as defined in section 953) which, if derived 
                directly by the organization, would be treated 
                as gross income from an unrelated trade or 
                business. There shall be allowed all deductions 
                directly connected with amounts included in 
                gross income under the preceding sentence.
                  (B) Exception.--
                          (i) In general.--Subparagraph (A) 
                        shall not apply to income attributable 
                        to a policy of insurance or reinsurance 
                        with respect to which the person 
                        (directly or indirectly) insured is--
                                  (I) such organization,
                                  (II) an affiliate of such 
                                organization which is exempt 
                                from tax under section 501(a), 
                                or
                                  (III) a director or officer 
                                of, or an individual who 
                                (directly or indirectly) 
                                performs services for, such 
                                organization or affiliate but 
                                only if the insurance covers 
                                primarily risks associated with 
                                the performance of services in 
                                connection with such 
                                organization or affiliate.
                          (ii) Affiliate.--For purposes of this 
                        subparagraph--
                                  (I) In general.--The 
                                determination as to whether an 
                                entity is an affiliate of an 
                                organization shall be made 
                                under rules similar to the 
                                rules of section 168(h)(4)(B).
                                  (II) Special rule.--Two or 
                                more organizations (and any 
                                affiliates of such 
                                organizations) shall be treated 
                                as affiliates if such 
                                organizations are colleges or 
                                universities described in 
                                section 170(b)(1)(A)(ii) or 
                                organizations described in 
                                section 170(b)(1)(A)(iii) and 
                                participate in an insurance 
                                arrangement that provides for 
                                any profits from such 
                                arrangement to be returned to 
                                the policyholders in their 
                                capacity as such.
                  (C) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations for the 
                application of this paragraph in the case of 
                income paid through 1 or more entities or 
                between 2 or more chains of entities.
          (18) Treatment of mutual or cooperative electric 
        companies.--In the case of a mutual or cooperative 
        electric company described in section 501(c)(12), there 
        shall be excluded income which is treated as member 
        income under subparagraph (H) thereof.
          (19) Treatment of gain or loss on sale or exchange of 
        certain brownfield sites.--
                  (A) In general.--Notwithstanding paragraph 
                (5)(B), there shall be excluded any gain or 
                loss from the qualified sale, exchange, or 
                other disposition of any qualifying brownfield 
                property by an eligible taxpayer.
                  (B) Eligible taxpayer.--For purposes of this 
                paragraph--
                          (i) In general.--The term ``eligible 
                        taxpayer'' means, with respect to a 
                        property, any organization exempt from 
                        tax under section 501(a) which--
                                  (I) acquires from an 
                                unrelated person a qualifying 
                                brownfield property, and
                                  (II) pays or incurs eligible 
                                remediation expenditures with 
                                respect to such property in an 
                                amount which exceeds the 
                                greater of $550,000 or 12 
                                percent of the fair market 
                                value of the property at the 
                                time such property was acquired 
                                by the eligible taxpayer, 
                                determined as if there was not 
                                a presence of a hazardous 
                                substance, pollutant, or 
                                contaminant on the property 
                                which is complicating the 
                                expansion, redevelopment, or 
                                reuse of the property.
                          (ii) Exception.--Such term shall not 
                        include any organization which is--
                                  (I) potentially liable under 
                                section 107 of the 
                                Comprehensive Environmental 
                                Response, Compensation, and 
                                Liability Act of 1980 with 
                                respect to the qualifying 
                                brownfield property,
                                  (II) affiliated with any 
                                other person which is so 
                                potentially liable through any 
                                direct or indirect familial 
                                relationship or any 
                                contractual, corporate, or 
                                financial relationship (other 
                                than a contractual, corporate, 
                                or financial relationship which 
                                is created by the instruments 
                                by which title to any 
                                qualifying brownfield property 
                                is conveyed or financed or by a 
                                contract of sale of goods or 
                                services), or
                                  (III) the result of a 
                                reorganization of a business 
                                entity which was so potentially 
                                liable.
                  (C) Qualifying brownfield property.--For 
                purposes of this paragraph--
                          (i) In general.--The term 
                        ``qualifying brownfield property'' 
                        means any real property which is 
                        certified, before the taxpayer incurs 
                        any eligible remediation expenditures 
                        (other than to obtain a Phase I 
                        environmental site assessment), by an 
                        appropriate State agency (within the 
                        meaning of section 198(c)(4)) in the 
                        State in which such property is located 
                        as a brownfield site within the meaning 
                        of section 101(39) of the Comprehensive 
                        Environmental Response, Compensation, 
                        and Liability Act of 1980 (as in effect 
                        on the date of the enactment of this 
                        paragraph).
                          (ii) Request for certification.--Any 
                        request by an eligible taxpayer for a 
                        certification described in clause (i) 
                        shall include a sworn statement by the 
                        eligible taxpayer and supporting 
                        documentation of the presence of a 
                        hazardous substance, pollutant, or 
                        contaminant on the property which is 
                        complicating the expansion, 
                        redevelopment, or reuse of the property 
                        given the property's reasonably 
                        anticipated future land uses or 
                        capacity for uses of the property 
                        (including a Phase I environmental site 
                        assessment and, if applicable, evidence 
                        of the property's presence on a local, 
                        State, or Federal list of brownfields 
                        or contaminated property) and other 
                        environmental assessments prepared or 
                        obtained by the taxpayer.
                  (D) Qualified sale, exchange, or other 
                disposition.--For purposes of this paragraph--
                          (i) In general.--A sale, exchange, or 
                        other disposition of property shall be 
                        considered as qualified if--
                                  (I) such property is 
                                transferred by the eligible 
                                taxpayer to an unrelated 
                                person, and
                                  (II) within 1 year of such 
                                transfer the eligible taxpayer 
                                has received a certification 
                                from the Environmental 
                                Protection Agency or an 
                                appropriate State agency 
                                (within the meaning of section 
                                198(c)(4)) in the State in 
                                which such property is located 
                                that, as a result of the 
                                eligible taxpayer's remediation 
                                actions, such property would 
                                not be treated as a qualifying 
                                brownfield property in the 
                                hands of the transferee.
                 For purposes of subclause (II), before issuing 
                such certification, the Environmental 
                Protection Agency or appropriate State agency 
                shall respond to comments received pursuant to 
                clause (ii)(V) in the same form and manner as 
                required under section 117(b) of the 
                Comprehensive Environmental Response, 
                Compensation, and Liability Act of 1980 (as in 
                effect on the date of the enactment of this 
                paragraph).
                          (ii) Request for certification.--Any 
                        request by an eligible taxpayer for a 
                        certification described in clause (i) 
                        shall be made not later than the date 
                        of the transfer and shall include a 
                        sworn statement by the eligible 
                        taxpayer certifying the following:
                                  (I) Remedial actions which 
                                comply with all applicable or 
                                relevant and appropriate 
                                requirements (consistent with 
                                section 121(d) of the 
                                Comprehensive Environmental 
                                Response, Compensation, and 
                                Liability Act of 1980) have 
                                been substantially completed, 
                                such that there are no 
                                hazardous substances, 
                                pollutants, or contaminants 
                                which complicate the expansion, 
                                redevelopment, or reuse of the 
                                property given the property's 
                                reasonably anticipated future 
                                land uses or capacity for uses 
                                of the property.
                                  (II) The reasonably 
                                anticipated future land uses or 
                                capacity for uses of the 
                                property are more economically 
                                productive or environmentally 
                                beneficial than the uses of the 
                                property in existence on the 
                                date of the certification 
                                described in subparagraph 
                                (C)(i). For purposes of the 
                                preceding sentence, use of 
                                property as a landfill or other 
                                hazardous waste facility shall 
                                not be considered more 
                                economically productive or 
                                environmentally beneficial.
                                  (III) A remediation plan has 
                                been implemented to bring the 
                                property into compliance with 
                                all applicable local, State, 
                                and Federal environmental laws, 
                                regulations, and standards and 
                                to ensure that the remediation 
                                protects human health and the 
                                environment.
                                  (IV) The remediation plan 
                                described in subclause (III), 
                                including any physical 
                                improvements required to 
                                remediate the property, is 
                                either complete or 
                                substantially complete, and, if 
                                substantially complete, 
                                sufficient monitoring, funding, 
                                institutional controls, and 
                                financial assurances have been 
                                put in place to ensure the 
                                complete remediation of the 
                                property in accordance with the 
                                remediation plan as soon as is 
                                reasonably practicable after 
                                the sale, exchange, or other 
                                disposition of such property.
                                  (V) Public notice and the 
                                opportunity for comment on the 
                                request for certification was 
                                completed before the date of 
                                such request. Such notice and 
                                opportunity for comment shall 
                                be in the same form and manner 
                                as required for public 
                                participation required under 
                                section 117(a) of the 
                                Comprehensive Environmental 
                                Response, Compensation, and 
                                Liability Act of 1980 (as in 
                                effect on the date of the 
                                enactment of this paragraph). 
                                For purposes of this subclause, 
                                public notice shall include, at 
                                a minimum, publication in a 
                                major local newspaper of 
                                general circulation.
                          (iii) Attachment to tax returns.--A 
                        copy of each of the requests for 
                        certification described in clause (ii) 
                        of subparagraph (C) and this 
                        subparagraph shall be included in the 
                        tax return of the eligible taxpayer 
                        (and, where applicable, of the 
                        qualifying partnership) for the taxable 
                        year during which the transfer occurs.
                          (iv) Substantial completion.--For 
                        purposes of this subparagraph, a 
                        remedial action is substantially 
                        complete when any necessary physical 
                        construction is complete, all immediate 
                        threats have been eliminated, and all 
                        long-term threats are under control.
                  (E) Eligible remediation expenditures.--For 
                purposes of this paragraph--
                          (i) In general.--The term ``eligible 
                        remediation expenditures'' means, with 
                        respect to any qualifying brownfield 
                        property, any amount paid or incurred 
                        by the eligible taxpayer to an 
                        unrelated third person to obtain a 
                        Phase I environmental site assessment 
                        of the property, and any amount so paid 
                        or incurred after the date of the 
                        certification described in subparagraph 
                        (C)(i) for goods and services necessary 
                        to obtain a certification described in 
                        subparagraph (D)(i) with respect to 
                        such property, including expenditures--
                                  (I) to manage, remove, 
                                control, contain, abate, or 
                                otherwise remediate a hazardous 
                                substance, pollutant, or 
                                contaminant on the property,
                                  (II) to obtain a Phase II 
                                environmental site assessment 
                                of the property, including any 
                                expenditure to monitor, sample, 
                                study, assess, or otherwise 
                                evaluate the release, threat of 
                                release, or presence of a 
                                hazardous substance, pollutant, 
                                or contaminant on the property,
                                  (III) to obtain environmental 
                                regulatory certifications and 
                                approvals required to manage 
                                the remediation and monitoring 
                                of the hazardous substance, 
                                pollutant, or contaminant on 
                                the property, and
                                  (IV) regardless of whether it 
                                is necessary to obtain a 
                                certification described in 
                                subparagraph (D)(i)(II), to 
                                obtain remediation cost-cap or 
                                stop-loss coverage, re-opener 
                                or regulatory action coverage, 
                                or similar coverage under 
                                environmental insurance 
                                policies, or financial 
                                guarantees required to manage 
                                such remediation and 
                                monitoring.
                          (ii) Exceptions.--Such term shall not 
                        include--
                                  (I) any portion of the 
                                purchase price paid or incurred 
                                by the eligible taxpayer to 
                                acquire the qualifying 
                                brownfield property,
                                  (II) environmental insurance 
                                costs paid or incurred to 
                                obtain legal defense coverage, 
                                owner/operator liability 
                                coverage, lender liability 
                                coverage, professional 
                                liability coverage, or similar 
                                types of coverage,
                                  (III) any amount paid or 
                                incurred to the extent such 
                                amount is reimbursed, funded, 
                                or otherwise subsidized by 
                                grants provided by the United 
                                States, a State, or a political 
                                subdivision of a State for use 
                                in connection with the 
                                property, proceeds of an issue 
                                of State or local government 
                                obligations used to provide 
                                financing for the property the 
                                interest of which is exempt 
                                from tax under section 103, or 
                                subsidized financing provided 
                                (directly or indirectly) under 
                                a Federal, State, or local 
                                program provided in connection 
                                with the property, or
                                  (IV) any expenditure paid or 
                                incurred before the date of the 
                                enactment of this paragraph.
                 For purposes of subclause (III), the Secretary 
                may issue guidance regarding the treatment of 
                government-provided funds for purposes of 
                determining eligible remediation expenditures.
                  (F) Determination of gain or loss.--For 
                purposes of this paragraph, the determination 
                of gain or loss shall not include an amount 
                treated as gain which is ordinary income with 
                respect to section 1245 or section 1250 
                property, including amounts deducted as section 
                198 expenses which are subject to the recapture 
                rules of section 198(e), if the taxpayer had 
                deducted such amounts in the computation of its 
                unrelated business taxable income.
                  (G) Special rules for partnerships.--
                          (i) In general.--In the case of an 
                        eligible taxpayer which is a partner of 
                        a qualifying partnership which 
                        acquires, remediates, and sells, 
                        exchanges, or otherwise disposes of a 
                        qualifying brownfield property, this 
                        paragraph shall apply to the eligible 
                        taxpayer's distributive share of the 
                        qualifying partnership's gain or loss 
                        from the sale, exchange, or other 
                        disposition of such property.
                          (ii) Qualifying partnership.--The 
                        term ``qualifying partnership'' means a 
                        partnership which--
                                  (I) has a partnership 
                                agreement which satisfies the 
                                requirements of section 
                                514(c)(9)(B)(vi) at all times 
                                beginning on the date of the 
                                first certification received by 
                                the partnership under 
                                subparagraph (C)(i),
                                  (II) satisfies the 
                                requirements of subparagraphs 
                                (B)(i), (C), (D), and (E), if 
                                ``qualified partnership'' is 
                                substituted for ``eligible 
                                taxpayer'' each place it 
                                appears therein (except 
                                subparagraph (D)(iii)), and
                                  (III) is not an organization 
                                which would be prevented from 
                                constituting an eligible 
                                taxpayer by reason of 
                                subparagraph (B)(ii).
                          (iii) Requirement that tax-exempt 
                        partner be a partner since first 
                        certification.--This paragraph shall 
                        apply with respect to any eligible 
                        taxpayer which is a partner of a 
                        partnership which acquires, remediates, 
                        and sells, exchanges, or otherwise 
                        disposes of a qualifying brownfield 
                        property only if such eligible taxpayer 
                        was a partner of the qualifying 
                        partnership at all times beginning on 
                        the date of the first certification 
                        received by the partnership under 
                        subparagraph (C)(i) and ending on the 
                        date of the sale, exchange, or other 
                        disposition of the property by the 
                        partnership.
                          (iv) Regulations.--The Secretary 
                        shall prescribe such regulations as are 
                        necessary to prevent abuse of the 
                        requirements of this subparagraph, 
                        including abuse through--
                                  (I) the use of special 
                                allocations of gains or losses, 
                                or
                                  (II) changes in ownership of 
                                partnership interests held by 
                                eligible taxpayers.
                  (H) Special rules for multiple properties.--
                          (i) In general.--An eligible taxpayer 
                        or a qualifying partnership of which 
                        the eligible taxpayer is a partner may 
                        make a 1-time election to apply this 
                        paragraph to more than 1 qualifying 
                        brownfield property by averaging the 
                        eligible remediation expenditures for 
                        all such properties acquired during the 
                        election period. If the eligible 
                        taxpayer or qualifying partnership 
                        makes such an election, the election 
                        shall apply to all qualified sales, 
                        exchanges, or other dispositions of 
                        qualifying brownfield properties the 
                        acquisition and transfer of which occur 
                        during the period for which the 
                        election remains in effect.
                          (ii) Election.--An election under 
                        clause (i) shall be made with the 
                        eligible taxpayer's or qualifying 
                        partnership's timely filed tax return 
                        (including extensions) for the first 
                        taxable year for which the taxpayer or 
                        qualifying partnership intends to have 
                        the election apply. An election under 
                        clause (i) is effective for the 
                        period--
                                  (I) beginning on the date 
                                which is the first day of the 
                                taxable year of the return in 
                                which the election is included 
                                or a later day in such taxable 
                                year selected by the eligible 
                                taxpayer or qualifying 
                                partnership, and
                                  (II) ending on the date which 
                                is the earliest of a date of 
                                revocation selected by the 
                                eligible taxpayer or qualifying 
                                partnership, the date which is 
                                8 years after the date 
                                described in subclause (I), or, 
                                in the case of an election by a 
                                qualifying partnership of which 
                                the eligible taxpayer is a 
                                partner, the date of the 
                                termination of the qualifying 
                                partnership.
                          (iii) Revocation.--An eligible 
                        taxpayer or qualifying partnership may 
                        revoke an election under clause (i) by 
                        filing a statement of revocation with a 
                        timely filed tax return (including 
                        extensions). A revocation is effective 
                        as of the first day of the taxable year 
                        of the return in which the revocation 
                        is included or a later day in such 
                        taxable year selected by the eligible 
                        taxpayer or qualifying partnership. 
                        Once an eligible taxpayer or qualifying 
                        partnership revokes the election, the 
                        eligible taxpayer or qualifying 
                        partnership is ineligible to make 
                        another election under clause (i) with 
                        respect to any qualifying brownfield 
                        property subject to the revoked 
                        election.
                  (I) Recapture.--If an eligible taxpayer 
                excludes gain or loss from a sale, exchange, or 
                other disposition of property to which an 
                election under subparagraph (H) applies, and 
                such property fails to satisfy the requirements 
                of this paragraph, the unrelated business 
                taxable income of the eligible taxpayer for the 
                taxable year in which such failure occurs shall 
                be determined by including any previously 
                excluded gain or loss from such sale, exchange, 
                or other disposition allocable to such 
                taxpayer, and interest shall be determined at 
                the overpayment rate established under section 
                6621 on any resulting tax for the period 
                beginning with the due date of the return for 
                the taxable year during which such sale, 
                exchange, or other disposition occurred, and 
                ending on the date of payment of the tax.
                  (J) Related persons.--For purposes of this 
                paragraph, a person shall be treated as related 
                to another person if--
                          (i) such person bears a relationship 
                        to such other person described in 
                        section 267(b) (determined without 
                        regard to paragraph (9) thereof), or 
                        section 707(b)(1), determined by 
                        substituting ``25 percent'' for ``50 
                        percent'' each place it appears 
                        therein, and
                          (ii) in the case such other person is 
                        a nonprofit organization, if such 
                        person controls directly or indirectly 
                        more than 25 percent of the governing 
                        body of such organization.
                  (K) Termination.--Except for purposes of 
                determining the average eligible remediation 
                expenditures for properties acquired during the 
                election period under subparagraph (H), this 
                paragraph shall not apply to any property 
                acquired by the eligible taxpayer or qualifying 
                partnership after December 31, 2009.
  (c) Special rules for partnerships.--
          (1) In general.--If a trade or business regularly 
        carried on by a partnership of which an organization is 
        a member is an unrelated trade or business with respect 
        to such organization, such organization in computing 
        its unrelated business taxable income shall, subject to 
        the exceptions, additions, and limitations contained in 
        subsection (b), include its share (whether or not 
        distributed) of the gross income of the partnership 
        from such unrelated trade or business and its share of 
        the partnership deductions directly connected with such 
        gross income.
          (2) Special rule where partnership year is different 
        from organization's year.--If the taxable year of the 
        organization is different from that of the partnership, 
        the amounts to be included or deducted in computing the 
        unrelated business taxable income under paragraph (1) 
        shall be based upon the income and deductions of the 
        partnership for any taxable year of the partnership 
        ending within or with the taxable year of the 
        organization.
  (d) Treatment of dues of agricultural or horticultural 
organizations.--
          (1) In general.--If--
                  (A) an agricultural or horticultural 
                organization described in section 501(c)(5) 
                requires annual dues to be paid in order to be 
                a member of such organization, and
                  (B) the amount of such required annual dues 
                does not exceed $100,
        in no event shall any portion of such dues be treated 
        as derived by such organization from an unrelated trade 
        or business by reason of any benefits or privileges to 
        which members of such organization are entitled.
          (2) Indexation of $100 amount.--In the case of any 
        taxable year beginning in a calendar year after 1995, 
        the $100 amount in paragraph (1) shall be increased by 
        an amount equal to--
                  (A) $100, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, by substituting 
                ``calendar year 1994'' for ``calendar year 
                2016'' in subparagraph (A)(ii) thereof.
          (3) Dues.--For purposes of this subsection, the term 
        ``dues'' means any payment (whether or not designated 
        as dues) which is required to be made in order to be 
        recognized by the organization as a member of the 
        organization.
  (e) Special rules applicable to S corporations.--
          (1) In general.--If an organization described in 
        section 1361(c)(2)(A)(vi) or 1361(c)(6) holds stock in 
        an S corporation--
                  (A) such interest shall be treated as an 
                interest in an unrelated trade or business, and
                  (B) notwithstanding any other provision of 
                this part--
                          (i) all items of income, loss, or 
                        deduction taken into account under 
                        section 1366(a), and
                          (ii) any gain or loss on the 
                        disposition of the stock in the S 
                        corporation,
        shall be taken into account in computing the unrelated 
        business taxable income of such organization.
          (2) Basis reduction.--Except as provided in 
        regulations, for purposes of paragraph (1), the basis 
        of any stock acquired by purchase (as defined in 
        section 1361(e)(1)(C)) shall be reduced by the amount 
        of any dividends received by the organization with 
        respect to the stock.
          (3) Exception for ESOPs.--This subsection shall not 
        apply to employer securities (within the meaning of 
        section 409(l)) held by an employee stock ownership 
        plan described in section 4975(e)(7).

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


                  CHAPTER 77--MISCELLANEOUS PROVISIONS

Sec. 7501. Liability for taxes withheld or collected.
     * * * * * * *
Sec. 7529. Application of earned income tax credit to possessions of the 
          United States.

           *       *       *       *       *       *       *


SEC. 7529. APPLICATION OF EARNED INCOME TAX CREDIT TO POSSESSIONS OF 
                    THE UNITED STATES.

  (a) Puerto Rico.--
          (1) In general.--With respect to calendar year 2020 
        and each calendar year thereafter, the Secretary shall, 
        except as otherwise provided in this subsection, make 
        payments to Puerto Rico equal to--
                  (A) the specified matching amount for such 
                calendar year, plus
                  (B) in the case of calendar years 2020 
                through 2024, the lesser of--
                          (i) the expenditures made by Puerto 
                        Rico during such calendar year for 
                        education efforts with respect to 
                        individual taxpayers and tax return 
                        preparers relating to the earned income 
                        tax credit, or
                          (ii) $1,000,000.
          (2) Requirement to reform earned income tax credit.--
        The Secretary shall not make any payments under 
        paragraph (1) with respect to any calendar year unless 
        Puerto Rico has in effect an earned income tax credit 
        for taxable years beginning in or with such calendar 
        year which (relative to the earned income tax credit 
        which was in effect for taxable years beginning in or 
        with calendar year 2019) increases the percentage of 
        earned income which is allowed as a credit for each 
        group of individuals with respect to which such 
        percentage is separately stated or determined in a 
        manner designed to substantially increase workforce 
        participation.
          (3) Specified matching amount.--For purposes of this 
        subsection--
                  (A) In general.--The term ``specified 
                matching amount'' means, with respect to any 
                calendar year, the lesser of--
                          (i) the excess (if any) of--
                                  (I) the cost to Puerto Rico 
                                of the earned income tax credit 
                                for taxable years beginning in 
                                or with such calendar year, 
                                over
                                  (II) the base amount for such 
                                calendar year, or
                          (ii) the product of 3, multiplied by 
                        the base amount for such calendar year.
                  (B) Base amount.--
                          (i) Base amount for 2020.--In the 
                        case of calendar year 2020, the term 
                        ``base amount'' means the greater of--
                                  (I) the cost to Puerto Rico 
                                of the earned income tax credit 
                                for taxable years beginning in 
                                or with calendar year 2019 
                                (rounded to the nearest 
                                multiple of $1,000,000), or
                                  (II) $200,000,000.
                          (ii) Inflation adjustment.--In the 
                        case of any calendar year after 2020, 
                        the term ``base amount'' means the 
                        dollar amount determined under clause 
                        (i) increased by an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by--
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for such 
                                calendar year, determined by 
                                substituting ``calendar year 
                                2019'' for ``calendar year 
                                2016'' in subparagraph (A)(ii) 
                                thereof.
                        Any amount determined under this clause 
                        shall be rounded to the nearest 
                        multiple of $1,000,000.
          (4) Rules related to payments and reports.--
                  (A) Timing of payments.--The Secretary shall 
                make payments under paragraph (1) for any 
                calendar year--
                          (i) after receipt of the report 
                        described in subparagraph (B) for such 
                        calendar year, and
                          (ii) except as provided in clause 
                        (i), within a reasonable period of time 
                        before the due date for individual 
                        income tax returns (as determined under 
                        the laws of Puerto Rico) for taxable 
                        years which began on the first day of 
                        such calendar year.
                  (B) Annual reports.--With respect to calendar 
                year 2020 and each calendar year thereafter, 
                Puerto Rico shall provide to the Secretary a 
                report which shall include--
                          (i) an estimate of the costs 
                        described in paragraphs (1)(B)(i) and 
                        (3)(A)(i)(I) with respect to such 
                        calendar year, and
                          (ii) a statement of such costs with 
                        respect to the preceding calendar year.
                  (C) Adjustments.--
                          (i) In general.--In the event that 
                        any estimate of an amount is more or 
                        less than the actual amount as later 
                        determined and any payment under 
                        paragraph (1) was determined on the 
                        basis of such estimate, proper payment 
                        shall be made by, or to, the Secretary 
                        (as the case may be) as soon as 
                        practicable after the determination 
                        that such estimate was inaccurate. 
                        Proper adjustment shall be made in the 
                        amount of any subsequent payments made 
                        under paragraph (1) to the extent that 
                        proper payment is not made under the 
                        preceding sentence before such 
                        subsequent payments.
                          (ii) Additional reports.--The 
                        Secretary may require such additional 
                        periodic reports of the information 
                        described in subparagraph (B) as the 
                        Secretary determines appropriate to 
                        facilitate timely adjustments under 
                        clause (i).
                  (D) Determination of cost of earned income 
                tax credit.--For purposes of this subsection, 
                the cost to Puerto Rico of the earned income 
                tax credit shall be determined by the Secretary 
                on the basis of the laws of Puerto Rico and 
                shall include reductions in revenues received 
                by Puerto Rico by reason of such credit and 
                refunds attributable to such credit, but shall 
                not include any administrative costs with 
                respect to such credit.
                  (E) Prevention of manipulation of base 
                amount.--No payments shall be made under 
                paragraph (1) if the earned income tax credit 
                as in effect in Puerto Rico for taxable years 
                beginning in or with calendar year 2019 is 
                modified after the date of the enactment of 
                this subsection.
  (b) Possessions With Mirror Code Tax Systems.--
          (1) In general.--With respect to calendar year 2020 
        and each calendar year thereafter, the Secretary shall, 
        except as otherwise provided in this subsection, make 
        payments to the Virgin Islands, Guam, and the 
        Commonwealth of the Northern Mariana Islands equal to--
                  (A) 75 percent of the cost to such possession 
                of the earned income tax credit for taxable 
                years beginning in or with such calendar year, 
                plus
                  (B) in the case of calendar years 2020 
                through 2024, the lesser of--
                          (i) the expenditures made by such 
                        possession during such calendar year 
                        for education efforts with respect to 
                        individual taxpayers and tax return 
                        preparers relating to such earned 
                        income tax credit, or
                          (ii) $50,000.
          (2) Application of certain rules.--Rules similar to 
        the rules of subparagraphs (A), (B), (C), and (D) of 
        subsection (a)(4) shall apply for purposes of this 
        subsection.
  (c) American Samoa.--
          (1) In general.--With respect to calendar year 2020 
        and each calendar year thereafter, the Secretary shall, 
        except as otherwise provided in this subsection, make 
        payments to American Samoa equal to--
                  (A) the lesser of--
                          (i) 75 percent of the cost to 
                        American Samoa of the earned income tax 
                        credit for taxable years beginning in 
                        or with such calendar year, or
                          (ii) $12,000,000, plus
                  (B) in the case of calendar years 2020 
                through 2024, the lesser of--
                          (i) the expenditures made by American 
                        Samoa during such calendar year for 
                        education efforts with respect to 
                        individual taxpayers and tax return 
                        preparers relating to such earned 
                        income tax credit, or
                          (ii) $50,000.
          (2) Requirement to enact and maintain an earned 
        income tax credit.--The Secretary shall not make any 
        payments under paragraph (1) with respect to any 
        calendar year unless American Samoa has in effect an 
        earned income tax credit for taxable years beginning in 
        or with such calendar year which allows a refundable 
        tax credit to individuals on the basis of the 
        taxpayer's earned income which is designed to 
        substantially increase workforce participation.
          (3) Inflation adjustment.--In the case of any 
        calendar year after 2020, the $12,000,000 amount in 
        paragraph (1)(A)(ii) shall be increased by an amount 
        equal to--
                  (A) such dollar amount, multiplied by--
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year, 
                determined by substituting ``calendar year 
                2019'' for ``calendar year 2016'' in 
                subparagraph (A)(ii) thereof.
        Any increase determined under this clause shall be 
        rounded to the nearest multiple of $100,000.
          (4) Application of certain rules.--Rules similar to 
        the rules of subparagraphs (A), (B), (C), and (D) of 
        subsection (a)(4) shall apply for purposes of this 
        subsection.
  (d) Treatment of Payments.--For purposes of section 1324 of 
title 31, United States Code, the payments under this section 
shall be treated in the same manner as a refund due from a 
credit provision referred to in subsection (b)(2) of such 
section.
                              ----------                              


                      TITLE 31, UNITED STATES CODE



           *       *       *       *       *       *       *
SUBTITLE II--THE BUDGET PROCESS

           *       *       *       *       *       *       *


CHAPTER 13--APPROPRIATIONS

           *       *       *       *       *       *       *


SUBCHAPTER II--TRUST FUNDS AND REFUNDS

           *       *       *       *       *       *       *


Sec. 1324. Refund of internal revenue collections

  (a) Necessary amounts are appropriated to the Secretary of 
the Treasury for refunding internal revenue collections as 
provided by law, including payment of--
          (1) claims for prior fiscal years; and
          (2) accounts arising under--
                  (A) ``Allowance or drawback (Internal 
                Revenue)'';
                  (B) ``Redemption of stamps (Internal 
                Revenue)'';
                  (C) ``Refunding legacy taxes, Act of March 
                30, 1928'';
                  (D) ``Repayment of taxes on distilled spirits 
                destroyed by casualty''; and
                  (E) ``Refunds and payments of processing and 
                related taxes''.
  (b) Disbursements may be made from the appropriation made by 
this section only for--
          (1) refunds to the limit of liability of an 
        individual tax account; and
          (2) refunds due from credit provisions of the 
        Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) 
        enacted before January 1, 1978, or enacted by the 
        Taxpayer Relief Act of 1997, or from section 21 (by 
        reason of subsection (g) thereof), 25A, 35, 36, 36A, 
        36B, 168(k)(4)(F), 53(e), 54B(h), or 6431 of such Code, 
        or due under section 3081(b)(2) of the Housing 
        Assistance Tax Act of 2008.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    While this legislation may be well intended, it misses the 
mark on several important fronts.
    First, it is important to note that the Tax Cuts and Jobs 
Act (TCJA), which not a single member of the Majority 
supported, has been a powerful tool for economic mobility: 
wages are rising, unemployment is at historical lows, 
particularly for disadvantaged groups such as people with 
disabilities and members of minority populations, and there are 
more jobs available than there are unemployed people to fill 
them.
    It is also significant that the Congressional Budget Office 
has projected that post-TCJA revenues will grow over the 
decade, but that spending will grow at a much faster pace, 
showing that spending is the source of growing deficits--
particularly mandatory spending programs. That is why the 
Committee Majority's response in advancing this bill is so 
baffling. The bill vastly expands refundable tax credits, which 
increase Federal outlays. In fact, had the Majority not used 
budget gimmicks, the deficit increase resulting from the bill 
over the next decade would exceed $700 billion. And at a time 
of exploding mandatory spending, the bill actually creates a 
new mandatory spending program for the U.S. territories. And 
all this without paying for a dime of the new spending, even 
after the Chairman's opening statement complained about growing 
deficits. It is also ironic that in a bill that is supposed to 
be about economic mobility for working families, the bill aims 
to remove an important work incentive in the refundable portion 
of the child credit, also known as the Additional Child Tax 
Credit (ACTC). Under current law, taxpayers must have income 
earned from work in order to claim the ACTC, and the amount 
that is refundable increases as the taxpayer earns more. The 
bill would completely sever the tie to work by making the 
credit fully refundable regardless of whether any income is 
being earned from work. Thus, while the current structure 
encourages Americans to earn more from work, which leads to 
greater economic mobility, the bill may actually discourage 
families from working more and earning more, which would harm 
the economic mobility of the very low-income families the bill 
is supposedly intended to help.
    Additionally, the bill expands the Earned Income Tax 
Credit, a program highly vulnerable to abuse and fraud, without 
any reforms to ensure the credit only goes to those it was 
intended to help. In fact, the bill would allow those with 
significant amounts of unearned income to access the credit, a 
group that seems less likely to truly need the credit.
    The bill also expands the Child and Dependent Care Tax 
Credit and makes it refundable. By rejecting the Arrington 
amendment, which would have required Social Security numbers in 
order to access the credit, the Committee Majority signaled 
their intent for those unlawfully in the United States and 
unauthorized to work in the United States to receive a check 
from the Treasury of up to $6,000 via the expanded credit. We 
Committee Republicans believe that these credits should only go 
to those who have played by the rules and are legally 
authorized to live and work in the United States.
    For all these reasons, we urge our House colleagues to 
reject this legislation.
                                               Kevin Brady,
                    Republican Leader, Committee on Ways and Means.